Breaking Down the SEC’s Latest Marketing Rule FAQ Updates on Performance Advertising

Key Takeaways for Investment Advisers.

1. Extracted Performance Requires a Full Picture

Advisers often want to highlight specific portions of a portfolio’s performance, a practice known as “extracted performance.” The SEC’s update allows this, but with a key requirement: advisers must also present the total portfolio’s gross and net performance for the same time period. This ensures clients and prospects see the bigger picture rather than just the high-performing segments.

 2. Performance-Related Characteristics Can Be Shown on a Gross Basis

Many advisers use metrics such as yield, volatility, or sector returns to illustrate performance trends. The updated FAQ clarifies that these characteristics can be shown on a gross basis—without deducting fees—so long as the full portfolio’s performance (including net figures) is also provided with equal prominence.

What This Means for Your Firm

While the SEC’s latest updates offer more room to highlight key performance aspects, they also reinforce the need for balanced, accurate, and transparent reporting. Firms should ensure marketing materials:

• Clearly identify when performance figures exclude fees and expenses.
• Provide side-by-side total portfolio performance when showcasing extracts or characteristics.
• Maintain consistency across all marketing communications to align with SEC expectations.