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Private markets are becoming mainstream. The conversations with the people building them shouldn't stay behind closed doors.
On the Augment Exchange, we talk with the entrepreneurs, allocators, and operators shaping the future of private capital markets. We dig into how these markets operate, the challenges, and the opportunities.
New episodes every other Wednesday, from Augment.
speaker-0 (00:00.078)
Before we dig in, please note the views expressed by the guests in this video are their own and do not necessarily represent the views of Augment. Augment may hold positions in or facilitate transactions in the securities discussed in this episode. This content is editorial and is not a recommendation to buy or sell any security. This is for informational purposes only and should not be considered professional or financial advice. Welcome to the Augment Exchange. I'm your host, Max Melman.
And today we're sitting down with Jay Gapper, CEO of ACI. ACI started as a side hustle over 40 years ago. Jay's father did accounting work for a New York Stock Exchange specialist firm and picked up clients on nights and weekends. Jay's mother joined while a maternity lead with him. At one point, they served about 120 NISE member firms. Then the floor went electronic. Most of those firms disappeared. Jay and his team rebuilt around what was actually formed fintechs, private placements, ATSs, self-clearing, and carrying firms.
Today, ACI supports about 200 broker dealers. Every broker dealer is required to have three principals CEO, the chief compliance officer, and a finop. Most have never heard of the third. We get into what a FinOP actually does, the new member application, and why exam prep starts long before the request list arrives. We finish with Jay's new seat on the FINR Board of Governor, the cost of PCAOB audits, and what he learned from his parents. Jay is sharp, principled, and quick to pay it forward. I truly enjoyed this conversation. I hope you did too.
Awesome. Jay, thank you so much for joining me today. I appreciate it, man. Yeah, absolutely. So I guess a lot to get into. definitely want to get some free advice along the way. But before we get into kind of FinOp and your background and what you do at ACI, curious. Like you were a CPA and then typically would end up at a big four firm and then end up at ACI. Walk us through a little bit of the background and your story.
Thanks for having me, Max.
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So I did spend some time at Ernst Young in an internship program my between my senior and my graduate year of university, but learned very quickly that the you know the Bay Floor route wasn't the path that made the most sense for me. So it certainly part of it was the history of ACI and having a family run business that already had established itself in the industry, but also, you know, felt like my skill set was better served than a smaller firm where
putting the time, working hard and really trying to exert my opinions and influence, was gonna be better recognized as a smaller firm versus a larger organization.
I get that. I get that. And so personally my dad had a a family run business for a while. I did everything to kind of run away from that business. I and curious if you went through the same process where you kind of ran away from it and then ended up back at it, or or was it kind of an easy transition from what you saw your parents do?
So I love what my parents did when I was growing up. You know, spent summers, you know, interning, always kind of had a pulse on what they were doing, you know, as a child. I don't know that my definitive path knowing university was to join ACI, but you know, at the time after you know, graduating, get my getting my master's and my CPA, just felt like it was a logical extension of my background. I actually spent three years working at ACI at a university and then decided to leave for two years back in twenty ten. spent two years
working for a family office that owned at the time when I joined two broker dealers and by the time I left they owned five broker dealers. So wound up working at the firm, being the the CFO for the upstairs high frequency trading desk in operation. And then you know basically was a CFO for all five broker dealers. And it for me it was an opportunity to really demonstrate to myself that somebody
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that did not have the Gettenberg last name, was interested in employing me. I spent two years doing that and then came back to ACI in twenty twelve full time and have used the last fourteen years to really take that education and that knowledge and and really start to use it as a tool to build out and make ACI the firm it is today.
that's great. That's great. And I guess registered and CFO across five firms. but looking forward, you've been the fin op, I think, at around sixty registered broker dealers. I think that's the most that I've ever seen. And curious, what what's the deal? How are you a fin op of sixty broker dealers? What does that look like? And what kind of experience did you have rather than being the fin op at one, two, three, four? You've seen a lot across sixty. Can you kind of share a little bit more there?
Yeah, so I I'll in full disclosure, I did not get registered. I was not registered at 60 firms at any one time. so it's you know progressive over the last, you know, 20 years or so. But no, personally, I know as a the owner of ACI, I've probably been involved, you know, registered, you know, 60 plus. Unregistered, there's probably another, you know, 200 or so broker dealers that I've been involved in in some capacity, even if it's from a you know a broader oversight perspective. So I've been very blessed to have the opportunity to see lots of
different types of broker dealers go through the new member application process, go through CMAs, expand lines of business. So it's been very my experience has been very broad and and very deep in terms of the type of broker dealers that that I've seen and we've worked with. And I think it gives me a very unique vantage point in terms of, you know, how the industry operates and you know how that impacts the overall the overall Fender community.
And and curious, so the I've been through NMAs, CMAs, not nearly as many as you, to somebody who those are just letters. What what what does that mean? An NMA is C A and then also even to take a step further, what does a FinOp mean as well? Sure.
speaker-1 (05:26.648)
Well, let me start with maybe the the FinOP question. So a Finop is the financial and operations principal. typically it is a or it is a supervisory principal, a person who holds personal responsibility and liability for the operations of a broker dealer. Typically it is someone who has some sort of you know accounting background, you know, with regulatory expertise. That role requires
the passing and registration of the the series 27 and or 28 exam and then the registration at a a member from a fine or member broker dealer. so the fin optic responsible for oversight of the financial books and records, computation of net capital, oversight of moment to moment net capital compliance, preparation of, you know, the focus report, the supplemental schedule of income, the form custody, manage helping manage
financial part of FINRA examinations, helping with the PCOB auditor assessation at the end of the year. So internal or external, you know, obviously we work in a an outsourced capacity. The role of the FinOP is universally understood but under the FINRA jurisdiction that that individual has to be capable, competent, and available to make sure that that firm complies with its regulatory obligations every minute of every
day. Gotcha. And and having a FinOp in series twenty seven is one of the requirements to set up a broker dealer. And you've been through that process. Can you can you walk us through a little bit of the NMA, CMA side of
Yeah, so NMA CMA stand for new member and continuing member application. so new member is someone who is interested in becoming a FINDRA member. They are starting a brand new entity, they are starting an application with FINDRA. There's a division called the member application, also known as MAP. so they are reviewing and approving applications based on the 14 standards for qualification. So some of those standards relate to, you know, the capitalization plan.
