The Division of Investment Management released guidance recently regarding the acceptance of gifts by fund advisory personnel. While codes of ethics of both funds and advisers often address the potential conflict, the guidance notes that the receipt of gifts or entertainment by advisory staff may run afoul of the 1940 Act, and thus a fund’s compliance policies and procedures should address the issue. The guidance cautions that fund advisory personal acting in an agency capacity may not accept any form of compensation (such as gifts or entertainment) in exchange for “the purchase or sale of any property to or for the fund.” One example of such an exchange would be the fund’s portfolio manager accepting gifts or entertainment from a broker-dealer for the purchase or sale of securities.
Rule 38a-1 requires that fund boards approve compliance policies and procedures designed to prevent violations of the federal securities laws by the fund and its service providers (including the adviser). The guidance does not recommend a particular policy, allowing for a range of possibilities from a complete prohibition on gifts and entertainment to a pre-clearance process.