Investment advisers in a meeting reviewing updated SEC guidelines.
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Sponsor Our ArticlesOn March 19, 2025, the SEC introduced new updates to the Marketing Rule, allowing investment advisers to present extracted performance metrics on a gross basis in their advertisements. This change aims to alleviate past frustrations regarding the equal prominence of gross and net performances, simplifying compliance and improving marketing practices for advisers. Industry reactions have been largely positive, signaling a shift towards clearer guidelines in performance metrics presentation.
On March 19, 2025, the SEC (Securities and Exchange Commission) staff rolled out some exciting updates to the frequently asked questions regarding Rule 206(4)-1, commonly known as the Marketing Rule. This rule, which falls under the Investment Advisers Act of 1940, has had significant implications for how investment advisers present their performance metrics in advertisements.
The big news is that investment advisers can now use extracted performance and certain performance-related characteristics in their marketing materials on a gross basis—which means before fees—without being required to include corresponding net-of-fee information. However, there are specific conditions that must be adhered to, which are detailed in the new guidance.
This update comes as a sigh of relief for many investment advisers who have voiced frustration over the previous requirements. Under the prior guidelines, advisers were obligated to present both gross and net performances for the same time period with equal prominence. This left many in the advisory community uncertain about what could be considered as “performance” and how to effectively communicate their results.
Confusion often swirled around performance-related characteristics such as yield, coupon rate, and volatility, which were not clearly categorized as “performance.” In the past, extracted performance—like the performance of individual investments—also had to accompany net performance when shared in promotional materials. This led to unwelcome complications for those trying to market their services.
The newly released FAQs clarify when performance-related characteristics and extracted performance can be showcased on a gross-of-fees basis. Advisers need to ensure that their advertisements comply with the fresh criteria set forth in the updated guidance. Notably, this flexibility is anticipated to relieve some of the burdens from investment advisers and make it simpler to market individual investment performances effectively.
It’s also crucial to note that while advisers may present gross performance separately, they must still include appropriate overall net performance disclosures. This change means that equal prominence doesn’t have to mean side-by-side comparisons anymore. Instead, it encourages a format that allows for easy comparison—likely achieved by positioning composite performance before extracted performance within the promotional materials.
Another exciting aspect of the updated guidance is the broad definitions it offers regarding portfolio or investment characteristics. This aims to simplify the process, so advisers don’t have to struggle with deciding whether something is classified as performance or not.
The SEC staff has encouraged advisers to take full advantage of these new flexibilities in their advertising strategies. With this new set of guidelines rolling out immediately, advisers are encouraged to swiftly adjust their marketing materials and disclosures to align with the updates. This may require some recalibration for those firms heavily reliant on specific performance metrics.
Responses to the SEC’s updates have been largely positive. Organizations like the Managed Funds Association have expressed their approval, stating that these changes support both the needs of investors and the practical realities faced by advisers. On the other hand, compliance consultancy firms like Iron Road Partners have acknowledged that marketing material updates might be necessary for firms leveraging performance metrics, emphasizing the importance of staying ahead of compliance adjustments.
These changes represent a significant step forward, particularly following years of engagement from the industry that spotlighted the challenges posed by previous guidelines. Overall, the SEC is striving to provide clearer pathways for compliance concerning the presentation of performance metrics in investment advertisements, allowing for a more cohesive and fluid approach moving forward.
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