Article: Investment Data Compliance: Using Performance to Enhance Growth


Summary: Despite proposed enhancements to its advertising rules, the SEC’s focus on datasets related to manager performance remains paramount.

And because performance is among the most powerful testaments to an investment management firm’s approach and execution, ensuring that data is reconciled and accurately portrays a firm’s position is a pressing, yet underrated, compliance responsibility. So, how can firms effectively use performance while remaining SEC-compliant? Design an efficient compliance review of its data management, marketing, & distribution.

Like marketing in most industries, contemporary investment management marketing relies on key performance indicators (KPIs) that are often unsatisfying: website traffic, email opens and clicks, growth on social networks, and so forth.

Unfortunately, too many investment managers look at AUM growth as the KPI that rules over all else. The problem is that AUM growth is a SALES KPI, not a marketing one. In this respect, too many firms confuse marketing and sales, to their detriment.

The Only Satisfying Marketing KPI

There is one measurement by which investment managers can measure their marketing success; one that instantly qualifies a lead and smooths the path for sales success:

The unsolicited inquiry.

There are few more gratifying experiences as a marketer than to have a prospect reach out to you directly and inquire about your services, or ask for clarification about an aspect of your business. It’s an issue we’ve written about extensively, and was the subject of a recent webinar.

Unfortunately, in areas of intense competition, with products that are often undifferentiated, it takes more than a slick website and a pretty brochure to generate such inquiries, especially from consultants, professional investors, and high net worth individuals inundated with requests, calls, and emails on a weekly basis.

It takes data, and lots of it.

And though we have long championed the importance of emphasizing other data sets (especially the qualitative narratives), manager performance is still the sexiest, most alluring dataset available to investment management marketers.

So how can investment managers use their performance data to elicit the unsolicited inquiry?

SEC’s Updated Regulatory Framework: More Opportunities, More Responsibilities

First, we must understand the coming changes to the regulatory environment.

In its proposed regulatory framework, the SEC is loosening the restrictions on how managers use performance data to attract and retain clients. This is good for a myriad of reasons, not the least of which is that the ways in which managers interface with clients and prospects has changed dramatically since the last set of updates were released back in 1979 (which updated the rules from 1961).

But the SEC’s focus on prohibiting fraudulent, deceptive, or misleading data remains laser-like.

While we strongly believe that publishing data in the investment databases satisfies both conditions set forth by the SEC (“any communication, disseminated by any means…”), the enhanced rules set forth by the SEC on performance-based advertising are more applicable to traditional advertising formats than databases.


Data is published into specific fields in each database, so the sort of customization the SEC is permitting does not have a strong relevance to database marketing.

Investment Databases: Performance is Important, But it’s Not Enough.

That said, we can never forget that investment management generates reams of data every quarter, and that data is messy – the more data, the greater the mess.

Fortunately, manager performance data is a fairly straightforward dataset; and given its singular importance, there is no reason managers should not be able publish their performance diligently and accurately.

However, there is another, rather vexing angle to an over-reliance on performance, vis-à-vis marketing. Today, we all are painfully aware that good performance comes and goes. As such performance will not always paint your firm in the best possible light, in absolute terms.

No matter what the performance tells a potential client, a clear and concise data strategy often positions the other information in a way that substantiates the performance and helps to further differentiate a manager’s business.

For example, let’s say a manager has top quartile performance, in a bucket with 200 competitors. This means that despite very good performance, our manager is still competing against 50 other competitors in that top quartile.

So, if all a manager does is hang their marketing hat on performance, then how can they differentiate themselves against direct competition based on performance alone?

It takes additional datasets, both qualitative and quantitative, to help them stand out from the crowd. This is the primary reason why an overall professional investment database strategy is essential.

Watch The Recording: Investment Data COmpliance: An Evoling Standard

What does a Professional Data Strategy Look Like?

