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Advising the Client in Art Investing

Alison Steed

18 December 2006

The latest round of Christmas bonuses from the big investment banks is sure to spawn a variety of creative ways to invest them. It was revealed this week that staff at Goldman Sachs are in line for a share of nearly £9 billion in bonuses thanks to record levels of mergers, acquisitions, and flotations dealt with by the investment banks in the City of London and on Wall Street this year. It means the 26,500 staff will get an average of around £316,000 each, some of which will undoubtedly go into the luxury goods market. An increasingly popular way for high net worth investors to use their money is by investing in art. Not only do you get something that will, hopefully, increase in value, but you also get something that should be aesthetically pleasing too. Many private banks have specialist advisors in art investing, covering everything from what to buy, where, and how to store and enjoy it. For instance, Butterfield Private Bank offers a comprehensive art advisory service through a company called Seymour Management. The service covers everything from acquiring and disposing of art, valuations, collection management and investment advice. The only thing that it does not advise on, said Spencer Ewen who founded the company in 2000, is taste. He added: “Most sensible people would want to acquire art cost effectively, and that usually means with independent advice on pricing. Investing in art tends to be for the super rich, or for pension funds. We are there for the clients to help buy the art.” As the firm does not own any art, it can offer independent advice, said Mr Ewen, but it is happy to deal with the auction houses and dealers to help people get what they want for the right price. Its fees can be negotiated depending on the client’s needs. Mr Ewen added: “We help people who are time poor or knowledge poor, or simply people who want a second opinion. We do not take any financial position on the artwork.” He said of buying art as an investment: “The Medicis did it, the Rothschilds did it – it is something people want to do. They can build up a relationship with us.” As with any other investment proposition, Mr Ewen said his company would do a thorough fact find with a client before deciding whether investing in art was a sensible proposition. In many cases, he advises against it as it would not be a good investment for the client. However, if it is an appropriate proposition and the client is keen, he will facilitate the purchase of the art. He said: “We would look at people with anything more than £50,000 to invest.” At present, almost everything in the art market is rising in value, said Mr Ewen, but he always advises clients to buy something they like, just in case the piece loses value and they are left holding something that they are not keen to sell for financial reasons. Of course, investing in art is about much more than just buying it, you have to care for it in the correct way, and make sure it is properly insured. John Sims of high-end insurer Chubb, said: “There are situations where particular pieces are stolen to order, but the main issues we come across revolve around protecting the art.” For example, Mr Sims said that there is a significant risk of a piece of art losing a lot of value if it is damaged in some way, and not just because of the cost of the repair. He added: “It is not about the £1,000 it will cost to fix it, but about the fall in market value from £1 million to £200,000 because it is no longer perfect.” In this case, Chubb would pay out the cheque for the £800,000 difference if you wanted to keep the piece of art, said Mr Sims, or for £1 million if you gave the piece to Chubb. Many insurers will insist that houses are alarmed if there are pieces of artwork with considerable value inside, and will not pay out if the alarm is not on for any reason, no matter how short your shopping trip. However, he said that his company was more flexible on this point than many. Of course, country houses that are open to the public for at least part of the year will be more exposed to people casing the property to see if there is anything worth stealing. It could mean, for example, that the protection afforded to the house and its contents needs to be stepped up as a result, said Alexandra Richards, senior client manager for insurance broker Aon Artscope. She added: “Large country houses have been targeted in the past and continue to be targeted, especially where they are open to the public. It gives potential thieves an opportunity to see if it is possible to drive up, take it off the wall, and drive off again. You could have millions of pounds worth of art in a private flat, but it would be less of a risk. It really depends on the lifestyle.” Ms Richards suggested that one of the best ways to help keep your artwork safe is to store it as far away from the entrance and exit to the property as possible, as this means there is a greater distance for any thief to travel without being discovered. It is also possible to use security screws to make sure a painting is secured to the wall, making it much more difficult and time consuming for a thief to take it away. Increasing the time it takes will increase the risk for burglars, and it could act as a serious disincentive to an opportunist. Ms Richards said: “But occupancy of the property is one of the best deterrents. If you are away for long stretches of time, you should make sure someone is regularly visiting the property at random times. It is important there is no set pattern to someone coming and going.”