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Will Emerging Markets Continue to Outperform Developed Markets?

February 10, 2012 By Candyce Edelen Leave a Comment

The following is a guest post by Kevin Acott, Senior Vice President, Managing Director, EMEA at IPC Systems, Inc.

I recently attended a conference hosted by IPC called Emerging Markets: Opportunities and Obstacles. At the event, the TABB Group presented some of their latest research on trading in the emerging markets of Eastern Europe and Asia. Then a panel of speakers discussed a range of topics related to trading in these markets. The conference also introduced IPC’s new financial extranet, Connexus. Here are some of the insights I took away from the fascinating panel discussion.

Emerging market GDP growth has outperformed growth in the developed markets every year since 2006 by an average of 9.6% each year. During that time the combined GDP of the emerging world has more than doubled while that of the developed world has only increased by 23%. Taken to scale, this doubling is amazing. The emerging and frontier world accounts for almost 85% of the world’s population with 2.5 billion people in China and India alone. At nearly six billion people, if only six per cent of these attain a higher standard of living and a higher amount of disposable income over the next decade, the markets will be faced with another 360 million consumers. More than the entire population of the United States putting pressure on resources, prices, and production.

The More Things Change, the More They Stay the Same

Clearly, asset growth and investment opportunities abound in the emerging world. Many investors point to this opportunity and the GDP outperformance in emerging markets as evidence of decoupling, that emerging market growth is no longer dependent on exports and growth in the developed markets.

While overall growth in the emerging space has consistently outpaced that in the developed markets, the iShares MSCI Emerging Markets Index (EEM) underperformed the S&P 500 by almost 20.5% in 2011 and is off its 52-week high by more than 25%. Global debt crises and uncertainty have kept correlations high since 2008 bringing down asset values in even the best performing economies. The correlation between the iShares MSCI EM Index and the S&P 500 were 0.84 over the last twelve months against a correlation of only 0.69 over the last six years. With asset correlations at these levels, relative economic growth means less than overall investor sentiment in the short-term.

The problem in the decoupling theme is that, while many emerging countries have shifted their export reliance from the U.S. and Europe, their economies are still largely based on an export model. The only difference is the name of the country on which they are dependent. Brazilian exports to the United States and Europe have shrunk from 41.1% of total exports in 2006 to a relatively smaller 32.1% in 2010, but exports to China more than doubled from 6.2% to 13.3% of the total. Exports to other developing Asian economies also increased from 9.1% to 12.6% of total exports.

And while many emerging countries are relying more on Asia for export revenues and economic growth, exports to the United States still account for 20% of Indian exports and 70% of Chinese exports are destined for developed markets. As Europe enters the third year of its escalating debt crisis and the U.S. is facing stagnant growth at best, the slowing economic environment will continue to show up in emerging market asset values.

Will the EM Outperformance Continue This Year? Does it Matter?

While investors and pundits alike are furiously bent on forecasting GDP growth and asset values for 2012, they run the risk of losing sight of the bigger picture. With the scale and long-term potential in the emerging markets, there is little doubt that the next 10 years will belong to BRICs, CIVETS, and the myriad of acronyms for the regions.

Short-term risks do exist. Much of the growth in the EM space is dependent on the voracious appetite of the BRICs for resources. The fate of the euro zone is more precarious than it has been ever in its 13 year history.

Rather than bet on some mystical decoupling, investors should invest for the long-term while hedging knowable short-term headline risk. The most obvious risk to global growth, and that which is keeping correlations high, is the risk that Europe cannot grow or restructure its way out of the debt crisis.

The alternatives to an orderly restructuring or growth are massive printing or outright default. Either option could be disastrous for the euro. Investors may look to shorting the euro in the futures market or through one of the available exchange traded funds to tactically position against short-term volatility. If the problems in the EU accelerate to the downside it will most likely take other asset values down with it, investors can use their short-term gains from shorting the euro to offset losses in the rest of their portfolio.

Here is a link to the TABB Group emerging markets research that was presented at the event.

Warm regards,

Candyce

 

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Seeking Marketing Alpha

January 19, 2012 By Candyce Edelen Leave a Comment

Marketing in the Capital Markets

Having my head in emerging markets and cross-asset trading these days, I’ve been finding the term “alpha” unavoidable. TABBGroup’s Adam Sussman recently spoke on investment in emerging markets as a way to achieve alpha. The industry is all aflutter about cross-asset and multi-asset trading as a means to seek alpha. The concept of exceeding benchmark performance permeates our business in the form of whitepapers, webinars, forecasts and executive briefs.

Register now for The Great Marketing ConversationBut let’s some of us be honest, that concept is sorely lacking when it comes to marketing strategy. Many companies say they want the most bang for their marketing buck, but when it comes down to it, they hang all their hopes on one monolithic whitepaper or live event. This is similar to what I call “practicing wishcraft” – taking any action to say you did something and wishing for some magical outcome. There’s a difference between spending money for the sake utilizing available budget and spending it to achieve what I like to call “marketing alpha.”

I seem to be on a roll with the specialized terms. Like a marketer (LOL!).

Anyway, as I mentioned in a previous blog post, banks are under increasing pressure to reduce overhead and increase profit margins via technology consolidation. However, since the financial crisis began, companies across the board have been faced with budgetary challenges that have made buyers cautious and salespeople crazy. The new reality is one of longer, more complex sales cycles with today’s web-enabled buyer in the driver’s seat.

