FINRA defines an outside business activity (“OBA”) as being an employee, independent contractor, sole proprietor, officer, director or partner of another person, or being compensated, or having 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. Compensation is not just commissions or salary. It may include stock, products, or services provided in lieu of cash.
OBAs REQUIRED TO BE DISCLOSED
All OBAs are required to be disclosed and approved BEFORE engaging in the activity. You must also notify your supervisor and ESI Compliance for changes or termination of an existing OBA. Common examples of OBAs that must be disclosed to ESI include, but are not limited to:
• Any outside employment not related to securities
o Including any other home-based or small business enterprises
o Including any activity where compensation is paid (e.g. Uber driver, coaching an athletic team, part-time or seasonal employment, writing/publishing a book or periodical, etc.)
• Acting as an insurance agent (including your DBA) and your insurance practice (including but not limited to fixed annuities, universal life insurance, term insurance, whole life, and fixed indexed universal life insurance)
• CPA, lawyer, tax preparer, Enrolled Agent
• Fees for referring business to someone else
• Real estate activities, such as owning a rental property, leasing or renting land, or owning/operating an Airbnb (or other equivalent arrangements).
• Serving in a fiduciary capacity (e.g. trustee, power of attorney, attorney-in-fact, executor) for a family trust of an immediate family member
• Any volunteer or unpaid position where you:
o Are in a leadership position including but not limited to serving as an officer, director, or partner (e.g. president of a charity or on the board of a foundation)
o Handle funds such as:
Acting as a treasurer, accountant, or bookkeeper,
Voting on the disbursement of funds,
Making investment/insurance decisions,
Affecting transactions, or
Collecting money or fundraising for an entity.
Fundraising activities – such as organizing/holding funds for a non-profit organization, creating a GoFundMe page, or similar activities – must be reviewed by ESI prior to engagement. Please note: “organizing/holding funds for a non-profit organization” would not include activities such as participating in a fundraiser for your child’s school- or scouting-related activity, for example.
PROHIBITED OBAs
Prohibited outside business activities include, but are not limited to:
• Acting as a mortgage broker,
• Acting as a life settlement or viatical agent,
• Acting as a moderator or sponsor of a social networking site that focuses on investments or topics in the investment industry,
• Selling or soliciting digital assets (including but not limited to cryptocurrencies, digital tokens, digital currencies, virtual assets, and initial coin offerings, and consulting/education services relating to digital assets),
• Employment by or association with any company, association, or organization that would conflict with, or would be adverse to the interests of, ESI.
HOW TO REPORT
To disclose a new OBA, update an existing OBA, or terminate a current OBA:
• Fully complete the Outside Business Activity Disclosure Form and provide supporting documentation when warranted, to avoid review delays.
o For a privately held corporation, LLC or partnership under your control, that you are an “agent” of, and/or have ownership in, please provide:
a copy of the articles of organization,
membership agreement, and
a list of owners, their relationship to you, and their percentage of ownership, etc.
o If the OBA being disclosed requires documents to be filed with a state/regulatory body, please include a copy of those documents as well.
• Submit the Form to your supervisor for approval. The Form will then be submitted to ESI Licensing for Firm approval.
• If the Firm has no objection, you will receive notification that your OBA is approved.
o Always await approval notification before starting the activity.
o Take note of any restrictions to be compliant while engaging in the activity.
• IARs: If the activity is considered significant (e.g. makes up 10% or more of your income), ESI Licensing will help to facilitate the update of your ADV Part 2B disclosure brochure, if necessary.
Failure to report new OBAs, changes to existing OBAs, or terminating an OBA may result in disciplinary action.
QUESTIONS
If you have any questions regarding OBAs, please contact your supervisor and office manager who can work with ESI Licensing for any concerns.
TC128248(0822)1