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the supervisory principles and their qualifications, the lines of business the firm it will be conducting, written supervisory procedures, a number of other you know requirements to you know maintain regulatory good standing. And the the role the Finup is one of the three principles and alongside the chief executive officer and the chief compliance officer that every broker dealer is mandated to have in order to to be approved for and operate as a FINUR member broker dealer.
Perfect. And I guess once somebody is registered and has certain lines of business that they're approved for, they can then say, Hey, I want to expand the business lines or expand our capabilities and move through like the the CMA process. And I guess you you guys have been involved in quite a few of those as well.
Yeah, we've been through probably I say about a hundred to a hundred and twenty five new member applications in the last four years. so there's about a hundred and twenty five firms every year on average that go through the Finder approval process. In the last you know, four years, ACI has been involved in somewhere between 25 and 30% of every new Finder broker dealer that's been approved for membership. And then if a firm has a quote unquote material change in business, whether that be you know adding a significant number of registered representatives.
adding you know new business lines, affecting a change of own a material change of ownership. They will go back to the member application team at FINRA and FINRA will have to review and and approve the application to expand that business line before the firm can operate in that capacity.
That makes sense. Makes sense. I'm curious. I don't want any any secret sauce. but having seen kind of what's coming or the new firms that are coming out or the changes that are being made, one of the things that I find fascinating about venture is you kind of get a view into the future and what companies are building or what's coming out there. Like on your side, the new firms that you're working with or the new lines of business, are there any patterns, themes, things that you continually see pop up or opportunities people are
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are looking to kind of take advantage of.
Yeah, sure. So it's interesting. If you look at the landscape over the last 20 years or so, the number of broker dealers has consolidated by about 50% from over 6,000 broker dealers down to I think about 3,200 currently. and simultaneously during that consolidation, we've seen a an expansive growth in our business in terms of FinOP outsourcing. So it's an interesting, you know, dichotomy in terms of the the the overall landscape versus simultaneously ACI's growth platform during that consolidation.
What we've seen is that there are a lot of historical, you know, retail-based broker dealers, typically, you know, the firms that were a team of registered reps that were servicing customers in a somewhat manual customer service related process. A lot of those broker dealers are either closing, consolidating, or moving over to the RIA side where they're charging assets under management fees versus commissions. And then simultaneously, there's been a very definitive push.
Towards you know more tech driven broker dealers forming. so it's certainly ATSs, it's you know more complex you know smaller carrying clearing firms that are maybe operating in different omnibus structures with you know foreign institutions, 1586 firms with overseas affiliates. So it's very interesting to see the guy the the change in the guard in terms of the new broker dealers that are coming to the market. And you know, historically it would be someone that maybe was leaving a you know a mid-sized institution and starting their own broker dealer.
Now we're seeing a lot of fintechs that coming out of prestigious Ivy League universities, they're coming out of Silicon Valley. So the the type of broker dealers that are being created are typic or are more commonly from people that don't historically have broker dealer background from a an experience perspective.
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Interesting. Interesting. And I could see that as a situation where your value, your expertise is critical and kind of knowing the rules. And I think it's interesting where you have sometimes you almost need disruption from the outside because they don't know what they don't know. And sometimes things work the way they have for a while and takes a new view, new technology, something to change it. But at the same time, like there's rules, regulations and standards that you need to keep up with.
Has that been an interesting experience working with some of these new member applications and kind of explaining to them the the rules, regulations and and kind of things you can and can't do? And they do they get it or what's the most shocking response you hear? are you seeing people try to do things that are potentially like illegal, but not necessarily with bad intent? And it's like, no, no, no, you you can't do that and here's why. Like, can you can you walk us through some of that?
Yeah, I will say it there's always a learning process, you know, when you have someone, you know, creating or starting a new a new broker dealer, right? So obviously there's a a very you know unique component of being a FinOP that is not applicable to even people who do have broker dealer backgrounds and experiences. so we have to educate them on the you the fin op related rules that allow them to comply. I think it's a a little bit of a double-edged sword in terms of you know the old guard and you know the people that are leaving broker dealers versus let's call it the new guard of people that are not coming from broker dealer backgrounds.
In some ways, you know, you have the, you know, the people that are coming from, you know, broker dealer backgrounds have a little bit more understanding of who Finder is, how they operate. You know, they probably have, you know, some securities licenses. So there are some benefits to having that experience in terms of explaining your qualifications and credentials, but they also are people who sometimes are more inclined to say that they know the answers to questions because they have the experience. whereas I think some of the firms that are not broker dealer centric or have not been historically.
they are typically a little bit more willing to defer in terms of us giving them the expertise and the guidance because they understand that this this is a new space for them and they're really looking for an expert to drive the conversation and help them you know not run a foul of the rules early in the process.
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Yeah, yeah. And and from capital perspective, w what does it look like? How much capital does it take to start a new broker dealer and depending on the approvals or the business lines, kind of walk us through how much it takes in terms of going through that process and then how much capital you need to actually operate the business and and be in compliance with your net capital requirements.
So starting point of the conversation is what's called minimum net capital. Every broker dealer has a minimum amount of net capital it needs to maintain every minute of every day in order to stay in regulatory compliance. depending on the type of broker dealer and the lines of business that it conducts, that will impact the minimum net capital they that is required. so there's effectively three primary buckets or tranches of net capital.
$5,000 is the what's called introducing broker dealer minimum net capital that applies to, I'd say, the vast majority of fender member firms. $100,000 minimum is typically for firms that are engaging in either firm commitment underwritings and or proprietary trading. And then $250,000 is typically for any firm who is clearing or settling customer transactions or acting as a custodian and holding customer funds. So the, you know, the amount of capital required is
has correlation with the lines of business and the complexity and the risk profile of those entities. but when a firm goes through the new member application process, they are required to not only put up the minimum net capital, actually 120% of the minimum net capital, which is called the early warning threshold, but they are also required to infuse one year of fixed expenses during the application process. So one of the the services that we offer as part of our NMA service offering is to help firms
build their pro forma, build their their revenue base, revenue estimates, fix and variable expenses, and help them determine how much capital they need. and then they will use that as the framework of, you know, the funding requirements and then going out and you know and infusing or potentially even raising capital to ensure they meet that requirement for the approval date.
