On January 15, 2026, the SEC staff released an FAQ clarifying how investment advisers should approach the use of model fees versus actual fees when calculating and presenting net performance in advertisements.
The FAQ reiterates that “net performance” may reflect either:
- The actual fees charged to a portfolio, or
- A model fee, provided certain conditions are met.
While both approaches are permitted under the Marketing Rule, the use of actual fees can raise compliance concerns, particularly when the fees historically charged are lower than those currently offered to the advertisement’s intended audience. In such cases, presenting net performance based solely on actual fees may overstate returns because the actual fees that were applicably historically would not be offered to new clients. In the FAQ, the SEC staff is reinforcing the principle that advertisements must not create misleading inferences regarding the performance a prospective client could reasonably expect to achieve.
Practical Considerations
- If current fee schedules are higher than historical fees, presenting net performance based solely on actual fees may overstate returns.
- Disclosure may help mitigate risk, but it is not a safe harbor.
- A model fee based on the current fee schedule (or a higher fee schedule) is likely to be the most conservative and supportable approach, especially for risk-averse firms.
As with many aspects of the Marketing Rule, whether a particular presentation violates the general prohibitions will depend on the facts and circumstances. However, advisers are cautioned not to rely on disclosure alone in situations where net performance materially exceeds what a client paying the current fee would have earned.
Firms should evaluate whether applying a model fee that aligns with their current pricing or a conservative default rate better serves both regulatory expectations and internal risk tolerances. While flexibility exists, defensibility remains paramount.
