Some initial thoughts on Wine Investment Association (WIA) launch

The Wine Investment Association

The four founder members: L-R; Adrian Lenagan (Provenance Fine Wines Ltd),

David Jackson (Albany Portfolio Management Ltd), Hugo Rose MW (Culver Street Ltd), Peter Shakeshaft (Vin-X Ltd)

The Wine Investment Association is a welcome development, especially if the current proposals are, as we were told, a start and not the finished article. The chief proposal seeks to ensure that investors receive their wine and have good, solid title to it but very unfortunately the WIA fails to ban its members from cold calling. 

If the WIA is to succeed it has to offer credible and robust protection to investors and enjoy broad support amongst the fine wine sector. 

I'm pleased to see that the management and policing of the WIA is independent of the members of the association. Companies wishing to join the WIA will have to pass an audit carried out by Mazars. The purpose of the audit will be to establish that the company supplies the wine that its clients’ order. There will then be an annual audit for members and, in addition an independent complaints procedure. I understand that the annual membership fee will be around £1500, although this may not be the final figure. It will include the cost of the annual audit.

Independent Adjudication Panel 

Stephen Eames, partner at Mazars

The auditors may also, as Stephen Eames of Mazars explained to me, be able to get a feel for the ethos of the company and its probity but this will be very much down the skill and expertise of the auditor. 

Companies with a turnover of £20 million and above are regarded as a lower potential risk and will be allowed to self-certify their compliance. It remains to be seen if investors will find this reassuring. 
   

Clearly delivery is a very important aspect of wine investment and there are a number of companies, who have failed to buy wines that their customers' ordered. Examples of these fraudulent companies include the Bordeaux Wine Trading Company Ltd, International Wine Commodities Ltd and Templar Vintners. Next year there will be the trial of some of those involved in running Finbow Fine Wines Ltd/Nouveaux World Wines face a fraud trial for allegedly failing to supply wine to their investors. If the WIA can help to reduce the number of scam companies that trouser their clients' money with no intention of buying the wine, then this will be good news.

I’m also pleased to see that members ‘will not publish any statement or advice concerning the tax status of wine collections and/or wine disposals, except where the statement or advice has already been published by a relevant regulatory or statutory body, such as HM Revenue & Customs’. So we should be seeing no claims on WIA’ members websites' claiming that profits from wine investment are always  ‘tax-free’.    

It is very disappointing and, perhaps a fatal flaw, that the WIA is allowing their members, under certain conditions, to cold call under the conditions set out in the Privacy and Electronic (EC Directive) regulations 2003. The WIA is against high pressure sales and all sales calls will be recorded, so that if there is a complaint this can be investigated. Members are not allowed to 'advise, suggest or otherwise encourage a Customer or a potential Customer to dispose of any regulated product in order to purchase wine as an investment.'     

The use of cold calls and the associated high-pressure sales have blighted wine investment. The vast majority of the many people over the last 15 years who have either been defrauded or pressured into buying unsuitable or over-priced wine investments have been recruited through cold calls. I have seen all too many examples of where elderly and vulnerable people have sunk all or a substantial part of their life savings into wine investment. Almost invariably this has started with a cold call and the victim has been persuaded to trust a stranger at the other end of the line. Then the process of milking their savings begins.

I note that of the four founders and their companies only Albany Portfolio Management Ltd has publicly stated that they do not cold call.    

It is my conviction that any serious and legitimate wine investment company or wine investment association will not use or permit cold calls. Wine funds, which come under the aegis of FSA, are not allowed to cold call. The FSA bans companies from touting for mortgage business using cold calls. If ever, buying individual cases of wine for investment were to come under the remit of the FSA or its successor body, then I'm certain that cold calling would be banned.

There will be a consultation period on the WIA proposals, which will run until 20th January 2013 and then the WIA code of practice will be adopted at the WIA’s inaugural meeting on 14th February 2013. I hope the WIA proposals will prompt plenty of feedback from many sectors including the fine wine trade, investors and journalists.  

Roger Harcourt of law firm Shakespeares

who provided advice in setting up the WIA

The real acid test for these proposals is whether companies, such as Goldman Williams and Liquid Acquisitions Ltd, which were closed down in the High Court in the public interest would have passed the WIA audit. I suspect that Goldman Williams Ltd would have passed the audit as whatever else Goldman Williams did they did supply the wines their customers ordered, although they were often horrendously over-priced. If I’m correct then the WIA has not set the bar for membership high enough. 

If the bar is too low then it will be tempting for dubious investment companies to apply to become members of the WIA and use their membership as a trojan horse to provide false reassurance to their existing and potential customers. This would also discourage companies who do trade professionally and use best practice from joining the WIA.         

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Other points that could be added to the Code of Conduct:

The use of real names: The WIA should insist that telesales staff use their own names.  

Real trading addresses: In addition to the company's registered office, the company's actual trading address should be clearly visible on correspondence, websites etc. If a company actually trades from a serviced office this would be acceptable but not if it is used as a virtual office and the company actually trades from another undisclosed address.  

Valuations: The WIA should be stressing the importance of a robust, credible and independent valuation. This might well be based on Liv-ex’s mid-price or the market price.

Cooling off period: The WIA offer a seven day cooling off period, which ‘In the case of normal purchases this will usually be the point at which a sale is agreed (normally the issuing of an invoice including applicable terms and conditions) and prior to the contract being formed.  

In the case of distance sales the WIA proposal would appear to be well short of their customers’ statutory rights. The Distance Selling Regulations (section 11) allows a seven working day cancellation period from the day after the date of delivery not the date of invoice. This seven-day period is extended by a further three months if the customer is not informed of their rights or is given wrong information. When wine is stored in a bonded warehouse, the delivery date should be the time when the wine arrives clearly identified in either client reserves or into the client's own personal account. En primeur sales are clearly an exception and an anomaly – a situation that the EU has yet to clarify. Here perhaps the seven working day cooling off period should start from the day after the date the customer's funds have been cleared and received into the WIA member's bank/credit card account. 

The WSTA (The Wine & Spirit Trade Association) has confirmed that their view, based on legal advice received, is that wine in bond is subject to the Distance Selling Regulations and that the cancellation period (seven working days) starts from the day after delivery. I gather that the directive will shortly be revised and that the cancellation period will be extended to 14 days and is likely to come into operation in November 2014. The position of the right of cancellation regarding en primeur will at long last be clarified.       

Storage options, including the possibility of investors having their own private accounts, should be clearly explained.
 
Wine a minor part of a portfolio: The WIA website should advise that wine investments ought to only make up a small percentage of a savings portfolio.

Amending the Code of Conduct: The process of amending the Code of Conduct needs to be explained as well as how any such changes of made public. 

Other alternative investments: If WIA member companies (or their subsidiaries) offer other alternative investments, this should be declared on their company website. 

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WIA website: Rules of Conduct – Under Consultation 

Unfortunately the WIA's website, which went live today, is not yet fully operational as some of the crucial elements such as the code of conduct are listed as under consultation. Hopefully the site will rapidly be fully operational so people can comment on the proposals within the consultation period.  

It now appears that you will have to contact  enquiries@wineinvestmentassociation.org for a consultation pack. Regrettably this is likely to reduce the number of responses to the proposals. It would be much better and more transparent if the proposed code of conduct was up on the WIA site.  

30.11.12: Pleased to see section on cold calling quoted in the Financial Times here – an artlcle by Geordie Clarke.