Gifts and entertainment can establish goodwill between securities professionals and their clients. However, some gifts and entertainment benefits can be too frequent or so excessive as to give rise to an appearance of improper influence. To prevent improprieties, governmental agencies and self-regulatory organizations have implemented rules limiting the value of gifts and entertainment that can be given and received. Enforcement actions can lead to fines, loss of reputation, and in some cases, loss of business.
Often overlooked by investment advisers and broker-dealers is the U.S. Department of Labor's ("DOL") limitation on the value of gifts given to fiduciaries of ERISA plans, such as plan trustees. Under DOL guidelines, gifts, gratuities, meals, and entertainment for ERISA fiduciaries are limited to an aggregate annual value of $250 per planned fiduciary. Excluded from the limit are reimbursements to a plan or fiduciary associated with attendance at an educational conference, if the plan fiduciary reasonably determined that:
- payment of educational expenses was prudent without regard to reimbursement;
- expenses were consistent with a written plan policy designed to prevent abuse;
- the educational conference had a reasonable relationship to the duties of the attending fiduciary; and
- expenses for attendance were reasonable in light of the benefits afforded to the plan, and unlikely to compromise the attendee's ability to carry out his or her duties.
The fiduciary's determination for allowing educational reimbursements should be in writing. Firms who fail to fall within the guidance run the risk of violating ERISA's anti-bribery statute. It is important that a firm's compliance policies and procedures clearly identify these limits and establish protocols for reviewing and monitoring gifts and entertainment.
Next week, we will have more on the DOL rules covering gifts and entertainment for union officials. For help on this important subject or other compliance topic, please contact Genevieve Tenorio at (619) 278-0020 or firstname.lastname@example.org.