Friday, November 23, 2012

Time for serious fine wine companies to stand up and be counted?

Sometimes it's all a matter of timing. A scant 24 hours after reading of the collapse of wine investment firm, Vinance, with expected losses of at least £25m, I received an email from Moneyworld promoting a business called Cult Wines, who in their turn, are offering a "free wine investment guide"


Now, as regular readers will know, I'm a fairly naive soul who's easily confused, so maybe other people will have fewer difficulties associating the offer of that guide with the news that Cult Wines, it seems, is not actually "permitted to offer financial or investment advice". 





Looking at the Guide didn't reduce my confusion. A page headed with the words "Why Invest in Fine Wine?" sounds - to my ears - suspiciously like advice. As does ‘Investing in fine wine is a good way to preserve wealth in times of rapidly rising inflation’ (apparently a quotation but not attributed)

I was also interested to see comments like "weaker vintages (‘off -prime’), with substantially lower release prices, can also deliver strong investment potential". Which "off prime" vintage are Cult Wines referring to?

Another unattributed quotation states that ‘Cult Wines do not levy any early redemption charges at any stage or charge any selling commission.’ The explanation for this is that the company charges a hefty 15% at the outset. Presumably on examples of the 2011 Bordeaux that the team (below) bought at the 2011 en primeur tastings. 



So, any mug - sorry, that was a slip of the key; I should have said "investor" - who decides to "invest" in £50,000 of super 2011 Bordeaux (presumably bought at the best possible prices by the Cult team), has to write a cheque for £57,500 to include Cult's 15% charge.

Then, assuming that the wine does not disappear (as has happened in so many other cases) all the "investor" has to do is sit back for "3-5 years" apparently, and watch its value rise. Or not. Cult's claim is that it generously declines to share in any profit an investor might make. Another view is that their business model allows them to make considerable amounts of money from every customer irrespective of the success or failure of the investment. 


Cult Wines' website makes much of the fact that Tom Gearing, one of the principals, was a finalist of the UK TV show The Apprentice. No mention is made of Cult's appearance in Jim Budd's excellent JimBuddinvestdrinks website whose only raison d'etre is to  protect consumers against possibly unwise wine investments.

Anyone tempted by Cult Wines offer, and unworried by the upfront commission, might care to read this exchange between Budd and Cult - and others.

Behind all this, however, lies a more fundamental question. At their current prices, fine wines are, whether one likes it or not, largely the focus of individual investments and investment schemes. The traditional wine world would rather pretend that this were not the case - while happily pocketing the proceeds. Wine, they say, is for drinking. Of course it is, for some people, but not for many of the people who are actually doing the buying. They, I would suggest, would echo rugby player Austin Healey's words on a video on the Vin-X website that the wines are "just a row of figures n the spreadsheet".

A bar that's simply frequented by male customers and female escorts can claim that it's at least one step away from any involvement with prostitution. When the bar provides the female company, however, that claim looks a little less convincing.

It is time to call a spade a spade and for this business t
o be properly regulated. Especially if, as has been claimed, investors in fine wine have lost £100m through dodgy firms over the last few years. Cult Wines may be a perfectly solid business with an upfront commission model that I - and others - happen to dislike. Vinance, on the other hand, had a pedigree that should have frightened off anyone who was aware of it. The UK FSA is currently addressing the issue of Fine WIne Funds, but not the sale of individual cases. Maybe Britain's legitimate companies might care to address the issue rather more forcibly than they have done up until now. It's time for them to publicly admit that investing in wine is a very different business from buying it to drink. That acknowledgment may be hastened quite soon, I suspect,  when the UK tax authorities take a long hard look at the money they are losing from its current ambiguous capitals gains tax status.

*****

Next week sees the opening of a consultancy process regarding the creation of a Wine Investment Association - WIA - spearheaded by Peter Shakeshaft of Vin-X. Mr Shakeshaft proposes that companies offering wine investment should be monitored by an independent body and thus carry the equivalent of a seal of approval. Among the issues to be covered will be cold-calling and the accuracy of information provided to potential customers. Some support from established wine merchants has apparently been received, though it will be interesting to see whether firms like Berry Bros and Corney & Barrow choose to join. I wonder if any will be deterred by Mr Shakeshaft having been described as a "controversial financier" in the London Standard. 

