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8 Things to Include When Marketing Your Offering to Advisors

Post on: April 3, 2018 | Ricky Segers | 1


Many issuers rely on their own investor networks, but if you are seeking a broader reach for your offering, marketing to registered investment advisors (RIAs) may represent a great supplemental distribution channel opportunity. However, marketing to RIAs should be approached differently than marketing to retail investors.

On paper, unregistered securities investments carry the same risks to advisors as they do to retail investors. Both groups are presented with the same PPMs, citing the same risks of illiquidity, long hold periods, and reliance on management. But, RIAs take on an additional risk, as the performance of investments they recommend can affect their reputation and business or even land them in legal trouble.

Using our experience in marketing to our network of RIAs, we have compiled a list of suggestions for inclusion in your offering setup and marketing materials. While there is no guarantee that having all of these characteristics will lead to success in attaining capital commitments, they may help you develop a strategy for broadening your interested investor-base.

Historical Track Record and Performance

As noted previously, investment advisors carry additional non-offering-related risks when using client assets, putting their own reputation on the line. The first job of the advisor is to protect and grow client assets, so if a security has a high degree of risk, like an operating company does, or is not asset backed, it might be tough to get advisor consideration unless the investment opportunity is a proven concept. Once an advisor commits client money to a security under Regulation D, 506(b) or 506(c) exemptions, for example, they are trusting that money in the hands of the issuer manager for a prolonged period of time with no guarantee of a return.

While past performance is not an indicator of future success, RIAs may look for strong, risk-adjusted historical returns to boost their confidence in the abilities of a management team. Advisors may feel more comfortable placing client assets with the more experienced team.

If your management team has a successful track record or other relevant experience, be sure to highlight this information in your marketing materials.

Clearly Defined Return Structure with Near-Term and Long-Term Objectives

Advisors’ investor clients may have different investment strategies and goals, and some investors may not be suitable for illiquid investments with long hold periods. However, investments that already provide regular monthly returns may be more accessible to these types of investors than investments that force investors to rely on a cumulative future distribution that may or may not ever materialize. Offerings that are structured to pay frequent near-term distributions may be more attractive to advisors who have income oriented clients. Structured returns serve as clear definitions for advisors when talking to their clients about investment program expectations. Projected returns, however, are difficult to model and forecast. In many cases, a pro-forma is only as valuable as the experience and historical track record of the creator.

Custodian Eligibility

When considering marketing to registered investment advisors, it should be noted that their compensation is generally taken on the values of assets under management. Many advisors hold assets at third party custodians such as TD Ameritrade, Fidelity and Schwab and grow their income by increasing their clients’ net worth through investment performance as reported by their custodian. A quick way to inhibit RIA consideration, however, is to limit the extent to which RIAs can count the securities you offer as part of their AUM. Whenever possible, you should ensure the compatibility of your offering with various popular custodians. Otherwise, there is more work involved on reporting your private securities offering performance and this added work may not be worth the hassle for the advisor. If you do not know the requirements of being on a custodial platform, researching those can help you determine if the advisor channel is a good distribution outlet for you.

Tax Advantages and IRA Eligibility

There are multiple ways in which RIAs can increase assets managed for individual clients. The first, and most obvious, is through allocations to investment opportunities that increase the value of client’s portfolio through favorable returns. Another method by which an advisor may successfully increase their AUM is by committing client funds to tax-advantaged investment opportunities that save clients cash, and thus increase their net investable assets. Because of this, offerings and funds with effective, immediate tax savings can capture advisor interest.

Similarly, many advisors may manage IRA accounts for their clients. Making your offering eligible for IRA investments and planning ahead with respect to ERISA (The Employee Retirement Income Security Act) regulations certainly may help. Having offering documents that clearly reference adherence to regulations surrounding IRAs and ERISA could help incentivize advisors to pay attention to your offering.

Low Investment Minimums

For some advisors, unregistered securities represent unique opportunities to diversify their clients' portfolios. RIAs that target unregistered investments are willing to put their clients at an increased risk as compared to more liquid equities, but encouraging them to over-concentrate in alternatives may go against their diversification goals. Widening your potential investor pool with low investment minimums can create more work when it comes to investor verification and processing, but may prove worthwhile should investor interest scale.

Whether an investment minimum is $50,000 or $250,000, most RIAs only have a small percentage of client assets to allocate across several alternative opportunities, thus higher minimum investments may be restrictive. Additionally, an advisor considering an investment program is likely to want the work to benefit a significant amount of his clients to make up for time spent on research and diligence. An offering that fits with more clients’ investments strategies is going to be more attractive to an advisor who considers time a valuable resource. 

Low Fees

All PPMs should be read in entirety before making investment decisions, but RIAs in particular may simply comb them for information on fees. One key point     to consider is the use of proceeds section. For example, advisors may assess the compliance of the offering by ensuring only registered persons are receiving success-based compensation. Committing client funds to a fraudulent offering is hazardous, so RIAs look for clearly communicated fees. Additionally, not only should fees be clearly expressed, they should also be fair and reasonable. Cutting into the net investment of RIA funds represents increased risk to the invested principal of clients, as fees represent additional percentage points that must then be gained on the investment to break even. Inexperienced fund managers should consider this especially, as trust and risk may be inversely correlated in the mind of an RIA.

Shared Risk

When considering a risky investment, advisors may look for signs that the issuer has confidence in their own offering. Having a sponsor, general partner, or manager commitment serves as an indicator that you believe in the success potential and are willing to accept the risks associated with your offering. By tying compensation to performance success of the asset or fund, inexperienced managers of investment opportunities may have more ability to secure funding than those in new ventures that get paid whether the strategy is successful or not.

A Differentiator

What makes your offering stand out from the crowd. Advisors have seen thousands of investment opportunities, so your ability to catch their attention is paramount. A unique offering structure, novel business plan, or even an environmentally or socially conscious approach can serve to elevate your offering in the eyes of an advisor used to seeing the same types of offerings over and over.

While these recommendations cannot increase the chances that your offering will provide attractive risk-adjusted returns, they may help attract the attention of registered advisors. A sound offering with compelling marketing materials may garner enough interest to broaden your investor base, and potentially help to make your next capital raise a successful one.


Make Your Private Offering Stand Out From The Crowd

Download a sample Marketing Teaser from WealthForge designed to help you showcase key highlights investors will want to know about your offering:

Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice.

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About author

Ricky Segers

Ricky is a business development associate responsible for engaging new potential clients. He graduated from Old Dominion University in 2016 with degrees in Economics and Supply Chain Management before completing graduate coursework in Human Resource Management at the University of Richmond. He holds his FINRA Series 7 License. As a collegiate athlete, he proudly kicked career long field goals of 50 and 51 yards against in-state rivals, UVA and William and Mary, respectively.

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