Performance Guarantees Prohibition
Chapters in this video
- 0:00 The Avery and Ivy setup: specific rate guarantee
- 1:08 The blanket prohibition under state and federal law
- 1:54 The client-requested exception trap with Clara
- 2:42 The break-even illusion as minimum outcome guarantee
- 4:26 Permitted performance communication and safe harbors
- 5:06 Performance guarantee versus fee refund guarantee
- 6:12 Rapid-fire exam recap
What this video covers
- The blanket prohibition on guaranteeing specific rates of return, particular outcomes, or any performance results under state rules and the Investment Advisers Act of 1940 (IAA)
- Why the "client asked me to" defense fails, and why the prohibition applies regardless of how the guarantee is worded or who demands it
- Why a break-even promise is still a performance guarantee, since promising zero loss is promising a specific minimum outcome
- The underlying rationale: guarantees artificially remove market risk from the client's mind, distort decision-making, and violate antifraud authority and fiduciary duty
- What is permitted: historical performance discussion, reasonable projections with disclaimers, and past performance explanations with proper disclosure
- The exam's ultimate curveball: why a money-back guarantee on advisory fees is legal (service quality guarantee) while a guarantee of investment results is illegal
- How to distinguish prohibited quotes like "you can't lose with this strategy" from permitted fee-refund language on test day
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 65 course also includes adaptive practice questions and spaced-repetition flashcards, free through December 31, 2026.