Brave New World of B2B Marketing

Unlike the Aldous Huxley novel, effective marketers have moved away from treating customers like cattle and feeding them marketing soma. Why? Because the buying behavior of capital market buyers has changed dramatically in the past few years, rendering the majority of old-school marketing practices ineffective (and as a result, expensive). Truth be told, old-school marketing was about creating noise to be heard over the competition and get in the door.  It used to be about one-way push. Now it’s about two-way engagement.

In earlier times (some might call them “the good old days”), the company with the most marketing dollars often got the most sales, simply because the customer recognized their name. But as more companies enter the race, more companies start making as much noise as possible. The Internet and email make it easier and cheaper to make noise, resulting in a virtual cacophony of marketing claims barraging customers every day – with everyone claiming to be “the leading, number-one, unique, value-added, trusted provider” of “robust, innovative, cutting-edge, high-performance, ultra low-latency technology….”

Yawn.

How can every vendor be the “leading provider”, anyway?

If you’re in marketing or sales and have not heard the terms “content marketing” or “inbound marketing,” then it’s time to start paying attention to the evolving best practices in marketing. The pressure is on for Marketing to support Sales and help to generate revenue. Your performance depends on it.

Let’s face it folks, our customers are not idiots. They’re sick of the noise, and they no longer trust the marketing puffery. They’re also getting really good at tuning out the noise. They use spam filters, caller ID, gate keepers, DVRs and any number of other methods to tune out advertising and marketing messages.

That doesn’t mean they’re not still buying, but they’re getting more savvy. THEY are in control of their buying process. Research shows that most business buyers of technology do all their early research about business problems and possible solutions BEFORE they talk to a sales person. In fact, their buying processes are generally 75% complete before they’re willing to engage with Sales. So how do you go about influencing the buying decision of a buyer who is wary and weary of traditional marketing hype? How do you now differentiate yourself from your competition?

Achieving Marketing Alpha

Content marketing is about creating educational content that helps your prospective customers understand their business problems, gain a vision of how to solve the problem, and build a business case to get internal buy-in. This content can take the form of whitepapers, blog posts, live events or video. As you provide the prospect with high quality content – information that they can rely on to steer their decisions, you’ll gain their trust and have a significant influence over the buying decision. To quote Ardath Albee, author of eMarketing Strategies for the Complex Sale, “Publishing compelling content builds credibility.” This credibility is what gives you competitive advantage.

At this point, you’re probably thinking, “That’s interesting, but how do I get this great content to the customer?

That’s where inbound marketing comes in. This technique uses high-quality content, strategically placed, that is found by prospects who are looking for it and as a result, are ready to engage with you. (talk about warm leads!). According to inbound marketing specialist HubSpot, “72% of companies who blog weekly have acquired customers through their blog.” As a new form of lead generation, inbound marketing is bringing in revenue for companies who have really dug in and focused on sharpening their marketing strategy.

The question arises, “O.K., now how do I incorporate inbound marketing and content marketing to my process?”

On January 24, I will be discussing this with a panel of the foremost experts on modern marketing in a live web event. These speakers are at the top of their game as authors, bloggers and recognized thought leaders in content and inbound marketing. They will discuss the differences between and the convergence of these techniques as well as practical approaches for getting it done as part of a holistic marketing strategy. The goal of this live web event is to give you clear insight into current marketing techniques, going beyond the hype to what works now.  We want you to be better equipped to build a compelling case to gain the funding to implement these techniques.

I highly recommend that you tune in for this hour long session. You can ask questions in advance of the event and online during the Q&A process. I’ll be moderating, and will be joined by:

It’s No Longer About Marketshare, It’s About Mindshare

The days of “spray ‘n pray” are over. Buyers want to know what’s in it for them, what of value you have to offer them that meets their need. They’re unaffected by perceived market share. They’re seeking a Trusted Advisor to help inform their entire buying process. Achieving that coveted role requires an understanding of what works in this context and directly affects your ability to generate revenue.

Are you struggling with creating an effective marketing strategy? Do you find yourself mistaking tactics for strategy? Are you just a little bit shaky in your understanding of current marketing language? Are you struggling to achieve “marketing alpha”? Join us for:

The Great Marketing Debate Conversation
Tuesday – January 24, 2012
1:00 – 2:00 PM EST (10:00 – 11:00 AM PST)

Click here to register now.

The old marketing model is broken. Time to start the new year with a new foundation for a solid marketing strategy. Here’s your opportunity to learn from four of today’s top marketing thought leaders. They’re passionate about what they do, so the discussion will be quite lively.

Join us, won’t you?

Warm regards,

Candyce

 

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Emerging Markets: Now More Stable Than Developed Ones

January 5, 2012 By Candyce Edelen Leave a Comment

The following is a guest post by Michael Speranza; Senior Vice President, Global Product Management at IPC Systems, Inc.

 

Investing in emerging markets used to be akin to riding a roller coaster. No longer, judging by new metrics from investments in those regions. I previewed some of TABB Group’s recent emerging markets research, and with their permission, am sharing a few nuggets…

Faster Recovery / Stronger Growth

Emerging markets are growing more reliably and recovering more quickly than developed economies. Consequently, they have enjoyed a lasting boom among investors that does not seem to be weakening. Since 2006, the compound annual growth rate for emerging economies has been 13%, well above the 4% benchmark set by developed markets. In 2010, emerging markets grew GDP at a 17% clip, well outpacing other regions that sought economic recovery.

