Expert Opinion: Transparency and Authenticity

April 25, 2016Deloitte's 2016 Art & Finance Report

Below is Steve Brodie's article published in Deloitte’s 2016 Art & Finance Report. Steve was one of 39 art world insiders asked to contribute commentary.

Transparency and Authenticity

Authenticity/forgery: there is simply no satisfactory way to deal with this problem. I am not especially bothered by the closing down of authentication boards, and do not think US law should adopt the European approach, which gives great credence to authentication boards controlled by friends and family of deceased artists. The conflicts of interest are simply too great, too often. However, at the same time, buyers and lenders (at least those who are truly lending against art as collateral, as opposed to those effectively making unsecured loans to ultra-high net worth individuals, where the art is really abundance of caution credit support) have no reliable way to minimize this particular risk. With this in mind, I strongly support legislation (although not necessarily the kind proposed in New York State) to better protect professional authenticators from frivolous lawsuits. I also think that the new initiatives involving synthetic DNA markers could prove valuable in the future, for newly created artworks; but presently this is one of those problems without a good solution. The best advice I can offer a buyer or an asset-based lender is to hire experienced and sophisticated professionals, including art advisors and lawyers, when engaging in an important transaction.

Lack of transparency/trust: the lack of transparency clearly leads to title problems and, arguably, reduces trust and depresses values in the long run. However, it is hard to see how this can change without the support of the big stakeholders in the art business. I also don’t see where they have a sufficient incentive to support such a change, as the current system appears to primarily benefit the big auction houses and the major dealers. Short of regulation (which seems improbable as a political matter), title insurance would be a solution because it offers a true transfer of risk, rather than the mere promise that the auction house or the gallery did their homework well and would stand behind the buyer if there were a problem. I believe that these big stakeholders have superb resources and that their diligence platforms are generally excellent. However, actual risk transfer is what most buyers and lenders truly want, and only insurance can offer that. One problem, of course, is that insurance costs money and these big stakeholders would generally prefer to receive it themselves than to share it with an insurer. As a result, title insurance is much discussed at seminars and symposiums, but has not attained widespread acceptance in the market. It may also be that it is presently too expensive to be utilized with enough frequency to bring the price down. In any event, absent title insurance, my advice to a purchaser or lender is to hire top quality lawyers and art advisors to help navigate in this still remarkably opaque environment.