Navigating Outside Business Activities (OBA) Disclosure as an Investment Adviser Representative

Navigating Outside Business Activities (OBA) Disclosure as an Investment Adviser Representative

As an Investment Adviser Representative (IAR), your primary responsibility is to act in the best interests of your clients. However, if you engage in any outside business activities (OBAs), whether it’s a side business, board membership, or another form of compensated work, proper disclosure is not just a best practice—it’s a regulatory requirement.

Failing to disclose OBAs can lead to regulatory scrutiny, potential fines, and even reputational damage. In this blog, we’ll explore when and how you should disclose your OBAs to stay compliant with industry regulations.

What Constitutes an Outside Business Activity (OBA)?

An OBA is any business-related activity that takes place outside of your registered investment advisory (RIA) firm and involves compensation (direct or indirect). Examples include:

• Employment or consulting with another company

• Serving as an officer, director, or board member (even if unpaid)

• Operating a side business (such as real estate brokerage, insurance sales, or tax preparation)

• Writing investment-related content for a financial publication (if compensated)

• Selling financial products outside of your RIA (such as annuities or private placements)

The key factor in determining whether an activity needs to be disclosed is whether you receive compensation or have a fiduciary duty in the activity.

When Should You Disclose an OBA?

You must disclose an OBA before engaging in the activity. Most regulatory bodies, including the Securities and

Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA), require advance disclosure and approval from your compliance department.

Additionally, if your OBA changes (e.g., you take on a larger role, start receiving compensation, or cease an activity), you should update your disclosure immediately.

How to Properly Disclose Your OBA

Disclosure of OBAs is a structured process that typically involves the following steps:

1. Notify Your RIA Firm

Your first step should be to notify your Chief Compliance Officer (CCO) or compliance department about the OBA. Most firms have an internal approval process, which may require:

• A formal written request

• A description of your role, compensation, and time commitment

• An explanation of any potential conflicts of interest

Your firm’s compliance department will review your request and determine whether the activity is permissible.

2. Update Your Form U4

If approved, the OBA must be disclosed on Form U4, which is the registration document that contains your personal and professional background. Failure to update your Form U4 can result in regulatory penalties.

3. Modify Form ADV (If Applicable)

For Registered Investment Advisers (RIAs), outside activities may also need to be disclosed in Form ADV Part 2B (Brochure Supplement), which informs clients of potential conflicts of interest.

4. Ongoing Compliance & Monitoring

Once an OBA is disclosed, you should regularly review and update your compliance team if there are any changes in compensation, responsibilities, or time commitments.

Potential Risks of Failing to Disclose OBAs

Failure to properly disclose OBAs can have serious consequences, including:

• Regulatory violations (SEC Rule 206(4)-7)

• Fines and penalties from the SEC, or state regulators

• Firm-level disciplinary actions (suspension or termination)

• Reputational damage that affects your clients’ trust

Final Thoughts

As an IAR, transparency is key when it comes to outside business activities. Always err on the side of disclosure and consult with your compliance team before engaging in any external activity. Keeping your records up to date and following regulatory guidelines will help you maintain compliance and integrity in your practice.

Are you unsure whether an activity needs to be disclosed? Talk to your compliance officer—it’s always better to get ahead of the issue rather than deal with potential enforcement actions later.