SEC Approves Broker-Dealer Use of Projected Performance Under Rule 2210
By Brett Evans, Evans Law, PC
On Oct. 15, 2026, the U.S. Securities and Exchange Commission approved an amendment to FINRA Rule 2210 that allows a broker-dealer include projected performance or a targeted return in a communication about a security, a portfolio, or an investment strategy, on three conditions. For years, member firms have been barred from presenting an investor what a private fund expects to return or what internal rate of return a real estate program is targeting, while the issuer itself, at least in theory, and any registered investment adviser could say so. That gap closes when the amendment takes effect, on a date to be announced by the Financial Industry Regulatory Authority in a Regulatory Notice. The three conditions are the ones the SEC imposed on investment advisers for hypothetical performance when it adopted the Marketing Rule, Rule 206(4)-1 under the Investment Advisers Act of 1940, in 2020. While broker-dealers have not operated under that rule, years of adviser practice, examination findings, and enforcement under those conditions are the best available guide to how FINRA will examine against the new exception.
What the rule prohibited and the three exceptions that already existed
Rule 2210(d)(1)(F) prohibits a member communication from predicting or projecting performance, implying that past performance will recur, or making any exaggerated or unwarranted forecast. FINRA has long read the prohibition to cover targeted returns as well as projections, and in 2020 told members specifically that private placement communications may not project yields, income, or appreciation to investors. Three exceptions existed: a hypothetical illustration of a mathematical principle such as compounding, an investment analysis tool meeting Rule 2214, and a price target in a research report with a reasonable basis and disclosed valuation method. None of them let a placement agent put an issuer’s target return in front of a prospective investor. FINRA told the SEC that institutional and other sophisticated customers ask for that information, that they can get it from the issuer or from an adviser, and that the result was both investor confusion and an incentive for issuers to sell private offerings without a broker-dealer at all.
The new exception and its three conditions
New Rule 2210(d)(1)(F)(iv) permits projected performance or a targeted return with respect to a security, a securities portfolio, or an asset allocation or other investment strategy, if the member meets three conditions. First, the member must adopt and implement written policies and procedures reasonably designed to ensure the communication is relevant to the likely financial situation and investment objectives of its intended audience. FINRA’s stated expectation is that such communications go only to investors the member reasonably believes have the resources to analyze the information independently and the financial expertise to understand its limitations, and that the exception generally will not support a communication to a mass audience or general retail circulation, because a member cannot form a view about relevance to an audience it has not defined. The rule does not say how to draw the line; FINRA offered examples such as grouping investors by type, drawing on past experience with investors who request projections, or limiting the audience to investors who have expressed interest in or already hold the type of security. An investor’s appetite for high returns is not, by itself, a reason to conclude the projection is relevant to her.
Second, the communication must give the intended audience enough information to understand the criteria used and assumptions made in calculating the projection or target, and the risks and limitations of using it in making an investment decision. Third, the member must keep records that include information about the source of any projection or targeted return it uses, an addition to the existing recordkeeping list in Rule 2210(b)(4). Where the communication accompanies a recommendation to a retail customer, Regulation Best Interest applies on top of all three.
What FINRA dropped in response to comments
The version FINRA filed in February was stricter. It would have required the member to state whether the projection was net of anticipated fees and expenses, to explain why the projection might differ from actual performance, and to have a reasonable basis for its criteria and assumptions supported by written records. FINRA removed all three in Partial Amendment No. 1. Its reasoning was that the rule’s general content standards, which already require every communication to be fair and balanced and bar any unwarranted claim or forecast, do the same work without a separate test, and that the recordkeeping requirement for the projection’s source gives examiners what they need. FINRA added that it would generally expect a compliant disclosure to let the investor work out whether the figure is net of fees. A firm that drops the net-of-fees statement because the rule no longer names it should expect to defend that choice under the fair-and-balanced standard instead.
FINRA also declined to go further. Commenters asked it to admit backtested, model, related, and extracted performance, to create a tiered framework for educational and cash-flow illustrations, to carve targeted returns out of the rule altogether, to write safe harbors for defined categories of investors or calculation methods, and to extend the same standards to capital acquisition brokers. It refused each, describing the amendment as incremental and saying it would consider both guidance and further expansion after gaining experience. The SEC accepted that framing. State regulators and the investors’ bar opposed the amendment as a weakening of the rule; the SEC found the conditions, operating alongside the general content standards, sufficient to protect investors.
Why the adviser experience matters
The three conditions are lifted almost verbatim from the Marketing Rule’s treatment of hypothetical performance, which by definition includes targeted and projected returns. The SEC’s 2023 enforcement sweep against advisers rested on the first of them, policies and procedures for the intended audience, and the SEC Division of Examinations’ Marketing Rule findings since then have returned to the same point. A broker-dealer should assume FINRA’s Advertising Regulation Department and its examiners will start where the SEC did: not with whether the projection was reasonable, but with whether the firm can show who it decided could receive it and why.
What broker-dealers and issuers should do now
No firm may rely on the exception until the amendment takes effect. Between now and then, a firm that intends to rely on the exception should write the policies and procedures, because the exception does not exist for a firm without them. That means a definition of the eligible audience and the records that establish an investor belongs to it, a review and approval path for any communication that carries a projection, a disclosure template covering criteria, assumptions, risks, and limitations, and a change to the communications file so the source of every projection is captured. Issuers raising capital through placement agents should expect those agents to ask for the source and assumptions behind any target return in the offering materials, and should be ready to supply them. Members should also keep in mind that this is one of two Rule 2210 changes in motion: FINRA’s separate proposal to replace principal pre-use approval of retail communications with a risk-based standard remains at the comment stage.
Brett Evans, principal with Evans Law PC, delivers experience in securities, corporate, mergers and acquisitions, energy and tax law with his securities career beginning in 1995. Evans counsels various financial industry participants in securities offerings, litigation, broker-dealer and investment adviser regulation, state, federal and self-regulatory enforcement as well as a diverse range of transactional matters.
Visit the AltsWire directory page.
