Sunday, December 02, 2012

Leveson and wine investment. Self-regulation or statutory control..?

Roll Up! Roll Up! Encouraging words
for potential investors 
on the Vin-X site

Beware! Beware! Another £25m of investors' money
goes down the drain

What do wine investment and the UK newspaper industry have in common? 

Both have been run by some good, and some incompetent, blinkered and downright bad people. And both are in desperate need of regulation.

The Leveson Enquiry has revealed the failings of the press. Earlier this year, Nedim Ailyan, of insolvency specialists Abbott Fielding (and veteran of eight wine company crashes), said on the BBC Radio 4 Money Box programme that some 50 wine investment companies had failed in the last four years. He estimated the collective loss at up to £100m of their investors' cash; last week brought the collapse of Vinance, and probable further investor losses of £25m. 

Victims of both the press and the wine investment ranged from the wealthiest in the land to our next door neighbours. Some of the failed wine companies were simply badly run; some were unlucky; some were downright fraudulent. Many of the victims waved goodbye to savings they could not afford to lose. Many of them knew little or nothing about wine or wine investment and were sucked into parting with their money via cold-calls from plausible-sounding salesmen. 

Both industries need to be reformed; in both cases, reforms are being proposed that raise questions over their capacity for self-regulation.

This week saw the launch of the Wine Investment Association (WIA) - or at least of a consultation document about how such a body should be run. 

Peter Shakeshaft, the man behind this move is head of Vin-X, self-proclaimed (on its Google ad) as "UK's Leading Wine Investment Co" and  (on the Hufffington Post where he writes a column) as "the fastest growing fine wine investment specialist in the UK", and (on the Vin-X site) as "fast becoming one of the industry's foremost commentators". At this stage, the WIA consists of Vin-X; Culver Street, the company launched by Johnny Wheeler following the sale of Lay & Wheeler; Provenance Fine Wines and Albany Portfolio Management. 

The parallels with the debate over press regulation are close.  Like some of Britain's newspaper publishers, Peter Shakeshaft believes (as stated in an online response to blogger Jim Budd's Investdrinks) that "self regulation is by far the best option for all concerned".

He is a stalwart opponent of the FSA (Financial Services Authority) having any role in overseeing wine investment. In this respect Shakeshaft is consistent because he also opposed FSA regulation of stockbroking, another area in which he has experience. In 2010, He was quoted in MoneyMarketing as saying that 

"Over-regulation is putting small-cap stockbrokers out of business"

In Shakeshaft's view, FSA regulation "would stop every merchant up and down the land on the high street selling any wine for investment purpose and would send many out of business!" 

Now let's consider the wine business. What is there about losses of £125m in less than five years that suggests that Britain's wine "high street" merchants are capable of running - or should be trusted to run - wine investment businesses? Where and how did they all develop skills in this field? It does not feature in any WSET courses. Mr Shakeshaft actually acknowledges this, by saying that "We are in discussions with Plumpton college to create a sylabis [sic] for wine investment exams." Which of the lecturers at Plumpton will be taking time off from explaining vine pruning and malolactic to teach the niceties of investment regulation? I wonder.

But Mr Shakeshaft is not a high street wine merchant dealing with a mailing list of regular customers who might be tempted to sink a few pounds into "fine wine". His business, like many others in the field, involves the contacting of complete strangers and persuading them into parting with their cash in return for wine "investment".

As he freely admitted (in responses to Jim Budd's investdrinks-blog) earlier this year, "cold calling... is amongst others, one of our methods to market" (though without "high pressure tactics" he reassuringly says). 

In yesterday's Radio 4 Money Box programme Mr Shakeshaft repeated his belief in the value of cold-calling. In his view, it is unacceptable to make a sale on a first call, but perfectly reasonable to sign a stranger up once they've seen a glossy brochure. (And the Vin-X brochure is a very convincing-looking piece of work, littered with some very compelling statistics).

Cold-calling is directly counter to FSA rules. The WIA may, of course, decide to drop it from its list of permitted activities before its launch in February.

A clear code of conduct that includes this kind of ban and includes - as current proposals do - independent auditing, are clearly steps in the right direction, but proper statutory regulation  that treats wine in the same way as other investments, makes much more sense for the investor - if not for the investment companies. 

One might - reasonably - worry that state control over the press might jeopardise freedom of speech. No such issues apply to statutory control of wine investment. The world survived perfectly well before people thought of entrusting their savings into bottles of fermented grape juice and it would not be a substantially worse place if wine were once again treated as a drink and nobody ever invested in it again 

The WIA is as irrelevant today as a proposal for a revised Press Council run by publishers. 

In June 2013, just four months after the launch of the WIA, the FSA will be replaced by two bodies, the PRA (Prudential Regulation Authority) and FCA (Financial Conduct Authority).  
[I apologize for all these initials]. The PRA will be a subsidiary of the Bank of England and responsible for promoting the "stable and prudent operation of the financial system through regulation of all deposit-taking institutions, insurers and investment banks", while the FCA will be responsible for "regulation of conduct in retail, as well as wholesale, financial markets and the infrastructure that supports those markets [and responsible] for the prudential regulation of firms that do not fall under the PRA’s scope."

Investing in wine is ultimately no different to investments in other goods. As Austin Healey says in a video interview with Peter Shakeshaft on the Vin-X site, "I never taste the wine... it's just a row of figures". If Shakeshaft sees it that way, there is no reason why his, and other wine investment businesses, should not be subject to the same rules as other "row of figures" businesses. This would, incidentally include routine charging of Capital Gains Tax.

"We want an industry that is transparent, safe and open to everyone, not just High Net Worth individuals, the investor's risk should be limited to the individual wine and the market performance and not to the integrity and professionalism of the agent they deal with." A sentiment with which Peter Shakeshaft, its author, and I both agree. We only differ over whether an industry that has failed so badly should be left to regulate itself. I just happen to prefer the Leveson approach.

Anyone with views on this subject may wish to join the consultation process via the WIA site
WIA site - plus access to the consultation papers

They may also care to look at the following links

The FSA views on Cold-Calling


Peter Shakeshaft in Huffington Post
Jim Budd 
Drinks Business

On Peter Shakeshaft

Motley Fool
The Independent
Disgraced Banker

On Wills & Co, Stockbrokers


  1. @DanJago: clear and sensible thinking BJ.

  2. Robert. Excellent and I agree with Dan Jago.

    1. Thanks Jim. Without you and your efforts...