Executive Summary
Receiving a new client referral has a substantial value for a financial advisor – so much that advisors often provide “thank-you” gifts, either as a simple expression of gratitude, or even as a means to encourage more referrals. Of course, regulators want to be certain that advisors don’t inappropriately “buy” prospective client referrals – in a conflicted or undisclosed manner – and consequently FINRA Rule 3220 limits client gifts to just $100 per year, and the SEC similarly expects RIAs to establish their own gift-giving (and gift-limiting) policies. Nonetheless, the fact remains that referral “thank-you” gifts are relatively common.
Except often the biggest challenge of giving a good referral thank-you gift is simply picking the “right” gift – something that is commensurate with the value of a referral (not too big nor too small), is appropriately personalized and relevant to the recipient, and will likely be appreciated and well-received by the referrer. Which for some advisors, is so stressful that it’s actually easier to give nothing at all – beyond perhaps a simple verbal statement of “thanks” – than risk giving the “wrong” gift.
Yet recent research on happiness suggests that the best thank-you gifts might not actually be giving a “thing” at all, but instead gifting an experience, or giving someone an opportunity to themselves spend on others. And in the modern digital age, a growing number of online platforms make this possible – from online experience-buying sites like Excitations and Xperience Days, to donation sites like DonorsChoose to help teachers fund classroom projects, or even TisBest, which simply sells “charitable gift cards” that the recipient can then redeem as a donation to any one of 300+ charities.
The virtue of such services is that ultimately, it puts power in the hands of the recipient to select the final gift – whether an experience, or a donation to someone else – which helps to reduce the risk of making a poorly-matched gift. But in the end, the true value of gifting experiences or the gifting the opportunity to spend on others is that it increases the likelihood that the recipient will actually feel happier after receiving the gift… which is perhaps the most powerful way to express gratitude for a referral.
FINRA Rule 3220 And SEC Client Gift Limits
Giving a “good gift” can be very challenging. The most impactful gifts are usually the ones that have the most connection and personal meaning to the recipient – which can make the giver feel substantial pressure to find the one, perfect gift… or in some cases, not want to give a gift at all, just for the fear of coming up short. After all, it could be worse to give no gift at all than to give a “bad” gift – like giving wine to someone who prefers beer or bourbon (or worse, is a recovering alcohol!).
Yet given that financial advising is a relationship-based business, gift giving is common, especially as a means to say “thank you” for a client doing business with the advisor, and/or especially for someone who gives a referral to the advisor.
Unfortunately, though, in the financial services industry the process of gift giving is substantially complicated by the fact that regulators scrutinize gift-giving by financial advisors (in addition to an entirely separate set of rules regarding the acceptance of gifts as a financial advisor), out of (justifiable) concern that financial advisor gift-giving could create inappropriate conflicts of interest or induce inappropriate transactions.
Accordingly, FINRA Rule 3220 limits registered representatives of broker-dealers from giving any gifts or gratuities to clients in excess of $100 per year. A recent proposal under FINRA Regulatory Notice 16-29 would increase the annual limit to $175/year, but the point remains: financial advisors are quite limited in their ability to give gifts to clients (or others who provide a referral). In addition, the broker-dealer compliance department must keep records of all gifts that advisors provide.
Similarly, the SEC has also expressed concern about investment adviser representatives of an RIA giving gifts to clients (or anyone else) as well. Although the Investment Advisers Act of 1940 does not have explicit limitations on gifts akin to FINRA Rule 3220, the SEC has indicated that it expects RIAs to have a clear policy on receiving gifts. Similar to FINRA, the SEC expects RIAs to keep track of all gifts that are given, have a firm-wide policy about the circumstances in which gifts may be given, ensure a reasonable dollar limit on the amount of the gift, and have a review process to ensure gifts being given are in compliance with the firm’s gift-giving policies and procedures. Especially since, in the context of “thank-you gifts” for referrals in particular, a substantial gift in exchange for a referral could be considered “compensation” for the referral, which could trigger a requirement for the gift recipient to register as a solicitor of the RIA!
