Barclays Report Shows 34% of High Net Worth U.S. Individuals Hold Treasure Assets for Financial Reasons; Emotional Motivations Dominate Collectibles Market
NEW YORK, June 11, 2012 /PRNewswire/ --
- 82% of high net worth U.S. investors hold their treasure in part for enjoyment
- Precious metals are the only treasure asset that is more likely to be held for financial than emotional reasons
- U.S. investors require an average price increase of 62% in the first year of owning an asset to trigger a sale
Interest in "treasure assets" or collectibles such as precious jewelry, fine art, antiques, classic cars and precious metals among high net worth U.S. investors has increased in recent decades, with emotional reasons trumping financial ones, according to the latest report in the Barclays Wealth Insights series, Profit or Pleasure? Exploring the motivations behind treasure trends. Despite continued domestic and international market volatility, only 23% of U.S. respondents hold treasure for purely investment reasons and just one-fifth (21%) hold these assets as security/protection in case conventional investments fail. Precious jewelry, fine art pictures and antique furniture are the most popular investment types in the U.S.
Seventy-one percent of all respondents, including those who do not own treasure assets, report that emotions influence their overall financial decision making. This percentage is even higher for those that do own treasure, with 98% of those surveyed agreeing that they hold their treasure in part for emotional motivations. The study reveals that the emotional motivations for holding treasure assets are complex and interconnected with respondents reporting multiple reasons for owning their treasure assets. Overall, 82% of high net worth U.S. investors hold their treasure in part for enjoyment, 76% for its heritage value, 59% for social motivations, 28% for its rareness and 7% for monopolization motivations.
Some asset classes are more closely associated with financial or emotional motivations than others. Precious metals are largely held for financial reasons (60%) and is the only treasure asset class that is more likely to be held for financial than emotional reasons. Meanwhile, wine (93%) and classic automobiles (91%) are held overwhelmingly for emotional reasons.
"The collectibles market has seen a surge in activity — most recently demonstrated by the record sale price of Edvard Munch's 'The Scream' in May 2012. However, while treasure has grown in popularity, it hasn't necessarily translated into strong financial returns for investors and strong caution should be exercised in viewing it as an alternative to traditional asset classes," says Daniel Egan, Behavioral Finance Specialist in the Americas for the Wealth and Investment Management division of Barclays. "Taking into account the layers of emotional motivations that factor into holding treasure assets, these collectibles should be regarded as part of a wealthy individual's personal holdings rather than as a separate asset class in their investment portfolio. Critically, the personal value individuals attach to these assets means that purchase and sale decisions are even more susceptible to emotional biases than usual."
Thirty-two percent of respondents say they will reduce the number of types of treasure they hold over the next five years for reasons including a desire to liquidate assets, realize returns or carry out estate planning, but many will not follow through on their intentions to "declutter." Emotional attachment impacts the sale of treasure assets with U.S. investors requiring an average price increase of 62% in the first year of owning an asset to trigger a sale. The exception is those who inherit collectibles. Respondents who inherited treasure are much more likely than those who acquired it through other means to say that they have sold it or plan to do so in the future. Sixty-two percent of inheritors have already sold their stamp collection, the asset class with the highest proportion of decluttering that has happened, as compared with 36% of non-inheritors.
"There are multiple behavioral factors at play throughout the life cycle of an investor's ownership of treasure assets. Many are initially drawn to buy these collectibles for emotional reasons and then hold onto them because their emotional attachment grows, leading them to assign a higher value to an item than they would have paid to purchase it," says Mr. Egan.
Christopher Johnson, Director and Wealth Advisor in the Wealth and Investment Management division of Barclays, adds: "The 'stickiness' of these assets underscores the necessity of viewing collectibles holistically within the context of an individual's total wealth as they can have a profound impact on their optimal wealth management strategy even if they were not purchased with finances in mind. As the estate and capital gains tax landscape in the U.S. is set to shift at the end of 2012, these financial implications are increasingly top of mind for wealth managers and their clients."
U.S. Regional Differences
Notable differences in treasure trends and motivations emerged between regions in the U.S.:
- High net worth U.S. investors in the West hold 9.7% of their total wealth in treasure, the highest concentration across regions, and are most interested in precious jewelry, fine art pictures and fine art tapestries
- Investors in the South prefer precious jewelry, fine art pictures and antique furniture and only hold 7.9% of their total wealth in treasure, the lowest concentration across regions
- Heirloom and cultural motivations are less important in the West; only 29% of these investors' treasure is held to protect and pass on to their children and grandchildren, and only 28% is held for culture/family reasons
- Comparatively, 39% of Northeast investors' treasure is held for heirloom motivations and 38% for cultural motivations
- Just 20% of Southern investors' treasure is held for sharing with friends, indicating that they are fairly private with their treasure and do not feel a strong social motivation
- Southern investors are also more likely to report financial motivations compared with other regions; 11.4% of their treasure is held for pure investments or as financial security if conventional investment fails
- Respect is more important in the Northeast; 6.2% of Northeast investors' treasure is held because others respect those who own treasure assets
Global Treasure Landscape
Globally, high net worth individuals hold an average of 10% of their total net worth in treasure assets, however, this rises to nearly a fifth in the U.A.E., where investors have an average of 18% of their net worth tied up in treasure assets. For individuals in Brazil, China and Singapore, treasure assets make up, on average, a sixth of their total wealth, while those in the U.K. (7%), India (3%) and Qatar (2%) hold more conservative levels.
Precious jewelry is by far the most popular treasure asset type for wealthy individuals across all countries, with 70% of respondents globally investing in this asset, followed by fine art (49%) and antiques (37%). The most significant motivation for holding treasure assets was enjoyment, with nearly two thirds (62%) of treasure assets held for this reason. In contrast, just 18% of treasure assets were held purely as an investment.
"As in the U.S., investing in treasure in most parts of the world is more about enjoyment than financial returns. Interestingly, social motivation is particularly strong in key emerging markets, which may suggest that, in countries where there are large numbers of newly wealthy, there is a propensity to demonstrate this wealth through treasure as a signal about status," says Mr. Egan. "Regardless of geography, the most important consideration for high net worth individuals is how their motivations for acquiring treasure assets and ownership of those items are components of their broader wealth. For most people, remembering that their treasure's principal role will be enjoyment will provide the best emotional return on their wealth."
About Barclays Wealth Insights & Survey Methodology
Profit or Pleasure? Exploring the motivations behind treasure trends, the latest report in the Barclays Wealth Insights series, provides an in-depth study of investment trends across the world in treasure assets and offers insight into the financial and emotional motivations for wealthy individuals holding these particular assets. The report looks at the value these high net worth collectors place on their possessions, as well as considering questions of social utility around accumulating treasure.
Ledbury Research conducted a survey of more than 2,000 high net worth individuals, all of whom had over USD$1.5 million/GBP 1 million pounds Sterling (or equivalent) in investable assets and 200 with more than USD$15 million/GBP 10 million pounds Sterling. Respondents were drawn from 17 countries around the world, across Europe, North America, South America, the Middle East and Asia-Pacific. The interviews took place during January and February 2012. In the analysis, individual countries with less than 50 respondents have only been included in the regional findings.
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