Andrew Auerbach (00:02) Well, hello everybody. Welcome to another edition of Beyond the Bank. My name is Andrew Orbach. I'm the co -founder of Delial Advisory Group. And today's discussion is going to be a very interesting one with a real expert in the area. There's many facets to launching an independent portfolio management firm. And of course, at the center of all that are

very significant regulatory requirements to get registered as a PM firm. And then once you're registered, it doesn't just stop. In fact, it probably really just begins in terms of the significant number of requirements. So delighted to welcome Jason Stryker to the podcast. Let me just tell you a little bit about Jason and then we'll just jump right into the conversation.

Jason has been a lawyer for 25 years, the last eight years spent as a senior legal counsel at AUM Law in Toronto. AUM Law is a boutique firm whose principal focus is registering portfolio managers, fund managers, dealers, family offices, and crowdfunding platforms, and then providing them with ongoing regulatory compliance advice.

In 2021, AUM Law joined forces with a major Canadian firm, BLG, and is part of that firm's BLG Beyond Service Offering. During his career, Jason has had the pleasure of registering a significant number of firms, I should say, including our firm. Jason came to us very highly recommended when we went about this process of registering Delisle and really is truly an expert.

Jason's approach is to work diligently at the outset with his clients so they put forward a well thought through and thorough application with the objective of reducing the wait time to obtain registration from the regulators. So with that, Jason, delighted to welcome you.

Jason Streicher (01:59) Thanks Andrew and thanks for all that all the nice platitudes and yeah it was again my pleasure to work with firms on getting them registered and you know delightful to work with you and your team and getting a Delisle up and running at the other year.

Andrew Auerbach (02:12) Well, listen, I have learned from experience. You have a lot to say on this topic and a lot of experience. Before we jump into it, people are always interested in career journeys. you've had a successful career in law. Maybe you could just tell us about your journey. Are you one of those kids who always knew they were going to be a lawyer? And ultimately, how'd you end up in this area of the law?

Jason Streicher (02:35) Well, I wouldn't say as a child, it was my first ambition. You like most children, I grew up in Montreal and I probably wanted to be a Montreal Canadiens hockey player or a Montreal High School baseball player at the time. I would have, you know, gladly been either. Not athletic enough, clearly for either. So, you know, I guess I was more book smart and a good reader. And when I embarked on my university career at McGill,

through a B .Com first, said, you know what, if law is really knowledge -based learning and lot of, you know, needing to memorize and know a lot of law, which is what I thought the practice was at the time, I said that probably suits what I'm good at, my skill set. So I ventured down that path to becoming a lawyer. And, you know, I was grateful for all the opportunities of the firms that I've worked for and then developing into this particular practice area.

Andrew Auerbach (03:29) And how did you find your way into this area?

Jason Streicher (03:33) Well, it was, you know, I started off more as a private and public &A lawyer, transactional at a major firm in Montreal. And in around 2008 or so, these, you know, the current registration rules were coming into force. What's known, you know, national instrument 31103, which could be, you know, should be familiar people in this space that was coming into force. And the firm at the time needed some more bench strength in helping clients exist and you navigate.

significant rule changes and the partner approached me if I'd like to kind of pitch in on that and so was launched a regulatory compliance shift and I kind of got subsumed by that work and I've been doing it since then for the past 15 years or so.

Andrew Auerbach (04:17) You know, one of the refrains when I was in a big corporate firm was that the compliance hurdles and requirements, you know, obviously through a number of significant events like the financial crisis have become more and more onerous. Is that your perspective or is your perspective simply that the regulations continue to evolve the way they would, you know, if we were doing this 20 years ago?

Jason Streicher (04:46) I think the regulations continue to evolve, obviously in my career, dating back 25 years at the outset.

it seemed less, I think it was less prescriptive and there was more deference paid to both professional lawyers and professionals in the industry. But in the ensuing years, there had been some scandals for lack of a better term that caught the regulator's eyes, whether we think of Bernie Madoff as the prime example and others, and then in 2008 and nine, what some people say, the global financial crisis and...

perhaps concerns about derivatives in the market, the supervision of derivatives trading and things of that nature. think all of it has led, you know, there's been firms that have done bad things for lack of a better term and it's led increasingly to a mindset of the regulator that we need more and more formalistic prescriptive rules and really get into the weeds with the...

with the people that they're monitoring and supervising and making, they really want to see strong compliance from registered firms. And it's really, they call, it's still called a principle -based regime where you have a lot of freedom to operate as long as you follow the general principles.

