The Securities and Exchange Commission (SEC) approved a FINRA rule change that will allow brokers and their firms to include performance projections and targeted returns in marketing materials sent to certain clients and prospects.
FINRA proposed an amendment to Rule 2210, which governs communications with the public, in February. According to AdvisorHub, FINRA has not yet announced when the change will take effect.
Firms that use projected performance will have to adopt written policies and procedures to determine whether the communication fits the financial situation and investment objectives of the intended audience. They must also provide enough information for recipients to understand the assumptions, risks and limitations underlying the projections.
However, the final rule does not include an express requirement that brokers and firms establish a "reasonable basis" for projections or maintain written records supporting those assumptions.
The rule also differs from the standards that apply to registered investment advisers. The SEC requires investment advisers to present performance net of fees, while FINRA's rule could permit brokers to market projected performance without deducting fees and commissions.
FINRA rules already allow certain hypothetical illustrations involving mathematical principles, investment analysis tools and price targets in securities research reports, according to AdvisorHub.
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