Unfinished Business: FINRA’s Proposed Rule 2210 Changes on Projections Fall Short of Marketing Rule Alignment

FINRA’s reproposed amendments to Rule 2210 would permit broker-dealers to include projected performance and targeted returns in marketing materials subject to certain conditions but fall short of full alignment with the SEC's Marketing Rule for investment advisers. Comments are due March 18, 2026.

KEY TAKEAWAYS

• On February 25, 2026, proposed amendments to Rule 2210 (Communications with the Public) filed by the Financial Industry Regulatory Authority (FINRA) were published in the Federal Register. [1] The proposed amendments would permit broker-dealers to include projected performance and targeted returns in communications with the public in limited circumstances.
• As we previously reported, FINRA proposed similar amendments to Rule 2210 in November 2023, which the US Securities and Exchange Commission (SEC) staff approved on a delegated basis on July 19, 2024. However, the SEC subsequently stayed the approval a week later, leaving the 2023 proposal in limbo until now.
• Despite FINRA’s efforts to more closely align the frameworks for broker-dealers and investment advisers, key differences remain between FINRA’s new proposal and the hypothetical performance framework of Rule 206(4)-1 under the Investment Advisers Act of 1940, as amended (the Marketing Rule).

PROPOSED AMENDMENTS TO FINRA RULE 2210

FINRA Rule 2210(d)(1)(F) prohibits broker-dealers from including predictions or projections of performance in communications with the public, subject to limited exceptions. This general prohibition has been a source of tension in the investment management industry, particularly in the private funds space, where investment advisers may include hypothetical performance (including projected performance and targeted returns) in their marketing materials under the Marketing Rule, but broker-dealers distributing those same materials may not include such information in written communications with the public. [2] New proposed Rule 2210(d)(1)(F)(iv) would permit broker-dealers to include projected performance and targeted returns for securities, securities portfolios, asset allocations, or other investment strategies in communications with the public, subject to the following conditions:

• Written policies and procedures: The broker-dealer 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 the intended audience of the communication.”
• Reasonable basis and recordkeeping: The broker-dealer must have a “reasonable basis for the criteria used and assumptions made in calculating the projected performance or targeted return” and must retain “written records supporting the basis for such criteria and assumptions.”
• Disclosure requirements: The communication must provide sufficient information to enable the intended audience to understand “(i) the criteria used and assumptions made in calculating the projected performance or targeted return, including whether the projected performance or targeted return is net of anticipated fees and expenses; and (ii) the risks and limitations of using the projected performance or targeted return in making investment decisions, including reasons why the projected performance or targeted return might differ from actual performance.”

KEY CHANGES FROM THE 2023 PROPOSAL

The 2023 proposal includes the following key changes:

• Expanded eligible audience: The new proposal aligns with the Marketing Rule’s requirement that any projected performance or targeted return be “relevant to the likely financial situation and investment objectives of the intended audience.” The 2023 proposal would have limited such content to qualified purchasers and institutional investors.
  • The new proposal does not categorically restrict such content in communications with retail investors. However, a broker-dealer generally could not include such content in communications “directed to a mass audience or intended for general circulation, including to a general retail investor audience,” because a broker-dealer could not form an expectation that such a communication is “relevant to the likely financial situation and investment objectives of the intended audience.” In so doing, the new FINRA proposal aligns with SEC commentary in the Marketing Rule’s Adopting Release. [3]
  • However, such content might be permissible for a particular retail investor if the recommendation meets Regulation Best Interest requirements. [4] The new proposal uses a facts-and-circumstances approach rather than the 2023 proposal’s bright-line restrictions.
• Removal of “prominent disclosure” requirement: The 2023 proposal would have required that a communication “prominently disclose” the hypothetical nature of the projected performance or targeted return and disclose that such results are not guaranteed. FINRA viewed this as unnecessary and duplicative of the new proposal’s requirement to disclose the limitations of projected performance.
• Removal of supplementary material factors: The new proposal removes the suggested “supplementary material” included in the 2023 proposed amendments, which listed some of the factors that a broker-dealer should consider when forming its reasonable basis for any projected performance or targeted returns. [5]Commenters found these factors confusing; FINRA clarified they were guidance, not requirements, and that broker-dealers may still consider them.
• Removal of back-tested performance and model portfolio prohibition: The new proposal strikes the 2023 proposal’s bar on broker-dealers basing a performance projection or target return on (1) hypothetical back-tested performance or (2) the prior performance of a model portfolio that was created solely for the purpose of establishing a track record. However, while the new proposal removes this express bar, FINRA reminds broker-dealers that the criteria used and assumptions made in calculating projected performance and targeted returns must have a reasonable basis, citing studies indicating that back-tested index performance data is often not a reliable indicator of how a fund or strategy linked to an index will perform. [6] Consistent with FINRA’s past comments on the topic, FINRA appears to remain skeptical that back-tested performance or prior performance of a model portfolio that was created solely for the purpose of establishing a track record are reasonable bases for calculating projected performance and targeted returns. [7]

