FINRA Rule 2210 Performance Projection Amendment: What the SEC’s July 26 2024 Stay Means for 2025 Marketing Plans

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The recent SEC decision on July 26, 2024 has thrown a curveball at broker-dealers and compliance teams everywhere. One minute, the performance projection amendment seemed poised to change the way we communicate forward-looking data – and the next, the SEC stepped in and hit pause. If you’ve been keeping an eye on regulatory updates, you know these twists can upend even the most carefully laid marketing plans for 2025.

Now, why should you keep reading this post? Because if you’re working in marketing or compliance, you’re dealing with the challenging intersection of regulation and real-world strategy every day. We’re unpacking exactly how this unexpected pause affects your upcoming plans, what adjustments you might need to consider, and the implications for your daily operations. You’ll gain valuable insights that can help you manage risk and stay on top of these rapid changes—insights that are critical when planning for 2025.

We’ve watched this story unfold from its early days in 2023 when the amendment was first filed, to its brief approval on July 19, 2024, and finally to the unexpected stay just seven days later. This isn’t just another bureaucratic hiccup. It’s a stark reminder of how quickly regulatory landscapes can change, forcing us to re-examine our approaches to performance communication in marketing materials.

For those of you tasked with shaping next year’s strategies, this sudden shift means that now, more than ever, agility and real-time monitoring are key. As you navigate this uncertainty, it’s important to stay informed and be prepared to adjust compliance and marketing tactics on the fly.

Timeline of FINRA's Performance Projection Amendment

The Initial Proposal: SR-FINRA-2023-016

FINRA filed the performance projection amendment as SR-FINRA-2023-016 in late 2023, proposing to modify Rule 2210 to permit the use of performance projections in communications with institutional investors. The proposal came after years of industry feedback suggesting that the blanket prohibition on performance projections was overly restrictive for sophisticated institutional clients who could properly evaluate such information.

The amendment aimed to address a long-standing concern among broker-dealers who felt handicapped in their ability to communicate effectively with institutional investors. These sophisticated clients often requested forward-looking performance information to make informed investment decisions, but FINRA's existing rules made such communications problematic.

SEC Approval: July 19, 2024

After months of review and public comment, the SEC approved FINRA's proposed amendment on July 19, 2024. The approval seemed to signal a new era for broker-dealer communications, with many firms beginning to prepare updated marketing materials and compliance procedures to take advantage of the new flexibility.

The approval process involved extensive review of public comments and consideration of potential investor protection concerns. FINRA's Advertising Regulation Department, which reviewed over 63,000 communications filings in 2023 alone, had been preparing for the implementation of the new rule (FINRA Rule 2210 Explained).

The Unexpected Stay: July 26, 2024

Just seven days after approval, the SEC issued an unusual stay of the amendment's effectiveness on July 26, 2024. This rare move caught the industry off guard and raised questions about what prompted the last-minute reversal. The stay effectively paused the rule's implementation indefinitely, leaving broker-dealers in regulatory limbo.

The timing of the stay was particularly disruptive because many firms had already begun updating their compliance procedures and marketing materials in anticipation of the rule's effectiveness. This created a situation where firms needed to halt their implementation efforts and reassess their strategies.

Understanding the Amendment's Text and Requirements

Scope of Permitted Projections

The stayed amendment would have allowed broker-dealers to include performance projections in communications with institutional investors, but only under strict conditions. The rule defined specific parameters for what constituted acceptable projections and established clear boundaries for their use.

The amendment required that performance projections be based on reasonable assumptions and methodologies. Firms would have needed to maintain detailed documentation supporting their projection methodologies and be prepared to justify their assumptions to regulators during examinations.

Institutional Investor Definition

A critical component of the amendment was its definition of "institutional investor." The rule would have applied only to communications with sophisticated investors who meet specific criteria, including minimum asset thresholds and professional investment experience requirements.

This limitation was designed to ensure that performance projections would only be shared with investors who have the expertise to properly evaluate forward-looking statements and understand their inherent uncertainties. The restriction reflected FINRA's continued commitment to protecting retail investors from potentially misleading information.

