Financial promotion rules for performance and risk claims

A promotion for the ARK Innovation ETF built on its 2020 calendar year would have carried a return of roughly 150%, true and independently verifiable. The same fund fell about 67% in 2022. Morningstar's work on the gap between ARKK's published returns and what its average shareholder actually earned put the shortfall in the region of $7 billion over the decade to 2021, most of it because the money arrived after the number that sold it. Nothing prohibits a fund from returning 150%. The rules govern which periods you may print, beside what, at what size, and with which warning attached.

Take the perimeter as given: the foundations lesson settles what counts as a promotion and who may receive it. What follows is claim-level, the test each type of number has to pass and the warning it drags along.

The claim types and the warnings they trigger

1. Past performance

Past performance is the most regulated element because it is the most persuasive and the easiest to frame.

• FCA COBS 4.6 requires performance covering at least the immediately preceding five years, built from complete 12-month periods, or the life of the fund if shorter. No "since the best month."
• The SEC Marketing Rule (Rule 206(4)-1, compliance mandatory since November 2022) goes further on structure: performance shown to retail investors must include one, five and ten year periods, each ending on the most recent calendar quarter. That prescription is what kills single-window selling. Print the 2020 line and the five-year line has to sit next to it.
• Gross figures need net figures of equal prominence, not a footnote.
• Past performance must not be the dominant visual feature, and the warning sits with the figures.

Worked example of a fair presentation (illustrative, not real fund data):

A losing year is shown, the periods are complete, returns are net, a named benchmark runs alongside on the same currency and fee basis. If the fund changed benchmark in 2023, say so on the page; restating the old years against the new index to flatter the record is a straightforward misleading-communication breach.

2. Hypothetical, simulated and target returns

Backtests, model portfolios, projections and "aiming for 7% per annum" all fall in one bucket: numbers no investor ever earned.

The SEC permits hypothetical performance only where the adviser has policies ensuring the figure is relevant to the specific intended audience, and supplies the underlying criteria, assumptions and risks. Since a public web page has no known audience, that condition is close to impossible to meet in mass-market advertising. The first Marketing Rule enforcement, against Titan Global Capital Management in August 2023, involved an annualised 2,700% figure for a crypto strategy extrapolated from about three weeks of results; the settlement ran to roughly $1 million. A follow-up sweep in September 2023 charged nine advisers over hypothetical performance on their websites, with penalties in the tens of thousands each.

In the UK and EU the framing rules are tighter still for retail: a target is not a promise, the assumptions behind it must be stated, capital-at-risk wording must appear, and the target must never carry the visual weight of an achieved return.

Language test: replace "will deliver 7%" with "aims to deliver 7%, which is not guaranteed and may not be achieved." If the sentence still sells, it is compliant. If it collapses, the original was overselling.

3. Composite construction

When you claim a strategy return rather than a fund return, the number comes from a composite, and the GIPS standards define how it may be built. Every actual, fee-paying, discretionary portfolio managed to that strategy has to sit in at least one composite. The composite definition is set in advance from the strategy, not chosen afterwards from the results.

The edge cases are where records break:

• Terminated accounts stay in the composite for the periods they were managed. Drop them and you have manufactured survivorship bias in a claim you will be asked to substantiate.
• Firms must present at least five years and build towards ten, with composite dispersion and the number of portfolios disclosed. A composite of two accounts with a 900 basis point spread is a different claim from a composite of eighty.
• Track record portability when a manager moves is not automatic. The decision-makers, the decision-making process and the supporting records all have to travel with them, otherwise the new employer is advertising performance it did not generate.

4. ESGESGA framework for measuring a company on environmental, social and governance factors, used by investors, regulators and buyers to judge non-financial performance.View full definition → and sustainability labelling

Labelling claims now carry their own arithmetic. ESMA's fund naming guidelines require at least 80% of investments to meet the environmental or social characteristics implied by the name, plus prescribed exclusions; they applied to new funds from November 2024 and to existing funds from May 2025. The FCA's anti-greenwashing rule took effect on 31 May 2024, its four SDR labels from 31 July 2024, and its naming and marketing rules for unlabelled funds from 2 December 2024.

Two enforcement outcomes show what actually gets punished. BNY Mellon Investment Adviser paid a $1.5 million SEC penalty in 2022 because materials stated or implied that all investments in certain funds had passed an ESG quality review when a number of them carried no ESG score at all. The claim was about process, not returns, and it still failed. DWS, Deutsche Bank's asset manager, settled with the SEC for $19 million in 2023 over ESG statements that its own implementation did not match, and a German prosecutorial fine of around €25 million followed in 2025; its chief executive had already resigned in 2022 after prosecutors searched the offices. In between, DWS tightened the definition behind its reported ESG assets and the figure fell sharply. That restatement is the second-order cost: once the number moves, every past promotion built on it becomes an exhibit.

🎬 [VIDEO: "How the FCA's Consumer Duty changes financial marketing" - youtube.com - a plain-English walkthrough of the fair value and communications expectations for retail products]

Prominence, balance, and the "grey footer" problem

Prominence is a formatting rule with legal force: the risk warning has to be as noticeable as the benefit claim. Both the FCA and the SEC use equal-prominence language, which means a compliant page can still fail. Print the one-year return at 48 point and the five-year line at 8 point and both numbers are present, both are true, and the piece is misleading.

Checks worth running on the artwork itself:

• Is the warning in the same visual field as the headline return, in comparable size and contrast? Colour counts: pale grey on white is a known failure.
• Does the piece show a down year, or only the recovery?
• On social media, does the post carry the warning itself? A link to the warning does not discharge the obligation, and the FCA has challenged finfluencer content on exactly this point.
• Does a video or carousel keep the warning visible long enough to read, rather than flashing it on a final frame?

The FCA finalised guidance on financial promotions on social media (2024) is a free, readable reference for short-form and influencer content.

Substantiating the number

Every claim above has to be reproducible on demand, separately from the sign-off machinery the launch lesson covers and the outcomes tests the Consumer Duty lesson applies. US advisers must retain the records supporting any performance figure they advertise, and the Marketing Rule extended that to hypothetical performance and to evidence of the intended audience it was tailored for.

In practice, a claim file holds: the source return series and its cut-off date, the fee basis and the assumed charge, the benchmark ticker and version, the composite definition in force at the time, and the ESG data vendor and methodology date behind any threshold claim. That last one bites more often than teams expect. If a vendor rescores an issuer mid-year and the portfolio drops below the 80% naming threshold, the fund name becomes a claim you can no longer support, and the remedy is a rename or a rebalance, not a footnote.

Key takeaways

• Prescribed periods do the heavy lifting. Five complete years under COBS 4.6, one, five and ten years to quarter-end under the SEC rule: the format is what prevents cherry-picking.
• Hypothetical and simulated returns are permitted narrowly and almost never to an unknown public audience. Titan's 2,700% extrapolation is the reference failure.
• Composites are defined before the results exist, keep terminated accounts, and disclose dispersion. Portability travels with people and records, not with the logo.
• Sustainability names now carry a percentage test and an evidence trail. BNY Mellon was fined over a process claim; DWS over a definition it later had to narrow.
• Equal prominence is a rule about type size, colour and screen time. A page can contain every required number and still breach it.