What to do about lavish wholesaler gifts

The envelope arrives first thing Monday morning. Folded neatly within is a handwritten note, thanking you for attending last week’s product announcement. You unfold the creamy paper, and two colourful, embossed rectangles flutter out.

“I know you love the Oilers, and the playoff drought is finally over,” the note says. “Please accept these club seats for Game 3 as a token of our appreciation.”

Your heart leaps, then sinks as you realize the round-two pair is worth at least $650. You allow yourself a minute to stare longingly at the tickets, then reluctantly dial your branch manager.

Some fantasy, eh?

In a different time, that envelope’s arrival may not have been mere fantasy.

In early April, Sentry Investments agreed to pay a $1.5-million penalty to the Ontario Securities Commission to settle allegations it gave extravagant gifts and other non-monetary benefits to dealers between 2011 and 2016. According to the agreement, these benefits included Formula One tickets, elaborate 1920s-themed parties, helicopter tours and Tiffany’s jewelry.

Sure, those gifts were over the top. But reps shouldn’t have accepted them. (When asked if reps were being investigated, the OSC said in a statement: “As a matter of general policy, we do not comment on or confirm the existence, nature or status of any investigation or complaint.”)

Read: Compliance officers targeted for enforcement

We dive into the gifting policies at two firms for a sense of how to handle wholesaler and vendor generosity.

Thresholds for gifting

Things are pretty strict at ATB Investor Services, which employs about 110 advisors in Alberta.

“We don’t allow our advisors to go on due-diligence trips, even though they’re [typically] compliant,” says Chris Turchansky, president of ATB Investor Services. “We don’t feel comfortable with the outside perception of those.”

The firm used to allow the trips, but changed its policy several years ago when evidence emerged that they were influencing behaviour. “We studied the sales of our individuals after trips and things like that, and lo and behold, sales went up,” he says.

Now, Turchansky tells wholesalers, “If you’re putting [an event] on for a generic advisor population, and not advisors who have sold your funds, then [that’s permitted because] we want them to get the most relevant and meaningful information. But just to do something exclusive for us, we’d need to see what it is to make sure there’s no conflict presented.”

Given that trips are off the table, advisors typically encounter lunches, suppers, sports tickets and concert tickets, says Turchansky. (Hockey playoff tickets haven’t been common, given how the Calgary Flames and Oilers have fared over the last decade.)

At ATB, any gifts above $200 must be approved by compliance.

The threshold’s the same at Nicola Wealth Management, says Dannielle MacDonald, chief compliance officer at the Vancouver-based firm. The threshold refers to any single gift, be it tangible or intangible.

“When [a gift] starts to trigger any doubt, just consult your compliance department and get the internal guidance; no one is expected to know every subtle nuance [on their own],” says MacDonald, who adds her team of 150 rarely encounters gifting because of their fee-based structure and the company’s status as a fund manufacturer.

Advisors at ATB are also asked to self-report. “If they don’t ask and we find out later,” there are consequences, says Turchansky. He says he receives only three or four requests to approve gifts above $200 per year, adding, “We would also [require approval] on anything that a client would perceive as presenting the advisor with a conflict.”

Some of those requests have involved permitted activities that turned grey. “An advisor may be at a golf tournament, where the entry fee was under $200, but they won a prize,” he says. “If the prize is substantially over the $200, we would get them to donate it to the charity that the tournament supports, usually.”

As for lavish dinners, MacDonald says to “consider the invitation in advance.” If the restaurant only offers $400 tasting menus, you may have to decline. But if a more modest meal turns lavish – the host starts ordering expensive dishes and bottles – she doesn’t expect advisors to get up and leave.

“After the fact, coming back to compliance and looking at what risks might need to be mitigated because of the potential risk of conflict would be the best course of action,” she says. Options could include stepping aside on certain decisions, or bringing in an independent third party.

Turchansky adds that in a similar situation, compliance would monitor his reps’ activities afterward to see if the perceived conflict actually influenced behaviour.

Read: Worried about conflicts of interest? IIROC and MFDA are watching

As for what is allowed, if advisors pay for things themselves, that can help mitigate concerns. Turchansky says if a wholesaler provides access to event tickets, but the advisor pays for them, “I’d have to talk to compliance, but I would think that would properly free them of the conflict.” And if an advisor paid for her own ticket to a 50/50 charity draw and won the jackpot, she would likely be permitted to keep the proceeds.

But both MacDonald and Turchansky point out frequency and tone matters.

A vendor sending individual $100 gift cards to seven team members would probably not be allowed, for instance. “The aggregate gift for a team starts to become excessive,” MacDonald says. “It’s important that everyone adhere to the spirit of the law and principles, as opposed to parse out the exact letter of the rule.”

Similarly, says Turchansky, “if it’s a repeated $100 gift five times within a six-month period, that would go against our policy as well.”

How to decline politely

Both MacDonald and Turchansky suggest citing compliance when having to decline a generous offer. And it is possible – in fact critical – to say no politely, says Julie Blais Comeau, chief etiquette officer at EtiquetteJulie.com. “Whether you accept or decline, how you do so will reflect on your organization,” she says.

Start by recognizing and appreciating the hospitality. Then, specify why you’re declining, she says.

Going back to the Oilers tickets, Blais Comeau says you could call the gifter back and say, “You know me very well. I’ve been a fan my whole life. I know how difficult these tickets are to secure, and I really appreciate your thoughtfulness. Unfortunately, because of our strict company policy, I must decline.”

Conclude by alluding to the future and underscoring the professional nature of the relationship. A sentence like “I look forward to seeing you at the next conference” or “I look forward to our continued business relationship” would work.

She adds that this phrasing works particularly well if the gift is too personal (e.g., perfume), rather than too expensive.

If you have to send the gift back, let the gifter know via phone that the item is on its way to them; then, use a tracked method of shipping and include a note of thanks, with wording that echoes your phone conversation.

Read: ‘Disclosure is not a panacea,’ says IIROC head

You can follow the same “acknowledge, decline, allude” formula when someone gives you an extravagant gift in person.

If you must decline an intangible or consumable gift – a bottle of expensive wine at dinner, for instance – Blais Comeau suggests something like, “Thank you very much. I have to make it home safely; tomorrow’s a big day. I’m not going to drink [any more], but please feel free to go ahead and enjoy.”

If it’s a tangible gift, like expensive jewelry, she suggests wording such as, “That is so gracious of you, and it is a beautiful bracelet. I probably would have picked it myself. Unfortunately, I must decline, because of the very strict nature of my company’s gifting policy.”

And when a gift is something you are allowed to accept?

First, give them a call to say thanks. “Let them hear the joy and delight in your voice,” says Blais Comeau. Then, follow up with a thank-you note via postal mail.

Finally, a tip from Blais Comeau’s days in human resources: document everything. “Keep track of who gave you what, when and why. You never know when it might come back to haunt you.”

Compliance officers everywhere are cheering.

Rules around gifting

The Unofficial Consolidated National Instrument 81-105 and Companion Policy as of September 28, 2009 governs gift-giving for securities reps. The instrument has not specified numerical thresholds for prohibited non-monetary compensation, instead stating such compensation must be “of minimal value” and “neither so extensive nor so frequent as to cause a reasonable person to question whether the provision of the benefits or activities improperly influence […] investment advice.”

The Corruption of Foreign Public Officials Act “makes attempts by Canadians to bribe foreign public officials a criminal offence under Canadian law,” writes law firm Stikeman Elliott.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.