Wealth management and personal insurance strategies in 2025 

On the 22nd of October, IMF Chief Economist Pierre-Olivier Gourinchas released their 2025 forecast, stating, ”...headline inflation will fall to 3.5% by the end of (2025)... but with geopolitical conflict, increasing trade tensions and elections looming and leadership changes in major economies around the world there is considerable uncertainty.”  

In response to the forecast, we ask PCS by Mercer (PCS) Chief Product Officer, Patrick Jiang,* for his insights into high and ultra-high net worth (UHNW) wealth management and personal insurance strategies for the coming year. 

1. If IMF’s predictions hold true, and heightened volatility is the new norm and inflation around the globe settle to target rates, how can HNW clients structure their insurance architecture to maximize their wealth management?
   
   From PCS’s point of view, it’s a good time to think about forward strategies. Assuming the new normal is volatility, we propose three keystones in our clients’ insurance architecture:
   
   a. Review asset allocation pyramid: Consistent volatility means it’s important to bolster defensive assets. Historically, bricks and mortar real estate has been an elementary, sentimental, and straightforward defensive asset. However, given the global downturn in the sector and related losses, it’s a compelling opportunity for HNW individuals to reconsider the foundation of their asset pyramid, and instead, utilize personal insuranc
   
   Key questions to ask: What defensive assets can provide ready liquidity, mid- to long-term appreciating returns, as well as risk protection benefits?
   
   b. Get ahead of inflation, because even on-target inflation rates snowball: A friend spent a few days in New York last week, and she was shocked to find her daily chai latte with milk, a regular sized one, cost her an average of US$10.88 each – that’s inflation for you. So even if the IMF’s projections hold true and inflation falls to 3.5%, it’s important to remember on-target inflation is not harmless. It is generally cumulative and compounding and has serious implications over time. 
   
   To illustrate my point, let’s assume an average inflation rate of 3.5% over 50 years on an insurance policy benefit of USD 1 million. In 50 years, the same insurance benefit will need to pay an equivalent of USD 4.38 million – a big monetary snowball. To counteract the effects of inflation, and take advantage of compounding returns, now is the ideal time to incorporate insurance into a strong wealth management strategy.
   
   
   
2. What opportunities are you seeing for engineering liquidity from insurance structures – without sacrificing long-term protection?
   
   With the constant caveat that every client has different needs, we believe life insurance is fundamentally, and ideally, built for both liquidity and protection on generational timescales.
   
   It’s an asset that has a mid-term function period of about 10-20 years and beyond a century in the long-term. In fact, there is almost nothing else that is purchased with those timescales in mind. So, when collaborating with clients, we generally employ two principles when thinking about liquidity.
   
   a. Maximizing the inflow: This is how we try and capture as much potential as we can today in order to amplify mid- to long-term liquidity generation. That is, we help clients allocate current surplus liquidity, for future liquidity needs in 20 plus years.
   
   We can do this because most modern insurance can go beyond death benefits. Some savings plans can accumulate value even while being a source of cash flow in as little as five years (from inception) . And there are numerous other solutions that offer longer-term liquidity benefits, the key to amplifying those benefits? Allocating your surplus inflows today.
   
   b. Minimizing the outflow: We have seen clients use personal insurance as a wealth transfer tool. In some jurisdictions, and under certain conditions (such as a trust), the benefits can be paid outside probate. And life protection solutions can thereby provide fast and significant liquidity while minimizing friction costs and losses such as those incurred through estate taxes.
   
   
3. If volatility persists and you can’t predict the market, what is the optimal balance between insurance-based and market-based wealth strategies?
   
   Drawing from our extensive experience, insurance carriers generally offer solution(s) up to one third of your total net worth – plus or minus debts and liability. So, working with that convention as the starting point, our advice to clients would typically be: incept as much personal insurance as can be underwritten. Of course, we keep in mind that every client has a unique context.|
   
   One third might seem a lot at first glance, but it really isn’t, often times, it’s the minimum a HNW life needs. Especially if you remember that personal insurance can simultaneously function as your primary defensive asset, core legacy, stability against volatility, as well as the liquidity safeguard for your family.
   
   And the key question to ask is: Who is suffering if you are not around?
   
   Personal insurance, carefully considered, can be an algorithm for 100 years of safety for your entire family. And as such, we help our clients build and maintain an architecture that will withstand market conditions, whatever they might be.