President and Owner of Miles Franklin Precious Metals
In this interview, Andy Schectman sits down with Tony Bevilaqua to discuss some of the key challenges faced by purchasers of precious metals including:
Tony Bevilaqua: Ladies and gentlemen, thanks for joining us today. I’m happy today to be speaking on behalf of Sprott US Media with a very good personal friend of mine and trusted business associate, Mr. Andy Schectman, president and owner of the highly reputable precious metals dealer, Miles Franklin.
Miles Franklin helps its global customer base with the sale and storage of physical precious metals and numismatic coins. Miles Franklin has been in the business nearly 30 years, has done over $6 billion in sales, and has maintained an A+ rating with the Better Business Bureau.
Miles Franklin joined us once again at the Sprott Natural Resource Symposium this year at the end of July as a Platinum Sponsor.
Andy Schectman: Tony, I appreciate it very much and thank you for that introduction. The feelings are mutual.
Tony Bevilaqua: Andy, the precious metals landscape has dramatically changed since the highs of 2011. US gold dealers have seen a dramatic increase in bankruptcies and increased fraudulent activity. Can you speak to what you’ve seen over the past few years and how Miles Franklin has had to adapt?
Andy Schectman: Absolutely, I think that’s a very important topic to discuss. Over the last three years, we’ve seen three of the biggest online companies disappear, go bankrupt, and their owners imprisoned. Three years ago, it was Tulving with north of $35 million out of Newport Beach. Two years ago, it was Bullion Direct out of Texes with another $20 or $30 million worth of product gone and the owner put in jail. Then last year, it was Northwest Territorial Mint, one of the biggest online companies that I could ever remember which had been in business since I started. It came out that Northwest had been running a multi-year Ponzi scheme. In all three cases, customers dealt with online companies which appeared to be reputable with the common thread being that they all seemed to be the cheapest in the industry.
The State of Minnesota has tried to proactively deal with this type of issue. As it pertains to our reputation, we’ve been in business for 28 years and we’ve never had a customer complaint, ever. You won’t find one on Google. We’ve also maintained an A+ rating with the Better Business Bureau.
The State of Minnesota really doesn’t care about that, but as of two years ago this July, Minnesota will be the only state in America that is regulating this industry. As such, Miles Franklin is beholden to the Commissioner of Commerce unlike businesses in any other state in America with a very large surety bond, background checks annually of all of our employees and principals, and compliance regulations that have made at least 98% of the companies in the United States boycott the State of Minnesota.
In other words, whether you own a precious metals company in Minnesota and sell out to the rest of the country or you own a company in Carlsbad, California and sell one ounce of gold in to the State of Minnesota, you have to be licensed, bonded, and background checked. Those three things alone have made most companies just say, “You know what? We’ll deal with the rest of the country.”
We embrace the regulations as it simply means that you can’t be taken advantaged of in a federally non-regulated industry when you deal with a company in Minnesota. That is not the case in just about, well inevery other, state in the country. We think it’s a good thing for the consumer.
Tony Bevilaqua: Doing business with a reputable dealer is something that precious metals investors may not realize the importance of as the physical precious metals industry is not regulated to a high degree with the exception of the State of Minnesota, as you stated. These transactions are private transactions in which account numbers don’t have to be established and social security numbers do not have to be given. Doing business with a reputable firm is of the utmost importance, and I think that’s why you and your firm have been so successful. Also out of the thousands of precious metals dealers across the country, Sprott chooses only one every year to welcome to the symposium. Miles Franklin has been that dealer for many years.
Andy Schectman: That’s not lost on us either. I’ve said, while I spoke at the show for the last few years, that it’s the greatest honor that I have had in the 28 years of owning Miles Franklin to work with you folks. It’s something that’s not lost on us and our reputation is something we’re very, very proud of and I work very hard to maintain.
For people who are listening, without question whether you buy from Miles Franklin or not, reputation is one hundred percent the most important thing. It’s the only thing really as far I’m concerned. We live in a very homogenous world where people focus far too much on the bottom line price and not enough on integrity, honesty, customer service, and loyalty. You never realize how important that is until you’re on short end of the stick, and then you realize very quickly.
Tony Bevilaqua: I personally deal in physical precious metals and am very familiar with the competition out there. I remember a few years ago, Tulving, as you mentioned, having the lowest prices in the industry. My customers would ask me, “How can Tulving offer such prices?” They were selling below the wholesale prices that we buying at, and Tulving was also offering overnight shipping.
