Awareness of alternative funding and finance strategies has consolidated in the early adopters and the time has come to generate awareness within a much larger crowd.
One person working to do that is Dara Albright. Ms. Albright is a featured speaker at Crowd Invest Summit West 2016, which takes place on December 7-8 at the Los Angeles Convention Center. She moderates “Platform and Funding Options” a panel covering various crowdfunding platforms and crowdfunding options.
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“People need yield and growth in order to properly save and plan for retirement,” Ms. Albright said, while adding that if they don’t see those gains, the coming financial crisis that will likely spread worldwide will “make the 2008 meltdown look like the Roaring ’20s.”
Retail investors are not only the future of the alternative finance industry but they are the future of finance as a whole, Ms. Albright believes. Look to how technology is being used to disrupt every other industry. Its introduction and resultant regulations facilitate access for the broader masses.
A self-described “research geek,” Ms. Albright says a look into the past provides historical precedent for where the alternative finance industry is headed.
The retail retirement vehicle suddenly became attractive to the mutual fund industry.” – Dara Albright
Fifty years ago the entire financial services industry featured many people with money in a bank account or stashed at home. A fortunate few owned stocks, bonds and mutual funds. Even just 35 years ago the mutual fund industry only totalled $135 billion across 564 funds. IRAs were in their infancy and there were no 401Ks.
“The retail retirement industry was worth about $25 billion, a similar total to where the P2P industry is today,” Ms. Albright said.
Ms. Albright likened it to the dapper mutual fund courting the shy and reserved retirement account.
Spoiler alert: The two eventually hook up, after being introduced by Ronald Reagan. On Aug. 31 at his California ranch, Reagan signed the Economic Recovery Tax Act, and with a pen stroke he helped pave the way for the alternative finance industry.
The 401K was born out of a loophole at the same time as people were allowed to contribute up to $2,000 in tax-deferred funds annually to an IRA every year, regardless of whether or not they participated in an employer-sponsored plan.
“The mutual fund industry said ‘whoa, this is interesting’,” Ms. Albright said. “The retail retirement vehicle suddenly became attractive to the mutual fund industry,” to the tune of $15 trillion across 9,500 funds, she added.
But there have been challenges along the way. Putting the onus on the worker to plan for their retirement is great for higher earners who can regularly contribute to a fund, but it doesn’t help Johnny Lunchbucket who doesn’t have any spare money at the end of the month.
“A matching employer contribution is no good if you can’t put anything in,” Ms. Albright reasoned.
The environment in 1980 when our protagonists meet is not unlike 2016, Ms. Albright said. Personal computers were new, like apps are today. Discount brokerages began investing in technology to simplify investing. Today it is fintech apps.
Both eras had distinct fund flows. Back then money flowed into funds, while today it is moving from funds and ETFs into alternative investments. The diversity highway ended at mutual fund city in 1980. Today it shoots off in several directions thanks to technology-enabled micro investing strategies which make diversification more efficient.
They also make it more affordable, which helps people who need it most, those whose investment capital needs to set up a comfortable retirement. Alternative financial products can help that happen. People can conveniently access those products online and can sell them in emerging secondary marketplaces.
But more work needs to be done, Ms. Albright cautioned. Self-directed IRAs were not designed with highly liquid assets in mind, not for the investor with $10,000 that needs to be spread around. That makes it difficult to invest those funds with Prosper or GROUNDFLOOR.
That is beginning to change as one company, IRA Services Trust Company, has developed a cloud-based system and API which allows investors to open a self-directed IRA in five minutes, Ms. Albright said.
“They spent three years and millions of dollars developing it from scratch. If the crowd finance industry was looking for a catalyst this is it.”
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