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I guess the the approval process and then operating the business. have you seen some some horror stories and some some disasters when it comes to net capital? what one thing that kind of stuck with me, a former mentor, and I think you know John Paul DeVito, a character, Johnny Action, if you're listening. but he told the story of basically going to walk into the office, SIPA coming in, padlocking the doors.
because it was a corresponding clearing firm and what are their correspondents had an unsecured debit balance that that blew up the entire firm. So it's no joke. Like it's it's not a a a slap on the wrist. It's you're out of business if you have this issue. So what what does that look like? How do you kind of drill that into the people that you're working with and have you seen that situation where where it blew up?
So just for context, John Paul is the owner of a firm called IntelliClear that provides back office subledger accounting, particularly to carrying and clearing firms. And I say that just to be able to give an illustration between a carrying custodial firm versus the rest of the broker deal industry. so the requirement to comply with net capital applies to all broker dealers, but I would say the risk of you know, customers being harmed is a little bit different for a carrying firm than it would be for a non-carrying firm.
so in the illustration you provide with jump the firm that John Paul was working with, I presume that they, you know, they certainly were holding customer funds if they had a debit balance in their reserve calc. So obviously when you start talking about customers' assets being at risk, different, you know, consideration from a fender perspective. We support about 200 broker dealers on a monthly basis. I'd say about 15 or so of them are carrying firms with much more expansive regulatory needs where we're
a lot more involved and and and there's a lot more diligence in terms of you know ongoing compliance. For the other 185 other broker dealers that we are supporting that are non-carrying firms, the requirement to comply is absolutely prevalent. It is mandatory. It is required, but it's a little bit easier to manage something bad happening because you can holistically look at a firm and as long as they're making you know good decisions and there's good communication, they're not necessarily withdrawing capital without you know communication or proper channels.
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typically you can look at a firm, you know, see how much capital they're burning and you know ensure there's enough cushion there to make sure that you know nothing bad happens, you know, on a day-to-day basis, that it's more of a longer term approach in terms of making sure there's funding in place to support the the operations month over month.
Gotcha, gotcha. And and for the world we operate in, so we have a broker dealer, ATS, RIA, but the broker dealer and the ATS and also conducting private placements, would that that kind of falls in that nickel BD category and and kind of curious for a firm that either has it as approved business line or doesn't have it as an approved business line but is interested in offering it, what does that look like? How much capital is needed?
What's the ongoing requirements? What what should a FinOp be scared of, worried about, thinking about when kind of moving and expanding to offer private placement?
So private placement I would not look at as a high risk business from a from a fin out perspective. You know, obviously if we shift over to the compliance side, there's you know, the the way that you know there's disclosures made or the way that you assess you know the accreditation standards of an an investor in a in a private placement. that's certainly an important consideration in terms of who you make the offers to from a you know a rent BI and a suitability perspective. but from a fin out perspective, you know, private placements versus
know, capital raising, mergers and acquisitions. it's pretty uniform in terms of the risk of the fin up. you know, private placement firms do not hold any customer funds. There's typically, you know, an escrow agent or some sort of counterparty that makes sure that the assets get transferred, you know, properly between counterparty A and counterparty B. That is not typically the broker dealer for the average firm that's engaging in private placement activity.
speaker-0 (19:06.446)
Gotcha. And and how about are you familiar, worked with groups that operate as like a dealer where they're also taking positions? and does that differ, have much experience public markets, those positions versus private markets and kind of what that looks like?
Sure. So firms that take proprietary positions don't necessarily custody, because when the definition of custody would be custodying, you know, their customer or assets. you know, when I think about, you know, proprietary, that means that the firm is in is holding firm positions, meaning that the the assets on the balance sheet belong to the broker dealer, not to their customers. so firms can absolutely, in theory, engage in proprietary trading where they become, you know, the counterparty to their customer transaction.
That asset would sit on the books of the broker dealer and the firm would have to assess you know if there are any you know haircuts or considerations for liquidity that will impact the net capital of the broker dealer. So, you know, in a public domain, you know, if a firm, if a client wants to, you know, buy or sell shares of Apple, the broker dealer can take the other side of the transaction and they would hold the Apple on the balance sheet as a long or a short position. Typically for an equity position is a 15% haircut, meaning if you have a hundred thousand dollar position, you only get credit for.
$85,000 from a liquidity perspective in terms of net capital. But there's a very fundamental difference from a from a private perspective where typically private securities are not, you know, actively traded. There is not as much liquidity. The valuation metrics are not the same. Typically, private securities on from a firm proprietary perspective are deemed to be illiquid and non-allowable for net capital. so we don't generally see firms that are engaging in private placements, typically acting in a proprietary capacity.
Makes sense. Makes sense. Okay. I know touched on some of the new members and the continuing member applications. What are the most common things that you were seeing firms expand in terms of the business?
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I think private placements are a very definitive focal point for the you know the new entrance into the space. So some of them are more traditional, you know, just offering it to a retail customer base. Some of them are doing, you know, MA type activity, you know, with you know institutional counterparties. some of them, I believe like augment are you know engaging more in a an ATS capacity where they can, you know, help firms raise capital and then I think also on the back end provide sec secondary, you know, markets or liquidity for people who hold private securities and then can, you know.
find liquidity and sell them before there's a an IPL transaction.