Andy Schectman: I would always ask the same thing too, because here’s the thing, we all buy from the same sources and it’s a commodity so there is somewhat of a floor. I know what everyone pays and when you see these companies that are selling and making a fifth of a percent or nothing at all, you have to start to question, what’s the business model? What is the long-term plan or the long-term viability of a business model that makes absolutely no money?
A lot of these companies that have gone under seem to have employed a Peter from Paul type of business model where maybe they start out honorably, but very soon they have to start paying their bills and run into cash problems. They continue to do business until the business slows down. Then they go out of business.
The thing that customers want to keep in mind is that you want to do business with a company that you think will be there when you need them down the road. Miles Franklin is not the cheapest company in the industry although we’re nowhere near the most expensive, but we’d like to see customers get what they pay for.
Tony Bevilaqua: Warren Buffett always says, “Only when the tide goes out do you discover who’s been swimming naked.” We’ve been exposed to some of the precious metals dealers have been skinny dipping in this devastating bear market since 2011 and there may be more.
Tony Bevilaqua: Andy, most of our readers today either own physical precious metals or are maybe considering buying for the first time. A very important decision, or the most important decision, a precious metal investor has to make is where to store their gold, silver, platinum, or palladium. Can you speak to the various options investors have when it comes to storage?
Andy Schectman: I think it’s important to have a core position of gold and silver at home hidden away however you decide to do that. But it’s important to remember that if you have $10,000 in gold, you could put 4 gold coins in each of your two front pockets, go to a baseball game, go out and have a cup of coffee after, walk home and no one would know you had you have 10 grand in gold on you. You might have droopy pants, but that’s about it.
$10,000 in silver is 50 pounds, so the more you accumulate in silver, the quicker the logistics will become an issue. Certainly having it at home, accessible, is always a good choice. Once you have reached the threshold of no longer feeling comfortable having metal at home, or perhaps you want to accumulate more than you’re comfortable having at home, then working with a reputable storage facility is always a good option. It’s a far better option I think than having metal held in a safe deposit box in a bank.
There are far too many issues that would come along with having things stored in a safe deposit bank. For example: banking holidays and the fact that they’re not insured. I believe JPMorgan or Morgan Chase sent out letters a year ago to all of their safe deposit box holders reminding them that holding currency, cash, or coin was not allowed in their safe deposit boxes. Safe deposit boxes are way down on the list of storage solutions for me.
There are lots of storage facilities, you could basically say they’re a dime a dozen in the United States. The most important thing is to find a facility that is fully insured. Typically, they are insured by Lloyd’s of London. Any of the Brink’s facilities throughout the United States that would hold your metal are always a good choice.
I think the Dakota Depository in Fargo, which is who I personally work with in the United States, is the best choice. I’ve worked with that family for almost 30 years and that is a level 2 military grade, fully insured depository in Fargo.
Then of course there is our storage program in Canada, which you could argue is more than just storing metal. That program is with Brink’s and we’re very proud of it in the respect that we have some worldwide exclusives.
It doesn’t matter who you work with to store metal in a facility in the United States, as long as it’s fully insured and as long as the facility has been around for a while, they’re all good.
However when we talk about getting metal out of the country, there are some things to consider. We think we’ve covered all of the bases with our Canadian facilities. First and foremost, when you are storing metal out of the country, as it pertains to FATCA and FBAR you need to make sure that you are compliant. Not being compliant with FATCA and FBAR is a very, very, very bad idea. The penalties are extraordinary.
The FATCA filing is presented to the IRS while FBAR is presented to the Treasury Department. They’re both due sometime in the summer, around June or July, and are independent of your normal income tax filing. What they want to know is, in no uncertain terms, do you have any form of wealth outside the United States?
Our program with Brink’s, we believe, is one hundred percent fully compliant on FATCA and FBAR. Most programs are not. The most important thing to understand as it pertains to FATCA and FBAR and offshore storage is that two conditions must be met in order for the account not to be reportable. First and foremost the account must be held directly, which has always been interpreted as segregated, and must be held directly in a non-financial institution. It cannot be a bank. It cannot be a brokerage. It has to be a non-financial institution like Brink’s. The one thing that’s worth mentioning, Tony, is that we started our Brink’s program in Montreal six years ago. That program is segregated, it is audited twice per with year third-party auditing, and it is fully insured, the whole nine yards. But it is held in a way in which some people out there would consider as not directly held and I want to address that because it really is important. I would argue it’s directly held because it is segregated and audited. The auditors come in and see that everyone has their gold in their own box, and it’s all accounted for, and sealed. We argue that that’s directly held in the form of segregated.
