This article was originally published in Antique Trader
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By Gary Raphael, ACE PRS, Senior Vice President, Risk Consulting
The ACE Private Risk Services Survey on Passionate Investing by Wealthy Households was commissioned by ACE Private Risk Services and conducted by the market research group of FTI Consulting using its proprietary Affluent Dynamics® online marketing research panel of wealthy individuals. The online survey was sent to 936 members of the panel and 168 completed responses were received, which represents an 18 percent response rate. Survey participants were limited to those panel members who held a minimum of $5 million in investable assets (total assets excluding value of a primary residence). Additional information can be found at: www.aceprs.com.
A passion for collecting often begins early, as children excitedly and eagerly add the next baseball card, comic book or American Girl doll to their cherished set of treasures. For many, as their experiences and interests evolve and grow, collecting becomes a lifelong passion. For the wealthy, a passion for collecting can be manifested with a level of commitment and focus equal to their substantial financial resources.
And as household wealth grows, collections increasingly become part of an investment strategy to diversify and build assets.
The wealthy like to collect . . . seriously
Perhaps not surprisingly, owning items of distinction and value is almost ubiquitous among the wealthy. Fully 94 percent report owning at least a few select items that have significant monetary value, such as fine art, classic cars, wine or jewelry. Well over half (57 percent) consider themselves serious collectors in at least one category. Nearly two out of five (38 percent) are serious collectors in three or more categories. Some 44 percent maintain collections valued at $1 million or more.
The wealthy enjoy what they collect
Survey participants were asked to cite the reasons why they collect items of significant value. The most often cited reason – chosen by fully 90 percent of respondents – is that they enjoy the intrinsic value or beauty of the items themselves. Other frequently cited reasons speak to the passion that the wealthy have for their collections. Three out of five pointed to the emotional or personal connection they feel to the category of items they collect. Nearly half (46 percent) enjoy interacting with other collectors who share their interests. About one in three said they are driven by the competitive challenge of building a collection. A similar number (35 percent) see themselves as stewards or caretakers of family treasures.
Investment value is an important factor in the purchasing decisions for most collectors.
The survey included several questions aimed at uncovering how much weight the wealthy give to their collections as a way to diversify their investments or achieve appreciation in the value of the items over time. The answer: quite a lot, particularly for households with more than $10 million of investable assets. Two-thirds of respondents said that the potential for an item to appreciate in value is a very or extremely important factor in their purchasing decision. Among households with more than $10 million of assets, the proportion rises to 73 percent. In addition, more than half of all survey respondents (53 percent) reported that their collection is a very or extremely important part of their overall investment diversification strategy. In the $10-plus million segment, that view was held by an even higher 60 percent.
The 2008-2009 crisis heightened interest in investment collecting
The Great Recession has led many wealthy investors to view their collections as a more important component of their investment strategy.
About half of survey respondents reported that the investment diversification value of their collections became somewhat or much more important after the 2008-2009 economic crisis. This view was most strongly held among the $10 million-plus group, where 37 percent said it was much more important, compared to 14 percent in the $5 million to $10 million group.
Among all respondents, just 5 percent said the investment value of their collections were somewhat or much less important.
Most plan to increase spending on collections but may leave gaps in insurance coverage
The wealthy are poised to ramp up spending to further build their collections. More than half (55 percent) of respondents say that over the next year they will increase the amount they spend. One in five respondents said spending will be increased by a great deal.
Higher spending will be driven by the wealthiest segment, where 26 percent say spending will increase a great deal, versus 11 percent among the $5 million to $10 million segment.
Among all respondents, just 4 percent said they plan to pull back on spending on collectibles over the next year.
Homeowners insurance policies have specific limits of coverage for items of significant value such as jewelry, stamps and coins and fragile articles such as bottles of fine wine or sculptures. Insurance companies instead offer supplemental coverage for valuable items, known as scheduling or valuables policies, that involves listing specific values for the items of a collection individually, or as a group.
Overall, the survey found that about three-out-of-five wealthy collectors (62 percent) had a valuables policy to cover all of their collections. That means that nearly 40 percent of collectors do not have all of their collections insured.
Many are insured by mass-market carriers
One-third of wealthy respondents reported that both their home and collections are insured by a mass-market carrier. Among families with $5 million to $10 million of assets, the percentage is nearly half (46 percent). Valuables policies from such carriers often lack important coverage features to guard against temporary fluctuation in market value of collections and breakage of fragile articles.
Insurance carriers that specialize in providing coverage to high-net worth individuals and families, such as ACE Private Risk Services, offer clients the services of risk consultants who focus on preventing losses to clients’ valuables. Risk consultants can advise clients on how to store, display, and ship their collections in a way that will minimize the likelihood of damage or theft.
Overall, 40 percent of survey respondents have not taken advantage of loss prevention services for their collections. Among the $5 million to $10 million segment, half have not utilized a risk consultant. The failure to undergo a risk consulting assessment was most pronounced among wealthy households insured by mass-market carriers who do not specialize in serving high-net worth families. Just one-in-four households insured by a mass-market carrier had used a risk consultant.
Most regularly update their collections’ market values
A majority (82 percent) of wealthy collectors are adhering to the best practice of formally documenting all of the items in their collections. Similarly, solid majorities of collectors are regularly updating the market value of their collections.
Fully two out of three survey respondents said they updated the market value at least every two or three years. But that leaves one in three who are not updating the market value of their collections every three years. With the market value of gold, silver, art and other valuable collectibles experiencing significant shifts, that is not nearly often enough.
My most prized possession – Sentiment Trumps Investment
To understand what drives collecting behavior among the wealthy, we asked survey participants to tell us about the one item in their collection they valued most. We also wanted to know why it was so important to them. The most-oft cited reason? Fully half said the item was a favorite because it has personal sentimental value. Another 20 percent said it was the item’s intrinsic value or beauty. For one in 10, it was the first truly valuable item in their collection. Only a handful – under 4 percent – cited the item’s monetary or investment value.
To present survey participants’ most prized possession, we entered all written responses into a software program to create a word cloud, in which the frequency with which each word appears corresponds with its size.
Not surprisingly, the type of collectible – jewelry, antique, coins, art, etc. – are the words cited most frequently. But so too are some of the words that speak to the sentimental value of these items – grandmother, grandfather, wedding, generations and personal.
ACE Private Risk Services helps individuals and families enjoy the success they have achieved by enhancing their security and protecting their assets with custom-fit insurance and risk management programs. Learn more by calling 800-215-640-1000, visiting AcePRS.com of Basking Ridge, N.J.. All graphics courtesy ACE Private Risk Services.
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