Gotcha, gotcha. And mean, it seems like you guys work both two-person shops up to massive public companies and customer lists, Axos, Carta, iCapital, Galaxy, Revolute, Securitize, many others. I mean, it's pretty, pretty impressive. And I think these firms are looking at you both as kind of a trusted counterparty and as an outsource Finop, but I may have thought some of these firms would have kind of outgrown that.
outsourced Finup. Is it something that you see where firms will actually outgrow ACI? Or do your value, your services expand as the firm expands? How do you keep these firms and these customers sticky so that they don't necessarily outgrow ACI's
Solutions. Sure. so I will say that our our relationships with different firms evolve and change over time. Right. So when they when I think about a firm that's writing a business plan, thinking about the new member application process, one to become a broker dealer, you know, some of them plan on being, you know, five person organizations forever. And you know, they are a perfect fit for perpetual outsourcing because it just makes sense for them from a cost and expertise perspective to just keep that outsource option in place to maximize the utilization of their capital.
speaker-1 (22:42.87)
Other firms have, you know, fairly broad and expansive, you know, business plans where, you know, the firm that applies for membership on day one or gets approved for membership on day one and who they wind up being five, 10, 20 years later are totally different from a regulatory perspective. So I always, you know, communicate with, you know, the firms that are looking to grow and scale. we are not trying to, you know, ever require you know any one of our clients to to utilize ACI beyond their their respective needs. but I do think that the the needs change over time. So the outsource model early on.
maybe phases into them hiring, you know, an accounting support person. That phases into them maybe that person taking the fin the FinOps exam and we provide the bookkeeping and the accounting and all the regulatory expertise. And that person internally holds the license and provides the oversight from a a regulatory perspective. And then there's typically a point in time, you know, not always, where you know they hire the second or the third person. They start to build their, you know, their regulatory accounting team internally. And we shift into you know, the
supervisory, you know, expertise, the unlicensed, you know, phone a friend, the business continuity for the worst case scenario or someone, you know, I know needing support from an exam perspective, a fender exam perspective. So, you know, we can adapt and we can, you know, modify our offering with our you know our existing or even not current clients to you know adapt to what their their individual entity level of respective needs are.
Gotcha, gotcha. And and so you touched on the FINRA exam, which standard piece of like conducting business, operating the business, whether you're on the two year cycle or whatever your cycle is, FINRA is going to come in and they are going to look at how you're operating. What what do you see in terms of kind of preparing for those exams, managing that process? What role do you guys play? And what are the biggest kind of items that are on the list from FINRA to to check in on or the biggest areas where people have an issue?
Yeah. So from a FinOP perspective, they're typically looking at, you know, financial statements or looking at, you know, you know, focused reports, the audit, you know, anything that's you know, expense sharing agreements, things that are relevant and pertinent to the firm's ability to, you know, maintain, you know, gap financial statements and you know and comply with net capital. I don't look at the FINRA exam, you know, kickoff date as a starting point to start to prepare for the exam. I you know, I look at it holistically like we have a responsibility as the broker dealer and the fin op.
speaker-1 (25:04.302)
to FINRA on an ongoing basis. Everything that FINRA is gonna that, at least in terms of ACI support, everything that FINRA is asking for during the exam process, we've already prepared, we've already saved it down. It has already been created. We're not backfilling, you know, documents, you know, for the exam. we're just basically taking the request list and we're providing documents that have already been created to the best of our ability.
Makes sense. Makes sense. And I've seen it the fund audits as well. If you're prepared and you already have a copy of the test, it's not like they're trying to trip you up. It's not like there are any gotchas. It's these are the rules. This is what you need to comply with, and this is what we're going to check on. If you could just factor that into how you operate, it makes life much easier ongoing. But I guess not not all firms are as prepared. I've seen that test as many times. And will you guys actually run that process or you communicate with the broker dealer who's
Who's interfacing with FINRA? And then also, I guess now your new role as a governor for like small business community with FINRA, how does that impact things?
So being a member of a Finder board of governors has little to no impact on how ACI operates as a business. Right. So there are the obligations to you know meet the requirements, fulfill exam requests are completely independent of, you know, anything that goes on from a board perspective. So when I think about, you know, an exam, you know, we're making sure that the firm is supported in whatever way is best for their respective organization. So some firms say, you know, we wanna be able to we wanna be the
No, the in the intermediary between, you know, you know, the broker dealer and FINRA and we want to supply you all the documents and we want you to basically provide the documents to us for review. other firms come back and say, you know, we know that you know the space extremely well, you know, please feel free to upload the documents, you know, directly to FINRA. So there's no for me one size fits all in terms of, you know, the approach or the strategy. You know, we have obviously confidence in the work that we do and we make sure that the requests get filled in the way that is best for the the firm that we're representing.
speaker-0 (27:00.172)
Gotcha. Okay. And and touched on the board of governors piece and can congratulations. What does that actually mean? What does that look like? What what is your role moving forward?
Yeah, so I'll preface by saying that all any and all comments I make during this call are representative of me and ACI, not on behalf of the Finder board. But you the Fender board operates on a rolling basis. There's typically four to five board meetings each year. the board focuses on different you know rule proposals that are under consideration. Certainly I I obviously from a confidentiality perspective can't share anything that is being proposed. but no, the the way that I look at it is that the board is comprised of you know typically 20 members.
Some of them are public, some of them are industry representatives. there's a breakout between large, medium, and and small firm representatives. So the small firm community has three representatives. it's basically a three-year cycle or three-year term where one new person gets elected every year. So I was fortunate enough to be elected in 2026. Very proud and appreciative of the fact that 533 broker dealers believe that I'm the most qualified person to represent and advocate for them.
And one of the things I've been very adamant about is really trying to create as much, you know, openness and transparency and dialogue as I'm I'm able to, as firms are going through exams as you know, compliance consultants or lawyers or auditors, you know, experience, you know, pain points across the industry. I want to be the sounding board to kind of, you know, hear those comments, hear those thoughts, understand what makes it, you know, challenging for member firms or even consultants that can be, you know, improved upon or made better for the future.