I petitioned the IRS for four to six years basically asking them what their definition of directly held was. When we first started this program we asked them, “what is your definition of directly held because it’s somewhat of an ambiguous term?” The IRS came back after several years and said, “You know what? We reserve the right to not tell you.” But they did publish a chart about a year ago. If you Google FATCA-FBAR comparison chart, you will that it says, “Precious metals held outside the United States in order for it not to be reportable must be directly held in a non-financial institution. Example, safe deposit box.”
Long story short, a year ago in November we, in conjunction with Brink’s, developed, and we have an exclusive arrangement, the first and only fully insured safe deposit boxes in a non-financial institution. Those programs are located in Vancouver and in Toronto.
This is the same type of storage program that we have in Montreal, except now everything is held in a safe deposit box, fully insured. They’re brand new state-of-the-art one-key boxes instead of two-key boxes that you normally see at a bank where the bank holds the master, the client holds the spare. For these boxes, you get the key to the box and it’s only spare. You get a certificate of what is held inside the box. The box is sealed, and the keys are sent back to you with the certificate. Now if you need to access the box, you either make a trip up to Vancouver or Toronto and access it or let us know and we send you an air bill. You send the key back up to Brink’s, business is transacted, and then the key is sent back with a new certificate.
The bottom line is that program, which we do have an exclusive on, is the only program that I know of in the entire industry that is one hundred percent FATCA and FBAR compliant. I say that even over my own account in Montreal even though I believe, and that’s why I pay the third-party auditor to come and audit our Brink’s program, that it is directly held. However, the IRS has only been one hundred percent clear when pertaining to directly held by saying safe deposit boxes. That is something that you can only get by working with Miles Franklin and we’re very excited to offer it. It’s really a one of a kind product.
Finally, as it pertains to our storage program, as far as I know there might only be one other company in Singapore that is doing it the way that we are in terms of billing. Our accounts are billed on a per ounce basis rather than a percentage of asset value basis. The percentage of asset value model is usually the standard in the storage industry; in which you are charged as a percentage of the asset value because the number one expense in storage is insurance. So if what you’re insuring goes up in value, so too does your charge.
Well, with Brink’s we’ve negotiated on both programs the ability to charge on the number of ounces. You’re paying a fixed rate which won’t go higher with the assumption that what you’re buying is going to go higher. So it’s logical in that case to choose the fixed rate. If people are buying gold and silver, they’re obviously expecting it to go higher. Your storage rate stays the same with us in the Brink’s program.
All the way around, what we have to offer in Canada is very unique and not something that you’ll see very often in this industry.
Tony Bevilaqua: So there are two ways customers can take advantage of that. One is they can purchase the metal directly through you and then you can help facilitate the transfer of the precious metals to Canada on their behalf. Secondly, if a customer already owns physical precious metals and whether they’re storing it in their own possession or they’re storing it somewhere else in the U.S., how would you be able to help facilitate that type of transaction?
Andy Schectman: We would assist them in sending their existing metal up to either just the segregated program in Montreal or Vancouver or to the safe deposit boxes in Toronto or Vancouver. We have an import/export license. The metal gets transferred up under our account number, their name is nowhere to be found on a manifest crossing the border. They then end up having their own account with Brink’s and receive back a certificate depending upon which program they have and that’s it. It’s literally that simple. We have no problem whatsoever taking a client’s existing metal and putting it up there, they don’t have to buy it from us. Albeit, we would certainly be more than happy to assist them with that as well.
Tony Bevilaqua: Are there any caveats with regard to the different types of gold or silver whether it’s a bar or a different type of coin?
