The SEC Marketing Rule: What Your Performance Reports Must Include

The rule replaced an advertising regime written in 1961 and a solicitation rule from 1979, and it did something the old rules never did: it told advisers exactly how performance has to be presented. The enforcement record since then is unusually clear about which parts firms get wrong. This guide covers what counts as an advertisement, the performance conditions in order, and the staff guidance that changed the answers in 2025 and 2026.

Is it even an advertisement?

Everything else depends on this. The definition has two parts, and a communication only has to hit one of them.

The first part reaches any direct or indirect communication you make to more than one person, or to even a single person if the communication contains hypothetical performance, that offers your advisory services to prospective clients or private fund investors, or offers new advisory services to current clients or investors. Three things are carved out: extemporaneous live oral communications; information contained in a statutory or regulatory notice, filing, or other required communication; and hypothetical performance provided either in response to an unsolicited request or one-on-one to a prospective or current private fund investor.

Note the shape of that. One-on-one delivery is not an exclusion, it is built into the scope of the first part, and hypothetical performance is deliberately pulled back out of it. A back-test sent to one prospect is an advertisement unless they asked for it unprompted or they are a private fund investor.

The second part reaches any testimonial or endorsement for which you provide compensation, cash or non-cash. Directed brokerage, awards, prizes, and reduced advisory fees all count as compensation. This part has no one-on-one limit at all, though information in a required regulatory notice or filing sits outside it too.

The seven general prohibitions

These apply to every advertisement, whether or not it contains a single number. An advertisement may not:

• include an untrue statement of material fact, or omit a material fact needed to keep what you did say from being misleading;
• include a material statement of fact you do not have a reasonable basis for believing you could substantiate on demand by the Commission;
• include information reasonably likely to cause an untrue or misleading implication or inference about a material fact relating to you;
• discuss potential benefits without fair and balanced treatment of the associated material risks or limitations;
• reference specific investment advice you provided in a way that is not fair and balanced;
• include or exclude performance results, or present performance time periods, in a manner that is not fair and balanced;
• be otherwise materially misleading.

The second one deserves a moment. “Reasonable basis for believing it can be substantiated” means the burden sits with you before the claim goes out, not after an examiner asks. In practice that makes it a recordkeeping problem more than a marketing one: the workpapers behind a performance number have to survive being pulled up two years later.

The performance requirements, in order

Gross and net, which is where most firms live

Four elements have to hold together. Equal prominence, meaning net is not a footnote under a large gross number. A format designed to facilitate comparison, meaning same table, same units, adjacent. The same type of return and the same methodology, so a time-weighted gross return sits next to a time-weighted net return and not next to something else. And the same time period.

The rule does not tell you which return methodology to use. It tells you to use one consistently and to disclose it. Whether you should be showing a time-weighted return or a money-weighted return in the first place is a separate question, and we work through it here.

Model fees versus actual fees

Net performance may be calculated using a model fee rather than the fees actually charged. The rule permits a model fee where it results in performance figures no higher than those produced by actual fees, or where it reflects the highest fee charged to the intended audience.

Footnote 590 of the adopting release led many advisers to read this as a categorical requirement: use a model fee any time the intended audience would pay more than the accounts in the track record. A staff FAQ posted January 15, 2026 says otherwise. Whether presenting net performance calculated with actual fees violates the general prohibitions depends on all the facts and circumstances of the specific advertisement, including its disclosures, and advisers may use a range of means to illustrate the effect of the difference between actual fees and the fees a reader would pay.

The practical version has not changed much, only the mechanism. If your track record is full of legacy accounts at 40 basis points and you are marketing at 100, you are no longer automatically forced into a model fee, but you cannot leave the reader assuming they would have kept the same amount. Deal with the gap explicitly.

Extracted performance and portfolio characteristics

On March 19, 2025 the staff replaced its January 11, 2023 answer on extracted performance and posted a separate, parallel answer covering portfolio and investment characteristics. Both are no-action positions: the staff said it would not recommend enforcement action, which is not the same as the rule permitting the presentation.

Under those positions, extracted performance, including the performance of a single position, and performance-related characteristics such as yield, volatility, and attribution, may be shown gross only, without a corresponding net figure, where:

• the extracted figure or characteristic is clearly identified as gross, without deduction of fees and expenses;
• it is accompanied by the total portfolio’s gross and net performance, calculated consistently with the rule;
• that total portfolio presentation carries at least equal prominence and is formatted to facilitate comparison with the extracted figure;
• the total portfolio’s gross and net performance covers a period that includes the entire period of the extracted figure.

The staff also said it would not recommend enforcement under the prescribed-period requirement where the extract or characteristic is calculated over a single, clearly disclosed period.

Prescribed time periods

For any portfolio or composite other than a private fund, performance must be presented for one-, five-, and ten-year periods, each with equal prominence, ending on a date no less recent than the most recent calendar year end. If the portfolio has not existed for one of those periods, substitute the life of the portfolio.

Two consequences firms miss. A strong trailing twelve months cannot be shown on its own, because the five- and ten-year figures have to sit next to it at the same weight. And a factsheet showing quarter-to-date and year-to-date only, with no standardized periods anywhere on it, is not cured by a link to a longer table somewhere else.

There is a narrow grace period right after year end. A staff FAQ from April 2021 says the staff would not object if you cannot yet calculate the required figures immediately following a calendar year end and instead use performance at least as current as your most recent interim figures, adding that a reasonable period generally would not exceed one month.

Private funds are excluded from the prescribed-period requirement. The Commission accepted that forcing recent-period performance into a private fund presentation could itself be misleading given how those returns develop.

Hypothetical performance, the enforcement magnet

Hypothetical performance means results that were not actually achieved by any portfolio you manage. Model portfolios, back-tested results, targeted returns, and projections are all in scope. Predecessor performance is handled separately.

