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FINRA Mulls Allowing Performance Projections for Investing Strategies

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The Financial Industry Regulatory Authority, as part of its retrospective review of its rules, is seeking comment on proposed amendments to FINRA Rule 2210 (Communications with the Public), which sets limits on predicting or projecting investment performance.

The proposed amendments would create an exception to the rule’s prohibition on projecting performance to permit a firm to distribute a customized hypothetical investment planning illustration that includes the projected performance of an asset allocation or other investment strategy, but not an individual security, subject to specified conditions, according to FINRA’s Regulatory Notice 17-06.

Comments are due by March 27.

The exception “would be available for all firms, including firms that operate only an online platform, and could be used with both current and prospective customers,” the notice states, and the illustration may “project an asset allocation or other investment strategy, but not the performance of an individual security.”

The proposal, FINRA states, “would require that there be a reasonable basis for all assumptions, conclusions and recommendations, and that the illustration clearly and prominently disclose the fact that the illustration is hypothetical and there is no assurance that any described investment performance or event will occur. All material assumptions and limitations applicable to the illustration would have to be disclosed.”

Robert Cook, FINRA’s CEO, said in mid-January that the self-regulator plans to ask broker-dealers to weigh in on what changes need to be made to the self-regulator’s engagement and transparency policies — including how it crafts rules.

“I believe that while we do a lot today, we have an opportunity to take a fresh look at whether we can improve our engagement and transparency,” Cook said during a recent speech at The Harvard Club in New York.

Fresh off a “listening tour” that Cook says he’s been on since being named CEO last June, Cook said the notice, to be issued in the coming weeks, will summarize what FINRA does “now in these areas” and will request comments on “what we should be doing.”

— Check out FINRA to Get Back to Basic ‘Blocking and Tackling,’ New CEO Says on ThinkAdvisor.