6.3 Training Meetings, Sales Contests, and Non-Cash Compensation

Investment Company and Variable Contracts Products Principal Series 26

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1 Chapter 1: Registration of the Broker-Dealer and Its Associated Persons

1.1 Broker-Dealer Registration, FINRA Membership, and Firm Filings 1.2 Individual Registration: Forms U4 and U5, Registration Categories, and Exempt Persons 1.3 Pre-Hire Screening, Fingerprinting, and Statutory Disqualification 1.4 Heightened Supervision, Interim Plans, and the Taping Rule 1.5 Broker-Dealers, Investment Advisers, Dual Registrants, and Unregistered Entities

2 Chapter 2: Training, Continuing Education, and Product Knowledge

2.1 Continuing Education (Rule 1240), the Maintaining Qualifications Program, and the Annual Compliance Meeting 2.2 The Investment Company Act of 1940: Classifications, Registration, and Fund Governance 2.3 Mutual Fund Pricing, Redemption, Exchanges, Sales Charges, and Share Classes 2.4 Variable Annuities and Variable Life Insurance: Structure, Charges, and Rule 2320 2.5 Closed-End and Interval Funds, UITs, Money Market Funds, 529 Plans, and Investment Risks

3 Chapter 3: Supervisory System, Conduct Standards, Insider Trading, and Discipline

3.1 The Supervisory System, Written Supervisory Procedures, and Standards of Conduct 3.2 Insider Trading, Information Barriers, and Personal Trading Supervision 3.3 FINRA Investigations, Disciplinary Proceedings, Sanctions, and Exemptions

4 Chapter 4: Communications with the Public

4.1 Communications Categories, Principal Approval, Filing, and Recordkeeping (Rule 2210) 4.2 Content Standards, Investment Company Advertising, and Professional Designations 4.3 Variable Contract Communications, Fund Rankings, Bond Fund Volatility Ratings, and Investment Analysis Tools 4.4 Correspondence and Internal Communications, Social Media, Public Appearances, and Telemarketing

5 Chapter 5: Recommendations, Customer Accounts, and Product Sales Supervision

5.1 Regulation Best Interest, Conflicts, and Form CRS 5.2 Know Your Customer, FINRA Suitability, and Institutional Accounts 5.3 New Accounts, Customer Authority, Discretion, and Order Handling 5.4 Mutual Fund Breakpoints, Share Classes, and Switching Supervision 5.5 Deferred Variable Annuities and the Seven-Business-Day Principal Review 5.6 Prospectuses, Summary Prospectuses, SAIs, and Ongoing Disclosures

6 Chapter 6: Compensation, Outside Activities, and Personal Conduct

6.1 Cash Compensation, Distribution Arrangements, and Conflicts 6.2 Gifts, Gratuities, and Business Entertainment (Rule 3220) 6.3 Training Meetings, Sales Contests, and Non-Cash Compensation 6.4 Referral Payments, Bank Networking, and Unregistered Persons 6.5 Outside Business Activities, Private Securities Transactions, and Rule 3290 Transition 6.6 Outside Accounts, Borrowing and Lending, Account Sharing, and Guarantees

7 Chapter 7: Customer Account Operations, Transfers, and Privacy

7.1 Account Records, Trusted Contacts, Confirmations, and Statements 7.2 Cash Accounts, T+1 Settlement, Regulation T, Extensions, and Freeriding 7.3 ACATS Transfers, Transfer-on-Death Accounts, and Account Changes 7.4 Regulation S-P, Incident Response, Service Providers, and Identity Theft

8 Chapter 8: Anti-Money Laundering, Customer Identification, and Sanctions

8.1 AML Program, Independent Testing, Training, and Governance 8.2 Customer Identification, Due Diligence, and Beneficial Ownership 8.3 SARs, CTRs, OFAC, Information Sharing, and AML Red Flags

9 Chapter 9: Supervisory Controls, Business Continuity, and Regulatory Reporting

9.1 Supervisory Controls, Annual Testing, and CEO Certification 9.2 Business Continuity, Systems Resilience, Cybersecurity, and Vendors 9.3 Rule 4530, FOCUS and Annual Reports, and Customer-Asset Events

10 Chapter 10: Office Classifications, Inspections, and Records

10.1 OSJs, Branches, RSLs, and Inspection Cycles 10.2 Inspection Reports, Independent Review, Signage, and Office Files 10.3 Broker-Dealer Books and Records, Electronic Storage, and Correspondence

11 Chapter 11: Complaints, Arbitration, Mediation, and Expungement

11.1 Customer Complaints, Investigation, Retention, and Reporting 11.2 Predispute Agreements, Arbitration Codes, Eligibility, Panels, and Awards 11.3 Mediation and Customer-Dispute Expungement

12 Chapter 12: Financial Responsibility, Membership Changes, and Investor Protection

12.1 Net Capital, Minimum Tiers, Haircuts, and Early Warning 12.2 Customer Protection, Possession or Control, Reserve Formula, and Exemptions 12.3 New-Product Review and Continuing Membership Applications 12.4 SIPC, Fidelity Bonds, Proxy Materials, and Financial Reports

6.3 Training Meetings, Sales Contests, and Non-Cash Compensation

Key Takeaways Explain This Topic AI

Rules 2341(l)(5) and 2320(g)(4) prohibit non-cash compensation except gifts up to $300, occasional entertainment, qualifying training meetings, product-neutral internal programs, and offeror contributions to such programs.

