Tom Ruggie: What Financial Advisors Should Know About Collectibles

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For many high-net-worth clients, collectibles aren't just a passion, they're an integral part of their financial portfolio. Yet most financial advisors have very little understanding about how to integrate these unique assets into a comprehensive financial plan. Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward Podcast. My guest today is Tom Ruge. Tom is the founder and CEO of Destiny Family Office, which is a billion-dollar-plus AUM firm that specializes in helping high-net-worth clients manage every aspect of their financial lives. In addition to his deep expertise in wealth management, Tom is also a lifelong collector of sports memorabilia and collectibles, which makes him uniquely qualified to help clients navigate this growing asset class.

Class.

In today's conversation, Tom shares his journey of blending his passion for collecting with his professional expertise. We explore the transformation of collectibles into a recognized investment category, how advisors can help clients properly value, insure, and document their collections, and why estate planning for these assets is critical to avoiding family disputes and maximizing legacy. Tom also provides practical steps for financial advisors who are looking to bring more value to their clients by addressing their collectibles, including the tools and resources he's created to simplify the process that you can access for free. With that, here's my conversation with Tom Ruge.

I do a lot of speaking across the country, and, you know, one of the things I talk about a lot, Steve, is really the kind of the transition that collectibles have made into being, you know, an actual asset class. There's so much that really has crossed the line into being an asset class. And, you know, statistics say for ultra-high-net-worth individuals that 78% of them have a collectible of some type. A lot of that might be art, might be wine, might be watches. You know, those are kind of the more traditional standard collectibles. So in preparation for this call, I went to one of the major auction houses that I personally use, and what I wanted to see from them is how many different auctions that they have going on just in the next week or so. And just within the next week, there's a sports memorabilia auction, a comic book auction, a non-sports trading card, video games, action figures, U.S. currency, 4 separate coin auctions and 2 separate art auctions. And again, this is just one auction house, and all of these are different auctions with different catalogs and, you know, different people that they're trying to get interested in purchasing these collectible assets. So it has become a very big thing, and auction houses are doing extremely well with it.

And historically, financial advisors have really not participated in that to any significant extent. So what's changing today? And you're a financial advisor, you work with clients who have collections. So what do you see is your role as a financial advisor as it relates to clients who have these collectibles?

If you were truly doing a holistic job for your clients, and again, especially in the high net worth market where a lot of these high net worth individuals will have a large collection, being aware of that and really trying to execute a plan to make sure that everything that needs to be evaluated with that collection is accounted for. Things such as valuation, insurance, storage. And then, you know, an important topic to me is the succession plan. What ultimately is going to happen with those collectibles? Because, you know, my own personal story and why I ventured into this is, is because of evaluating my own situation and realizing that I had a real problem and being an advisor and being somebody that is pretty on top of things. When I realized that I was not on top of this and that I was going to, you know, potentially if I didn't make it home that night, I was leaving a mess for my family. That's what put me down the path of really evaluating this and putting things out there that could help other collectors and also help other advisors to, you know, to understand how to treat, how to evaluate, how to have the discussion about this with their clients.

So you mentioned a few things here from a financial planning standpoint. You talked about how the collector needs to have the collection valued. They need to have documentation, insurance, storage and maintenance, estate planning. So those are all very clear action items that a financial advisor could do. I'd love to hear any more detail around that in terms of how either you did it for yourself or how you help clients do that, because like the valuation and documentation of your collection, who values these things? Are there like a number of firms that do that? The documentation of your collection, is it simply, hey, I take photos of it and I put it out on Dropbox, or how does that actually work?

I think the first thing I would say, Steve, is that again, when I realized that I had a problem, personally that I really hadn't even thought to address. I really went on a mission of knowing what I know, what would I do? And I did put together a scorecard and it's, it's on my website, it's available, it's free. But there's 10 different areas that I address in that scorecard, including, you know, the 4 areas mentioned, the valuation, you know, the estate planning, the storage protection, etc. So, you know, from a valuation standpoint, it depends on what you're collecting. I basically update my values based on what is happening at various auction houses. So if I see something similar to what I have sell for a certain amount, I go and update that value. Of course, there are appraisers out there within virtually any area of collectibles that can assist in creating, you know, proper valuation, proper appraisals for collectibles. So that's really the two methodologies of doing so. But the problem is, is that it has to be kept up with. And that's why I try to monitor what's happening with auctions for my collectibles and update the values accordingly. I mean, just since COVID hasn't even been 5 years yet, the value of most collectibles has gone up significantly. And actually, again, that's what stemmed what may not have been a problem for me 5 years ago to now it's become a relatively large portion of my overall estate.

