Working with outsiders
Outside business activity (OBA) and private securities transactions (PST)
Outside business activities and private securities transactions are closely related and easily confused, so the exam often tests the difference between them. For any job, or any other way of making money outside the employing member firm, there are 4 possible outcomes:
- No problem at all
- You will need to notify your employing firm,
- You will need to ask and receive permission from your employing firm, or
- The activity is not allowed at all.
The last case, is one of the less likely to be tested, because it likely is quite obvious. Any significant and obvious conflict of interest, either one that would likely hurt clients, or actually in reality, ones that are more likely to hurt the employing firm, would be banned, and not allowable. If you had some other type of investment service, crypto, real estate, comic books, where you provided clients investment services in non-securities products, the question of course is when a client comes to you, are you going to recommend what the member firm does business with? Or are you going to take business away from the employing firm and give it to this competing business? Having a business where you sell identity information on the dark web would clearly be a conflict with client’s interests, but that is already illegal.
The first one is also one that won’t likely be tested as much. It could show up mostly as a wrong answer choice: if the question is really testing whether “permission” or “notification” is required, and you’re looking for “not notification,” then “nothing” can look correct when the real answer is “permission.”
If you basically are a volunteer, at a completely non financial, non insurance, not in anyway related to the areas of work of financial services, and you are not paid, then you don’t even need to let your employing firm know. Volunteer every Saturday to coach little league? Yeah, don’t need to tell anyone anything. Get paid $50 to do it? Well, now you’re getting paid and that is different. But if you are purely volunteering, unpaid, and unrelated to the industry, you will not need to get permission, or even notify your employing firm of this “job”.
Outside business activity
Now we start getting to where the questions on this topic are likely to focus. Under FINRA Rule 3270, an outside business activity is being an employee, independent contractor, sole proprietor, officer, director, or partner of another business, or being paid (or expecting to be paid) by anyone else for any business activity outside the relationship with the employing member firm. Passive investments, and the private securities transactions described below, are exempt. Every outside business activity requires prior written notice to the employing member. Permission is not required, but notification is.
Some unpaid positions are still outside business activities under Rule 3270, because the rule covers serving as an officer, director, or partner whether or not it pays - taking an unpaid seat on a company’s board of directors, for example. The firm must receive written notice, and depending on the specifics, may limit or prohibit the activity; this isn’t “permission” in the PST sense, just the firm’s own conflict review. If you are taking an unpaid seat on a board of directors of a local non-profit, with an annual budget of $500k, no one is likely to care. If however you are taking an unpaid seat on a board of directors of a $10b organization, you could potentially direct business of that firm in problematic ways, so the firm is more likely to restrict or object to the activity.
Private security transaction
Every private securities transaction (PST) requires prior written notice to the employing firm, under FINRA Rule 3280 - whether or not compensation is involved. If compensation is or may be involved, the firm must also approve or disapprove the transaction in writing, and if it approves, must supervise the transaction as its own business. If there’s no compensation, the firm instead provides prompt written acknowledgment and may impose conditions, but doesn’t have to approve it. The specific list of covered transaction types matters less than remembering that notice is always required - that’s the detail most often tested backward.
Even when a registered person isn’t receiving compensation for a personal securities purchase, written notice to the firm is still required - only the approval requirement depends on compensation. Separately, the rules around opening accounts at other member firms (covered below) require the employing firm’s written consent for most accounts, and the employing firm can request duplicate confirmations and statements for the account to guard against market manipulation or other impropriety.
Remember though, you as a registered person, hearing about a hot new investment, and you, as a private person, wanting to invest, your own personal private money in this investment, where you are taking all the risk any investment would have, and you have zero intention to discuss or even mention it to clients, let alone trying to sell it to them, is quite different, than you trying to sell an investment your firm doesn’t typically sell to your clients - but both still require written notice to the firm.
When an associated person engages in a PST without providing the required written notice (or, where compensation is involved, without obtaining the firm’s approval), the violation is called selling away. Compensation isn’t required for the violation - the missing notice is what makes it selling away, and a PST that received the required notice and approval is simply not selling away; the two are mutually exclusive by definition. Selling away is one of the most career-damaging violations a registered person can commit: a termination for selling away is recorded on the registered person’s Form U5, which a future employing firm must review within 60 days after filing the person’s application for registration (Form U4).
Accounts at other broker dealers and financial institutions
As an associated person of a member firm, you are welcome to open an account at any member firm, not just your own. You may want to check with your firm, on which they support, and would prefer you work with, as there could potentially be penalties (like not being able to be an advisor if you don’t have your accounts at one of the dozen “approved” broker dealers).
Before opening an account at another member firm, an associated person must get written consent from their employing firm, under FINRA Rule 3210. They must also notify the executing firm in writing that they are associated with the employing firm, usually done with a very early question on the application. The executing firm doesn’t notify the employing firm; its only obligation is to send duplicate confirmations and statements for the account, upon the employing firm’s written request. It is not automatic, the employing firm must request it. Separately, every firm must make reasonable efforts to find out, when it opens an account, whether the customer is an associated person of another member, which is why the application asks (FINRA Rule 4512); institutional accounts, and accounts limited to mutual funds the firm didn’t recommend, are excepted.
The purpose of the duplicates, is to make sure that the associated person is not doing anything wrong, unethical in the account, compared with the work they are doing at the firm. Pump and dumping, or other forms of market manipulation, would be the primary concerns.
If the account was already open before the person became associated with the firm, a different timeline applies: the associated person has 30 calendar days from becoming associated to obtain written consent from the new employing firm and notify the carrying/executing firm that they are now associated with a FINRA member firm. Duplicate confirmations can still be requested and must then be delivered.
Related persons whose accounts are covered as well include a spouse, a child who lives in the same household or is financially dependent, any other relative whose account the associated person controls, and any unrelated person whose account the associated person controls and whose financial support they materially contribute to.
If the account is limited to mutual funds, unit investment trusts, variable annuities and other variable contracts, or municipal fund securities including 529 plans, or is a Trump account (an account under Section 530A of the Internal Revenue Code, added to the exceptions on June 17, 2026), notification and consent are not required, and duplicates would also not be required. You can not market manipulate, or unethically trade based on insider or other information acquired unfairly as an associated person, in mutual funds, variable annuities, or municipal funds.