An investment to savour?
by cescriva
2014-02-17
By Peter Adcock
Wine. For many people one of the great pleasures of life. A liquid that's been around for thousands of years and which today supports a multi-billion dollar industry worldwide.
For most, wine is a drink to be enjoyed. Whether we buy a few bottles each week at the local supermarket or are more serious about building a cellar to last a few years, we have one aim: to enjoy wine as one of the most versatile and varied of drinks.
In recent years increasing numbers of people have started to treat wine as an investment. On the face of it the steep rises in wine prices in recent years lends support to the view that wine makes sense as an investment. But does it?
It is probably true that most wine investors actually understand and enjoy drinking it! Quite often too they may be anti-other "risk investments": because wine is an actual physical asset perhaps they trust it more.
So what are the positive reasons for investing in wine?
1. Wine can be an excellent alternative investment which can be used to diversify larger portfolios.
2. Capital returns are free of all capital gains tax (CGT) making wine an attractive option for
investors who already use their CGT exemptions elsewhere.
3. The potential returns on sought-after wines can be spectacular. Until recently fine wine was
one of the best performing investments over the last twenty years.
4. Wine stored in a bonded [duty-free] warehouse doesn’t attract any VAT or duty until it is
withdrawn from the warehouse.
Potential Drawbacks
As with any investment there are disadvantages and perhaps its biggest drawback concerns its legal status. Investment in wine fall outside the remit of UK financial services legislation. This has two implications:
- Losses are not covered by the Investor compensation scheme, meaning there is no white knight coming to rescue you if your investment turns out to be worthless.
- Investors who consider they have been given bad advice cannot use the Financial Services Ombudsman to obtain redress. Legal action to recover money is at your expense.
Like other unregulated sectors, the lack of regulatory controls makes it easier for less soundly structured businesses to operate and indeed for some downright scams to take place. A recent example which affected some of our clients was quite simple really. Take one parcel of wine. Sell it to several different clients! Repeated one hundred-fold and you can see the potential scale of the racket. “Houses of cards” like this come tumbling down easily. This one did when the first client wanted to liquidate his assets.
The vast majority of wine dealers are reputable but like any business sector some fail while others do very well. If therefore you want to take advantage of the undoubted potential advantages of investing in wine therefore, how do you protect yourself?
Here are a few points to think about:
- Don't consider investing unless you have substantial investments and pensions elsewhere.
Because of its unregulated nature I generally recommend wine only where a client has at least
£250,000 invested in mainstream assets.
- Having decided to take the plunge, check out different ways of investing. These include the
bigger, well known wine merchants as well as newer specialist wine websites.
- Talk to friends and acquaintances who have invested. Who do they buy through? Why? How
and where is their wine stored? Be guided by recommendations but not to the exclusion
of other sources of information.
- Look for businesses with a proven track record for staying in the course.
- Having drawn up a short list of brokers/suppliers, interrogate them. What regions do they
invest in: are they sticking to "Classic France" or ranging further afield? If they make bold
claims for the performance of their investments do independent guides support these claims?
- From a legal viewpoint, check that your purchases are identified separately and that you hold a
certificate of ownership. Can purchases be identified separately at their place of storage?
- As far as possible check the business's financial status. Review their published accounts.
Crucially ask if client funds (you usually have to provide funds before wine is purchased on
your behalf), are segregated from general business finances. Don't be scared to ask for bank
statements and ask if the accountant audits this account separately to the business. If they have
nothing to hide they should have no problem in providing any of this information.
Like any investment (regulated or not), you cannot always avoid losing money when investing in wine. You can though make extremely good returns. Worst case: unlike any other major investment, if it doesn't work out for you at least you can drink your assets!
Peter Adcock, Financial Planner, Accountant, Founder of Adcock Financial, and fine wine lover.
Posted in:
Guest articles,
Tags:
alternative investment, fine wine, investing in wine, wine investment,
Value, track and trade fine wine
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