News Summary
The SEC has issued new guidance allowing investment advisers to present extracted performance metrics on a gross-only basis, eliminating the requirement to show net performance figures. This change aims to simplify advertising for advisers, making it easier for clients to understand the value offered. However, transparency regarding fees remains essential, urging advisers to maintain compliance with the Marketing Rule.
Exciting Updates for Investment Advisers: SEC Greenlights Gross-only Performance Metrics!
On March 19, 2025, significant news arrived from the U.S. Securities and Exchange Commission (SEC) that’s sure to make a wave in the investment advisory world. The SEC staff issued updated FAQs regarding the Marketing Rule under the Investment Advisers Act of 1940, which has traditionally been a bit of a puzzle for many investment advisers. So, what’s the big news?
New Guidance Offers Flexibility
The SEC has now allowed registered investment advisers to present extracted performance and performance-related characteristics on a gross-only basis in their advertisements. This is a game-changer because it means advisers can now promote their services without the mandatory need to include net-of-fee information, as long as certain conditions are met.
This change comes as a much-needed relief for investment advisers who have struggled with the constraints of presenting performance data on a net basis since the adoption of the Marketing Rule in 2021. As many advisers will tell you, combining gross and net performance can be tricky and can sometimes leave clients scratching their heads.
Why This Matters
At the heart of the previous guidance was the stipulation that any presentation of gross performance had to be accompanied by net performance. This created a bit of uncertainty for advisers when they aimed to share performance-related characteristics, which include metrics such as yield, coupon rate, contribution to return, volatility, and attribution analyses.
Under the former rule, any extracted performance—even that of individual positions or securities within a portfolio—was classified in a way that required net performance presentation. This often led to complex advertising materials that didn’t necessarily help potential clients understand the value offered.
Clarity with Updated FAQs
The newly released FAQs provide a level of clarity that was sorely needed. They outline specific conditions under which advisers can proudly present performance-related characteristics without feeling the pressure to deliver accompanying net performance figures. This newfound clarity can help investment advisers streamline their advertising efforts and focus on what they do best: helping clients navigate the investment landscape.
Adapting to the Changes
For advisers keen on embracing this updated flexibility, it’s important to review existing marketing materials. It’s a good idea to ensure that any modifications are in line with the new guidance and comply with the Marketing Rule’s terms.
The SEC is well aware of the challenges that compliance with the net performance rule has posed to advisers. Since fees are often applied at the fund level, ensuring every performance figure aligns correctly can be quite a headache!
Mindful Presentation is Key
However, as wonderful as this update might be, the SEC has also cautioned that presenting gross performance could potentially be misleading if it doesn’t include clear disclosures about associated fees and expenses. This new flexibility shouldn’t translate to a free-for-all in marketing; transparency remains essential.
Compliance is Still Crucial
The updated FAQs ultimately create a safe harbor for advisers who wish to include extracted performance or portfolio characteristics on a gross-only basis. Nevertheless, even with these updates, it’s crucial that all advertisements showcasing gross-only performance metrics remain compliant with the broader prohibitions of the Marketing Rule.
What’s Next for Investment Advisers?
As advisers adjust to these new guidelines, it’s wise to revisit Marketing Rule compliance policies to reflect any changes in marketing strategies. Keeping pace with regulations not only fosters client trust but also strengthens the integrity of the investment advisory profession as a whole.
In conclusion, for investment advisers, the SEC’s updated guidance marks a significant turning point. Navigating the marketing landscape has just gotten a little easier, and with it comes the opportunity to connect more authentically with potential clients. Here’s to clearer, more effective investment communications!
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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
