The Potential Impact of Proposed Amendments to FINRA's Rule 2210 on Performance Projections

Broker-Dealer Regulation and Compliance Team Co-Head Jennifer Connors was quoted in a Hedge Fund Law Report article on the Financial Industry Regulatory Authority's (FINRA) proposed amendments to Rule 2210 that would allow broker-dealers to include performance projections or targeted returns in written communications under certain circumstances. The article noted how the changes aim to align more closely with the U.S. Securities and Exchange Commission (SEC) Marketing Rule but remain narrowly tailored, applying mostly to institutional audiences and qualified purchasers rather than accredited investors. Ms. Connors highlighted the practical challenges for fund distribution through broker-dealers and the importance of a robust "reasonable basis" for any projections, including clear methodology, data sources and strong policies and recordkeeping.

"Particularly for new managers and new fund launches, evaluating the investment objectives and the returns that a manager expects to achieve is a key element of an investor's decision-making process," she commented. "So, for many fund managers using either their affiliated broker-dealers or registered placement agents to offer their funds, the Rule is particularly problematic."

READ: The Potential Impact of Proposed Amendments to FINRA's Rule 2210 on Performance Projections