And for people that have their collections in their home, this is really timely because we've got wildfires going on in California. Many people have lost their homes and many people have lost collections that they've had in their homes. So how does the insurance work? I would imagine it's probably more than just getting an additional million dollars added to your homeowner's insurance policy. Are there specialty insurers out there for collectibles like this? How does the insurance piece work?

I used to actually go through, you know, a traditional large insurance carrier, you know, where I have my homeowners and car insurance and whatnot. And it is very difficult to get traditional insurance companies to insure collectible assets because you have to go through a lot of hurdles. You have to have updated appraisals, you know, item per item. And in a collection like mine, I've literally got thousands of items. To answer your question, there are specialty firms out there that deal specifically with collectibles. There's specialty firms that deal with specific collectibles, and then there's some that deal with just, you know, collectibles as a whole. My personal experience in using a firm that focuses on sports memorabilia, it was a very easy process. I had to take photos of items valued at a certain dollar amount or more, which wasn't a significant part of my collection. You had to take maybe 50 photos, and I've got a blanket insurance policy that does completely cover the value of my entire collection? That's something that we've built a resource guide around the 10 steps that I mentioned to you in the scorecard I put together. But one of the steps, of course, is insurance. And again, we've put together a resource guide that we make available for free for anybody that has questions or might want to reach out to various insurance companies.

If people are trading their collectibles or they're selling a collectible and they sold it for $350,000 and maybe they paid $125,000 for it 5 years ago. How does that work? What are the tax implications of collectibles?

The tax implications are the same as any quote-unquote investment asset. So it will get treated just as if you own $125,000 of Apple stock and it went up to $350,000 in value. It would work the same. The difference is, depending on how you sell it, it's almost like cryptocurrency to some extent in that in some situations you may have to, you know, disclose that, you know, do a self-disclosure of that happening and provide the information. So unlike buying Apple stock, there's not a, you know, an automatic process that happens from a tax standpoint.

So there's no custodian, so to speak, that's going to send you a statement that shows you what your cost basis was and what you sold it for and that sort of thing?

No, not buying traditional collectibles. You mentioned, you know, like NFTs or fractional shares, you know, those are more formalized and something like that would be created in that situation. You know, the major auction houses are going to send you a tax form at the end of the year if they've written a large check to you for selling an item. So it can fly under the radar a little bit, but I would always advise to try to stay on top of that as much as you can. And again, it goes back to the valuation thing. So it's not only important to have the valuation, but it's also important to know what your basis is. I've got an item that I paid $11,000 for that if I sold it, it'd probably sell for $300,000 or $400,000. And you have to have that information at some point. And that also quantifies the example of the mess that I potentially was leaving my family.

What are some practical things that advisors should be thinking about if someone's listening to this and they say, yeah, I actually have some clients that have some collectibles or I have a personal passion for collectibles and I never really thought about somehow incorporating that into my practice. So what are some thoughts that you have? For example, an advisor trying to have some conversation with clients that do have collectibles. How do you even bring up that conversation to let them know that, hey, I might be able to help you in a few areas here?

First of all, I would learn the basics of not a specific collectible, but, you know, really all collectibles. You know, what are the things you should have basic knowledge of? What are the things you should be asking? Potentially what are the relationships that you should have to help your client out. But where an advisor is going to really benefit is having the ability to talk holistically about a client's overall situation. I mean, I think the more you can do to assist a client in all endeavors of his, her, their lives, the better off you're going to be, the better advisor you're going to be, the better client following that you're going to have. And if your goal as an advisor is to work with high net worth individuals and you want to do more than offer products, you know, more than just handle investments, but you want to be a true advisor to your clients and build that relationship, high net worth people are interested in this area. And there's a lot of reasons for that interest. Again, a lot of people give, you know, the past 4 years of gains, you know, they credit that a lot to COVID. And I certainly think that had something to do with it. But I also credit a lot of it to cryptocurrency or Bitcoin because the types of individuals that have been buying, you know, back 4 or 5 years ago that were buying cryptocurrency and Bitcoin and making an awful lot of money off of it are the same type of people, the same demographics that are going to turn around and say, what else can I invest in that's tangible? You know, that's the cool thing about collectibles is you could look on my wall back here and you can see some trunks hanging up. I can walk you through a hallway and you can see artwork. So there's something about the tangible component. If you're working with your clients on their estate planning and their legacy, which is a big thing for high net worth individuals, this conversation has to be part of that.

