FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative (RR) is reviewing their firm's policy on outside business activities (OBAs). The policy states that RRs must obtain written consent from their firm before engaging in any OBA. The RR is considering starting a small, independent consulting business providing non-financial advice to local small businesses on their marketing strategies. What is the RR's most appropriate action?
- AStart the consulting business but only work with clients who are not also clients of the brokerage firm.
- BSubmit a written request to the firm, disclosing all details of the proposed consulting business, and await written approval.
- CInform their direct supervisor verbally about the consulting business and assume that is sufficient.
- DProceed with the consulting business, as it is unrelated to financial services and therefore does not require firm approval.
Show answer & explanationAnswer & explanation
Correct answer: B. Submit a written request to the firm, disclosing all details of the proposed consulting business, and await written approval.
FINRA Rule 3270 requires RRs to provide written notice to their firm and receive written approval before engaging in any outside business activity, regardless of whether it is investment-related or not. This allows the firm to assess potential conflicts of interest or supervisory concerns.
Why the other options are wrong
- A. Avoiding firm clients does not negate the requirement to report and obtain approval for the OBA itself.
- C. Verbal notification is insufficient; written consent is required by FINRA rules and firm policies.
- D. The nature of the business (financial vs. non-financial) does not exempt it from the OBA reporting and approval requirements.
Outside Business Activities (OBA)
Any employment or business activity engaged in by a registered person outside the scope of their relationship with their employing firm.
- Requires written notice to the employing firm.
- Firm must approve the OBA in writing before the RR can engage in it.
- Applies to both investment-related and non-investment-related activities.
- Allows firms to supervise potential conflicts of interest and ensure compliance.
Memory trick: Outside business on your mind? Write to the firm, approval you'll find.