NASAA Calls for Stronger Investor Protections in FINRA Communications Rule Proposal Permitting Marketing of Projections to Retail Investors

The North American Securities Administrators Association ("NASAA") opposed FINRA’s proposal to permit performance projections in broker-dealer communications with the public, citing inadequate protections for retail investors.

In a comment letter to the SEC, the NASAA stated that it cannot support the proposed amendments to FINRA Rule 2210 ("Communications with the Public") because they would expand the use of projections of performance and target returns to retail investors without sufficient investor-protection guardrails. The NASAA noted that earlier versions of the proposal excluded most retail investors due to concerns that they could "misinterpret or unduly rely on projections."

To address these risks, the NASAA urged the SEC to require two specific modifications to the rule:

1. Assessment of Investor Expertise: The NASAA requested that the rule explicitly require broker-dealers to adopt written policies and procedures designed to ensure that any retail investor receiving performance projections "possesses the financial expertise and resources to understand the risks and limitations" of such communications. It noted that while FINRA included this expectation in the proposal’s preamble, it must be elevated to the actual rule text to be an enforceable requirement.
2. Limitation to Recommendations: The NASAA urged that projections provided to retail investors be limited to communications made in connection with a specific recommendation subject to Regulation Best Interest ("Reg BI"). It expressed concern that without this limitation, broker-dealers—particularly those using self-directed platforms—could use "mass communications" and "predictive data analytics" to entice retail trading without being held to the "best interest" standard of conduct.

The NASAA argued that comparisons to the investment adviser marketing rule are "inapt." It noted that, unlike investment advisers—who have an ongoing fiduciary duty to monitor client accounts and address the consequences of poor projections—broker-dealers generally have no such obligations outside of discrete transactions. The NASAA emphasized that permitting broker-dealers to market projections to retail investors without the protections of Reg BI would reintroduce the risk of investor confusion that the Reg BI standard was designed to prevent.