On March 19, 2025, the U.S. Securities and Exchange Commission (SEC) updated its Marketing Rule Frequently Asked Questions (FAQs), providing new guidance on the presentation of performance data in advertisements by investment advisers. The key updates are as follows:
1. Presentation of Extracted Performance:
The SEC now permits advisers to present the gross performance of individual investments or subsets of investments (referred to as “extracted performance”) without also showing corresponding net performance. This approach offers greater flexibility, especially when calculating net performance for individual investments is challenging. To do so, advisers must meet the following conditions:
- Clearly identify the extracted performance as gross.
- Accompany the extracted performance with the total portfolio’s gross and net performance, calculated in accordance with the Marketing Rule.
- Present the gross and net performance of the total portfolio with at least equal prominence to the extracted performance.
- Ensure that the performance periods for both the extracted performance and the total portfolio’s performance align appropriately.
This update reverses the SEC’s previous guidance from January 2023, which required both gross and net performance presentations for extracted performance.
2. Presentation of Certain Investment Characteristics:
The SEC also clarifies that advisers may present certain investment characteristics—such as yield, volatility, or Sharpe ratios—on a gross basis without including net figures. This flexibility is subject to the condition that the presentation is consistent with the Marketing Rule’s requirements. However, this does not apply to metrics like total return, time-weighted return, return on investment (ROI), internal rate of return (IRR), multiple on invested capital (MOIC), and total value to paid-in capital (TVPI), which remain subject to the rule’s performance advertising requirements.
These updates aim to ease compliance burdens for investment advisers by providing clearer guidelines on presenting performance data in marketing materials.
How Trillium Can Help:
Testing and Surveillance: A key component of Trillium’s ongoing compliance support is reviewing your firm’s practices in key risk areas against policies and procedures and disclosures. The ability to identify and rectify problematic areas, prior to an examination, is integral in preventing potentially significant time and expense later on.
Trillium’s Compliance Health Check provides a fresh perspective on your compliance program from someone not involved in the day-to-day, week-to-week, and month-to-month operations.
Compliance Program Development: Trillium helps you put in place policies and procedures that work for your firm. Developing and applying consistent policies and procedures is paramount to fulfilling a firm’s regulatory obligations and fiduciary duty.
Marketing Material Review and Process: Marketing material review and commentary is included as part of Trillium’s comprehensive ongoing compliance support. Trillium also helps clients design and implement marketing material review processes through the use of technology to ensure proper records are created and maintained.
Regulatory Guidance: Need help tracking and determining how new regulations, rules and guidance impact your firm? Trillium proactively assesses regulatory impact for each client and starts the implementation process so you are ahead of the curve.