In lifting brokerages' long-standing obligation to keep tabs on advisors' side gigs as weekend bartenders or Uber drivers, the SEC insists it's not allowing for a free-for-all.
The Securities Exchange Commission this week approved a proposal that largely limits brokerage firms to monitoring only "investment-related activities" pursued by advisors on the side. It replaces a stricter catchall rule that broker-dealers long complained forced them to account for likely conflict-free outside business activities like moonlighting as a bartender or buying real estate for personal uses.
Advisors have been fined or suspended under Financial Industry Regulatory Authority rules for failing to inform their primary firms about side investments arranged for investors. Still, many broker-dealers viewed FINRA's rules on outside business activities as overly burdensome, particularly if they required keeping tabs on seemingly innocuous work like umpiring a Little League game.
The new rule constitutes a 'floor, not a ceiling'
Investor advocates were quick to push back against the move to soften monitoring requirements. A June 10 letter from the Public Investors Advocate Bar Association suggested it's not as easy to distinguish investment-related activities as regulators may think.
"PIABA and its members have seen firsthand how registered representatives use a variety of outside business activities to solicit investors for financing schemes, with a variety of outside businesses often described as non-investment related being used as the impetus for solicitation of investments," wrote PIABA President Michael Bixby.
The SEC insists though that the new rule for outside business activities sets "a floor, not a ceiling."
The new rule keeps in place requirements that broker-dealers judge whether an outside business activity will create a conflict with clients' interests or give the impression that it's been done through the firm rather than on the side. Keeping customers' interests in mind, brokerages then must decide if they want to limit or prohibit the activity. The new rule also requires firms to give written approval or disapproval for outside transactions that will provide advisors with sales compensation.
While eliminating the requirement to monitor certain types of side jobs, the rule also gives brokerages wide leeway in how far they go in keeping tabs on advisors.
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"Additionally, nothing in the proposed rule change would alter the well-settled principle that members must investigate 'red flags' indicating problematic activities," according to the SEC.
Brokers don't have to monitor activities at unaffiliated RIAs
Although the new rule was widely embraced by the brokerage industry, one of its original provisions met with resistance.
Many brokers were opposed to a proposal to make them responsible for supervising any dually registered advisor who works at an unaffiliated advisory firm and "effects or places a securities order" through that RIA. RIAs were concerned as well, saying the rule could subject them to oversight by FINRA in addition to their current regulation by the SEC and the states.
That requirement was eliminated by an amendment adopted earlier this year. Rather than require brokers to supervise transactions that advisors at unaffiliated RIAs enact on behalf of clients, the new rule will require only upfront approvals of proposed trading activity with no ongoing monitoring obligation.
In a June 10 letter, Mark Quinn, the director of regulatory affairs at the independent broker-dealer Cetera Financial Group, wrote that requiring brokerages to track unaffiliated RIAs would have been unique in the industry.
"Activities of representatives who sell insurance, non-security investment products, or tax preparation or similar services are not subject to such ongoing supervision," Quinn wrote.
The new rule, which replaces two existing rules, was originally proposed by FINRA in March 2025 as part of its FINRA Forward initiative to consider revisions to all of its existing regulations. FINRA had then said the rule would "both increase investor protection and decrease burdens on members by eliminating the reporting and assessment of low-risk activities that create white noise (e.g., refereeing sports games, driving for a car service, bartending on weekends)."
The SEC has not yet said when the new rule takes effect.