You mentioned estate planning here. Many of these collectibles are going to be one of a kind. Have you ever run into a situation where there were squabbles among the beneficiaries of the collection as to who gets what? Has that ever been an issue?

I had a situation where mother passed away, elderly, she had cancer, two children, you know, a male and a female, two pieces of art that both were very valuable. And ironically, the son had a big interest in art in general, but out of the two pieces had a liking to one of the two. And the daughter didn't have as much interest and candidly kind of looked at it as, I'll take my piece and I'll just sell it and I'd rather have the cash. Well, it turns out that one of the two was fake and the one that was fake happened to be the one that the son did not like. And so they got into this huge squabble over what to do because the daughter said, hey, I was supposed to get this one and I was going to sell it. And, you know, you wanted the other one. And a lot of times when money gets into the equation and, you know, Steve, I know you've seen it in your career many times as well, but it's unfortunate what what money can do to relationships and siblings. And in this case, they ultimately worked it out and they are on speaking terms, but it was not a pretty situation. And that certainly can happen with anything. It can happen with cash or stocks. But again, when there's collectibles that there's possible uncertainty, it heightens the chances of something like that happening. And, you know, something I pulled up, just a couple of quick facts on this, talking about financial advisors. 51% of collectors have never had their collection appraised. 39% don't even have an estimate for the value, and 66% have never had a conversation with their advisor about their collectibles. And this information is from a high-net-worth publication.

Ouch. Yes, that's a serious accident waiting to happen there.

It is. And again, I could have been guilty of the same thing, and I knew better. So especially if you mentioned an advisor that might have interest in collections themselves, you know, again, for me, it's been the cross-pollination of my two biggest hobbies, which number one, first and foremost is my business. But number two, from a hobby standpoint, is my collectibles. If you're an advisor that has a similar hobby, it's a great way to open some doors to other people that you share the same passions with. Because I think you would agree that I certainly preach to my advisors collectors that your best clients are going to be people that resonate with you. And people that resonate with you are typically going to be people that are like you and people that have things in common with you. And if you can build that bridge of commonality in the collectibles world, you know, it's going to open the avenue for you working with additional people that you really want to work with and you really want to have these conversations.

Is there an easy way for people to buy these cards short of just going to a card show? For example, with art, there's actual products where they create a fund and they go out and they buy a whole bunch of artworks, and then you invest in the fund and you basically have a fractional ownership. Is there a similar type vehicles for collectibles?

There are. And again, that's becoming more and more commonplace. 5 or 10 years ago was not very common. Today it is, especially the fractional ownership side of the equation. So, you could even have somebody like myself say, hey, I want to fractionalize my Ollie George Foreman shorts and, and I could put together a deal for that, put a valuation on it and sell shares.

You could create an NFT for it.

I could. Yeah. It's becoming more and more commonplace. I think your question was more geared towards that, but there's tons of auction companies in the business now. So again, if you were looking for specific items or specific cards or whatever you're looking for, there's probably auction houses that are dealing with it. Obviously eBay has been a big source for buyers of anything, but certainly collectibles. So, there's a lot of options out there to purchase whatever you're looking for.

And let's put your market forecasting hat on for a moment. Obviously, we can't predict the future, but how do you think about the future for collectibles? Is this something that you think is just going to become stronger and stronger in terms of an asset class, and it's going to become more common for advisors to be advising on their clients' collections, or do you think it'll remain more of a very niche area that some people will love and most advisors really won't pay much attention to?

