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Exciting Changes: SEC Updates Marketing Rule Guidance for Investment Advisors

Investment advisors discussing SEC Marketing Rule updates

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News Summary

The SEC has rolled out updated FAQs regarding the Marketing Rule that simplify how investment advisors report performance metrics. This guidance allows advisors to present extracted performance gross-of-fees in advertisements, easing compliance burdens. The updates aim to enhance clarity in performance reporting and encourage better communication between advisors and their clients.

Exciting Changes: SEC Updates Marketing Rule Guidance for Investment Advisors

On March 19, 2025, the SEC staff rolled out some updated FAQs pertaining to Rule 206(4)-1 under the Investment Advisers Act of 1940, known widely as the Marketing Rule. This much-anticipated guidance aims to simplify the way investment advisers report their performance metrics, making life a little easier amid the complex world of finance.

What’s New?

The most significant change in this updated guidance is that investment advisers can now present extracted performance and certain performance-related characteristics on a gross basis in their advertisements. This means they won’t always need to show corresponding net-of-fee information, provided they adhere to specific conditions. If you’re in the business of advising clients, you’ll likely appreciate this easing of compliance burdens!

A Quick Walk Down Memory Lane

Before we get too excited, let’s take a moment to understand the background. The Marketing Rule was put into action in 2021. It stipulated that when advertisers showcased gross performance, it had to be paired with net-of-fee performance for the same timeframes. This dual requirement often left advisers scratching their heads about how to report performance effectively, and many experienced confusion over what truly constituted “performance” under the rule.

Back on January 11, 2023, the SEC clarified that any subset of a portfolio’s performance could be seen as extracted performance, leading to the need for additional disclosures. This clarity, however, came with its own set of challenges—many advisers felt cornered, struggling to meet the necessary compliance standards.

The Good News for Advisers

With the latest updates, advisers are provided with clearer guidelines on how they can present performance-related characteristics and extracted performance gross-of-fees without the obligatory net-of-fees performance. This cuts down on legal compliance headaches, which is certainly a positive development.

For those wishing to show extracted gross performance, the guidance specifies that advisers must also include the total portfolio’s gross and net performance, ensuring they hold equal prominence over the same time periods. Essentially, this brings clarity and balance back into the mix!

Why This Matters

Investment advisers might have previously shied away from marketing their performance numbers due to a fear of setting unrealistic client expectations, especially during booming market conditions. This latest update from the SEC provides a bit of breathing room. They even stated that they wouldn’t recommend enforcement action against advisers who choose to present the gross and net performance of the total portfolio instead of individual extracted figures, as long as both receive equal visibility.

Listening to Industry Voices

The Managed Funds Association, a key player in the space, warmly welcomed the SEC’s proactive step to address pressing concerns regarding the Marketing Rule. It seems the SEC is really making strides to improve communication practices in the industry.

Next Steps for Advisers

So what does this mean for investment advisers? Well, regulatory consultants are already forecasting that numerous firms will need to rethink or adjust their previous approaches to calculating net-of-fee results for extracted performance metrics. It’s a reminder that staying updated with regulations is vital for success in this fast-paced field.

Investment advisers should also remember to contextualize any performance figures they present in line with the new guidelines. It’s crucial not only to comply with the regulations but also to ensure that clients fully grasp the meaning behind the numbers they see, which minimizes confusion and builds trust.

A Brighter Future

In conclusion, this updated guidance from the SEC is a welcome change for many in the investment advisory field. With fewer hurdles around performance reporting, there’s a sense of optimism that clear and effective communication with clients can now be achieved more easily. Let’s embrace this change and work towards enhancing relationships built on transparency and trust!