Gifts And Bribes – When Is A Gift A Bribe?
Everyone loves to receive FREE gifts, especially the ones given by genuine friends with no strings attached and no gifts expected in return.
The word FREE is actually redundant because gifts are by definition FREE. But the commercial world has bred a cynicism that nothing is for free nowadays, not even a gift.
Gifts are generally considered good and Christmas is to most people still a time for giving and receiving of gifts – a practice no doubt inspired by the Magi bringing gifts of gold, frankincense and myrrh to lay before Jesus. For these Magi gifts were an expression of worship.
But for many, “a gift opens the way for the giver and ushers him into the presence of the great” (Proverbs 18:16)
And “many curry favour with a ruler and everyone is the friend of a man who gives gifts” (Proverbs 19:6)
So effective are gifts for opening doors and getting favours and goodwill, that they can become bribes.
“A bribe is a charm to the one who gives it, wherever he turns, he succeeds.” (Proverbs 17:8)
But bribes are often to prevent justice.
“A wicked man accepts a bribe in secret to prevent the course of justice.” (Proverbs 17:23)
In the financial services industry, there are widespread giving of gifts and incentives which can easily become “bribes” and colour the Financial Adviser’s judgment.
There are guidelines provided by the regulator, and these are summarized here.
But there are many ways to get round these guidelines.
E.g. a product provider is not supposed to offer any financial payment which are production-related as this would incentivize the Financial Adviser and the Representative to sell more of this product provider’s products to gain a higher compensation, and this MAY be at the expense of client’s interest.
But there are other ways to compensate the Adviser which are off the record. Willing parties can think of ways to get round any problem. As the saying goes, “Where there’s a will, there’s a way.”
And what about “incentive trips” given to Representatives who do well? Are these offers by certain companies permissible if they are known beforehand (e.g. if you hit certain targets)? What if the selection is made only after the period of production? And what if this is made a regular practice so that it can be expected year after year?
Obviously, the answers are not so clear. The fact that only certain companies have implemented incentive trips and of various kinds show that interpretations can differ.
The ultimate factor is whether the Representative is being influenced by these incentives to recommend products which are not the most suitable or “competitive”.
When the products are suitable and competitive, and the Representative receives the incentive, it may be argued that it is a win-win situation for the Representative and the client.
Some FAs think that an easy way to avoid any problem is not to call themselves independent. They reason that if they do not claim to be independent, they are subject to less stringent rules. They think that they can now receive incentives and special payments for supporting certain product providers more than others, and not get into trouble with MAS. But what if the products which they now recommend most of the time are not the best of class from the stable of companies which they are able to distribute for? Even if they don’t get hauled up, what about their conscience?
And what if they have not mentioned to their clients that they need not recommend the best of class product?
Do the clients know that there is a difference between the Independent FA and the non-independent FA? Shouldn’t the clients be informed by the FA that he is getting additional payments if he promotes a certain company’s product?
The acid test and fundamental question is whether clients’ interests are served best in every sale.
One of the decisions I made is not to receive any form of payment from any product provider, which will tie my firm down to supporting any product provider. The grapevine says there are firms which have done so.
This is an important decision as we operate as an independent financial adviser.
We do receive small gifts and sponsorship for certain events, but we rotate these and always ensure that we are not obligated to any product provider.
When our advisers qualify for incentive trips, we look into whether clients interest have been upheld.
When is a gift a bribe? When your conscience, if it is still sensitive and not dulled by years of rationalization, tells you so. And when you can’t talk about it openly.