By the Book

Maribel Gerstner makes
sure Allstate’s meetings
won’t raise red flags.

Working within the constraints dictated by the Financial Industry Regulatory Authority -- a nongovernmental body responsible for enforcing compliance with security regulations affecting 5,100 U.S.-based brokerage firms -- is one of the most challenging issues facing financial and insurance meeting planners today.

The rules that govern training and education meetings -- including entertainment, gratuities, gifts and incentives -- are dense and complex, not to mention maddeningly ambiguous, leaving plenty of room for interpretation and, consequently, pitfalls.

In the past several years, scrutiny of the securities industry, long known for its lavish business entertainment, has resulted in millions of dollars worth of fines to several firms. In February 2007, four Boston-based Fidelity broker-dealers were fined $3.75 million for, among other things, failing to maintain proper registration records. Likewise, in December 2006, New York City-based investment banking firm Jefferies & Co. was fined $5.5 million for providing improper gifts and excessive entertainment to equity traders of another broker firm, such as expensive bottles of wine, golf outings, hotel accommodations and Superbowl tickets.

To help deconstruct FINRA’s guidelines and ensure a compliant event, M&C spoke at length with Maribel Gerstner, assistant vice president and chief compliance officer for Northbrook, Ill.-based Allstate Distributors LLC and ALFS Inc., on how she guides the meetings team of the Fortune 100 company.

Compliance 101

There are several different but inter-related regulations meeting planners must follow when structuring trips or meetings for the registered representatives of broker dealers of other companies. For example, rules 2820 and 2830 in the guidelines pertain to non-cash compensation and govern merchandise, gifts, prizes, travel expenses, meals and lodging. Rule 3060, known as the gifts and gratuities rule, outlines the dollar limits on gift spending and the nuances that must be considered.

Which rules apply depends largely on the nature of the event and the relationship of the company hosting the event to those attending. “Compliance is a two-way street,” says Gerstner. “It is incumbent on meeting planners to know the basic rules up front. From there, they really need to rely on their compliance departments for guidance.”

Several key elements form the basis of ensuring an airtight, compliant meeting. Diligent adherence to these, says Gerstner, means the chances of FINRA knocking on your door demanding an audit will decrease significantly.

* Purpose of the meeting. This will dictate location, agenda, the guest list and meeting spend. The regulations that govern a training or educational meeting do not apply to a purely business meeting or a company’s in-house incentive program.

* Location. Where meetings are held is one of FINRA’s great gray areas. The rules addressing this issue use terms such as “reasonable” and “proximateness” to describe how location should be determined. FINRA interprets that to mean a site near an office of the representatives' (attendees’) firm or the product manufacturer. But does that mean within a 200-mile radius? How about a two-hour flight?

Your best bet, says Gerstner, is to pick a site/venue near the greatest number of people who will be attending the event. One way to do that is to figure out where the firms have the greatest concentration of representatives. “If you are doing a bunch of meetings involving people from all over the country, it makes more sense to conduct a series of regional meetings, rather than fly everyone to one location,” notes Gerstner, who adds that Allstate’s central Chicago location makes that decision an easier one for the company’s planners. “It’s definitely not about what would be the coolest place to hold this meeting. Does that mean you can’t hold a meeting in Hawaii? No, but it’s probably not a good idea, unless you are headquartered there.”

A Financial Planner's Reality

Kim Boriin, CMP

In July 2007, a significant change came about for those in the securities and financial industry, including the professionals who plan meetings in that arena: The Financial Industry Regulatory Authority, or FINRA, was created from the merger of NASD (previously known as the National Association of Securities Dealers) and the New York Stock Exchange’s member regulation, enforcement and arbitration divisions.

All financial meeting planners must follow FINRA’s guidelines. Just how difficult is it? Following are some insights from Kim Boriin, CMP, senior event marketing specialist for New York City-based Guardian Investor Services LLC and volunteer board member for FICP, the association for Financial and Insurance Conference Planners.

What is your job description?

I’m an event marketing specialist. I manage FINRA-compliant sales meetings for Guardian Investor Services LLC.

To what guidelines are you required to adhere?

A myriad of things. We have to confer with the firm we’re training; they need to approve which sales reps are invited, and we need to present them with an outline of the meeting so that their compliance people can review the destination, hotel property and content, and approve all of that. Then, quite often firms will ask to review all the contents of the meeting -- PowerPoints, marketing materials and so on.

That sounds pretty comprehensive. What else?

We follow a strict interpretation that for a half-day, whole-day or overnight meeting, there has to be a certain amount of content to justify that meeting. We follow guidelines that meetings are held in a city’s metropolitan center and that the meeting is held entirely on-site at the hotel -- no going off-site for meals. Also, there is no entertainment involved -- it is strictly educational content that supports the product, which in this case comprises annuities and mutual funds.

How do you feel about these requirements?

