How to address Yield in Marketing: SEC Marketing Rule

The SEC’s Marketing Rule, Rule 206-4(1), outlines specific criteria for the disclosure of “performance.” However, determining whether metrics like yield constitute “performance” under this rule seems ambiguous. Based on our experience, yield information falls into one of three categories:

1. Performance – prompting the Marketing Rule’s requirements;
2. A portfolio characteristic – exempt from the performance presentation rules; or
3. Both

While SEC staff have discussed this ambiguity publicly and privately, a definitive stance on the treatment of yield in advertisements remains elusive. In practice, presenting the actual yield of an account or composite often qualifies as performance, as it aims to demonstrate the income generated and expected.

Conversely, the yield of an individual investment, such as a specific bond, could be considered a characteristic, especially when presented alongside other metrics like duration and maturity.

Determining if yield should be considered performance or characteristic may also depend on its intended use and the overall context. For instance, displaying the average yield of investments as part of a risk assessment suggests it may be a characteristic, while presenting the portfolio’s yield likely implies performance under the Marketing Rule. Similarly, the yield of an individual investment may be deemed a characteristic or “extracted performance” based on context.

You may also want to consider the significance of yield to the performance presented as this could also determine how the SEC may interpret the information. During the 2023 GIPS Conference, extensive discussion was had about the significance of yield to strategy performance. For example, the yield of a bond portfolio may be more likely considered performance while dividend yield, presented for a large cap equity portfolio, could be regarded as a characteristic.

What to do

To navigate this ambiguity, we recommend that firms pre-determine whether a metric is intended as performance or a characteristic and document this decision and reasoning internally. If yield is deemed a characteristic, marketing materials should reflect this classification and include appropriate disclosures. All presentations should include comprehensive performance disclosures, including gross and net figures over relevant time frames.

Although SEC staff interpretation may differ, internal documentation and disclosure can mitigate regulatory risks unless expressly contradicted by SEC guidance.