On March 19, 2025, the SEC staff published a Marketing FAQ with new guidance on how to navigate the performance versus investment characteristic question—one of the trickiest aspects of the Marketing Rule, which was initially adopted in 2020.
To help advisers apply this new guidance, we’ve developed this piece on Portfolio or Characteristics to give advisers a practical reference as they begin to put this updated requirement guidance into practice.
This guide includes the following key aspects of Portfolio or Investment Characteristics, as defined by the SEC staff FAQ:
- Overview and Examples: Portfolio or Investment Characteristics
- The Safe Harbor: How to Show Gross Portfolio or Investment Characteristics
- When Performance is NOT a Characteristic
NOTE: You may also want to check out our related piece on Extracted Performance, here.
- Overview and Examples: Portfolio or Investment Characteristics
Since the Marketing Rule never defines “performance”, there was a lot of confusion around whether certain investment characteristics are performance. To help clear up this confusion, in its most recent FAQ, SEC staff added a list of example characteristics that could be performance, listed below.
SEC Examples of Characteristics that Can Be Performance
- Yield
- Coupon Rate
- Contribution of Return
- Volatility
- Sector Returns
- Geographic Returns
- Attribution Analyses
- The Sharpe Ratio
- The Sortino Ratio
- Other similar metrics…
- The Safe Harbor: How to Show Gross Portfolio or Investment Characteristics
According to the most recent FAQ, Portfolio or Investment Characteristics may be shown on a gross only basis if you:
- Identify the Characteristic as Calculated without the Deduction of Fees and Expenses – Use the SEC staff’s comment from the footnotes to create a disclosure: Yield is calculated without the deduction of all fees and expenses that a client or investor has paid or would have paid. Refer to the presentation of the total portfolio’s gross and net performance to understand the overall effect of fees.
- Show Total Gross and Net Performance Consistent with the Marketing Rule – Present the total portfolio’s gross and net performance consistent with all of the Marketing Rule’s requirements for performance.
- Show Total Gross and Net Performance with equal prominence – Present the total portfolio’s gross and net performance with equal prominence, such as the same size font and level of attention within the advertisement.
- Facilitate Comparison of the Extract to the Total Performance – Show the total portfolio gross and net performance on the same page as or a prior page to the extract to facilitate comparison.
- Calculate the Total Performance over a Time Period that Contains the Extract – The time period for the total performance must include the entire period of the extract. Extract time periods must be calculated over a single, clearly disclosed period, though it does not have to align with the time period required for the total performance.
- When Performance is NOT a Characteristic
“For the avoidance of doubt,” the SEC staff identified the following as always being performance presentations, regardless of how they are labelled. As performance, these must abide by the Marketing Rule’s requirements, including prescribed time periods and the net performance requirement.
- Total Return
- Time-weighted Return
- Return on Investment (ROI)
- Internal Rate of Return (IRR)
- Multiple Invested Capital (MOIC)
- Total Value to Paid Capital (TVPI)
This means if you present ROI, IRR, MOIC, or TVPI in your marketing, the SEC staff expect to see the presentation on a net basis.
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