Emerging Economies Outpace Developed World

Unquestionably, emerging markets have now earned a reputation as the most reliable way to achieve alpha. From December 2008 until April of this year, the equity market performance of emerging economies far outpaced developed economies. This explains why investors have been favoring the BRICs of the world quite blatantly. Historically, emerging markets have been tightly correlated with developed markets. However, since early 2009, the equity fund flow to emerging markets has drastically decoupled from that of developed economies. The IMF predicts that by 2015, one-third of the top world economies will be today’s emerging markets.

So the inflows are there, as are the returns. This reflects either strong fundamentals or great confidence in those markets among institutional investors. Unlike the bad products that have made the front pages, strong demand for institutional offerings that target emerging markets is not just a matter of Wall Street doing an exceptional job of marketing its own creations. Now it’s based on strong market fundamentals.

Emerging Markets vs. Frontier Markets

There are no exact criteria for defining emerging vs. frontier markets. In general, frontier markets are still dangerously unpredictable. But, increasingly, emerging markets offer steady performance, in some cases, in spite of political uncertainty and regulatory challenges. The relative inaction of the 112th Congress in the U.S. highlights that developed markets are not immune to damages borne from inept policy-making. In fact, the bullish state of emerging markets can be read another way: as a significant, no-nonsense threat to developed markets.

Challenges in Accessing these Markets

More generally, the primary challenge for investors that desire access to emerging markets is doing so quickly. Gaining access to a new fund in India, for instance, can take six months. China can take multiple years.

Institutions have enhanced their product offerings in several different ways to accommodate emerging market growth.

  • Bulge bracket global banks emphasize their on-the-ground presence in nearly every major global market as a differentiator. This brings with it local knowledge of how the markets operate (beyond simple regulatory documents) and often the ability to trade in the local market as a local.
  • For those just out of the bulge bracket, the offering of tailored products for a client’s investment needs at a low cost can attract significant business.

Increasing Demand

European and North American sell-side firms are encountering continuing demand for emerging market exposure and access from their buy-side clients. We expect that demand to continue for several years, as the developed world continues to struggle with complex economic and political issues while emerging markets continue to experience explosive growth in their middle class and domestic consumer base. Providing access to these markets creates a unique opportunity for sell-side banks, brokerages, and financial technology providers to differentiate, create specialized offerings, and grow their client bases.

You can find more information and a presentation about the emerging markets from the TABB Group by clicking here.

IPC has a financial extranet that helps clients gain access to emerging markets. To find out more, click here.

Warm regards,

Candyce

 

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Growth in Emerging Markets

November 10, 2011 By Candyce Edelen 1 Comment

 

Institutional investors know that emerging markets often provide the greatest opportunity for alpha. But putting money to work in those markets is not always easy. Liquidity, regulation, infrastructure, even local customs, can all become hurdles that can quickly shift the risk-reward balance away from the investors’ side. That said, emerging markets are still among the few around the globe that are offering solid growth rates.

One of the key drivers of emerging market growth and stability is capital formation. On Nov. 22 in London and Dec. 1 in New York, live panel discussions are scheduled to talk about trading in some of the fastest growing emerging markets in Asia and Eastern Europe. We recently interviewed Nigel Roberts, CEO of Marco Polo Europe, a leading global agency broker specializing in emerging markets, to get his thoughts on this new dynamic.

In our conversation, Roberts, who is one of the panelists for the U.S. event, talked about what makes emerging markets attractive to institutional investors. He also shared some thoughts on the importance of capital formation and which markets have the strongest domestic capital basis on which to grow.

Moving the “Needle”

Emerging markets become interesting to a broader spectrum US and European asset managers when they offer enough scale and liquidity to “move the needle” in a large portfolio or investment strategy. Traditionally, this scale has only been available in the large emerging economies such as China and Brazil; but we see increasing opportunity in other markets as they grow, encourage domestic participation, and open up more to foreign participation. In the event, we’ll talk specifically about which countries offer scale today and which markets are poised for providing that level of scale in the next one to two years.

Drivers of Scale and Liquidity

The ideal driver of this scale and liquidity is domestic market participation and an increasingly vibrant derivative market. In the 1990’s there was a rise in international flow into emerging markets, particularly in Latin American, which resulted in foreigners becoming the dominant players in many cases. This can become a problem. As shown historically; institutions have a tendency to repatriate moneys at home when their own domestic markets are under pressure. This then results in an exaggerated sell-off in the emerging markets.

But today’s markets are much more stable and sustainable because of strong domestic participation. In the past decade, emerging markets have seen 600-700 percent growth in cross-border trading to over 4 trillion dollars in 2010. Domestic participation has held steady at around 65%, indicating that domestic investment is growing at the same rate as international flow. Interestingly, there has been a similar increase in cross-border trading in the derivatives markets, culminating in over seven billion contracts traded last year.

In our conversation, Roberts shared his thoughts about three markets we’ll highlight in the panel discussions.

