By Alyssa Barcheers, Managing Director, U.S.
The U.S. Securities and Exchange Commission (SEC)’s new Marketing Rule revolutionized the marketing framework for investment advisers subject to the Advisers Act. It transformed decades of rules, guidance and no-action letters into a single rule intended to reflect modern developments and regulatory changes since the initial Advertising Rule of 1961.
Since the new rule took effect in November 2022, however, one provision has notoriously stood out as causing confusion, uncertainty and frustration across the industry: the prohibition against displaying gross performance without accompanying net performance.
Questions emerged almost immediately. Does this apply if I am showing performance at the investment level? What if I’m not charging fees and expenses at that level? How can we calculate this metric without being misleading?
The SEC sought to clarify this point in a January 2023 FAQ update stating that advisers are required to include the net performance of a single investment when the adviser displays the gross performance of that investment. While the update provided clarity, it did not cure the confusion or frustration, as advisers continued to struggle with how this metric should be calculated.
But now, investment professionals can finally breathe a sigh of relief. On March 19, 2025, the Division of Investment Management at the SEC released an FAQ stating, among other things, that advisers are permitted to use gross performance metrics at the investment level (“extracted performance”) in their marketing materials without an accompanying net performance metric as long as they prominently display the gross and net performance of the total portfolio.
Specifically, the FAQ indicated that the SEC would not recommend enforcement action when an adviser displays the gross performance of an extract in an advertisement without including corresponding net performance if the following criteria are all met:
- The extracted performance is clearly identified as gross performance
- The extracted performance is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the rule
- The gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the extracted performance
- The gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the extracted performance is calculated
While advisers are still subject to the remaining provisions of the Marketing Rule, including the prohibition against including any statement that would be materially misleading, advisers can move forward with confidence, knowing they are complying with SEC expectations on this component of the rule.
