Practice Management

Finra wants to raise the annual gift limit

Brokerage representatives will be able to breathe a little easier when they're buying gift baskets for fellow professionals during the next holiday season.

With any luck, brokerage reps will be able to breathe a little easier when they’re buying gift baskets for fellow professionals during the next holiday season.
According to a proposed rule change from Finra earlier this month, the self-regulatory body wants to increase the total annual value of gifts that can be given to individuals to $175 per year from $100.
The value of the current $100 limit, which has been in place since 1992, when it was increased from $50, has been eroded by inflation, according to an analysis by the Financial Industry Regulatory Authority Inc.
As inflation has grown at an average annual rate of 2% over the past 24 years, brokers have been forced to hold back on the amount of appreciation they could express to individuals at firms with which they do business.
Even though a new $175 limit could be lagging inflation again shortly after taking effect, it is viewed as progress, according to Myles Blechner, senior consultant at NCS Regulatory Compliance.
“Just the fact that they’re looking to update it is a step in the right direction,” he said. “It’s really hard to find a nice gift basket for less than $100.”

(More: New Finra execs should toughen investor protection rules)

Gift-basket price inflation notwithstanding, the proposed rule change does introduce some quizzical realities about what does and does not constitute a conflict of interest, and the guesswork around quantifying the influence.

ARBITRARY LIMITS

According to Finra’s current guidelines, giving someone $100 worth of gifts during a single year is just being polite, but at $101, that broker or rep has meandered into a potential conflict of interest.
Some will argue that the line has to be set somewhere and a higher dollar limit is better because, well, those darn gift baskets are not getting any cheaper. But another way of looking at it could be that arbitrary limits on the value of gifts just add up to arbitrary assumptions on what it costs to influence another professional.
Most ludicrous of all is the idea of dancing around the value of a potential conflict of interest. Because, as the saying goes, a potential conflict of interest is a conflict of interest.
If Finra really wants to have an impact on this issue, it should either place a general ban on the practice of gift giving or remove the limit entirely.

(More: Finra targets variable annuities as ‘sweet spot’ of scrutiny)