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Caught in the Crosshairs of TCJA and Conflict of Interest: Meals and Entertainment

There is no hiding that we operate in a heavily regulated industry, and a large part of the job is networking. How do the new tax reform legislation (the Tax Cuts and Jobs Act, or TJCA) and the so-called Conflict of Interest Rule (CofI), a.k.a. the fiduciary rule, impact your business with regard to meals and entertainment?


TCJA: Will I go hungry?

Probably not, 50% of meals are still deductible. While the law did change some aspects such as cafeteria food deductions and office snacks (used to be 100% deductible and now only 50%). Most of the meals section remains similar.

CofI: Should I go hungry?

That’s a different question. As a successful retirement plan advisor, you probably have many centers of influence, clients and trusted relationships; and as you know, many of them were formed during meals. However, with the Conflict of Interest Rule, should you continue to break bread?

The rule defines the terms “fee or other compensation, direct or indirect” as any explicit fee or compensation for advice received by the person from any source including gifts and gratuities. (This is a paraphrased excerpt; click here for the full rule and to learn more.

From my non-legal perspective,* this means that if you and your CPA friend are having a meal and during the course of it, your CPA friend suggests introducing you to one of their employer clients, you are excited by this favorable introduction, and as way of showing your appreciation, you pick up the check. Is this a “conflict”? Good question. Best to ask an expert ERISA lawyer, such as Fred Reish, Jason Roberts, Marcia Wagner or Tom Clark. However, it could be, and it’s important to be mindful of how the rule has direct implications to your business.

Read more commentary by Rebecca Hourihan here

As another example, some of the most well-respected retirement plan offices have a strict “no golf ball rule.” This means they will not accept any complimentary meals, gifts or – golf balls. This creates a clear and distinct separation demonstrating that their investment and recordkeeper selections are based purely on merit.


TCJA: Will I be bored?

Maybe; the TCJA did make substantial changes to the tax deductibility of entertainment. For example, tickets to sports games, charity events, and club memberships are no longer deductible. This means that if your firm hosted a client appreciation event every year at the Farmer’s Open, the tickets are not deductible. The same is true for club memberships. For example, if you belong to a golf club, the annual membership fee is no longer deductible. The firm will now have to pay taxes on entertainment expenses.

CofI: Will I get bored?

Probably not. FINRA has long espoused that advisors should not give clients gifts over $100 per person. This rule has been in be effect for a while and as an industry we have all embraced it. Therefore, your normal client appreciation gifts won’t necessary change. However, after TCJA, they will cost a tiny bit more.

The CofI rule makes us assess the nuance between could and should while the TCJA makes us take a look at cash flow, so it is important to understand the changes. Conference season is upon us yet again, and what a great opportunity to learn from industry insiders how the TCJA will affect your cash flow, how to rethink traditional ways to networking post-CofI, and most importantly, gather ideas on how to position your business for success in the new 401(k) world. Take a couple of days to focus on your business to better prepare you and your office when networking with centers of influence, meeting with prospects, and servicing plan clients.

Thanks for reading and Happy Marketing!

*Rebecca Hourihan is not an attorney or tax advisor. For specific information on either topic, please consult your preferred attorney and/or tax advisor.

Rebecca Hourihan, AIF, PPC, is the founder and CMO of 401(k) Marketing.