The Financial Industry Regulatory Authority's Board approved amendments to Rule 2210, Communications with the Public, to better align regulatory requirements for broker-dealers and investment advisors related to performance projections in written communications to investors.
The amendments would better align FINRA's rule with the Securities and Exchange Commission's Marketing Rule.
According to FINRA, the amendments "would create a narrowly tailored exception to the general prohibition on projections and permit the presentation of projected performance and targeted returns when members meet specified conditions."
Those conditions, FINRA said, include:
- adopting policies and procedures
- having a reasonable basis for the criteria and assumptions made in calculating the projections or targeted returns, and
- providing specified information.
The amendments will be filed with the SEC for approval.
The SEC stayed an order last July that was previously issued by the agency's Division of Trading and Markets, according to a Morgan Lewis blog post. The order approved amendments to FINRA's Rule 2210 that would have allowed FINRA member broker-dealers to use projected performance and target returns in communications limited to institutional investors and qualified purchasers (subject to compliance with certain other requirements).
FINRA is taking on a broad review of its rules.
Robinhood told FINRA in a recent comment letter that it should work with the SEC to harmonize FINRA Rule 2210 with the SEC's marketing rule for advisors.
Change is warranted, Robinhood said, as the IA Marketing Rule offers greater flexibility "with respect to certain types of performance information," so "broker-dealers and investment advisers are competing on an unequal playing field when advertising their services to investors."
The SEC released updated guidance in late March on its marketing rule, answering questions on the net performance requirement as it relates to abstracted performance as well as determining whether certain portfolio or investment characteristics are performance.
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