Interpretive Letter to Name Not Public
March 7, 2001
As you may know, in 1998 NASD Regulation amended its rules to prohibit most forms of non-cash compensation for the sale of variable contracts and investment company securities. The amendments reflected more than ten years of work by our member committees and staff, and represented the consensus of the broker/dealer community that most forms of non-cash compensation offered by product sponsors are inappropriate.
One exception to the prohibition allows an "offeror" (such as an insurance company or mutual fund sponsor) to pay the expenses of an associated person for certain training or education meetings. Unfortunately, some offerors sponsor trips that are laden with golf outings, cruises, tours, or other entertainment, all under the umbrella of training or education meetings. These trips violate both the letter and the spirit of the non-cash compensation rules. NASD Regulation recently issued the enclosed Regulatory and Compliance Alert article, which makes clear that, while an offeror may pay for an associated person’s transportation, lodging and meals, an offeror may not pay for golf outings, tours or other forms of entertainment while at a meeting it sponsors for the purpose of training or education. Of course, associated persons themselves may play golf or enjoy other forms of entertainment that may be organized by the offeror while attending these meetings, provided that the offeror does not pay for or reimburse the costs of these events.
We encourage offerors to assist our members by not sponsoring "training or education" meetings that violate the non-cash compensation rules. Your cooperation will better protect investors from the problems that necessitated the adoption of our non-cash compensation rules.
If you have any questions, please do not hesitate to contact Thomas Selman, Senior Vice President, Investment Companies/Corporate Financing, at (240) 386-4533.
Mary L. Schapiro