And in my experience, that's somewhat true, but it has shifted somewhat from, while it's still in theory principle based, there's a lot of prescriptive rules, as you're aware of, Andrew, that you really want to be on top of because the regulators really, when they do audit a firm or go to register a firm, they really do go into the weeds to make sure that a firm is complying with all sorts of prescriptive rules that are in place.

Andrew Auerbach (06:25) And ultimately the goal is to obviously protect the investing public. And I would say my experience, and I know certainly your experience given you regularly face off, you know, with all the provincial regulators, it's very constructive that this perhaps image we have of the regulator being in a dark room, perhaps, you know, not interfacing, it's actually not true. They're quite

collaborative, they're very partnership oriented, they share best practices. It's certainly been my experience and I know it's something you often, you know, kind of recounted to me. They want to not keep things secret. They want to make sure that as things evolve that we all know about it as registrants.

Jason Streicher (07:11) Yeah, that's right. I mean, think at the end of the day, as much as there's a lot of, you know, there is a certain amount of compliance burden to being registered.

As long as a firm is really demonstrating it's putting its best foot forward, getting, you know, seeking professional advice where it needs to, and on its own is able to demonstrate that it has a good system of compliance, is transparent, and is really doing, you know, putting forward its best efforts in a consistent manner to follow the rules that are in place. Generally, the experience...

what the regulator should be positive in the sense that, you know, at that point, if they believe in the integrity of the CCO and the compliance staff of a firm, while they still might find some deficiencies in the things that need to be rectified, generally it'll be, you know, in the spirit of collaboration. It's really, you you get into trouble where they really find that a firm just isn't operating with that attention or focus to some compliance detail and is really, you know, just totally business -minded without

of YouTube compliance being as important as growing a business.

Andrew Auerbach (08:18) Okay, so let's go to the very beginning. Jason's phone rings as it often does. And it's a, let's say a scenario, it's a advisor who is registered at a PM, perhaps at a firm owned by a large organization, maybe a bank owned firm as an example. And they say, you know, I'm at a point in my career, I wanna set up an independent firm. I wanna actually start my own shingle. I was told to call you.

What is the process? What does that first call look like when somebody calls you with that query?

Jason Streicher (08:57) Yeah, I mean, the process is, you know, barring any complications of exiting the old firm, but just focusing on someone looking to start a new, their own firm. You know, it starts off as a discussion as to the readiness of that individual to really understand the path ahead of registration, which, you know, a large part of registration with good counsel is a paper -based exercise, and part of it is a function of some form filing.

But there's a lot that goes into that. And I'd say the starting point, really, before you get to the forms and the documentation, is understanding with the individual and their team that wants to get registered, is really understanding at the outset is firstly, do they have the individual qualification? While you start off by registering a firm and you put forward what's called a firm application, a form 33109F6, the most important thing at the outset is really

Do the individuals ultimately who will have to be registered in their individual capacity meet the criteria to obtain registration? In a nutshell, if you want to be a discretionary portfolio manager, do you have someone who's qualified to be your chief compliance officer? And do you have at least one individual, depending on the size of the envisioned firm, multiple individuals who will qualify as being a registered and advising representative?

Because unless you have the individuals who are qualified, you can pretty much stop there because you can't obtain registration without having the relevant experience that you need to get registered.

And over the years, I'd say that's become more of a focal point of the OSC. mean, not that the rules have changed, being individually qualified to test the designations, need CFA or the Chartered Investment Manager to become a Portfolio Manager hasn't changed, nor has the amount, the time or the...

the period of time you need to show that you have relevant investment management experience, but the quality of that experience is more under scrutiny by the regulators. Or if you're applying as a chief compliance officer, showing that you, over and above in having the exams you need and the technical qualifications you need, the more basic test of being able to demonstrate to the regulator that you have the practical experience and competencies expected of a reasonable investor to fulfill your duties.

as a CCO is more under scrutiny. So you need very qualified people to get registered as a portfolio manager at the outset. And so that's the first, I mean, that to me is the major hurdle. you have, sorry, I'm gonna say if you have that, if you're comfortable in the individuals that you're working with, as I was obviously in working with you and your team, given your depth of experience, once you have that,

Andrew Auerbach (11:35) So let's, sorry Jason, go ahead, please.

