Wealth Strategies

Art Market Can Create Strong Client Relations For Wealth Managers

Randall Willette Fine Art Wealth Management 19 March 2009


After the extraordinary success of the Yves Saint Laurent sale in
Paris last month, many wealthy collectors turned their attention to the European Fine Art Fair in

Maastricht which opened last week. And these events contain powerful lessons for wealth managers in these volatile times.

Nearly 10,000 people showed up for the grand vernissage the day before the formal opening, providing encouraging signs for this international art fair, which is known for high-quality art works which are both rare and beautiful.  By all accounts, the fair is bigger and better than ever with a particularly strong turnout by wealthy European collectors accompanied by curators and private bankers.

As a result of such popular art fairs and clients’ clear interest in the arts, a growing number of wealth managers are turning to art to deepen client relationships. Engaging families of exceptional wealth through their passion for art can be of immediate and practical benefit to wealth managers by deepening client relationships and enhancing client retention. 

Wealthy individuals are moving away from an emphasis solely on investment management and toward an increased focus on using their wealth to realise what they define as a richer life.  Many private clients are art lovers, own collections or actively buy and sell in the art market.  They require someone who shares their passion for art and understands and appreciates the significance and pleasure of investing in art and collectibles of high value whether paintings, antiquities or precious coins.

Retaining existing clients is one of the most pressing issues which wealth managers are facing because of the financial crisis. Few wealth management firms have a defined client retention process in place to monitor and retain valued clients. Competition is expected to be most intense for those clients highest up the wealth pyramid.  As a result, private banks are being forced to seriously re-examine the ways in which they serve clients. 

There is a long association between the collection of beautiful objects by wealth individuals and the discreet management of their wealth by private banks.  Wealth managers are becoming increasingly aware that for private clients art is often an important component of their investment planning and portfolio diversification.  At a time when financial markets have fluctuated dramatically, investment in established artists and high quality works of art with strong provenance and in good condition have allowed investors to achieve stable long term returns. 

As the Yves Saint Laurent sale in Paris and the European Fine Art Fair in

Maastricht seem to confirm, the demand for high quality works of art with strong provenance is driven by collectors and museums and does not necessarily rely on the performance of equities.  There is a dwindling supply of high quality artworks available – this is expected to continue to drive prices for quality art higher in the long term.

To date, wealth managers have offered clients interested in art a limited number of services which help build collections.  The majority have not, however, approached art as an alternative asset class which can help diversify an investment portfolio or serve as collateral for effectively raising capital.  An art collection requires the same strategic planning as other investments and with the help of skilled advice can become an effective working asset. 

A growing number of wealth management firms recognise that today’s wealthy individuals’ loyalty can be more safely secured by services that go beyond just providing more and different financial products.  Rather than conform to the limits of what financial products can offer, private clients are demanding far broader choices which maximise lifestyle, investments of passion, philanthropy and ultimately lead to more fulfilling lives.

A more up-to-date understanding of what private clients are looking for from the advisors that manage their wealth will be the cornerstone of an emerging wealth management model once the dust settles from the current banking crisis.  In the future, wealth managers will have to redefine their business from one responsible solely for investment management to a partner responsible for helping private clients realise a more fulfilling life, including an appreciation and love of art.

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