Poland

Poland requires all citizens to contribute 7 and a half percent (7.5%) of their incomes into pension funds. This has created substantial growth in Polish pension funds, and consequently attracts listing business. Many Eastern European companies list in Warsaw because the available money creates increased liquidity for their listings. As the market grows, liquidity increases, and market rules and regulations change. As a result, the market has attracted increased international flow – from both long-term investors and high frequency traders. This makes Poland a very interesting emerging market. In addition, the Poland derivative market has grown alongside its equity market.

Turkey

Turkey is a bit different. According to Roberts, the level of domestic institutional participation is still relatively small, but growing. Approximately 2/3rds of the trading on Turkdex and the Istanbul exchanges is retail. Turkey is a relatively large player in the emerging market “bucket” and sits firmly in the tier just below BRIC with ambitions to be a regional financial hub. Turkey has made large strides in recent years, highlighted by significant changes in its market rules and regulations and a new trading platform for Turkdex that will be implemented Q1 of 2012.

India

India has one of the highest savings rate in the world at approximately 7% of income. This increasing wealth creates substantial market opportunity. The Indian markets are growing quickly, and domestic retail investors now account for approximately 60% of trading volume. It should be noted that the trading in derivative instruments is approximately 10 times that of equities. The Indian markets are evolving and working to attract more foreign and domestic participation, as highlighted by continued market reforms and continued introduction of improved technology. All this solidifies India’s position as an important BRIC nation.

Come Join the Conversation

Join us for a dynamic and informative evening as we talk about these markets and others on November 22 in London and December 1 in New York. Tabb Group will share results of their recent research in the emerging markets, and we’ll have a lively panel discussion about some of the tricky issues around market access, regulatory issues, and infrastructure needs for trading in these markets. The panels will include renowned industry experts who will share some of their hard earned knowledge and expertise in how to be successful trading in the emerging markets.

Register here for the London event.
Register here for the New York event.

Warm regards,

Candyce

 

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Power of the Markets

November 7, 2011 By Candyce Edelen Leave a Comment

Sasha Dichter of Acumen Fund gave the keynote at FPL Americas on Tuesday. It was a great talk, just as inspiring as I’d hoped it would be.

Here are a few observations from his talk:

The Well Being of the Tribe is Everyone’s Responsibility

The concept that “charity begins at home” is relatively new in history. Traditionally, there was more of a sense that the well-being of the tribe was everyone’s responsibility. If a member of the tribe was struggling, the rest of the tribe chipped in to help the struggling members without expectation of recompense or profit. Sasha quoted Deuterotomy 23:19-20 “Do not charge a fellow Israelite interest, whether on money or food or anything else that may earn interest. You may charge a foreigner interest, but not a fellow Israelite, so that the LORD your God may bless you in everything you put your hand to in the land you are entering to possess.” (NIV). He also told the story of the Potlach ceremony. This was a practice common in many west coast Native American tribes. During the ceremony, the wealthiest members of the tribe passed out gifts to the other tribe members. In this social setting, status was based not on how much you had, but on how much you gave.

Sasha’s point was that the concept of the gift economy – of charitably helping members of our tribe without expectation of recompense – has shrunk in much of the modern world. It first shrank from the tribe to the extended family and now has shrunk even further to exclude most everyone outside our nuclear families.

Shockingly, some of this transformation has actually been driven by our government. According to Wikipedia, the Potlach ceremony was actually made illegal in Canada and the United States in the late 19th century. The ban was only repealed in 1951.

I wonder what the world would look like if we eliminated the axiom that “charity begins at home” and started accepting responsibility to help the less fortunate across the board? (Note: Politically I’m actually a fiscal and social conservative. While I feel it’s everyone’s responsibility to help each other, I’m not convinced that the government welfare system is capable of delivering a sustainable solution.)

Can the Power of the Markets Inspire Innovative Solutions to Poverty?

The developed nations have created tremendous wealth and provided innovations that changed the lives of most people who live in the Western world. But there are still massive problems with extreme poverty throughout the world. More than 3 billion people still live without basic sanitation (which is vital to health). More than 2 billion lack access to safe drinking water.

The Acumen Fund asks, “Can we take the best of philanthropy and the markets, the best of accountability and patience, the best of innovation and extend it to solve the problems of extreme poverty?”

The Acumen fund works in some of the poorest parts of the world – in Pakistan, India, and East and West Africa. In these areas, basic infrastructure such as roads is terrible; they have no access to electrical grids, clean water supplies, or sanitation. Corruption is high, trust is low, and interaction with the markets looks very different than it does in the developed world.

They apply a concept Sasha calls “non-profit venture capital.” They invest in innovative solutions to fundamental problems – such as providing villages with inexpensive access to clean drinking water, building electricity generators powered by rice husks, and providing lower cost lamps to replace kerosene lamps. They allow longer time horizons for the return of their capital, and they look for long-term social impact instead of short-term financial gain. At the same time, they understand that having a long-term impact demands a sustainable business model. While not all of their investments are successful, many are having significant impact and are gradually figuring out a business model that allows for scale and financial sustainability. Acumen Fund lives up to the old Taoist proverb, “If you give a man a fish, you feed him for a day. If you teach him how to fish, he’ll feed himself for a lifetime.”

I’d like to hear your thoughts. Have you seen other innovative ways to solve extreme poverty?

