“A disaster of this magnitude proves one can never be totally prepared,” says wealth manager Jeff Fishman, head of the $1.5 billion AUM JSF Financial, from his Los Angeles office.
While the immediate area surrounding the firm’s new location on Wilshire Blvd. has been spared, the effects of the wildfires are all around. “This will be one of the greatest natural disasters in U.S. history,” Fishman said. “We regularly try to prepare our clients for numerous scenarios, but the subsequent emotional and psychological costs will be just as staggering.”
JSF regularly examines clients’ coverages during annual review meetings. Some are now facing seven—to eight-figure losses in real estate alone. While it is not unusual for high-net-worth individuals to face a unique set of challenges and opportunities when it comes to financial planning, seeing their home and community destroyed is typically not one of them.
“Clients are talking to their insurance providers to see where they stand but we’re often one of the first calls they make,” said JSF advisor Brian Mercado. “There’s a lot of confusion and apprehension in the atmosphere. People are still coming to terms, asking for guidance.”
“Some of our clients had their homes completely paid off. Others are carrying debt,” added Fishman. “There is a ton of concern to address. We’ve had some literally left only with the clothes on their back. People are looking for help fostering their dog or horse.”
Kristin Hull, the CEO of the impact investing firm Nia Impact Capital, lost her own California home in a previous fire and recalled the confusion and anxiety in the days and weeks following the disaster.
Hull cautioned advisors dealing with affected clients that they may not remember their advisor can be a resource in a moment like this, when essentials like where you’ll live and what you’ll eat may be in flux.
Clients in that position may need a portfolio that can be flexible (and, in some cases, liquidated for cash needs) in the next year or two. Even if they did not lose their home, clients may be in an area that suffered significant damage or no longer want to reside in an area susceptible to wildfires.
“And so they have to decide if they’re going to stay when their community’s not there anymore. That’s a lot of decision-making,” she said. “The thing is just to be both a problem solver on the financial side, but also just on the listening side, to be one more outside voice that can help provide perspective.”
At the time of this writing, the fires were still largely uncontrolled, and damage estimates are all over the map. Early calculations weighed in at $60 billion, more than triple the damage cost for the 2023 Hawaii wildfires, which came in at $ 14 billion to $15 billion. Other estimates say area damage will be $135 billion. AccuWeather this week upped its estimated cost of damages and economic loss to between $250 billion and $275 billion. While several insurers have already left the state, claims will be very steep.
While LA will undoubtedly build back “smarter,” the area has already been financially suffering from the after-effects of the actors and writers strikes and a housing shortage. It will be some time before the final infrastructure damage report is submitted. Still, areas are without community basics such as shopping centers, banks, post offices and schools, while many roads are in poor condition. Utility service is spotty.
With some 2,000 structures destroyed, this would be the most expensive urban wildfire. On Jan. 9, JP Morgan doubled its estimate of insured losses from the fires to $20 billion from its prior estimate of $10 billion the day before.
Rating agency Moody’s expects insured losses to “run in the billions of dollars given the high value of homes and businesses in the impacted areas.” The median home price in the Pacific Palisades is about $3 million. The reinsurance industry will also be impacted.
To protect those within the perimeters or adjoining zip codes of the Palisades and Eaton fires, Ricardo Lara, California Insurance Commissioner, issued a mandatory one-year moratorium on insurance non-renewals and cancellations regardless of whether a policyholder experienced a loss.
Going forward in financial planning, Fishman theorizes there will likely be a greater emphasis on how financial advisors view risk management, how clients value those efforts and the ways to mitigate against these kinds of risks. Has there been any bright side for him and his team?
“We had a client we urged to move from an at-risk area to a safer one about two years ago. She took the advice and called recently to thank us. She is very happy.”
Sadly, not everyone in the greater Los Angeles metropolitan area can say the same.
WealthManagement.com Senior Reporter Patrick Donachie contributed to this report.
