Here is Our Third conversation with MARIBEL GERSTNER, recently promoted to chief operating officer for Allstate Financial Services, Allstate's retail broker-dealer, in Northbrook, Ill. Formerly chief compliance officer of Allstate's wholesaling broker-dealers, Gerstner now has responsibility for broker-dealer operations and registration, traditional and securities compliance, and financial operations.
She has spent a lot of time rolling up her sleeves and delving in to the Financial Industry Regulatory Authority rules covering meetings and gifts. In previous conversations with FIM, she shared her knowledge of the rules on training meetings and incentive meetings. (Find these articles by visiting www.meetingsnet.com/financialinsurancemeetings and clicking on “regulations/compliance.”) In this issue, Gerstner offers guidance on the FINRA rules covering gifts.
FIM: Since it was created by a merger between the regulatory bodies of the National Association of Securities Dealers and the New York Stock Exchange, FINRA has been working on consolidating the NASD and NYSE regulations into a single rule book. In August, FINRA proposed a new gift and entertainment rule, FINRA Rule 3220, which incorporates the provisions of NASD Rule 3060. That rule prohibits broker-dealers from giving gifts to reps of other firms in excess of $100 per person, per year. Is there any material change to the former NASD rule?
GERSTNER: No, the rule remains unchanged. Many in the industry were hoping there would at least be an increase in the annual dollar amount to adjust for inflation, but that is not the case.
FIM: The gifts rule seems straightforward: You can't give an employee of another firm gifts that cost more than $100 annually. And yet many interpretations come into play — for example, whether or not certain gifts are excluded from the rule, such as gifts to commemorate a “life event.”
GERSTNER: The latest interpretation is that gifts to celebrate a life event, such as the birth of a child, don't count toward the $100 limit if the firm's registered rep is paying, but they do count if the firm is paying. Another recent FINRA interpretation is that gifts incidental to business entertainment or a conference count toward the limit. So if you provide an amenity to a rep of another firm attending a training meeting, the value of that amenity counts toward the $100 limit, unless it is of de minimis value. I had always interpreted these as outside the $100 limit. Again, this rule applies to reps of other broker-dealers attending your firm's meeting. A broker-dealer can give gifts of more than $100 to its own reps.
FIM: Are theater or sports tickets included in this rule?
GERSTNER: They are included under NASD Rules 2820 and 2830, the rules covering “noncash compensation.” These rules forbid noncash compensation (merchandise, gifts and prizes, travel expenses, meals, lodging). But there are exceptions. The exceptions are for gifts worth $100 or less, or occasional meals or tickets, or payment of travel expenses related to a training and education meeting. The gifts must be “occasional” and not “so extensive as to raise any question of propriety.” They can also not be preconditioned on achievement of a sales target.
FIM: What do “occasional” and “extensive” mean with regard to theater and sports tickets?
GERSTNER: This is really a reasonableness standard, and it's where interpretation of the rules comes in. It's mostly about the value and exclusivity of the event. There's a big difference between tickets to a regular season game and tickets to the World Series. There's also a big difference between tickets for one night and season tickets.
FIM: Can I give two tickets to a sporting event that cost more than $100?
GERSTNER: As a lawyer, I would say, “Yes, you can.” However, as a compliance officer, when wholesalers ask me if they can give a pair of tickets [that come to a total of] more than $100, I think it raises a question of propriety. Within the exact letter of the rule you can do it, but I'm not sure it follows the spirit. Companies have gotten in trouble for giving tickets to very high-priced events.
FIM: What about logoed items?
GERSTNER: FINRA recently gave additional guidance here. Putting a logo on a $500 piece of Waterford crystal and calling it a logoed item is not in line with the spirit of the rule. Nor is an embossed logo that's barely visible on a $300 leather bag. The item itself must have minimal value.