Annelien Bruins of Tang Art Advisory, one of Spear’s Wealth Management’s ‘Outstanding in Field’ Art Advisors of 2016, was asked by leading fine art insurer AXA Art to explain how professional art advisors provide value for their clients.
A good art advisor is a true asset to their clients
The value of an art advisor is not always understood. Unlike lawyers or financial planners (professions that require a license in order to practice), anyone can call themselves an art advisor. Contrary to popular belief, art advisory is not about hanging out at cool parties or taking snapshots of your friend’s painting and selling it behind their back. The purpose of art advisory is to reduce your clients’ transactional risk, to save them money and to protect their interests.
The importance of conflict-free, independent advice in an opaque market
It is easy to lose money in the art market. This is due to the asymmetry of information that is part and parcel of a fragmented, opaque marketplace: the seller knows more than the buyer. For example, it is not always possible to find out whether the party you are transacting with has a financial stake in the artwork, or how they get remunerated. That is why independent advice is so important. To us, independence means an avoidance of conflict of interest at all times. In other words, an art advisor should not have a financial stake in the artwork they are advising you on. Additionally, we advocate price transparency: we only get paid by our clients and they know exactly what we make out of a transaction conducted on their behalf. We don’t receive kickbacks, nor do we operate on two sides of one transaction.
We view ourselves as our clients’ fiduciary. Our independence from auction houses and galleries means that we only provide advice that serves our clients’ best interests. For example, we have been working with an East Coast collector since 2011. She owns an early sculpture by a well-known contemporary artist. The market for these early works will only develop in 10-15 years time. Rather than simply helping her to sell, back in 2011, we advised her to hold on to the work until the market is ready, which means that when the time is right she will be able to sell the work for significantly more money.
The acquisition process - buying quality at the right price
On their own, collectors often overpay for the art they buy. They simply fall in love with the work and don’t care about the cost. When it is time to sell, however, there is often bitter disappointment when it turns out the work is worth only a fraction of what they paid for it. In order to prevent this scenario, we provide our clients with solid market research on how much a work is worth, prior to the acquisition, so that they can take an informed decision.
When advising clients on acquisitions, we receive one of two types of mandates. The first mandate is: find me a Twombly from the 70’s within such and such budget. For this client, we tap into our network, source the painting, conduct our due diligence and negotiate the transaction. We recently advised a client, who had a Picasso offered to her, that the asking price was unrealistically high (i.e. beyond negotiation), and as a result she did not proceed with the purchase. We are now looking at alternatives options for her. The second mandate comes from collectors who want to start collecting but don’t know how. As a part of the acquisition process we take our new collectors to galleries and fairs, and show them a multitude of art images to help them discover and develop their tastes, after which we start sourcing artworks for them.
The guiding principle for both types of clients is that we assist them to acquire high quality art, whether investment-grade Masters or emerging art, at the correct price. Our due diligence process ensures that our clients avoid buying works with title problems (i.e. was the work looted in WWII), authenticity or condition issues, and we do our price research so that our client does not overpay. In short, we reduce our clients’ transactional risk, whether they buy for investment or pleasure and whether they buy privately or at auction.
Selling art - obtaining the best financial result possible
When we sell art on behalf of a client or an estate, our mandate is to get them the best possible financial result. Imagine for a moment how stressful it is to have $1 million locked up in a couple of artworks that you have no idea how to sell, whilst at the same time dealing with the aftermath of a loved one having passed away and estate taxes due.
When we take an artwork or a collection of art on consignment, we determine whether the work(s) should be sold privately or at auction. Let’s take a look at selling at auction. We determine which auction house, which geographical location and which sale the art will be sold in. We handle the cataloguing, photography and appraisal, the transport to the auction house and all paperwork (i.e. consignment agreements, insurance and shipping contracts, PoA’s). We negotiate preferential terms for our clients which means a significant reduction in their transaction costs. We review the sales estimates. This is important because sales estimates are not the same as an appraisal. They are more of a marketing tool, used to entice buyers to bid on a work. Estimates have to be just right: too low means the work may not realize its full potential in the sale but too high means that the work may not generate bids at all and go unsold.
Selling art is about reducing a client’s transaction costs as much as it is about getting the sales estimates right. For example, earlier this year, we sold a painting by a British 20th Century artist at auction in New York. The decision on where to sell was cost-based. Most of this artist’s collectors are in the UK so normally the decision would be to ship it to London. However, that means that our client would incur significant transport and insurance costs. After conducting our research we decided that the market for this artist was sufficiently international that the buyers would also bid in New York. We were right, the work sold well and our client saved a lot of money. For another collector, however, we took the opposite approach. We sold a number of Asian paintings in Hong Kong rather than New York because the works had the opportunity to tour through Asia before the auction which generated significant interest among local collectors and helped the works to sell very well.
As you can see from the above examples the acquisition or sale of an artwork requires a different approach every time which is difficult, if not impossible to achieve if you are not an insider. Art transactions are often complex and art values have risen significantly over the past 15 years. Increasingly, therefore, as clients view their art as an asset, they expect professionalism, independence and price transparency from their art advisors. Art advisory is highly technical and time-consuming. It requires experience, an outstanding eye for art and an intimate knowledge of the inner workings of the international art market.
Read the article on the AXA Art website.