Jason Streicher (11:49) then while the paper burden is still high, the rest of it should be manageable if the people are bringing the right resources to bear.

Andrew Auerbach (11:59) So maybe we can dig in a little bit. know that a significant amount of the process relates to these two roles that you've just discussed. And one of the things we really appreciated in how you do this is do not start until you have confidence that in fact you will be able to get through this process successfully because it is time consuming and complex, expensive.

distracting all of those things. And so you do a very good job with your team of, you know, really kicking the tires on those qualification areas. So let's go a little bit deeper and talk about first the advising rep. So in order to secure a registration, you had mentioned there are professional qualifications like a CIM or a CFA. There's relevant portfolio management experience.

Can you describe how you counsel people on what that actually means? Do you ask them, you know, do you, for example, pick stocks? Do you do research? Like what sort of areas fall in that qualification criteria for the AR?

Jason Streicher (13:11) I mean, that's exactly right. think you described it in those two bullet points of speech, if you look exactly accurately, that the regulator is looking for to, know, again, and you'll have a bunch of different people coming to you to obtain registration. Obviously, if someone, I if people have already been registered, you can take great comfort that they're probably registerable on their own in their own shop.

But if they're more junior, they're going to have to demonstrate in addition to having the CFA or SIM that they have experience in managing portfolios on discretionary basis as one aspect. And the second aspect is usually more more focused from the regulators that they want to see that the individual has what they call individual securities research and analysis experience.

those are really the two buckets they're looking for. And if you can demonstrate experience in both of those buckets, you should be registrable. If you're having difficulty being able to express that to the regulator, then it becomes more challenging to obtain registration. But that's important.

Andrew Auerbach (14:13) So here's the dilemma, and I guess you can help perhaps listeners kind of discern it. And if I rewind the clock with what you've just articulated and I think about my journey, it was much more of a generalist journey. You would, I obtain my CFA, I work in a buy side firm, the research analysts cover every sector, we have one policy committee, et cetera, et cetera.

In today's day and age, we're in a period of real vertical specialization. And, you know, one of the things I often hear is I'll give an example, you know, with the advent of AI, many, many firms are looking for a very different skill set and profile, right? They're looking for, perhaps, engineers, computer scientists, people that might not have done that work. And so in a world of specialization and the fact that the hurdle seems to be, you know, at minimum

staying the same or increasing, how do you manage those scenarios where the skills are more specialized and not as broad -based where, this individual did in fact select equities and researched a number of companies, et cetera?

Jason Streicher (15:26) Well, I would definitely say you've hit on something that is a live tension right now in the industry, right? That there's a very traditional test that the regulator wants to fall back on to say, yes, you're registrable or no, you're not. And it's kind of binary. it doesn't necessarily, it hasn't necessarily caught up with the special specialization in the industry and different people's practical experience. So I mean, the regulators in fairness are cognizant of that tension and are trying to, I think, work.

to resolve it and maybe be more flexible in the kind of people they will grant registration to. The difficulty is, from their point of view, is once you're registered, you're kind of in the system and registered, and that license gives you, if you obtain the AR license, you have a broad basis to do all kinds of things. So they're guarded about granting it because they'll say, look, even if you're going to be very specialized in this one firm and only do this, once we've put you in the system, you can basically

you're qualified to do anything and they want to guard that registration. So they do tend to fall back on that traditional test. Again, it doesn't capture practically what people might be doing in the real world all the time. there's a, all I can say is there's a tension there and you really, you know, it's going to be challenging if you don't meet the traditional test, but it's not impossible. That's where you would really lean on.

hopefully on council like myself to advocate on your behalf in front of the commission to say that, while my experience isn't traditional, it should be credited as relevant investment management experience. That would warrant me being registered and you take your best shot at it, understanding that's going to be, you know, if you don't have traditional experience, it's going to be a bit more time consuming, a bit more expensive. And, you know, at the end of the day, getting registration or not for the first time is discretionary. So there's not going to be a guarantee of success.

But good counsel usually has the best tools to help you obtain registration when possible.

Andrew Auerbach (17:22) So what about that's, I think giving us a good flyover of the AR registration and the fact that it is a significant amount of experience, you know, required in order to secure it. The chief compliance officer has another rule that you highlighted. You know, why is the CCO rule so important within the firm and

and what kind of standards beyond what you've already described are they looking for from a CCO?

Jason Streicher (17:54) Well, it's important because I think the regulator doesn't... I mean, at end of the day, it's nice when they see that firms are doing well and their clients are getting good investment returns.

