Outside Business Activities (“OBAs”) of individuals can create potential conflicts of interests with the registered investment advisers that employ them. Advisors are responsible for providing written notice before they act as an employee, independent contractor, sole proprietor, officer, director or partner of another person; or receive compensation or have the expectation of compensation from any other person as a result of any business activity outside the scope of the relationship with their registered investment adviser.

Additionally, this includes situations where compensation is to be paid or if there is a reasonable expectation of compensation as a result of any business activity outside the scope of the relationship with his or her firm. Passive investments are exempted from this requirement. To ensure all individuals are compliant with OBA requirements, make sure your firm reviews the following.

Reporting

The Firm should ensure that all covered persons have completed a current outside business activity form. Generally, firms request such covered persons to periodically provide such information in order to verify that all disclosed activities have been disclosed prior and are being periodically evaluated.

Supervision

The Firm should verify that all OBA Forms have been approved by the designated supervisor. Such approval process is to verify the forms appear accurate and complete. Whether such activity is approved or denied, notice is to be communicated in writing to such covered person(s).

The review process should ensure that:

  • Such activities do not interfere with or otherwise compromise the advisors’ responsibilities to the Firm and/or the Firm’s customers.
  • Such activities are not viewed by customers or the public as part of the Firm’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered.
  • The Firm imposes specific conditions or limitations on such outside business activity, including where circumstances warrant, prohibiting the activity.
  • The proposed activity is properly characterized if it is investment related and would require firm supervision.

Disclosure

The Firm must appropriately report all approved outside business activities on each respective covered persons Form U-4 and Form ADV as applicable.

Surveillance

Overall, the Firm is to establish reasonable controls to ensure compliance with detecting conflicts of interest and risk regarding activities done away from the Firm. The Firm is to consider any additional surveillance methods used in monitoring for non-reported outside business activities.

Archive

The Firm must maintain a record-keeping system to include all employee notices, initial forms, annual forms, and firm approvals.

For more information regarding RIAs, check out some of our other blogs:

For assistance with staying compliant with the OBA requirements, please contact us. MasterCompliance also provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.