Andy Schectman: The only caveat is that the Royal Canadian Mint was the first mint in the early ‘70s to start making 24 karat one ounce coins, and ever since then in an effort to spur growth in the Canadian mint the importation of gold into Canada under 24 karat carries a 20% VAT tax. I believe they wanted their citizens to only buy Canadian maple leafs therefore anything under that is taxed a VAT tax. That’s still on the books today, so as long as it’s 24 karat in terms of gold, no problem whatsoever, it can be anything from gold bars, Gold Kangaroos, Chinese Pandas, Gold Buffalos, Philharmonics, what have you.
As far as silver is concerned, the same type of thing applies. It has to be at least 995 pure. So really, the only thing that can’t go up to Canada and be stored in terms of silver would be the old silver coins, junk silver, or silver dollars. Any of the modern stuff from silver bars, rounds, American Eagles, Maple Leafs, those kinds of things are no problem whatsoever.
Tony Bevilaqua: So if an American owned American Eagles which are not 24 karat or say the Krugerrand, would you suggest them swapping out to 24 karat bullion coin before going to Canada?
Andy Schectman: Yes, I would. Certainly it doesn’t make sense to pay 20% VAT. The American Eagle and the Krugerrand are the only modern coins that are not 24 karat by and large. They both have an ounce of 24 karat gold in them but they also have a tenth of an ounce of alloy sprinkled on top rendering the net weight 1.1 ounce and the purity decreases from 24 to 22.
So yes, it would behoove people to switch to Maple Leafs, but there’s another reason to own Maple Leafs if you have an account in Canada. There are only five banks in Canada spread out amongst the country and all five of those banks have on their web pages an agreement with the Royal Canadian Mint in their charter that they buy back Canadian Maple Leaf coins in the lobby of their bank. The banks can buy anything, but they’re obliged to buy bank Canadian Maple Leafs. They’re not always obliged to buy back an American Buffalo or a Philharmonic.
So if you are using the safe deposit box means you can fly up to Vancouver to go to the Sprott show, make an appointment to go into downtown Vancouver, which is about 8 minutes away from the Fairmount where the Sprott show is at. You could pull out 10 coins, come back and you go across the street to RBC, and in the lobby of the bank they will pay you cash or cut you a check.
I think it behooves people to own Canadian legal tender stored at the Canadian safe deposit box with Brink’s. It doesn’t have to be, but yes, I think the Canadian Maple Leafs would be the best choice.
Tony Bevilaqua: Andy, Miles Franklin is one of the largest gold dealers in the US. Our listeners would be interested to hear about your sales volumes recently and maybe what the demand trends have looked like particularly in the different gold and silver products, and maybe even the numismatic market. Can you speak to that?
Andy Schectman: I’ve never seen premiums on everything we’re selling this low; I believe that’s indicative of a lot of selling. There have been people selling back into the market.
In terms of volume, it has been a very unusual year. Numbers wise, we’re probably slightly ahead of last year although the volume of sales is down I would say at least 20 to 25%. The size of the sales, however, are much bigger perhaps with more sophisticated investors. The days of receiving 200 phone calls when silver is approaching $50 and gold is approaching $2,000 are well behind us right now. Perhaps some of that is due to the summer, some due to the uncertainty surrounding what’s going to happen with Trump, I’m not sure.
All I can say is simply these premiums, which is the cost in and above the melt value of whichever coins that you’re talking about, are at the lowest level I’ve ever seen in 28 years of business, across the board. As an example, junk silver, dimes, quarters, and half dollars minted prior to 1965, a year ago, the premiums were $4 to $5 an ounce over melt value. Right now, they’re under $1.50.
$20 gold pieces, the old numismatic coins, minted prior to 1933, I’ve always loved those coins. In the ‘90s, when gold was $400 an ounce, nobody bought Gold Eagles, nobody. Nobody bought Krugerrands. People just bought $20 gold pieces because with the $400 gold, the average premium was usually 10% on an uncirculated $20 gold piece, 10 to 15% above the price of a Gold Eagle.
But with $400 gold, people didn’t mind paying an extra $40 for a hundred year old coin that was saved from confiscation that had enhanced upside potential. That’s all people bought, and as gold got higher and higher in price, we reached a point where the premiums on these coins got far too high, prohibitively high. So we stopped selling them for a long time and only focused on bullion.
I will say this. Right now the premiums on uncirculated $20 gold pieces are lower than the price of a Gold Eagle. Never before have I experienced a time where you can buy a 100-plus-year-old coin in Mint State 62 for the same price as a Gold Eagle. When I talk about something being highly unusual, that is as unusual as it gets in this industry. I think it’s somewhat symptomatic of a slowdown in the industry.
