Glossary
Hypothetical performance
Definition
Hypothetical performance is performance results not actually achieved by a portfolio, including model results, backtests and projections. Under the SEC Marketing Rule, advisers must have policies ensuring it is relevant to the audience and must disclose its criteria, assumptions and risks.
How hypothetical performance works
Retirement and growth projections presented by an adviser can fall within the definition.
Interactive client-run tools with appropriate disclosures are treated differently in the adopting release.
Why it matters to a firm
Understanding the line helps advisers use calculators confidently.
Calculators that use hypothetical performance
Questions about hypothetical performance
Are projections hypothetical performance?
They can be when an adviser presents them.
What disclosures are needed?
Criteria, assumptions, limitations and risks.
Does it apply to state RIAs?
State rules apply instead.
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Related terms: SEC Marketing Rule · Investment analysis tool
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