Wednesday 28 September 2016

SEC Lifts Ban: A Bull Market for Digital Advertising?

It’s no secret that the financial sector has been slow to embrace the communications and marketing tools of the digital age. When institutional investors are asked about this hesitancy, they often point to the tight regulations surrounding social media and the web. They’re also quick to mention that private investment vehicles — such as hedge funds, private equity firms and venture capital groups — have operated under a general advertising ban for the past 80 years.

Although it doesn’t make much sense for a hedge fund to run television ads during a football game, targeting potential investors through paid search, social media and email marketing are tactics already employed by many financial advisors and mutual funds. With last month’s SEC vote to lift the Depression-era ban on advertising and general solicitation, the road is now paved for private investment vehicles to follow suit and begin leveraging digital strategies.

The ruling permits the solicitation of accredited investors “through both physical (such as mailings, newspaper advertisements and billboards) and electronic (such as the Internet, social media, email and television) means.” According to a recent Carlye Group estimate cited by the Economist, accredited investors — individuals with $1 million in investible assets or $200,000 in annual income — have approximately $10 trillion at their disposal. When one takes into account that 5 million affluent investors across North America use social media for research, the opportunity to raise funds through targeted online campaigns becomes clear.

This type of marketing may not immediately appeal to established entities with entrenched clients, but experts have already highlighted the opportunities for small and mid-sized investment vehicles. In a recent interview with investmentnews.com, Randy Shain of BackTrack Reports stated that “[a]dvertising works, no question about it. And I have to think there are some people somewhere who will be influenced by hedge fund advertising.”

Of course, both investors and managers will face challenges once the ban is formally lifted later this fall. A recent post on research firm Attain Capital Management’s blog noted that “advertisements, by their nature, are not overly informative, so we’re not sure where this leads the average investor.” To meet such challenges, digital advertisers will need to infuse transparency around the languages, structures and fees associated with private investment vehicles.

As investment vehicles build up to digital advertising in the coming months, they could look to bolster their capabilities through new websites and mobile apps, social communities and search engine optimization. This will be a signal that capital markets have begun to recognize the opportunities posed by the new financial services landscape.

Image credit: Securities and Exchange Commission

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