If the collectible’s market wasn’t controversial enough, a new report claims that investors often fail to properly value their collections.
Part of that lies with the motivations driving collectors, concluded the UBS Wealth Management Americas’ Investor Watch Report, “For Love, Not Money.”
A majority of wealthy investors are driven to collect by passion rather than profit, the report found. On the other hand, many collectors “do not even know the full value of their collections nor have had them insured,” UBS reported.
That number is expected to grow as more baby boomers retire and spend their post-working years collecting fine wine, vintage cars, classic toys, artwork and games.
Collectors are definitely excited about their haul, and do see a financial opportunity down the road. Take comic books – a robust $800 million-per-year industry.
“While everyone’s heard stories of people cleaning out an attic to find comic books they sold at a hefty profit, it’s not just the older books that are valuable,” said Stephen Fishler, co-founder of the New York-based Metropolis Collectibles, the world’s largest vintage comic book dealer. “Even comic books from the last 20 years are becoming more collectible. Some have jumped from just a few dollars each five years ago to $50 to $100 today.”
Smart investors are finding that they can make money off of this trend, he added, but only if they treat it like they would any serious investment.
'Obligation and Guilt'
Likewise, when family collections are eventually passed down, “the majority of heirs have no interest in keeping the collection,” the UBS report said. “The few that do, only keep the collection out of obligation and guilt.”
Here’s more data from the UBS report:
• Eighty-one percent of collectors intend to leave their collections to heirs. Only 35 percent of heirs were interested in the collection and kept it as a result.
• Over half (51 percent) of investors have never had their collections appraised and 44 percent have not insured their collections.
• Most collectors have spent over 20 years accumulating their collections, which represent on average, 10 percent of their overall wealth.
• Forty-seven percent of wealthier investors (with $5 million or more in investable assets) have a preference towards collecting fine art, while only 33 percent of investors with less than $5 million in assets do the same.
• Nearly a quarter (22 percent) of wealthier investors spend more money on their collections than they spend saving for retirement.
Here’s a telling stat from the UBS study: despite spending a significant amount of time and money amassing their collections, 39 percent of collectibles investors don’t know the value of their collections.
“Investors assign a substantial amount of sentimental value to their collections, but do not always realize their financial value,” said Paula Polito, client strategy officer of UBS Wealth Management Americas. “There is an opportunity for investors to manage collections far more effectively, by assessing their true worth, and ensuring that they are protected.”
Passion for collecting can also cloud judgment, with nearly half of collectors admitting that they have overpaid for pieces, or bought or sold an object they later regretted, UBS reported.
Four out of five collectors also confessed that if they needed money in an emergency, they would rather sell assets in their portfolio than part with a piece from their collection.
Two Main Challenges
For financial specialists, the challenge in helping clients manage collectible assets is twofold. One, you want them to indulge (responsibly) into their specific collectibles passion, and two, urge them to sell their more expensive pieces off as they grow older into retirement.
“As an estate planning attorney, I’ve experienced interesting things when clients have passed, or I was called in for estate administrations,” said Gary B. Garland, an estate planning specialist in Manalapan, N.J.
Unless the beneficiaries are collectors themselves, they have no idea of the worth of the items or collection, and are subject to unscrupulous purchasers, he added.
Garland advises collectors to dismantle their collections and sell pieces as part of a coordinated plan. They will get the best prices, know what they’re dealing with, and even get to relive some memories of the collection process.
The bottom line on collecting high-priced items is simple, Garland said.
“Collect if you enjoy, but not as an investment,” he said. “Let your kids or beneficiaries know about the most valuable items, where to sell, and ideally strip the value of the collection while you’re still alive.
“That will take the burden off the kids, and you’ll get a better financial result than they would anyway.”
Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected]