Investing helps people build wealth, reduce economic inequality, and level the financial playing field. Thanks to innovations in financial technology, individuals who used to face barriers to investing, like high minimum balances and mandatory management fees, can now access lower-cost, more transparent, and responsible investment opportunities. Meanwhile, not enough Americans can access wealth-building opportunities in the private markets. Modernizing our federal investment, tax and retirement policies while maintaining appropriate investor protections will expand access for individuals to critical wealth-building opportunities.
FTA supports efforts to recognize that digital investment tools and platforms increase access and opportunity while reducing costs for retail investors. We believe that modernizing the accredited investor definition and encouraging healthy, robust, and accessible primary and secondary markets will help more Americans build wealth and save for retirement.
Current Landscape
A Lack of Access to Sound Investment Opportunities Compounds Economic Inequality and the Widening Wealth Gap in the United States.
- The wealth gap between upper-income and middle and lower-income families in America is rising, and the overall share held by middle-income families is falling.
- A recent report noted that “[t]he typical white family possesses eight times as much wealth as the typical Black family and five times as much as the typical Hispanic or Latino one, according to a 2019 study sponsored by the Federal Reserve.”
- Black families are less likely to own stocks than white families, perpetuating wealth disparities.
- A lack of access to financial and investment tools, benefits, and opportunities that can help a family turn income into savings is a key driver of this inequity.
Existing Rules and Regulations Allow Only the Wealthiest and Highest Earners (“Accredited Investors”) to Invest in High-Growth, Private Companies, and Opportunities.
- Currently, in order to invest in a private company, an individual must meet the “accredited investor definition,” which allows individuals to qualify as investors “based on wealth and income thresholds, as well as other measures of financial sophistication.”
- The financial sophistication criteria include investment professionals in good standing holding a general securities, investment adviser, or private securities offerings representative license; directors, executive officers, or general partners of a company selling the securities; any “family client” of a “family office” that qualifies as an accredited investor; or for investments in a private fund, “knowledgeable employees” of the fund.
- This definition ultimately limits investment opportunities to a narrow group of wealthy individuals.
Outlook for the Future
Financial Technology—Coupled with Sound Policy—Can Increase Access to Fair, Transparent, and Low-Cost Investment Opportunities.
- Financial technology (or “fintech”) platforms are driving down costs and increasing participation in securities markets. These platforms typically have reduced investment size requirements and charge low-or-no fees while maintaining the important investor protections found in traditional advisory services.Recent research from the FINRA Foundation and the University of Chicago underscores the benefits of new fintech tools,
- noting a substantial increase in new investors who tend to be “younger, [have] earned lower incomes, and [are] more racially/ethnically diverse” than traditional investors.
- Digital investment advisers commonly charge between 0.25 percent to 0.35 percent for their services as compared to the between 1 percent to 5 percent of total assets charged by legacy advisers.
Financial Technology Can Also Support and Encourage Ownership
- Fintech platforms are helping companies and their investors manage their capitalization tables, valuations, and investments, all with the aim of creating more owners.
- Using these services, owners can grow their investments exponentially.
Forward-Leaning Policies Can Safeguard Investors While Increasing Investor Participation and Wealth Creation Opportunities.
- A direct way to expand participation in wealth generation opportunities outside of high-wealth and income individuals is to modernize the definition of “accredited investor;” the SEC should expand onramps to qualify as an accredited investor based on sophistication, including through knowledge-based tests (e.g., administered by the SEC, FINRA or an accredited entity), training, and certifications.
- Doing so will diversify the range of investors in growth-stage companies and help close the wealth gap.
- The SEC should also consider ways to expand broader access to private market investment opportunities through appropriately structured vehicles or funds, which would create well-diversified products and strategies.
Modernizing Federal Retirement and Tax Policies Can Facilitate Wealth-Building Opportunities
- We support efforts to encourage broader inclusion of low-cost digital investment advisory models amongst the options individuals have when selecting from retirement or education investment plans, including by:
- Continuing to push for mandatory access to retirement plans for all American workers (according to the Congressional Research Service, some 32% of private-sector workers still do not have access to a workplace retirement plan);
- Encouraging tax policies that do not dis-incentivize workers from saving in tax-advantaged plans;
- Placing separately managed accounts on equal footing with target-date funds in automatic retirement contribution plans; and
- Broadening incentives for employers to encourage or match employee contributions into education savings or student loan payment plans while they also save for retirement.