Whether it’s an innocuous holiday gift from a client or tickets to a baseball game from a sales representative, your employees will, at some point, be faced with receiving or giving gifts in a professional capacity. In the financial services industry, these occurrences are heavily regulated. Advisory firms need to protect themselves and their employees from the get-go with a comprehensive gifts and entertainment policy.
Here’s a list of do’s and don’ts for developing and implementing your gifts and entertainment policy.
Do: Provide clear examples directly in your policies and procedures
Give your advisers the upfront advantage of knowing what constitutes a “gift” or “entertainment” by giving clear written examples of both in your policy. While your goal is to make your gifts and entertainment rulings as black and white as possible, there are some grey areas that can be interpreted differently by different people. Try to address those potential circumstances by explaining what a tangible gift may be, as well as more subtle gifts like store discounts or perks.
There can also be some confusion regarding what counts as a gift versus entertainment. Define the difference for employees and try to address various scenarios in which the distinction could be confusing, such as receiving tickets to an event.
It’s hard (even impossible sometimes) for employees to comply with the rules if they don’t fully comprehend them. Helping employees understand the differences is key to getting them onboard with your organization’s greater compliance efforts.
Don’t: Skip over the “why” behind gifts and entertainment policy
You’re more likely to get full team buy-in when you explain some of the reasoning behind your compliance policies, rather than just expect everyone to adopt new procedures blindly. Understanding the “why” can give people more motivation to hold themselves and their coworkers more accountable, especially when they know violations can have ramifications on the whole organization.
There are different rules that your compliance team can refer to for support, depending on who your regulatory authority is. For example, the FINRA rule 3220 and Section 17(e)(1) of the Investment Company Act outline specific guidelines for broker-dealers and investment company advisory personnel. But for retail investment advisers, the guidelines are less clear, and there isn’t one specific ruling to which compliance teams should refer their advisors. Instead, they can emphasize the firm’s commitment to complying with the Investment Advisers Act’s anti-fraud provisions.
Do: Clearly demonstrate the process for logging gifts and entertainment
While every firm may handle the process a little differently, it’s important to have a system in place for your employees to log any gifts and entertainment they receive or give to others. The process should cover all aspects of receiving or giving gifts, including pre-approval requirements. If your firm is ever audited, auditors will expect to see your gifts and entertainment logs.
Make it easy for your employees to understand and follow the logging process. Provide a link they can use to digitally track their expenses or request pre-approval. Do a screen recording of someone on your compliance team demonstrating the process so nothing is left up to chance. Give people the ability to submit questions at any time, should a question about your logging process arise in the future.
Don’t: Leave it up to individuals or locations to develop their own logging method
If you oversee multiple locations or multiple teams, create a unified logging process for all employees. Doing so helps ensure everyone is seeking the appropriate approvals and providing the necessary information. Trying to pull together records after-the-fact with disparate levels of completeness only leads to headaches and, in the worst case, fines from regulators.
Do: Explain how nominal gifts should be handled
Your advisers will inevitably give or receive gifts considered to be “nominal” at some point. Create a distinction for employees to better understand what is considered nominal (often items valued less than $100) and what needs pre-approval.
If your practice wants nominal gifts and entertainment excluded from all firm pre-approval requirements, you’ll need to make that clear in your compliance communications and trainings. Otherwise, your compliance department may be inundated with unnecessary pre-approval requests for trivial items, such as pens or mousepads.
As you explain nominal gifts, make it clear that these types of gifts still need to be logged – even if pre-approval isn’t required.
Don’t: Skip your gifts and entertainment policy and updates in your ongoing trainings
When a new person joins your team, they’ll likely go through a comprehensive compliance training. But as with many other aspects of compliance, ongoing training and repeat communications regarding gifts and entertainment is important.
You may want to conduct regular (annual or semi-annual) stand-alone trainings on gift and entertainment policies, especially if these are frequent occurrences in your practice.
Do: Streamline regulatory compliance processes
Creating a digitally driven compliance experience for your advisers can help reduce manual error or omission and make it easier for compliance teams to track critical data. Compliance software like ComplySci can help automate the gift and entertainment pre-approval process, making life easier for both your advisors and compliance officers.
See for yourself how ComplySci can streamline your gift and entertainment processes in 2023 by scheduling a live demo today.