Exciting Changes for Investment Advisers: SEC Issues New Guidance on Performance Metrics

News Summary

On March 19, 2025, the SEC released new guidance for investment advisers regarding the Marketing Rule, allowing them to present performance metrics on a gross-only basis. This change aims to alleviate hurdles associated with net performance disclosures. Advisers must ensure compliance with updated conditions while effectively communicating performance characteristics. This significant shift represents a commitment to clearer communication in the investment advisory landscape.

Exciting Changes for Investment Advisers: SEC Issues New Guidance on Performance Metrics

On March 19, 2025, a significant update rolled out from the SEC staff that’s sure to catch the attention of registered investment advisers. This fresh guidance relates to Rule 206(4)-1, affectionately known as the Marketing Rule, which has been buzzing in the investment world since its adoption in 2021. If you’re an adviser or simply interested in the investment landscape, keep reading—this news is all about making things easier when it comes to showcasing performance metrics!

What’s New? Gross-Only Performance Metrics

The big news? The SEC has opened the door for investment advisers to present extracted performance data strictly on a gross-only basis in their advertisements! That means no longer needing to tack on those often-tricky net performance numbers, granted that certain conditions are met. This newfound freedom is a breath of fresh air for advisers who have repeatedly faced hurdles when trying to navigate around those net figures.

The Challenge with Net Performance

Historically, one of the challenges that advisers faced was how to present performance data in a way that did justice to their strategies but also adhered to compliance guidelines. The Marketing Rule required that any presentation of gross performance be backed by net performance numbers. This added a layer of uncertainty, especially when it came to clear presentation of performance-related characteristics. What are these characteristics, you ask? Well, they include metrics like yield, coupon rate, contribution to return, volatility, and so on.

A Shift in Guidance

Previously, the SEC kind of had a strict blanket policy that any extracted performance data, even if it was just for individual securities within a portfolio, demanded the presentation of net performance information. However, the latest set of FAQs now clarifies when advisers can showcase these performance-related characteristics without needing to accompany them with net figures. This change is likely to make many advisers breathe a little easier.

Ensuring Compliance

While this new flexibility is exciting, it doesn’t mean advisers can throw caution to the wind! Advisers looking to take advantage of these updated guidelines need to comb through their marketing materials to ensure they’re in full compliance with all the new conditions expressed in the FAQs and the Marketing Rule. The SEC has stressed the importance of being cautious, as presenting gross performance can be potentially misleading without clear disclosures regarding fees and expenses.

A Safe Harbor for Advisers

Another great aspect of this new guidance? The SEC has introduced a safe harbor for advisers who choose to include extracted performance or portfolio characteristics on a gross-only basis as long as they meet specified conditions. This is a big relief, making it easier for advisers to communicate their strategies without getting bogged down in the intricacies of net performance data.

Revising Marketing Rule Policies

With these changes in mind, it’s a good time for advisers to revisit and possibly revise their Marketing Rule compliance policies. Adjusting their marketing materials to align with the updated guidance will be crucial in avoiding any inadvertent missteps that could arise from the new flexibility.

The Bigger Picture

So, what does this all mean in the grand scheme of things? For one, it’s clear that the SEC acknowledges the challenges investment advisers have been facing under the previous rules. By allowing for this gross-only presentation, it’s not just about easing burdens; it’s about fostering clearer and more effective communication between advisers and their clients. Keeping potential investors informed is essential, and with this new guidance, there’s more room to share performance data in a way that’s digestible and informative.

As the investment landscape continues to evolve, these updates serve as a reminder that the regulations will adapt to the needs and realities of advisers and their clients. It’s an exciting time in the world of investment advice!

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Additional Resources

• K&L Gates: SEC Marketing Rule FAQs Yield New Guidance
• ThinkAdvisor: SEC to Release New FAQs on Marketing Rule
• McDermott Will & Emery: SEC Eases Marketing Rule Net Performance Requirement
• National Law Review: SEC Marketing Rule Update – New Staff FAQs
• Lexology: SEC Staff Issues New Marketing Rule FAQs
• Wikipedia: Investment Advisers
• Google Search: SEC Marketing Rule
• Google Scholar: SEC Marketing Rule
• Encyclopedia Britannica: Investment Advisers
• Google News: SEC Marketing Rule