How Citigroup Courts Wealthy Young Heirs: Teach Them to Buy Art
by Margaret Collins
The team went all in on Kate Moss.
One evening last month at Citigroup Inc. in downtown Manhattan, a group of 20-somethings spent $95,000 in a bidding war for a black-and white photo tapestry of the fashion model’s face. They were confident that the work by the prominent New York artist Chuck Close was worth the price.
That’s why there was a collective gasp when Tash Perrin, a senior vice president at Christie’s, revealed that the work didn’t sell when it was last auctioned in 2013.
The sale and money that the 40 participants used to bid with was fake, but the lesson on valuing and buying art was real. The attendees, from wealthy families in 18 countries, are poised to inherit enough money in coming years to purchase some of the items they were shown at the event -- from Cartier earrings worn by Elizabeth Taylor to a Bjork album cover photograph. For firms like Citi Private Bank, teaching them how to invest in art is one tool to help retain the heirs when the family wealth is passed on to them.
“You don’t have the birthright to the next generation’s wealth,” said Money Kanagasabapathy at Citi Private Bank, who directs such events for clients’ children. “We want to continue to have the relationship with the family.”
In the past, wealth managers haven’t been so successful at keeping younger clients. On average, firms have seen almost half of the assets leave when a family’s wealth is being handed to the next generation, according to the latest figures from a report on global private banking by consulting firm PricewaterhouseCoopers.
Banks are trying to reverse that trend because an estimated $36 trillion is expected to transfer to heirs in U.S. households alone from 2007 to 2061, according to a 2014 study by the Center on Wealth and Philanthropy at Boston College. The figure swells when including billionaires worldwide, a majority of whom are over age 60 and have more than one child.
The U.S. economic recovery also has accelerated parents’ desire to prime children for what’s coming, said Arne Boudewyn, a managing director in Wells Fargo & Co.’s Abbot Downing unit.
“Company valuations are higher than in past years, including family-owned and controlled companies,” said Boudewyn, whose clients generally have at least $50 million. “Many families who never seriously contemplated selling are now fielding offers they can’t refuse.”
Citi Private Bank’s event included a session on buying art because the asset class is increasingly seen as an investment, with global art sales hitting a record in 2014 as new collectors drove up prices for trophy works.
Yet art is an illiquid investment and difficult to value, as the team betting on Kate Moss found out. The millennials spent $95,000 of their fake $100,000 allotment on the piece in the mock auction.
Other banks including Credit Suisse Group AG, Deutsche Bank AG, UBS Group AG and Coutts, a unit of the Royal Bank of Scotland Group Plc, run training camps for clients’ children. Held in countries including Singapore and Switzerland, the programs usually span several days to more than a week and participants often fly in from around the world. The seminars -- which cover topics such as sustainable investing, philanthropy, entrepreneurship or how to protect your family reputation and brand online -- are free to attend while clients generally cover their own travel and accomodation.
During the Citi Private Bank event, experts from Christie’s helped participants review a mock catalog of about a dozen works. They advised each team on criteria to determine value: a work’s quality, rarity, condition and history of ownership.
Attendees then bid on pieces that have been, or will be, auctioned including an Andy Warhol polaroid print of Giorgio Armani and a pair of ear clips by Seaman Schepps formerly owned by the Duchess of Windsor. Perrin then showed the teams what the works really sold for so they could see if they spent their money wisely.
Wells Fargo’s Abbot Downing and U.S. Trust, a unit of Bank of America Corp., have a financial education curriculum with individual coaching instead of boot camps. Some parents or grandparents require heirs to take it before telling them how wealthy they are and what they will inherit, said Chris Heilmann, U.S. Trust’s chief fiduciary executive. In June, the bank added a program for teenagers as young as age 13.
The young adults who attended Citigroup’s event have jobs and even some master’s degrees, but their parents want them to hone skills that are unique to their wealth -- such as bidding on a Picasso or taking over a family business, said Kanagasabapathy.
“There is no tolerance today for an incapable CEO,” he said.
Wealth managers like Citigroup said they hope the trainings will strengthen both family profits and bank loyalty.
“It’s easier to retain a client than to get a new one,” he said.