Offeror-paid training requires member prior approval, an office of the offeror or member (or a nearby or regional facility), no payment of guests' expenses, records, and no sales-target precondition.

An internal non-cash program must be based on total production of all investment company or variable contract securities with equal weighting, and offerors may contribute but not help organize it.

Reg BI separately requires firms to eliminate limited-period contests, quotas, bonuses, and non-cash compensation based on sales of specific securities or security types.

Last updated: September 2026

FINRA Rules 2341(l)(5) and 2320(g)(4): Non-Cash Compensation in Packaged Products

Rule 3220 governs gifts across the industry, but FINRA Rule 2341(l)(5) (investment company securities) and FINRA Rule 2320(g)(4) (variable contracts) add specific limits on non-cash compensation connected with distributing packaged products. Non-cash compensation means compensation other than cash, such as merchandise, gifts and prizes, travel, meals and lodging. An offeror is the fund, insurer, adviser, underwriter or other person offering the product, and its affiliates.

General Prohibition and the Five Permitted Arrangements

No member or associated person may directly or indirectly accept or make payments or offers of non-cash compensation except in five arrangements, each of which must also be consistent with Regulation Best Interest :

Gifts that do not exceed the annual per-person amount FINRA fixes, currently $300 , and that are not preconditioned on achieving a sales target .

An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment that is neither so frequent nor so extensive as to raise a question of propriety and is not preconditioned on a sales target.

Offeror payment or reimbursement for training or education meetings , subject to the conditions below.

Internal non-cash arrangements between a member and its own associated persons, or between a non-member company and its sales personnel who are associated persons of an affiliated member, subject to product-neutrality conditions.

Contributions by a non-member company or another member to an internal member arrangement that meets the conditions in item 4.

Conditions for Offeror-Paid Training and Education Meetings

Under Rules 2341(l)(5)(C) and 2320(g)(4)(C) , an offeror may pay or reimburse expenses for a meeting held by the offeror or by a member to train or educate associated persons only if:

the member keeps the required records of compensation received from offerors;

the associated person obtains the member's prior approval to attend, and the member does not precondition attendance on a sales target or other incentive;

the location is appropriate , meaning an office of the offeror or the member, a facility in the vicinity of such an office, or a regional location for regional meetings. A resort or cruise with no connection to either office does not qualify;

the payment or reimbursement is not applied to the expenses of guests , so the representative pays a spouse's or guest's travel, meals and lodging; and

the offeror does not precondition its payment on a sales target or other non-cash arrangement.

Sales Contests and Production Incentives

Sales contests create powerful incentives to steer investors toward particular products, so the packaged-product rules and Reg BI both restrict them.

1. No Direct Offeror Contests

Outside the five permitted arrangements, an offeror may not reward representatives with prizes, trips or merchandise for selling its products. A fund sponsor cannot run its own contest awarding a vacation to the representative who sells the most shares of its international fund.

2. Internal Member Arrangements Must Be Product-Neutral

Under Rules 2341(l)(5)(D) and 2320(g)(4)(D) , an internal non-cash arrangement must be based on the total production of associated persons with respect to all investment company securities (or all variable contract securities) distributed by the member , and the credit for each security must be equally weighted . No unaffiliated non-member company or unaffiliated member may participate, directly or indirectly, in organizing the arrangement, and the member must keep the required records. A branch contest awarding a tablet for the highest sales of one fund family fails these conditions.

3. Offeror Contributions Only to a Qualifying Internal Program

Under Rules 2341(l)(5)(E) and 2320(g)(4)(E) , a non-member company or another member may contribute to a member's internal non-cash arrangement if that arrangement meets the product-neutrality conditions above. The offeror may help fund the program, but it may not help organize it or tie the contribution to sales of its own products.

4. Reg BI Is a Separate Gate

Regulation Best Interest separately requires the firm to eliminate sales contests, sales quotas, bonuses and non-cash compensation based on sales of specific securities or specific types of securities within a limited period . A program limited to one fund family, share class, annuity or product type is therefore impermissible when Reg BI applies. A broad production program that passes the product rules still requires conflict identification, mitigation and testing for distorted recommendations.

Core Principal Concept: Separate Gates

A program must satisfy the product-specific non-cash compensation rule and Reg BI. Passing one gate does not cure failure of the other.

Current Supervisory Overlay

The principal should obtain the agenda, venue, attendee list, payer, itemized expenses and written approval before an offeror-sponsored meeting. Attendance cannot be awarded for hitting a production target. Reimbursement is limited to the associated person's reasonable expenses; a spouse's or guest's travel and lodging are not shifted to the offeror. Records must permit the firm to show that education, not recreation or a sales reward, was the meeting's purpose. Disclosure does not cure a contest that Reg BI requires the firm to eliminate.

Current-limit note: Any legacy reference in training materials to a $100 gift ceiling is obsolete for gifts on or after March 30, 2026. The Rule 3220 ceiling, and the amount FINRA fixes for the product rules, is now $300. Product-rule non-cash compensation controls and Reg BI prohibitions remain separate requirements.