Funds Should Adopt Gift and Entertainment Policies
The staff of the Division of Investment Management has issued a guidance update stating that the receipt of any gift or entertainment by advisory personnel may violate the Investment Company Act’s affiliate transaction rules. Because affiliated persons of the fund’s investment adviser are “second-tier affiliates,” receiving any form of compensation from a service provider hoping to, or doing, business with the fund potentially violates Section 17(e)(1). The staff believes that Section 17(e)(1) is broader that FINRA’s gifts, gratuities, and non-cash compensation rules. The staff has instructed firms to adopt gifts and entertainment policies and procedures, which would either ban receipt or require pre-clearance.
OUR TAKE: Most adviser compliance manuals should already have a gifts and entertainment policy. The link to Section 17(e)(1) should prompt fund compliance officers to add similar provisions to fund compliance manuals.