I've created a little, you know, notepad for myself of just kind of jotting down things that you know could have lasting impact in terms of the way that the FINR member firms, especially small firms, operate and trying to find the best way possible to outline those deliverables and communicate them to the board appropriately and try to effectuate you know tangible positive change for for all of us going forward.
speaker-0 (28:58.358)
Gotcha. And I know you can't share any specific confidential items, but any kind of key themes that you see continue to pop up across these smaller member firms? And then what does that process actually look like in terms of going and advocating for
The place where I get the most commentary is are typically on financial items just because our firm is fin out focused. I think it goes without saying, you know, for any s small firm that's listening, I think that you know the the biggest pin point has been, you know, the cost of PCOB audits. you know, so PCOB has been involved in overseeing the audits of public companies for going back on, you know, twenty plus years now, since Sarvean's Oxley. Broker dealers, whether it was intentional or not, are kind of
rolled up under the definition of a public company and where those audits were t were historically under AI CPA standards and now under PCOB standards. And that's created a lot of additional work and scrutiny and costs and risk, you know, for the auditors where they are now having to do more. And that cost is being, you know, I guess pushed down to the broker dealers who are having to obtain those attestations on an annual basis. So I know there's a number of other former board members who have worked you know very actively, you know,
in different capacities to try to you know effectuate that change and have PCOB removed from that process. I think there's a a delineation for me between the risk of PCOB audits for carrying clearing firms versus, you know, firms that don't hold customer funds. But you know, it's something that is near and dear to me in terms of the applicability, but also, you know, the pain point from a cost perspective of particularly the smaller broker dealers that you know see this as one of their significant costs in order to stay afloat and stay in the business long term.
That makes complete sense. So potentially a world where kind of those three tiers of broker dealers you touched on, maybe PCAOB stays for carrying clearing, but the whether it be the first feels like a no-brainer, just purely nickel PD. The second maybe debatable. but all three, that that feels like a challenging and it it's interesting also the number of public companies since Sarbanes Oxley. And now you touched on the number of broker dealers.
speaker-0 (31:02.292)
Sensar Baines Oxley Oxley and some of these requirements associated with operating. One of the things that makes US capital markets so powerful, so attractive is kind of the rules, the regulations, and the trust in those markets. So what what does that look like where you see some firms operating not necessarily black and white, kind of getting into a gray area or stepping into areas that clearly are
like regulated broker dealer activities, but not being registered as a broker dealer. What does that look like? How often do you see it where people are kind of fighting the the registration, the regulation, the costs associated? But on the flip side, the value that is provided and the trust of of being a regulated, registered broker dealer. What what does that look like? What kind of conversations do you have with founders or executives around there?
So I speak with I know, I'd say probably a half a dozen, you know, prospective broker dealers almost every week now, just in terms of firms that are thinking about the, you know, the new member application process. There are certainly occasions where I hear about, you know, firms that are not broker dealers that are engaging in securities activities and I make a very definitive point of explaining to them, the risks of of doing that and all the reasons why, you know, with obviously a little bit of a biased lens, why I think that they should be doing everything possible to be broker dealers and comply with you know the associated, you know, rules and
regulations that would be applicable to them. I think for me that the place where, you know, the conversation typically goes is, you know, for the people who want to do the right thing, which I think is the vast majority of the community, you know, they kind of do the risk reward analysis of do I become my own broker dealer or do I try to affiliate with a broker dealer?
So, you know, there are certainly firms out there that offer the option of, you know, hey, we've got a thousand, you know, reps on our platform and you can basically become a registered rep of of that broker dealer and become the thousand and first rep and just become, you know, an independent contractor of an existing, you know, BD, or they're out of, you know, starting the their own broker dealer and basically, you know, running their own entity going forward. Obviously, different payoffs for different firms, you know, typically there's some are in the range of, you know, E I see say seventy to ninety percent is pretty standard across the industry, a broad range, but you obviously different
speaker-1 (33:13.826)
Reasons why different percentages are are applicable. But I know a lot of people are looking at it like, do I want to go the route of starting a BD and having to deal with, you know, being a supervisory principal and getting a series 24 and running an entity versus just being a register of rep and getting paid, you know, on deals I do or they do. And I always look at it like from a partially regulatory, but also from a business perspective, right? If you're at an 80%, you know, payout and you're doing
$100,000 a year of you know a business, you know, the the $20,000 that you're paying to the house versus the AD you keep, I think at that point you probably just stay at that at that broker dealer and you you kind of become part of a larger organization. Once you start shifting, you know, into that million dollar, two million, three million dollar range, the percentage that you're giving up to the house, you know, from a percentage perspective starts becoming, you know, the the cost benefit analysis of starting your own broker dealer and just paying the overhead cost of one that BD from a business perspective start becoming, I think, more tangible.
And certainly I do think that, you know, owning your own entity and having control of your own fate is a little bit for me less scary than affiliating with a broker dealer with lots of reps where if someone that you don't know does something wrong, that in theory it could have, you know, implications for the entire organization and all the reps that are affiliated with that firm.
That's interesting. And I've gone through that analysis. Know many that have gone through that analysis. That last point that you bring up wasn't necessarily a factor, and it was probably an an overlooked factor. but one one of the factors that does come up, and I think you guys have a pretty interesting solution around, is a rep who is maybe active executing on deals today and is interested in going launching their own firm for whatever reason, whether
They've outgrown the firm, whether they have new initiatives, new things they want to do, new tech they want to build, whatever reason may be, they're somewhere they're executing on deals and then they want to go and start their own. There's that gap from when they say, Hey, I want to start, submit the new member application to when they're approved and they can actually operate. And maybe the market's hot and they miss out on $500,000, a million dollars worth of deals and commissions.
speaker-0 (35:20.898)
Like what what does that look like? How do you guys kind of solve that problem as you work with these people who want to be entrepreneurs and want to go start their own business?
