FINRA Board OKs Proposed Rule Change to Performance Projection-Related Communications
The Financial Industry Regulatory Authority’s board of governors has approved proposed changes to Rule 2210, aiming to better align the regulations for broker-dealers and investment advisers regarding performance projections in written communications to investors.
Originally, FINRA Rule 2210 generally prohibited member firms from presenting projected performance or targeted returns in communications with the public. This broad prohibition was designed to protect investors from potentially misleading performance analysis or speculative future performance claims.
The newly approved amendments create a narrow exception to this general prohibition. This means that firms will now be permitted to present projected performance and targeted returns, provided they meet specific conditions. These conditions include:
- Adopting comprehensive policies and procedures related to such projections;
- Ensuring a reasonable basis for the criteria and assumptions used in calculating these projections or targeted returns; and
- Providing specified information alongside the projections, likely involving disclaimers and explanations of methodologies.
This change seeks to harmonize regulatory requirements across different financial services, potentially offering investors more transparent and consistent information from both broker-dealers and investment advisers.
The amendments have been approved by FINRA and will now be filed with the U.S. Securities and Exchange Commission for approval. The SEC will review the proposed rule change and likely allow for a period for public comment, before deciding whether to approve or disapprove of the rule change.
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