SEC approves broker performance projections with controls on who receives them

The SEC approved a FINRA Rule 2210 amendment on 15 October permitting conditional use of performance projections and targeted returns for securities, portfolios and investment strategies. For brokers distributing investments, the change creates a wider way to discuss prospective outcomes with suitable audiences.[1]

The audience test is central. The SEC order explains that firms should reasonably believe recipients have the resources to analyse the information independently and the financial expertise to understand its limitations. General retail advertising would ordinarily fail that test. An investor’s interest in high returns alone does not establish that the presentation suits their financial circumstances or objectives.[1]

The amended rule requires written policies for matching the communication to its intended audience. It also requires explanations of the calculation’s criteria and assumptions, plus the risks and limitations of relying on it. The recordkeeping provision now expressly covers the source of projections and targeted returns.[2]

The approved text differs from the original proposal

FINRA’s June amendment removed the proposed standalone reasonable-basis requirement and specific wording about disclosure of anticipated fees and reasons actual performance might differ. FINRA instead relied on the existing content standards, retained broader disclosure obligations and added source records. Compliance procedures based on the February draft therefore need to reflect the amended text.[3]

The SEC nevertheless concluded that the general standards and recordkeeping requirements effectively require firms to substantiate a projection before communicating it. Removing a separate clause did not create permission to circulate unsupported forecasts.[1]

Rule 2210 continues to prohibit misleading statements and material omissions, and requires balanced treatment of risks and benefits. A third-party presentation remains subject to those standards when a broker distributes it. In operational terms, approval needs to cover both the material and the audience receiving it; a reusable slide deck alone cannot establish the latter.[2]

FINRA’s filing assigns the implementation date to a subsequent Regulatory Notice. Firms preparing to use the exception should follow that notice for commencement, separately from the SEC’s approval.[4]

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