Finding The “Right” Thank-You Gift For A New Client Referral
Nonetheless, the fact remains that clients and other centers of influence do provide referrals to financial advisors, for which advisors often want to express gratitude in the form of a “thank-you” gift. Which means it’s necessary to figure out – within the constraints of FINRA Rule 3220 or SEC guidance – what the “right” gift is… that is most likely to evoke positive memories for the recipient, and not create an accidental social faux pas.
Perhaps the simplest approach is simply to buy a Gift Card as a referral thank-you, that the recipient can use for whatever they wish. The virtue of this approach is that it’s hard to go wrong with the type of gift – when you leave the gift in the hands of the recipient to choose. The bad news, though, is that doing so put a potentially awkward monetary value on a social relationship – “Thanks for that introduction to your neighbor the millionaire… here’s $25 to Starbucks”. And it’s hard to deepen a relationship with a generic, non-personalized gift. But perhaps the worst aspect of the Gift Card approach is that it’s simply another way for someone to buy more “stuff”… despite the growing base of research that buying things doesn’t tend to make us happier anyway!
Instead, what the research finds is that the best way for us to spend money – in ways that actually make us happier – is to spend it on experiences (not stuff), or to spend it on others. Which in turn suggests that one of the best approaches to giving effective thank-you gifts is not to gift “stuff” at all… but instead to gift experiences, or give people an opportunity to spend your gift on others.
Gifting Experiences With Excitations And Xperience Days
When it comes to gifting experiences, the biggest challenge is simply that it takes a lot of time and effort to organize “an experience” for someone. Or at least, it did. Now, in the modern internet era, there are a number of websites that are built specifically to help find, purchase, or gift experiences.
Two of the more popular platforms including Excitations and Xperience Days. Each provides the opportunity to select from a relatively long list of available “experiences”, sorted first by geography (to find something local to the gift recipient), and then by type of experience (e.g., driving, airplanes, food & wine, explore & learn, tours, etc.), with the ability to screen for certain occasions (e.g., Valentine’s Day) or recipient type (e.g., “For Him”, “For Her”, “For Couples”, etc.).
Potential experiences can include everything from the relaxing (e.g., hot stone massage), to the exhilarating (e.g., ride in an old open-cockpit biplane), to a full-immersion experience (e.g., outdoor survival training). And while the purchased experiences will likely last just an hour or few at the most… the memory will live on far longer. Which is the whole point of a gifted experience – particularly when it’s something that the individual would not have likely done/bought on their own.
For financial advisors – or gift-givers in general – both platforms provide an option to purchase an on-site gift certificate, allowing the recipient to choose their own experience from the available options. Or the advisor can simply purchase a particular experience that the recipient might be interested in – as the whole point is to gift an experience!
Notably, a key point of experiences is that we often value new ones – which means it’s not necessary to get the recipient something they have already done. In fact, even if it’s not an experience they end up loving and wanting to do again, the experience itself will still be memorable… which leaves a positive feeling of gratitude for the advisor tied to that memory!
Supporting Students And Teachers With DonorsChoose
DonorsChoose was founded in the year 2000 by Charles Best, a Bronx public high school teacher, who was struggling with how much he (and his teacher colleagues) were spending on books, art supplies, and other school materials. Accordingly, the DonorsChoose platform allows teachers to post their classroom projects, and request donations to fund them. What’s unique about DonorsChoose, though, is not simply that donors have the opportunity to donate in support of education, but that they can choose a specific classroom project to support, see exactly where their dollars will go, and even get a follow-up thank-you message from the teacher and class, and photos that show how the money was put to use.
That deeper level of connection and engagement to giving in the classroom has propelled DonorsChoose to help fund more than 1,000,000 classroom projects over the past 15 years, and the organization has been recognized by Charity Navigator for its especially efficient use of funds for its charitable purpose (with a whopping 94.9% of all DonorsChoose funds going to classroom projects, and a miniscule 0.9% allocated to General and Administrative overhead expenses).
Similar to other “gift choosing” platforms, DonorsChoose provides a Search tool to find projects to support, allowing you to search by school subject (e.g., History & Civics, Math & Science, Music & The Arts, etc), specifically target certain age groups (e.g., PreK-2 or Grades 9-12), or focus on certain types of projects (e.g., teacher-led vs student-led) or certain types of supply needs (e.g., lab equipment, art supplies, or educational games). Alternatively, you can also search by geography (to find school projects in your local area), or simply screen from a list of “urgent” projects.
