What Is Hypothetical Performance Under the Marketing Rule?

Because hypothetical performance can be constructed to look favorable in hindsight, the SEC requires advisers to have policies addressing the relevance of the presentation to the intended audience, sufficient information for the audience to understand the criteria and assumptions used, and disclosure of risks and limitations. For most retail-facing advertising, hypothetical performance is effectively off-limits unless the firm has robust safeguards in place — it’s more commonly used in materials directed at sophisticated institutional audiences.