The five years following the economic crisis have been among the most difficult for many wealth advisors. Despite the well-documented market recovery, there are still wary consumers, a sluggish pipeline for new business and a recession-like climate that fuels skepticism and prudence among professionals and their clients. Toss a few more things into the mix – like the new, multipart JOBS Act regulations that allows for crowdfunding portals and general solicitation by private placements – and the environment has transformed into a place rife with challenges and opportunities for today’s wealth advisor.
A recent whitepaper from the WSJ Custom Content Studio entitled A New Mindset: Hedge Funds, Marketing and the Age of Transparency put forth four issues that the hedge fund community will need to address in order to succeed with proactive marketing. I believe these issues have much broader implications for the relationships between wealthy investors, their advisors and private investment issuers over the near-term.
1. Get In Front of the Curtain …
Historically it was a badge of honor for private placement issuers and certain providers to the uber-wealthy to operate below the radar screen or “behind the curtain” as it were. While there’s clearly an aura of mystery to this approach, it has limited upside for most issuers and advisors making them wholly reliant on networking and word-of-mouth to growth their respective businesses, processes which are labor intensive, unscalable and largely passive.
Furthermore, the sheer size and complexity of the private securities marketplace is such that it obscures all but the biggest or best performing opportunities. Data from FNEX, an online trading platform for alternative investments, indicates that $1.7 trillion was invested in private securities (including companies, funds, managed futures, precious metals and other hard assets, and real estate) during 2012, or, in other words, 40 percent more than the $1.2 trillion that went into public equities.
Wealthy investors will expect help from their advisors to navigate the multitude of options and set selection criteria. At the same time, the growing number of investment issues means that distribution and marketing are more important than ever.
“While the JOBS Act has removed the prohibition on general solicitation, don’t expect to see issuers engaging in an advertising blitz anytime soon,” says R. Scott Beach, chair of the Corporate Department at Day Pitney LLP and head of its Private Equity and Family Office practice. “We're just not seeing an appetite from the more established funds to be among the first-movers to mass market their offerings. Most of our private fund clients are waiting to gauge the marketplace reaction before embarking on campaigns of their own.”
2. Swap Mystique For Clarity
Affluent individuals and families want to know more about the firms and professionals they do business with and expect more information and disclosure than in years past. Advisors and issuers must be responsive to this change in priorities by making themselves more accessible and acting as an agent to procure and explain necessary details for their clients and potential investors. Beach acknowledges that the growing demand for transparency could be the driver for many private fund issuers to enter the digital age and believes that “in time, fund managers will begin to test the waters by putting more information about their investment teams and strategies online and using social media to attract prospective investors to their sites.”
A number of online portals for private and early-stage investments have surfaced in the midst of changing regulations. Some believe this approach may help level the playing field by creating standards for the way complex opportunities are presented and explained, but others see the potential for greater confusion. “It’s going to become even harder to understand whose interests are being represented,” according to Michael Zeuner, managing partner at WE Family Offices, an organization built around the goal of delivering independent, unbiased advice to its clients. “Emerging platforms should be crystal clear with the investing public about their business model and how they’re getting paid.”
3. Take A Surgical Approach To Targeting
Success at the top of the wealth pyramid has always depended on good segmentation, and leading practitioners are those with the ability to find and cultivate the people and companies that best match their business model. The constant leverage of technology to innovate and automate means that new marketing ideas emerge every day – there are better ways to attract groups of like-minded people around the topics and initiatives they care most about and it’s getting easier to monitor and measure the efficacy of your marketing dollars. Social networks, affinity groups, networking platforms and other technology-based portals all allow advisors and issuers to do this in ways that are significantly more affordable, advanced and trackable than they were just 10 to 15 years ago.
Despite the obvious advantages to 21st century marketing techniques, wealth managers, asset managers and private placement issuers still show resistance to the fluid nature of electronic and digital media. Very few financial firms have embraced the cutting edge tools and activities that will put them in front of desirable clients and prospects and build a meaningful dialogue.
“It’s time to acknowledge that everyone, regardless of wealth or age, uses the Internet to find baseline information about people, products and organizations,” declares April J. Rudin, CEO of the wealth marketing firm The Rudin Group. “Having a clear online presence is one of the most straightforward, controllable and cost-effective marketing opportunities available these days.” And, as Rudin points out, it can help set the stage for important meetings or provide back-end reinforcement for your message.
4. Acknowledge The Wealth Transfer Sieve
It’s no secret that advisors lose major relationships when wealth is transferred between generations, due in large part to a narrowly focused approach to client service that prioritizes the wealth holder and decision-maker rather than the entire family unit and all that it entails. Unless advisors and issuers begin positioning themselves in ways that are appealing and accessible to younger and more tech-savvy individuals, they will be doomed to the same fate.
Zeuner’s firm is is one of the few multifamily offices that has ventured into the social space. “WE Family Offices is a relatively new brand, so we had the luxury of developing it in the context of today’s technology,” explains Zeuner. “In some ways we view social media as just another channel for communicating and delivering our message. If it allows us to reach new communities that we couldn't reach with more traditional methods, that’s a bonus.”
Most Millenials and Gens X, Y and Z are motivated differently than their parents and grandparents are and they get information and make buying decisions in vastly different ways.
Younger generations are more likely to be jaded about the financial services industry as well. The scandals, crises and hiccups of the last decade play a much more prominent role in their perceptions, which are fueling interest and demand for more independent, objective and transparent relationships. As the preferences and priorities of wealth evolve, so shall the advisors and issuers who rely on them for business and income, or they’ll be left with an aging and rapidly shrinking business.