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FINRA Moves to Allow Performance Projections in Some BD Marketing

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What You Need to Know

  • The change would allow broker-dealers to project the performance or provide a targeted return in marketing communications.
  • The rule would apply to institutional communications or those distributed solely to qualified purchasers, not retail investors.
  • FINRA's proposal aligns with the SEC’s Investment Advisor Marketing rule.

The Financial Industry Regulatory Authority has filed to bring FINRA Rule 2210, Communications with the Public, in line with the Securities and Exchange Commission’s marketing rule.

The proposed rule change would allow broker-dealers to provide “projected performance or targeted returns in marketing communications” to institutional investors and qualified purchasers, Russell Fecteau, of counsel at Davis Wright Tremaine LLP in Washington, told ThinkAdvisor Tuesday in an email.

Firms that do will need to “satisfy certain conditions,” he said, “including but not limited to adopting applicable written policies and procedures and having a reasonable basis for the criteria and assumptions made in calculating the projected performance or targeted return.”

The federal securities laws and FINRA rules, added Fecteau, a former senior enforcement attorney at FINRA, “have long recognized that certain types of sophisticated investors, particularly institutional investors and certain qualified purchasers in this case, need less safeguards than other types of investors when it comes to evaluating benefits and risks for investment decisions.”

As it stands now, Rule 2210 prohibits projections of performance or targeted returns in member communications, subject to specified exceptions.

The proposed rule change aligns with the SEC’s investment advisor marketing rule and “could provide efficiencies for firms if the changes are adopted,” Fecteau said.

FINRA anticipates that it would “interpret requirements in the proposed rule change that align with similar requirements in the IA Marketing Rule consistently with how the Commission has interpreted those IA Marketing Rule requirements.”

Thus, broker-dealers ”should be able to comply with these proposed requirements in a manner similar to how investment advisers must comply with similar requirements applicable to the use of hypothetical performance under the IA Marketing Rule.”

FINRA states that it recognizes, however, “that any proposed rule amendment that would allow projections of performance or targeted returns in specified communications must not increase the risk of potential harm to retail investors.”

The proposed rule change would not alter the current prohibitions on including projections of performance or targeted returns in most types of retail communications.

The plan includes other requirements that are not specifically included in the IA Marketing Rule, FINRA states.

Nevertheless, FINRA states that it “anticipates that it would interpret requirements in the proposed rule change that align with similar requirements in the IA Marketing Rule consistently with how the Commission” has interpreted those requirements.


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