Performance advertising under the Marketing Rule

An SEC-registered adviser that shows performance in an advertisement must show net performance alongside any gross figure, give one-, five- and ten-year results for any portfolio other than a private fund, and meet specific conditions before showing related, extracted, hypothetical or predecessor performance. It must also keep the records that prove every number.

These requirements are in Rule 206(4)-1(d) under the Investment Advisers Act, adopted in Release IA-5653 (86 FR 13024, 5 March 2021), with a compliance date of 4 November 2022. They sit on top of the rule's general prohibitions in paragraph (a), which apply to every advertisement. Paragraph (a)(6) is aimed squarely at performance: an advertisement may not include or exclude performance results, or present time periods, in a way that is not fair and balanced.

The rule does not prescribe a calculation method. The staff's Marketing Compliance FAQ says so directly, so GIPS compliance is a choice, not a requirement. What the rule controls is how results are presented and what must accompany them.

Net and gross: Rule 206(4)-1(d)(1)

Any presentation of gross performance must be accompanied by net performance:

• with at least equal prominence, and in a format designed to make comparison easy
• calculated over the same time period, and using the same type of return and methodology, as the gross figure

Net performance, defined in (e)(10), is after deducting all fees and expenses a client paid or would have paid for the adviser's services, including advisory fees, advisory fees paid to underlying investment vehicles, and payments by the adviser that the client reimburses. Custodian fees paid to a bank or other third party for safekeeping may be excluded.

Model fees

Net performance may use a model fee instead of actual fees, but only one that produces figures no higher than actual fees would, or that equals the highest fee charged to the intended audience. The adopting release (footnote 590) says that where the fee to be charged to the audience is expected to be higher than the fees actually charged, the adviser must use a model fee reflecting the anticipated fee.

In an FAQ posted 15 January 2026, the staff said some advisers had read footnote 590 as an absolute bar on showing actual-fee net performance in that situation. In the staff's view, whether actual fees are misleading depends on the facts and circumstances of the advertisement, including its disclosures, and advisers may use various means to show the effect of the difference in fees.

Same method, same period

The staff's FAQ of 6 February 2024 addresses private fund IRRs. A gross IRR calculated without the effect of a subscription facility cannot be paired with a net IRR calculated with it. Both must be calculated the same way, over the same period.

The 1, 5 and 10 year periods: Rule 206(4)-1(d)(2)

For any portfolio or composite other than a private fund, performance results must be shown for one-, five- and ten-year periods:

• each presented with equal prominence
• each ending on a date no less recent than the most recent calendar year-end
• substituting the life of the portfolio for any period it did not exist

The staff has said (FAQ posted 14 April 2021) that if year-end figures cannot be calculated immediately, it would not object to an adviser continuing to use performance at least as current as its interim figures, such as the third quarter, until it can. It added that a reasonable time to calculate year-end results generally would not exceed one month.

Private funds are excluded from (d)(2), but the general prohibitions still require a fair and balanced choice of periods.

No suggestion of SEC approval: (d)(3)

An advertisement may not state or imply that the Commission has approved or reviewed the calculation or presentation of performance. The April 2024 Risk Alert describes advisers using the SEC's logo, and describing their registration in a way that implied skill or approval.

Related performance: (d)(4)

Related performance is the performance of portfolios with substantially similar investment policies, objectives and strategies to the services being offered. It must include all related portfolios, unless excluding some does not make the results materially higher and does not change the required time periods. A composite that leaves out weaker accounts and looks better for it fails this test.

Extracted performance: (d)(5)

Extracted performance is the performance of a subset of investments taken from a portfolio. It is permitted only if the advertisement provides, or offers to provide promptly, the performance of the total portfolio it came from.

An extract is still performance, so the net requirement applies to it. The staff's FAQ, updated 19 March 2025, says the staff would not recommend enforcement action if the gross performance of an extract is shown without net, provided that:

• the extract is clearly identified as gross
• it is accompanied by the total portfolio's gross and net performance, presented consistently with the rule
• the total portfolio's figures are at least as prominent and easy to compare
• the total portfolio's period includes the entire period of the extract

A parallel FAQ of the same date covers portfolio characteristics such as yield, volatility, attribution and Sharpe ratios. The staff takes no position on whether these are performance, but would not recommend enforcement action if gross characteristics are shown with the same safeguards. That position expressly does not cover total return, IRR, MOIC or TVPI, however labeled.

Hypothetical performance: (d)(6)

Hypothetical performance is performance not actually achieved by any portfolio of the adviser. It includes model portfolio results, backtests, and targeted or projected returns. It does not include an interactive analysis tool that meets the disclosure conditions in (e)(8)(ii)(A), or predecessor performance shown in compliance with (d)(7).

