MFA Urges Revisions to FINRA Proposal on Performance Projections in Marketing

The Managed Funds Association ("MFA") recommended revisions to FINRA’s proposal to allow performance projections in broker-dealer communications. The MFA said the proposed revisions would better align the FINRA rule with the SEC’s Marketing Rule.

In a comment letter to the SEC, the MFA expressed support for FINRA's proposed amendments to Rule 2210 ("Communications with the Public"), stating that it represents a constructive step toward regulatory modernization. The MFA noted that the current prohibition on broker-dealers providing target returns and projected performance creates tension, particularly for private fund managers. The MFA argued that the divergence between FINRA rules and the SEC's Marketing Rule results in investors receiving different, often less robust information regarding the same investment products.

To eliminate this regulatory fragmentation, the MFA recommended four modifications to the rule:

1. Expansion of Hypothetical Performance: The MFA requested that the rule be expanded beyond target returns and projections to explicitly permit other types of "hypothetical performance," such as back-tested and model performance, to mirror the SEC’s Marketing Rule. It argued that excluding these metrics denies investors access to the full spectrum of valuable information for evaluating investment opportunities.
2. Inclusion of Carved-Out Track Records: The MFA urged FINRA to explicitly clarify that broker-dealers are permitted to present performance figures derived from a subset of actual prior investments, such as strategy- or sector-specific track records, which are commonly used in private fund marketing.
3. Elimination of “Reasonable Basis” Requirement: The MFA requested the removal of the proposed requirement that broker-dealers independently establish a "reasonable basis" and retain enhanced records for criteria and assumptions used in calculations. It argued that requiring broker-dealers to effectively recalculate target returns provided by private fund advisers—who are already strictly regulated by the SEC's Marketing Rule—adds duplicative costs, delays, and inefficiencies without providing additional investor benefits.
4. Updated IRR Guidance: The MFA called for the revocation of outdated FINRA guidance (Regulatory Notice 20-21) regarding the Internal Rate of Return (IRR). It urged FINRA to issue updated guidance permitting the use of any reasonable, industry-accepted IRR methodology for both institutional and retail customers, including for funds with unrealized investments.

The MFA emphasized that dually registered firms, in particular, should not be forced to maintain separate compliance frameworks for the same investor-facing materials.