Many financial advisors are missing the mark with ultra-wealthy investors by not considering how tangible assets – such as art, real estate and other valuables – factor into their overall portfolios, a new report suggests.

Eighty-seven percent of ultra-high-net-worth investors consider these tangible assets as part of their overall balance sheets, while only 53% of advisors take such assets into consideration, according to a new report by insurer Chubb and The Wharton School of the University of Pennsylvania.

The report, based on a survey of 100 ultra-high-net-worth investors with $30 million or more in assets, as well as family offices and “key financial decision makers,” found that while many wealth managers emphasize investments in stocks, bonds and private equity, ultra-wealthy clients want physical holdings, such as artwork, boats, collectibles, planes, real estate and businesses, included in investment plans.

“Most UHNW respondents view their wealth holistically, meaning that they think of multiple factors, such as tangible non-financial assets, operating businesses assets, human capital and liquid financial assets, as representing a more complete picture of their family’s total wealth,” Chris Geczy, the Wharton finance faculty member who oversaw the research, said in a statement.

“Not all advisors are capable of looking at the types of assets that clients look at,” said Antonio Rodrigues, a partner and senior portfolio manager at Florida-based Procyon Partners, which manages $5 billion in client assets. “Even a lot of the ones that say they’re looking at it, they’re not really looking at it. They’re just accounting for it in some fashion. Most advisors are simply selling an investment product that’s highly liquid, and perhaps not looking at the whole picture.”

Ultra-high-net-worth investors are more likely to “treat tangible assets as investment and risk management assets” as they become wealthier, according to the report.

Whereas many advisors are focused on investments that will generate returns, ultra-high-net-worth investors tend to have an emotional connection to physical assets such as artwork, but also turn to those holdings as a way to hedge against market risks, said John Prince, CEO of Respada, a platform for family offices and ultra-high-net-worth investors focused on private equity, real estate and philanthropy.

“Wealth managers get paid based on performance, and technically tangible assets don’t have that level of attention,” he said. “When you need a way to hedge against inflation, there may be a way to do some level of asset protection. If you have some real estate, and if it is held correctly through the right asset protection strategies, they clearly provide you a good amount of protection. But having said that, it’s also implied that when you do that type of hedging, you are not expecting any performance or any returns for those assets.”

To appeal to ultra-wealthy clients, advisors should have a value proposition that goes beyond investment products to take a “multidimensional” approach to portfolios, the report argues.

Ultra-high-net-worth investors’ balance sheets are more complex, the report noted. In addition to investment advisory or brokerage accounts, clients also have loans and other capital structures around homes, land, art, vehicles, boats, and physical commodities. Additionally, balance sheets may include risk management around financial hedges and life, property and casualty insurance. They might also include public or private investments and liquidity ranging from assets “that can be quickly turned into cash to those that may be illiquid for some time.”

Failing to consider an ultra-high-net-worth investors’ total assets and liabilities could make it difficult to apply best governance practices or create an effective financial plan, according to the report.

“It’s important to include [tangible assets] in the reporting structures, for sure, for good governance,” said Prince. “Especially if you have a large generational family, you’d want to report it to all beneficiaries and stakeholders at the family office.”

Tangible assets may offer some diversification, according to the findings, but they have unique risks and market exposures. After all, a home can burn down, and artwork could be destroyed.

While more than half of survey participants said they actively coordinate risk-management of tangible assets in total balance sheets, there are “dangerous” gaps between investors and advisors, especially those with different roles.

For example, 81% of ultra-high-net-worth investors with $30 million or more consider tangible assets to be wealth-management assets compared to 57% of less wealthy investors. And, only 76.5% of advisors working with wealthy clients considered tangible assets in the same way.

Such gaps could present opportunities for advisors to expand their offerings to include risk-management for assets outside of traditional investment portfolios, the report found.

While regulatory restrictions or policies at advisory firms might prohibit taking a “total balance sheet approach to clients for wealth and risk management,” family office-style services are becoming more “democratized” in order to meet the demands of clients, the report noted.

The decision to include tangible assets in a portfolio comes down to the capabilities of a wealth manager and whether they are incentivized, Prince said.

“It goes back to the performance and fee structure,” he said. “There are platforms where they charge a fee for including tangible assets into the reporting structure. I think it’s important to do that. It’s also important to look at asset protection holistically. If you follow good practices, having tangible assets is a good thing.”

Many of the gaps also have to do with technology constraints around accounting for such assets, according to Rodrigues, who added that Procyon factors in all client assets and investments.

“It’s usually not something that could be held at SchwabFidelityor TD – it’s going to be something that is held off a balance sheet or off of a custodian,” he said. “If you’re trying to account for this, how do you get that data into your reporting system? And that’s only if you have a reporting system. There are some moving pieces technologically that need to occur.”

Many clients also view tangible assets as a tax and accounting issue, creating yet another gap for an advisors.

“That disparity should likely decrease over time, in the sense that advisors are becoming more holistic,” Rodrigues said.