One theme of the SEC’s Marketing Rule for investment advisers when it was released in 2020 was for advertised performance to reflect the client’s actual returns. It’s a compliance mantra, you have to shown a net return with equal prominence to any gross return you are showing. The uncertainty in the area that took some thought was what was meant by “net”.
The implementing release explicitly states:
As proposed, the final rule does not prescribe any particular calculation of net performance. We believe that prescribing the calculation of net performance could unduly limit the ability of advisers to present performance information that they believe would be most relevant and useful to an advertisement’s audience. Therefore, the final rule’s definition continues to include a non-exhaustive list of the types of fees and expenses to be considered in preparing net performance. (page 173)
The definition of net performance reflects the idea that it should reflect what a client should expect:
(10) Net performance means the performance results of a portfolio (or portions of a portfolio that are included in extracted performance, if applicable) after the deduction of all fees and expenses that a client or investor has paid or would have paid in connection with the investment adviser’s investment advisory services to the relevant portfolio, including, if applicable, advisory fees, advisory fees paid to underlying investment vehicles, and payments by the investment adviser for which the client or investor reimburses the investment adviser. For purposes of this rule, net performance:
(i) May reflect the exclusion of custodian fees paid to a bank or other third-party organization for safekeeping funds and securities; and/or
(ii) If using a model fee, must reflect one of the following: (A) The deduction of a model fee when doing so would result in performance figures that are no higher than if the actual fee had been deducted; or (B) The deduction of a model fee that is equal to the highest fee charged to the intended audience to whom the advertisement is disseminated.
There is Footnote 590 in the release (page176) that states:
If the fee to be charged to the intended audience is anticipated to be higher than the actual fees charged, the adviser must use a model fee that reflects the anticipated fee to be charged in order not to violate the rule’s general prohibitions.
With all that, I found it strange that the SEC published a new Marketing Rule FAQ on January 16, 2026.
Q: Would an investment adviser violate the general prohibitions of Rule 206(4)-1(a) by advertising the net performance of a portfolio that reflects the deduction of the actual fees charged to the portfolio (“actual fees”), when the fees to be charged to the advertisement’s intended audience (“anticipated fees”) are anticipated to be higher than the actual fees charged?
That is obviously answered by footnote 590.
However, the answer is focused on whether you categorically always have to use a model fee and can never use actual fees in net performance. The answer is no.
Net performance can be targeted to the intended audience. I would think as long as an advertisement is crafted specifically for a lower fee paying client and sent only to that client, it should not be in violation of the Marketing Rule.
Sources:
- Marketing Compliance – Frequently Asked Questions Updated Jan. 15, 2026
- Marketing Rule IA-5631