Financial Advisors…brace yourselves for more competition! Come mid-Fall, hedge funds could be pitching their services to wealth management clients with alluring commercials, billboards, brochures, websites and social networking. That’s because the JOBS Act, passed by Congress and signed into law in April, opened the door to hedge fund advertising. The Securities and Exchange Commission on Wednesday published rules governing this shift and opened a 30-day comment period.
In writing rules about hedge fund advertising, the SEC opened the door wide. If the rules are approved as published, hedge funds will operate under virtually no advertising restrictions, a major change from the rules that shrouded them in secrecy since the Great Depression. Under the old rules, hedge funds could only solicit wealthy investors that they had a previous relationship with, regulations designed to protect Main Street investors from inappropriate risks.
While only “accredited” investors – those with more than $1 million in assets, excluding primary residences or those who earn in excess of $200,000 a year – will be allowed to invest in hedge funds, information about hedge funds will be much more widely available to all investors. And because hedge funds are restricted to only the wealthy, it is very likely that many will be targeting the same client base as wealth managers.
Because they haven’t been able to advertise, hedge funds will likely need some lead time to get their branding, advertising, marketing, public relations and social media campaigns up and running. That gives savvy wealth managers the opportunity to do two things:
- Take steps to further define their own brands, value proposition and marketing plans to clearly articulate their value propositions to their clients and prospective clients.
- Educate themselves about the new investment alternatives available to wealth managers and high net worth investors.
This is important because hedge funds, unrestrained by regulators in the area of advertising, are hungry for the same types of clients that have been the exclusive providence of wealth managers, financial advisors and brokers. In the absence of a clearly defined and articulated value proposition, clients and prospective clients may be attracted to the messages of hedge funds that promise access to alternative investments that may improve portfolio performance.
That’s the danger. The opportunity is that savvy wealth managers can act as a trusted source of information about the JOBS Act, hedge funds and the value of alternative investments can solidify their value proposition with clients and potential clients. Client education about these opportunities, coupled with a timely portfolio review with a view towards the suitability – or lack thereof – of alternative investments, is a good potential tool to further demonstrate the value of working with a wealth manager to clients, potential clients and even trusted professional advocates.
For a complimentary ClientWise Learning Tool on how you can dial up your marketing materials, please see below: