Editor’s note: The following article is by Randall Willette, founder and managing director of Fine Art Wealth Management. As always, we are grateful for his insights and welcome any reader responses.
The world's premier international art show for Modern and Contemporary works opens this week in Basel, Switzerland and will feature nearly 300 leading galleries from around the world with more than 2,500 artists ranging from the great masters of modern art to the latest rising stars. Renowned for its high-quality exhibitions, Art Basel will be attended not only by the global art world including art collectors, art dealers, artists and curators but a new generation of wealth for which art is increasingly becoming an important component of their alternative investment strategy.
The growth of art investing by high net worth individuals is creating a more complex set of financial and non-financial needs which go beyond the traditional range of services family offices offer, and indeed are ill-equipped to provide through their existing business models.
Today’s global art community is evolving into a complex and intricate web of international art market experts, art investment funds, specialist law firms, and trust and estate practitioners. Successfully managing the art interests of ultra high net worth families must involve sound art governance and long-term financial planning for art assets.
Holistic approach to art wealth
Traditionally, a small number of family offices have offered clients interested in art a limited number of services including assistance with purchase and sale as well as collection management. However, the majority have not approached art as an asset class requiring its own set of unique financial solutions.
Today, the private collections of UHNW families can rival those of major art institutions and by joining forces an extended family unit can make a significant impact on the global art market. Private museums and foundations are being created at an astounding rate and for many collecting families art giving has become synonymous with art investing. Wealthy collectors are moving toward an increased focus on using their collections and their wealth to realize what they define as a richer life and to achieve a greater sense of fulfillment for themselves and for their community.
While there are no set rules on what art wealth management services a family office should offer, there are common needs among families with exceptional art wealth. Not every family office will wish to provide every category of art service, but many offices are handpicking a selection of these, including art financing, art succession planning, structured art investment, and art philanthropy, that allows them to function as holistic overseers of a family’s art wealth.
Art due-diligence
Dealing professionally with art requires time and extensive knowledge. Obtaining recognition as an art expert generally requires intense study, whether theoretical, academic or practical. Information relating to origin, which is often several hundred years old, does not always prove as reliable as one would wish. Since the artist who created the work of art is no longer available, the expert must make an assessment as to the extent to which he believes the piece of work can be attributed to one or other artist on the basis of years of study and experience.
Over the past few years, provenance, or the history of ownership for a particular work, has become increasingly important. Provenance can help determine the authenticity of a work, establish the work’s historical importance, and trace the work’s legitimacy. Undertaking comprehensive art due-diligence can also help prevent or diminish family disputes. If the assets are not appraised and reviewed for proper title and provenance, distribution of individual items can result in a highly inequitable allocation at time of distribution.
Family offices would be wise to seek advice from independent professionals who have no vested interest in the art and can draw on expertise from both the academic and commercial art worlds. There are a variety of experts within the art market, from art historians and dealers to valuers and restorers. Credentials should include membership of officially approved associations and/or vetting committees for major international art fairs. Experts should be recognized leaders in their field and/or consultants to major museums and collectors.
