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Portfolio > Alternative Investments > Real Estate

Is Crowdfunding the Great Investment Equalizer?

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For Scott Picken, crowdsourcing is an economic equalizer, one that can bring high-quality investment opportunities to people who wouldn’t otherwise have access. In an interview with ThinkAdvisor, Picken, the founder and CEO of global real estate crowdfunding platform Wealth Migrate, said opening up the real estate investment space through crowdfunding technology has brought more trust and transparency to the average investor.

Of his South Africa-based firm, he said, “We wanted to create something that made sense to the common person when they invest and that was sustainable long term.”

He likened crowdfunding to a flock of birds. “A bird flying in a flock can fly 70% farther than a bird flying on its own.”

Crowdfunding can be especially interesting to female investors. Investor surveys frequently find that women tend to be more conservative investors. They lack confidence and feel financially insecure. But studies have also found that female entrepreneurs who use crowdfunding are more likely to meet their fundraising goals than men.

Hilda Lunderstedt, an entrepreneur in South Africa, said crowdfunded real estate investments are ideal for women, especially women who work or have families, because it makes owning property easier. “Through crowdfunding, you can spread your portfolio over many different types of investments of your choice and you can manage or track your investment without necessarily having to deal with the hassle of property,” she told ThinkAdvisor.

Crowdfunding helps quench women’s thirst for education on an investment, Lunderstedt said. “The typical woman and female investor likes to do research and likes to learn more. They’re more careful in getting invested, and potentially there might not be enough information or places that women can go to learn what it’s about.”

Picken said more education has opened up real estate to investors of all kinds. Before the Internet, “you actually learned by doing. You were invited into the club and you were mentored by people who had a lot more experience than you.”

It was a “boys’ club” back then, and even in the late ‘90s, when books and courses on real estate investing became popular, it was still a male-dominated industry, he said. “Now, with the whole education environment coming online, people literally being taught while they do it, I think there will be a marked improvement in terms of people building confidence.”

Picken said one of the side effects of enterprises like Kickstarter and Indiegogo is that users create spheres of influence, where smaller investors follow other investors to projects. “There’s no reason financial advisors can’t become niche, can’t become specialists in the crowdfunding space and what to look for, what not to look for […] where they have a sphere of influence and maybe their clientele is a majority women.”

Advisors can follow projects their clients might be interested in to bring that education to them, Picken said. He related some words of wisdom his uncle gave him: “’The one-eyed man can lead the blind.’ A financial advisor doesn’t need to be the industry expert, but if they know more than their clients, they can add a lot of value.”

Crowdfunding is only going to get more popular, Lunderstedt said, so “advisors have to at least be knowledgeable about it because eventually clients will come to them and say, ‘Why haven’t you told me about this?’ From a credibility point of view, it’s important that advisors do become knowledgeable.”

As for the threat crowdfunding presents to advisors when investors start using technology-based platforms to invest instead of going through an advisor, Picken warned that advisors shouldn’t dismiss it.

“You only have to ask real estate agents and travel agents what technology has done to their business,” he said. Investing platforms won’t replace advisors, but they will make certain things easier or cheaper, so unless advisors specialize, they won’t be able to add value to the relationship. “As soon as they specialize and become that industry expert, share the information, that’s how they actually integrate themselves and then they can actually charge more. “

As an example, Picken referred again to travel agents. “I don’t go to a travel agent if I’m looking to fly to Hong Kong. It’s easy; I just go online and buy a ticket,” he said. “If I’m flying to Hong Kong, then to Singapore and Bali, and my family’s going to join me, then it’s a no-brainer — I call my travel agent. She charges me way above what I could buy if I could figure out how to do it myself, but I’m happy because she’s the industry expert.”

Picken stressed that new investing platforms aren’t a threat to smart advisors; they “can actually enhance their business and career.”

In fact, he said, crowdfunding’s appearance “doesn’t mean the rules of the game have changed.” There are fundamentals to investing and creating wealth, Picken said. “It doesn’t matter how you do it, it doesn’t matter what the vehicle is, the objective is building wealth. There are some key fundamentals that people need to understand and ultimately the financial advisors should still be focusing on that and the crowdfunding is the mechanism to make it happen.”

— Check out Kickstarter: The Rosie the Riveter of Investing? on ThinkAdvisor.


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