Art and Fiduciary Responsibility (Fall 2011)
If a client of a wealth advisor has a substantial percentage of her net worth in an art collection, is the advisor neglecting his fiduciary responsibility when ignoring the client’s art assets? It is standard financial industry practice to classify art as a “hobby” asset and place it in the same category as yachts, luxury automobiles and collectibles. This is policy for a majority of firms and uncontested by many advisors who, in general, lack expertise and familiarity with art.
Unlike most other “hobby” pursuits, art is often a sizeable and growing part of a client’s overall wealth and, in the case of many passionate collectors, over time it becomes a meaningful portion of the client’s assets. In many instances, art has outperformed collectors’ financial assets, particularly over the last ten years. For these reasons, Artvest maintains that if a collector has an art collection valued at 20% or more of her net worth, the wealth advisor is not fully doing his job if he ignores the role of art in the portfolio, especially given its unique liquidity, selling, tax and estate planning issues.
For example, heading into the last market downturn, if a client had an extensive collection of Contemporary Art and a material exposure to real estate — commercial or residential — she was likely hit with a significant liquidity squeeze which could have resulted in either distressed selling or a nearly usurious loan. Unfortunately, this was not an uncommon scenario in 2009 and the first half of 2010. An astute wealth advisor working with a qualified art investment professional could have saved his client from this scenario — or future ones.