In our business of delivering fiduciary training to investment professionals, we often are asked whether it is a conflict for an adviser or broker representative to be sponsored by a fund company or other product provider to attend a training program. When in doubt, a rep should always seek guidance from his firm's compliance department on conflicts of interest. However, there are some basic regulatory requirements that we can point to as a starting point when it comes to receiving training and education.
For broker reps, FINRA rules 2310 and 2320, and NASD rule 2830 address when a product provider of securities may conduct and pay for a training and education meeting for representatives that sell the provider's products. As explained in these rules and previous guidance issued by NASD (now FINRA), a provider may pay for training as long as the following conditions are met:
- The representative gains the approval of his firm prior to attending
- The location of the training is appropriate to its purpose
- Attendance at the training is not tied to a sales target or other incentive
- Payment is not applied to guests of the representative
- The representative's firm maintains a record of the training as non-cash compensation received by the representative.
When these rules were first adopted, NASD explained that they are not intended to prevent a firm from designating a representative to attend training based on past performance or to encourage future performance, but attendance cannot be based on a specific target or incentive.
Thanks to our friend and ERISA attorney Fred Reish, we found out that similar standards apply to an adviser that is a fiduciary to a qualified retirement plan (or plans). Specifically, under ERISA section 406(b), the adviser cannot use its fiduciary status to obtain additional money or valuable benefits. A logical extension of that rule is that, if an adviser has to qualify to receive a benefit such as training (e.g., the adviser has 15 plans with the provider or at least $50 million under management with the provider), then the adviser is using his fiduciary status to get the benefit and the receipt of training would be a prohibited transaction. On the other hand, if the provider sponsors the adviser in an attempt to get new business from the adviser, the receipt of training would not be a prohibited transaction under ERISA because the adviser would not yet be acting in the capacity of a fiduciary.
In sum, an adviser or broker rep generally should not accept training paid for by a sponsor if the training is offered based on a specific incentive or quota set by his employer or the product provider offering the sponsorship. Moreover, the rep should get approval from his employer before attending the training, and in particular, should get guidance from the appropriate compliance official within his firm to avoid any unintended conflicts of interest.
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