Some of you might remember the 1980s and 1990s BBC TV drama Lovejoy about an art dealer in England.
The show was far from being anything like the highly credible Antiques Roadshow, which has been running for more than 30 years and involves people visiting a famous location and getting on-the-spot expert valuations for their prized possessions.
In fact, Lovejoy was a show about art dealers who found amazing collectable bargains and thought of various ways to rip each other – and sometimes their unsuspecting clients – off.
My memory of this enjoyable TV series was stirred when I heard about the not-so-funny collapse of an art dealer called Smith & Hall here in Australia.
Smith & Hall not only sold artworks; they specialised in helping self-managed super funds invest in artwork. They insured the investments and organised for them to be rented to corporations on the owners’ behalf. After taking a management fee, they paid the net rent to the owners.
By all accounts, it was quite a successful operation, or at least appeared to be until it went broke.
Many SMSF trustees who used Smith & Hall didn’t receive their expected rental payments or the insurance that they thought they had purchased. In some cases, trustees haven’t even been able to recover the artwork they own.
There’s no doubt there are some shifty art and antique dealers – much like there is in any sector of the economy. So if your SMSF is going to invest in collectables, how can you avoid getting caught up in a similar situation?
Well, to be honest there’s no ‘fool-proof’ guide I can give you. The reason is that no investment is risk free. Even putting your money in a bank contains risks because it’s possible for banks to go bust. Having said that, there are some things you can do to reduce risk.
What you can do
The first thing you should do is to think very carefully about why you want to own artworks or collectables in your super fund. Don’t rush in with emotional investments. And don’t worry about missing out on the bargain of a lifetime because there’ll always be another, and by then you might be more certain about what assets you’re looking for.
Why deliberately buy in haste and repent in leisure?
Second; artworks and collectables typically don’t earn income (unless you rent them out) and this aspect needs to be carefully thought about when designing your investment strategy.
Third; only use reputable and long-standing dealers. For example, if you’re interested in rare coins or notes you should consider using only members of the Australasian Numismatic Dealer’s Association, a body that self regulates about half of the rare currency dealers in Australia. There’s a similar body for stamp collecting and associated items – the Australasian Philatelic Traders’ Association. For antiques and artworks, there’s an Australian Antique and Art Dealers Association.
But this is only the start of your due diligence. Before you part with your hard-earned super money, you should visit or view the prospective asset (unless it’s completely impractical or you’re thoroughly convinced it’s unnecessary).
Fourth; consider getting an independent valuation and assessment of the asset before buying it. This may add to your costs, but it could raise issues or concerns that you hadn’t identified. This is much the same as getting an architect or builder to inspect a house before buying it.
Fifth; before you purchase an asset, work out all likely costs and potential sources of income.
My sixth point is this: ask to be referred to satisfied customers of your prospective dealer, especially previous SMSF investors.
Lastly, if you plan to rent out an artwork, make sure you know where it is at all times. On top of that, make sure you have the right to visit your artwork from time to time just to check on how well it’s being looked after.