COMPARISON BETWEEN THE NEW PROPOSAL AND THE SEC MARKETING RULE

While the new proposal moves toward alignment with the Marketing Rule in some ways, the following key differences remain:

• Scope of coverage: The new proposal applies only to projected performance and targeted returns, not other types of hypothetical performance covered in the Marketing Rule. The Marketing Rule also includes back-tested performance and model portfolio performance in its definition of hypothetical performance, neither of which would be permitted within broker-dealer communications under the new proposal.
• Reasonable basis and recordkeeping: The new proposal goes beyond the Marketing Rule’s requirements by explicitly requiring that a broker-dealer establish a “reasonable basis” for the criteria used and assumptions made in calculating the projected performance and targeted return and retain written records supporting the basis for such criteria and assumptions. This includes inquiring into the accuracy of underlying data (including data from third-party models) and retaining diligence records.
• Risk disclosure: The proposed amendments would require that a broker-dealer state the reasons why the projected performance or targeted return might differ from actual performance. This is an additional requirement not found in the Marketing Rule but is similar to the requirement under both frameworks that the distributor “provide sufficient information to enable the intended audience to understand the risks and limitations” of using the projected performance or targeted returns in making investment decisions.
• Fee disclosure: The new proposal would require that the broker-dealer disclose whether the projected performance or targeted return is shown net of anticipated fees and expenses. This differs from the Marketing Rule’s requirement that any presentation of gross performance (including hypothetical performance) be accompanied by a presentation of net performance. The chart below summarizes the key differences between how the proposed amendments would compare with and apply to broker-dealers, dual registrants, and stand-alone investment advisers.

KEY POINTS FOR COMMENTS

Comments are due by March 18, 2026. Based on our discussions with clients and colleagues, we expect industry viewpoints to coalesce around the following themes and comments:

