Passion often comes before money when it comes to investing in art and other valuable collectibles, according to Sarah McDaniel of Morgan Stanley.
And that is a good thing, because collectibles tend to be illiquid—easier to buy than sell, said McDaniel, managing director and head of family office resources generalists and art initiatives at the firm.
“Investing in art and other collectibles has become more democratized, in part because of technology and better pricing,” McDaniel said. “But I still hope people are buying assets they love so they can enjoy the item while it becomes an investment over time.”
Collectibles, including art, are an unregulated investment that require education on the part of the collector. Helping these clients can solidify a relationship for the advisor who does his or her homework and offers assistance that goes beyond traditional investing, she said.
“If an advisor can help a client manage these alternative investments, it allows the advisor to know the client and the family better,” McDaniel said. “That establishes a relationship that carries over to other work the advisor and client do.
“In general, the world looks at investment firms for investment decisions. At Morgan Stanley we are aiming for more than that,” she said. “We are putting the balance sheet in perspective and looking at other parts of the balance sheet.”
Art and collectibles have grown in attractiveness as investments and in value in part because of the growing wealth of individuals across the world, said McDaniel. “Plus, the next generation is acquiring more money at younger ages. That plays into the popularity of these passion assets.
“Investors are buying these assets in part because of a love for the item and in part for the investment,” she added, adding that passion investments encompass paintings, sculpture, jewelry, cars or other collectibles.
Collectibles can become part of an estate plan, but the owner needs to consider whether the next generation wants them or how to divide the value among several heirs, she said.
“Many people acquire these assets because they like them and then realize they become more valuable than they thought,” said McDaniel. “They need to talk to experts about how to manage the pieces, how to insure them and how to handle them as a legacy.”