â€œRisky and complexâ€; is how the FSA described crowdfunding this week. It has released new information which informs consumers that most crowdfunded investment opportunities are unregulated, adding that while many offer higher returns than mainstream investments, the rarity of dividends and a lack of a secondary market, can make them risky and complex options.
According to the document, crowdfunding should be reserved for sophisticated investors, those who understand the apparent risks associated with crowdfunding and who accept they may lose their money if the business they helped to fund fails.
Let me preface my comments by stating that I realize there are unethical companies who are happy take money from people who do not understand what they are investing in or the risks associated with it. They may even be intentionally deceitful. The law clearly has a role in preventing dishonesty and fraud.
But, whether the law has any role to play in deciding whether you are sophisticated or intelligent enough to make your own decisions about what you invest in is a matter for debate. I know where I firmly stand.
Firstly, I donâ€™t believe the law has any place (though it doesnâ€™t stop it constantly interfering) in what people choose of their own free will to do to themselves or with their possessions, provided it does not cause others harm. I have never understood the arrogance of government to think they know (better than you) whatâ€™s best for you. I believe in a person’s right to decide for him/herself and I do not underestimate their ability to do so. Yes, we all make bad decisions from time to time â€“ including those in government – but it doesnâ€™t mean I want to abdicate my rights and let someone else have that power. In short, I donâ€™t need or want a nanny.
Many of our members have never invested before but they can spot a good opportunity when they see one. We make everything as transparent and simple as possible, taking pains to outline the risks and drawbacks as well as the positives. And, yes of course, there are risks involved in any investment â€“ even â€œsafeâ€ and low returning bank accounts and pensions. If you do not understand or accept those risks then steer clear.
Which leads me to my second point, if, as the FSA suggested crowdfunding should be the preserve of sophisticated and more experienced investors, then that negates the very reasons the concept exists â€“ to give those people with less to invest (by default, usually less experienced investors), the opportunity to access better performing investments, and â€˜dip their toe into the investment pool.â€™ Â Wealthy, sophisticated investors already have a range of investment products available to them (which cannot be accessed by the ordinary man on the street) and have little need for crowdfunding.
Yes, of course, as with any investment, reward is often determined by the amount of risk taken, however, certainly when it comes to The House Crowd, this risk is minimised in a number of ways (see our FAQs).
So whilst we wholeheartedly agree it is important for the FSA to ensure consumers are protected from fraud and are made fully aware of the risks, ultimately it should be the individualâ€™s choice. Do your due diligence, ask questions, compile the evidence and make your own judgement as to what to do with your hard earned money.Â You donâ€™t need to be a sophisticated investor to do that.
The House Crowd is a brand new concept in property investment which allows people to invest small amounts via crowdfunding (for more information on the process, visit www.http://thehousecrowd.com/thehousecrowd//how-it-works/). We are committed to breathing life into empty, rundown properties whilst giving investors great returns on their investments (for more information about us, visitwww.http://thehousecrowd.com/thehousecrowd//about/our-manifesto/). If youâ€™ve read enough and want to invest now, visit www.http://thehousecrowd.com/thehousecrowd//invest-in-property/).