Best AI for AdvisorsWhat is hypothetical performance?
Short answer
Under the Marketing Rule, performance results not actually achieved by any of the adviser's portfolios, such as backtests and projections.
Definition
The Marketing Rule defines hypothetical performance as "performance results that were not actually achieved by any portfolio of the investment adviser." It includes things like model or backtested results and targeted or projected returns.
Advisers can only show it under conditions, including policies and procedures reasonably designed to make sure it's relevant to the likely financial situation and objectives of the intended audience, plus information about the assumptions and risks.
Why it matters for advisors
AI tools make it easy to produce projections, backtests and "what if" charts in seconds. Dropped into a blog post, a social graphic or a prospect deck, those can become hypothetical performance in an advertisement.
Projections in a plan built for one existing client may be treated differently from mass marketing. Check the SEC's marketing FAQs and ask your CCO where a given use falls.
The safest habit is to treat any AI-produced chart or number about returns as a compliance question before it's shared outside the firm, and to keep the inputs and assumptions that produced it.
Example
An advisor asks an AI assistant to chart how a sample portfolio would have done over 20 years for a LinkedIn post. The CCO treats it as hypothetical performance and the post doesn't go out without the required controls.
Watch out for
AI-generated numbers can be invented as well as hypothetical. Never publish figures you can't trace to a source and a method.
Related terms
- SEC Marketing RuleRule 206(4)-1 under the Advisers Act, which governs investment adviser advertisements, including AI-written ones.
- Testimonials and endorsementsUnder the Marketing Rule, statements about an adviser by current clients (testimonials) or by non-clients (endorsements).
- HallucinationWhen an AI tool states something false or made up as if it were fact, such as a wrong figure, rule or citation.
Learn more
Sources
Not legal or compliance advice. This is a plain-English summary for general education. Rules change and depend on your firm's facts, so check the primary source and talk to your CCO or counsel before relying on it.
Last updated .