While the primary function of the DonorsChoose is to give directly to the listed classroom projects, the platform provides an option to buy a “DonorsChoose Gift Card” (which can be delivered via email or physically by postal mail), which lets someone choose how to allocate dollars to the classroom project of their choice… and actually see how their donation will be used, which gives them far more engagement to the process, and a more positive feeling about the outcome that is created (enabled by the advisor’s gift dollar)!
As a way of providing a “thank-you” gift for a referral, the power of a DonorsChoose gift card is that, rather than just sending someone a bland card that says “a donation has been made in your honor to <such-and-such charity>”, instead the recipient actually gets to engage in the process of selecting where and how the donation will be used. Which should be far more effective at activating the “spend on others” happiness boost!
Using TisBest To Give A Charitable Gift Card (To Any Charity)
Extending the DonorsChoose concept of letting recipients choose where to “give” their dollars, another option is simply to buy a “Charitable Gift Card” as a thank-you gift for referrals.
A relatively new entrant to the world of gift cards – which more commonly have been used at retail stores like Target and Starbucks – the charitable gift card is similar to other gift cards in that it can be applied as cash, but limited in that can only be used as a donation to a charity. Which means that gifting someone a charitable gift card is effectively making a charitable donation in their honor – except they get to choose where to send the money.
Accordingly, platforms like TisBest allow someone to “buy” a charitable gift card, and then give it to a recipient who can (and must) donate its value to an available charity on the TisBest list. Notably, TisBest requires that the charitable gift card be used at one of their 300+ listed charities, to ensure the gift card will be accepted, and that the recipient has been vetted as a bona fide charity (although you can submit a nomination request for a new charity be potentially added for future years).
Fortunately, TisBest does have a very wide range of available charities – generally very sizable organizations – including Arts organizations like Dance/USA, Children’s Theater Company, and NPR; Health-related charities like the ALS Association and American Cancer Society; Human Rights organizations like the American Red Cross and Amnesty International; and even faith-based organizations like the Christian Relief Services Charities, the Jewish Federations of North America, and Young Life.
Similar to DonorsChoose, the buyer of the charitable gift card can either send it electronically via email, or print and mail a physical card (which for financial advisors, can even include a custom image of the advisory firm on the card!). Fortunately, though – unlike some other types of retail gift cards – the TisBest charitable gift cards never expire.
Notably, in the case of TisBest charitable gift card donations – and DonorsChoose donations – the tax deduction for the charitable contribution goes to the person who buys the gift card (i.e., the financial advisor), and not the client who allocates the donation.
Ultimately, the key point of giving thank-you gifts for referrals using platforms like Excitations, DonorsChoose, and TisBest is not merely that it allows people to select the solution that is best “for them” – reducing the risk you choose a gift that isn’t the right fit.
The real benefit is getting away from the challenge of thank-you gifts that just add more “stuff”, which the research suggests isn’t likely to actually make us happier anyway. Instead, giving the gift of experiences, or the “gift of giving” by facilitating the recipient’s ability to spend on others, makes it possible that the gift recipient actually enjoys a bona fide lasting moment of happiness and a meaningful memory. Which is a great way to say thank-you for a great referral!
So what do you think? How do you say “Thank You” for a referral? Do you provide thank-you gifts for referrals? What do you give? Would you consider a gifted-experience or gifted-spend-on-others opportunity instead? Please share your thoughts in the comments below!
I love the concept of TisBest and the streamlined, easy process they have in place to do business with them. In 2015 we used their gift cards as client thank you gifts at the end of the year. I thought it would be one of the most popular gifts we had ever sent out. We did get back some fantastic comments, but we were shocked that – even as of today – 42% of those clients who received a TisBest gift card (with our team’s photo on it!) have not bothered to donate to even one charity. (I wonder what TisBest’s overall percentage of people who actually donate is? If our firm is any indication, they have a huge pot of money earning them interest! Smart business model??)
-Deborah Fox
For my end of year gifting, I make donations to charities where my clients donate their time. Then I send a year-end Christmas/Holiday letter that names the client and their charity, and include a family picture.