Protecting Clients’ On-The-Wall Assets: Fine Art

While less liquid and more difficult to value than financial assets, fine art is no less a part of many clients’ portfolios — and a portion of these clients’ wealth of which advisors are often unaware.

By treating fine art as an asset class like stocks or bonds, advisors can be seen by their clients as a knowledgeable art resource. That doesn’t necessarily mean you should take art history lessons or attend auctions; an advisor’s real value comes in the form of advice concerning the protection of these often significant assets.

Ownership of fine art is more widespread than many advisors may realize. According to an annual report on the art market by the European Fine Art Foundation (TEFAF), more than $27 billion worth of art was sold in the U.S. in 2015. The report noted that nearly half of that value was from sales in the post-war and contemporary art sector, with increasing volume coming in the form of online transactions, which now account for 7% of the overall value of art sales.

In general, those collecting art as a passion tend to buy what they love — nowadays, typically popular are contemporary art pieces — and they keep their artwork on display rather than storing it. Many of today’s art buyers may be more focused on aesthetics than protection. For example, they may hang a valuable painting on a wall over a fireplace if the location is the room’s focal point. But the heat and smoke a fireplace generates make that location far from ideal from an art preservation perspective.

Since art buyers live with and enjoy their purchases rather than storing them away, there is a chance that the art may be damaged or stolen. However, many art collectors, especially those who own one or just a few valuable pieces, probably don’t realize that their homeowner’s policy may be inadequate to cover the often significant out-of-pocket expenses that can be incurred when restoring even relatively minor damage or replacing art that is lost or stolen. That’s why specialized fine art or “valuable articles” policies are so important.

The Policies They Need but Likely Don’t Have

Fine art or valuable-articles insurance policies provide “all-risk” coverage for most causes of loss, with no deductible. Some insurance companies will cover fine art items valued at less than $250,000 without an appraisal. Collectors just need a good description and a photograph of the item as well as the estimated value, so getting appropriate coverage can be relatively hassle free.

Another area where most homeowners policies fall short is coverage for lost or misplaced items (sometimes referred to as “mysterious disappearance”); such coverage often is not included. The right fine art policy will cover misplaced, lost or stolen items. If the market value of an insured article exceeds the amount listed in the policy right before it is lost or stolen, some carriers will even pay the higher market value, up to 150% of the policy amount, so that the owner can replace the item with one that is comparable.

Many homeowners’ policies also exclude coverage for breakage of fragile items, such as crystal, china and porcelain. The right valuable articles insurance policy will automatically cover breakage, as well as newly acquired artwork for up to 90 days, for up to 25% of the total fine-art coverage for listed items. That way, clients need not worry about getting insurance for each item at the time of purchase.