Art Collectors Value Holistic Service, Technology, Transparency according to Deloitte

Deloitte Luxembourg has announced the publication of the sixth edition of the Deloitte and ArtTactic Art & Finance Report.

The Art & Finance Report 2019 has revealed that 81% of collectors are expecting a holistic service offering from their wealth managers, an increase from 66% as seen in 2017. 

Ultra-High-Net-Worth Individuals’ wealth associated with art and collectibles was worth an estimated US$1.742 trillion in 2018 and is expected to grow further according to the Deloitte report. This year’s survey results show particularly high agreement among wealth managers, art professionals and art collectors that art is an important component of a wealth management service offering. This opinion marks the strongest consensus on this point since the launch of the survey in 2011. 

However, despite the increase in the High-Net-Worth-population and a boosted interest in art as an asset, growth trends in the art market have been anaemic when compared to the growth in global wealth. Adriano Picinati di Torcello, Director and Global Art & Finance Coordinator at Deloitte, explained: “The findings reveal that lack of transparency is an ongoing concern for collectors, causing continued distrust in the market. In addition, a newer challenge derives from next-generation investors whose interests extend beyond financial returns to social impact". He added: “This year, we identified three trends that directly or indirectly look to address these concerns: technology, regulatory changes and social impact investment models”. 

Indeed, 84% of collectors surveyed (up from 45% in 2017) and 76% of art professionals (54% in 2017) believed technology would improve provenance tracking and the traceability of artwork. This view was also shared by 79% of wealth managers. To support further development in this area, the report suggests that significant funding is needed to invest in ArtTech infrastructure and build the next generation of ArtTech companies. One promising model to better combine tech investments with efficient long-term strategies is the development of an angel-investor network for ArtTech startups.

In this year’s survey, a further 75% of collectors said that lack of transparency was one of the biggest threats to the reputation of the market. This is an increase from 62% in the 2017 survey and marks the strongest consensus on this point since this question was introduced in 2016 with 75% of art professionals and 77% of wealth managers stating the same. 

For 85% of private banks, money laundering is a key threat to the market’s reputation. Governmental regulatory changes may be the antidote to this condition, despite a lack of consensus among market stakeholders about the value of government regulation over self-regulation. The advent of the EU’s 5th Anti-Money Laundering Directive, coming into force in January 2020, may become a catalyst to fight this issue and inspire more regulations to come. The report suggests that collaboration between art and finance stakeholders is essential in order to develop common guidelines and standards to address the deterioration of trust in the art market.

Moreover, for 65% of the collectors surveyed, art and philanthropy are among the most relevant services wealth managers can offer. Wealth managers seem to have responded to that trend with more than half stating they will focus on this area in the coming twelve months, up from 40% in 2017.

Despite a heavily increased focus on social investments and its subsequent growth in the past two years, real estate planning was the most relevant service for 76% of collectors (up from 69% in 2017). This was closely followed by art valuation services at 73%. This indicates that, in line with generational wealth transfer, estate planning and art valuation are two of the collectors’ top priorities. 

In addition, the market for art-secured lending has grown over the last ten years, with a market size in 2019 estimated to stand at between US$21 billion and US$24 billion in outstanding loans against art. Art-secured lending ranks among the most popular art and wealth management services in 2019: 60% of the collectors surveyed reported it would be one of the most relevant art-related services, up from 45% in 2017. At the same time, only 16% of the European banks surveyed said they will focus on art-secured lending over the next twelve months. This figure stands in stark contrast with the 80% of US private banks saying this would be a focal point for them.

Adriano Picinati di Torcello argued: “One reason for this difference seems to be the lack of a legal framework in Europe. The notion of art as an asset class is less widely understood in Europe than it is in the US. Moreover, there is no uniform system of registration of charges over chattels as in the US with the Uniform Commercial Code (UCC)". According to the Deloitte report, the US therefore dominates the global art-secured lending market with an estimated 90% share. 

For the 2019 edition of the Art & Finance Report, Deloitte and analysis firm, ArtTactic, conducted research between April and June 2019, polling 54 private banks and 25 family offices involved in wealth management, as well as 105 major art collectors and 138 art professionals. The sixth edition of this report was launched today at the annual Deloitte Art & Finance Conference in Monte Carlo, Monaco, in the presence of the Monegasque Minister of Finance and Economy, Jean Castellini, and other figures from the sector. This year’s 12th Art & Finance Conference focused on new collector trends in art and finance.

The full report can be downloaded from the Deloitte Luxembourg website at: www.deloitte.com/lu/art-finance-report.