The next big finance opportunity

All of my mentors have said I have a knack for identifying opportunities. If I think about all of my ventures, most have been at the early stages of trends. Not fads, trends. For example, my first startup was the first of its kind. Today, there are numerous copycats. Some have gone further than we did.

Today I want to talk to you about what I see as the next big finance opportunity.

Right now there's legislation., that I believe has passed the House, that would allow just about anyone to become an accredited investor.

Before we get to the specifics of that legislation let me just remind you of what an accredited investor is.

An accredited investor is someone who has a special status under financial regulation laws. They are believed to be savvy enough investors that different investment opportunities are available to them that the general public is not allowed to invest in.

Today, the way you become an accredited investor today is that you have to meet a requirement that revolves around your net worth or your income.

Accredited investors are people who have $1M or more in net worth or have made $200,000 each of the last two years, as an individual, or $300,000 as a household.

Past legislation excluded the equity in your home from your net worth calculation. So that's why a lot of Americans don't meet the accredited investor definition because for most people their largest asset is their home. So when you're excluding that from the definition of an accredited investor, it makes it hard for you to have a million dollars in net worth. Plus, with the average individual income sitting well below $70,000, people haven’t been able to qualify under the net income requirements either.

The reason that being identified as an accredited investor is so important is that there are a bunch of new investment opportunities, mostly in private markets, that become available to you when you have that designation.

The recently proposed changes to the regulations would allow anyone to be designated an accredited investor as long as they pass a test.

There are a couple of reasons why I believe that's a really bad idea. But, let's start with why I think it makes sense.

  1. The idea of accredited investor status was to protect people who were not savvy investors when it came to investing in private businesses. Testing people ensures that they have a basic understanding of how investing in private companies works before they are allowed to invest.
  2. There is a precedence for allowing people who have passed specific tests to be considered accredited investors. Specifically, licensed financial professionals, e.g. those that have Series 7, and 65 licenses, are already given accredited investor status. Requiring an average person to pass a test, that is just as rigorous, is no different.
  3. Private investments should not only be available to wealthier individuals. Some sources quote the S&P 500 as averaging 8%-10% returns per year, while private investments have averaged 14+. Everyone should have access to those types of potential returns.
  4. This would increase the number of people investing in businesses, and therefore the amount of deployable capital. Benefitting both businesses and investors.

Here’s why it doesn't make sense.

  1. Taking a test doesn't prove you understand how to analyze private investment opportunities. I’ve taken plenty of exams in my life. They don’t prove I can put the material into action. Only that I can memorize the correct answers.
  2. I suspect more investment fraud will occur. I can see unscrupulous people using this as an opportunity to create funds of newly licensed accredited investors who don’t know how to pick good fund managers.
  3. Analyzing ongoing performance is different than with private companies. With public companies, you can look at things such as their financial statements, which are public record, or their price-to-earnings ratio as a metric of performance. With private companies, there are no such readily available financial documents. In fact, often times analyzing the traction of a private company is less about financial metrics and more about others.

Tony Robbins seems to agree with me that investing in private investments is the next big thing. So much so that his most recent book, The Holy Grail of Investing, covers that exact topic.

There is a reason that people such as Tony Robbins and others are focused on the finance industry. That’s because it is a very, very lucrative industry to be active in.

If you’d like to use my 25+ years of experience in the finance industry to start your own finance business, helping business owners attract and grow capital, complete the form below and I will reach out to you to discuss how I’m personally mentoring the next generation of finance leaders.

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