In light of South African art achieving record results at auctions both locally and internationally, such as the Pierneef that sold for R20 million earlier this year and the Irma Stern that sold for R34 million in 2011, Creative Feel spoke to James Arnold, Wealth Manager at RMB Private Bank about including art in one’s investment portfolio.
Arnold says that art is one of many asset classes one can invest in. ‘In recent times art has become more popular as a go-to asset class compared to the uncertainty that exists in the more traditional classes such as cash bonds, equity and property. One of the benefits of investing in art is that it adds an additional level of diversification to one’s portfolio. Art doesn’t provide an income stream though,’ warns Arnold ‘as it can be very illiquid – so the timing of when you buy and sell is often not defined.’ He adds that ‘people are generally investing in art as a lifestyle investment choice using excess funds available outside of a retirement fund. In such scenarios, you are buying art simply because you can, as opposed to you must or you have to. We’re seeing art form part of an overall portfolio, as opposed to a building block in a more retirement-orientated funding portfolio.’
In recent times art has become more popular as a go-to asset class
What to consider when investing in art
‘In any asset class, one must fully understand what’s involved. If you were to buy a piece of art, the obvious thing to do would be to display it and enjoy it instead of keeping it locked up. However, you also need to understand the potential impact that humidity, heat and direct sunlight could have on your investment(s). Then there is the important issue of insurance costs, as well as the costs associated with buying and selling the actual art,’ says Arnold. RMB Private Bank is a trusted source for those seeking advice who have inherited wealth or a trust. If art forms part of an estate, depending on the individual circumstances, that will determine whether art forms a component of that portfolio. If you, for instance, inherited an art portfolio, but require an income for purposes of living, some of that art would need to be sold,’ says Arnold. Arnold says ‘in the case of inherited assets, many of the assets fall under a dutiable estate where you pay estate duties and if there’s effectively leakage in terms of value, that is then paid in tax. Art, in certain instances (if deemed as personal use assets) are then exempt from Capital Gains Tax (CGT). So, the odd Rembrandt or Van Gogh in your lounge is okay. However, if you are deemed to be an art dealer or professional collector, ie. it is a business; then it gets more complicated. I would encourage clients in this instance to get a formal opinion.’
the role of a wealth manager is to understand an individual’s particular investment standards, their needs, goals and objectives
Seek sound advice
‘The advice that we give clients when talking about any investment is: look at the professionals, talk to the professionals, people who are involved in a particular industry,’ says Arnold. ‘In terms of art, it might be auctioneers, a particular collection, gallery owners and art curators. It is important to do your homework when it comes to art –to understand the value of art and what constitutes a big name, such as an Irma Stern or Pierneef. It is also worth knowing why sometimes attaching a big name to a certain piece of art does not necessarily mean you are going to make money out it.’ Arnold says the role of a wealth manager is to understand an individual’s particular investment standards, their needs, goals and objectives. The wealth manager then puts a plan together that ensures that those objectives can be met and achieved over a period of time. ‘In doing that, we leverage off the greater FirstRand Group by pulling expertise in certain areas. For instance, if there are family trusts involved, we call upon our fiduciary specialists, stock brokers, portfolio managers and so on. In terms of building the solution, we aim to take a lot of the noise out of the system by packaging some internal and external research in a frame that’s dynamic and disciplined to give us a broad-based investment process. Our primary task is to make sure that we are growing and protecting our clients’ wealth.’