Over the last several months, there has been an increase in questions from registered investment advisers relating to using hypothetical performance information.  Generally, the use of such information is fraught with danger as well as SEC scrutiny.  Not so long ago, the SEC went after a number of investment advisers and forced them to pay a total in fines, interest, and disgorgement of nearly $10 million.  See  https://www.sec.gov/litigation/admin/2017/33-10443.pdf; https://www.sec.gov/litigation/admin/2017/34-82244.pdf; and https://www.sec.gov/litigation/admin/2017/ia-4823.pdf.

The SEC complained that these advisers did not have sufficient compliance procedures to effectively conduct an adequate investigation into the performance claims.  Essentially, the firms did not test the information being used to make sure it was accurate.  Such failures led to the monetary awards discussed above. 

In short (and as much as we preach), there is simply no way around having adequate procedures that are followed and implemented accordingly— unless, of course, you have a cool $10 million sitting around that you could turn over to the SEC when it knocks on your door.

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