Let me preface by saying that when someone is looking to start a broker dealer, they have a compliance obligation to inform the broker dealer that they're at, that they are going to be engaged in an outside business activity or a dual registration. so dual registration is the definition of being registered at two broker dealers, which technically does not apply until the applicant becomes a broker dealer. so typically it falls under the jurisdiction of an OBA, an outside business activity. so from a compliance perspective, they are supposed to be
not only informing, but actually getting approval from the BD that they are at to you know launch that new entity. Obviously if you think about letting the firm that you're at, you know, know that you're planning on leaving, that sometimes becomes a challenging conversation. You know, some firms are very receptive to that and are willing to, you know, allow firms, you know, that individual to stay and and keep doing deals until the new broker dealer is approved and they can spin out and be at their own entity. Sometimes that conversation doesn't go the way they would know like.
so we actually, as of February 18th, this year, 2026, we were approved for our own broker dealer, ACI Capital Markets. In full disclosure, it is a very limited purpose entity right now, but you know, we have a long term plan of allowing it to be a place for individuals who want to become broker dealers to basically go where we can incubate them during that interim period. So we have no interest in bringing on, you know, a hundred or five hundred or a thousand reps and you know being
a placeholder for you know indefinite deals, but we do want to facilitate the ability for individuals who want to own their own broker dealers who are, you know, potentially using ACI for you know, NMA, you know, adjacent or or FinOps services, where we can help solve their problem and give them a place to do deals on that interim basis. So they would register at our broker dealer. They would do deals during that period of time. We would offer some sort of payout structure similar to where they were if that firm didn't want to keep them.
speaker-1 (37:18.21)
for that interim period. And then effectively as soon as their broker dealer was approved, they would deregister it at ACI capital markets and they would have basically a clean slate to start at their own BD and basically, you know, controlling their own their own fate from that point forward.
Gotcha, gotcha. Okay, it makes sense. And a believer in kind of the concept of when a transaction goes through and the team is more of like an eat would you kill that you make sure everybody eats, but you have to be registered in order to collect the payment. And that 1099 payment can't necessarily go to an LLC, or have the rules changed around that? Or like, how does that work if let's say somebody has a a team of a few people?
that are in kind of support operations, kind of back office type functions, yet there's a producer who's more front office that is executing on transactions, but they want to compensate their team. How how can you do that in a compliant manner, or what issues do you see pop up there?
So let's take a step back and holistically talk about a register rep and their you know abilities, right? So a registered rep is someone who is you know holds specific you know securities licenses, including the SIE and at least the Series 7. other ones may be applicable as well. 63 for state registration, 79 for investment banking. So depending on what type of securities you're being offered, those licenses would be applicable. They'd have to have those licenses. So anyone who is engaging in a securities transaction is supposed to be registered and you know overseen from a compliance perspective.
If a, you know, not only an individual but a team wants to go through the broker dealer in an NMA process, we could register multiple people at ACI capital market. So they can each get paid and compensated on a deal that closes. By definition, anyone who does not have those licenses is not and is does not have the qualifications, is not supposed to be receiving transaction-based compensation. So, you know, an administrative person in theory should not be receiving any portion of a commission. I can't speak on the path of any other firm as to what they will or will not agree to.
speaker-1 (39:16.694)
the way that we would look at it is, you know, we have certain individuals who are registered, who have the appropriate licenses and registrations, and those are the individuals that will be entitled to transaction based compensation when a deal is is is completed. And
you see the concept of like a a bonus pool or discretionary bonuses for those folks or how are people i or is it just not happening?
I will say that it does happen. I don't know that it should happen. Holistically the way I would look at it is, you know, if you can defend that a person is receiving a bonus for time and they're, you know, and it's not correlated with capital raise or a transaction being completed, I think it's becomes more defensible to say, okay, you're getting, you know, five thousand dollars because you did a good job and you helped support me. If the conversation is, hey, we raised, you know, we earned a million dollar fee and we're giving you a point five percent of it and it's five thousand dollars.
There should not be a correlation with the amount of capital raised and the compensation for someone who does not have the requisite license.
That makes sense. That makes sense. And in we touch on the requisite licenses and more ACI. Correct me if I'm wrong, but you're more broker dealer FinOps solutions. Do you guys work with RIAs and have services for RIAs as well? Or is it more focused on the broker dealer category?
speaker-1 (40:31.128)
So it's definitely more focused on the broker dealer side. There is no definition of a fin up from an RIA perspective. There is no MEC capital requirement. There are no focus reports. There's no annual audit requirement. so we do have, you know, maybe a dozen or so RIA clients. You know, typically it's a parent company and then they own a broker dealer and RIA, you know, maybe an affiliated tech, you know, tech company, and they'll ask us to do the bookkeeping, the accounting for all the affiliates for, you know, either convenience or for consolidation. And we certainly have the capabilities to do that. but we don't, I guess.
market ourselves as an RIA focused accounting firm because our value proposition and our expertise is very much focused on the rules and the responsibilities of the FinUP, which is only applicable to
Gotcha, gotcha. Okay, cool. And I know we we jumped right in, but one one piece just to take a step back. So can you walk me through and I'm sorry, probably should have done this before, but ACI, the the founding story from your parents, and I think fascinating of like, yeah, maybe the Nicey floor piece of it, how it ended up materializing, where, where kind of game.
Sure. so my father was an accountant and and was providing, you know, regulatory accounting to a New York stock exchange specialist firm back probably 50 years ago, give or take, and was I think doing a great job. And, you know, at some point there was, I guess, a a client or a colleague of the organization that came to him and asked him to do a little bit of, you know, of accounting on the side, you know, kind of nice and weekend. So, hey, I know I need someone with expertise. I've been working with you.
