Hedge fund advertising to shake up wealth management industry

Posted: July 18, 2013 in hedge funds, JOBS Act, Securities and Exchange Commission

With the SEC lifting it’s decades old ban against advertising by hedge funds and companies offering private investments, the wealth management industry is likely to experience some fall out. Lured by the potential luster of hitting it big with the next Zais Opportunity Fund — the top performing hedge fund ranked by Barron’s in May — clients of wealth managers will be tempted to move assets into hedge funds, draining assets under management from wealth management firms. As a result, financial advisors need to strategically consider the impact of this change on their relationship with clients and potential clients.

The sweet spot for many financial advisors is the high net worth client, or at the very least the upper end of the mass affluent demographic, the two groups that are most likely to be targeted by hedge funds. Let’s face it, the ultra high net worth already have access to hedge funds, and it’s likely that some high net worth also fall into that category.

But everyone else will be shortly bombarded with advertisements, email marketing, direct mail, content marketing by hedge funds who want to grow assets under management. Investors must be qualified to invest in these vehicles by either possessing a net worth of $1 million or an income of $200,000 or more; still, that’s a pretty wide net.

By appealing directly to these clients, hedge funds can bypass the financial advisors and other intermediaries they’ve had to work with in the past to gain assets under management. Savvy advisors need to be aware of what’s going on, and get involved in the process of helping their clients understand what’s being offered to them and how such investments might — or might not — fit into their asset allocation strategy.

Here are steps to take in regard to the JOBS act to help neutralize it’s impact on your practice:

  • Educate yourself about the rule and it’s implications: The rule itself is 116 pages long, but you don’t have to torture yourself by reading it, because there’s plenty of information out there including this WSJ article on the type of ads that are likely to appear and this Barron’s round up of news and analysis on the topic.
  • Introduce the subject to your clients: Whether it’s in a client meeting or a blog post or a newsletter article or an email, tell them what’s going on and what they might expect to see in this area.
  • Follow up with a larger conversation: Only you know which clients might be tempted by these pitches, so whether you decide to discuss the issue in more depth with all of your clients or specific ones, it’s worth the time to look at any alternative strategies you’re employing in those portfolios and discuss them and also to see what your clients may be interested in in this space that you’re not providing.
  • Keep a dialogue open: As the month go by, more and more hedge funds will begin advertising and conducting PR and marketing campaigns, so keep the topic of discussion open with your clients. There’s an opportunity for you to help vet any investments they might be hear about or at least talk to them about what’s happening in this ever developing space.

The one thing you shouldn’t do is bury your head in the sand. A new player with money to spend has entered into competition with you and your peers for high net worth assets under management. Ignore them at your peril.

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