SEC sanctions firms’ theoretical returns reporting

Touting hypothetical portfolio performance has landed a bunch of investment advisers in hot water with the U.S. Securities and Exchange Commission (SEC).

The regulator charged nine adviser firms with violating its new marketing rules by advertising theoretical returns on their websites, without adopting policies to ensure that the information is specifically relevant to the financial situation and objectives of the target audience.

“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” said Gurbir Grewal, director of the SEC’s enforcement division, in a release.

“It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the rule.”

Without admitting or denying the SEC’s findings, the nine firms all agreed to be censured, to cease and desist from violating the rule’s provisions, and to pay penalties ranging from US$50,000 to US$175,000.

The SEC said its investigation into alleged marketing rule violations is ongoing.

“We will remain vigilant and continue our ongoing sweep to ensure that investment advisers comply with the marketing rule, including the requirements for hypothetical performance advertisements,” Grewal said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.