SEC approves FINRA rule letting broker-dealers market projected returns

The SEC approved a FINRA rule change last week that lets broker-dealers promote projected performance and targeted investment returns in communications with the public, PLANADVISER reported Oct. 22. The approval amends FINRA Rule 2210, which had barred such communications outright.

The North American Securities Administrators Association told the SEC it could not support the change without stronger investor-protection guardrails. Its letter asked that broker-dealer written policies and procedures ensure retail investors receiving projections have the financial expertise and resources to understand the risks and limitations. It also asked that projections to retail investors be limited to cases where the firm is recommending a securities transaction or an investment strategy involving securities.

FINRA answered June 30 with a partial amendment. The revised proposal kept the general prohibition on communications that predict or project performance and added a narrow exception, with projections permitted only subject to specified conditions.

For an advisor at a broker-dealer or wirehouse, the practical effect depends on whether the firm writes the exception into its review process. FINRA's rule change is conditional, and firms that want to use projected returns will have to meet the conditions or leave the old prohibition in place. This publication made a similar point about FINRA's outside-business rewrite, which the SEC approved in September: the rule changed, but how much relief reached an advisor's desk depended on what the firm's manual said.

A concrete first step for an advisor who wants to use this: ask compliance whether the firm intends to permit projected performance or targeted returns at all, and what documentation it will require. Until a firm answers, the new exception suggests little change in what an advisor can put in front of a client.