The financial advisory industry has rigorous rules that apply specifically to the acceptance of gifts from clients. These regulations help uphold a transparent and ethical financial advisor-client relationship, which can minimize potential conflicts of interest. Financial advisors who dismiss these rules may face repercussions, including fines and license suspensions or revocations. Here's what you need to know about gift acceptance rules and how to effectively navigate these regulations.
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Rules on Accepting Gifts as a Financial Advisor
Gift acceptance regulations in the financial advisory industry primarily focus on hindering unethical behavior and maintaining a certain level of honesty between advisors and clients.
According to FINRA Rule 3220, financial advisors are only allowed to accept gifts valued up to $100 annually per person. This rule aims to "avoid improprieties that may arise when a member firm or its associated persons give anything of value to an employee of a customer or counterparty and to preserve an employee's duty to act in the best interests of that customer."
Excluding the $100 limit set by the FINRA Board of Governors, there are three other exceptions to this rule:
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Occasional meals, tickets to sporting events, theater or comparable entertainment that is neither frequent nor extensive.
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Payment or reimbursement by product issuers, advisors, underwriters and their affiliates in connection with training or education meetings.
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Internal firm non-cash compensation arrangements that are based on total production and equal weighting of product sales.
Neither of these can be preconditioned on the achievement of sales targets.
SEC Rules for RIA Firms
Registered investment advisors (RIAs) are also subject to Securities and Exchange Commission’s (SEC) regulations when it comes to accepting gifts from clients.
According to the federal agency, "employees may not accept, directly or indirectly, from clients gifts in excess of $100 per calendar year per client."
Additionally, RIA employees must:
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Report a business meal, tickets to a non-major sporting event or other similar entertainment, including the name of the client, the date of the event and the type of activity that took place.
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Never accept any gift, even under $100, if it's intended or reasonably judged as causing an RIA to act inconsistently with their fiduciary duty or make an employee feel beholden to a client or representative.
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Never accept cash gifts in any amount.