Financial advisers sculpt rare opportunities from clients’ collectibles

Your wealthy 85-year-old client has spent his life assembling a multimillion-dollar collection of rare objets d’art. He’s also got a wine cellar full of Chateau Mouton Rothschild and a set of rare pool cues.

He wants your help deciding what will happen to his priceless possessions after he dies. Do you know what to do?

Art succession planning is the name of this new, relatively obscure niche, and some financial advisers are turning to it in an effort to differentiate themselves from rivals. Unlike traditional estate planning, art succession planning is more about preserving a collector’s legacy than it is about minimizing estate taxes.

In other words, it’s about planning for what happens to a collection of art, antiques or other items after its owner has died. It’s about maintaining accurate records of everything in the collection and making sure its integrity is preserved in the face of squabbling relatives or Uncle Sam.

“By planning for the art, family members don’t have to sell it when a relative dies,” said Travis Freeman, an adviser with Four Seasons Wealth Management in Creve Coeur, Mo., which manages about $300 million in assets. “They can hang on to this collection that their family members cared a lot about.”

Good succession planners act as go-betweens for collectors and their heirs, and lawyers, appraisers and insurance brokers.

They are also responsible for employing sometimes very complicated estate-planning strategies to assure that a collector’s lifetime of work is preserved and distributed to heirs in a way that is tax-efficient. For example, one strategy involves setting up a private operating foundation run by the collector’s heirs. That allows the heirs to reap certain tax benefits while the collection is loaned out.

Advisers who are successful at art succession planning insist that it’s a great way to attract wealthy clients and boost their firm’s profits.

“Many people who collect things are wealthy,” said Randy Fox, principal of InKnowVision LLC, a consulting firm for advisers that last year helped form the Art Succession Advisory Council, which has 17 adviser members. “This is a real differentiator for advisers with their practices. These advisers are having conversations with their clients that no one else is having.”

Indeed, only about 10% of advisers take their clients’ collectibles into consideration when developing financial plans, according to the council.

As a result, collections sold at auctions to turn the assets into cash for distribution to heirs often sell for as much as 75% less than if the collection had been overseen by an art succession planner, according to data collected by the group.

In fact, many passionate collectors bridle at the notion of having their collection auctioned off in parcels after their death. As a collector of abstract art, adviser Andrew Barnett got into art succession planning two years ago as a way to preserve his own legacy.

Today, about 10% of his clients at GFA Wealth Design of Sarasota, Fla., which oversees about $1 billion in assets, require some form of art succession planner.

“This takes a fairly significant amount of our time. It’s a lot of work, but it can be a lucrative business,” he said.

For his services, Mr. Barnett charges clients a flat upfront fee ranging from $10,000 to $25,000, which he uses primarily to determine the collection’s market value. Then, if the client decides that he or she wants to move forward in developing a succession plan for the collection, he usually charges an additional fee of about $50,000.

Few clients flinch at the price tag for developing a plan, he said.

“It’s different when people talk about art,” Mr. Barnett added. “They’re emotional about it. They’ve spent a lifetime collecting various things. They’re proud of their collection and passionate about it.”

Even so, art succession planning isn’t for every adviser, experts caution. Indeed, many clients collect items that have little or no cash value — leading the adviser to invest a lot of time and energy into a collection that yields little revenue.

“It’s whale hunting in some respects,” said Bob Vashko, director of retirement and wealth strategies at Jackson National Life Distributors. “You don’t want to jump into this knee-deep. You need a phased strategy to demonstrate the expertise and passion. But it can still take a long time.”

Consider Ralph Adamo, president and chief executive of Integrity Wealth Management of Newport Beach, Calif. He’s been trying to market position himself as an art succession planner for several months, with little to show for it.

“People are talking to us about art succession planning, but it’s an undertaking to lift that art out and address it with laser focus,” he said.

Chris Jacob of Cadeau Inc. of St. Louis, which manages about $45 million in assets, also got off to a slow start as an art succession planner.

“Anything worthwhile takes time,” he said. “The first year, we were in the process of getting the word disseminated.”

That said, over the past 12 months he has assembled art succession strategies for 10 clients. He’s also in the process of assessing the value of the collections of seven more clients. Those collections span everything from pool cues to miniature railroad trains, he said.

Mr. Jacob typically charges about $3,500 to come up with an assessment of the collection’s worth and another $50,000 to develop and implement a succession plan.

Even if advisers are not ready to add art succession planning to their list of services, they should get into the habit of asking clients whether they collect anything, said Peggy Hollander, an adviser with The Succession Group in Coral Gables, Fla.

“When I asked a client about collecting, it turned out that he had a $10 million art collection and didn’t even consider it as part of his investible assets,” she said. “He just thought it was “stuff.”’

E-mail Lisa Shidler at [email protected].