Which statement best describes how to disclose outside business activities involving client data?

• A. Disclose after the fact and obtain oral consent.
• B. Disclose the OBA to clients and obtain written consent; ensure it does not impair impartiality or create a material conflict.
• C. Disclose only to the firm.
• D. Avoid discussing it with the client to preserve objectivity.

Answer: (B)

When dealing with outside business activities that involve client data, the principle at stake is transparency and managing conflicts of interest so clients can make informed decisions about the advice they receive. The correct approach is to disclose the nature of the outside business activity to the client and obtain written consent. This keeps the client informed about any potential effects on the advisor’s independence and ensures there is an explicit record of the client’s agreement.

The disclosure must occur before any involvement with the client’s data in the outside activity and should be documented in writing. Written consent provides a clear, enforceable record that the client understands the relationship and any potential implications for objectivity. At the same time, the activity must not impair impartiality or create a material conflict of interest; if it does, the arrangement isn’t appropriate, even with consent.

Other options fall short because they either delay disclosure, rely only on oral consent without a written record, or keep the client in the dark about what could affect the advice. Similarly, discussing the OBA only with the firm omits the primary obligation to inform and obtain consent from the client, which is essential to uphold trust and fiduciary duties.