But, you know, and people sometimes when they come to us, if there's issues with the regulator, their first reaction is, know, well, my clients are doing well. They're making money. Everybody's happy. Why is there an issue? And you have to understand that at the end of the day, the regulator isn't, they want to obviously they're happy if clients are doing well. But to them, it's important that there's compliance, regardless of what your investment returns are that won't save you from a difficult regulatory audit if you're not doing a proper job on compliance. And I think, unfortunately,

in their experience over the last 15 years that they've seen a lot of firms that get clients good investment returns.

but haven't given the CCO the resources to succeed necessarily, the firm grows rapidly at the outset. the CCO is also one of the business owners, also a PM, is also very focused on growing the business, and isn't spending, in the regulators view, enough time on pure compliance, and compliance is kind of left to the side. we'll get to it once we have the volume, once the business has grown, and once we can, we'll focus more on compliance.

And practically they've seen a lot of that. And I think as a reaction to that, they're really trying to always emphasize that that's not how it's supposed to work. That the expectation is whether you have $10 million in AUM, $100 million in AUM, or a billion dollars.

the standard of compliance expected is really the same. There's a minimum standard and a minimum amount of attention required to meet all the rules. And if you're doing that, you're going to be fine. But if you're not, you're going to have an issue. And so what they try to do now at the outset is really establish, who is going to be the CCO of this new firm or registering? And how can we get comfortable that this individual actually not only meets the prescriptive tests, but we get comfort that this person

actually is going to be mindful to compliance and put forward and maintain a good compliance system. And I think a lot of that plays out at the end of the day after you've put in all your materials and you're comfortable with the individual you have. really, before anybody gets registered, they're going to have a or at least one interview typically with OSC staff. It's called a pre -registration interview where they're going to meet the actual individuals before they grant them registration. And I think it's really there, you know, and maybe Andrew, you can comment in your experience when we had that in Europe.

file, you know, they want to meet the CCO and they want to be able to say to themselves, okay, the CCO knows what they're doing. We have comfort that when we leave the CCO to manage compliance, they actually understand the requirements. It's not their lawyer talking for them. They've kind of ingrained the knowledge they need to run a compliance department.

Andrew Auerbach (20:52) Yeah, I would say that I would just echo your comment that that pre -registration interview is not, I'm quite confident in the view of the professionals at the OSC, a formulaic exercise. It's really part of the process and it's rigorous. And so, you know, a four hour ish meeting where they go very, very deep on the application, on the backgrounds, the firm philosophy approach.

They ask questions not as a test of your knowledge, but as a validation that you're gonna do the things you need to do, you know, if you're successful in obtaining a registration. So again, it is an area that certainly you could go solo, but I do think having, you know, particularly in our line of work, we're often saying, you know, you need professional expertise.

I think this is no different that to have a lawyer with you that has attended these meetings, because chances are for the applicant, it's their first OSCE pre -registration meeting, or perhaps they've done one or two more, but that's it, right, in their whole careers. And so good to speak to somebody who's been in that boardroom who can share with you not here's the answers to the questions, but who can guide you through what this process will look like.

Jason Streicher (22:14) Yeah, I think you really need a good prep session in advance and I think it's a mistake. know, it's a long process and when you get to that pre -registration interview, you might have been working on this for four, six, seven months and you're confident, well, this is a formality. I'm at the interview stage, I just got to show up, smile, you know, they'll know me from my standing industry. It's not my first, you know, kick of the can. So it's easy.

Andrew Auerbach (22:17) Mm -hmm.

Right.

Jason Streicher (22:39) But I think, you know, if you don't go in prepared, spend an hour or two with counsel to kind of go script, go through the questions, understand what kind of questions you're going to get and the kind of expect prompt you on the expected responses to re familiarize yourself with the just the terminology and the basic constructs.

then you're making a mistake because if you start speaking the wrong language and you're fuzzy on your answers, not to say you won't get registered, but you're just delaying it because then they're going to ask you more more questions and the process won't end. If you give a slam bang interview because you're prepared, then typically registration follows a lot more quickly after.

Andrew Auerbach (23:14) Yeah. And the nice thing about this is it's not like, you know, a CFA where you're memorizing a black Scholes option pricing model that you will never use again. this is really, can help you because you have to do all these things when you leave and get registered. So you have to be familiar with, with what they are. And I think that's right. So, so we've covered the, the registrants of, of a PM, the, AR, the CCO. what about the UDP?

