Squeezed into the crowded saleroom at Sotheby’s Bond Street auction rooms, Mary Hoeveler, head of art advisory at Citigroup Private Bank, follows the bidding closely. It is an evening when a total of £69m worth of artworks is sold, including a record £6.1m for a work by Edvard Munch, the Norwegian expressionist best known for “The Scream”.

Hoeveler is not bidding on this occasion though she keeps a close eye on what sells – and for how much – and on what fails to reach its reserve. The day before she bid unsuccessfully on behalf of a couple of clients and she will be bidding again the next day.

Hoeveler and her team provide advice to the bank’s wealthier clients on how to assemble and manage their collections. They have their counterparts at the private banking arms of several other large banks, including UBS and Deutsche Bank.

Investing in art is becoming a mainstream activity for many wealthy individuals and the banks that advise them. The European Fine Art Fair, one of the big events of the global art calendar taking place in the Dutch town of Maastricht from this weekend until March 19, has swept to prominence in recent years. Fairs have grown in popularity with around 120 major ones held annually around the world.

After the British Rail pension fund’s groundbreaking foray into fine art investments in the 1970s, this area of alternative investment fell out of favour. But in recent years banks have been recruiting large teams of art advisers and UBS is considering opening a New York office to back up its 12-strong Swiss-based team. “It is better to be onshore to service clients,” says Karl Schweizer, head of art banking. “We are doing a lot of travelling at the moment.”

The strength of the global economy and the buoyancy of prices of many financial asset classes mean there is no shortage of funds looking for a home in the art market. Sotheby’s this week reported that 2005 had been its best year for at least 15 years.

Old Master paintings increased 49.3 per cent in value in the 10 years to June 2005, while contemporary art rose 55.3 per cent, according to an art and antiques index launched last year by Hiscox, an insurance undewriter, and Art Market Research, an index creator.

Taking into account the pleasure to be gained from looking at the paintings, this is not a bad return when set against an investment in the FTSE All World which delivered a 55.39 per cent return in sterling terms over the same period.

“Prices are very high and some commentators think we are at a danger point,” says Christina Schroeter-Herrel, head of the six-strong art advisory team at Deutsche Bank’s Private Wealth Management. “But there are more collectors now and I think prices for quality artwork will go higher.”

This upsurge in interest has been accompanied by increasing sophistication on the part of buyers, says Robert Read, fine art underwriter at Hiscox. “There was a time when you could not sell a painting in England unless it had a horse or a dog in it, preferably both. But now there has been a shift away from old furniture, silver and Old Masters.”

But buying art still requires a very different approach to other investments, the experts agree.

“Our clients have a passion for collecting art,” says Hoeveler. “They are collectors by temperament. They are not buying to resell. We acquire works for them to live with.”

UBS’s Schweizer explains: “Buyers of stocks and shares have a short-term orientation. They want to buy at the lowest price and sell at the highest. With art it is more important that they love it and get an emotional dividend out of it.

“Providing financial advice is a different matter when it comes to art. With financial investments you can do fundamental research into a company, its market strategy, and the quality of its management. These are more or less objective factors that allow you to see trends and formulate a definite forecast. You can analyse the status quo of an art work but it is not possible to give any serious future forecast.”

While the recent trend in most sectors of the art market has been upwards, paintings and other artworks are very illiquid investments. Their status and price can be damaged if they appear too frequently at auction or if they fail to sell. Prices can also be subject to fashion.

Works from an artist’s prime can fetch much more than earlier works before a distinctive style developed or later works when his or her faculties may have been in decline. One potential buyer refused to bid for a Gauguin that sold at the Sotheby’s auction for nearly £12.4m – the highest price of the night – because they did not think the face of one of the women portrayed was very attractive.

Profit may not be the sole or even the main aim of putting together an art collection but the status conferred by becoming an art connoisseur is undeniable. “Art has a strong element of social acceptance,” says Schweizer. “It allows you look cultured and leverage your personal attractiveness.”

Lending your artwork to an exhibition in a public gallery is one way of boosting your status – the work will be listed as “from the collection of...” – while inclusion in an exhibition demonstrates the work is of museum quality and can enhance its value.

Advice for the aspiring art collector is available from a variety of sources including the dealers and the auction houses. The banks believe they can play a role because they have existing links with wealthy clients and because they can provide advice independent of the need to make a sale or a purchase.

“We help them manage their collection, sourcing works for them if they want to buy or advising them on a sale,” says Hoeveler. “We will provide a second opinion on an artwork, research its condition and its authenticity and provide advice on the prices fetched by comparable works.”

Among the newcomers to the world of collecting are entrepreneurs or executives who are interested in building up a collection but do not have much time to do so. Or they may be people who have sold their business and now want to devote more time to cultural pursuits. “We would advise them on works they might want and on strategies,” says Schweizer. “Another category is the wife or children of a collector who has died. They don’t know a lot about the collection and they do not want to make a mistake. They want to know if they should keep the collection, sell it all or sell off individual works.”

Finally there are the established collectors who do a lot for themselves, curating their own collections and arranging their own displays. But even these people welcome ideas on what to buy and feedback on market developments.

What does this advice cost? All collections are different and UBS bases its charges on individual cases. Advice from a senior member of the bank’s art team would cost SFr500 an hour while a commission of 5-10 per cent would apply to private sales of artworks. If the bank bids for a work at auction it agrees a flat fee to cover due diligence.

Citibank says it charges an annual retainer depending on the scope of the work involved and the size and location of the collection: whether it is in one place or spread over a number of sites. Deutsche Bank charges a commission on purchases and sales while it has a day fee for other work.

The prominence of collectors such as Charles Saatchi and Steve Wynn, the Las Vegas casino owner, is so great that their tastes can move markets. Even if you are not in that category, building an art collection can be a source of much pleasure – and profit.