seems like you do a really, know, great job and you know, we'd love to have you help. And, you know, obviously he had to, you clear it with his boss at the time, make sure there was no conflicts or concerns, which he did and they were okay with. he started doing accounting for them, you know, kind of, you know, after work or on Saturdays and Sundays. It was right around the time that my mother went on maternity leave. She was working as an accountant at a Fortune 500 firm. She was planning on on me being born. And I she gave birth to me. I think she was always entrepreneurial and always had
speaker-1 (42:32.344)
kind of an itch to get back to work before she decided to go back full time. you know, asked my father at the time, you know, can I help you? I see that you're, you know, you're working a full-time job and you're coming home and doing, you know, late nights and weekends. And, you know, I'm kind of, you know, our son is sleeping and I have time available to be able to help out and maybe make your life a little bit easier, you know, out of working hours. so she that's how she got into the business and started doing a little bit of accounting during the day. You know, when
when her son was sleeping. Fast forward, you know, a year, two years, three years, she was ready to go back to work. And they had already, you know, at that point, one, you know, five or six or seven broker dealer clients that were historically New York stock exchange member firms. And that was kind of the creation of of what at the time was Get and Brick Consulting. We've you know rebranded to ACI in 27 since then. But you know, there was 20 plus years where they were 50-50 partners. They ran the firm, went from just kind of, you know, two people and a side hustle into
I think at its peak it we had at about 120 New York stock exchange member firms. They were, you know, the predominant player in terms of everything New York Stock Exchange for, you know, probably almost two decades. If you kind of appreciate the history of the broker dealer community and the NYSE, there was a point in time where you know two dollar brokers were, you know, kind of the face of you know, US capital markets and you'd watch, you know, CNN or Fox News and you'd see, you know, 3,000 people running around the New York Stock Exchange. And
the exchange doesn't look like that anymore. It's become, you know, electronic and those firms have all kind of died off. And they had a point where Gettin' Consulting consolidated quite a bit from 120 firms to maybe down to about 50. And when I joined, you know, my vision was to take what had previously existed in terms of, you know, the the predominant player in the space and to kind of revitalize that and and create that new version of Gettin' Burging or now ACI for offer my future.
so really shifting out of, you know, the NYSE floor, which was a dying breed, into private placements, MA, mergers and acquisitions, third party marketing, proprietary trading firms, ATSs, carrying firms, clearing firms, mutual fund distributors, you know, anyone research, anyone that was under operating under the umbrella of a Finder broker dealer, that became an opportunity for me to learn and to educate myself. That was part of the
speaker-1 (44:48.256)
motivation for me to go work for the family office with those broker dealers for five years to really learn some operations and compliance and see how broker dealers operate and think what they think about from the inside. And then in twenty twelve I kind of you know brought that back to ACI and started using that as a platform to take the old Gethammer consulting in and converting that into let's call it the a new ACI that the firm that we are today.
Love it. I love it. And and so in the process and listen to another podcast you were on where you touched on the fact that it was very important for you when you were taking over the business that you actually bought the business, that it wasn't handed to you. It doesn't seem like you like when things are handed for to you. You you want to go work for it, earn it. And I think taking care of your parents, that was potentially like a path for retirement. And was that something where you raised capital to do it? You look at raising outside capital.
How did how did that go down when you kind of bought the firm and and kind of took over ACI?
I'll spare the viewership the the granular details of of how we worked out the economics between you know parents and son. but you know we we went to the open market, you know, understood you know what the the valuation of ACI was at the time, you know, basically came to terms to be able to, you know, acquire the firm from them at no what is I would say quote unquote arm's length in terms of valuation. so it's something that I take a lot of pride in, you know, being able to stand on my own two feet. You know, it's become certainly easier 20 years later, but you know, if you look back, you know, 10, 15 years ago.
as a mid-20 year old at the time, you I I took a lot of pride in being able to not be dependent on my parents and be able to do things for myself. you know, wanted to always live in the city, wanted to build a business and never wanted someone to look at you know at me and and give the impression that I was entitled in any way. so that was something that was you know near and dear to me, you know, finding the the price point that was quote unquote fair, you know, giving them the plan to be able to retire as if it was any other, you know, buyer, you know, acquiring the entity.
speaker-1 (46:39.136)
It challenged me and held me accountable. I had economic, you know, requirements and deliverables to be able to afford to know to to make those payments. And you know, I think if you know, I look back now, you know, ten years ago, I'm a better person for having gone through that versus if I would have been handed the keys and had a a shortened path.
Interesting and did you raise it? Doesn't sound like you raised outside capital, or do you envision raising outside capital to to grow ACI? Or what does the funding look like?
Yeah, we've so forty-two years as an organization, 10 with me as the the owner and CEO. We've never raised a dollar of capital. That's something I take a lot of pride in. I would never say never in terms of the future, but that is not on our horizon. And I would actually argue it's one of our biggest competitive advantages. so we look at some of the other firms in the space that, you know, compete with us and provide, you know, outsource FinOP or maybe FinOP and compliance. And a lot of those firms have, you know, gone and raised outside capital, you know, private equity backed. And I think from a
two-prong perspective. Number one, when there's an investor, there's always an obligation to return capital. And that capital doesn't get actually utilized or deployed in the best interest of servicing customers or providing value add or the best experience for the the employees. So you know we get the opportunity to be able to employ. We have a great team of 40 people, we have tremendous retention. we've never gone through any sort of you know mass layoff. You know, if someone doesn't work at ACI, it's for a very specific reason.
private equity back firms, they have, you know, obligations or criteria where they've got to hit certain numbers. And if they can't meet them, they have to make, you know, tough decisions. And I look at it as as an advantage, you know, tough decisions go through me and my three partners that, you know, that have all, you know, all longstanding employees that have, you know, kind of bought into the vision of what ACI is. And you know, we make those decisions together. And the people that we are employing or ever choosing not to employ, you know, we know them on a personal basis and we make, you know,
speaker-1 (48:29.07)
business decisions, but we also make decisions with our our hearts, not not just with no with dollars and cents.
That's awesome. And I guess you had both your parents that were in this business and then I've been very lucky, got a lot of advice from my dad along the way, was not in the business that I'm in. he actually listens to this and he'll say, I don't know half of what you're talking about, but he'll give me some feedback. It doesn't stop him from giving some advice and I appreciate it. Curious, what advice have you taken from your parents or are there any special mentors in addition to them that have given you kind of
The best advice, things that have stuck with you along the way.
Yeah, I try to make a point of giving my parents space to enjoy their retirement and not no not burden them with the obligations of ACI, you on a on a day-to-day basis. but they're, you know, they're both individually and and collectively a tremendous resource to be able to ask questions. I will say that the you know, having been in the space for 20 years now, I'd say the questions are, you know, less and less regulatory. They're more, you know, strategy and thinking about, you know, ways to, you know, operate and run a business. And so, you know, I I feel very fortunate in that.
