KEY QUESTION
Can broker-dealers, investment advisers, and dual registrants use projected returns, future value illustrations, target returns, or IRR calculations in marketing materials without creating significant regulatory exposure?
OUR VIEW
For broker-dealers, projected returns, target returns, future account values, and IRR projections generally present substantial FINRA Rule 2210 risk when communicated to retail investors, while RIAs and dual registrants must also satisfy the SEC Marketing Rule’s hypothetical performance requirements, making these communications among the highest-risk areas of investment advertising for compliance officers and senior management.
EXECUTIVE SUMMARY
The use of projected returns, target returns, future value illustrations, and Internal Rate of Return (“IRR”) calculations continues to attract significant regulatory scrutiny from both the SEC and FINRA. Regulators increasingly focus on whether the communication itself is appropriate before evaluating disclosures. While firms often believe that extensive disclosures can cure regulatory concerns surrounding performance projections, regulators increasingly focus on whether the underlying communication is permissible in the first place.
For broker-dealers, FINRA Rule 2210 currently imposes significant restrictions on communications that predict or project investment performance. However, firms should be aware that FINRA has proposed amendments to Rule 2210 that would permit certain performance projections and targeted returns under specified conditions. Until any such amendments are approved and become effective, firms remain subject to the current rule framework. In contrast, the SEC Marketing Rule permits certain forms of hypothetical performance for investment advisers, but only when supported by extensive policies, procedures, disclosures, and audience-specific safeguards.
This regulatory divergence creates significant challenges for dual registrants, private fund sponsors, and firms marketing alternative investments. Materials that may satisfy SEC Marketing Rule requirements may nevertheless create FINRA advertising concerns when distributed through a broker-dealer platform. The risk becomes particularly acute when firms use target returns, projected account growth, retirement income illustrations, or IRR calculations that rely upon future assumptions.
Recent SEC enforcement actions and FINRA examination priorities demonstrate that regulators expect firms to maintain rigorous controls around performance advertising. Compliance departments should assume that any communication containing future-oriented performance metrics will be subject to heightened scrutiny and should ensure that all related assumptions, methodologies, approvals, and disclosures are thoroughly documented.
REGULATORY BACKGROUND
The regulatory framework governing performance of advertising differs significantly depending on whether a firm operates as an investment adviser, a broker-dealer, or both. This distinction is critically important because many firms mistakenly assume that the SEC Marketing Rule’s treatment of hypothetical performance automatically applies to broker-dealer communications. It does not.
Investment Advisers
The Investment Advisers Act of 1940, Rule 206(4)-1 permits registered investment advisers to use hypothetical performance under specified conditions. The rule requires advisers to establish policies and procedures reasonably designed to ensure that hypothetical performance is relevant to the intended audience’s likely financial situation and investment objectives, and that required disclosures are made.
Broker-Dealers
Broker-dealers, on the other hand, operate under a more restrictive framework. FINRA Rule 2210(d)(1)(F) generally prohibits retail communications that predict or project performance, imply that past performance will recur, or make exaggerated, unwarranted, promissory, or misleading claims. Historically, FINRA has interpreted this provision as creating a broad prohibition against performance forecasts and projected returns in retail communications.
However, one of the most important distinctions under FINRA Rule 2210 is whether a communication is retail or institutional. Retail communications remain subject to FINRA’s full content standards, including restrictions on projected performance. Although institutional communications (as defined in Rule 2210(a)(4)) have historically been the primary area where FINRA has considered expanding the permissible use of projections, firms should recognize that FINRA’s current proposal extends beyond the institutional-only approach reflected in earlier rulemaking efforts. Nevertheless, until the proposal becomes effective, firms should continue to carefully distinguish between retail and institutional communications when evaluating projected performance materials and maintain controls to prevent institutional materials from migrating into retail channels.
FINRA Has Proposed Changes to Rule 2210
In February 2026, FINRA filed proposed amendments to Rule 2210 that would permit broker-dealers to provide performance projections and targeted returns under specified circumstances and subject to prescribed safeguards. The proposal would move FINRA’s framework closer to the SEC Marketing Rule by requiring firms to maintain written policies and procedures, establish a reasonable basis for assumptions and methodologies, and provide sufficient information on risks, limitations, and calculation criteria.
