By Carmen Germaine June 3, 2020
Some sales teams are turning to delivery services like Door Dash and Uber Eats to create socially distanced lunch meetings with advisors who are working from home, consultants say. But some compliance teams aren’t sure whether the practice is kosher.
Sending an advisor a meal to enjoy during a virtual meeting can help wholesalers engage with their contacts and break through “Zoom fatigue,” says Colin Lake, a wholesaler consultant and founder of Developing the Next Leaders.
Josh Brown, CEO of RIA Ritholtz Wealth Management, last month received his first invitation to a “‘virtual wholesaler lunch’ where they send Uber Eats to your house while the pitch is Zoomed,” he tweeted in April.
Brown ultimately didn’t take the delivery, he tells Ignites. Although he doesn’t remember which firm sent the invite, he admits the idea is clever.
“I thought it was an example of an asset manager trying to figure out how to touch their clients in a really difficult time,” he says.
Vance Barse, a financial advisor in the Commonwealth Financial Network, says he’s also received inventive invitations from wholesalers in recent months. One hosted an event at a pizza location in San Diego, inviting advisors to drive up with their families to grab their pizza as well as marketing materials, Barse says.
“[Wholesalers] are going to any length to be creative to try and get in front of and bring value to financial advisors,” he says.
At least one firm has found this approach to be successful: Delaware Life, Lake says.
The Boston-based annuity provider created its wholesaling team in January, says a company spokesman. The firm leveraged technology, including virtual meetings, to connect with financial professionals even before the pandemic hit.
Advisors can be hesitant to meet with fund wholesalers in the best of times, Lake says. Getting creative with meetings can help them get on an advisor’s calendar, he says.
The average wholesaler has an annual travel and entertainment budget of $75,000, says Jeff Cerutti, founder of Rutti Consulting. With travel restrictions keeping sales teams at home, wholesalers have been largely unable to spend that cash. Sending meals to advisors offers one way to use up part of those funds, he adds.
But whether Zoom meals are permitted is a “question mark” for compliance teams, says Hanh Nguyen, founder of Complect, which offers financial service firms on-demand compliance specialists.
Finra members are only allowed to accept gifts of $100 per person per year, Nguyen writes in an e-mail. Occasional meals and other entertainment don’t fall under that cap, unless they happen frequently or are excessive. In addition, the representative offering the meal must be in attendance, she adds. Otherwise it’s a gift.
In the case of brokers’ sending food to their own clients for virtual events, Finra may treat such deliveries as gifts, said Robert Colby, the self-regulatory organization’s chief legal officer, during a recent Sifma webinar.
“If you were to ask 100 Finra employees this question, the answer you would get from 98 is it’s a gift, it’s not business entertainment,” Colby said.
That stance was surprising, since most advisors are stuck at home, says Francois Cooke, managing director for ACA Compliance Group’s broker-dealer services division.
But lunches delivered to brokers from vendors like fund shops may fall under non-cash compensation rules, he says. Such rules allow spending that is considered to be reasonable, and part of educational or training events.
“We are in a new, gray-area situation,” Cooke says. “If this was indeed a training session or a description of the products, and they were delivering a meal … I think that’s in the realm of reasonableness.”
Eaton Vance, for example, has a compliance-approved process to allow wholesalers to offer delivered meals as part of a scheduled meeting or call, a spokeswoman says.
“Similar to how our rules worked before this quarantine period, if the food is accompanied by a meeting it is not considered a gift,” she writes in an e-mail.
Before Covid, wholesalers and others in the fund industry often discussed new business opportunities over meals, says Amy Lynch, founder of FrontLine Compliance. Sales teams that send such meals now should be careful to mail them to a wide range of advisors and to track their spending, she says.
“Ideally the firm would want to be able to count this as the occasional meal,” she says.
Likewise, Nguyen says Zoom meals are likely acceptable as long as fund firms “follow the spirit of the interpretive guidance” by being present with the client on a video meeting.
On the investment advisor side, the Securities and Exchange Commission doesn’t have specific rules that limit gifts and entertainment, says Josh Broaded, co-head of U.S. regulatory compliance at ACA Compliance. Most advisory firms have their own guidelines, often including how much could be spent on each individual’s meal.
Although the “creative strategies” may spark advisors’ interest, they may have a hard time with uptake. Barse, the financial advisor, says he hasn’t accepted any meal offers he’s received.
“I don’t want clients and families whom I serve to have the perception that there is a conflict of interest,” he says.
Lavish meals may have poor optics, Broaded says. A steak dinner, for example, could present “an improper appearance from a public relations standpoint,” he says.
Some wholesalers who have tried delivering sandwiches for virtual meetings have found the meals aren’t always worth the effort, Cerutti says. It’s difficult to time a delivery to coincide with a video meeting, he says, and it can feel awkward.
“Zoom meetings watching someone eat a chicken parm hero aren’t exactly a great opportunity to present your small-cap growth strategy,” he says.
But in this “new virtual, socially distant world,” firms will be happy with anything that could help engage advisors, says Cerutti, who was previously CEO of AMG Funds.
“If I were running a distribution team, I would not have a problem with it,” he says.
Contact the reporter on this story at cgermaine@ignites.com or (212) 390-7329.
