Delivering Wealth Management to a New Generation of Art Lovers

 

Today's new wealthy want to be a part of the art world, meet the artists and hangout at their parties.  This new generation of wealth are seeking lifestyle services as well as wealth services and want an environment enhanced by art and the social status that goes with it.

In the first of our series of papers for 2018 Fine Art Wealth Management looks at the emerging needs of young collectors and the strategic dilemma faced by wealth management firms to offer customised services based on client life fulfilment.

Highlights:

  • A more up-to-date understanding of what young collectors are looking for will be the cornerstone of an emerging model. To be able to provide a service that integrates life goals with financial goals wealth managers need to understand the personal aspirations of their clients. Engaging with young collectors at private exhibitions, gallery openings, and international art fairs can be of immediate and practical benefit by deeping client relationships and enhancing client retention.

  • Value propositions must be based on a more holistic approach to wealthy clients. There is a need not only for a different business model but a need for a different kind of wealth manager with capabilities that extend beyond traditional areas of financial competence. For young collectors the ideal is characterised by an adviser who share their passion for art and understands the significance and pleasure of investing in art of high value.

  • From the first time a client purchases a work of art to the gradual building of a collection they require a variety of skills at their disposal. Customised art services may include the need to research and locate art market opportunities, devise a focused collection strategy, or negotiate the purchase and sale of art on a client's behalf. This goes beyond the traditional range of services wealth managers offer and indeed are ill-equipped to provide. As such, partnership with established providers can be an appealing and viable alternative.

  • Once a collection passes a certain threshold a wide range of financial and estate planning considerations come into play. Art requires the same strategic planning as other financial assets and with the help of skilled advice can become an effective working asset. While there are no set rules for what wealth managers should offer, there are common needs among collecting families including succession planning. art financing, fiduciary services, family governance, and art philanthropy.

  • Art has increasingly become a small part of the portfolios of young investors who are searching for alternative assets. Because the art market is inefficient there is an opportunity for out-performance through active management. Just like any other asset class, the ability to recognise and capture unique opportunities in the marketplace can be translated into attractive returns when superior expertise, investment strategy, and market intelligence are employed on behalf of art investors.

  • There is a growing demand by young collectors to unlock the equity in their art. From an existing collection a client may wish to finance the expansion of their business, finance new investments and/or acquire additional works of art. Remarkably, wealth managers have been slow to offer art financing and it is only in the last few years that new dedicated lending sources for collectors have become more widely available through specialist art lenders.

  • A critical element in the success of any collector is their ability to find attractive opportunities on favourable terms. A trusted adviser must be able to introduce young collectors to art market professionals who can advise on quality, value, and suitability by expertly researching the market. Investment in art, as with other investments can also involve substantial risks of loss and requires expert advice on matters of authenticity, title, condition and provenance.

  • It is a fine gesture for young collectors to want to share their works of art by enriching a museum's collection or to give them on loan to an exhibition. Wealth managers are in a unique position to offer sound and impartial advice on setting up a private art foundation, a charitable trust, or an effective grant-making vehicle.

  • In recent years a growing number of collectors are choosing to establish their own private museum or foundation. This requires wealth managers to assemble a complex set of skills and know-how to help determine the most appropriate art hold structure and to deal with practical issues in its on-going management such as exhibition strategy and museum policy.

To grow, wealth managers will have to adapt their offer to a new type of client for whom art has become an integral part of their lifestyle. This kind of broader service cannot be delivered by traditional means or models but is a matter of a fundamentally different kind of service. Those wealth managers that understand this and move first to evolve their offering will prosper. 

For more information on Delivering Wealth Management to a New Generation of Art Lovers see our Knowledge Library