We haven't talked about that role, the ultimate designated person. Maybe you can describe that a little bit and another obviously key role in this process.

Jason Streicher (23:51) Sure, so the CCO of a firm reports to what's called the ultimate designated person of the firm. In case there's, you know, as one example, if the CCO is aware that there could be material non -compliance across the firm, they would report that to the ultimate designated person of the firm who has to be, you know, either it's usually, well, it has to be the chief executive officer or the president of the firm, whatever title that person has.

you report, the CCO reports to the ultimate designated person so that the ultimate designated person has kind of the standing within the organization to help the CCO at that point solve issues and take and bring it to, for example, the board of directors attention if there's a major issue going on.

Now that assumes there's going to be a separation of people and roles between the CCO and the UDP. It is the case that if you're a very small firm, at least at the outset, the CCO might be the firm's CEO or president. And so the CCO might also be the UDP, might also be the sole member of the board. in a very small firm, you don't have that separation of chain of authority.

gets large enough, they do expect that the CCO would report to a separate ultimate designated person. ultimately, I was going to say the ultimate designated person in and of itself, that doesn't require any specific proficiencies. You don't have to register as an ultimate designated person. You just have to be the president or CEO. To be the president or CEO of a registered firm, you will have to submit a bunch of information to the regulator.

Andrew Auerbach (25:11) And this is what, yeah, sorry, producer.

Jason Streicher (25:29) So you don't get registered, but they will look at the information you submit. And obviously, if they see something in your individual past that gives them concern that you really have the integrity to be the president or CEO of a registered firm, that can cause an issue. But it's not something we see too often. Typically, the president or CCO, assuming they don't have skeletons in the closet, will be allowed to be the chief executive of a registered firm.

Andrew Auerbach (25:59) One of the areas that I've always stressed in my roles, typically as the UDP, is the CCO, when you went to pains to describe the requirements of this role, this individual really has to understand the uniqueness of their responsibility, often pushing back and saying no to their boss. So they may in fact be reporting to the CEO. The CEO may be deciding.

their compensation, these kinds of things. But ultimately that role requires that independence, right? That ability to actually say, we don't deem these products to be suitable for inclusion in client portfolios or to your point, trading patterns of insiders, perhaps personal trading being excessive by the CEO as an example, and that potentially interfering with the proper operation. There's all kinds of potential

rubs that a good CCO needs to be comfortable that, you know, the responsibility of the role is not about making my boss happy.

Jason Streicher (27:08) Yeah, like a CCO is kind of like a lawyer. They can be a break on a lot of good things and not always appreciated. You trying to do your best from a compliance standpoint can, you the business leaders, I mean, if you're, I can only imagine working for someone like Elon Musk, I guess you go through, you could go through a CCO every week trying to stop them. So it's, but that is the role of the CCO. mean, obviously.

Andrew Auerbach (27:14) Yeah.

Jason Streicher (27:32) you're hopeful to be in harmony with your UDP and with the firm as an organization that you have the right culture that everybody understands your role as CCO. You're trying to accommodate what the firm wants to achieve while also making sure there's compliance with the regulations. So hopefully it works in harmony. I've certainly have seen instances where, to your point, it doesn't, where the CCO is too much of a break and has discord with them and the organization. And it's only probably increased a little because

you know, as you know, in the last few years, the regulators have done a major amendment to 31 .103, which are called the client focus performer amendments. And one of the biggest things they focused on now is conflicts of interest and managing the obligation to manage a conflict in the best interest of clients. So they're looking in the past two or three years at conflicts in much more potential business conflicts.

in a lot more scrutiny than they ever have. And things that never were on the table to even be thought about, to be honest, 15 years ago, are now really scrutinized. this really in the best? How do you justify this practice as being in the best interest of clients? And it's making firms revisit a lot of their business model on fees and on products that they offer. And that's where you would really have discord potentially. we're a CEO. we've always done this. This is what makes us money. Why can't we continue to do this? And you have the CCO trying to explain, well, there's a new

standard, you know, what we did 15 years ago and were allowed to do because of the changes in law, we probably might not be allowed to do that anymore. We need to analyze it and it really can cause some discord there because again, that's what a conflict is.

