The FinTech revolution continues to inspire a great deal of retail financial product ingenuity - just as the regulatory winds are increasingly shifting in favor of the retail investor. The confluence of these two events is helping reshape the financial services industry. This presentations explores this transformation in financial services and shows how financial advisors can capitalize on this micro alternative investing trend while maintaining fiduciary responsibility to his retail clientele.
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Using Crowd-Centric Alternative Assets to Enhance Portfolio Yield
1. Using Crowd-Centric Alternative
Assets to Enhance PortfolioYield
By Dara Albright
www.daraalbright.com | dsa@daraalbright.com
@tothestoics daraalbright
While Maintaining Fiduciary Responsibility
The 30th Annual FIRMA Conference
March 23, 2016
2. Financial Services is Transforming
•THE RISE OF CROWDFINANCE
•CONVENTIONAL MARKETS & ASSET CLASSES ARE BECOMING LESS & LESS ATTRACTIVE TO
INVESTORS
• The majority of stock appreciation occurs in private – not public - equity markets
• Traditional Fixed-Income Asset Classes are drastically underperforming
•DEMAND FOR ALTERNATIVE INVESTMENT PRODUCTS IS ESCALATING
•THE REGULATORY ENVIRONMENT IS SHIFTING IN FAVOR OF THE “RETAIL INVESTOR”
• The JOBS Act, Intrastate Crowdfunding Legislation, Accredited Investor Definition
•TECHNOLOGY IS ADVANCING AT LIGHTENING SPEEDS
• The FinTech Frenzy, RoboAdvisors, Blockchain, Crowdfunding, P2P / Marketplace Lending
•THE EXISTING RETIREMENT FRAMEWORK DOES NOT SUIT TODAY’S SAVER
4. Crowdfinanceisjustlikeregularfinance
CROWDFINANCE CAN BE STRUCTURED AS DEBT OR EQUITY
AND IT CAN BE BROKEN INTO THREE MAIN SUB CATEGORIES:
◦ PERSONAL (CONSUMER) FINANCE
◦ P2P Lending, Peer-2-Peer Lending, Marketplace Lending, Digital Lending
◦ CORPORATE FINANCE
◦ Title II & Title III Crowdfunding, Reg A+, Intrastate Crowdfunding, Peer-2-Business Lending,
Peer-2-Real Estate Lending
◦ PUBLIC FINANCE / ECONOMIC DEVELOPMENT
◦ Real Estate Crowdfunding
7. FLAWED TRADITIONAL EQUITY &
DEBT MARKETS HAVE MADE
CONVENTIONAL ASSET CLASSES LESS
& LESS DESIRABLE TO TODAY’S
INVESTORS
8. IN ORDER FOR ALIBABA’S IPO
INVESTORS TO REALIZE THE SAME
RETURN AS INTEL’S IPO INVESTORS,
ALIBABA WILL NEED TO BE TRADING
AT A $480 TRILLION MARKET
CAPITALIZATION – 6 TIMES MORE
THAN THE GDP OF EVERY COUNTRY
ON THE PLANET COMBINED!
Over-regulationisremovinggrowthfrompublicequity markets
10. • Small businesses can no longer
rely on banks for loans
• With interest rates at historic
lows, investors can’t afford to be
weighted in traditional fixed-
income assets
Creditmarketsarejustasflawedandunjustaspublicequity markets
12. Retail investors are banned from accessing
some of the most attractive alternative
investment opportunities
13. Fortunately this is changing…
The regulatory winds are shifting. And
they are blowing in the direction of the
“retail investor”
14. TheModernEquitiesMarketplace
JOBS Act inspired offering structures
will bring growth opportunities back
to retail investors:
• Reg A+ became effective on June 19, 2015
• Regulators focused on venture markets
and secondary liquidity for crowdfinance
offerings
• Intrastate crowdfunding laws are
germinating state by state
• Title III (“Interstate Crowdfunding”)
becomes effective in May 2016
• ‘‘Fair Investment Opportunities for
Professional Experts Act” bill (H.R. 2187)
15. • P2P / Marketplace Lending has been nothing
short of a phenomenon
• According to Morgan Stanley, in the US,
marketplace loan origination has doubled every
year since 2010, to $12 billion in 2014.
Meanwhile, the trend is playing out globally,
notably in Australia, China and the UK. All-told,
such lending could command $150 billion to $490
billion globally by 2020.
• Venture Capital firm, Foundation Capital, predicts
that by 2025, $1 trillion in loans will be originated
online globally
TheModernCreditMarketplace
Source: Orchard
17. Reg
A+
Bridging the
Wall Street
establishment
and FinTech
pioneers
Bringing the P
back into P2P
Bridging the
equity and
debt players
Rebirthing the
Small Cap IPO
PlatformTechnology+RegulatoryOverhaulis inspiring
an entirely newgenerationofretail alternative products
18. WhatAreCrowd-CentricRetailAlternatives
•Crowd-Centric Retail Alternatives are a new breed of retail alternatives is
designed to bring non-correlated yield and pre-IPO equity growth to the masses.
