A 230 page proposal, which Finra has submitted to the Securities and Exchange Commission for review, would allow the use of predicted returns in marketing and would apply to brokers dealing with institutions and investors possessing assets over $5 million.
The Financial Industry Regulatory Authority Inc. believes that “A member’s views regarding the projected performance of an investment strategy or single security may be useful,” according to its proposal documentation.
However, this proposal has raised concerns among investor protection advocates. Stephen Hall, legal director of Better Markets, told the Financial Times that “Using projections is one of the easiest ways to mislead people. It’s easy for people to think the result is guaranteed. [Finra] are really opening a can of worms.”
The proposal will undergo a public comment period before the SEC decides on its approval, a process that may extend beyond eight months. If approved, the change would significantly impact the marketing of private funds, a sector known for higher fees and growing investor interest due to potentially higher returns compared to public markets.
Lance Dial, a partner at K&L Gates law firm, told the FT, “This is a big change. It is good for fund managers who want to use this [information] in marketing through brokers.”
Finra’s 210-page filing notes that the rule change aims to align broker regulations more closely with those for fund managers and registered investment advisers, who are currently permitted to use projections in some marketing materials for sophisticated investors.
However, the proposal has stirred debate over the differing responsibilities of brokers and investment advisers. While advisers have a fiduciary duty to prioritizeRead more on investmentnews.com