The Financial Industry Regulatory Authority (Finra) has advanced a proposal that would eliminate requirements for broker-dealers to supervise unaffiliated RIAs.
The self-regulatory organization overseeing broker-dealers first floated the proposal and solicited public comments in March of 2025 as part of an effort to streamline its regulations governing how member firms supervise the outside business activities of financial professionals. Finra has now submitted the proposal to the Securities and Exchange Commission (SEC) for approval, following another public comment period.
The latest version of the rule revises Finra’s approach to unaffiliated advisory activity ‘from requiring supervision and recordkeeping of this activity to requiring written notice and upfront assessment obligations for such activity,’ according to the rule’s text.
Going further, the rule states that securities activity at a non-affiliate entity would be considered an ‘outside activity’ and not an outside securities transaction. ‘Thus, this activity would have a prior written notice and upfront assessment requirement but would not be subject to supervision and recordkeeping,’ per the rule.
‘The biggest change was proposing to eliminate the supervisory and record-keeping requirements for unaffiliated [investment advisor] activity,’ a spokesperson for Finra told Citywire.
Known as Rule 3290, the proposal would streamline and eliminate existing rules 3270 and 3280 which together require registered representatives and associated professionals at broker-dealer firms to notify their firms of outside activities and securities transactions, respectively. Under the rules, firms can determine whether to limit or allow the activities, with a requirement to record and supervise securities transactions.
The new, streamlined rule would still address non-securities business activities and securities transactions of broker-dealer registrants, per its text, while focusing more closely on investment-related activities in an effort to reduce unnecessary burdens on firms.
For instance, the rule still requires advisors to give their broker-dealers prior notice of outside activity and outside securities transactions, while requiring member firms to assess whether the activity would compromise the individual’s responsibilities to the firm.
Member firms can still disapprove outside securities transactions and must still supervise them if it gives approval. Yet the rule codifies Finra’s new position in instances of ‘a contractual relationship between a member and an unaffiliated entity,’ the rule states.
Legal experts who work with advisors say the rule could have significant implications for independent advisors who have a broker-dealer registration.
‘From a business standpoint, it means the traditional approach of independent broker-dealers taking a haircut on your advisory revenue, that argument kind of collapses under the proposed rules,’ said Patrick Burns, an attorney who runs an eponymously named law firm. ‘That was the argument: “We have to supervise, so we have to charge a fee.”’
MarketCounsel president and chief executive Brian Hamburger said Finra reached the ‘right conclusion’ on outside activity following last year’s public comment period.
‘I’m genuinely pleased they reviewed the comment letters and came to the right conclusions,’ Hamburger said. ‘Now broker-dealers can look at an advisor’s business and make a simple upfront decision on whether or not to approve it.’
Yet Finra’s efforts to streamline regulation under the current presidential administration could end up harming investors, said Joe Wojciechowski, managing partner at Stoltmann Law Offices and executive vice president of the Public Investors Advocate Bar Association (PIABA).
‘This is another proposal designed to reduce regulation, to make life easier for brokerage firms so that registered reps stop fleeing to the advisory space, where there’s a perception of les supervision and less compliance,’ Wojciechowski said. ‘They’re looking to cauterize liability wherever they can. Supervising outside businesses carries an obligation, that obligation has legal consequences.’
Last year’s public comment period brought industry pushback, prompting Finra to take the unusual step of issuing a statement that its rule would ‘not change the existing obligations’ regarding outside RIA activity but rather asks ‘whether Finra should reduce or eliminate current obligations’ regarding that activity.
Barring an extension, the SEC has 45 days to approve, disapprove or amend the rule following a public comment period.