Key Takeaways from the SEC’s 2025 Marketing Rule Update

The SEC’s March 2025 updates to its Marketing Rule FAQs offer meaningful and practical relief to investment managers navigating the complex landscape of marketing investment performance. While the original rule aimed to modernize outdated advertising standards, many advisers were caught in operational gray zones, particularly when showcasing specific strategy highlights, extracted performance, or performance-related characteristics that resist traditional net-of-fee treatment.

With this update, the SEC is responding to widespread industry concerns and offering nuanced flexibility without sacrificing its core mandate of investor protection. For investment managers, this marks an opportunity to revisit how performance narratives are drafted, compliance programs are enforced, and marketing teams are trained.

The most significant aspect of the update is the SEC’s decision to allow advisers to present extracted performance and performance-related characteristics on a gross-only basis under certain conditions. These changes are subtle but significant in practical effect and will reshape how marketing teams articulate strategy-specific insights to investors.

Under prior guidance, any performance shown in an advertisement was required to include both gross and net returns, with equal prominence and consistent calculation periods. This created unintended barriers for managers looking to highlight specific sleeves or deal performance, particularly when netting fees on a subset of a portfolio was operationally impractical or misleading. The FAQ update now acknowledges that nuance.

Key Relief Provisions

The updated FAQs affirm that advisers may present gross-only extracted performance (the returns of a subset of investments within a portfolio) if they also disclose the full portfolio’s gross and net performance, covering the same time period and with equal prominence. The adviser must clearly label the extracted performance as gross and ensure the overall portfolio data provides proper context.

Similarly, the SEC clarifies that performance-related characteristics, such as yield, duration, contribution to return, and Sharpe or Sortino ratios, can be presented on a gross-only basis if disclosed as such and accompanied by the overall portfolio’s gross and net returns for the same time period.

In effect, this update enables managers to tell a clearer, more compelling story about performance drivers without overengineering net calculations on slices of portfolios where it’s neither feasible nor meaningful. As expected, openness comes with conditions, and failure to meet them can quickly turn a marketing win into an enforcement risk.

Applying the Update in Practice

Consider a credit-focused hedge fund that wants to feature the return of its structured products sleeve over the last three years. Netting out fund-level fees proportionately across that sleeve would be difficult and misleading, given that fees are not assessed at that level. Under the new guidance, the fund can highlight this extracted performance on a gross basis, so long as it (1) labels it clearly as gross, (2) presents the fund’s overall gross and net returns over the same three-year period, and (3) does so with equal visual prominence.

Another example may be an SMA manager emphasizing its yield-focused strategy. Yield, duration, and volatility metrics are now permitted in marketing communications without calculating net impact, again, assuming the gross and net performance of the full portfolio is disclosed alongside the characteristic.

This adaptability also benefits firms’ marketing model portfolios or multi-strategy platforms. Quant managers can now display model-specific Sharpe ratios to illustrate relative value while still maintaining compliance through full portfolio disclosures.

Compliance Gaps Still Carry Risk

While the new FAQs provide relief, they do not give the SEC blanket permission to showcase cherry-picked statistics. In fact, the SEC’s message remains consistent: performance must be presented in a fair and balanced manner, and disclosures must allow the intended audience to make informed decisions.

It remains critical to tailor marketing content to the sophistication of the audience and ensure disclosures are clear and relevant. Under the new FAQ guidance, firms must continue to avoid misleading implications and present performance characteristics in a way that aligns with investor expectations and risk profiles.

Compliance Implications & Updates

Although these changes bring greater versatility, compliance documentation around policies and procedures should be updated before applying them in practice. Advisers looking to rely on the new FAQs should update internal marketing compliance checklists, review their materials for prominence and disclosure clarity, and ensure marketing and investor relations staff are trained accordingly.

Key Action Items Include:

• Label Clearly and Prominently: Any extracted performance or characteristic presented gross-only must be labeled as such, with no ambiguity. Avoid footnote-only disclosures. Context should be front and center.
• Provide Full Portfolio Context: Gross and net performance of the full portfolio must be presented for the same time period covered by the extracted or characteristic data, with equal visual and contextual prominence.
• Reinforce with Documentation: Maintain approval logs, correspondence records, and documentation that supports your basis for including any extracted or hypothetical data, especially in connection with supervisory reviews.
• Enhance Training Programs: Compliance is only as strong as the team behind it. Scenario-based training that walks marketing teams through examples of compliant vs. non-compliant extracted performance can improve judgment and reduce future violations.

A Word on Global Implications

Although the March update pertains to U.S. advisers under the Investment Advisers Act, fund managers operating under Regulation D exemptions (e.g., 506(b) or 506(c)) or marketing internationally under regimes like AIFMD or UK AIFMR should tread carefully. While the U.S. now permits gross-only extracted performance in certain contexts, other jurisdictions may impose stricter standards on “fair presentation” or prohibit similar practices altogether.

For example, marketing a U.S. fund to EU investors under reverse solicitation could invite scrutiny if a performance characteristic shown gross-only is viewed as promotional or lacks sufficient context. Where global investors are targeted, managers should harmonize U.S. malleability with the most restrictive local requirement.

The Bottom Line

The SEC’s March 2025 FAQ update is a welcome change that brings the Marketing Rule closer to the realities of how investment strategies are managed and communicated. It preserves investor protection while giving managers practical tools to communicate performance more effectively.

This is more than a technical adjustment, and an opportunity to improve how firms communicate investment edge, highlight differentiated results, and connect more meaningfully with investors. When applied correctly, extracted performance and characteristics can add depth and substance to marketing narratives without compromising fairness or context.

That said, this flexibility comes with conditions and requires managers to stay disciplined, refine processes, and improve controls to ensure the messaging strategy remains compliant.

Now is the time to revisit materials, retrain teams, and strengthen oversight. In today’s environment, those who communicate with clarity, credibility, and discipline will remain compliant and lead. For more on how to get started, book your strategy call today to speak with one of our advisors.