Importantly, the proposal has not been adopted and remains subject to SEC review and approval. Accordingly, broker-dealers should continue to evaluate projected returns, target returns, and IRR communications under the current version of Rule 2210 rather than assuming the proposed framework is in effect today. This distinction is particularly important for firms developing marketing materials in anticipation of future rule changes.
PRACTICAL IMPACT AND KEY DEVELOPMENTS
Practical Impact on RIAs, Broker-Dealers, and Dual Registrants
The practical compliance challenges associated with projected returns vary significantly depending on whether a firm operates as a broker-dealer, an investment adviser, or a dual registrant. Investment advisers may have greater flexibility under the SEC Marketing Rule to use hypothetical performance in certain circumstances, but that flexibility is accompanied by substantial obligations related to policies, procedures, disclosures, audience suitability, and documentation. Broker-dealers, by contrast, must remain mindful of FINRA’s restrictions on projected performance in retail communications and should carefully evaluate whether future-oriented performance information could create unwarranted expectations regarding investment outcomes.
Dual Registrants Face Elevated Regulatory Risk
Dual registrants often face the most complex compliance challenges because a communication that may be permissible when delivered in an advisory capacity can raise regulatory concerns when distributed through a broker-dealer platform. This distinction is particularly important when firms market alternative investments, private funds, private credit strategies, or private placements that include target returns, projected cash flows, or IRR assumptions. Compliance personnel should ensure that marketing materials are reviewed not only for content but also for distribution capacity, intended audience, and the presence of adequate controls to prevent institutional or advisory materials from migrating into retail brokerage channels.
IRRs Frequently Contain Embedded Forecasting Assumptions
IRRs associated with private funds, private credit strategies, venture capital investments, real estate funds, and private equity offerings frequently depend upon assumptions regarding future exit valuations, anticipated cash flows, projected holding periods, reinvestment assumptions, and unrealized portfolio valuations.
Firms Should Avoid “Pre-Complying” With the Proposed Rule
One emerging compliance risk is firms’ tendency to adopt practices based on proposed regulatory changes before those changes take effect. While FINRA’s proposal may ultimately provide broker-dealers with greater flexibility regarding projected and targeted returns, firms should not assume that future regulatory relief is currently available. Compliance reviews, supervisory procedures, and marketing approvals should continue to be based on the existing Rule 2210 framework until a final rule is approved and implemented.
Documentation Has Become a Regulatory Expectation
Regardless of firm type, regulators increasingly expect projected performance communications to be supported by contemporaneous documentation that demonstrates the basis for assumptions, methodologies, calculations, approvals, and audience determinations. During examinations, regulators frequently request evidence showing how projected returns were developed, who approved the underlying assumptions, what disclosures were provided, and how distribution controls were enforced. Firms that maintain comprehensive documentation and supervisory records are generally better positioned to demonstrate that communications about projected performance were developed and distributed in accordance with regulatory expectations.
RECOMMENDED ACTIONS
Given heightened regulatory scrutiny of projected returns, hypothetical performance, target returns, and IRR calculations, firms should consider conducting a comprehensive review of their marketing, supervisory, and compliance frameworks. Regulators increasingly expect firms not only to evaluate whether projected performance information is technically permissible but also to demonstrate that adequate governance, supervision, and documentation controls are in place throughout the development and distribution process.
- Comprehensive Inventory of Marketing Communications. This review should encompass websites, pitch books, due diligence materials, private placement memoranda, sales presentations, webinars, investor letters, retirement calculators, target-return analyses, and sponsor-provided marketing materials. Many firms discover that projected performance information appears in more locations than originally anticipated, particularly within legacy marketing content and third-party materials.
- Enhance Documentation Standards. Documentation remains one of the most important components of a defensible compliance framework. Regulators increasingly expect firms to maintain contemporaneous records supporting assumptions, methodologies, calculations, source data, approval decisions, and supervisory reviews. Compliance personnel should be prepared to demonstrate not only how a projected return was calculated but also why the assumptions were considered reasonable when the communication was approved.
