Nearly one-third of Canadians include investments such as art, coins, stamps and wine as part of their financial portfolios, says a new BMO report.
How can you integrate your client’s passion for collectables into a portfolio? You don’t need to be an art aficionado or a connoisseur of fine wines to manage your client’s collectibles, says Richard Mason, head of investment management with BMO Harris Private Banking in Toronto.
“Having an appreciation for art is a start,” Mason says. “However, it’s more about addressing the value of what your client may not have considered as part of their wealth than the technical interpretation of valuables such as art.”
Mason has a few suggestions on how to manage these collectibles:
> Confirm the value
Think about collectibles as a separate asset class, Mason says, whose characteristics are different from those of a traditional financial portfolio.
Ask your client whether the collectibles have been appraised recently because of the often fickle valuations for such items. If the items haven’t been appraised lately, encourage your client to get them evaluated.
> Insulate collectibles in a client’s portfolio
Keep art and collectibles separate from other assets in your client’s portfolio because they are illiquid assets.
“[Your client] could buy a piece at an auction.” Mason says, “and find out a year later that they aren’t able to sell it.”
He recommends that collectibles and other works be seen as part of a much longer-term investment.
> Make collectibles part of your financial planning conversation
Collectibles are not restricted to high net-worth clients. While some such items can be more or less esoteric, Mason says, they are items that “everyone has in their home.”
Not enough advisors approach their clients about collectibles as part of a broad financial planning discussion, he says. A spin-off benefit of broaching the subject of collectibles with your clients is that it deepens your relationship by turning the conversation toward something about which the client is passionate.
> Position yourself as an advisor, not a historian
Never profess to be an expert in collectibles if you are not. Says Mason: “Your client is probably the bigger expert on what sits in their home or gallery.”
Instead, emphasize your abilities as a good financial advisor. Remember that valuable collectibles are often passed from one generation to the next, so your knowledge of estate planning will be more valuable to a client.