News Summary
The SEC released updated guidance on March 19, 2025, allowing registered investment advisers to present performance records and related metrics on a gross-only basis. This change alleviates prior requirements for net performance presentations, providing greater flexibility for advisers in how they communicate investment performance while maintaining compliance standards.
Exciting Update from the SEC: Gross-Only Performance Metrics Allowed!
On March 19, 2025, the Securities and Exchange Commission (SEC) issued some updated guidance that’s definitely turning heads in the investment world! This news pertains to Rule 206(4)-1, also known as the Marketing Rule, which falls under the Investment Advisers Act of 1940.
What’s New?
The SEC staff’s new guidance allows registered investment advisers to present performance records and related metrics on a gross-only basis. That means they can show figures before any fees are deducted, and the best part? They won’t need to provide net-of-fee information—at least under certain conditions. This change promises much-needed relief for investment advisers who have felt the pinch of needing to present data on a net basis since the Marketing Rule was adopted back in 2021.
The Challenges Advisers Faced
Prior to this update, the Marketing Rule insisted that any presentation of gross performance had to also include net performance. This made things quite tricky for advisers, leading to a bit of uncertainty about how to correctly display performance-related characteristics. These characteristics can cover a range of interesting metrics like yield, coupon rate, contribution to return, volatility, and various attribution analyses.
That’s right, performance metrics can get complex! In the past, the SEC’s guidance indicated that any extracted performance data—from individual positions to entire securities within a portfolio—had to showcase net performance as well, leaving many advisers scratching their heads. However, the new FAQs bring clarity, detailing when financial experts can take advantage of gross-only performance presentations without having to always show net performance.
What Does This Mean for Investment Advisers?
For those in the advisory field, this new flexibility is a breath of fresh air. Of course, it’s not an open door to do as they please—advisers are advised to carefully review their marketing materials to ensure they align with the updated conditions laid out in the guidance and the Marketing Rule. With this update, they now have the opportunity to present a clearer picture of performance metrics to potential clients.
Understanding the SEC’s Perspective
The SEC recognized that adhering to the net performance rule has been a challenge for many advisers since portfolio fees often apply at the fund level. The commission made it clear that while presenting gross performance can be beneficial, it shouldn’t be misleading. They emphasized that advertisements need to include clear disclosures on fees and expenses associated with the investments.
A Safe Harbor for Advisers
The updated FAQs provide a sort of “safe harbor” for advisers wishing to include extracted performance or portfolio characteristics on a gross-only basis, provided they meet the outlined specifications. This is great news for advisers who want to improve the way they present their data without running into compliance issues!
Time to Update Marketing Strategies
With the SEC’s new guidance, this could also be a perfect opportunity for investment advisers to revisit their Marketing Rule compliance policies. It’s crucial for them to ensure that their marketing materials reflect these recent changes. After all, keeping clients informed and being transparent is what the financial advisory industry should be about.
Final Thoughts
In summary, this updated guidance marks a significant and positive shift for investment advisers. With the go-ahead to display performance metrics on a gross-only basis under specific specifications, advisers can now present a more flexible approach in their marketing strategies while maintaining a commitment to compliance. Whether you’re an adviser or an investor, this news offers some exciting possibilities for a clearer and more effective investment communication landscape!
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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
