Crowdfunding: advisor friend or foe?

Inherently, advisors see it as a threat. But evidence suggests otherwise.

While the introduction of this recent form of financing looks ready to put a dent in advisor compensation, forward-looking industry professionals have been much slower in moving to judgment.

“The guy that makes $150,000 a year or has $800,000 in assets that isn’t deemed accredited yet might want to take a small part of his portfolio, be that 10 or 15 percent,” Seedups Canada founder Sandi Gilbert told WP, “and put it into a risk investment that he could get a reward or not. There’s a lot of capital that’s untapped in the hands of the average upwardly mobile Canadian.”

Advisors making a living selling mutual funds need not fret because the new crowdfunding rules introduced by six provinces earlier in May put the maximum investment individuals can invest in a firm at $1,500 suggesting any move by clients to take advantage of these new investments will matter little to an advisor’s book. 

Currently, advisors working in the trenches are often cut out of the deal when clients opt for some types of up-and-coming private investments, including crowdfunding. However, a move to a retainer-type model allows them to put their clients into alternative investments such as upstart craft beer maker BrewDog, which just raised millions through crowdfunding.

Last week WP discussed how the current fee-based model charging one per cent of assets under management could be on the way out replaced by that retainer model, which is based on a clients’ total investable assets excluding their principal residence. The major benefit for the client is that the advisor is able to recommend investments other than stocks, mutual funds and ETFs while still being paid for providing advice to the client; eliminating any conflicts of interest.

Northland Wealth CEO Arthur Salzer spoke to this potential reality.

“We actually quite like it [retainer model based on total investable assets]. I think it’s a good idea,” says Salzer. “[Otherwise] You’re somewhat biased to liquid financial solutions.”