Required Disclosures and Disclaimers

The amendment included extensive disclosure requirements for any communication containing performance projections. These disclosures would have needed to clearly explain the assumptions underlying the projections, the methodology used to generate them, and the significant risks and limitations associated with forward-looking statements.

Firms would have been required to include prominent disclaimers stating that projections are not guarantees of future performance and that actual results may differ materially from projected outcomes. The disclosures would have needed to be clear, prominent, and easily understood by the intended audience.

Impact on Broker-Dealer Marketing Strategies

Pre-Stay Planning Efforts

Before the July 26 stay, many broker-dealers had begun developing new marketing materials that would incorporate performance projections for institutional clients. These efforts involved significant investments in legal review, compliance system updates, and staff training.

Firms were particularly excited about the potential to create more compelling pitch materials for institutional prospects. The ability to include forward-looking performance information was seen as a competitive advantage that could help differentiate their offerings in a crowded marketplace.

Current State of Uncertainty

The stay has created a challenging environment for marketing teams who must now plan their 2025 campaigns without knowing whether the amendment will ultimately take effect. This uncertainty is particularly problematic for firms that had already invested significant resources in preparing for the rule's implementation.

Many firms are now taking a wait-and-see approach, holding off on major marketing initiatives that would rely on performance projections until the regulatory landscape becomes clearer. This cautious stance is understandable given the potential compliance risks associated with premature implementation.

Competitive Implications

The regulatory uncertainty has created an uneven playing field where some firms may be more willing to take risks with their marketing approaches while others adopt more conservative strategies. This dynamic could lead to competitive advantages for firms that can quickly adapt to regulatory changes when they occur.

Firms with robust compliance monitoring systems are better positioned to capitalize on regulatory changes quickly while maintaining appropriate risk controls (Luthor compliance monitoring). The ability to rapidly adjust marketing materials and distribution strategies has become a key competitive differentiator.

Realistic Scenarios for 2025 Planning

Scenario 1: Stay Lifted, Amendment Takes Effect

If the SEC lifts the stay and allows the amendment to take effect in 2025, broker-dealers will need to move quickly to implement compliant performance projection capabilities. This scenario would require immediate action on several fronts, including system updates, staff training, and material development.

Firms that have maintained their preparation efforts during the stay period will have a significant advantage in this scenario. They'll be able to launch performance projection communications more quickly than competitors who abandoned their implementation efforts.

Scenario 2: Permanent Withdrawal of Amendment

If FINRA or the SEC decides to permanently withdraw the amendment, broker-dealers will need to continue operating under the current restrictive framework. This scenario would require firms to refocus their marketing strategies on approaches that don't rely on performance projections.

While disappointing for many firms, this scenario would at least provide regulatory certainty that would allow for more confident long-term planning. Firms could invest in alternative marketing approaches without worrying about regulatory changes.

Scenario 3: Modified Amendment

A third possibility is that FINRA could propose a modified version of the amendment that addresses whatever concerns prompted the original stay. This scenario could result in a more restrictive rule that still provides some additional flexibility compared to the current framework.

This scenario would require firms to remain flexible and ready to adapt their strategies based on the specific terms of any modified proposal. The ability to quickly assess and implement changes would be crucial for maintaining competitive positioning.

Action Items for Compliance Teams

Developing Contingency Language

While the stay remains in effect, compliance teams should develop contingency language that can be quickly deployed if and when the amendment takes effect. This preparation work should include drafting template disclosures, disclaimer language, and approval procedures for performance projection communications.

The contingency language should be comprehensive enough to cover various types of performance projections while remaining flexible enough to accommodate different marketing contexts. Regular review and updates of this language will be necessary as regulatory guidance evolves.

Staff Training and Preparation

Compliance teams should use the stay period to train staff on the requirements and implications of the performance projection amendment. This training should cover both the technical requirements of the rule and the broader compliance considerations associated with forward-looking statements.

Training programs should include practical exercises that help staff understand how to evaluate performance projection methodologies and ensure appropriate disclosures are included in all relevant communications. Regular refresher training will be important to maintain readiness.

System and Process Updates

Firms should continue preparing their systems and processes for potential implementation of the amendment. This includes updating compliance monitoring systems, review procedures, and documentation requirements to accommodate performance projection communications.

