The ban on hedge fund advertising will be lifted. However, will the financial services industry make the most of the opportunity? Hedge funds, which deal mainly with wealthy investors, operate with much less oversight than other types of investments.
Financial services marketing is difficult at the moment, with the main concern being whether reaching out to the media will actually help repair the tarnished reputation of hedge funds.
Davia Temin, who ran corporate marketing for Citicorp Investment Bank, said:
“Financial services marketing is tricky at best. And, these are sophisticated, complex investments that must be thoroughly understood before customers make an investment. Any public marketing campaign would have to be equally sophisticated, substantive, and innovative.”
She added:
“These funds are not consumer packaged goods, so the same type of commercial advertising or outreach will not suffice. Yet, the industry has been under a reputational cloud, and funds now have the opportunity to tell their stories as well as underscore their strategies, expertise, and returns, as the markets recover.”
A recent NBC News and WSJ Poll revealed that public opinion is 42% negative for New York financial institutions and only 14% positive.
“Hedge funds in particular received some of the heaviest blame from ‘Main Street’ for the country’s financial woes, and 80-year-old securities regulations prohibited funds from rebutting their critics.”
Main Street, in this context, refers to the Average American, i.e., the average man (woman) in the street.
On Monday, September 23 funds will be able to start “general solicitation”. However, after the financial crisis the financial services industry lost a huge amount of public trust.
If these financial services enter the media market in the right way, they might be able to bring in a new client base and restore public approval.
The industry should be careful this time
Suzanne Oaks, Managing Director of Temin and Company, said that the new challenge will be how these financial services express their messages without provoking reasons to restore the ban.
Along with other professional sectors, the financial services industry should have more self-monitoring.
Ms. Temin, said:
“Advertising could prove both a boon and a bane for the funds. Those who jump into advertising or other marketing activities without thinking through a strategy could run the risk of harming their entire industry.”
How can hedge fund advertising make the most of these new regulations?
Firstly, they will need to distinguish themselves and highlight what they may be able to provide for potential investors.
Ms. Temin said that “as solicitation – broadly defined – has been allowed for many professions such as physicians and attorneys, most have proceeded very carefully,” and those who have succeeded the most have “looked at their goals, and then figured out substantive ways to get their message out to their audiences and the public.”
Hedge funds will have to create specific strategies that include the following:
- Restoring trust
- Demonstrating the ability to learn from their mistakes in the past
- Not rushing into action too quickly
Hedge funds that demonstrate these qualities will successfully improve their reputation and bring in more investors. The opportunities are on the table, it is just a matter of playing their cards right.