The American Dream is dying. Social mobility in America has all but perished for the majority of Americans. With an extraordinary concentration of wealth amongst the richest, working-class Americans are often shut out of opportunities that could allow them to rise. Investments enable citizens to bolster their incomes and plan their financial futures. But, while rules and regulations prohibit most Americans from participating in higher yielding ventures, our society's wealth gap will continue to widen.
The inequality of investment possibilities can be largely attributed to the Security and Exchange Commission's accredited investor rules. To be considered an accredited investor, an individual must have earned more than $200,000 (or $300,000 in combination with a spouse) in each of the previous two years and, according to the SEC, "reasonably expects the same for the current year." Accredited status may also be determined by an individual's net worth, which must exceed $1 million.
Accredited investors typically have access to the most potentially lucrative investment opportunities in the nation. Frustratingly, though, these are available to a miniscule portion of our population. In their 2016 white paper "The Renaissance of the Retail Investor," Dara Albright, James A. Jones, and Kim Wales explain that "only a paltry 2.8% of all U.S. households are presently considered accredited. In other words, more than 97% of American households cannot access the same investment opportunities as the 2.8%. It is this mind numbing investment opportunity gap that continues to exacerbate America's wealth disparity."
Alternative and private investments provide the possibility of hefty returns and wide portfolio diversification for our country's richest, while leaving non-accredited investors with limited choices such as stocks, bonds, and mutual funds. Albright, Jones, and Wales assert that "investing injustice not only exacerbates the wealth divide, it threatens to destroy America's economic, social, and political foundation." As the elite monopolize, average Americans remain confined under their power. Wealth disparity allows those at the top to exercise control over the majority. Employment and education opportunities, politics, consumerism, and even societal and personal perceptions are all manipulated by the wealth-holders.
The wealth gap, and limited investment opportunities in particular, weakens retirement plans for average Americans. For most citizens, retirement security does not exist. According to a 2016 CNBC study, "Americans between the ages of 40 and 55 have an average retirement account balance of $14,500. But estimates suggest that they'll need up to 20 times that amount to maintain their standard of living after they stop working." The study concluded that today's stagnant wages, rising healthcare costs, increasing rents, and massive student loan debt are to blame. Without the prospect of dramatically increasing their savings through higher-yielding investments, retirement remains uncertain for many Americans.
Albright, Jones, and Wales offer a two-part solution to halt wealth inequality and boost retirement savings: "access to alternative investment opportunities must be democratized, and retirement plans must be able to efficiently support micro alternative investing." Thanks to recent legislation, options are beginning to emerge for non-accredited investors. In 2012, President Obama enacted the "Jumpstart Our Business Startups Act," known as the "JOBS Act." Title III (Regulation Crowdfunding) and Title IV (Regulation A+) of the Act allow non-accredited investors access to alternative investments through equity crowdfunding. Online offerings of stakes in small and startup businesses open the market up to investors who were previously shut out. As Albright, Jones, and Wales explain, "Although these issuers must abide by offering thresholds, they are able to sidestep the 'accredited investor' rule, which would otherwise limit their offerings to a diminutive number of wealthy investors. As a result, unaccredited investors will be able to access additional investment products that expand well beyond conventional stocks, bonds, and mutual funds."
Companies have already taken advantage of Regulation A+ to increase the inclusivity of their investments. My company, American Homeowner Preservation, utilizes Reg. A+ to assist families at risk of foreclosure. AHP crowdfunds the purchase of nonperforming mortgages from banks at big discounts, then shares the discounts with struggling homeowners to keep them in their homes. With a $100 minimum investment, almost anyone can invest: the 99% can help the 99%.
Broadening investment possibilities encourages small business development and opens up new sources of capital. But Albright, Jones, and Wales argue that progress cannot end with the JOBS Act. Instead, they call for dissolution of the accredited investor rules altogether, declaring "The fact remains that until the accredited investor definition is broadened or eradicated and/or more retail alternative products emerge, there are only a limited number of ways for retail investors to access alternatives and capitalize on crowdfinance."
Despite increased opportunities for non-accredited investors, American wealth inequality continues to worsen. At risk is the American Dream in which children of factory workers may grow up to be doctors, or a California orphan may become the world's greatest technology mogul. The concept of working hard and rising in the social ranks is being buried under the monopolization of our economy by the elite. Equity crowdfunding for non-accredited investors and abolition of the accredited investor rules are small steps toward narrowing the wealth gap and restoring hope, social mobility, and the American Dream.