Private plane trips to Europe and the Bahamas, race-car driving lessons, and a $50,000 bachelor-party tab raised enough eyebrows at the Securities and Exchange Commission last year that three employees of Lazard Capital Markets, a privately held registered broker-dealer, were accused of violating securities law by providing such lavish perks to traders at Fidelity Investments.

The scrutiny is likely to become more intense. As regulators scour the financial world for malfeasance, brokers need to set guidelines on reasonable client gifts and entertainment, says Orlan Johnson, a partner in the business department at Saul Ewing, LLP, a Washington-based law firm. Johnson, who previously served as a branch chief in the Division of Investment Management at the SEC, warns that failure to institute some principles of best practices can result in some very costly mistakes.

Jonathan DeYoe of Berkeley, Calif.-based DeYoe Wealth Management, an independent securities and investment advisory firm, says that brokers who shower traders with such gifts are "trying to purchase your business." DeYoe spent the first nine years of his career at firms such as Morgan Stanley, UBS and Prudential before going independent to get away from what he believed to be rampant conflicts of interest.

The dollar value of broker-to-trader gifts is capped at $100, but avoiding excess can be tricky, especially when travel and entertainment are so integral to doing business in this industry. This issue is also the basis of a new rule drafted by FINRA and currently before the SEC. FINRA's executive vice president and general counsel, Marc Menchel, says the proposed Business Entertainment Rule would require broker-dealers to maintain written business entertainment guidelines, "with a view toward not improperly providing an incentive to an employee of another [company] to shirk or diminish their duties to their employer or another [stakeholder]." Firms would be allowed to set their own guidelines, keeping in mind the position of the recipient, geography and other factors, Menchel says. "Perhaps the way you fete [the CEOs of large banks] won't affect them. They're wealthy and used to a certain lifestyle. Perhaps flying them in on a private helicopter to meet them is not inappropriate. For traders, that may be very inappropriate. Their heads would be swayed by that," he says.

Johnson says the rule, which is still under review and had not been finalized at press time, will not offer a fail-safe approach. "The language is purposely vague so that there is no 'bright line' in the law and there's room to consider things on a case-by-case basis," he says.

As firms come under greater scrutiny during the economic downturn, however, Johnson says he is advising his clients to stay ahead of the game and establish a written policy for giving and receiving gifts. It shows a good-faith effort to establish policies that are reasonable within the context of the business relationship, he says. It also prevents brokers from inadvertently overstepping boundaries. Brokers who are unsure of how to establish guidelines should consult their corporate counsel, as well as industry resources such as the Securities Industry and Financial Market Association or the Investment Company Institute. And when guidelines are established, Johnson says, they should be reviewed regularly.

"In these economic times, you need to err on the side of caution," he says. Brokers are a key part of the regulatory framework of buying and selling securities. There has to be a high level of investor confidence. Anything that takes away from that is a problem."