FINRA Updates Advertising Regulation FAQs


Patrycja Savignano and Chase Frei

Publish Date


Compliance Alert


  • Compliance
  • Performance

The Financial Industry Regulatory Authority (“FINRA”) has updated its Frequently Asked Questions About Advertising Regulation (FINRA 2210) to provide firms with revised guidance for the following topics:

  • Prohibition on Predictions or Projections of Investment Performance
  • Internal Rates of Return (“IRRs”)
  • Non-Promotional Communications – Filing Requirements
  • Use of Hyperlinks in Electronic Communication
  • Public Appearances – Supervision

Prohibition on Predictions or Projections of Investment Performance (FAQ: D.7.1)

In this new FAQ, FINRA confirms that firms may not include “target returns” in private placement communications even if they include the assumptions and key risks underlying the return. As a reminder, Rule 2210(d)(1)(F) prohibits firms from providing performance predictions or projections that imply past performance will recur or states any exaggerated or unwarranted claims, opinions, or forecasts.

This FAQ clarifies that targeted returns reflect an investor’s potential cash flow and are not guaranteed. These returns may include cash flows based on contractual revenue sources such as master lease agreements or sales contracts. Since FINRA does not allow performance predictions or projections, firms may not include any metrics reflecting targeted returns to investors in communications concerning private placements. This guidance applies to retail and institutional communications.

Investment Program Internal Rate of Return (FAQ: D.6.1)

In this new FAQ, FINRA emphasizes that, per Regulatory Notice 20-21, IRRs should be calculated in a “manner consistent with the Global Investment Performance Standards (GIPS®).” The FAQ confirms that firms must use the same primary inputs (external cash flows and the period-end value of the investment or terminal value) and calculation methodology expressed in the GIPS. It also notes that, regarding the calculation methodology, since-inception IRRs can be determined using common spreadsheet software and the extended IRR (XIRR) function.

Importantly, FINRA clearly states the requirement to calculate IRRs in a “manner consistent with the Global Investment Performance Standards” only applies to investment programs with ongoing operations that include a combination of realized and unrealized holdings. It also emphasizes that Rule 2210(d)(1)(F) prohibits firms from providing IRR projections for privately-placed new investment programs that have no operations or that operate as blind pools.

Finally, FINRA confirms in this FAQ that firms do not have to claim GIPS compliance or have their firm verified in order to use IRRs in private placement communications, as long as their use is consistent with Rule 2210 requirements.

Investment Level Internal Rate of Return (FAQ: D.6.2)

In this FAQ, FINRA indicates that presenting IRRs for only the realized holdings of a fund with realized and unrealized holdings, without showing the overall fund level IRR, may be considered consistent with Rule 2210 as long as the information is fair and balanced. That is, if a communication contains returns for any realized holding, the returns for all realized holdings must be shown individually with equal prominence to prevent “cherry picking.”

Additionally, this FAQ expresses that, since any return metric for unrealized holdings would require a valuation estimate, such returns represent a prohibited projection under Rule 2210(d)(1)(F). This guidance applies to retail and institutional communications.

As a reminder, Regulatory Notice 20-21 and FAQ D.6.1 discussed above (both applicable to retail communications) also require using calculation methodologies consistent with the GIPS and the inclusion of additional GIPS-required metrics for fund-level IRRs if a fund holds realized and unrealized investments.

Aggregate Investment Level Internal Rate of Return (FAQ: D.6.3)

In FAQ D.6.3, FINRA indicates that it is generally misleading for a communication to include metrics that combine or average the results of only individual realized holdings, including what are commonly referred to as “aggregate realized investment” returns. According to the guidance, such metrics may mask unequal or poor returns and may not represent the performance of unrealized holdings or the fund as a whole, regardless of whether the total fund IRR is included. This guidance applies to retail and institutional communications.

Ongoing Investment Program Metrics (FAQ: D.6.4)

In this FAQ, FINRA states that firms preparing communications consistent with Regulatory Notice 20-21’s requirement to use GIPS methodologies and present additional GIPS metrics for funds with ongoing operations generally can include information beyond what GIPS requires as long as it is presented in a fair and balanced manner, is not misleading, and otherwise meets the content standards of Rule 2210(d).

Non-Promotional Communications – Filing Requirements (FAQ: C.4.5)

FINRA indicates in the new FAQ C.4.5 that videos posted online do not require a principal’s approval before being used or filed with FINRA as long as they do not recommend or promote the firm’s products or services. This guidance accords with the Rule 2210(b)(1)(D)(iii) and (c)(7)(C) exceptions.

At the same time, FINRA reemphasizes that firms must supervise and review videos just as they do correspondence pursuant to Rules 3110(b) and 3110.06 through .09.

Use of Hyperlinks in Electronic Communications (FAQ: D.5.1)

In this new FAQ, FINRA confirms that firms may use hyperlinks in electronic communications to provide additional information to the public. The guidance reiterates that, per Rule 2210(d)(1)(A), firm communications must be fair and balanced and not omit material facts or qualifications that would cause them to be misleading. In this FAQ, the agency also reminds firms that they may not, in any case, employ linked explanations to correct untrue, deceiving, overstated, or promissory communications.

In addition, this FAQ reconfirms that FINRA interprets the communication rules as allowing firms to use hyperlinks to explain and provide information in various situations. For example, Rule 2210 permits hyperlinks within banner advertisements to generate interest and provide more information. Hyperlinks may also be used to link to required information about testimonials.

Public Appearances – Supervision (FAQ: F.1.1)

This updated FAQ indicates that firms MUST approve (prior to use) any retail communications used by registered representatives as part of seminar presentations. Specifically, if such retail communications are subject to a Rule 2210 filing requirement, firms must file them with FINRA. For instance, a sales script used during a seminar presented to more than 25 retail investors within a 30 calendar-day period is considered a retail communication under the rule and so is subject to applicable filing and supervisory requirements.

The FAQ also notes that Rule 2210(f)(3) requires all firms to establish written procedures regarding public appearances that focus on or include education and training, the documentation of such education and training, and the surveillance and follow-up that ensures the registered representatives’ adherence to the procedures.

ACA guidance

Firms should review their procedures for conducting marketing and advertising reviews to ensure they meet the requirements outlined in these FAQs.

How we help

ACA provides a variety of services to help broker-dealers and private fund managers comply with the advertising regulation, including marketing and advertising reviews designed to help your firm identify potential business and compliance risks.

For firms that do not want to fully comply with the GIPS standards, ACA offers focused performance reviews to help them meet the FINRA 20-21 requirements. Focused performance reviews provide consulting on what it means to be consistent with the GIPS standards with respect to IRR calculations as well as insights on GIPS-required metrics and the associated calculation methodologies. ACA consultants conduct calculation methodology reviews on the IRRs and multiples to make sure firms meet the RN 20-21 requirements.

For firms choosing, or considering, a full transition to the GIPS standards, ACA offers:

  • GIPS Feasibility Study: GIPS standards feasibility study to quantify the scope and effort to become GIPS compliant. This service assists a firm in identifying the gaps to GIPS compliance.
  • GIPS Compliance and Verification: GIPS compliance consulting and verification to provide internal and external assurance.

For more information about the Advertising Regulation requirements, please contact Leigh Wittick or your ACA Consultant. For more information regarding IRRs, please reach out to Shivani Choudhary.

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