Technology has been reshaping finance over the past few years, and Dara Albright has been in the thick of it, producing insightful webinars, events and conferences, such as LendIt, the massive online lending expo she helped to launch. Her latest production, FinFair, takes place July 29 in New York. With a focus on new investment options for small investors, it has a decidedly populist bent. We talked to Dara about the trends and technologies that will be showcased.
Amy Cortese: What’s the idea behind FinFair?
Dara Albright: This has been a truly transformative year for financial services with respect to regulatory change and financial innovation. These dynamics have inspired a new wave of alternative products that I call “crowd-centric retail alternatives.”
In particular, Reg A+, which went into effect in June, not only enhances capital formation, it brings new private alternative assets to the mass consumer market. It occurred to me that there wasn’t a central stage where these retail-focused next-generation financial technologies and investment products could be introduced to the general marketplace. Nor was there a forum that serves both debt and equity players, or one that appeals as much to the Wall Street establishment as it does to FinTech pioneers.
I felt like there needed to be a conference geared towards helping financial professionals who reside outside the online finance world—many of whom don’t realize just how much financial innovation is occurring in their own backyard or how they and their retail clientele can capitalize on it. The fact is, financial advisors could be growing their assets under management by providing their clientele with higher yielding, less-correlated alternatives.
It is truly an exciting time for financial services, and this conference reflects the new culture of financial fairness.
AC: What do you mean by “crowd-centric retail alternatives?”
DA: Alternative investments are generally investments that are not correlated with the stock market—anything from real estate to hedge funds and private equity. But to date, these alternatives have been available mainly to wealthy and professional investors. Financial innovation is creating a new class of alternative investments that are available to the masses, and that’s what I call crowd-centric retail alternatives.
The first generation of retail alternatives include products such as ETFs and certain mutual funds. Crowd-centric retail alternatives can include any private debt or equity structure that uses a modern regulatory regime to convert private instruments into publicly-obtainable securities—Reg A+ offerings, peer-to-peer loans and real estate, intrastate crowdfunding and the like. I believe they constitute the next wave of retail alternative products.
According to McKinsey, retail alternatives will soon account for almost 50% of total retail revenues. And Goldman Sachs believes that retail alternatives are in the early stages of a 5-10 year growth trend capable of becoming a $2 trillion opportunity.
We are facing a retirement crisis of unimaginable proportions
AC: You are a student of the history of financial markets. We’re at an interesting moment, where the shortcomings of the conventional financial system are being exposed and new solutions are arising, thanks to technology and regulatory advances. What’s your take on this?
DA: I could take up hundreds of pages venting about the shortcomings of the conventional financial system. But I’ll sum it up in one sentence: Too much government intrusion turned a free-market foundation into a financial system that serves America’s largest financial institutions, corporations and investors at the expense of her small businesses and investing public. The regulatory burdens have made it impossible for small cap companies to be public. As a result, today’s most exciting growth companies are deferring IPOs till much later in their lifecycle. They are flourishing in the hands of VC and PE firms instead of appreciating in the retirement portfolios of the investing public.
With today’s interest rates at historic lows, retail investors serving as the exit strategy for the financially privileged, and social security on the brink of bankruptcy, America is not only experiencing an ever-widening wealth gap, but she is facing a retirement crisis of unimaginable proportions.
Online finance and issuer-friendly securities rules such as Reg A+ are helping to democratize the flow of capital and bring yield and growth back to retail investors. The confluence of technology and regulatory easing will help restore both the debt and equity markets.
AC: What are the most promising innovations coming down the pike?
DA: As someone who is fascinated by the evolution of, well, everything, I’m most excited by the financial ingenuity that has emanated from earlier FinTech pioneers. Companies like Prosper, Lending Club, AngelList, Crowdfunder, CircleUp, Kabbage continue to inspire a new generation of financial innovation.
We’re witnessing the emergence of funds that bring marketplace lending to retail investors, and the development of tools that help financial advisors manage their clients’ P2P holdings. We are also seeing new solutions that will enable financial advisors to actually hold these alternative asset classes under management. Apps are being created to help the masses invest in their peers and more realistically prepare for retirement. And new technologies are being employed to transform the way offering memorandums are structured, and the way in which securities are marketed to retail investors.
All of these innovations–which will be featured at FinFair—will have enormous implications on the future of financial services.
AC: As mentioned, we’ve witnessed some significant change in securities laws and regulations, from Reg A+ to intrastate crowdfunding. What do you think holds the most promise? I’m especially interested in how financial (and legal) innovation can help local businesses and strengthen communities.
DA: I think there are some really interesting intrastate applications for Reg A+. Fundrise, a leading crowdfunding real estate platform, pioneered the use of the old Reg A exemption to bring local real estate investment opportunities to the masses. Fundrise co-founder Dan Miller will be sharing some of those experiences at FinFair. It will be interesting to learn how the “new and improved” Reg A+ might make those types of offerings simpler and more economical for issuers. I’m also curious to hear California Stock Exchange’s Howard Leondardt’s vision of “specialty” venture exchanges and how Reg A+ might inspire the rebirth of regional stock exchanges.
AC: What trends and products being showcased at FinFair are you most excited about?
DA: I’m particularly excited to see the demos by FAB, a new community banking model; Kuly, a ground-breaking savings app that allows savers to invest in peers; and NSR Invest, a new suite of tools to help financial advisors manage their clients’ P2P holdings.
But what I’m most looking forward to is the aftermath of FinFair– the employment of these new concepts, the reception of these innovations, and hopefully watching some of today’s newer platforms grow into tomorrow’s market leaders.
AC: What challenges remain in creating a more fair financial system for all investors?
DA: I think more work needs to be done from a legislative perspective. I still maintain that the concept of an accredited investor is unconstitutional. We’ve made such great strides in this country to eradicate discrimination based on skin color, gender, religion and most recently sexual preferences. However, we continue to discriminate based on income and net worth. I understand the need to protect investors from fraud, but it’s counterintuitive for a free government to shield investors from failure. Failure begets progress.