You may use it only if you:

• adopt and implement policies and procedures reasonably designed to ensure the performance is relevant to the likely financial situation and investment objectives of the intended audience;
• provide sufficient information for that audience to understand the criteria and assumptions used;
• provide sufficient information about the risks and limitations of relying on it, which for private fund investors you may instead offer to provide promptly.

Two structural points that save work. Hypothetical performance does not have to comply with the prescribed one-, five-, and ten-year periods, the related performance condition, or the extracted performance condition, so a back-test does not need a ten-year column bolted onto it. And performance generated by an interactive analysis tool the reader drives themselves is carved out of the definition, but only if you make the disclosures the rule specifies about the tool’s criteria and methodology including its limitations and key assumptions, that results may vary with each use and over time, the universe of investments considered and how the tool selects among them, and that the results are hypothetical.

The first condition is the one that has generated actual charges. Relevance is judged against an intended audience, and “anyone who visits our homepage” is not an audience you have determined anything about. The Commission has made that point through enforcement rather than guidance.

Testimonials, endorsements, and third-party ratings

Client testimonials and paid endorsements became permissible under this rule, which is the change most advisers remember. The conditions, and the exemptions that matter as much as the conditions:

• Disclosure, clear and prominent: whether the promoter is a client, and whether they are compensated, plus further disclosure of the compensation terms and material conflicts.
• A written agreement describing the promoter’s activities and compensation.
• Oversight: you must have a reasonable basis for believing the testimonial or endorsement complies with the rule, and you have to keep the documentation supporting that basis.
• Disqualification: certain bad actors may not be compensated to act as promoters.

Four exemptions cut across those. De minimis compensation, meaning $1,000 or less or equivalent non-cash value in the preceding twelve months, exempts you from both the written agreement and the disqualification provisions. An affiliated promoter is exempt from the written agreement and from the disclosure requirements, provided the affiliation is readily apparent or disclosed at the time of dissemination and you document the person’s status. There is partial relief for SEC-registered broker-dealers, keyed to Regulation Best Interest and whether the recipient is a retail customer. And there is an exemption for persons covered by Rule 506(d) in a Rule 506 offering.

On disqualification specifically, a staff FAQ posted January 15, 2026 addressed orders issued by self-regulatory organizations, permitting compensation of certain promoters notwithstanding an SRO order concerning disqualifying conduct in the prior ten years, on the conditions the FAQ sets out.

Third-party ratings are permitted only if you have a reasonable basis for believing the questionnaire or survey behind the rating was structured to make favorable and unfavorable responses equally easy and was not designed to produce a predetermined result. You must also clearly and prominently disclose the date the rating was given and the period it was based on, the identity of the third party that created and tabulated it, and, if applicable, that you provided compensation in connection with obtaining or using it.

Ratings shown without dates were among the most repeated findings in the September 2024 sweep, and third-party ratings are one of the two subjects of the December 2025 risk alert. If your website carries a “Top Adviser” badge from 2021 with no date on it, that is the exact fact pattern.

Records, and the part nobody budgets for

Amended Rule 204-2 requires you to make and keep copies of every advertisement you disseminate directly or indirectly, with alternative methods available for oral advertisements. It also requires records supporting performance figures, the documentation behind your reasonable basis for a testimonial or endorsement, the list of affiliated promoters you relied on the affiliate exemption for, and a record of the intended audience for any hypothetical performance. Form ADV Part 1A was amended to collect information about your marketing practices.

The substantiation prohibition and the recordkeeping rule meet here. A performance number you cannot reproduce two years later, from data you still hold, using a methodology you documented at the time, is a problem whether or not the number was right. Firms that calculate returns in a spreadsheet that gets overwritten each quarter discover this during an examination rather than before one.

Where firms most often get caught

Net performance derived differently from gross

Gross calculated by the portfolio system, net calculated by subtracting an annual fee in a spreadsheet, is not the same methodology. It also tends to produce a net figure that is slightly too generous.

A composite that quietly excludes accounts

Showing results from fewer than all portfolios with substantially similar objectives, policies, and strategies is prohibited unless two things both hold: the advertised results are not materially higher than they would be if every related portfolio were included, and the exclusion does not alter the prescribed time periods. The exception is usable. It is not a licence to drop the account that closed early or the one with the difficult client, because that exclusion is precisely the kind that moves the number.

Old materials still in circulation

The rule applies to what is disseminated, not to what was drafted. A pitch book from 2021 sitting in a shared drive, a page still indexed on your website, or a PDF a wholesaler is still emailing are all live advertisements.

Performance current only through the last quarter you liked

Results have to end no earlier than the most recent calendar year end, with roughly a month of grace right after year end while you calculate. Letting a factsheet age past that is one of the easiest violations to commit by inattention.

Assuming a GIPS claim covers you

GIPS compliance and Marketing Rule compliance are different regimes with different requirements, and neither satisfies the other. A GIPS-compliant presentation can still fail the equal prominence or prescribed period tests. Our guide to GIPS for small firms covers where the two overlap and where they do not.

What this means for the numbers themselves

Strip out the legal framing and the operational requirement is narrow. Produce returns by a documented method, produce gross and net by that same method, keep the inputs, and be able to reproduce any published figure on demand. Most of the firms that get into trouble here did not have a bad number. They had a number they could not defend, or a good number placed badly on a page.

Educational content, current as of July 2026. Advantage Portfolio Hub is a software provider, not an investment adviser, accountant, or law firm. Nothing here is investment, tax, accounting, legal, or compliance advice. Rule text and staff guidance change; confirm anything you intend to rely on against the current rule and FAQs and with your compliance counsel.