Warm regards,

Candyce

 

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A Refreshing Take on Capitalism

October 21, 2011 By Candyce Edelen 3 Comments

Planning the FPL Conference

I’ve been heavily involved in planning the FPL Americas conference this year. I’ve served as co-chair of the marketing committee and was also very active in the program committee planning out the conference content. In this role, I had the opportunity to suggest and secure this year’s keynote speaker. I’m very excited about the keynote, but before I tell you about it, let me give you a sense of WHY I recommended this particular speaker.

Protesters Blame Wall Street for Everything

The past three years have been incredibly difficult, and it seems that the news isn’t getting much better. We all struggle with the consequences of the economic climate. Many of us are facing more layoffs and spending cuts. Most are expected to do the work of 2-3 people to fill the gaps from earlier layoffs. And just to get to and from work, many have to skirt Occupy Wall Street protesters who blame Wall Street for practically every wrong in the country today. While I feel that the protesters are poorly informed in many respects, I do think it’s important for Wall Street to pay attention.

Why the Capital Markets Exist

African mosquito nets being manufactured

Jim Northey wrote an interesting note to his Global Finance students at Michigan Tech. Northey points out that we seem to have forgotten why the capital markets exist. It’s important to remember that equity and debt markets were established to provide the capital to build businesses and industry and fund government investments in infrastructure and public services. In return for risking their capital, investors have an opportunity to grow their wealth. Futures markets were created to manage risks involved for the producers and consumers of commodities. Derivatives markets were developed as a way to hedge the risk of investments in other vehicles.

Trading Practices Obscure the Purpose

But as Northey points out, in many ways, trading practices have obscured the purposes of these markets. “Don’t get me wrong,” Northey clarifies, “I am an ardent believer in markets, likely I would sacrifice well-being and even life to defend a free capitalist based society….”

He goes on to share his hope that “this industry can be changed and can return to its rightful place as the engine that drives societal growth and prosperity.”

A Different Perspective

Family with mosquito net

I agree with Jim. The capital markets and a capitalist system can do incredible good in the world. So for the FPL conference this year, I’d like to introduce a different perspective of the capital markets – one that uses the power of the markets to help solve some of the toughest social problems in the developing world – things like providing safe drinking water, making affordable healthcare available, bringing power to poor and remote corners of the world.

Our keynote speaker, Sasha Dichter, has a different message than that of the Wall Street protesters: that the power of the markets can bring real and significant change to our lives and the lives of others.

Patient Capital

Sasha works for a firm called the Acumen Fund. Their mission is to create a world beyond poverty by investing in social enterprises, emerging leaders, and breakthrough ideas. They bring together the best of market approaches, equity investment and philanthropy in something they call patient capital. The Acumen Fund has been pioneering this work since 2001.

Sasha is a Talented Speaker

Sasha is a recognized blogger and speaker on philanthropy, generosity and social change. He was recently featured as a TED.com “best of the Web” speaker, has been profiled as an Innovation Agent by Fast Company magazine, and is a Top 10 Business Blogger on Say:100 media.

Here are some links to learn more about Sasha and the Acumen Fund.

http://blog.acumenfund.org/2010/04/20/acumen-fund-and-ecotact-on-pbs-newshour/

http://www.youtube.com/user/acumenfund

http://www.acumenfund.org/ten/

 

Come to the FPL Americas Conference on November 1 and hear Sasha speak. I’m certain you will find the stories he’s going to share inspiring and uplifting. The keynote starts at 8:35 am, and this is one talk you won’t want to miss.

Warm regards,

Candyce

 

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Social Media Compliance Policies For Financial Firms

October 10, 2011 By Candyce Edelen 4 Comments

The following is a guest blog post from Jeffrey E. Kopiwoda and Seth A. Stern with the law firm Funkhouser Vegosen Liebman & Dunn Ltd.

Develop A Clear Social Media Policy

Social media offers significant opportunities for financial firms but also poses commensurate risk to firms that are unaware of legal issues affecting the medium. Financial regulators so far have shown little willingness to adapt to the instantaneous sharing of information.  Social media – which thrives on real-time communication – is therefore subject to rules designed for traditional media.  Firms should implement clearly worded policies to ensure their employees do not unknowingly draw regulatory action.

For instance, the NFA requires podcasts and YouTube videos to go through the same ten-day approval process applicable to television and radio ads under Rule 2-29(h).  Further, regulators including the NFA and FINRA will treat tweets qualifying as promotional or advertising materials the same as formal reports.  Even “liking” someone’s post on Facebook arguably could be considered a regulated endorsement. Firms should not assume that social media will be treated leniently due to its informality.

Know The Rules

Regulated entities’ social media activities (like their offline activities) must comply with rules including:

  • NFA Rule 2-9, which requires Members to diligently supervise employees in the conduct of their activities on behalf of the Member (including social media posts).
  • NFA Rule 2-29 and 2-36, which prohibit fraudulent and misleading communications and include numerous specific requirements for “promotional materials” and other categories of communications, including mandatory disclaimers which are not particularly Twitter-friendly.
  • NASD (now FINRA) Rules 2210(b) and 3010, requiring advertisements and other correspondence and literature to be approved in writing by a principal.  Social media sites, blogs, and bulletins (both corporate and individual) must be reviewed prior to their launch and “static” content qualifying as advertisements also must be reviewed in advance.  Content qualifying as a “public appearance” (including chat-rooms and comments to others’ social media sites and blogs) also requires supervision.

