by Daniel VarzariNovember 1, '19
2019 Insights on building wealth — Art Collectors
Financially driven collectors are incorporating art into their long-term wealth strategies - and more actively purchasing, selling, gifting, committing, and lending pieces from their collections. But, there's still a chance for collectors to incorporate artwork into their overall financial plan, because many have not yet the chance of being advised about integrating art into their plans.
While Baby Boomers and older generations still compose the majority (53%) of collectors, Millennials are the fastest-growing section, together with possession among all Millennials increasing to 36%, up 8 percent from last year. Aesthetic value is still the primary motive for collecting across age classes (62% agree). However, younger collectors tend to be more financially driven. Besides generational changes, the art world can be seeing gender shifts in its collector base. Whereas men have mostly dominated the conventional art world, women are now an increasing presence. Today, 1 in 3 high-net-worth female either owns or is considering collecting artwork.
Survey results show an active market with anticipated increases in both earnings and acquisitions. In reality, greater than three-quarters of art collectors expect to make a buy within another year (78 percent ), including nearly all (97 percent ) of Millennial collectors, 87 percent of Gen X collectors, and 64% of Baby Boomers (see Figure 2).
And while only 41% of Gen Xers and 24% of Boomers plan to market this year, 85% of Millennials strategy to sell their art in another year -indicating that younger collectors are far more dynamic, selling works as they construct their collections. This also suggests that the marketplace may see increasing turnover moving forward. Also, the survey shows rapid expansion in online acquisitions. In 2018, 43 percent more collectors purchased artwork online compared to the year before. 78% of Millennial collectors have bought artwork online in the past year, in comparison to one-fourth of Baby Boomers. The largest growth in online acquisitions was driven by the female (16 percent in 2018 to 36% in 2019).
Wealth and Worth strategies
What’s a Wealth Tax Worth? Today, collectors are also progressively creating estate planning and legacy opportunities through gifting, committing, and lending. In the next year, about half of collectors intend to gift a work of art (46%), and nearly half plan to loan (46%). While 37% of collectors have gifted or handed art to family members in the past, half (50 percent ) plan to do this in the upcoming year. Plans to gift or loan fine artwork generally follow the same patterns as buying and selling, together with younger collectors citing the most active plans within this area. Collectors may be contemplating these avenues for possible tax benefits and as part of a charitable giving strategy related to their selections. Thirty percent of collectors intend to donate one or more pieces to nonprofit arts organizations, while 21% plan to contribute to other nonprofits--trades that would likely have tax implications. Overall, 19 percent of collectors are thinking strategically about the best way to lower taxes, up from 12 percent last year.
As the art marketplace expands and costs grow, more collectors are incorporating tangible assets like artwork in their long-term wealth strategies. Historically, the huge majority of collectors haven't considered art to become part of the wealth preparation strategy, but now that is changing. Up from 29 percent a year ago, nearly half (42%) of collectors, including 72 percent of Millennial collectors, now integrate art into their wealth structuring and planning.
The more financially driven collector base is also forcing an expansion of art-collateral lending. More individuals are using their collectible assets to unlock capital to redeploy to different areas of their financial life, such as property, a private company, or even to finance the purchase of more art. 21% of collectors used their art as collateral for loans to acquire new artwork, up from 7 percent only a year ago.
Despite the increasing popularity of art as a critical component for building wealth, there is still a significant chance for collectors to consider it within their overall budget. Today, only 21% of collectors and 18 percent of those considering amassing are building knowledge about incorporating art into their long-term wealth strategy.