Can a pricey bar mitzvah gift break FINRA’s compliance rules?

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Q: A client invited me to their child’s bar mitzvah. I know I’m generally limited to a $100 gift, but this client is very wealthy and $100 seems very low. I know there’s an exception for bereavement gifts, but are there other exceptions to the $100 limit?

FINRA’s predecessor, the National Association of Securities Dealers, weighed in on this very issue in 2006, issuing Notice to Members 06-69. While the regulator generally prohibits advisors from bestowing gifts in excess of $100 per individual, per year on clients, that rule does carve out an exception for personal gifts.

That notice said “the prohibitions in Rule 3060 [now Rule 3220] generally do not apply to personal gifts such as a wedding gift or a congratulatory gift for the birth of a child, provided that these gifts are not ‘in relation to the business of the employer of the recipient.’

At the time, the association stated that whether a gift is “in relation to the business of the employer of the recipient” is based on a number of factors, including the nature of any preexisting personal or family relationship between the person giving the gift and the recipient, and whether the registered representative paid for the gift. The notice went on to point out that if a member firm incurs the expense of the gift — either directly or by reimbursing the registered representative — the presumption is that the gift is in relation to the business of the employer of the recipient.

In a December 2007 interpretive letter, FINRA addressed Rule 3220 in the context of bereavement gifts sent on behalf of a member firm or its associated persons. In the interpretive letter, FINRA focused on the fact that bereavement gifts typically transcend the business relationship and are therefore unlikely to influence the actions of others. The staff cautioned, however, that a bereavement gift that goes beyond what is “reasonable and customary” could be deemed to be a gift “in relation to the business of the employer of the recipient” and, therefore, subject to the rule.

In 2016, FINRA sought comment on a proposed amendment to Rule 3220 to raise the limit to $175 and to incorporate the guidance of Notice to Members 06-69 into FINRA Rule 3220 as supplementary material. In particular, the supplementary material would provide, in part that, “gifts given for infrequent life events (e.g., a wedding gift or congratulatory gift for the birth of a child) are not subject to the restrictions of the gifts rule or its recordkeeping requirements provided the gifts are customary and reasonable, personal in nature and not in relation to the business of the employer of the recipient.” (According to FINRA's website, the 2016 proposal has not been incorporated into Rule 3220.)

I would recommend that you run gift plans past your firm’s compliance department. But it seems that if a gift is reasonable, personal in nature and not in relation to your client’s business, your compliance department would approve it.

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