SEC approves FINRA projections exception for broker/dealers

Broker/dealers can communicate projected performance and targeted-return information under a FINRA rule the SEC has approved, according to PLANADVISER.

The exception permits broker/dealers to distribute materials containing targeted-return and projected-performance figures if they comply with the rule's conditions. It largely aligns FINRA's broker/dealer marketing framework with the SEC's investment adviser marketing rule. The change may make it easier for private-fund sponsors and placement agents to use the same marketing materials across adviser and broker/dealer channels. Private Wealth Daily previously reported the SEC's clearance of the projections exception to FINRA Rule 2210.

For advisors, the change lands on the product shelf: a private-fund sponsor's materials carrying targeted-return figures can go out through a broker/dealer channel as well as through an adviser channel. Retirement-income illustrations and participant projections are a narrower case. FINRA already permits broker/dealers to use certain investment-analysis tools and calculators, so the practical effect on illustrations depends on how firms use the exception alongside those tools.

Issa Hanna, a partner at Eversheds Sutherland (US) LLP, said the rule addresses a mismatch that has existed since the SEC's Investment Adviser Marketing Rule took effect in 2022. "There's always been this misalignment between the Advisers Act marketing rule and [FINRA] Rule 2210," he said. Under the 2022 rule, private-fund advisers could present hypothetical performance, including projected and targeted returns, while broker/dealers distributing the same materials generally remained subject to a prohibition on such communications. "Now they don't have to come up with two different sets of marketing materials, depending on which channel they're going through," Hanna said.

If sponsors consolidate to a single document set, the compliance work shifts to substantiating the projections themselves. What reaches plan participants alongside a guaranteed-income option still depends on how each firm reads the exception against the calculators it already uses.