I think they make for an even playing field. It’s better than each firm trying to out-do one another with destinations and entertainment. This way it’s just about the product. 
-- HUNTER R. SLATON

* The guest list. FINRA is very clear on one mandate: Participation in any meeting or event, regardless of its objective, cannot be conditioned on the basis of achieving a sales target. The only exception is when a company is conducting a meeting where only its own employees are participating. Beyond that, says Gerstner, “It’s a dance.”

Your company’s wholesalers are a good starting point in putting together a guest list. Ask them which representatives they would like to invite, and have them name five potential candidates. That way, if a potential candidate is named by several company wholesalers, the planner can go back to them and request an alternate attendee. Another angle is for the wholesalers to ask the firms which of their representatives they think would most benefit from attending the meeting. This might prove an even more efficient approach, because while the wholesaler might have a representative in mind, the firm might not agree with their choice. “Very often, the firms will take a look at the meeting’s agenda and nominate their own candidates for attendance,” says Gerstner.

Another criteria that absolutely must be adhered to is that the host company cannot pay for any expenses of the guest of a registered representative. And if representatives bring guests, in no instance should they be allowed to participate in any part of the event being paid for by the host company. The way to avoid any sticky situations, says Gerstner, is simply to have a “no guests” policy.

* Attendee approval. Before a representative of any firm can be cleared to attend an event, the meeting planner must obtain approval from that firm, in the course of which the planner needs to provide detailed information such as a cost estimate of what is projected to be spent on the representative, the meeting’s agenda, location and who else will be attending.

A firm might say no for any number of reasons. “Perhaps the person being invited is a popular, high-producing rep who gets invited to a lot of events, or one who has had disciplinary problems,” says Gerstner. Not sure who to get approval from? Ask the account managers from your company who are assigned to the firms being invited. They will be able to put you in contact with the right person.

Another factor to keep in mind is the ratio of invitees to employees. If the meeting is purely an educational one, it can be one employee to 50 representatives, or even higher. However, if there is any type of social activity, such as a reception, it is better to narrow the ratio to avoid scrutiny. At Allstate, the ratio used is no higher than one employee to 10 invitees.

* Duration of meeting. In order to meet FINRA’s travel and entertainment guidelines, which prohibit a company from paying for the recreation and entertainment of representatives of other firms, training and education sessions should occupy the entire day. For example, a program might consist of three hours of training in the morning, a break for lunch, and then another three hours of training. It’s not that the representatives can’t golf or visit the spa, it’s just that if they do, they will have to do it on their own time and on their own dime.

Another caveat: The company hosting the event can pay for invitees’ lodging expenses only at a time “proximate” to the event. Translation: “Obviously if the meeting is starting at 8:30 a.m., and people are flying in the night before, it’s all right to pay for their hotel rooms,” says Gerstner. “If you put them up a second night, then that needs to be for another whole-day meeting.”

A good rule of thumb, says Gerstner, is if a meeting ends at noon, do not include another night of lodging, because by FINRA guidelines, too much time will have elapsed from the close of the meeting to warrant that added expense.

* Record keeping. A paper or electronic trail is absolutely necessary to ensure compliance, and the rules require it. “It really becomes the planner’s burden to track all the expenses and invitee information. It is unfair, but they are the ones with all the data,” says Gerstner.

Record keeping is important for two reasons: Firms are going to ask for a breakdown of the expenses that relate to each of their representatives, and the meeting planner’s host company is going to need that information for its own records. “Let’s say you are inviting people from five small firms who are clueless about FINRA’s record-keeping requirements and didn’t know they had to ask for the costs incurred. You still have a duty to your own company to maintain those records,” notes Gerstner. “Where it comes to bite you is three years later, when regulators come in to audit those five firms, and all of a sudden those five are knocking on your door for their records. Guess what? Once again it’s your problem, because your company wants to keep doing business with those firms.”

Keep in mind

Entertainment and gift giving are two key areas planners would do well to keep on their radar. FINRA’s rules are specifically designed to prevent situations that could induce representatives from acting in the best interest of their customers, such as recommending the investment tools sold by the firm hosting the event.

* Entertainment. Business entertainment is defined as a social event offered in connection with a charitable, educational or business meeting. As such, for an event to be considered business entertainment, someone from the firm hosting the event must be physically present. If not, the event will be considered a gift and the $100 per year limitation will apply.

Initially, regulators had considered imposing a dollar limit on entertainment expenses, as they did with gifts. Instead, FINRA has left it up to corporations to set their own appropriate dollar limit and approval mechanism.

* Gift giving. Rule 3060 limits gifts to $100 per individual recipient, per year. However, this does not apply to gifts that fall substantially below the $100 limit, such as promotional items that display a firm’s logo. “Inexpensive promotional items like baseball caps and umbrellas are fine,” says Gerstner. “Expensive leather bags and etched crystal definitely are not.”