THE BLOG

What's Safer - Own or Managed Fine Wine Account?

15/12/2014 05:36 GMT | Updated 11/02/2015 10:59 GMT

As a founder of the Wine Investment Association (WIA), I am often asked about my view on storage of fine wine; i.e. which is the safest method and which is the most cost-efficient? I answer this question also in my capacity as CEO of Vin-X Limited, where I have first hand experience of protecting the interests of investors in wine and ensuring they have the maximum potential for gain from their investment by being efficient with storage costs.

Vin-X offers clients the choice of having their wine stored in their own account or, alternatively managed, stored and insured under its collective umbrella account held to its clients' order. See the chart below for a comparison on costs.

For clients who opt to enjoy the full management service the emphasis is on the Company to provide security and cost savings. Vin-X, we believe, was the first wine investment company to contract external auditors to verify its clients' wine holdings as an external check on our systems and controls. To clarify, this assessment is independent of the company's financial audit and reviews the supply and client acquisition audit trail to verify the clients' ownership and the corresponding physical storage of wine. Vin-X use London City Bond's (LCB), Vinotheque facility as their nominated specialist wine storage provider.

The LCB management system generates a 'rotation' number (see definition below) for each case of wine and this unique reference is key to validating the clients' ownership. Vin-X systems are compatible with LCB's in the recording of the rotation number and thereby completing the audit trail.

However, unfortunately, we have witnessed a number of company liquidations within the fine wine market in the last year. Due to inadequate systems and controls or in the severest cases malpractice, investors have not had clarity on ownership, or a 'rotation number' reference for their wine and as a consequence have lost their investment. Without external verification it is impossible for clients to determine whether the company is 'fit for purpose'. Vin-X had firsthand experience of dealing with affected investors as we assisted the clients of Boltons Investments (in liquidation) to get a reasonable settlement from the company's administrators. In the process we witnessed the fallout referred to above.

The WIA was founded to address specifically these and other issues, to encourage the industry to adopt good practice in protecting investors in fine wine. For more information on the WIA visit www.wineinvestmentassociation.org.

Private accounts

With the above in mind some investors believe that setting up their own account gives them greater control over their wine in storage and this is totally understandable. They will have a direct contract with the storage provider and be responsible for settlement of costs.

In addition to the ongoing storage and insurance costs, the account owner will incur an additional expense when they wish to sell a case of wine. On sale of wine generally, the vendor will be required to provide a 'condition' report (see definition below) to the new buyer to verify its condition. All storage facilities provide this service but will charge the account owner a fee for it. This is inclusive in a Vin-X managed account.

All WIA member companies undergo annual independent 'wine audits' to ensure that their systems and practices are 'fit for purpose'. These are undertaken by top ten-audit firm, Mazars as a requirement of the company's membership of the Association.

If the company looking after your wine investment is NOT a WIA member then my advice would be to choose the option of having your own storage account. As said the increased cost will impact the anticipated returns you may expect however you will have ultimate control of your asset.

A point of warning; some companies offer to pay for your 'private storage' but may not do so. It is therefore important to check how that will work in practice first. LCB, for instance, will charge the account owner quarterly so imagine the logistical challenge for any company to reimburse their clients for these costs. If it's too good to be true it probably is!

For clarity on the cost benefits of a managed account see the chart below. The Vin-X charges help our clients save money and secures a better return on their investment.

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So my answer is, if you wish to gain a maximum benefit out of investing in fine wine then ensure the company you deal with is a WIA member as this will afford you the protection required to ensure a safe but profitable investment and use a company managed account to enjoy the benefits when you come to sell your wine.

Definitions:-

Rotation Number. This is a unique number issued by the Government Bonded warehouse that clearly identifies the producer, vintage and size of case.

Condition Report. This is an independent check to ensure the case of wine has no smudged or torn labels or the box has sustained damage. Both of which can affect the price.