It's hard to say what'll happen with the advisors. I mean, the big firms, the JPMorgans and UBSs of the world, they have collectibles divisions within their firms to help high net worth and ultra high net worth individuals. So, Is it going to trickle down to, you know, the mass of individual advisors? It's hard to say. It really depends what happens with it. In my opinion, collectibles are going to continue to gather steam. There's just a lot of things that could be pushing this. People love nostalgia. I don't know if you saw, but a pair of the red ruby slippers from Wizard of Oz just sold at auction for $32.5 or $32.6 million. You know, so nostalgia is a big factor in the ongoing growth of collectibles. Candidly, performance has been a big factor. I started my collection at a young age, but, you know, I mean, I didn't grow up with much money and I built up a pretty good collection. But the way it happened was I've always been a hard worker, so I'm out mowing lawns or washing cars or doing whatever. But if I had an extra $20, I'd be looking at not only What do I want to add to my collection? But my mindset even back at that point was what I think is going to go up in value. You know, do I want a Johnny Bench rookie card or do I want a Willie Mays that isn't a rookie card, but it's Willie Mays? And so there was always that thought process there. You know, fast forward to today, you know, you have people like myself that I would categorize myself as a collector first and an investor second. But anything and everything I buy, there's still a mindset of, you know, what's the appreciation potential on this? But we've also seen a lot of individuals getting into the collectibles market that don't have the passion. I mean, they're getting into it truly for investment purposes. And, you know, they're looking to buy items that they feel are going to appreciate. And that has been a big boom to the collectibles market. And I think that'll continue to be. The next topic of discussion I have on that is the vintage versus the new. I compare vintage collectibles to blue chip stocks, and I consider new collectibles more like, like penny stocks or very volatile, you know, non-penny stocks. You buy Babe Ruth and Michael Jordan and Willie Mays and Muhammad Ali items, you've got a certain sense that although there can be ebbs and flows in valuation, long-term, there's still going to be demand for those. And long-term, there's going to be increase in valuation. But when you're buying newer things, especially some new things that come out as quote unquote one of a kind, but it could be a card that's signed, but you could do, you know, the company could do another one of a kind the next year. There's a little bit more of a gambling aspect to it. And again, I think a lot of people that have gotten into collecting over the past several years have more of a gambling mentality, which is why I referenced, you know, people that do crypto or Bitcoin. You know, they're looking for, hey, what else can I put money into that potentially I could double or triple my money real quick? But there's a lot of risk with that, but there could be a lot of return as well.

You mentioned that you've got a pretty nice collection yourself. So what is on the Tom Ruge wish list in terms of what you would like to add to your collection?

Well, the biggest thing that I collect is autographed sets. 1979 was the first year I completed my first set, and I was missing a Mario Soto card. You know, I probably bought dozens and dozens of wax packs looking for that one card that today the card's probably worth 15 cents, but I needed it to complete that collection. And I'm really doing the same thing now, but more on the signed side. So My most valuable set is I have the 1952 Topps set. It's the first major set put together. It consists of 407 cards and I have 401 of the 407 cards autographed, all authenticated by PSA. It is the number one collection, at least on the PSA database in the world. So my hope is by the day I die that I've somewhere or another found those remaining 6 cards. I do have all the big names in the set. I've got the Mickey Mantle, I've got the Roy Campanella, which is— there's only one of those on the PSA registry. I've got the Jackie Robinson, I've got the Willie Mays, which is his rookie card. So it's an amazing set. But the 6 people that I need, you've probably never heard of. And if and when they ever become available, is probably going to cost me a pretty penny to literally put into the box to check off, just like I did that Mario Soto card. I actually clipped out an article from a magazine 5 years ago, and it was showing all the living members from the 1952 set. And this is another area that I think we've got some commonality. You know, I'm kind of anal about that sort of thing. And so every year I go and I check that list and I literally just did it a week ago. And going into last year, there were 8 people, players still living from the 1952 set. And we lost 4 of those 8 last year, including Willie Mays, which is one of the big ones.

And were any of those living ones, one of those 6 that you were still missing?

No. In fact, I know that there are some examples that have gone to auction. I'm going back, like, before I started collecting the set, like 15 or 20 years ago. I think I've seen that 4 of the 6 cards that I need at one point or another went to auction, but they were not PSA registered, so they were not authenticated. They were what we call in the world unslabbed. So just means nobody has authenticated them. I believe at least 4 of the 6 are out there if they're authentic. 2 of the 6 I have never seen available, but I've added 4 to that set in the past 2 years, and all 4 up until that point did not have any that were on the registry. So they'd been new finds. You get somebody 80 or 90 years old that passes away and again, you look under the bed and there's a box of autographed cards. You just never know what's out there.