Today, investment databases are the first step in the due diligence process for prospective investors and their gatekeepers. While relationships still matter, and are an essential component of the formula, they simply take much longer to develop in today’s market (typically 6-8 meetings over a 6-18 month period).

With the COVID-19 pandemic further curtailing traditional meet-and-greet sessions, the importance of data is further magnified.

Because data often leads to the relationship, a thoughtful, professional data strategy is essential. But what does that mean? If you ask a sales rep from a database about strategy, they will extol the virtues of a full and complete profile before turning apocalyptic about the dangers of not maintaining a complete profile.

This is a commonly-believed fallacy, unfortunately. The database industry is highly competitive, and their business was/is largely predicated on having as much data as possible to sell to their clients. Maximum data published is central to their business model, but not yours.

A marketing-centric investment database strategy balances an adequate volume of published data with mystery sufficient to elicit the unsolicited inquiry we described above.

What can managers do to ensure their profile strategy is optimized?

  1. Ensure all data published to the databases has been thoroughly reconciled (and that there is a uniform procedure in place for doing so every time new data is published);
  2. Ensure the uncompleted datasets in your profile does not hinder thoughtful analysis by the subscriber, but elicits important questions that may prompt an unsolicited inquiry;
  3. All published data must be current, reflective of the firm’s existing market position, and relevant to the needs of the type of database subscriber a manager wants to work with.

Best Practices for Database Strategies

Forward-thinking investment managers are leveraging their data to help accelerate their traditional marketing strategies. So, what are some of the essential best practices these managers employ to maximize the impact of their investment data on their marketing strategy?

  • Document your data management policies and procedures. Knowing exactly how data is to be handled, from the initial data feeds from the custodian, to warehousing, reconciliation, and distribution is vital.

    It standardizes the process and enables refinement and improvement as the strategy evolves. Importantly, turnover at the data liaison position can knock even the best strategy off kilter. When the procedures are memorialized, it ensures smoother sailing every quarter.

  • Automate your data management. Investment managers who do their strategy “right” automate the entire process, from data assembly to warehousing and distribution. Why? Because the more human interaction with data, the more opportunities for error. Automation also saves upwards of 90% over manually managing data, leaving adequate time for management, analysis, and reconciliation.
  • Reconcile your data both before and after it is published. Reconciliation is, by far, the least appreciated and most overlooked step in the investment data management process. Many firms that manage and publish their data in-house struggle to allocate adequate resources for reconciliation. Why?

    Manually updating the hundreds of datapoints in each database profile is incredibly time-consuming, leaving little time for close reconciliation. After all, 13.3% returns vs. 1.33% returns is a small typo that can have large consequences, compliance-wise.

  • Know where your ideal clients are conducting manager searches. 80% of the industry search and assess volume occurs in 20% of the industry databases. Know which ones will serve you best.
  • Ensure your profiles can be found easily. In addition to being in the right databases, thorough reconciliation and a careful strategy will ensure your datasets accurately describe your firm, making it more likely your firm won’t get overlooked when database subscribers are performing their initial due diligence screens.
  • Complete review annually all qualitative fields. Narratives are the orphans of the database world – after they’ve been written, nobody wants anything to do with them. This is another underrated mistake. Narratives tell a firm’s story; the best ones are persuasive and make an affirmative case for the firm’s business. Pick a quiet time every year and have the data liaison review & update the narratives. Keep them fresh.
  • Never leave narrative fields blank. And always answer questions with complete sentences designed to persuade. Leaving fields blank or providing one-word answers means you have nothing to say. Always have something to say.

In sum…

The investment databases are now the essential tool for investment consultants, high net worth individuals, foundations/endowments/family offices, and other professional investors. Neglecting the databases is arguably more deadly to a firm’s marketing strategy than not having a website. Why?

Because the investment databases are the first step in the due diligence process across the industry. No database footprint, or one that is poorly considered and executed can be fatal to a firm’s growth.

Watch The Recording: Investment Data COmpliance: An Evoling Standard