- Supervisory Controls. Distribution controls represent an equally important safeguard. Firms involved in private placements, private funds, alternative investments, and institutional capital-raising activities should establish procedures designed to prevent institutional communications from migrating into retail distribution channels without additional compliance review. Many regulatory issues arise not because a communication was improperly created, but because it was later distributed to an audience for which it was not originally intended.
- Training should also be incorporated into the firm’s supervisory framework. Marketing personnel, registered representatives, investment adviser representatives, supervisors, and compliance staff should understand the distinctions between SEC and FINRA requirements, the differences between retail and institutional communications, and the risks associated with projected performance information.
- Periodic Testing. Finally, firms should implement periodic testing and surveillance designed to verify that projected performance communications are being used as intended. Testing may include reviews of approved marketing materials, distribution practices, audience classifications, supervisory approvals, and supporting documentation. Regulators increasingly view such testing as evidence that compliance controls are functioning effectively rather than existing solely on paper
- The FINRA Proposal Does Not Change Current Obligations. Although FINRA has proposed amendments that would permit certain projected performance communications under specified conditions, broker-dealers remain subject to the current requirements of Rule 2210 until the SEC approves a final rule change.
Taken together, these measures can significantly strengthen a firm’s ability to demonstrate that projected performance communications are developed, reviewed, approved, distributed, and supervised in a manner consistent with regulatory expectations.
KEY TAKEAWAYS
Although the specific facts and circumstances surrounding each communication will vary, regulators consistently focus on the following themes when evaluating projected returns, target returns, hypothetical performance presentations, and IRR calculations.
- FINRA Generally Restricts Retail Performance Projections. Broker-dealers should assume that projected returns, target returns, and future account value illustrations distributed to retail investors will be subject to heightened regulatory scrutiny under FINRA Rule 2210.
- SEC and FINRA Apply Different Standards. A communication that may be permissible under the SEC Marketing Rule for investment advisers may still raise compliance concerns when used in a broker-dealer retail communication.
- Institutional Communications Are Not Retail Communications. FINRA generally offers greater flexibility to communications directed exclusively to institutional investors, but firms must maintain controls to prevent those materials from reaching retail investors.
- IRRs Frequently Contain Forecasting Assumptions. Many IRR calculations rely on future assumptions about cash flows, valuations, and distributions, which can lead to them being viewed as projected performance.
- Disclosures Are Not a Safe Harbor. Regulators assess the overall impression conveyed by a communication and will not necessarily consider extensive disclosures sufficient to cure an otherwise problematic projection.
- Documentation Is Critical. Firms should maintain contemporaneous records documenting assumptions, methodologies, approvals, audience determinations, and supervisory reviews related to communications about projected performance.
- Governance Matters. Regulators increasingly expect firms to demonstrate that communications about projected performance are subject to robust oversight, supervision, testing, and compliance controls.
CONCLUSION
Projected performance remains one of the most challenging areas of investment advertising compliance. While the SEC Marketing Rule created a framework permitting certain hypothetical performance by investment advisers, FINRA has not established a comparable pathway for retail broker-dealer communications. Firms that maintain robust policies, documentation, supervision, and training will be significantly better positioned to withstand regulatory examinations and enforcement scrutiny. Even though FINRA filed a proposed amendment to Rule 2210 in February 2026 with the SEC that would permit broker-dealers, under specified conditions to present projected performance and targeted returns in certain communications, the proposal currently remains under SEC review. We will continue to monitor developments and provide updates as the SEC’s review of the proposal progresses.
CALL TO ACTION
LeGaye Law Group assists broker-dealers, investment advisers, dual registrants, private fund sponsors, and compliance professionals with advertising reviews, marketing rule compliance, FINRA Rule 2210 analysis, supervisory procedures, regulatory examinations, and enforcement matters.
For assistance evaluating projected return communications, hypothetical performance presentations, IRR disclosures, or marketing compliance programs, contact LeGaye Law Group.