That is really where your readers need to heed what we were saying earlier in this conversation. You see flash sales all the time by online companies and people giving things away more or less. You have to be careful about that because while premiums are very low, it’s a prime environment for a company to run into big trouble financially simply because low premiums are indicative of a weakness in demand. The higher the premium, the greater the demand. This is the lowest premium I’ve seen across the board 28 years. While they’re good opportunities, it’s also important that buyer be aware of what’s going on.
Tony Bevilaqua: Buyers always have the predicament of choosing what form of gold or silver to purchase whether it’s a bar or a coin and then how large a bar or coin. For example, they can buy a 1-ounce ingot bar, a 10-ounce bar, a kilo, a London Good Delivery Bar, or the different types of coins both gold and silver. How do you begin to help a customer make up their mind about what form of gold or silver to purchase?
Andy Schectman: I always try to keep it really simple. I typically feel that coins are a better buy than barsand I use the term better buy in the respect that they’re in far greater demand. They have far greater utility.
The mentality behind buying a bar is that you’re trying to maximize every dollar you put into the metal. While it’s true on the way in that you’re probably spending a little bit less, the savings between buying a bar rather than a coin are not commensurate with the loss of flexibility and/or the demand or liquidity when you sell it.
I typically would shy away from buying gold or silver bars in favor of legal tender coins. Though you want to make it easy, I also usually only buy from 3 mints, the US, Canada, and Australia. To me that’s like Pepsi, Coke, and Sprite in the respect that they are highly recognized anywhere in the world, very, very liquid, and non-subjective.
If you realize that all three mints make both 1-ounce coins in gold and silver and fractional coins in gold, and platinum for that matter, there is no right or wrong approach. I think the biggest mistake people will make in making a first purchase is being penny wise and pound foolish.
Again, I guess the most important thing to say is that when you become pound foolish, the savings that you are getting on the way in are totally not commensurate with the loss in privacy on reporting requirements, the loss in flexibility as people just don’t want big bars, and the loss of demand as well. So, stick with coins by those three mints whether it’s silver, gold, or platinum, you can’t go wrong because there really is no playbook or established protocol for success.
That’s kind of the fun thing about buying gold and silver, not only is it a way to preserve wealth as it has been wealth for 6,000 years but it can become fun in accumulating it too in different coins that are issued by those three mints. As long as you’re not paying high premiums above melt value then there’s really no right or wrong answer.
Tony Bevilaqua: Andy, please tell our listeners how to contact Miles Franklin to purchase precious metals or to take advantage of your Canadian storage option.
Andy Schectman: Absolutely. First of all as it pertains to our home website, MilesFranklin.com, we do publish a daily newsletter. You can sign up for that on the contact side. Andy Hoffman does an amazing job. He is prolific in terms of how much he pours in to it five days a week. It’s a free newsletter that I think your listeners will like a lot.
As far as our storage is concerned, Brink’s has asked to make two separate websites for our two separate programs. Our normal storage program is PreciousMetalStorage.net. And that’s our Vancouver and our Montreal segregated and audited account. The safe deposit boxes program website is PrivateSafeDepositBoxes.net. We can also be reached at 800-822-8080 and myself directly at 800-255-1129.
The one thing that I really try to be, especially for your clients, is accessible. On top of the things that we have discussed: our storage program, our reputation, the Minnesota accreditation, the things we’re really proud of and what makes us different, we are accessible. I am always available and we’re also accountable. I would love the opportunity to work with your readers and anything that we can do to answer questions, please feel free to reach out.
Tony Bevilaqua: Andy Schectman, owner and president of Miles Franklin. Always a pleasure to speak with you.
Andy Schectman: Thank you, Tony. I appreciate it.
ANDY SCHECTMAN is the president and owner of Miles Franklin Precious Metals. Prior to starting Miles Franklin, Ltd. in 1989, Andrew became a Licensed Financial Planner, specializing in Swiss Franc Investments and alternative investments.
At Miles Franklin Ltd., a company that has eclipsed $5 billion in sales, Andrew has developed an operation that maintains trust, collaboration, and ethical behavior, superior customer service and satisfaction to better serve their clients.
He is responsible for overseeing the firm’s operations and business functions; including strategy and planning, account management, finance, and new business.
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