Unlocking Security: How Regulations Strengthen Alternative Investments

When it comes to financial advice, trust is a two-way street. Advisors want to guide their clients wisely, while investors are cautious, keen to ensure their money is in safe hands. However, when approached with care, investing can be a game-changer for your financial future. This November, we’re diving deep into the world of wealthtech, unraveling how this dynamic industry has evolved over the past year.

While personal finance and investment management are key players in the wealthtech arena, there’s a rising star that’s capturing attention: alternative investments. Though not a novel concept, the excitement surrounding alternatives—especially cryptocurrencies—has propelled this sector to new heights.

With great potential comes greater risk, especially when values fluctuate dramatically. To get the inside scoop, we consulted industry experts to shed light on how regulations are stepping up to protect investors in this thrilling new landscape.

Boosting Transparency and Disclosure

Looking across the globe, Trilliam Jeong, CEO of WealthBlock, emphasizes how regulators are rolling out new rules to enhance transparency, giving investors more power to access vital information—all while keeping them protected from fraud.

“Global regulations have evolved to make alternative assets like private equity, hedge funds, and cryptocurrencies safer for investors. Governments are demanding greater transparency so that investors can easily access important details. In the U.S., laws like Dodd-Frank impose stricter guidelines on hedge funds, while Europe’s AIFMD looks out for alternative investment managers to boost investor protection,” he explains.

“With cryptocurrencies, countries like the U.S. and Singapore have introduced clear trading and security regulations to thwart fraud. These measures help investors feel more confident by enhancing transparency and guarding against risks in alternative investments.”

Embracing Technology

Organizations are eager to leverage technology for a competitive edge, but they often face hurdles due to tough regulations. According to Christian Faes, founder and CEO of investment firm Faes & Co, effective regulation can pave the way for more diverse options for firms, leading to greater customer satisfaction.

“Regulators worldwide are becoming more tech-savvy and supportive of innovation, which has positively shaped the regulatory landscape. A prime example is the UK’s original crowdfunding legislation and the U.S. JOBS Act,” he states.

“This environment has fostered a thriving tech-enabled ecosystem, ultimately benefiting consumers by providing them with more choices and information.”

Weighing the Pros and Cons

Sigita Kotlere, CEO of nectaro, a licensed platform for passive income through loans, discusses how increasing regulation can promote safer options for users, but acknowledges the challenges it may pose.

“Investment services are becoming more regulated globally, making it critical for investors to have some level of assurance when choosing a regulated institution or fintech,” she notes. “Regulation enhances the investment environment, making it safer and more accessible for the average investor.”

“However, navigating this regulated landscape can be costly, often limiting competition and slowing innovation, which could detract from the investor experience.”

Broader Awareness and Access

Steve Drew, SVP of marketing, strategy, and technology at Caliber Companies, highlights how alternative investments have become more inclusive since 2012, with projections suggesting a 50% growth in the next four years.

“The JOBS Act of 2012 transformed access to alternative asset investments, enabling broader communication about opportunities through digital and traditional marketing channels,” he explains.

“As a result, investment in alternative assets is expected to surge to $24.5 trillion by 2028, as more accredited investors seek to diversify their portfolios and chase higher returns.”

Wealthtech firms are capitalizing on these regulatory shifts by creating platforms like CrowdStreet, FundRise, and Cadre, which present real estate offerings to a wider audience.

Progressing Towards Friendly Digital Asset Regulation

Scott Harrigan, president of Alto, an alternative asset platform, assesses how evolving regulations can yield more options despite initial hurdles.

“The regulatory landscape has become intricate for fund managers and investors alike. In the U.S., the SEC has implemented rules to enhance transparency and protect investors. Although these shifts pose challenges, they also create opportunities for growth and innovation in the alternative investment space,” he explains.

“Additionally, with shifting rates boosting investor confidence, we may see increased investment in private equity and venture capital. As technology-driven solutions emerge, regulations may evolve to be more accommodating for digital assets and cryptocurrencies, enhancing accessibility for a diverse range of investors.”