Intro from D.Bruce Johnston
As boomer adoption of technology increases and advisors prepare for the next generation of tech savvy wealth accumulators advisors can view this as a threat or opportunity. The only certainty is that what worked in the past will not work in the future.
Mobile, In the Cloud, Crowdfunding, Crowdsourcing, Outsourcing on the go, Social Media, Social Networking, Big Data and Cool Apps are but a few of the trends known today that will impact the financial advisory practice of the future.
As the seismic shift from digital immigrant to digital native occurs advisors will have to deal with a generation of investors demanding full transparency on what something costs and a digital delivery system that makes it available when they want it delivered.
One of these delivery systems is Crowdfunding. Advisors should be preparing themselves for the challenges and opportunities for their high-net-worth clients the Jumpstart Our Business Startups (JOBS) Act, signed into law in April 2012, will bring. Not to mention for the first time non-accredited investors will be able to invest in Crowdfunding raising additional questions for advisors to answer. Not to mention the need to make sure you know where “all” of your client’s assets are domiciled. Whether you agree with the SEC guidelines is immaterial – it’s the law!
If you are unfamiliar with the JOBS Act, or simply ignoring it, the following blog by Darryl Burma is well worth the read as it may save you a lot of time and counseling with your client’s down the road.
What Is Crowdfund Investing?
Crowdfund investing, also referred to as “equity crowdfunding”, will allow start ups to sell securities via online equity based crowdfunding platforms. I say “will allow” because currently this is only legal in the United States for accredited investors who have a net worth of at least $1,000,000 or earn a minimum of $200,000 annually. Roughly, that works out to be only 1% of the population that can currently participate in this new method of investing and there’s also a minimum amount that must be invested. That is all going to change however once the SEC finalizes the rules and regulations (makes crowdfund investing legal) that will govern this new industry. When that day comes it will open the doors for non-accredited investors to participate.
In other words, once legal to do so, start ups will be allowed to sell securities to investors regardless of the minimum value of securities being purchased or wealth. There will of course be rigorous reporting & disclosure requirements that start ups are obligated to complete beforehand but nonetheless this will open the door for average Americans to enter the investment world in a way that was never possible before.
You just never know who will become the next big start up, tech giant or multi-billion dollar corporation. With crowdfund investing it will create a whole new world of opportunities in regards to investment options for average Americans, job creation and improving the economy among other things. There will be a lot more transparency and due-diligence than past conventional investment methods but of course there’s always going to be some level of risk. Risk can be a very good thing though. Take investor Jim Breyer for instance, he gambled nearly $13 million on a Harvard dropout known as Mark Zuckerberg and look where he’s at today! Soon everyone will have the freedom to invest in what they believe will be the next big thing and won’t have to be millionaires to do so.
Why Should Financial Advisors Be Educated On the Topic of Crowdfund Investing?
Simply put, your clients WILL eventually have questions regarding crowdfund investing (if they don’t already) and you WILL need to know the answers. For example, one of your clients could very well approach you one day and state that he/she is considering moving some of their money out of there 401K and investing that money into various companies through campaigns they spotted at an equity crowdfunding portal like StartupValley. What will your response be? Will you know what advice to give them? Will you know where to look in order to confirm that all required documents have been filled out and due-diligence steps have been taken for said investment(s)?
Other scenarios might include a client asking questions like “what equity crowdfunding platform is the best for technology start ups?” or “what are the hottest new trends in equity crowdfunding start ups right now and what new companies do you suggest I invest in?”. There’s a plethora of examples I could provide to stress the need for being educated on this topic but I’m sure you get the point. The bottom line is crowdfund investing is a reality, it’s going to take the investment world by storm on a global scale and it will soon be available once the SEC and FINRA finalize the rules. Many companies are already in the process of preparing for and molding their business models around this and are just waiting to pull the trigger and come charging out of the gate once it’s legal to do so. As a financial advisor, we urge you to take the time to educate yourself about this new industry and how it can effect your wealth management practice.