This article was originally published by ThinkAdvisor.com.
More input from independent advisors and brokers-dealers is also sought by the Financial Services Institute
The Financial Services Institute released a white paper on outside business activities (OBAs) on Thursday. FSI’s move comes as the Financial Industry Regulatory Authority is reviewing its OBA rule (Rule 3270) and is seeking input on the matter through June 29.
Outside business activities are generally considered to entail the sale of products and services not offered by a broker-dealer. This can mean everything from insurance products to accounting services.
The report, written with the law firm Eversheds Sutherland and members of the FSI Compliance and Investment Advisory Services Councils, includes benchmarking advice and the following:
- Case studies from 11 independent financial services firms,
- Examples of how firms are working to identify undisclosed OBAs,
- Various OBA-related enforcement actions.
“By leveraging the insight of our members and applying the extensive experience of our partners, we can provide actionable common and innovative practices to help our members respond to common issues and pitfalls regarding outside business activities,” said FSI President & CEO Dale Brown.
According to FSI, OBAs play “a unique role in the independent financial services industry in that they take a variety of forms and allow financial advisors to better serve the needs and demands of their clients, particularly those in more rural or sparse areas.”
But given that the enforcement arms of FINRA and the Securities and Exchange Commission have been focusing on OBAs, “Firms and individuals must be careful to avoid the regulatory pitfalls, or they may find themselves the subject of disciplinary actions,” said Brian L. Rubin, partner and head of Eversheds Sutherland ’s SEC, FINRA and State Enforcement Group, in a statement.
Other information included in the report focuses on:
- The value of OBAs in the independent channel, both for financial advisors and for investors,
- The scope of outside business activity,
- The regulatory and compliance framework for OBAs, and
- Consequences for failing to comply with OBA regulatory requirements.
The findings in the paper were based on a survey of numerous FSI member firms, the group says.