Keep Accurate Records, Supervise Diligently

Record-keeping and archiving requirements also apply to social media.  NASD Rules require firms to retain all advertisements and business communications – including information posted on websites and social media posts.  This includes communications sent from smartphones and other devices.  NFA Rules also require Members to maintain promotional materials.  A proposed amendment to CFTC Rule 1.35(a) would require regulated entities to record all communications which lead to the execution of transactions and categorize them by counterparty and transaction.  This would include “digital or electronic media” communications.

Moreover, Firms’ supervision requirements extend beyond their own employees.  You may have heard that website hosts are not liable for third-party content such as comments on blogs and wall posts.  While this is true for most online publishers under federal law, the NFA has issued guidance to the contrary.  According to NFA Interpretive Notice 9063, a Member or Associate must “regularly monitor the content of the sites it hosts, take down any misleading or otherwise fraudulent posts, and ban users for egregious or repeat violations.”  The more successful a site becomes the more it attracts third-party content that must be monitored. Unfortunately, smaller firms without compliance departments may find it difficult to regularly monitor content.

Adopt, Update, Enforce

All firms using social media should adopt, update, and enforce policies governing social media use.  Regulators will want to see such policies, as well as proof that they are enforced, in the event of an audit or investigation.  Firm policies should cover both the firm’s own online activities and employees’ independent activities.  The NFA suggests that policies require employees to notify their employer of any participation in online financial or trading forums and provide screen names so employers can monitor their posts (though employers should be cautious of privacy concerns when doing so).  Polices should make clear that a firm’s procedures manual applies to online communications.

Handle With Care

While this post focuses on issues specific to financial firms, such firms are subject to the same legal considerations that affect all social media users.  Members of our law firm have written extensively about issues affecting both publishers of social media content and employers of social media users.  Also note the National Labor Relations Board’s recent crackdown on employers who discipline employees for their social media use.  Financial firms may be especially interested in recent cases involving the “hot news doctrine.”  A federal appellate court held that a website was within its right to republish, virtually instantaneously, analyst reports banks published for paying clients because the banks’ reports constituted news of interest to the public.  Firms may want to limit how much they share via social media even where they believe content is accessible only to “friends,” “followers” or password-holders.

When In Doubt, Consult With Counsel

This post is by no means an exhaustive list of all regulations and legal issues facing financial firms utilizing social media, and the law will continue to evolve with new technologies and as regulators enact rules to comply with the Dodd-Frank Act.  Regulated firms and individuals should consult with counsel to determine which regulations apply to them and what policies are appropriate given their circumstances.

Jeff Kopiwoda () and Seth Stern () are attorneys with the firm Funkhouser Vegosen Liebman & Dunn Ltd. (FVLD).  They and other FVLD attorneys regularly counsel clients in the financial services industry and elsewhere regarding social media and numerous other compliance issues.  This article is merely informational and does not constitute legal advice.

Warm regards,

Candyce

 

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Reality Check: Content Marketing for the Capital Markets (Redux)

August 30, 2011 By Candyce Edelen 1 Comment

In the Capital Markets, we are seeing a trend where buying cycles for new technology and service solutions are getting longer and more complex. This trend makes it more challenging for providers to get deals done, resulting in longer sales cycles and higher cost of sale. There are a number factors contributing to this increasing complexity.

In the past, different lines of business were often able to make independent decisions about their technology, buying best of breed solutions to support their specific businesses. However, in the massive wave of regulations resulting from the financial crisis, banks are facing increasing pressure to consolidate risk and exposure monitoring across the enterprise. As a consequence, new technology decisions usually impact more than one asset class, trading or operating group; meaning that more people need to have a voice in the decision. More voices and more competing priorities add complexity to an already challenging evaluation and decision process.

In addition, banks are under ongoing profit pressure and continue to look for ways to reduce operational overhead. In most organizations, technology consolidation offers a tantalizing opportunity to reduce costs. This makes it more difficult for teams to justify best-of-breed point solutions. It also means that every purchase decision must be considered based on its impact to the overall goals of reducing the number of platforms in use.

This trend is not unique to the financial services industry. Analyst firms IDC and IDG Connect did a webinar (registration required) a couple weeks ago where they talked about the complexity of the buying cycle and what customers need from sellers. According to research from IDC, technology buyers would like to reduce their buying cycle by up to 40%, but in reality, their buying cycles are getting longer and more complex.

The webinar made several observations that can help companies selling to the financial industry can improve the way they support their prospective customers.

Too Much Content That is Not Useful
IDG found that content on the average corporate site has grown by more than 60% in the past couple years, but customers are finding that much of that content is not helpful.  We find this to be particularly true in the institutional trading and technology space. Your customers need information that will facilitate their decision process; content that is relevant to the various roles and departments who are involved in the buying decision. Buying decisions involve diverse teams with competing priorities, so your content needs to address the specific needs of those different groups.

Sales Can’t Find the Content Customers Need
Your customer needs to rely on your sales team to deliver the right content at the right time to support their process, but IDC found that 41% of sales people surveyed aren’t sure what content to use  or can’t find the relevant content their customers need.  Because they’re not sure what to send, most sales people overcompensate, sending way too much information all at once, taking a shotgun approach and hoping something will stick.  That just serves to overwhelm the customer and is NOT helpful.

