Wine Investment Advice for the Private Investor
Fine wine can be a rewarding, safe and enjoyable investment when executed properly, but the market is unregulated and the protections available with FSCS are not provided for with fine wine. Consequently, investors should either look to see if a wine company is a member of this association or undertake their own due diligence. To become a registered member of the Wine Investment Association a company has to comply with the WIA's Code of Practice which will be verified by an independent audit of its management processes.
The following information is designed to act as an additional useful check list to help you protect yourself when dealing with companies that are not members of the WIA:
When trading with non members it is essential for you to independently confirm that your wine purchase order has been fulfilled and that delivery has been executed. Due to the location of some fine wine and the acquisition process this may sometimes take a matter of weeks.
The WIA recommends that if you trade with a non-member you should:
- Confirm the precise storage arrangements for your wine, whether a private warehouse account in your own name, a sub account in your name or an umbrella account (WIA members will not store your wine in a general merchant account)
- If the wine will be delivered to your own account, contact the warehouse yourself once you have been informed of delivery to confirm that the wine is exactly that which you ordered
- Due to the complexities of delivery and transfer, the delivery process can take a number of weeks. Ask for the bond rotation numbers of your cases as proof of landing.
Through an en primeur purchase the investor buys wine ‘in the barrel’ before it is bottled and shipped. Care is needed as the company facilitating the purchase cannot physically deliver the wine for up to two years. This opens up the possibility of exposure to the firm managing your acquisition and account going out of business in the interim or in the worst case perpetrating a fraud.
WIA members are tested in the audit process to ensure that their en primeur ordering systems are robust and that the ownership of the allocation of wine is clearly recorded to be that of the acquirer and that this is recognisable by the supplier of the en primeur wine.
The WIA recommends that if you deal with a non-member you:
- take even greater care in your due diligence than you would when buying physical stock. It may take a very long time for a problem to come to light, by which time it will be too late
- make a diary note of when physical delivery is due and rekindle timely contact with the seller if necessary in order to ensure a clear understanding of when your wine is due to be shipped and then has finally landed in bond and recorded as stored in your account.
Prices and commission
Prices and commissions can vary substantially and it is important to ensure that you acquire your wine for a fair market price as buying wine too expensively will impair the potential to realise a profit from an investment.
The WIA does not legislate over members’ pricing or commission policies, so whether you are dealing with a WIA member or not, it is crucial that you satisfy yourself that you are getting a fair deal.
The WIA suggests the following:
- Current market prices can be easily checked on the internet
- Make sure that the commission or fee element is transparent so that you can understand the underlying cost of the wine you have been offered. Always check that the price is fair, and consider whether or not commissions seem reasonable
- Understand the small print. Does the arrangement include storage and insurance? For how long? If not, how much does it cost? Are you free to sell the wine elsewhere, or are you tied to the merchant? Are there any hidden charges?
- Reputable merchants or brokers will – unless they inform you otherwise – offer you wine in perfect condition in an unbroken OWC (original wooden case). Such benefits will not justify a premium.
High pressure selling techniques
The WIA Code of Practice does not tolerate high pressure selling techniques.
The WIA advice is to terminate the call if you encounter the following:
- Pressure to commit to a purchase there and then, without reasonable time to consider. Certainly investment grade wines are very rare, but not to the extent that a ‘too good to miss’ deal will expire at the end of the phone call
- Repeated uninvited phone calls pressuring you for a decision
- Behaviour, language or coercion of any sort which makes you feel uncomfortable.
In addition, you should:
- Beware of any company offering you guaranteed profits. The wine market is no different to any other; prices go up, prices go down. A respectable merchant or broker will make it clear that you may not recoup the full amount invested
- Beware of companies offering you a ‘fast buck’. Spreads and / or commissions render this unlikely, so a realistic outlook is advised
- The WIA expects members to adhere rigidly to current Data Protection Regulations and UK 'cold call' regulations at all times. If you are 'cold called', you have the right to know where the company in question obtained your details, which in turn will enable you to remove them should you wish to. You can confirm your Preference for how any company communicates with you and they must comply with the requirements of the General Data Protection Regulations 2018 in this regard and you can stop any potential cold calls from UK companies by registering with the Telephone Preference Service at http://www.tpsonline.org.uk/tps/index.html.
If you are considering dealing with a new provider of fine wine investment services please consider the following straightforward steps.
- Limited Companies are registered at Companies House. Check the company registration number, registered address and place of registration
- If in doubt, order a report from Companies House
- Has the firm filed their accounts on time?
- Research the company on the internet for signs of customer dissatisfaction
- How long has the business been in operation?
- Check that the company actually exists at the published trading address
- Consider meeting a member of the team at the trading address
- Contact the bonded warehouse used by the company to ensure accounts are held
- Always check claims of tax benefits with an accountant or tax specialist.