Key Question
The SEC approval of FINRA Rule 2210 provides greater flexibility, but how can broker-dealers use that flexibility without creating new supervisory and regulatory exposure?
Our View
The amendment provides broker-dealers with a limited opportunity to use projected performance and targeted returns once the rule becomes effective. Compliance officers and senior management must ensure that communications are appropriate for their intended audience, supported by reasonable assumptions, accompanied by meaningful disclosures, and subject to documented supervisory controls. The amendment will permit qualified communications to appropriately selected investors, but firms must implement documented audience, disclosure, supervision, and source-record controls before using the exception.
Executive Summary
On October 15, 2026, the SEC approved amendments to FINRA Rule 2210 that will allow broker-dealers to communicate certain projected investment performance and targeted returns. The change is particularly relevant to private placements, alternative investments, institutional sales, and investment banking. It does not grant unrestricted permission to advertise anticipated returns. Firms must adopt written policies governing the intended audience, disclose underlying assumptions and risks, and retain source information. Existing fair, balanced, and non-misleading communications standards remain applicable. The effective date has not yet been announced, and firms should continue to comply with current restrictions until the amendment takes effect.
However, the approval is significant because projections frequently appear in offering materials even when broker-dealers have been unable to reproduce or distribute them in communications subject to Rule 2210. The amendment therefore changes the permitted content of certain communications, not the obligation to evaluate the presentation as a whole. Firms should distinguish approval of the rule change from authorization to use the exception and should not presume that materials acceptable to an issuer will automatically be acceptable for broker-dealer distribution.
Regulatory Background
Rule 2210(d)(1)(F) has generally prohibited communications that predict or project performance, subject to narrow existing exceptions for specified mathematical illustrations, investment analysis tools, and research price targets. This has complicated broker-dealer distribution of issuer materials showing anticipated cash flows, investment appreciation, or internal rates of return. The SEC approved FINRA’s February 2026 proposal, as modified by Partial Amendment No. 1, in Release No. 34-106675 (File No. SR-FINRA-2026-004). The new exception is narrower than the investment adviser Marketing Rule and does not generally extend to backtested, model, related or extracted performance.
Our June 25, 2026 article, “Can Broker-Dealers and RIAs Use Projected Returns Without Violating SEC and FINRA Rules?” examined the restrictions on projected returns, target returns, and internal rate of return (IRR) illustrations and cautioned firms not to rely on FINRA’s then-pending proposal. The SEC has now approved the amendment, but that approval does not itself authorize immediate use of the new exception. The distinction remains important: until the amendment becomes effective, firms must comply with the existing Rule 2210 framework; afterward, qualifying communications must satisfy the new audience, disclosure, and supervisory safeguards.
The approved language requires a firm to adopt and implement written policies and procedures reasonably designed to ensure that the communication is relevant to the intended audience’s likely financial situation and investment objectives. It also requires providing sufficient information to understand the criteria and assumptions underlying the projection, as well as the risks and limitations of relying on it. The SEC approval followed FINRA’s modification of its initial proposal, including the removal of a separate express reasonable-basis condition. That revision should not be mistaken for permission to use unsupported numbers; Rule 2210’s general content standards remain in force.
Why This Matters for Broker-Dealers
- Expanded Private Placement Flexibility. When applicable, the exception may permit a placement agent to distribute qualifying issuer projections to an appropriate audience. A sponsor’s projected IRR or anticipated distributions are not automatically acceptable: the broker-dealer must still evaluate whether the presentation is fair, balanced, and not misleading. This can help align information available from issuers and broker-dealers without relieving firms of their independent supervisory responsibilities. This development may be particularly useful when prospective investors request projected distributions, a target multiple of invested capital, or a projected internal rate of return to evaluate an offering. However, a target is not a guarantee, and an illustration that emphasizes favorable scenarios while minimizing uncertainty may still violate the rule. Broker-dealers should review the entire communication, including the surrounding narrative, footnotes, comparisons, and accompanying offering documents, rather than approving a numerical projection in isolation.
- Audience Selection Is Central. Written policies must be reasonably designed to ensure that projections are relevant to the intended audience’s likely financial situation and investment objectives. FINRA expects the exception to primarily benefit institutional and sophisticated investors who have the resources and financial expertise to evaluate projections. Accredited investor status or institutional classification does not, in itself, create a safe harbor. Mass-market advertising, unrestricted websites, and general retail circulation will generally be inappropriate because the firm cannot meaningfully assess the audience. A broker-dealer must demonstrate that the projected performance information is appropriate for the investors who will receive it. This requirement has significant implications for distribution. Unrestricted public websites, publicly accessible offering materials, general advertising campaigns, and broadly distributed digital or social media advertisements are generally inappropriate channels for communications relying on the new exception, because the firm cannot reasonably establish that the projections are relevant to the likely financial situation and investment objectives of an unidentified audience. Disclosures or statements limiting the material to sophisticated or accredited investors do not, by themselves, resolve this concern. Firms should instead consider controlled distribution to identified investors or to appropriately restricted investor portals, supported by procedures addressing audience selection, access restrictions, and redistribution. Importantly, accredited investor or institutional status alone does not establish that a communication is appropriate for every recipient.
