Self-Regulation of the Fine Wine Trade - Time for Debate!
I believe that I have already thrown my hat in the arena when I wrote a blog on this subject in January of this year.
In an article published in Harpers Wine & Spririt Trade Review, Simon Davies of Fine & Rare Wines states that regulation is unnecessary and that “Common sense should prevail". He goes on to say that "as with any serious investment you want to think about who you buy from.” I think a fair point is that other “serious investments” are generally covered by the Financial Services Authority and there is an argument that the en-primeur market should be also. After all Liv-ex could be described as a wholesale commodity market in which wine futures are traded and one has to entertain the possibility that there is potential for market manipulation.
Wine, unlike other goods such as art, has greater potential for forgery. By this I mean it is relatively simple to forge a wine over and over again. Laurent Ponsot of Domaine Ponsot suggested in a recent article published in Decanter that 80% of pre-1980 Burgundy was fake.
I do not believe that it is justifiable for companies that are benefiting from the massive rise in the value of wine, to claim that information on their website and a long history of trade is sufficient to protect the uninitiated of the wine world from rogue traders, forgeries and fraud.
The fine wine industry seems to be caught in a “Jekyll and Hyde” form of schizophrenia. On the one hand, some merchants and reviewers look upon fine wine investment with some distaste, whilst at the same time building their profit or bonuses on the back of the massively inflated prices, or by increasing their profile by supporting, tasting and publicising the news grabbing trophy wines.
I believe that the benefits of an industry led initiative to create an institute or governing body, will generate many returns in terms of trading environment and therefore growth and profit.
I know that if I were a merchant, I would prefer to become involved in creating an institute which would not only build trust, but could also be used as a platform for tackling other industry concerns, rather than to have regulation thrust upon me.
Perhaps the risk of external regulation is not particularly high at the moment, but none of us have a crystal ball and this year Jim Budd has already highlighted two questionable companies. In addition wines of indefinite authenticity have been withdrawn from a London Auction and Rudy Kurniawan has been arrested by the FBI for alleged wholesale forgery.
Even at Vinalytics we discovered that the Double Magnum of Château Lafite from the legendary 1870 vintage had a potential crack in it and was sold with no disclosure, even though the wine had been sold once before by the same auction house as an insurance write off.
The auction house claims that they did not feel it necessary to make disclosure due to the crack not having worsened. Nevertheless, if I were the potential buyer, I would certainly like to have been informed that an insurance company had deemed it bad enough to compensate the previous owner.
Like many people with an interest in the fine wine industry, whether that is as a collector or a professional, I too dislike certain aspects of the trade. I have wines that I dream of trying, but I detest the fact that there may be a nagging doubt as to its authenticity. I abhor the rogue traders and I certainly do not like cold calling, especially when it is coupled with a lack of knowledge.
My personal view is that it is better to engage in a debate on how the issues should be tackled, rather than to pretend that it is a non event. As prices rise, so too does the return for criminals and so too does the risk of honest and reputable companies being inadvertently implicated .
I have linked to a couple of blogs and articles on the subject and I would be happy to link to more blogs from both sides of the argument.
Published: 13th April 2012
Fine wine regulation sparks debate
Fine wine firms have questioned the need for enhanced regulation of the investment market, saying it would be too hard to police and that consumers should exercise common sense.
Peter Shakeshaft, founder of fine wine investment brokers Vin-X, has proposed establishing a recognised association which would offer best practice guidelines and exams for brokers, as well as expelling members who failed to meet standards.
Shakeshaft said the industry “should be proactive in regard to our responsibility to the customer and to protecting the reputation of our industry”....
Harpers Wine & Spirits Trade Review - 12th April 2012
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wine investment, what warren buffett would do
It gets better. The fine wine investment market has been and still is unregulated. Which holds back institutional investment, by not being allowed by the FSA (or its international counterparts) to get involved. These wealth managers would otherwise be very much attracted by the fundamentals of fine wine.
Furthermore, fine wine so far has been unable to attract serious alternative investment money, due to the unprofessional manner in which transactions are settled. The whole en primeur system, transfer of ownership, wine storage and the way stock is moved around to complete transactions; it's just not up to par – not by a long shot – with how financial markets are run and how professional investors demand transactions to be executed and governed.....
the section relating to regulation is headed -The potential of wine investment
Ditton WIne Traders' Fine WIne Blog - 7th December 2011
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