The Financial Industry Regulatory Authority proposed a rule change involving the use of projections of performance in broker-dealer communications.
FINRA Rule 2210 outlines the standards and requirements for communications that broker-dealers and their associated persons have with the public. The rule is designed to ensure that all communications are fair, balanced, and not misleading.
The proposed change to Rule 2210, which was filed with the Securities and Exchange Commission, would amend the rule to allow a member to project the performance or provide a targeted return with respect to a security, a securities portfolio, or an asset allocation or other investment strategy in its communications. This permission would be subject to specified conditions to ensure these projections are carefully derived from a sound basis.
The specified conditions include, “adopting policies and procedures limiting who can receive the performance projections or targeted returns; having a reasonable basis for the criteria and assumptions made in calculating the projections or targeted returns; and providing specified information.”
FINRA said the amendment is being proposed to better align the regulatory requirements for broker-dealers and investment advisers that present performance projections in written communications to investors.
The proposal follows feedback that was received following the ‘FINRA Forward’ notices on rule modernization, in which commenters asked for greater harmonization between broker-dealer and investment adviser requirements.
Rule 2210 currently provides that communications may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast. It is intended to protect investors who may lack the capacity to understand the risks and limitations of using projected performance in making investment decisions.
The rule change proposal was filed with the SEC on Feb. 10 and was published for comment in the Federal Register.
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