The preparation work should focus on creating scalable processes that can handle increased volume of communications requiring specialized review. Automation tools can help streamline the review process while maintaining appropriate oversight (Luthor automated compliance).

Leveraging Technology for Regulatory Monitoring

Real-Time Rule Tracking

The FINRA performance projection amendment situation highlights the importance of real-time regulatory monitoring. Firms need systems that can quickly identify and assess the impact of regulatory changes, allowing them to respond appropriately to new developments.

Modern compliance technology can provide automated alerts when relevant regulatory changes occur, helping firms stay ahead of developments that could impact their marketing strategies. This capability is particularly valuable in today's rapidly changing regulatory environment.

Content Management and Distribution

Advanced compliance platforms can help firms manage their marketing content more effectively by providing centralized repositories with version control and approval workflows. These systems can quickly enable or disable specific content types based on regulatory changes.

The ability to toggle performance projection content on and off across multiple distribution channels is particularly valuable given the current regulatory uncertainty. Firms need systems that can make these changes quickly and consistently across all marketing materials (Luthor marketing compliance).

Audit Trail and Documentation

Robust documentation and audit trail capabilities are essential for demonstrating compliance with performance projection requirements when they take effect. Firms need systems that can automatically capture and store all relevant information about their projection methodologies and approval processes.

These documentation capabilities will be crucial for regulatory examinations and internal compliance reviews. The ability to quickly produce comprehensive records of compliance activities can significantly reduce the burden of regulatory interactions.

Industry Context and Broader Implications

FINRA's Enforcement Priorities

FINRA's approach to the performance projection amendment reflects broader trends in regulatory enforcement and supervision. In 2023, FINRA brought 453 disciplinary actions against firms and individuals, imposing $89 million in fines (Luthor FINRA advertising rules). This enforcement activity demonstrates the regulator's continued focus on communications compliance.

The regulator has been particularly active in addressing social media and digital marketing compliance issues. FINRA brought its first enforcement case against a broker-dealer's social media 'finfluencer' program in 2024, fining the firm $850,000 for posts that weren't fair and balanced (Luthor FINRA advertising rules).

Market Dynamics and Capital Formation

The performance projection amendment takes on added significance given current market dynamics. Companies are raising substantially more capital through private offerings than public markets, with nearly $949 billion in exempt offerings versus only $28 billion via IPOs in a recent 12-month period (Luthor compliance review).

This shift toward private markets increases the importance of effective communication with institutional investors, making the performance projection amendment potentially more valuable for broker-dealers serving this market segment.

Technology and Compliance Evolution

The regulatory uncertainty surrounding the performance projection amendment highlights the growing importance of technology in compliance management. The market for RegTech is projected to reach $21 billion by 2027, according to Deloitte (Luthor compliance review).

Firms that invest in advanced compliance technology are better positioned to react quickly to regulatory changes and maintain competitive advantages in their marketing efforts. The ability to rapidly implement new compliance requirements has become a crucial business capability.

Preparing for Multiple Scenarios

Flexible Marketing Strategies

Given the regulatory uncertainty, broker-dealers should develop marketing strategies that can work under multiple regulatory scenarios. This approach means creating content and messaging that can be quickly adjusted based on regulatory developments.

It may mean having alternative marketing plans that don't rely on performance projections so that if the amendment doesn't go through, you’re not left scrambling. Keeping your strategies flexible ensures that you can respond to any decision from the SEC without major disruptions.

Resource Allocation Decisions

Firms must decide how to allocate resources while the regulatory landscape is so uncertain. You could end up over-investing in performance projection capabilities, or underinvesting and falling behind. A balanced approach can help you be ready for any outcome without wasting resources.

Stakeholder Communication

Keeping everyone on the same page is crucial in times like these. Clearly communicate with your marketing and compliance teams about the regulatory uncertainty and what it could mean for your strategy. Regular updates can help everyone stay informed about the latest moves from the SEC and FINRA.

The Role of Outsourced Compliance Services

Expertise and Specialization

The complexity of the performance projection amendment underscores why some firms turn to outsourced compliance services. By working with specialized providers, you can access expert knowledge without having to build it all in-house (SEC³ Compliance outsourced CCO).