Content That is Not Relevant
In many cases, the usefulness of content is determined by how relevant it is when it is provided.  Relevance is dictated by three key issues:

  • Relevance to the industry segment
    Content targeted to exchanges is not going to resonate with the buy-side, and vice versa. Your content needs to take the reader’s niche into account and be specifically relevant to their business needs, technical issues, and strategic drivers. These drivers are very different in each of your target niches.
  • Relevance to the role of the reader
    Just as important as industry segment is the role of the reader. Strategic and trading teams generally don’t have interest in reading content that is full of technical details. In contrast, your technical audience is going to quickly discard content that doesn’t go into depth on technical issues. Writing a single white paper for multiple audiences pretty much guarantees that most of your readers will find it irrelevant. You will probably need to consider multiple buyer groups as you develop your content strategy. The C-Suite, strategic planning team, trading, risk, compliance, trading technology, operations, information technology, market data management, etc. all have different needs. Make sure that your content is relevant to the groups that will participate in your buying decision.
  • Relevance to the stage in the buying cycle
    Every purchase follows a buying cycle that generally progresses from awareness to researching the problem to committing to change to  evaluating options to selecting vendors to managing risk. Each stage has its attendant information needs. I wrote about this in an article called “Thought Leadership to Support the Entire Buying Cycle.”

Not Enough Educational Content
If you’re selling a complex product or service, then your buyer needs to be educated as part of the sales process. According to a survey by IDC where they interviewed technology buyers, the best sales people spend their time educating clients rather than trying to close. But that means that your marketing team needs to provide Sales with that educational material.

IDC found that 56% of customer time during the buying process is spent searching for and reviewing educational and promotional content. Customers are incredibly busy, and they don’t have time to dig deeply in the process of educating themselves. So companies who provide the content they need and make it easy to find will be the companies they listen to the most.

Everything Provided is Too Long and Takes Too Much Time
Studies consistently find that customers prefer content that is no longer than 7 pages, but marketing continue to pump out 20-30 page white papers and other lengthy treatises. I have news for you. Your customer is not reading all 20 pages. They stop at page 5 and quickly scan the rest to see if something catches their eye. Then they file it away, fully intending to review it later, and forget about it. Don’t blame them. They’re too busy to read your dissertation.

Remember, the value of your content is not measured by the pound (or kilo). It’s measured by its relevance to the prospects’ needs and its ability to progress prospects through their buying stages. We recommend that you modularize the content. You don’t need to describe every aspect of your platform or service in one document. Focus on specific business needs or capabilities and create short documents that sales can spoon feed to clients or that visitors can find on your website when they need the information.

Too Many Documents Rather than Video and Audio
Customers are looking for a variety of content — both to support different learning styles and to facilitate the delivery of information.  We recommend that you provide a mix of video, audio, webinars, live events, and documents to support your clients’ education process. Remember, there are multiple learning styles — visual, auditory, and kinesthetic; and different preferences in how people like to consume content. Ideally, your content should support all of those styles and preferences.

Join the conversation.  What kinds of content do you look for when you’re the buyer?

Warm regards,

Candyce

 

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Filed Under: Capital Markets Tagged With: , , , , , , , , , , , , , , , ,

Inbound Marketing for IBs and CTAs

August 26, 2011 By Candyce Edelen Leave a Comment

At the NIBA conference next month, Phil and I will be talking about how IBs and CTAs can leverage inbound marketing to improve the effectiveness of your marketing programs and attract more leads. To prepare, I thought it might be helpful to introduce some of the concepts we’ll be discussing.

Inbound Marketing Versus Interruption Marketing

Traditionally, marketers have used various forms of what is now called “interruption marketing” to gain attention from their target prospects. Whether the technique is radio advertising,  email marketing or cold calling, the marketing message essentially interrupts the prospect’s train of thought. This approach is becoming less and less effective over time for two reasons:

  • Noise: It is estimated that your prospects encounter 2,000  marketing interruptions per day. It’s very hard (and expensive) to ensure that your message is heard above the cacophony.
  • Filtering: Your prospects are finding new and creative ways to block your messages (defecting to satellite radio, filtering their inbox for spam, avoiding calls with caller ID and voice mail).

By contrast, “inbound marketing” is about attracting the people who are actively looking for your services or researching the kinds of problems you can help them solve. This approach requires a different way of thinking. Instead of figuring out how to reach your prospects, you have to figure out how to help them find you. Inbound marketing includes online content marketing strategies, but it can also involve online and offline events – seminars and conferences where prospects attend to get educated. Regardless of the tactic, inbound marketing requires that you make available high value content and make sure it’s easy to search for and find online by someone who is looking for education but might not be familiar with your company.

In our session, we’ll talk about some of the strategies and tactics you can use to get found by your prospects.

Marketing to Tribes

Futures trading appeals to a small group of people who likely have a number of similar characteristics. It’s also likely that many of them network either through professional societies, social media networks, and/or other on- and off-line communities. As IBs or CTAs, you each have your own unique trading strategies and approaches to working with clients that will appeal to some customers and not to others. What would interest a mass market of investors might not interest the small group of customers you serve. Marketing to tribes is the practice of identifying the unique characteristics of your target market, figuring out what communities they participate in, and actively getting involved in that community. Social media offers a powerful medium to find these groups and participate. Here’s an interesting video on this topic: http://freevideolectures.com/Course/2752/Future-of-Marketing/2 and a helpful blog post: http://www.tribebuilding.com/2009/04/10-steps-to-marketing-in-a-tribe.html.

