The Evolution of Art and Financial Services
Jul 28, 2016
The head of Deloitte’s Art & Finance Practice in the US, Phillip Ashley Klein and insurance expert Donald A. Poster from Alliant Americas, examine art collectors’ needs in a constantly evolving art world, as art market growth and technological advancements increasingly combine.
The rapid transformation of the art market provides opportunities for art collectors who are seeking to protect and grow their wealth. The expertise provided by art and financial services bridges the gap between clients and professionals, offering support in key areas, such as monetizing, partnering, transferring and protecting one’s art collection. In an ever-growing industry, our specialists each extract four key areas of focus, based on their respective expertise.
Phillip Ashley Klein, head of Art and Finance practice at Deloitte, delivers creative solutions to art collectors seeking a return on investment.
Art funds can yield results, with flexible investment options starting at around the $1 million mark, lower than many wealth managers offer.
Surprisingly, some art collectors lose track of exactly what they own and where it is located. When it comes to protecting wealth and managing risk, reporting is key, as is receiving advice on purchases. In today's world, buyers require reassurance that the collection they are building is a viable investment, as well as a passionate one. A key strategy is increasing the visibility of an art collection by lending to museums and digitising artworks. As well as providing the emotional reassurance that a work or art collection makes sense, it develops the art historical significance, by increasing provenance, which in turn increases economical value.
Wealth managers are expertly placed to carry out due diligence and provide the best advice on all of the above.
In terms of converting wealth to income, or in plainer terms, monetizing an art collection, art secured lending, and boutique lenders, have experienced huge growth in the past few years for several reasons. Like a mortgage, based on collateral, in this case art, banks and private banks offer an attractive rate of interest. This not only serves client's interests, but offers banks a chance to diversify their own portfolio, while providing further opportunity to negotiate control of a greater portion, if not all, of a client's portfolio.
Finally the transferral of wealth, or succession management, is something that advisors stress art collectors should organise as early as possible. Whether the intention is to transfer to family, sell or give to charity, having a clear plan in place is essential. A development of the past fifteen years or so has been the increase of private art museums set up by collectors. With 70% having been founded since 2000, this reflects the benefits of loaning works to museums, as it creates provenance and visibility, thereby increasing value.
When it comes to insurance, seeking out the best protection for your collection, no matter the size or value, is essential.
Donald A. Poster, insurance expert at Alliant advises us on the process, while breaking down some of the mysteries behind fine art insurance.
The key is valuation, the starting point of insurance in any category. Most insurers rely on objective third party companies, professionals who will appraise the work or collection and provide a valuation. It is important to know the difference between market value versus retail replacement. Market value refers to the price based on the purchase, whether from an auction, art fair or gallery. Retail replacement is required in case the work is written off, and a replacement, similar work needs to be sourced - of course this will take extra resources, at extra cost and over extra time.
Risk management refers largely to preventing damage to the work. Although most of us know in theory that we should never entrust our artworks to a non-specialized shipper or courier, an enormous 60% of losses are breakage caused during transit or damage while in storage. Clearly damage can happen even when the utmost care is taken, but minimising the risk is key. Receiving advice from art experts regarding packing and shipping will ensure proper crating is provided and care is taken at every stage.
Art collection management is exactly as it sounds, but it is surprising how many collectors don't enlist assistance with their inventory. As well as using the latest collection management software to collate all collection-related information in one centralised source, collectors can also receive practical advice on anything from specialised framers, to expert installation and lighting for their work.
Those familiar with insurance of home contents will note that in some regards, there are similarities insuring art - protecting against smoke and fire, rain and water are also essential for artworks. More specialized is the need for sunlight and UV protection - certain insurance will be conditional on works being hung away from windows and direct sunlight. In many instances, clients will be advised on a loss prevention plan in case of disaster - this involves minimising potential loss by having certain procedures in place, such as briefing staff on what to do in case of an emergency.
To learn more from our experts, check out the video on THE EVOLUTION OF ART AND FINANCE SERVICES IN WEALTH MANAGEMENT. Watch Now!
Courtney Christensen, Christopher Barnekow, Kathleen Guzman, Alasdair Nichol