Updated Marketing Rule FAQ Targets Performance

 

Updated Marketing Rule FAQ Targets Performance 

True to its word, the SEC has taken steps to enhance regulatory efficiency and transparency, as evidenced by its most recent updates to the Marketing FAQ on March 19, 2025.

Background: The Marketing FAQ was first published in 2021 to address key questions regarding the new Marketing Rule. It has been updated, as needed over the years, to provide necessary guidance on how RIAs can ensure continued compliance to the rule.

Updated Guidance: The SEC's current version of the Marketing FAQ serves as a guidance tool for registered investment advisors specifically related to the usage of gross performance, as follows:

Gross Performance of Extracted Performance Figures

Definition - Extracted Performance: Refers to the performance of a single investment or a group of investments taken (“extracted”) from a private fund or portfolio, rather than the performance of the entire portfolio.

Guidance - The SEC will allow the display of gross performance of extracted investment or groups, without net, so as long as the following conditions are met:

• Extracted Performance is clearly labeled as gross performance
• Please Note: Advisors must clearly disclose what is extracted and the period of the performance
• Extracted Performance is accompanied by the total portfolio’s gross and net performance and is presented with at least equal prominence to the extracted performance
• Please Note: Equal prominence means that the SEC wants to ensure that the performance presented facilitates comparison between the extracted performance and the total portfolio performance.
• Gross and net performance of the total portfolio is calculated over the period that encompasses the timeframes used for extracted performance.

The SEC believes that if the above conditions are met, displaying the gross performance of extracted performance would not be considered misleading, provided that the data is truthful, accurate, and not intended to mislead clients or investors.

Gross Portfolio or Investment Characteristics

Definition - Portfolio or Investment Characteristics: Specific metrics or attributes that describe an investment portfolio or individual investments. These characteristics may provide insight into risk, composition, or other performance-related factors (e.g. yield, volatility, Sharpe Ratio) but are not necessarily categorized as performance. Guidance - The SEC will not recommend enforcement over the use of gross portfolio or investment characteristics, without net characteristics, so as long as the following conditions are met:

• The gross characteristic is clearly labeled as calculated without fees and expenses.
• Please Note: Advisors must clearly define the characteristic and disclose the period of the characteristic
• The total portfolio’s gross and net performance is presented alongside the characteristics and with at least equal prominence to facilitate comparison between the characteristics and portfolio.
• Portfolio performance over the period that encompasses the timeframes used for the gross characteristic.

The SEC is of the belief that the attempt to display net characteristic figures may be confusing and inadvertently misleading. Therefore, the guidance above is designed to help meet the spirit of the SEC’s intent of ensuring that investors are not mislead.

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