Andrew Auerbach (29:13) I think that's an excellent point. And it does speak to the evolution of our industry that so many of our firms in Canada have evolved. You know, if we rewind the clock, not that long ago, they were largely transactional, non -discretionary firms. They would call clients with ideas, ideas would say, clients would say yay or nay, and they'd implement them. And then that evolved to a fee based proposition. But now overwhelmingly, it is about discretionary

investment management and that fiduciary standard attached to it. so oftentimes to your point, it's, you know, of course this focus on conflicts is critical, but also the nature of the relationship with the client has evolved profoundly, right? Where now you have so many discretionary relationships that do have a higher standard just by virtue of, of, of the way the client has delegated the decision -making to the client all within the same firm.

And so it's not just, the rules have changed, but it's also we've changed. The firm is very different. Your business is very different than it would have been 10 years ago. And frankly, I think the standards are probably higher as a consequence of being in a discretionary context.

Jason Streicher (30:27) Yeah, mean, certainly, you know, there is a fiduciary standard imposed if you are a discretionary portfolio manager. it's a, know, looking at it through the lens of conflicts, particularly, it is a very high standard. You know, while as a lawyer, I obviously have the same, you know, I'm a fiduciary, I have the same standard of acting in my client's best interest in being, you know, not acting in a conflicting manner.

I don't feel like I feel that same weight of scrutiny on my shoulders every day as a discretionary PM might in today's environment. can tell you, firms really have to be mindful of managing conflicts and addressing them in the best interest of clients. And it really comes up in everything from the fees they charge to the products they offer to referral arrangements they might want to enter into to the kind of funds they want to establish to the way they compensate their individual employees.

and so forth, the outside activities they allow their staff to engage in. There's potential conflicts in every one of those subject matters and every one of them is examined now in regulatory audits. so it's, look, it's something that you have to examine, go through hopefully with council, come to the right conclusions, show the OSC you've done the work, are giving transparent disclosure to your clients and addressing the conflicts in a way that seems reasonable. If you're doing all that, you'll be fine.

But if you haven't gone through that intellectual exercise, in 2024 now, it's time that you do it. Because you'll be surprised at what the OSCE will expect if you haven't.

Andrew Auerbach (32:06) Yeah, and I also think working with a firm like yours who has the experience because ignorance is not an excuse if you're going down this path of registration. so sometimes you don't know what you don't know. And you you may intuitively understand conflicts as it relates to product or trading, these kinds of things, but you might not appreciate all the levels of conflict that, you know, the regulators focused on. So I do think working with someone like yourself who can help

kind of unpack, you know, what are the areas you need to figure out how to mitigate, particularly for small firms, which, you know, I think somebody picking up the phone in our example probably would be a relatively small firm is important.

Jason Streicher (32:49) Yeah, mean, council can help a lot, as someone explained to me in the industry, it's also important for the firm themselves, for the executives to really, because they're the ones.

As much as I'm used to flagging the routine conflicts that we see over over again, I'm not sitting inside the business. I don't know if there's conflicts that are really there that I can't easily see. I can't know, Andrew, for example, if a firm has a conflicted compensation model on how they're compensating their registrants or conflicted fee schedule and how they're charging different client fees for different services unless the firm is very transparent in sharing that information with me. But more so even if

if they do share it with me, I might not capture everything. It's really like, you're all very sophisticated portfolio managers. The people who come to me really understand the business having been in the industry all the time. You need to have that spidey sense of what a conflict is and really be, you with your counsel, who is your trusted advisor and it's all, you know, it's lawyer client privilege. We have to be able to have those conversations of exploring, you know, those little nooks and crannies that you might not want to talk about and better off exploring that with counsel and being

Andrew Auerbach (33:39) Hmm.

Jason Streicher (33:59) comfortable that you're addressing those rather than, you know, being when the OSC somehow finds out something you haven't discussed with council and bringing it to the table for the first time when no one's explored how we're going to react, you know, what's the answer to that difficult question.

Andrew Auerbach (34:14) I always go back to my 25 years ago CFA course, that rule of thumb that, you know, if you are facing a question of conduct, always choose the more conservative one if you're not sure. That's the right answer. You have two options in front of you, pick the more conservative one, you'll generally be safer.

Jason Streicher (34:27) Yeah.

Yeah, and there was some, can't think of the movie, you know, there's a movie that's, know, all you need in life, you need a good accountant, a good lawyer and a good doctor, right, to get you through life. And so, you know, that's, I my advice is, yeah, when you're in a registered business, as much, you know, it's good to have a good lawyer to help you out. think it.