So that's right. Well, we got a whole bunch of people listening to this podcast, and I'm sure some of them are collectors. So we're getting that word out there that if you are aware of any 1952 baseball cards autographed, make sure you get in touch with Tom here and see if you've got one of those 6 that he needs to fill out his collection.

I do put it out there. I've became a member of Tiger 21 recently, and I'm going to the, the Tiger annual event in Boca next week. And I've put something out because I've met, just through other people within Tiger, like, oh, you need to meet this person because they're a big collector. So I've met a handful, and I think we're going to put together a group in one of the, like, the meet and greet sessions of fellow Tiger members that are collectors as well. So I'll continue to do, you know, things like this and things like that to try to meet people that might be able to help finalize the collection. But aside from missing pieces of a puzzle to, you know, for my autograph card sets, there's probably a lot of things I would like to have, but at this point, A, don't know how affordable they are, and, and B, if they'll ever come up again. But, you know, the story of How I got my Ali Foreman trunks is a much longer story than we have time for, but it started with the Ali-Frazier fight trunks coming up, and it was from the second fight, which is probably their most memorable fight. And that came up for auction, and I was the high bidder till the wee hours of the morning, but the auction was still open because of the rules of how the auction stays open until there's a final bidder. And woke up the next day to find out I got outbid like at 4 o'clock in the morning. And I went on a journey to say, I, I want a significant pair of Ollie trunks. And ironically, just a month later, I was able to pick up the Ollie Foreman trunks.

Very nice. Hopefully they were washed.

They probably weren't. And from a collector standpoint, you, if you're buying anything used, you want it in its used state. So interesting, you know, blood on it and all that kind of stuff. I'm a big Dallas Cowboys fan, and a cool piece that I have is from the first Super Bowl that I watched as a kid, which also is rooted as to why I'm a Cowboys fan— when they won the Super Bowl in 1977 and beat the Denver Broncos. But I've got the jersey that Robert Newhouse wore, and Robert Newhouse was their blocking running back because they had Tony Dorsett. It was his rookie year. What's cool about the Newhouse jersey is, first of all, it's the jersey he wore in the Super Bowl, and That Super Bowl, Roger Staubach pitched the ball back to him and he looked like he was going to run, but then he turned around and he actually threw a touchdown pass. So he was the first non-quarterback to ever throw a touchdown pass in the Super Bowl. But the coolest thing about the jersey to me is not only was it worn in the Super Bowl, but it was worn every single game of the season. So now players probably get a new jersey every single game. This jersey was worn for all 16 games plus there was probably 3 playoff games. And, you know, there's 18 places on the jersey that have, you know, stitching in it where they're fixing a hole. There's blood on the jersey, there's dirt all over it. You know, it just brings you back to the, the good old days of football. And certainly not the most valuable piece that I have, but it's a very cool piece.

Times have certainly changed from that. They have from back then. Yeah. All right, Tom, well, as we wrap up here, is there any Final thought, comment, or observation you want to share?

If you truly want to create value for your clients, it's going to not just be on, you know, the nuts and bolts of what we do, but it's some of the outside things as well. And again, using myself as an example, if I were not in the business that I'm in and didn't realize the extent of the problem that I had in my own personal situation, how valuable would it be for my advisor to come and say, hey, Tom, Here's some steps that you really ought to take to manage your collection and more importantly, to manage it for your heirs. Because what's most important about my heirs and my collection is there's nobody in my family that knows anything about it, nor cares anything about it. And you know, that advisor, if an advisor were working with me, that would have a big impact on me. We all want different hooks to get into our clients because we want our clients that we love to work with, we want them to be with us for a long time. And this is just another way to add significant value to that relationship.

Well, Tom, if folks want to connect with you, what's the best way for them to get in touch?

truji@destinyfamilyoffice.com. You can also go to Destiny Family Office on the website. There's a collectibles portion, and the scorecard that I mentioned is there, and anybody can go and check it out and steal it, use it for your clients, you know, whatever you want to do. It's a free resource. But whether you're a collector or you're working with collectors, I think it could help to create a valuable conversation.

Yeah, man, I know you're on LinkedIn as well, and you also do some podcasts and a lot of writing on this topic as well. So, Tom, thanks for being on the show.

Yeah, it's my pleasure. Thanks for having me.

All right. That's all for today. Make sure you like and share this podcast through your favorite social platforms. And for more great podcasts, visit us at barons.com/podcast. Take care and be safe.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.