Outsourced compliance providers can help you navigate these tricky regulatory waters, ensuring you meet requirements even when things shift unexpectedly.

Scalability and Flexibility

Outsourcing can give you the flexibility to adjust quickly without the overhead of a large internal compliance team. This approach is especially useful for smaller firms that may not have extensive resources.

With outsourced services, you can get expert support on an as-needed basis, which lets you keep growing while staying compliant (Luthor outsourced CCO).

Technology Integration

Modern outsourced compliance services blend technology with expert oversight. AI-powered platforms can automate routine tasks, making it easier and faster to handle compliance requirements. This means you can shift focus to strategy while the heavy lifting is handled by your compliance partner.

Looking Ahead: What to Watch

Regulatory Signals

Keep a close eye on any changes or public statements from FINRA and SEC officials. Their signals might give you clues on where things are heading. Staying alert can help you adjust your strategy quickly as new information comes to light.

Industry Response

Pay attention to what other firms in the industry are doing. Their responses to the regulatory uncertainty can provide valuable insights and might offer ideas on how best to handle your own strategies.

Competitive Dynamics

The uncertainty creates challenges, but also opportunities. Firms that can quickly adjust their strategies when the rules settle will be the ones that come out ahead. Watching your competitors may even give you hints on updating your approach to stay competitive.

Final Thoughts

Regulatory twists like the SEC’s unexpected July 26, 2024 decision show just how quickly things can change. As we prep our marketing plans for 2025, it’s clear that staying agile and keeping an eye on the latest updates is more important than ever. If you’re dealing with these shifts in real-time, remember that being ready to adapt your approach can help reduce risks while keeping your marketing strategies both active and compliant.

Ready to automatically review your marketing assets for compliance? Request demo access to Luthor’s AI-powered compliance platform today—and see how you can reduce the risk, effort, and time it takes to tackle marketing compliance at scale.

FAQ

What is FINRA Rule 2210 and why is the performance projection amendment significant?

FINRA Rule 2210 outlines standards and requirements for communications between broker-dealers and the public, ensuring all communications are fair, balanced, and not misleading. The performance projection amendment would have allowed broker-dealers to include certain performance projections in their marketing materials, representing a significant shift in how firms could present potential investment outcomes to clients.

What happened with the SEC's July 26, 2024 stay of the Rule 2210 amendment?

The SEC issued an unexpected stay on July 26, 2024, halting the implementation of FINRA's Rule 2210 performance projection amendment. This decision came after the rule had already received initial approval, creating regulatory uncertainty and forcing broker-dealers to reconsider their 2025 marketing strategies that had been developed in anticipation of the new provisions.

How should broker-dealers adjust their 2025 marketing plans given this regulatory uncertainty?

Broker-dealers should maintain flexibility in their 2025 marketing strategies by developing contingency plans that work under both current Rule 2210 requirements and potential future amendments. Firms should focus on compliant marketing approaches that don't rely on performance projections while staying prepared to quickly adapt if the stay is lifted or modified.

What compliance challenges do broker-dealers face with FINRA advertising rules?

Broker-dealers must navigate complex FINRA advertising rules that require all communications to be fair, balanced, and not misleading. With regulatory changes like the Rule 2210 amendment creating uncertainty, firms need robust compliance systems to ensure their marketing materials meet current standards while remaining adaptable to future rule changes.

How can technology help broker-dealers manage compliance during regulatory transitions?

AI-powered compliance solutions can provide real-time monitoring, review, and automated alerts to help broker-dealers navigate regulatory uncertainty. These platforms offer end-to-end marketing compliance solutions that enable teams to operate with unprecedented speed and accuracy, particularly valuable during periods of regulatory change like the Rule 2210 amendment situation.

What are the financial implications of compliance failures in the current regulatory environment?

The stakes for compliance failures are higher than ever, with the SEC ordering financial companies to pay $8.2 billion in fines and penalties in 2024, representing a 67% increase from 2023. This dramatic increase in enforcement actions underscores the critical importance of maintaining robust compliance programs, especially during periods of regulatory uncertainty like the Rule 2210 amendment stay.