Andrew Auerbach (34:41) Yeah.

Absolutely. So before we move into timelines, you you've really helped us walk through the rules. Any comments on the overall firm application? You started with the notion that you're actually doing some parallel applications at the same time. We haven't talked about the firm application. Is that one more straightforward?

Jason Streicher (35:10) Well, know, a firm application, which is, you know, the first thing you're going to submit to the regulator when you want to get registered is the firm's application. You know, again, once I've said that you have qualified individuals.

The rest of it, the firm application itself is mainly a form -filling exercise, but it's not one to be taken lightly, as you know, having gone through the process. You have to be able to clearly describe to the regulator your business activities, target client base, ownership structure, organizational structure, are there conflicts of interest? If so, how are they going to be addressed? You have to have the right insurance policy, audited financial statements. There's a whole slew of things that you

need to you know to be registered and I think it's important that while you know it is a form -filling exercise and possible to do on your own if you really wanted to you know I think it's you got to put your best foot forward you got to like it's really the quality of the application you submit and having it be well presented and thorough you know that expense that you're gonna pay someone to help you do that I think is more than made up in

the aggravation you'll save. Firstly, if you do it on your own and it's incomplete, you'll get it sent right back to you. And if you start off on the wrong foot like that, you're just going to get a lot of questions and the three or four month or five month process to registration can quickly turn into eight, nine, 10 months or a year. And it's just, I don't think it's the right way to go about it. You want to do it, get a good firm application with all transparent information and the best information you can forward to the regulator at the outset.

you know the old adage, you only have one chance to put your best foot forward.

Andrew Auerbach (36:55) Yeah, that's excellent. And now we have ticked all the boxes. We've got our financials audited, our insurance is in place. We are comfortable that we have the right people in the right roles. We've got your firm helping us put this all together. Now what? Do we just go back to work and wait for three to six months? Or what happens from there?

Jason Streicher (37:22) Yeah, well, once you've submitted an application, then there is a wait process. And obviously, can't, unfortunately, you can't launch the business, you know, and start advising while you're pending registration. So you're going to have to have other ways to occupy your time while you wait. I could tell you, so, you know, again, assuming you've put in a very good application, I mean, the OSC has a service standard. They're supposed to, and I'll just look at it quickly, that, know, within five working days, they're supposed to let you know they've received the application.

Within 30 working days, you're supposed to get initial comments back. At least their service standard is 80 % of the time, they'll get that to you within 30 working days. And then if the application is routine, they're supposed to let you know within 120 working days, again, at least 80 % of the time.

you know, that basically you're going to get registration. So their service standards for a complete application that's well done and that isn't novel, like no new policy issues or complex issues, their service standard is 120 working days right now, which they expect to meet 80 % of the time. You know, I'd say in practice,

Right now, hasn't played out, I don't think, generally, that quickly. Like 120 working days, I think it can be a bit longer. But again, all you can do is put forward the best application you can to keep the timelines as short as possible. But that's the service standard. But it's really case by case, depending on the complexity of your business and how well presented you are.

Andrew Auerbach (38:52) And what about interaction with the regulator through this application process? I know there's a lot of back and forth periodically more information required that that should be expected, I'm assuming.

Jason Streicher (39:06) Yeah, they're certainly going to do their due diligence and want to show that they're crossing the T's and dotting the I's. So you can expect at least one round, but probably multiple rounds of written comments back and forth where they're going to say they've received your application and have the following questions. Hopefully, generally speaking, if it's a well -done thought through application, the questions back shouldn't be too onerous. And the firm itself or with counsel can generally answer them pretty easily.

And hopefully it's two to three back and forths like that that gets you to a pre -registration interview. I mean, if it's getting more than two or three kicks at the can of information before you get to a pre -registration interview, it's either because your application missed something or, know, again, barring your business being complex. mean, you know, if you're a tried and true discretionary PM model, it shouldn't be more than two or three kicks at the can of back and forths before you're at your pre -registration interview.

also barring any, again, it depends on your past history as well. If they know who you are and you've had past difficulties, then it's a different ball game a bit.

