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Outside Business Activities: Minefield For Financial Advisors
Bay Area Advisor Restores Perfect, 30-Year BrokerCheck Records With Termination Expungement
Financial advisors must often grapple with the convoluted regulatory system, and one particularly tricky area is reporting outside business activities (OBAs). An OBA is any business activity in which an advisor engages, outside of their role with their firm. While OBAs can be a useful part of a representative’s business, they can also lead to serious regulatory issues when not properly disclosed or managed.
The OBA Maze
FINRA Rule 3270 governs OBAs — but 3270 is a broad rule that leaves a lot of room for interpretation. This can lead to confusion and inconsistency among firms, which can often result in advisors being caught off guard by unexpected consequences.
Common OBA Pitfalls
- Misunderstanding OBA Requirements: Many advisors mistakenly believe that only business activities related to the financial industry need to be disclosed. However, any activity that generates income or has the potential to generate income must be reported. This includes fixed insurance sales, consulting work, and even real estate investments.
- Inadequate Disclosure: Even when advisors are aware of OBA rules, they may not always provide sufficient detail in their disclosures. There are specific requirements regarding the types of information that must be disclosed, such as the nature of the activity, amount of time involved, and potential for conflicts of interest.
- Failure To Seek Prior Approval: Some advisors may assume that simply disclosing an OBA is enough. However, many firms require prior written approval before an advisor is permitted to even engage in the OBA. Failure to obtain approval can lead to disciplinary action.
Fighting Back: A Real-World Example
To illustrate the potential consequences of OBA violations and the importance of seeking legal help, let's consider a recent FINRA expungement case.
The Case:
A seasoned financial advisor with over a decade of experience was terminated by Edward Jones, due to OBA violations. The firm claimed that the advisor had failed to disclose income from an ATM business. The advisor argued that the business was unrelated to his role at Edward Jones and had no impact on his clients.
The Outcome:
With the help of AdvisorLaw, the advisor successfully challenged the publication of the termination and allegations and secured the expungement of the negative disclosure from his public record. The FINRA Arbitrator agreed that the advisor's mistake did not warrant public disclosure.
This case highlights the importance of seeking legal counsel when facing OBA-related issues. By understanding the complex rules and regulations governing OBAs and taking proactive steps to comply, advisors can protect their careers and reputations.
The Perils of Neglect: A Cautionary Tale
It's important to note that even seemingly-minor oversights in reporting OBAs can lead to significant regulatory consequences. A recent example involves Bank of America and Merrill Lynch, which were both fined by FINRA for failing to timely update broker registration information, including OBA details.
This case underscores the importance of meticulous recordkeeping and timely reporting. Firms and advisors must maintain robust systems to track and disclose OBAs, in order to avoid regulatory penalties.
How AdvisorLaw Can Help
If you're an advisor accused of violating OBA rules or who has experienced a termination related to OBAs, AdvisorLaw can help. Our experienced attorneys can:
- Review your specific situation: we will carefully analyze the facts of your case to determine the best course of action.
- Represent you in regulatory proceedings: when necessary, we can represent you in front of FINRA or other regulatory bodies.
- Seek expungement of negative disclosures: in certain cases, we may be able to help you expunge negative information from your public records.
By understanding the complexities of OBA rules and seeking expert advice, advisors can protect themselves from unnecessary regulatory trouble and maintain a clean professional record.