For Financial Advisors: What is an Outside Business Activity?

We get this question, or a variation of it from time to time: “What is an outside business activity?” The financial advisor may explain that they’re doing this, or want to do this, or that, and they wonder, “Do I have to disclose this to my firm as an outside business activity?” If we look at the rule that applies here, and that’s FINRA Rule 3270, it says that no registered person may be an “employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.” The rule exempts certain investments that are passive, that are subject to Rule 3280, which is the private securities’ transaction rule. In the video above, attorney Joel Beck breaks down this rule in more detail and points out items to consider as you evaluate whether an activity might be an outside business activity subject to Rule 3270.