There are several investments suitable for long term tax and estate planning, but investing in art, fine wine and other collectables has the added benefit of there being something tangible that you can enjoy. The comfort and security of knowing that your money is backed by an appreciating asset that can be used to preserve wealth is something that all investors aspire for.
At Morrinson Wealth, although we can’t directly help you invest in these commodities, we appreciate that these kinds of investments form part of a truly diversified portfolio. It is always important to do your own research on any investment, but especially within the arts and collectables market. Due to the expertise required in evaluating these kinds of investment vehicles, you should always be aware of paying more than you need to or falling victim to some kind of scam.
Throughout our years of helping individuals make the most of their assets, we have been both amused and horrified at some of the most lavish and audacious scams, heists and tricks that have taken place. The upper echelons of the investing world is a tight-knit circle that relies on tradition, reputation and expertise. But sometimes, even they can get it wrong! Let’s look at some of the most memorable.
The skill of wine tasting is something that is developed over many decades, and within the circles of those who “know wine” there are rarely new members. That didn’t dissuade Rudy Kurniawan from attempting to break into the California wine scene.
Complete with several bottles of the rarest and most sought-after European wines, Rudy managed to mingle with some of the world’s most prestigious wine investors. He seemed to have it all, a refined palette, a deep understanding of the history, and access to millions of dollars worth of rare wine.
Unfortunately, Rudy was also a prolific scam artist and when his home was raided by the FBI, they found evidence that he had been making these expensive wines in his kitchen. He was ageing the labels himself and had developed quite the operation. One large investor found that over $4million of the wine in his cellar that he had bought from Rudy was fake.
To avoid waking up one morning to find over $4million of fake wine in your cellar, there are many steps you can take to protect your investment. Always check the references and background of anyone acting as a broker and seek expert authentication. We would always advise clients to diversify their investments across several different types of asset classes, to minimise the risk of loss.
When considering the future value of your wine collection, you should take into account inheritance planning. Plan effectively in advance with the correct legal process to avoid a long and drawn out probate process if you have a varied and extensive collection. Many estates have been tied up in legal battles for years and this is an unnecessary burden to leave on your family.
While this wouldn’t be counted as a scam, the story of the shredded Banksy painting teaches us one very important lesson about investing – always read the small print! After a successful exhibition of his work in 2006, Banksy gifted his friend with a framed print of his famous Girl with Balloon. He was already widely known for his criticism of the art world and disgust at the extortionate prices charged in secondary sell-on markets.
This particular piece of art was gifted with the express condition that it should never be put up for sale. When the piece appeared in Sotheby’s auction house then in 2018, Banksy was ready for the second stage of his art piece. Phone video footage taken during the auction shows the excitement and energy in the room as the price gradually goes up to £860,000.
As the gavel comes down, the phone pans down to a detonator device. Once this is pressed, the painting itself starts beeping and then after a few seconds starts to shred the canvas of the print from inside the frame. The scene in the room turned from excitement to absolute chaos in a matter of seconds.
Art is a fantastic investment and the chance to own something as iconic as a Banksy is very tempting! Be sure that you have the necessary setup for storage or display of your piece, and plan ahead for any eventualities. Buying art of this value is not simply buying a nice piece to hang on your wall and so you should consider the implications of what happens when a piece of art you just bought changes substantially in value.
In this case, the value of the painting surprisingly increased after the shredding due to the buzz that the stunt created. If this had happened with a regular piece of art though, the likelihood is that the value of the piece would have instantly dropped to zero. When purchasing fine art or any other collectable assets, always make sure that you read the contract and understand the terms thoroughly. Oh and if someone ever gifts you a Banksy, don’t put it up for sale!
As your collection increases and you make your progress towards the billionaire status, a whole new world of options opens up to you. The super-wealthy rarely hang their valuable pieces in their own home and are more likely to use properly equipped storage facilities. For art, wine and bullion investments you have several options for storage but one of the most popular types is through freeports.
Freeports are located at ports of entry to a country such as an airport. The storage of the art remains on the airside location so that the item never technically clears customs. Of course, if you are not bringing the art into the country then technically you might think that you don’t have to count this as part of your wealth for the taxes in that country.
There are many legal and tax-efficient strategies to utilise with this method, and don’t fall into the trap of assuming that out of sight is out of mind for the taxman! The world of freeports has not been without their controversies, the most well-known of those being the Bouvier scandal. When a Russian oligarch realised that Yves Bouvier was taking what he considered to be an illegal commission, he brought a lawsuit against him in Monaco. Situations like this show the high-risk status of this kind of storage – it might be hard to legally challenge someone in a country where you legally did not pay taxes on the items.
There will always be loopholes and sometimes what seems like a golden opportunity might just prove to be more hassle in the long run. There are ways that you can plan your international portfolio of investments effectively while still keeping yourself above the law in every country that you operate.
When it comes to copying the ultra-rich just make sure you have the same amount of disposable cash on hand to cover the legal fees!
Whenever a new corner of the investment market opens, you can be sure that the opportunists and the scammers won’t be long in working out how to manipulate it. The development of digital art in the form of non-fungible tokens (NFTs) takes a huge step forward in building the digital art world. Famous faces such as Paris Hilton have been quick to get on board and many artists are now finding this a fantastic secondary market for their work.
According to Reuters, Jack Dorsey sold an NFT of his first-ever tweet for £2.1million in early March 2021, and prices for Crypto Punks have exceeded £7million each! If you have never heard of Crypto Punks you might be surprised to learn they were created only three years ago as one of the first NFT projects by a group of developers known as Larva Labs. Is this the future of investing? The wealth creation that this secondary market has created in a short space of time is impressive, but is it sustainable?
The definition of a collectable investment is one that will appreciate in value over time, and this is where the grey area lies in NFT investing. While it is likely that some works will continue to appreciate, there is a great concern that some of the exorbitant prices we are currently seeing in the market might not continue.
Portfolio diversification is important, and it is always exciting to see new entrants come onto the market. Building wealth over an extended period is always better than trying to time the market trends. Depending on what stage of your investing journey you are at, you might decide to risk a small percentage of your portfolio on untested investments like this, but the most important thing is not to get caught up in the hype.
The growth of a valuable collection of appreciating assets can take many decades to build. Try to think long-term from the start and be sure to seek advice on the best way to ensure the protection of the value of these assets as part of your estate planning. Investing in art and collectables should never be seen as a short-term investing strategy, which is great news because if you do it properly, it can be an enjoyable pursuit for many years to come!
At Morrinson Wealth, our team is always on hand to help you with your investment planning, regardless of what stage of the journey you are currently on. We offer a personally tailored service and are able to advise on the wide range of investments and services available through St. James’s Place.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Morrinson Wealth is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products.
Morrinson Wealth is a trading name of Morrinson Wealth Management LLP.