This publication recently talked about fine art advisory with Hottinger Art, a recently-built business of the Hottinger Group.

The niche of art advisory services for high net worth and ultra-HNW clients has a new player in town, highlighting how the sector continues to draw in interest.

Earlier this year, Melanie Damani, who had worked as a lawyer at Edmond de Rothschild, and before that at Baker McKenzie, decided to come on board at Hottinger Art, part of the Hottinger Group. The firm was created at the end of last year and went live early in 2019. Hottinger Group is a full-service multi-family office with 22 members of staff based in London and Dublin. It offers wealth advisory, discretionary investment management, business advisory, specialist administration services, private investment opportunities, property advice and management - and now, art consultancy.

The origins of the Hottinger brand in financial services date back to 1786, when Baron Jean Conrad Hottinguer established Banque Hottinguer & Cie. in Paris. In 2015, the family decided to sell a majority stake in their London-based business and the new owners chose to retain the name for the group. 

With its entry into the space, a task for the firm is to help make art advisory more professional, in what has been a fragmented space for decades.

“This is where the art market should be going,” Damani told this publication in an interview from her offices in Mayfair, London. 

There’s plenty of reason to understand why private banks and other advisory firms like the art market. While small compared with the US equity market, for instance - estimated at more than $30 trillion - the art market’s size at around $68 billion is not to be sneezed at. That level, given earlier this year by UBS and Art Basel in their annual report on the sector, is at the highest level for 10 years and up 9 years since the crisis year of 2008. Besides UBS, organisations such as Citi Private Bank and Deutsche Bank, for example, advise wealthy individuals. Other advisory firms include Fine Art Wealth Management, based in London. Damani’s former employer, Edmond de Rothschild, to take another, provided art services for its clients – a task that Damani played a central role in for more than two years there.

As industry figures have told this publication down the years, fine art collecting and “investments of passion” often give advisors an insight into what makes clients really tick. A conversation about a piece of Expressionist painting or a Japanese sculpture can tell one more about a client’s priorities than their views on hedge funds.

The fine art market is still relatively fragmented – there aren’t simple, public figures on prices as one gets with the S&P 500, for example. Auction houses such as Christie’s, Sotheby’s and Bonhams, to give three of the large ones, issue prices and results but they are not always easy to compare. Much of the art market doesn’t go through intermediaries at all – it is private. Art is idiosyncratic – it is not like trading iron ore or pork belly futures. And art requires that clients learn a lot about it - to avoid making mistakes and for the pleasure of learning in its own right.

Damani reckons that educating clients is a big part of her role. She also stresses that Hottinger’s business model – they are only paid by clients and don’t earn commissions – means that it can give impartial advice without a conflict of interest.

“We help clients with a wide range of services listed in full on our website and elsewhere in our responses. We would prefer not to speak about specific cases to maintain confidentiality. In general we can say that our intervention is often required at times of significant change and perhaps emotional challenge for families (for example, if a family member with an art collection has passed away), therefore our work requires the highest degree of diplomacy and emotional intelligence in addition to art market expertise,” she said.  

Damani and Hottinger group executive Alastair Hunter are the directors of Hottinger Art. Damani is the only client-facing consultant at present.

How is the art market changing?
“The art market can be tricky to navigate and it’s been accused (often not unreasonably) of lacking transparency. Furthermore, concerns about anti-money laundering and consumer protection, as well as the delicate balance between discretion and opacity, have created concerns among potential collectors and investors. Fee arrangements are not really standardised, and the same rigour doesn’t apply in terms of disclosure of fees as it does in (for example) financial services. There are some great professionals out there but also some unscrupulous ones,” Damani told this publication. 

"We want to do things differently – we are remunerated solely by our clients so we remain independent with only their interests in mind. There is no hidden commission or referral kick-backs and we maintain the highest professional standards at all times. This is an unusual model in the market and one which we hope will stand out for clients who want to do things properly. The market in general is definitely still in need of development and, for our clients, having a trusted advisor by their side to help them achieve what they want in terms of art is very valuable. This is true whatever their level of knowledge and whether they’re building and managing a collection, structuring their estate, looking to free up liquidity or buying and selling works of art."

Inevitably, Brexit comes up as a factor, and Damani said the UK’s struggle to get out of the European Union has already cut art sales in the UK. She cited data from ArTactic, an organisation tracking such facts, showing that revenue fell by 35 per cent in June 2019 from a year before. By contrast, the New York market rose by about 30 per cent in the past year.

“Our clients are mainly based in Europe but we also service clients elsewhere, including the US and Africa. Typically, our clients have very international backgrounds and may reside in several places. Their art collections are usually also spread across their jurisdictions of interest. There are specific parts of the world where the art market is developing at quite a pace at the moment, such as South Africa, Nigeria and Russia, and these appeal to local and international collectors alike,” she said.

Technology is shaking up wealth management, so how does it apply to fine art? Damani says the firm uses it, but struck a cautious note.

“We use technology as an enabler, facilitator and to reduce risk, allowing us to spend more time with our clients and on the things that matter most to them. Where technology can save us time, automate time-consuming manual processes and/or improve security, we embrace it wholeheartedly. We don’t believe in using technology for technology’s sake, however, and we don’t think it’s a substitute for building person-to-person relationships,” she added.

Parts of the art market haven’t always had it easy. Earlier this year, New York-based investment platform YieldStreet bought Athena Art Finance from its owners, Carlyle Group and Pictet for far less than what was originally pumped into it. That transaction raised questions of how deep and liquid the fine art market is and how applicable investment banking models are to the space.