FINRA Advances Outside Business Activity Rule Changes, Giving Advisors More Flexibility

The proposed regulatory changes could make it easier for advisors to pursue entrepreneurial activities.

FINRA has advanced proposed changes to its outside business activity (OBA) rules that would give financial advisors significantly more flexibility to pursue side businesses, board positions, and investment activities without triggering the compliance burdens and approval requirements that currently govern such activities.

The proposed changes, which are now in a public comment period, aim to modernize rules that critics say have become increasingly burdensome as advisors seek to diversify their income streams and build wealth outside their primary practices. The changes would raise disclosure thresholds, streamline approval processes, and create safe harbors for certain categories of outside activities.

Key Proposed Changes

The most significant change would raise the threshold for mandatory disclosure of outside business activities from essentially zero to $25,000 in annual income or investment. Activities generating less than this threshold would be exempted from most disclosure and approval requirements, reducing administrative burden for advisors with modest outside interests.

Second, the proposal would create categorical exemptions for certain types of activities that are currently subject to OBA rules but rarely create conflicts of interest. These include rental real estate ownership, participation in family businesses not related to financial services, and certain charitable board positions.

Third, the approval process for activities that do require disclosure would be streamlined. The proposal would establish maximum timeframes for firm review of OBA requests and create a presumption of approval for activities that meet certain criteria.

Context for the Changes

The current OBA rules, which require advisors to disclose virtually any outside business activity to their firms for review and approval, were developed in an era when outside activities were less common and the potential for conflicts more pronounced. Over time, the rules have become increasingly burdensome without proportionate benefit.

Many advisors report spending significant time on OBA compliance for activities that present little or no conflict risk. Real estate investments, small side businesses, and even certain hobby activities have all triggered disclosure requirements that advisors view as excessive.

"The current rules treat everything the same, whether it's a massive potential conflict or a totally innocuous activity," said one compliance consultant. "The proposed changes would bring more proportionality to the regime."

Industry Support

The proposed changes have received broad support from industry groups and practitioner organizations. The Financial Services Institute, which represents independent broker-dealers and advisors, has advocated for OBA modernization for years and praised the proposed changes as a meaningful step forward.

Firm compliance departments have also generally supported the changes, noting that current rules consume significant resources for little benefit. Streamlining the approval process and creating categorical exemptions would allow compliance resources to focus on activities that actually present risk.

Potential Concerns

Not all observers are enthusiastic about loosening OBA rules. Consumer advocates have raised concerns that reduced oversight could increase the risk of undisclosed conflicts of interest affecting advisor recommendations. FINRA itself has acknowledged the need to balance flexibility with appropriate investor protection.

The $25,000 threshold has received particular scrutiny, with some arguing that this amount is too high and could allow meaningful conflicts to escape disclosure. Others suggest the threshold is appropriate given inflation and the need for a meaningful de minimis standard.

Implementation Timeline

If adopted following the comment period, the new rules would take effect approximately six months after final approval. Firms would need to update their compliance policies and procedures, advisor disclosure forms, and supervision systems to conform to the new requirements.

The changes would apply prospectively, meaning that activities already disclosed under current rules would not need to be reconsidered. However, advisors with activities that fall below the new thresholds could request removal from their disclosure records.

Implications for Advisors

For advisors with outside interests—or those considering developing them—the proposed changes represent a meaningful expansion of flexibility. The ability to pursue rental real estate, participate in family businesses, or engage in entrepreneurial activities without triggering compliance processes could enable wealth-building opportunities that are currently impractical.

However, advisors should continue to be thoughtful about potential conflicts regardless of formal requirements. Activities that present genuine conflicts of interest remain problematic whether or not they trigger disclosure requirements. The regulatory changes, if adopted, would reduce paperwork but would not eliminate the underlying fiduciary and ethical obligations that govern advisor conduct.