An adviser may advertise hypothetical performance only if it:

1. adopts and implements policies and procedures reasonably designed to ensure the performance is relevant to the likely financial situation and investment objectives of the intended audience
2. provides sufficient information for the audience to understand the criteria and assumptions used
3. provides sufficient information about the risks and limitations of relying on it (for private fund investors, this may be offered rather than provided)

The adopting release says advisers generally would not be able to include hypothetical performance in advertisements directed to a mass audience or intended for general circulation, because they could form no expectation about the audience's financial situation. One-to-one communications are normally outside the definition of advertisement, but not when they contain hypothetical performance, unless the information was requested unsolicited or goes to a private fund investor one-to-one.

On 11 September 2023 the SEC announced settled charges against nine advisers that had advertised hypothetical performance to the general public on their websites without the required policies and procedures, with penalties of $50,000 to $175,000 and $850,000 in total (Press Release 2023-173). Two were also charged with failing to keep copies of their advertisements. The charge was the missing procedures, not the accuracy of the numbers.

Predecessor performance: (d)(7)

Predecessor performance is the performance of accounts or funds that the advertising adviser did not advise for the whole period shown, typically a track record from a portfolio manager's prior firm. It may be advertised only if:

1. the people primarily responsible for the results manage accounts at the advertising adviser
2. the prior accounts are sufficiently similar to the current ones that the results are relevant
3. all substantially similarly managed accounts are included, unless excluding any would not make the results materially higher and would not change the required periods
4. the advertisement clearly and prominently includes all relevant disclosures, including that the results were achieved at another entity

Rule 204-2(a)(7)(iv) requires the adviser to keep its written communications relating to predecessor performance, and (a)(16) requires the records that demonstrate the calculation of any performance it advertises. A firm relying on a track record from another firm needs access to the records behind it.

The records behind the numbers

• Rule 204-2(a)(16): all accounts, books, internal working papers and other records necessary to form the basis for or demonstrate the calculation of any performance in an advertisement, including what was provided under (d)(6). For managed accounts, all account statements plus the worksheets demonstrating the calculation are deemed sufficient.
• Rule 204-2(a)(19): a record of who the intended audience was for hypothetical performance.
• Rule 204-2(a)(11): a copy of each advertisement.

Records under (a)(11) and (a)(16) are kept for five years from the end of the fiscal year in which the advertisement was last disseminated, the first two in an appropriate office of the adviser, under Rule 204-2(e)(3). The period runs from the last dissemination, so a page that stays online keeps extending it.

Form ADV Part 1A, Item 5.L asks whether your advertisements include performance results, hypothetical performance or predecessor performance. The April 2024 Risk Alert found advisers answering no when their marketing contained them.

What examiners look for

The Division of Examinations' Risk Alert of 17 April 2024 reported, among others:

• policies requiring net performance, at firms whose advertisements showed only gross
• net returns calculated with lower fees than those offered to the intended audience, and fee information omitted
• benchmark comparisons without a defined index, or without saying the index excluded reinvested dividends
• performance using market data more than five years old, or products no longer available at lower costs than clients could get
• only realized investments counted in a total net return
• performance on social media without fair and balanced treatment of risks
• no records supporting the performance claims, as Rule 204-2(a)(16) requires

Common questions

Do I have to show net of fees performance?

Yes, whenever you show gross. Net must be at least as prominent, over the same period, using the same method. You may show net alone.

Do private funds need 1, 5 and 10 year returns?

No. Rule 206(4)-1(d)(2) excludes private funds, but the presentation must still be fair and balanced, and net must accompany gross.

Can I show backtested performance on my website?

Generally not to the public. Backtests are hypothetical performance, and the Commission said advisers generally could not show it to a mass audience. The 2023 sweep charged nine firms for doing so without the required procedures.

Can I use my track record from a previous firm?

Yes, if the four (d)(7) conditions are met, including that you were primarily responsible for the results and that you have the records to support them.

Is a model portfolio hypothetical performance?

Yes. Model portfolio results are named in (e)(8) as hypothetical performance unless an actual portfolio achieved them.

Before it goes out

Luna's marketing review reviews a deck, one-pager or page against the Marketing Rule before it goes out, with each finding located in the piece and the rule cited, and keeps every version and the CCO's decision. The calculation records under (a)(16) remain the firm's to keep. The marketing policy template includes the hypothetical performance procedures the 2023 cases turned on, and the books and records template covers retention. Testimonials and ratings are covered in the Marketing Rule guide to testimonials and endorsements.