Offering Wealthy Heirs Crash Courses on Art Problematic

Offering Wealthy Heirs Crash Courses on Art Problematic

Citigroup offers wealthy heirs an art auction crash course, but is it actually a good idea?

Citigroup and other banks are enacting a novel strategy in their attempts to retain younger clients—training camps for clients’ children on responsibly handling wealth, including how to purchase art. On its face, this strategy makes a lot of sense. But a little knowledge, especially in the world of fine art, can be very dangerous.

Banks report that they lose roughly 50 percent of a family’s assets when a generational transfer occurs, be it through the heirs taking their business elsewhere or the typical waste and poor planning that lend credence to old cliché of “shirtsleeves to shirtsleeves in three generations,” according to a recent Bloomberg article.

That level of asset loss is particularly concerning for wealth managers when you consider that the Baby Boomer generation is reaching old age, and many experts believe that we’re staring down the barrel of perhaps the greatest period of wealth transfer that this country has ever seen. As such, banks are doing everything they can to reach out and touch the next generation wealthy in order to both cement a relationship early on in hope of keeping their business after the inevitable transfer and to impart some sense of the responsibility that the heirs’ inheritances represent. Course topics, such as the purchase of art, are chosen both for their practical value—art is an increasingly popular asset class that’s being viewed more and more as a serious investment—and for their appeal to next gen sensibilities (they have to get these kids to actually show up after all).

On the surface, this strategy appears inspired. Banks have an interest in cementing their relationships with their wealthy clients’ children and in exchange, they can offer those children a limited education, generally free of charge, in managing their future wealth. Yet, when it comes to such courses on purchasing art, something about them still strikes me as somewhat irresponsible. I know that educating the next generation is key, but this seems like an area where a little knowledge can be very dangerous.

If art really is to be treated as a legitimate investment, alongside more traditional asset classes, then what exactly can be accomplished in a couple of days other than giving these kids just enough rope with which to go out and hang themselves? I’m sure the courses stress the volatile nature of buying art at auction and a great deal of time is likely spent detailing the potential pitfalls involved, so perhaps some of these twenty-somethings will take those lessons to heart and proceed with caution. But I’ve met enough twenty year-olds to know that that’s probably a pipe dream.

Call me cynical, but the more likely scenario seems to me that these heirs will be emboldened by this crash course and dive straight into the deep end. That may work out for some of them, but many others will inevitably drown. And whom will the unlucky losers blame for their misfortune? Surely not themselves (they’re 20, remember); more likely the bank that “taught” them about investing in art in the first place. So not only has the heir lost a bunch of money himself through his ill-advised purchase, but he’s potentially decided to take the rest of his fortune elsewhere as well, a true disaster for all involved. Teaching a client's heirs how to responsibly invest in art likely requires a more hands on and individualized approach from advisors, a position much the same as they would take for any other asset class.

The next generation needs to be prepared for the wealth they’re set to inherit, and for many, learning about art investment will be an important part of that preparation. However, whether the financial complexities of that education lend themselves very well to a group seminar setting is questionable, regardless of how fun mock auctions may be.

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