1. Expand the Exception to Cover All Hypothetical Performance
   1. Extend the proposed exception to encompass back-tested performance and model portfolio performance—on the same conditions (policies and procedures, reasonable basis, and disclosure)—so that broker-dealers have the same toolkit as advisers under the Marketing Rule.
   2. At minimum, permit broker-dealers to distribute adviser-prepared materials containing back-tested performance when the adviser has complied with the Marketing Rule, provided the broker-dealer performs and documents appropriate due diligence on the materials.
   3. Clarify in the rule text or adopting release that a forward-looking projection may incorporate or be informed by back-tested data as inputs.
2. Address Carved-Out and Subset Track Records
   1. Expressly address carved-out track records (e.g., all healthcare deals from prior multi-sector funds) in the rule text or Supplementary Material. Confirm that because these records are derived from actual investments, they may be presented subject to the proposed conditions plus disclosure of the selection methodology.
3. Create Proportional Treatment for Target Returns
   1. Create a lighter-touch sub-exception for target returns used descriptively to characterize a strategy’s investment objective (e.g., “the fund targets a net internal rate of return of 12–15%”). At minimum, provide guidance that such a target need not satisfy the full reasonable basis documentation framework if clearly labeled as aspirational and accompanied by appropriate risk disclosure.
   2. Provide scaled guidance on proportionality: A simple target return expressed as a range should require less documentation than a detailed multi-year projection with specific cash flow assumptions. Acknowledge that the extent of the required reasonable basis analysis should be commensurate with the complexity and specificity of the projection or target.
4. Refine the Reasonable Basis Requirement
   1. Confirm that a broker-dealer distributing adviser-prepared projections may satisfy the reasonable basis condition by performing and documenting due diligence on the adviser’s methodology—rather than independently rederiving the projection. Confirm that adviser compliance with the Marketing Rule’s general prohibitions is a presumptive, if not conclusive, indicator of reasonable basis.
   2. Specify that existing records maintained to satisfy the Marketing Rule (policies and procedures, compliance reviews, assumption disclosure) may suffice as the foundation for satisfying the FINRA recordkeeping obligation, supplemented by a brief memo documenting the broker-dealer’s independent review. Avoid requiring duplicative parallel systems for dual registrants.
   3. Provide practical guidance on what constitutes sufficient independent due diligence for a distributing broker-dealer: (1) review the adviser’s methodology and documentation; (2) confirm the adviser’s Marketing Rule compliance; (3) assess whether assumptions are facially reasonable given market conditions; and (4) document these steps. Establish a workable standard that does not require the broker-dealer to replicate the adviser’s modeling.
   4. Restore a non-exhaustive list of reasonable basis factors in Supplementary Material to the rule (not just the release) for added transparency.
5. Align and Clarify Disclosure Requirements
   1. Confirm that the required disclosure of “reasons why projections might differ from actual performance” can be satisfied by standard risk disclosure language (market risk, model risk, assumption uncertainty, inherent limitations of forward-looking statements, etc.).
   2. Consider aligning the fee disclosure approach with the Marketing Rule’s net/gross presentation framework to avoid creating marginally different requirements for similar information from different types of registrants.
6. Provide Safe Harbors for Audience Targeting
   1. Provide concrete examples or safe harbors illustrating when retail distribution is presumptively permissible (e.g., for high-net-worth retail clients that have been individually assessed, retail clients with a managed account or in advisory relationships who have completed investment profile questionnaires, and retail clients meeting specified financial sophistication thresholds).
   2. Supplement the principles-based standard with a safe harbor that communications distributed only to institutional investors and qualified purchasers should presumptively be deemed to satisfy the audience-appropriateness condition.
   3. Confirm that broker-dealers may look to the SEC’s Marketing Rule FAQ guidance on audience tailoring as applicable.
   4. Confirm that the audience-appropriateness assessment for 3(c)(1) fund communications may consider the typical accredited investor profile as potentially appropriate and that the policies-and-procedures condition does not impose a de facto requirement to limit 3(c)(1) fund projections to qualified purchasers only.
   5. Confirm that accredited investors who have been individually assessed via policies and procedures as having sufficient financial expertise may receive communications containing projections and targeted returns. Clarify that accredited investor status is a relevant factor in the audience-appropriateness assessment.
7. Update IRR Guidance
   1. Issue updated guidance explicitly superseding or supplementing Regulatory Notice 20-21, stating that for both institutional and retail customers: (1) internal rate of return (IRR) for funds with unrealized investments is permitted under the proposed conditions; (2) the prior GIPS-only methodology limitation is no longer the exclusive approach; and (3) any reasonable, industry-accepted IRR methodology may be used, provided that the broker-dealer documents its reasonable basis and discloses the methodology and its limitations.
8. Streamline Broker-Dealer Responsibility for Adviser-Prepared Materials
   1. Provide a framework for how broker-dealers can efficiently assess the reasonability of adviser-prepared materials, including by confirming that a broker-dealer may rely on the adviser’s Marketing Rule compliance as a baseline, supplemented by the broker-dealer’s own review for (1) consistency with Rule 2210’s fair-and-balanced standard; (2) audience appropriateness; and (3) reasonable basis assessment—without requiring the broker-dealer to do a de novo assessment of each projection.
   2. Provide guidance on what constitutes “adequate information” from third-party model providers, including by suggesting a minimum checklist (e.g., model inputs, key assumptions, historical accuracy/validation, or known limitations).
9. Clarify Relationship to Rule 2214
   1. Clarify the boundary between the new exceptions and the Rule 2214 provisions for investment analysis tools, including by specifying that if a communication qualifies under either framework, the broker-dealer may choose which to rely upon.
   2. Consider updating Rule 2214 to incorporate the new exception’s standards or confirm that interactive tools satisfying Rule 2214 are automatically compliant with the new exception.

HOW WE CAN HELP

If you have questions about how these amendments may affect your firm, or if you are interested in submitting a comment letter, please contact the authors of this LawFlash.