SFOs lacking resources for art wealth management

Many single family offices do not have the resources to properly govern the private art collections of their clients, despite some matching those of museums in terms of complexity and scale, according to a new academic paper.

Managing art wealth: Creating a single family office that preserves and protects the family art collection, published in the spring edition of The Journal of Wealth Management, recommends the asset is more actively managed by single family offices, in the same way property or investment portfolios are.

Co-author Randall Willette, founder and managing director of London-based advisory firm Fine Art Management, says they have not put a dollar figure on the threshold at which families might want to consider such formal structures, but said if a family was engaging a team with tax, structuring and art market expertise, it would need to have a collection of a scale that would warrant incurring that cost.

“What we’re seeing is a number of private clients who are developing collections that are comparable with museums,” Willette said. “Those collectors that have those sophisticated collections should be establishing many of those same business models that those museums have for the managing of those collections.”

The paper, co-authored by art market academic Alessia Zorloni from Italy’s IULM University, said a family art council was the “single most important structure” a family could put in place to address and resolve issues regarding its art collection.

Such issues might include: adhering to strategic and tactical plans for a collection; preserving and protecting artworks; planning transfer to the next generation; identifying charities for gifting opportunities; and establishing a disposal strategy if required.

The report also recommended families establish a document outlining their core values regarding their art collection. This could cover the range of the collection by geography, medium or history, a development strategy – covering collecting priorities and intended growth – and acquisition methods. It should also include a strategy regarding what should happen in the exceptional case of deaccessioning the collection.

When it came to long term financial planning, the paper said holding the collection in a trust structure offered significant advantages over direct ownership, particularly as it simplified inheritance issues upon the death of a collector.

It said significant art collections would be part of the $12 trillion (€8.8 trillion) of financial and non-financial assets to be inherited by baby boomers, as part of their parents’ estates in the coming years.

The paper comes out as multi family office Oracle Capital Group last week announced it was launching an art advisory service, which will provide clients with a panel of art experts to advise on specific paintings, periods and movements.

Willette said while economies of scale might mean multi family offices have more resources to provide such services, the complexity of experts needed for art wealth management means it is a service that would likely have to be at least partially outsourced.

“I think it’s extremely difficult to have all of those resources in-house, whether it be a single or multi family office, because it’s an industry that’s quite fragmented and there are a range of services required, both by art sector, but also by structuring expertise, tax expertise, and art market expertise.”