We’ll explore how the tribal concept applies to your marketing efforts, and how you can use social media to find and gain access to the right tribes.

Educating versus Selling

The average corporate website has grown by more than 60% in content in the past couple years, but customers are still finding that most of the content available is not helpful to their decision process.  We find this to be particularly true among brokers.

Content marketing is all about educating your prospect. Your customers need information that will facilitate their decision process — content that helps them understand the opportunities and attendant risks in futures trading, that teaches them strategies for managing their risk, and shows them how to evaluate products and performance.  Mark Melin published an excellent article in the NIBA newsletter that discusses the areas where you should be educating your clients and prospects.

Please join us at 3:15pm on Monday, September 12, at the NIBA Conference. You will learn how you can immediately put Inbound Marketing Strategies to work at your firm to increase your marketing visibility.

Warm regards,

Candyce

 

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Filed Under: Capital Markets Tagged With: , , , , , , , , , , , , , , , , , , , , , , ,

Reality Check: Content Marketing for the Capital Markets

July 28, 2011 By Candyce Edelen Leave a Comment

 

Thanks to Ardath Albee for inspiring this post!

IDC and IDG Connect did a webinar (registration required) last week on sales enablement and content marketing strategies. According to research from IDC, technology buyers want to reduce their buying cycle by up to 40%, but in reality, their buying cycles are getting longer and more complex.

Too Much Content That is Not Useful
IDG found that content on the average corporate site has grown by more than 60% in the past couple years, but customers are finding that much of that content is not helpful.  We find this to be particularly true in the institutional trading and technology space. Your customers need information that will facilitate the decision process; content that is relevant to the various roles and departments who are involved in the buying decision.

Sales Can’t Find the Content Customers Need
Your customer needs to rely on your sales team to deliver the right content at the right time to support their process, but IDC found that 41% of sales people surveyed aren’t sure what content to use  or can’t find the relevant content their customers need.  Because they’re not sure what to send, most sales people overcompensate, sending way too much information all at once, taking a shotgun approach and hoping something will stick.  That just serves to overwhelm the customer and is NOT helpful.

Content That is Not Relevant
In many cases, the usefulness of content is determined by how relevant it is when it is provided.  Relevance is dictated by three key issues:

  • Relevance to the industry segment
    Content targeted to exchanges is not going to resonate with the buy-side, and vice versa. Your content needs to take the reader’s niche into account and be specifically relevant to their business needs, technical issues, and strategic drivers. These drivers are very different in each of your target niches.
  • Relevance to the role of the reader
    Just as important as industry segment is the role of the reader. Strategic and trading teams generally don’t have interest in reading content that is full of technical details. In contrast, your technical audience is going to quickly discard content that doesn’t go into depth on technical issues. Writing a single white paper for multiple audiences pretty much guarantees that most of your readers will find it irrelevant.
  • You will probably need to consider multiple buyer groups as you develop your content strategy. The C-Suite, strategy team, trading, risk, compliance, trading technology, operations, information technology, market data management, etc. all have different needs. Make sure that your content is relevant to the groups that will participate in your buying decision.
  • Relevance to the stage in the buying cycle
    Every purchase follows a buying cycle that generally progresses from awareness to researching the problem to committing to change to  evaluating options to selecting vendors to managing risk. Each stage has its attendant information needs. I wrote about this in an article called “Thought Leadership to Support the Entire Buying Cycle.”

Not Enough Educational Content
If you’re selling a complex product, then your buyer needs to be educated as part of the sales process. According to a survey by IDC where they interviewed technology buyers, the best sales people spend their time educating clients rather than trying to close. But that means that your marketing organization needs to provide sales with that educational material.

IDC found that 56% of customer time during the buying process is spent searching for and reviewing educational and promotional content. Customers are incredibly busy, and they don’t have time to dig deeply in the process of educating themselves. So companies who provide the content they need and make it easy to find will be the companies they listen to the most.

Everything Provided is Too Long and Takes Too Much Time
Studies consistently find that customers prefer content that is no longer than 7 pages, but companies continue to pump out 20-30 page white papers and other lengthy treatises. I have news for you. Your customer is not reading all 20 pages. They stop at page 5 and quickly scan the rest to see if something catches their eye. Then they file it away for later review, and forget about it.

Remember, the value of your content is not measured by the pound (or kilo). It’s measured by its relevance to the customers’ needs and its ability to progress customers through their buying stages. We recommend that you modularize the content. You don’t need to describe every aspect of your platform in one document. Focus on specific business needs or capabilities and create a short documents that sales can spoon feed to clients or that visitors can find on your website when they need the information.

Too Many Documents Rather than Video and Audio
Customers are looking for a variety of content — both to support different learning styles and to facilitate the delivery of information.  We recommend that you provide a mix of video, audio, webinars, live events, and documents to support your clients’ education process. Remember, there are multiple learning styles — visual, auditory, or kinesthetic; and different preferences in how people want to consume content. Ideally, your content should support all of those styles and preferences.

Warm regards,

Candyce

 

Follow @CandyceEdelen on Twitter View my profile on LinkedIn View My Profile on FocusFeatured in Alltop

Filed Under: Capital Markets, Sales and Marketing 2.0 Tagged With: , , , , , , , , , , , , , ,
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