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SEC Brings Exciting Changes for Investment Advisers

Investment adviser showcasing performance metrics in an office

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News Summary

The SEC’s Division of Investment Management has updated its Marketing Compliance FAQs, introducing significant changes to how investment advisers present performance data in advertisements. The new guidance allows advisers to showcase gross performance without the need to simultaneously present net performance, provided they follow certain conditions. This change is expected to ease compliance burdens and improve investor understanding, particularly for private fund advisers, while still emphasizing the importance of proper disclosures.

SEC Brings Exciting Changes for Investment Advisers with New Marketing Compliance FAQs

On March 19, 2025, some pretty important news hit the world of investment advisers when the SEC’s Division of Investment Management made adjustments to its Marketing Compliance FAQs. This update is all about the presentation of performance data in advertisements, and it carries significant implications for how advisers can share their success stories.

A Major Shift in Performance Presentation

Previously, if an adviser wanted to showcase the gross performance of investments, they were required to also present the net performance. This guideline was perceived as a bit of a hurdle—making things more complicated than they needed to be. Well, the SEC has stepped in with a breath of fresh air! The new interpretive guidance allows advisers to show extracted performance on a gross basis in their advertisements, and they don’t necessarily have to include the corresponding net basis information, provided they meet certain conditions.

Key Takeaways from the New Guidance

The first of the newly released FAQs clarifies this significant change. It used to be that when an adviser displayed the gross performance of one or more investments, net performance had to go hand in hand with it. Now, advisers can breathe a little easier. The SEC has made it clear that they will not recommend any enforcement actions against advisers who decide to showcase gross performance alone, as long as they meet the specified criteria.

Unpacking Performance-Related Characteristics

Another exciting aspect of the new FAQs is how advisers can present portfolio or investment characteristics, like yield and volatility. The SEC acknowledged that calculating these performance-related characteristics on a net basis could be either impossible or misleading, which has led to the fresh guidance laid out in the second FAQ. It opens the door for more flexibility in how such information is conveyed, as long as it is disclosed clearly.

The guidelines also state that the timeframes for calculating these performance-related characteristics might differ from those outlined in the original Marketing Rule. This flexibility is a welcome improvement that should make the lives of investment advisers a lot easier.

What This Means for Private Fund Advisers

For private fund advisers, these updates are a breath of fresh air. The previous requirements surrounding performance presentation were often seen as challenging and could lead to potential misunderstandings for investors. With these updates, advisers can focus on presenting their performance and characteristics in a way that can be more easily understood by investors, which is always a positive.

Ensuring Compliance

Of course, while these changes are beneficial, advisers will need to ensure they comply not only with these new guidelines but also with the existing requirements of the Marketing Rule. The first version of the FAQs released in January 2023 hinted that extracted performance required net reporting, leading to a bit of confusion in the industry. With this new guidance, advisers are encouraged to revise their marketing materials to align with the updated conditions.

Words of Caution

However, it’s important for advisers to remember that when showcasing gross-only performance metrics, appropriate disclosures need to accompany them. Transparency is key—investors deserve to know exactly what they’re looking at.

A Sense of Relief in the Industry

The Managed Funds Association has expressed their support for the SEC’s updates, emphasizing that they align well with investor needs and the obligations that advisers have towards their clients. It’s all about creating a smoother reading and understanding experience for everyone involved.

In summary, the SEC’s updated Marketing Compliance FAQs bring some much-needed clarity and flexibility to the way investment advisers present their performance. This shift promises to pave the way for clearer communications and better relationships between advisers and their clients.