Exploring and Documenting Consistent Investment Performance Calculation Methodologies When trying to understand the limits of the SEC Marketing Rules requirements for consistent related account performance calculation methodologies, advice circulating that […]
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Hypothetical performance will be prohibited beginning November 4, 2022, unless the advisor takes specific steps to address its potentially misleading nature. The SEC’s goal with this portion of the rule is to ensure that advertisements containing hypothetical performance are only distributed to investors who have the financial expertise and resources to interpret the data and understand the risks and limitations of these types of presentations.
Beginning November 4, 2022, all performance presented in an SEC-registrant’s marketing materials must include the additional time period requirements. One-, five- and ten-year net performance must be included in marketing materials when presenting performance.
The SEC Marketing Rule will require SEC-registered firms to have policies and procedures in place be able to show performance in marketing materials after November 4, 2022. For firms not claiming compliance with the GIPS Standards this could be challenging.
As firms update their annual GIPS Reports this year, unique questions in 2022 include whether to stick with the GIPS Standards requirements checklist or to incorporate new SEC Marketing Rule disclosures.
The SEC Marketing Rule specifically called out GIPS Reports as an example of a standardized presentation that, even if provided in a one-on-one meeting, would still meet the definition of an advertisement.
A portfolio manager’s track record is an important asset and key pillar of evaluation by institutional investors/asset owners. Ensuring that a portfolio manager’s performance can—or whether it should—go with her/him/the team to a new firm is of critical concern for planning or evaluating any transition.