Art Advisory for Family Offices: Process, Governance and Selection

A family-office art policy is a document that captures the collection's purpose, scope, governance and operating procedures. The purpose section explains what the collection is for: long-term stewardship, philanthropy, decorative role in the family's residences, support for the family's artists, or some combination. The scope section names the collection's areas of focus, its scale, its budget, and any constraints the principal has set. The governance section names who decides what, who signs, and who reports.

The operating procedures cover acquisition criteria, due-diligence standards, valuation methodology, insurance, conservation, lending, deaccession, dispute resolution and succession. A policy that addresses all of these reads as institutional; a policy that addresses only some of them reads as a hobby with documentation.

The right advisor for a family office is independent of any gallery, auction house or artist, has experience with reporting frameworks, and works comfortably alongside legal, tax and trust counsel. The advisor should be able to write the art policy, build the collection's record, run the annual review, and report to the principal in the language the principal uses.

The advisor should also be able to coordinate with the family office's existing advisors: the investment advisor on the collection's role in the overall portfolio, the tax advisor on the collection's tax treatment, the legal advisor on title, succession and dispute, and the trust advisor on the collection's role in the trust. An advisor who can only do acquisition is the wrong advisor for a family office.

Family-office engagements are usually structured as a flat retainer with a reduced acquisition percentage on top, or as a flat retainer with no acquisition percentage. The retainer covers ongoing work: policy, reporting, attendance at fairs, due diligence, annual review and operational coordination. The acquisition percentage, where used, is typically lower than for one-off engagements, because the retainer covers most of the operational work.

The right structure depends on the scale of the programme and the level of operational service the principal wants. A small family office with a modest collection is usually well-served by a retainer-only structure. A larger family office with an active acquisition programme usually pays a retainer plus a reduced acquisition percentage, with the percentage calibrated to the engagement.

An annual review is the document the principal reads once a year and the basis on which the next year's programme is set. A good review covers the collection's current value, the year's acquisitions, the year's deaccessions, any conservation or insurance events, any lending or borrowing activity, and a forward look at the next twelve to twenty-four months. The review is presented to the principal and, where appropriate, to the next generation.

The annual review is also the moment when the policy is tested. If the policy does not address a situation that came up during the year, the policy is updated. If the policy addresses the situation but the principal's view has shifted, the policy is renegotiated. A policy that does not evolve becomes a constraint rather than a framework.

A family-office art programme sits alongside an investment programme, a tax programme, a legal programme and a philanthropic programme. The art advisor's job is to coordinate with each of these without stepping into their territory. The investment advisor may want to know the collection's role in the overall portfolio, the tax advisor will want to know the collection's basis and any tax elections, the legal advisor will want to know the collection's structure for title and succession, and the philanthropic advisor will want to know if the collection supports any of the family's giving priorities.

An advisor who can hold this coordination without drama is the right advisor for a family office. An advisor who treats any of these as a competitive relationship is not.

The principal remains the decision-maker. The art advisor's job is to make the decision visible: to present the options, to summarise the tradeoffs, to document the decision, and to execute. The principal does not need to be an art expert to make a good decision, and the advisor's job is to make sure the principal does not have to be.

A family office that has built a formal art programme has usually done so because the principal wants to enjoy the collection without having to manage the collection. The advisor's role is to make that possible.