•Some of these new products include funds, managed accounts and online
platforms that provide retail investors with to access to private alternatives such
as peer-to-peer, peer-to-business and peer-to-real estate debt as well as JOBS
Act inspired equity offerings.
19. •Smaller investors benefit by gaining:
• access to more growth opportunities
• access to higher yielding fixed-income products
• greater portfolio diversification
• non-correlated alternative to traditional investment products
•Financial Advisors can benefit by:
• Growing Assets Under Management
• Client Retention
TheSignificanceofCrowd-CentricRetailAlternatives
20. •Broader economic impact includes:
•Narrowing the wealth divide
•More capital for innovation
•Investing based on fundamentals
•Thwarting a looming retirement crisis
TheSignificanceofCrowd-CentricRetailAlternatives
22. Tools for Financial Advisors
NSR is the first platform that enables RIAs and FAs to actively manage their clients’ MPL holdings
23. Tools for Financial Advisors
•NSR Platform is purpose-built to solve the challenge advisor’s have in accessing peer-to-
peer marketplaces, specifically:
• Integration into Portfolio Reporting Systems for simplified reporting alongside other
assets as well as billing with custodians
• Availability of professional credit strategies into Lending Club backed by an RIA
• Unified view of all client accounts and one-step account creation
• Provides new secondary market liquidity tools to help free up capital when necessary
•As the industry evolves, NSR is dedicated to servicing financial services providers
through the development and integration of robust tools that will help them remain
compliant and maintain fiduciary responsibility.
24. Much more work is being done to
bring higher yielding fixed-income
opportunities to retail investors!
25. Opening alternative investing to the
masses is still just the first step in
thwarting a national retirement crisis.
America must also revolutionize its
retirement infrastructure.
26. •With companies deferring IPOs, retail investors have simply become the exit
strategy for the financially privileged
•Conventional fixed-income returns are languishing
•Social Security is on the brink of bankruptcy
•Median U.S. Retirement Balances (Both 401(k) and IRA) are alarmingly low:
• Median U.S. Retirement Balances (Both 401(k) and IRA) for all U.S. Working
Households is a paltry $3,000
• Median U.S. Retirement Balances (Both 401(k) and IRA) for Near-Retirement
Households is only $12,000
•50% of all U.S. working households are without a retirement account at all!
Americaisfacingaloomingnationalretirementcrisis
27. •Most alternative products can only be held in self-directed IRA accounts
•The SDIRA industry uses antiquated, decades-old technology processing
that cannot integrate with today’s Crowdfinance platforms
•Cumbersome 4-6-8 week process to complete a transaction cannot
compete with rapid fire loan transactions
•Exorbitant annual and per transaction SDIRA fees prohibit the holdings of
lower priced assets
•Financial Advisors are dis-incentivized to recommend them to their
clients as they lose “Assets Under Management to the SDIRA Custodians
Americaneedsa“modern”retirementproductthatcansupportmicro
alternativeinvesting
28. CLOUD BASED SERVICES
•The retirement vehicle for the next-generation alternative asset investor
•Automated cloud-based solution that allows financial providers to:
• Enhance product distribution
• Grow retail account base
• Increase assets under management
TheISCPSolution-Hi-techretirementsolutionsforanewFinTechdriven
industry
29. I believe that, in tandem, the modern SDIRA
and crowd-centric retail alternatives will
transform financial services in much the same
way that the 401k and the mutual fund
industry had done 35 years ago when they
came together and ballooned into trillion
dollar industries.
31. RETAIL’S DISSATISFACTION WITH CONVENTIONAL ASSET CLASSES
THE EMERGENCE OF CROWDFINANCE (THE MARRIAGE BETWEEN TECHNOLOGY &
REGULATION)
Greater access to private equity
Alternative product ingenuity
Using Reg A+ to create a new type of “payment dependent note”
The influx of P2P, P2B, P2RE managed products
THE PROLIFIC GROWTH OF MARKETPLACE LENDING
More and more offline private debt businesses migrating online
Traditional real estate investing moving online
THE MATURATION OF THE INFRASTRUCTURE TO SUPPORT CROWD-CENTRIC ALTERNATIVE
INVESTING
New tools designed to assist financial advisors in managing their client’s crowd-centric
holdings
New liquidity options for private alternatives
VENTURE CAPITAL POURING INTO FINTECH (PROJECTED TO NEARLY TRIPLE IN THE NEXT 3
YEARS)
THE MODERNIZATION OF THE SDIRA
If history is any guide, the crowd-centric
alternatives & the SDIRA industries are
about to catapult to unforeseen heights.