If you’re not the customer…

Russian oligarch Dmitri Rybolovlev hired a colourless professional to act as his agent and got scammed. The investment lesson is: be careful who you trust.

Like all the best Russian oligarchs, Dmitri Rybolovlev made his billions by grabbing a state-owned business after the fall of communism. Rybolovlev’s business was potash.

Around 2002 Rybolovlev decided it was time to build a top class art collection. He did this for standard billionaire reasons, and also because he needed to get his wealth out of Russia because Putin was harassing him.

Rybolovlev needed a hand with this, so he hired a “colourless Swiss professional” art insider named Yves Bouvier to act has his agent.

Yves Bouvier wasn’t strictly an art dealer – he was what’s called a shipper. An art shipper’s role is to facilitate sales by moving art around the world on behalf of buyers and sellers. A shipper is meant to be a sort of trusted middleman. As The New Yorker put it,

“In sixteenth-century Venice, diplomats were instructed to employ illiterate valets, who would be unable to read any secret documents they were asked to carry. A transit agent “should by default be a blind man. That is the very nature of his job.”

But Bouvier wasn’t blind. He’d spent his whole life learning who had what pieces of art, what they paid for them, whether they were willing to sell, and how to persuade them. So he got to work building Rybolovlev’s collection.

Rybolovlev paid Bouvier a 2% commission on each sale, as his trusted agent. But Bouvier didn’t see the job in quite the same way.

Instead of acting as an agent – someone who finds the art at the best possible price – Bouvier was acting as a dealer. He was buying the paintings themselves and then flogging them to the clueless Rybolovlev at a massive markup.

The scam worked beautifully for over ten years. Rybolovlev happily spent more than $2bn building up his collection in that time.

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The first cracks appeared in 2014, when The New York Times printed some industry gossip saying that a particular Da Vinci painting had sold for between $75-80m. Bouvier had charged his client $130m for it…

Then Rybolovlev started to wonder why his agent was so good at buying art, but totally unable to sell it…

It all came apart at a swanky luncheon in St Barts, where Rybolovlev ran into a dealer of the previous owner of one of his paintings. The game was up.

In the lawsuit, Rybolovlev is claiming Bouvier bilked him for more than a billion dollars of the total of $2 billion he spent on his art collection. And the amazing thing is that the art world is so unregulated that it’s not clear Bouvier broke any laws! He could yet get away scot free.

Beware colourless professionals

The investment lesson here is clear: when it comes time to move your billions into a discreet international asset class, don’t trust the Swiss.

No good?

Okay, how about this: beware colourless professionals.

A suit and tie is a crappy guarantee of a person’s integrity. The agent who scams you probably won’t be a Swiss art dealer. But he might be a suburban bank manager who tries to convince you to sign away your generous annuity policy (this happened to a friend of mine). Or he might be a stockbroker who calls with exciting trade ideas. Or an estate agent who convinces you now’s the time to sell your property. Or a pension fund manager who skims 1% per year without beating the market.

Remember the line from yesterday’s piece about Facebook: if you’re not the customer, you’re the product.

Unless you’re paying directly for your financial advice, you should be careful. Be careful of anyone who’s paid on commission, or on a percentage of the assets they manage.

That’s why I’m proud of our business model here at Agora Financial.

Okay, Risk and Reward is free (so feel free to disregard every word in this newsletter!). But when it comes to our regulated titles like The Penny Share Letter, we charge our readers a (reasonable) flat fee for our research and advice. The fee is far, far smaller than the financial industry typically charges to do the job. And we don’t take payment from anyone else – our readers are our only customers.

I think it’s a great deal. And to go one further, we’re now offering a one year money back guarantee. Click here to check it out for yourself.

The Penny Share Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Seek independent financial advice if necessary. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234 https://register.fca.org.uk/.

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