Mr Shakeshaft disagrees with me over my dislike of upfront payments and suggests that regulation of aspects like this would make it difficult for some wine investment companies to survive. (According to a Motley Fool post, he had similar feelings about FSA regulation of stockbrokers).


He does not seem to be a fan of Jim Budd. His view might be explained by some of the comments Budd has made on his site about him.

15 comments:

  1. Excellent Robert!. The recent collapse of Vinance into administration highlights some of the drawbacks for the investor of the up-front commission. If the company goes down the punter will be paying commission both on the buying and when they come to sell. There is also no incentive for the company to sell the investors' wine indeed they will actually lose money if they make a serious effort to sell – sales staff wages etc.

    Don't forget inheritance tax – charged at the current valuation.

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  2. There are so many of these failures at the moment that sometimes I wonder if any of these funds stand on legitimate ground. The ones that do should be louder, and indeed insistent on some manner of genuine regulation/certification.

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  3. We obviously agree Richard. Considered logically, and given the immutable long-term laws of supply and demand, fine wine, like fine art and property, HAS to be a logical target for investment. The advantages/disadvantages of making one's own purchases (with or without merchant advice); buying selections made by a reputable merchant, or trusting a fund deserve a lot more consideration than they are given.

    And I'm arguing that the insufficient discussion can be partly blamed on the way the traditional wine trade tries to distance itself from the grubby business of investment, while happily pocketing the proceeds.

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  4. It is important not to confuse buying individual cases for investment and wine investment funds. The vast majority of the scams and dubious companies offer individual cases since wine investment funds are classed as collective investments and, if run from the UK, they come under the remit of the FSA, so the management has to have FSA approval. This would rule out most if not all of the often Bromley based companies.

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    1. I agree, Jim. However, my point is that once "wine investment funds" exist and people like Austin Healey talk about the wine as being nothing more than numbers in a spreadsheet (which he does on the vin-x website), the chances of it retaining its usual UK capital-gains tax-free status seem small.

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  5. 'retaining its usual UK capital-gains tax-free status seem small'. Usual is the operative word here. Top vintages of top Bordeaux properties have a long and well established record of lasting for more than 50 years. Thus certainly when bought en primeur or soon after being bottled they are not 'wasting assets' and so should already be subject to capital gains tax.

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    1. We're on the same page here, Jim. I'd be surprised if the Revenue didn't move to tidy this up, sooner rather than later.

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  6. Robert. I agree but I think it is more a question of implementing existing regulations. Then there is inheritance tax – chargeable at current valuations and no concept of a 'wasting asset'.

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  7. But agree Robert too many in the fine wine sector have invested in the ostrich head in the sand pose with regard to capital gains tax on profits from fine wine.

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    1. No one wins friends by supporting an extension of the tax regime. My fear is that one day, the current fuzzy situation will be tidied up in a way that could penalise the "wrong" people.

      Started bluntly there's no logical reason for not taxing people who are actively investing in wine on the same basis as investors in other goods. And there's no logic in treating them in the same way as people who genuinely buy wine to drink at a later stage of their lives.

      The frequency of transactions and the brevity of ownership might be taken into account by a new tax regime (as they sometimes are today).

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  8. If you don't sell your wine, then there is no capital gain. The rules for inheritance tax are clear, wine is part of your estate and thus liable.

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    1. Death duties are clear. The confusion lies elsewhere...

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  9. Anonymous6:01 p.m.

    It's interesting that Shakeshaft wants to think about cold calling in a regulatory way. A representative of his wine company has just cold called me. Does this mean he thinks cold calling is a good thing? There's a lot of common sense here and I wish more people listened to what is said. Has anyone bought wine through Shakeshaft and made any money?

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  10. Wine investment can be a better choice but first you should read about it conditions, permissions, monthly or weekly settlements, etc.
    VCT

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