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The intersection of art and wealth management

"Head" by artist Nicolas Party, on display at Kaufmann Repetto Gallery during Art Basel in Miami Beach on Dec. 5.
"Head" by artist Nicolas Party, on display at Kaufmann Repetto Gallery during Art Basel in Miami Beach on Dec. 5. pportal@miamiherald.com

As Art Basel descended upon Miami with an army of wealthy global art collectors, it’s useful to consider how the art market drives billions of dollars worth of economic activity not only locally, but around the world. Recently, at law firm Bilzin Sumberg’s 2018 International Tax and Wealth Planning Conference, we — Richard Goldstein, the firm’s tax and estate planning group chair, along with founder and CEO of Art Market Liaison, Laura Raiffe — discussed the importance and prevalence of a valuable art collection in a client’s estate plans.

Since Van Gogh’s “Sunflowers” sold at auction for an unprecedented $24.7 million in 1987, art has quickly begun to emerge as an alternative asset class, coveted by art collectors and their wealth advisors as a sound strategy for maximizing and maintaining wealth. Financial consulting firm Deloitte’s Art and Finance report claimed in 2016 that high net worth individuals owned about $1.6 trillion worth of art; that figure is expected to climb to $2.7 trillion by 2026, a 69 percent increase in 10 years.

What’s leading the growth? Ultra high net worth individuals are making art a material part of their overall portfolio. As an asset class, they have seen double-digit appreciation on high-end pieces. Additionally, millennials are emerging as a group that’s increasingly viewing art collecting as an opportunity to build wealth. Unlike their parent’s generation who were more likely to purchase artwork they admired, millennials approach art collecting as an investment and are twice as likely to buy and sell often to create more liquidity. According to a report by U.S. Trust, 35 percent of millennials report they are likely to sell this asset quickly, compared to just 13 percent of the entire art collecting population.

Wealth advisors who aren’t catering to this growing demographic are missing out on an opportunity to retain multigenerational wealth under management. Often, their clients will plan to gift their art collections to children, only to find that the children have little interest in the collection. They may proceed to sell those pieces off at auction, unbeknownst to their parents’ wealth advisor, presenting a scenario where these assets escape management. The same U.S. Trust report revealed 79 percent of collectors plan to gift art to children, and 46 percent of their children don’t want it. So, it’s clear that a misalignment of estate goals with respect to a client’s art collection represents a crucial gap for the wealth management industry.

Of course, wealth advisors often miss out on opportunities to advise their clients on their art investment strategy because they are hesitant to give advice in an area they have little expertise. As Deloitte’s Art & Finance Report outlines, although 88 percent of wealth advisors feel that art should be part of a wealth management strategy, 55 percent say that finding transparent, unbiased and professional art market expertise is rare. This has become a growing challenge for estate planning practitioners when determining how a client should plan for the ultimate disposition of a collection when facing a potential 40 percent estate tax.

Wealth advisors should capitalize on opportunities to engage with their clients who love art. Take them to high-profile events like Art Basel Miami Beach, or offer tours or exclusive access to major auction houses and museum events. Stay informed with art market journals, blogs, and digests, and offer clients’ insights whenever possible. The more you know about this trillion-dollar industry, the more relevant you will be to your art collecting clients and the better equipped you’ll be to capitalize on its spoils.

Richard M. Goldstein is partner and tax and estate planning group chair at Bilzin Sumberg. Laura Raiffe is the founder and CEO of Art Market Liaison, an art advisory firm specializing in selling works of art from private collections.

▪ This is an opinion piece written for Business Monday’s “My View” space in the Miami Herald. The views expressed do not necessarily reflect those of the newspaper.

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