By Jack Leslie
The crossroads for the economic growth of the U.S. is at a critical point. In order for the cycle to stay on course, vigilance is imperative. Regulatory agencies have sent mixed signals to the market. Crowd funding is being presented as a solution to the troubled equity raising dilemma of emerging growth companies. The Broker Dealer community must abide by strict guidelines to advertise and market their services must pass exams and constantly face regulatory scrutiny which requires recurrent training to maintain their licenses. What training is required for someone to put up a site and offer a service to the potential client that wants to raise funds through crowd funding?
I have recently attended a few seminars that offer services to the executives trying to raise capital. The “expert” presenters were not licensed, some provided tax advice, some gave legal advice, some simply ask for money for the company to list on a website that would be set up for them. The concept that initial funds must come from families and friends was presented in a meeting in recent weeks by a company attempting to sell their services as a provider for crowd funding was very interesting to me. When does a solicitation to raise money require a license and when does it require some credential verification of the parties offering these services? Who will come to the aid of an investor or the company paying for these services if the service provider misrepresents the company? What about verification of the company information? Who is setting up Due Diligence? Who is checking for any bad actors raising money? A number of states are regulating after the fact. Some states have proposed a limit of $5,000 per year, per person, to invest in a company which is in their state and only through a portal using an escrow account at a bank. To me this seems reasonable unless the investor has borrowed money from their credit cards then all bets are off. This brings up the FINRA suitability requirements which apparently do not apply to crowd funding, service providers, or investors in crowd funding entities. In large part required Disclaimers are also missing in most power points I observed.
Crowd funding opportunities may exist for the Broker Dealer community. As licensed participants they could and should offer consulting services to potential clients and set parameters for existing clients when they want to invest through crowd funding and specifically they must be available to answer questions that apply to your state only.
For FINRA members, many services they provide would potentially lead to finding new clients and give them further a reason to call their existing clients. My advice is to be proactive or someone else will. These crossroads can be a stepping stone to industry changes in the current environment and help grow profitability for the Broker Dealer enterprise. Change is inevitable, so embrace it and follow the course in a new direction which could be successful. Lastly, use a creative approach to find good transactions for your accredited investors and make yourself visible in this environment.
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