By Matthias Rieker 
 

For a financial adviser, having an outside business can require some choreography--to keep activities separate and make sure an ethical line isn't crossed

Douglas Meyer knows all about choreography. A broker for Wells Fargo Advisors in Deerfield, Ill., he's also a musical-theater producer who has been involved in two Tony award-winning shows.

During the day, he manages about $700 million for several hundred Wells Fargo clients. In his free time, he helps put up blockbuster shows such as "The Producers" and "Hairspray" in New York. He knows the thrill of hanging out with film director and comedian Mel Brooks, who wrote "The Producers," and actress Angela Lansbury, who played in a revival of "A Little Night Music."

"I have no singing, dancing, acting ability at all," he says, but has long had a love of theater. "I am always out there looking for new things" to produce.

He's one of many advisers who have another business on the side, providing excitement, relaxation and, often enough, some additional income.

The activity also can bring in new clients to the advisory practice, but advisers need to be careful about following their companies' and regulators' requirements.

One basic rule: Let the firm know about it. Another: While referrals are OK, keep the businesses separate.

So far this year, the Financial Industry Regulatory Authority has reprimanded 28 brokers for not disclosing an outside business to their employer. Last year, 71 were reprimanded.

In most cases, lawyers and brokerage executives suspect brokers didn't ask for approval because they knew they wouldn't get it, particularly for businesses that are of a financial nature and could be a conflict of interest--for example, setting up a hedge fund or real-estate trust.

At Wells Fargo, each request is reviewed individually to make sure there isn't a conflict of interest. Mr. Meyers says each show he produces has to be approved, because Broadway shows are usually their own legal entity.

LPL Financial doesn't want brokers in its independent network spending more than 30% of their time on an outside business, the company's risk and compliance chief, Michelle Oroschakoff, said at a recent conference. Regional broker-dealer D.A. Davidson & Co. of Great Falls, Mont., demands that "clients take priority." Other firms limit the amount of money brokers can make with an outside business.

Tif Joyce of Joyce Financial Management, an LPL firm in Santa Rosa, Calif., bought an 11.5 acre property north of San Francisco in 1989 as a country getaway. Ten years later he started a vineyard.

The first harvest produced an award-winning wine. But the second year, bad weather spoiled the season. In the end, he found the operating costs to be too high and two years ago he started leasing out the vineyard.

He took away some lessons that apply to investing and financial planning. "Don't get swept away by euphoria when things go well," he now tells clients of his advisory practice, which manages about $105 million for 119 households. "You have to have a plan B."

Mr. Meyer says his theater adventures have taught him the benefit of rehearsal, and he has become a much better public speaker. "If I have a big meeting, it helps me a lot," he says.

Dave Foreman, a Cheyenne, Wyo., broker with D.A. Davidson, says he "caught the bug" of ranching at the age of 14, and 10 years ago finally bought a remote cattle ranch that was established in 1879.

When he drives back to work on Mondays, he says, "I feel I leave paradise." But once he is in his office, where he manages about $320 million for more than 400 clients, "I find myself renewed and particularly clear thinking."

Mr. Foreman is also clear about which activity is his day job. "I have to be available for clients" even on the ranch, he says. But many of his clients are ranchers or in a related business, and owning his own ranch "gives me an authentic position to speak from," he says.

A wide range of activities qualify as outside business as defined by regulators and brokerages, including work for charities and even coaching a child's soccer club.

Mr. Joyce even declared the oldies dance band he leads and plays guitar in, "The Swingin' Earthlings."

"I decided to have a little fun with compliance," he says. His answer to the compliance question about the purpose of the business: "To drive the dance floor crazy." There were no further questions.

Write to Matthias Rieker at matthias.rieker@wsj.com

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