Ho Ho Ho…Tis the season. It’s that time of year again – the holiday season is officially upon us. This time of year always brings such excitement; the turkey and cookies, family and friends, ugly sweater parties, and of course the spirit of giving.
With all this excitement, the last thing on your mind is compliance. However, this is also the time of year where you may be giving gifts to and receiving gifts from clients and other various vendors (like a well deserving compliance consultant). At this time, it is important that you evaluate and adhere to your firm’s policies and procedures surrounding gift giving and receiving.
While the Investment Advisers Act of 1940 (the “Act”) does not prohibit registered investment advisers (“RIAs”) from giving or receiving gifts, Rule 204A-1 of the Act does require RIAs to establish, maintain, and enforce a written Code of Ethics. (See www.ecfr.gov/cgi-bin/text-idx?SID=6dec71bde0cdaad16a331d63c3bd8b4f&node=17:4.0.1.1.22&rgn=div5#se17.4.275_1204a_61). The Code Ethics is designed to establish guidelines for the standards of conduct that is required of all supervised persons. In footnote 17 of the Adopting Release for Rule 204A-1, the SEC opined that advisers should consider placing limitations on the acceptance of gifts in their Code of Ethics. (See www.sec.gov/rules/final/ia-2256.htm#P80_16297).
While neither the Act nor Rule 204A-1 require gift giving or receiving to be specifically addressed in your Code of Ethics, it nevertheless is a best practice to do so. Since the act of giving and/or receiving gifts can be seen by clients as a breach of your fiduciary duty and/or a conflict of interest, it is a best practice to address the issue and identify how your firm mitigates any real or apparent conflict of interest.
As a best practice, you may wish to define the term “gift” and establish your firm’s de minimis value on the gifts that can be given or received. While the de minimis value may vary for each firm, depending its type of business, clients, and location, $100 is a generally accepted de minimis value. Additionally, your Code of Ethics should require any gift exceeding the de minimis value to be reported to and approved by the Chief Compliance Officer prior to giving or accepting the gift. As a best practice, your Code of Ethics should also prohibit all cash gift, cash equivalents, and extravagant entertainment. Lastly, as a best practice, your firm should maintain a gift log of the gifts given and received by the firm and its supervised persons.
Thus, before you start making your list and checking it twice, we recommend you first review your Code of Ethics to determine if your firm has any gifting guidelines in place. If your firm does, you must ensure adherence to the guidelines. If your firm does not have any gifting guidelines in place, we recommend that you contact your NCS Regulatory Compliance consultant to assist you in developing guidelines that are appropriate for your firm. If you have any questions regarding gifts and/or entertainment, please contact your NCS Regulatory Compliance consultant more information.
Finally, NCS Regulatory Compliance wishes you and yours a happy and safe holiday season.
http://www.ncsregcomp.com/team/deeann-dempsey/