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I have found it to be challenging to find retail financial advisors that have depth in startup investing. If you look to  invest a portion of your savings into high growth startup companies and factor that in to your broader retirement savings goals the SEC and many other institutions suggest working with a financial advisor. 

Regulation changes and the growth of alternative investment platforms that specialize in startups have emerged to provide access, that previously were not accessible, making it easier to directly invest.  The rise of equity and cryptocurrency offerings holds promise to all, not just the wealthy. However, if you want to work with a professional financial expert to get help selecting and managing a portfolio of early stage companies (alternatives), options appear to be limited.

Limitations & Innovations

Financial Advice Limitations

Most investment firms that have experience with alternative investments require you to be an accredited investor (wealthy as defined by the SEC), and there are few that will actively assist you in selecting individual investments unless the amount you have to invest far exceeds even the SEC standards.

Broker-Dealers:

Traditional investment brokers like Scottrade, TD Ameritrade, Mintbroker, Charles Schwab, Vanguard, and E-trade provide access to public equity, debt, and funds that include mostly mature large companies. Access to higher risk alternative assets like early stage companies are limited through these channels so we explore other avenues. 

Registered Investment Advisors

Ravie Lakshmanan of FinancialPlanning.com writes RIAs: “a mere 2% of financial planners view cryptocurrencies as a viable investment option.”

Merrill Lynch and Morgan Stanley have “banned their brokers from recommending bitcoin and refuse to trade the instrument.” according to Financial Advisor IQ author Bruce Love. He goes on to write, “Most RIAs won’t let their clients anywhere near cryptocurrencies. And there’s a crucial legal reason why RIAs would be hard-pressed to let their clients invest in bitcoin: It might not be fiduciarily responsible. Under their fiduciary duty, putting their client’s best interests first, many RIAs think cryptocurrencies are far too risky for most retail investors.”  SEC Chairman Jay Clayton told CNBC the U.S. regulator would not be defining cryptocurrencies as securities anytime soon – a move which would allow RIAs to actively trade the instruments.

Robo Advisors

If you are looking for ways to automate your investing and re-balancing process robo advisors offer an option with the benefit of often times lower fees. Many offer tax-loss harvesting, and access to financial planners and advisors. There are companies that solely offer robo advisory and many of the dealers above have started adding this as a service to their broad portfolio. Wealthsimple is a robo advisor based in Canada. They offer low fees, and automated investing. Most though still do not offer access to early stage startup equity.

Fees

Economics of advisory is a likely cause for so few certified professionals dedicated to startup equity investing. Advisors are typically paid an annual fee based on total assets invested. With a 0.5% (50 bps) fee, a $50 million client will make the advisor around $250,000 a year, while a $500,000 client will make the advisor $2,500. At $2,500 revenue per client, It would take 40 clients to earn $100,000 in revenue. One good financial advisor might be able to advise and manage 40 clients, but assuming overhead costs are at least 50%, that leaves $50,000 per year to pay the advisors salary.

Portfolio management theory is just as important as the reality of fees. Registered investment advisors (RIAs) have a fiduciary responsibility to their clients. They cannot allow the investor to be overly concentrated in one investment, particularly risky ones. Thus, they follow the traditional theory which says that any allocation to “alternative investments” must be small, say a maximum of 10% of a client’s investable assets. An unaccredited investor has a legal cap to the amount they can invest in alternatives per year.

Considering the mechanics above and specialty expertise required to provide professional advice we believe it these factors drastically reduce the number of alternative specialists. We look to showcase specialists covering startup equity and cryptocurrencies so appreciate any suggestions or feedback in the comments.

Going It Alone

The economic incentives behind advisors, or the asset management industry. Assuming you are going to have to go at this alone we have compiled a list of portals and funds to review.

Funding Portals & Funds

We list, rank, analyze, and review innovative startup equity and crypto investing portals and funds.

There are three types of funds available for investors interested in investing in alternative funds: Exchange-traded Funds, Private Investment Funds, and Hedge Funds. We highlight some of the most well-known, experienced, and professional providers. Of note, buying a fund puts the responsibility for managing the investments on the fund manager. It also makes the fund manager responsible for all transaction costs and custodial costs.

 

Tax Incentives

Self-directed Retirement Plans:

Individual Retirement Accounts (IRA) and 401ks offer tax efficiency with your retirement investments. The SEC and IRS govern what can go into an IRA. Many investment firms that offer these type of accounts require, you to invest in their own products. For example, an account managed by Vanguard will allow you to allocate your retirement savings into Vanguard funds. A self directed IRA can allow you control, because you take the fiduciary responsibility away from the manager — you are the manager.

There are a growing number of offers for self-directed tax incentivized accounts. Goldstar and RocketDollar enable you to invest in any asset class allowed by the IRS. Invest securely and easily in Real Estate, Startups, and more. To Learn more check out our Retirement and Tax Savings section.

 

Startup & Crypto Innovations

I hope you find our list of innovative startup equity and crypto investing portals and funds helpful. While there are limitations to accessing financial advice in this risky space, there are continual changes and improvements through technology that we look to showcase. We appreciate any feedback and input in the comments below.