FINRA Plan on Outside Business Activities to Spark 'Much Debate'

The proposed rule on outside business activities seeks to streamline BDs' obligations by "generally excluding from FINRA's rule on a registered person's personal investments and work performed on behalf of a firm's affiliate," and eliminate supervisory obligations for non-broker-dealer outside activities, including investment advisory activities at an unaffiliated third-party advisor, Henschen explained.

The good part is that broker-dealers "will no longer have to track and most importantly have liability for RIA business," Henschen said.

The bad news: "The motive for taking a percentage payout on the RIA's advisory business will go away, leaving them only a profit center from commissions and trail business if the advisory assets are held away" at firms like TD Ameritrade and Schwab.

In announcing the proposed rule in Regulatory Notice 18-08, FINRA states that it's proposing a "single streamlined rule" to address the outside business activities of registered persons.

Under the proposal, third-party investment advisors would need to receive informed consent for their activities, but the BD would not have supervisory obligations.

The BD could impose certain requirements based on a required risk assessment of conflicts of interest and customer confusion. The proposal also limits BD obligations to supervise non-investment related activities.