31st August 2016 at 11:35am
One in six investors has collectibles such as watches, coins, stamps, art and wine as part of their investment portfolio, as Lloyds Private Banking highlighted this August.
Many are choosing to put their money into these alternative investments in search of greater financial returns when interest rates are low and growth can be hard to find. Or they’re drawn to something they feel passionate and knowledgeable about; and wine is a classic example.
Investing in wine might seem relatively straightforward and appealing thanks to the rapid growth in fine wine prices, with some sought after wines rising by around 250% from 2003-2011. The Liv-ex Fine Wine Index, which tracks the most sought-after wines, outpaced the FTSE from 2006-2013. Burgundies became the flavour du jour.
But there are a number of things to consider. The wine market is unregulated and, thanks to its performance track record, is firmly on fraudsters’ radar.
An astonishing £1.2 billion is lost to investment scams in the UK every year, with fraudsters increasingly using wine investments, share sales, land and diamonds to catch even the most experienced investors out. It can be very, very hard to spot them.
It’s become such a pressing issue that Decanter, the global wine magazine, warned the over-55s to be particularly vigilant earlier this year while acknowledging that, “when done legitimately, wine can provide an additional revenue source to investors.”
When wine investing goes sour
UK authorities recently uncovered several major wine scams, closing companies down and banning directors. Sometimes these companies were offering fine wines at vastly over-inflated prices, or the wines they ‘sold’ simply never existed in the first place. It can all seem highly plausible.
But it’s too late for some. One 94-year old paid out thousands for wine which never existed. It’s a sad tale but it’s dwarfed by what’s thought to be the largest fine-wine fraud in history to date.
In America, rare Burgundy collector Rudy Kurniawan drove the rare-wine market to new heights by selling sought-after wines at auctions – often to those who considered themselves experts. It turned out much of his collection was counterfeit.
Buyers were left tens and even hundreds of thousands of dollars out of pocket and the youthful Kurniawan, who used his incredible talent as an accomplished wine taster to manufacture fake Burgundies in his kitchen, complete with home-made labels, was sentenced to ten years in jail.
Buyers beware of investment scams
If you are considering investing in wine, the Metropolitan Police website has a number of recommendations on what to look out for to try to keep your money safe.
Know who you’re buying from, the provenance of what you’re buying, the costs and charges involved and how to look after your investment. Bear in mind that ‘opportunities’ offering high investment or capital growth are empty promises – nothing can be guaranteed as seasoned wine experts know.
The Financial Conduct Authority campaign on how to be a ScamSmart investor recommends avoiding cold callers at all costs; it makes sense as they’ll be well-versed in high-pressure sales tactics and there’s no good reason why you’d need to buy this way. The FCA also publishes a list of banned companies and known scams.
The wine and spirits trade association (WSTA) also provides advice for consumers looking to invest in wines.
But given how complex and sophisticated wine fraud can be in catching out even the most seasoned experts, it’s not something to put your money into lightly. It makes sense to get independent advice to assess if the investment is authentic, and weigh up the risks.
And if you think you’ve been caught, contact Action Fraud.
The information in this blog or any response to comments should not be regarded as financial advice and is based on our understanding in August 2016.