The Financial Industry Regulatory Authority (FINRA) Board of Governors approved moving forward with a significant amendment to FINRA Rule 2210 (Communications with the Public) in which it recommended introducing a limited exception that will allow broker-dealers to include performance projections or targeted returns in communications with institutional and sophisticated investors. This change represents a measured step toward aligning FINRA’s advertising framework for broker-dealers with the Securities and Exchange Commission’s (SEC) modernized marketing rule for investment advisers, and addressing a longstanding regulatory imbalance.
Background and Rationale
Historically, Rule 2210 has broadly prohibited broker-dealers from projecting performance in their communications with the public, out of concern that such projections could mislead retail investors. However, investment advisors have, since the SEC’s 2020 Marketing Rule, been permitted to present hypothetical or projected returns to qualified clients, provided that specific safeguards are in place.
Recognizing the evolving needs of institutional clients and the desire for regulatory consistency across financial services, FINRA’s amendment strikes a balance between market demands for more sophisticated information and investor protection.
Key Features of the Proposed Amendment
Assuming the changes are approved, it is anticipated that broker-dealers will be able to include projected performance or targeted returns in written communications, but only under conditions designed to ensure accuracy, transparency, and accountability. At this time, it is anticipated that the changes will track SEC guidelines and will be narrowly tailored to apply solely to communications directed at institutional investors and other sophisticated parties capable of evaluating the assumptions and risks involved.
To rely on this exception, it is anticipated that firms will be required to:
- Maintain a Reasonable Basis. Projections will need to be based on reasonable assumptions and supported by factual data.
- Implement Policies and Procedures. Written supervisory procedures must address how projections are developed, reviewed, and presented.
- Obtain Principal Approval. A qualified registered principal must approve the communication before use.
- Provide Clear Disclosures. All projections must be accompanied by clear, prominent disclosures outlining key assumptions, limitations, and risk factors.
These safeguards mirror the compliance obligations imposed by the SEC’s adviser marketing rule, ensuring a consistent level of investor protection across comparable financial products and services.
Next Steps and Regulatory Process
With the Board’s approval, FINRA is authorized to submit the proposed amendment to the SEC for formal review. The SEC will publish the proposal for public comment and conduct its standard rulemaking process before issuing a final decision. Member firms should closely monitor the SEC’s announcements regarding the comment period and anticipated approval timeline. In the interim, firms are encouraged to assess their existing supervisory procedures, disclosure practices, and training materials to ensure they can implement the new framework promptly once it becomes effective.
Conclusion
FINRA’s targeted amendment to Rule 2210 reflects the regulator’s ongoing commitment to modernize its rulebook in step with market developments and parallel SEC reforms. For broker-dealers, this development offers new opportunities to respond to sophisticated client demands for more tailored performance information in presentation and marketing materials, while upholding the core principles inherent in investor protection.