Financial incentives and gifts

In the scope of business development, the advisor cannot use financial incentives or gifts to encourage a client to finalize a transaction or do business with him.
However, a advisor may give his client a gift to thank him for his loyalty or because he recommended him to someone. There are no specific rules on this topic. However, the advisor must follow several basic principles:

  • Give an unexpected gift to a client

    The advisor cannot promise a gift or financial incentive in advance to encourage a client to do business with him. This practice is similar to a form of compensation or commission.
  • Opt for a modest item

    To avoid confusion about fee sharing, it is better to gift a modestly-priced item rather than a sum of money. It may be helpful to know that gift cards are considered items.
  • Learn the rules

    If applicable, the advisor must learn about the requirements or specific rules of the brokerage, company, or firm for which he works.

The section Conflict of interest management addresses the possibility of the advisor receiving a gift from a client.

Below are examples of what an insurance advisor or financial planner cannot give to his clients in the scope of business development:

  • Any kind of benefit for the use of his services

    The expression “any kind” requires a broad interpretation, and includes all forms of promotions that aim to obtain a sale with a client, such as providing a gift card when the client agrees to work with the representative.

    Any kind of benefit offered by the advisor to a client could be perceived as fee sharing paid to the advisor by the insurer or the employer for each policy sold. The advisor cannot use part of this commission to give his client a discount for using his services. For more details on this topic, refer to the section Compensation.
  • A premium discount or waiver, or a form of premium payment other than what is stated in the insurance contract, without the insurer’s knowledge

Below are specific examples of situations that arose in the CSF’s disciplinary committee decisions in which the advisor offered a prohibited incentive:

  • The advisor told potential clients that if they purchased a specific product, they could take advantage of additional benefits. (Decision CD00-0446)
  • The advisor deferred the first premium for his client, who was unable to pay it. (Decision CD00-0957)
  • The advisor transferred the policy that the client no longer wanted to a trust for which the advisor was the trustee and his daughters were beneficiaries, and paid $20,000 to his client and $261,000 to this client’s company as compensation. (Decision CD00-0860)

The advisor may take on all or part of the fees that his client must pay for the redemption of his securities when the advisor advises him to transfer these securities from one investment company to another. However, there are still conditions that must be met:

- The participating brokerage or representative working for it must provide to the bearer, from whom he is preparing to purchase securities, written information about the following items, before any process related to the redemption:

  • a reasonable estimate of the amount of fess or commission due from the participating brokerage for the redemption
  • a reasonable estimate of the redemption fees to be applied to the bearer for the securities purchased, both in absolute value and as a percentage of the value of the securities purchased, as well as the periods in which these fees will be applied
  • a report of the tax consequences of the redemption

- The advisor must obtain written consent for the redemption execution from the investment company from which he is preparing to purchase securities.

- The brokerage for which the representative works cannot be a member of the investment company from which the securities are purchased, for neutrality purposes.