- Disclosures Must Explain the Assumptions. Communications must provide sufficient information for the audience to understand the criteria and assumptions used, as well as the risks and limitations of relying on the projected return. For real estate offerings, relevant assumptions may include occupancy, rental growth, refinancing costs, and disposition values. Although the final amendment removed express requirements to disclose fee treatment and reasons for divergence from actual results, those disclosures may still be necessary under the existing general content standards, depending on the circumstances. Generic risk warnings are not a substitute for meaningful explanations. Disclosures should be presented with sufficient prominence and clarity to be useful when the investor encounters the projection. Material sensitivities deserve particular attention: a small change in leverage, exit valuation, interest rates, or the timing of distributions can materially affect an IRR. Where a projection uses gross figures, excludes significant expenses, or depends on favorable market conditions, the communication may need additional explanation to avoid creating a misleading impression. Boilerplate that merely states that actual results may vary will rarely explain what drives the variance.
- Issuer-Prepared Materials Still Require Review. Many projections originate with sponsors, issuers, or consultants rather than the broker-dealer. The firm remains responsible for the communications it distributes and cannot circulate information it knows or has reason to know is false or misleading. A defensible review should identify the source, consider material assumptions and apparent inconsistencies, and document the supervisory determination. A sponsor’s representation alone should not replace an appropriate firm-level assessment.Operationally, firms may wish to establish a defined intake process for sponsor-created materials, including version control, identification of who prepared the figures, and a process for resolving questions with the issuer. Sales personnel should not revise assumptions or create new projections outside the approved process. A broker-dealer also should consider whether the projected results are consistent with the disclosed investment strategy, historical information, and material risk factors, without representing that it has independently audited every model.
- Recordkeeping and Substantiation. The amendment revises Rule 2210(b)(4)(A)(iv) to require information about the source of projections or targeted returns. FINRA removed the proposed stand-alone reasonable-basis requirement, but the existing general standards still prohibit unreasonable projections. The SEC recognized that firms may have difficulty demonstrating compliance without supporting records. Therefore, retaining relevant models, assumptions, approval history, and audience determinations is a prudent supervisory practice, even if the amendment does not expressly require each category of supporting document. Firms should distinguish the rule’s express source-information retention obligation from additional records that may be advisable to demonstrate supervisory compliance. A practical file might include the projection’s origin, the reviewed version, relevant underlying inputs provided to the firm, the intended audience, the required disclosures, and the approval decision. Coordinate record retention with existing communications recordkeeping requirements and the firm’s electronic archiving system.
Regulation Best Interest Remains Separate
When a projection accompanies a recommendation to a retail customer, Regulation Best Interest may apply. A compliant marketing presentation does not establish that a recommended investment or strategy is in the customer’s best interest. Firms should review communications and recommendations under their applicable standards.
The same presentation may raise separate suitability, conflicts, and disclosure issues when used in a recommendation. A projected return should not replace analysis of the investment’s costs, risks, liquidity, concentration, or reasonably available alternatives. Supervisors should coordinate advertising review with the firm’s recommendation-related controls, particularly when a projection is a prominent selling point.
Recommended Actions
The SEC’s approval creates new opportunities for broker-dealers to use projected performance, but firms should establish appropriate supervisory controls before relying on the exception. The following actions will help firms implement the amendment while managing regulatory risk.
- Update Written Supervisory Procedures. Revise marketing procedures to address the review, approval, distribution, and documentation of projected performance materials. Clear supervisory standards will help ensure consistent application of the new exception.
- Establish Audience and Distribution Controls. Determine whether projections are appropriate for the intended recipients and restrict distribution accordingly. Unrestricted websites, general advertising, and broadly distributed digital communications are generally unsuitable because firms cannot adequately assess an unidentified audience.
- Review Assumptions and Disclosures. Evaluate the assumptions and methodologies underlying projected returns and ensure that disclosures adequately explain material risks and limitations. This review is essential to meet FINRA’s fair, balanced, and non-misleading communications standards.
- Evaluate Third-Party Materials. Independently review issuer-prepared projections, target returns, and projected IRRs before distribution. Broker-dealers remain responsible for ensuring that third-party communications comply with applicable FINRA requirements.
- Document Compliance and Train Personnel. Maintain required supporting records and train registered representatives and supervisors on the exception’s conditions and limitations. Firms should not rely on the amendment until it becomes effective.
Key Takeaways
The SEC’s approval gives broker-dealers greater flexibility to communicate projected performance, but the following considerations underscore that the ability to use the new exception will depend on effective audience selection, meaningful disclosures, and demonstrable supervisory controls.
- Approval is not effectiveness. The new exception cannot be relied upon before its operative date.
- Scope remains narrow. The amendment addresses projections and targeted returns, not every category of hypothetical performance.
- Audience Selection and Distribution Controls Are Critical. Unrestricted websites and general advertising are generally unsuitable for communications relying on the new exception. Firms should use controlled distribution to appropriately identified investors, recognizing that accredited investor or institutional status alone does not establish compliance.
- Third-party materials require scrutiny. Issuer authorship does not remove broker-dealer responsibility.
- Documentation strengthens defensibility. Source records, supervisory review, and controlled distribution should be demonstrable.
Conclusion
The Rule 2210 amendment offers broker-dealers meaningful additional flexibility, particularly in private capital markets, but shifts significant attention to supervisory judgment and evidence of compliance. Firms should use the implementation period to build controls rather than treat approval as immediate permission to distribute projected returns.