Gifts are a tricky part of any financial agent or adviser’s practice. On one hand, the giving and receiving of gifts is SEC regulated. On the other hand, it’s a key part of growing and nurturing a financial practice but ruled by words like excessive and extravagant that are highly subjective.
That is why every financial firm should have its own gift policy that it follows so that during even routine audits, it is able to produce written evidence of its commitment to being compliant as well as being a benchmark to check for disparities in practice.
While these gift policies will vary from firm to firm, each and every one should include some version of the following items to ensure that all of its financial advisers are clear about what is acceptable or inappropriate.
The Foundational Pieces of an Effective Financial Firm’s Gifts Policy
Every financial firm should define clearly what it considers a gift or entertainment.
Generally, a gift will be defined as something that is tangible, something that can be touched and taken possession of—golf clubs, cigars, a vintage bottle of wine, or a collection of small batch olive oils.
Entertainment on the other hand is an experience that is attended with the person providing the gift.
In other words, if you gave a client tickets to a sporting event that you attended with them, it would be entertainment. If you gave that client the same tickets and told them to take whoever they wanted, it would be a gift.
Once we know what is considered a gift and what is considered entertainment, it is a good idea to outline what is acceptable to your financial firm. This includes outlining what your firm will consider a nominal gift and what might need prior approval.
A nominal gift is normally given a prescribed dollar amount that serves as a maximum threshold before needing authorization. Because of the wording in FINRA Rule 3220, this amount is often set at $100 though recent rulings may see financial firms increasing that cap to $175.
Most entertainment limits are unfortunately forced to use vague language given the broad nature of entertaining clients. What is excessive in Pittsburgh, Pennsylvania might seem less so in a market like Los Angeles, California. In general, common sense should rule. Dinner, a round of golf, or a sporting event where you are also present are usually safe forms of entertainment.
There will be times where it is necessary or appropriate to exceed nominal gifts or entertainment amounts set by the firm. In these cases a firm’s gift policy should clearly lay out the steps for quick approval or denial of requests.
Procedures should include who requests should be sent to, what information should be included, and the expected lead time needed to ensure requests are processed in a timely manner.
Entertainment approval policies often outline specific dollar limits and categories for various items involved—travel, hotels, alcohol purchases, etc.
It is important that financial firms take the time to educate their agents, advisers, and financial planners on their current gift policy as well as any changes that take place. This should include more than an inter-office memo or email.
Firms often include this in continuing education credits, code of ethics training, or even informal role-playing during staff meetings. There are also a variety of third party training services if your firm has the budget set aside to utilize.
Finding a Client Gift Partner to Match Your Policy
One increasing trend is to find a gift partner that is approved by your firm to be used by your agents, advisers, and planners. This partner will be well-versed in your firm’s gift policy and thresholds and be able to gain any necessary approvals that are needed to make sure that your gifts are shipped and received in a timely fashion while still staying within your budget.
Here at Pasolivo, we work with professionals in the insurance and finance industries all the time and understand all the work and careful considerations that need to be made to ensure that you are both remembered and industry compliant. If you’d like to talk to one of our corporate concierges, click below, and we’d be happy to talk about some different options that may be exactly what your firm has been looking for.