Not a lot of people have the opportunity to, you know, grow up in a in a household or an environment where you know you're watching an entity, you know, go through, you know, ebbs and flows of how to operate. I've learned how to run ACI as a business. I think that has been a big part of that is based on my parents having gone through that and me partially witnessing and partially theming them coaching me to become, you know, good at it. I also think about the context as you know, going backwards in terms of like new member applications. There are a lot of individuals who leave, you know.
speaker-1 (49:58.562)
big corporate you know environments. You know, they work at you know a large you know institution and they're maybe a a phenomenal investment banker or they're great at capital raising or they want they sit on a an execution desk and they don't they know what they know in terms of their technical skill set, but they've never been an entrepreneur, they've never run an organization. And I think particularly knowing how small firms operate, supporting small firms, you know, being able to sit at the table with someone looking to leave and start a broker dealer,
not only talking to them through the regulatory implications, but you know, how do you set up a legal entity? You know, how do you set up a payroll? How do you think about EO insurance or workers' comp or how to create a culture, things that are not necessarily regulatory, but they are foundational to just being an entrepreneur. and I think, you know, me over the last, you know, 10 plus years as an owner, but also my parents as the foundation, they've given me a lot of insight and and color in terms of how
running a company the right way can be tremendously lucrative and successful. And to the extent that I can, you know, help clients or even compliance firms or colleagues in the industry that we partner with, if I can give them those tools to be successful, you know, always happy to pay it forward. And I'm a very big believer in the in the industry being small and people doing the right thing. And if I can help someone today, I'm sure they'll find a way to be able to with no expectation, you know, find a way to pay it forward in the future.
I love that. Love that. And I think the experience of seeing time and again, I think there's even like a famous book talking about somebody who is a great baker and they said, go open a bakery. And then they went through the process and realized, well, I I like to bake. I don't like to run a bakery. It's very different if you like to raise capital, you like to trade, you like to do whatever your function is versus going to run that business. but sometimes it still makes sense. But and I guess on that that note,
somebody going to launch a new firm to execute on private placements and and kind of curious and selfishly in in our world of late stage venture back companies make it easy for folks to invest in those or make it easy for folks to get liquidity there. If somebody wanted to enter into that market, and I think we're seeing a lot of activity both registered regulated broker dealers and some operating in a in a gray area that I think should maybe consider looking at doing it in a registered and regulated capacity.
speaker-0 (52:13.602)
What does that look like? What advice would you give somebody, either new member application, continuing member application, joining somewhere else, just looking at executing on kind of late stage venture backed investments or or making those available to their their underlying investor base?
I mean my my background is not tech. So I'll I'll defer a little bit to you in terms of, you the the the tech stack and how the ATS actually operates in terms of like matching engines. I think that's not where where I'm the strongest. But you know, I think, you know, foundationally think about what people or what teams or what organizations do you need in place that can allow you to focus on, you know, your strategy and and not get bogged down in some of the per the periphery that can, you take you away from your core competency. So really making a point of putting the right people in place that have the relevant expertise and are willing to kind of roll up their sleeves.
I think really allows, you know, the owner or the entrepreneur to really hone in and focus on the fundraising process, on the tech stack, on providing the the greatest value add to the customer base in terms of being a leader in their respective space.
it makes sense. It makes sense. I love the saying time is money, spend yours doing what you do best. And you see people, and we even see it in our world where we're working with other banks or brokerage firms and talking about embedding access to private markets. And it's either build buyer partner. It's at the point where people want to go ahead and execute on it. And kind of say, look, you you can do this, you can spend the next six, twelve, eighteen, twenty-four months, you can do
The FinOps solution. Yes, it takes a a certain expertise or skill set, but it's possible the materials are out there. it's not rocket science. I mean, it's it's it's math, there's rules, regulations. But I think it's it's something to be said when you can have kind of a trusted counterparty to fill a certain need, and then it allows you to go focus on what you do best or where you have your core competency or where you see some edge. I like it. I like it. And I respect kind of staying in your lane.
speaker-0 (54:10.174)
as a FinOp and then partnering with the other service providers and the the community and also not poaching from other Finop firms. it reminds me of the is a famous Steve Jobs email. I want to say it's to Adobe. I could be wrong, but where he basically says like, hey, we're seeing you're poaching some of our talent. It is one of our policies not to poach your talent. One of us needs to change their policy. Let me know who it should be. so I I can imagine
Your approach, your style is is slightly more of a gentleman. I think you've developed a really impressive reputation in the market. But I think when you mention your name, very well respected, people have nothing but good things to say about you guys. And I think you're you're taking the the right path. So re really respect it, really appreciate the time. and last question would be hey, anything people can do, where can they find you? How can be people be helpful to you and and kind of what's going on going forward at ACI?
Yeah, sure. I'm available on LinkedIn. we have a an email address, info at acisecure.com for inbound leads. My email, J Gettenberg at ACIsecure.com. So if anyone is, you know, interested in starting a broker dealer or kind of even exploring initial steps and what that would look like, certainly always happy to be a resource and and help firms think through, you know, what that could look like and the implications. If you're thinking about, you know, talking to you know, a compliance firm or a law firm and an auditor that would be, you know, adjacent to us, always happy to make introductions and kind of
Give that individual optionality in terms of the other strategic partners that would sit alongside us in that process. We look to build the long-term relationships. And you know, part of that is from a a client servicing perspective, part of it's just from an industry perspective. So if you you know happen to come to a Finder conference or you see on LinkedIn that you there's a speaking engagement that I'm gonna be part of, certainly would encourage you to join, would encourage you to to come up to me, approach me. I try to be as approachable as possible.
Gender board of governors or not, I wanna have dialogue with, you know, every member firm. I wanna be able to understand, you know, what you're thinking about, what can be impactful to to your respective firm. And if there's, you know, if there happens to be a place where ACI or or I fit into that that equation that can be complimentary or helpful to your organization, certainly would love to have that conversation as appropriate.
speaker-0 (56:18.324)
Awesome. Awesome. Love it. I really appreciate the time. Thank you again, Jay. hopefully we have another one in the future.
Thank you, Max. Appreciate you having Of course.
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speaker-0 (57:51.318)
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