Additional compensation arrangements - IV b

  1. Client sends you flowers as an appreciation for good service. Required to disclose or not?

  2. After a meeting with a client, client picks up the dinner tab at a nice restaurant as an appreciation for good, responsive sevice. Disclose or not?

The monetary value of either is $100.

Most firms have strict policy on disclosure . Investment professionals must report gratuity of any kind that exceeds $100

I do not know if the 100$ rule applies any more with the new standards. Do not see reference to it.

I think the new standard IV(B) is disclose to your employer - and let him make a decision as to whether it is suitable to accept.

The $100 was there to illustrate that both gifts were equal. I would have thought both should be reported.

But, Schwser practice exams book 2, test 1, #9, they don’t seem to think that way. I’m trying to figure out why.

9 -> she has disclosed the flowers and gifts to her supervisor. So she is fine there.

but the offer of the condo has not been disclosed. So she needs to do that.

What’s wrong with answer B? She doesn’t have to disclose the gifts because she’s already done so? WTF kind of answer stem is that?

she may accept the gifts after disclosure … and getting approval. step is disclose then proceed.

if the supervisor feels there is a conflict - they will stop you.

since it has been disclosed but the condo has not been - only A) is the right choice there.

This stuff is always so nuanced, but i remember reading that the key is that it is up to the firm’s written policies on what is deemed material and what is not. The $100 rule no longer applies. I would not use Schweser for ethics, stick to CFAI there.

I’m trying to find in the guidance to IV b where CFAI discusses small inconsequential gifts, but nowhere is it mentioned, at least directly.

I would think these would fall under standard I.B since they are gifts not additional compensation.

I think of additional compensation as an agreement BEFORE performance, and gifts as non contractual. Since there was no contract stating that the manager would receive flowers or food if a good job was done, then these are gifts.

Under standard I.B the manager would not be able to accept any gifts that could reasonably be expected to influence their objectivity. Modest gifts are ok, and I would consider both of these as modest. I would expect both of these to be ok to accept without the need for disclosure.

Thank you FinNinja; I’ve always been confused by the compensation vs. gift distinction, and I felt like this was a case where disclosure wasn’t necessary for some reason, which you clearly explained.

There is a section somewhere ( i don’t have the books on me ) that says the firm has to have written policies to determine what would reasonably impair judgment. On the disclosure, I am not 100% sure but I think that also is up to the policies, in general I would disclose a bag of popcorn just to be safe unless i see something that says the firm deems it unncessary. It would be helpful if someone could find this specific text… i will look when im at home.

I just want to type this out so I remember it. Outside activities need to be acknowledged in writing by employeer. Additional compensation, all parties have to provide written consent. How about second jobs and referral fees?

just looked. Referral fees need to be in writing

I’m pretty sure second jobs need to be in writing.

Only if the second job is competitive with the practices of the main job! I was always confused by this because the CFAI text says “independent practice” which makes you think the second job could be completely different from the main job and still require disclosure. In truth, when CFAI says “independent practice”, they actually mean independent in the sense that it’s a completely separate flow of income/unrelated to the employer, but still in the same competitive field.