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In this episode, Adam and Jerry talk about COLLECTIBLES. There are special rules governing the tax treatment of collectibles held for investment purposes that you need to know. Also, there are special considerations for protecting your collectible investments by way of insurance coverage. All of this and more are covered!
Look out Comi-Con, here comes the BIF Crew!
The BIF Bites podcast covers topics that are important to those seeking CFP® certification and really anyone that wants to better understand the financial services industry in general.
Adam Scherer, CFP®, MS is the Co-Director of Curriculum at the Boston Institute of Finance (BIF) and has over decade's worth of experience in the financial services industry.
Jerry Mee, CFP® is the Director of Student Support at the Boston Institute of Finance (BIF) and has nearly a decade’s worth of experience in the financial services industry.
Episode Summary
This episode explores how collectibles—ranging from comic books to wine, Pokémon cards to musical instruments—can serve as both a passion and an investment. The hosts, Jerry Mee and Adam Scherer, examine how CFP professionals can support clients in managing these non-traditional assets, especially amid rising interest from various income levels.
Key CFP® Skills & Strategies Highlighted
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- Leverage personal hobbies or interests to connect with like-minded clients.
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- Build trust faster by “speaking the same language” as collectors.
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- Examples: financial advisors who are veterans working with military clients or musicians serving performers.
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Tax Planning for Collectibles
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- Collectibles are treated differently under tax law—subject to a maximum 28% capital gains tax.
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- The actual tax rate is the lesser of 28% or the client’s marginal tax rate.
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- Capital losses from traditional investments (e.g. mutual funds) can offset collectible gains.
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- CFPs must guide clients on tax documentation, especially with the 1099-K thresholds tightening (e.g., for PayPal/Stripe sales).
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Behavioral Finance & Emotional Bias
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- Strong emotional attachment to collectibles can impact financial decision-making.
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- CFPs need empathy and persuasive communication to navigate these conversations.
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Portfolio Strategy & Diversification
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- Collectibles can act as non-correlated assets or inflation hedges when included as part of a diversified portfolio.
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- Advisors should help clients assess the liquidity, volatility, and long-term outlook of various collectible categories.
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Risk Management & Insurance
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- Many homeowners policies limit or exclude coverage for collectibles.
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- Advisors should encourage clients to:
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- Maintain accurate inventories.
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- Add riders or specialized policies to insure high-value items.
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Due Diligence & Fraud Awareness
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- Warn clients about “manufactured collectibles” (e.g. mass-produced “limited editions”) with inflated perceived value.
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- Highlight parallels withN on-Fungible Tokens (NFTs) and overhyped assets.
Market Trends & Context
- COVID-19 as a Catalyst: Lockdowns and stimulus money led to a surge in nostalgia-based investing (e.g., Pokémon, comic books).
- Tax Evasion Risks: Cryptocurrency investors at times moved gains into collectibles to avoid tax tracking.
- IRS Focus Increasing: Platforms like PayPal now issuing 1099-Ks at lower thresholds, increasing scrutiny of collectible transactions.
Conclusion
For CFP® professionals, collectibles present a unique opportunity to merge client passions with sound financial planning. Advisors who understand the emotional, tax, and investment intricacies of these assets can:
- Stand out with a differentiated service offering.
- Form deeper connections with clients.
- Help clients avoid costly mistakes or overlooked liabilities.
Key Takeaway: CFPs practitioners should not dismiss collectibles as fringe assets—they are increasingly mainstream and require the same diligence, tax planning, and emotional intelligence as any traditional investment class.