The SEC has approved FINRA's amendment to Rule 2210 (Exchange Act Release No. 34-106675), creating a new exception to the long-standing prohibition on projected performance and targeted returns in broker-dealer communications. A blanket ban becomes a conditional permission. For compliance teams at broker-dealers and the private funds they serve, the headline is the opening. The workload is in the conditions.
Key Changes in Rule 2210
Under the amended rule, your firm can use projected performance information and targeted returns if it meets three obligations. First, you must adopt and implement written policies and procedures to ensure the communication is relevant to the likely financial situation and investment objectives of its intended audience. Second, provide sufficient information for the audience to understand the criteria and assumptions behind the projection, as well as the risks and limitations of relying on it. Third, maintain records that include the source of any projection or targeted return used.
The exception also limits the manner and target audience, so this is not a general license to put a number on every pitch deck.
Key Implications
1. Resolving Issues for Placement Agents: Many private equity funds use a target return to indicate the risk level the fund is taking. Broker-dealers acting as placement agents were caught in the middle: the fund's own story relied on a target, and the firm's communication rules prohibited repeating it. The amendment removes that structural conflict.
2. Audience-Relevance Obligation: "Reasonably designed to ensure the communication is relevant to the likely financial situation and investment objectives" is a standard, not a checklist. Your policies must define who the intended audience is, how you determine their likely financial situation and investment objectives, and how a given communication is matched to that audience. Expect this to require a documented approval step, not just a revised template.
3. Disclosure Obligation Challenges: Explaining the criteria, assumptions, risks, and limitations is where compliance, legal, and the deal team may disagree. How much detail is "sufficient"? Who validates that the assumptions are the ones actually used? A projection with thin or boilerplate assumptions is an obvious exposure point in an exam. This is where compliance teams will spend most of their effort.
4. Enhanced Recordkeeping Requirements: Retaining the communication is the baseline. The amended rule adds a requirement to record the source of any projection or targeted return. If the figure came from the fund sponsor, you need to show that. If it came from a third party or an internal model, the same applies. This is a data lineage requirement applied to marketing content.
5. Misalignment with the IA Marketing Rule: Many private fund sponsors are investment advisers subject to the IA Marketing Rule, while the placement agent is a FINRA member subject to Rule 2210. The two frameworks now treat projected performance differently. Material that is acceptable under one may not clear the other, and the same fund communication may pass through both regimes.
Implications for Your Team
The practical risk isn't that the rule is hard to read. It's that the conditions impact workflows you may not control from start to finish. Marketing drafts the material, the sponsor supplies the target, the deal team talks to investors, and compliance is asked to sign off on a number it didn't produce.
The dual-regime issue deserves its own attention. If your firm places funds managed by registered advisers, you can't assume a sponsor-approved deck is acceptable for your distribution. Consider a team that receives a fund's marketing materials containing a targeted return already vetted under the sponsor's own policies. The placement agent still has to confirm the audience fit, the sufficiency of the assumptions disclosure, and its own record of the source. Neither side's review substitutes for the other's. Agree up front on who holds which obligation, and put it in writing.
Where the two frameworks diverge, the conservative approach is to apply the stricter treatment to a given communication until you've resolved the conflict with counsel. That may cost some marketing flexibility, but it avoids building a distribution process that satisfies one regulator and exposes you to the other.
Action Items by Priority
Immediate Actions
- Hold off on using projections or targeted returns in any communication until your written policies and procedures are adopted. The exception is conditional; using it without the policies in place defeats the purpose.
- Conduct a Policy Gap Analysis against Rule 2210 as amended, covering audience-relevance, disclosure sufficiency, and recordkeeping.
Next Steps
- Define your intended-audience criteria and document how you assess likely financial situation and investment objectives before a projection is used.
- Build a disclosure standard for assumptions, risks, and limitations, with named reviewers and a documented sign-off.
- Extend your recordkeeping so each communication links to the source of the projection or targeted return.
Parallel Actions
- Map where your firm's communications also fall under the IA Marketing Rule, and document how conflicts are resolved. Put sponsor and placement agent responsibilities in your agreements or working protocols.
- Add projected-performance communications to your supervisory review and testing plan, so you can show the policies are implemented, not just adopted.
- Track the pending Rule 2210 modernization proposal, since further changes could affect what you build now.
