For years articles like this one in Forbes magazine have been documenting how the rich have been getting richer.
The recent improvement in the economy and the surge of the stock market have certainly been factors of the wealthy amassing more wealth of late, but the data suggests that this is a decades-old phenomenon.
Here’s a look at possible causes of this trend…
What is the root cause of this?
What if the one of the primary reasons the rich have been getting richer is that for the last 80 years, the rich have had nearly exclusive access to opportunities that create wealth for them because of U.S. law.
For 80 years, the Securities Act of 1933 (which was written and intended to protect the investor) stated that “there is no advertising or public solicitation” in connection with a securities investment transaction.
The only way an investment opportunity was to be disseminated was through a pre-established relationship. This made it nearly impossible for the vast majority of Americans to learn about high return ‘private’ equity investment opportunities. As a result, primarily people in the wealthiest networks (country clubs, etc) had access to these investments.
The law had an unintended consequence that essentially guaranteed access to investments to only a few well-connected people that, in turn, have been able to capitalize and become even wealthier.
The rich get richer.
But this week the SEC (perhaps realizing the error of this law) has voted in a landslide 4-1 decision to lift the ban on general solicitation, allowing investment opportunities to be communicated to the masses. The change is part of the section 201a of the JOBS act.
Now opportunities that were only communicated through wealth networks, are now available to significantly more investors. What was off limits before (TV, radio, Internet, etc) will now be outlets for investors to learn about and capitalize on securities transactions.
The lift on the ban of general solicitation is a reallocation of opportunity. Not to be confused with a reallocation of wealth. Under the new law, the investor still has to determine for him/herself it is a good investment and then capitalize on it. Furthermore, investment is still limited to accredited investors as the SEC is putting together the framework of other aspects of the JOBS Act which all allow a broader range of investors. But the new law will certainly make it more efficient for investors to find wealth creation investment opportunities.
What was once available to few, is soon be available to many.
A reallocation of opportunity.
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