Andrew Auerbach (40:14) You know, for an industry of very driven people, I think the advice of being patient through this process is really important. And, you know, there's no rushing this process and it's an important process. Obviously, you know, there are not that many registered firms. The standards are very high. And the process is the process and it's an important one. And, you know, my advice when I talk to people who are thinking about this, Jason, is, you know, I kind of

self -imposed a little bit too much stress through this process that, you know, I think you have to believe your lawyer when they tell you, you know, this is going to, this is the time it's going to take at least it might take longer, highly doubtful. will be faster than, than that. And, know, plan accordingly, which is tough for people who are embarking on, you know, something they're excited about and believe in. And, you know, to your point of past experience that, you know, all the applicants, they're

risk they're seeing, I'm assuming are all very highly qualified people who have lots of industry experience and have done lots of things. And so it's not, it's not necessarily personal, and it's not about, well, my goodness, look how experienced you know, Andrew is let's let's just, you know, let's just hustle this one through the process. It's the same process.

Jason Streicher (41:32) Yeah. And I would say, one thing that's changed in my practice is, you know, if the lawyer, if you're looking to engage a law firm and you're asking the lawyer, well, but, the OSC knows you well, isn't there a way you can get this done for me quicker? They know who you are. They're going to, they're going to fast line this.

and can't you call somebody to get this reviewed quicker? I mean, again, going with experienced counsel who, you the OSCE is familiar with is beneficial in the sense that they know they're going to get a good application and pay deference to it and they know who they're dealing with. So I think generally if you work with someone like me, you might get registered a bit faster. But if you're asking me to call in a favour or call the regulator and try to push them to like, okay, we've been waiting a week. I need a response now.

That's kind of gone by the wayside, whereas 15 years ago, 20 years ago, that might have worked a bit more. now...

You know, maybe in fairness, the regulator gets a lot of those calls and they get a lot of incomplete applications and people would want to push through anyways. And they basically, the line is, listen, you're in the queue, we're looking at it and we will get you your responses within our service standards if we can. But wait, you know, we're not going to be, they don't take pressure from lawyers anymore calling in favors. It doesn't work like that. What your lawyer should be telling you is, look, I can get the best application forward and the regulator knows me.

deal with me, it's going to go as fast as possible, but don't expect me to pull in any favors. I mean, I'll make calls when I need to and advocate on your behalf, but I don't know someone who's going to, you know, I mean, I'm not saying it's impossible, but I can't, you know, I can't do the mythical $100 and get you to the top of the pile.

Andrew Auerbach (43:03) Yeah.

And to your point though, I think it does give the regulator comfort that the applicant is being well -prepared and is getting a good overview of what the requirements are. And I think your comment earlier, which is an excellent one about only getting one shot at a first impression, I think is very important knowing that an incomplete application will require more cycles, will require more time.

better to get the application submitted perfectly or as perfect as you can. And that's something I know you really stressed as we were preparing our application is, you know, much better to take a few extra days now than to have that information requested later. And then, you know, it does potentially add weeks to the process.

Jason Streicher (44:03) Yeah, everybody wants to rush to get something in. Here's my essay teacher and I got it to you. And everybody wants to rush to get that application in. And obviously we try to accommodate getting things in as fast as possible. I would say, I try to give my clients the view and opinion, OK, wait, am I happy that this application is going in as is? Or do I think it needs more work? And if you trust me as your advisor, hopefully you'll say, OK, Jason, if you think it needs that extra few days or this piece of information,

we're still thinking about and you say it's overall going to save me some time that we figure this out, we've admitted it hopefully, you know, we take that council. I do think it usually is the right decision not to rush, not to rush something in just to get it in by your imposed deadline.

Andrew Auerbach (44:50) So you get that wonderful email from the OSC, let's say, and it is, we are now pleased to advise that your firm is registered as a PM. Good luck. And away we go. What happens from there, Jason? So now what can we expect as a firm that is registered with an AR and a CCO and a...

CEO and a UDP and we start seeing clients and we're open for business.

Jason Streicher (45:22) Well, I mean, again, unless the regulators had a really somehow registered you, but had a really bad experience, you know, or is really still kind of has you on their mind, you probably won't see a regulatory audit for a little bit of time from the regulator. So they might not be back to visit you for two years, three years, five years.

But that being said, the expectation is of course, even from the outset that you're just running a proper compliance program. I'd say the biggest pitfall some new clients make is, okay, now that I'm registered, I have to focus on growing my business.

That's where my focus is. don't have a budget. I don't have money yet. I don't have that volume of business. And I understand it. I'm not making the big fees yet that I will make later on when I really have a more substantial AUM base. So I don't want to spend money right now on external counsel. I want to just go out and own my own. And it's a small firm. And I just think that's the biggest pitfall some clients do to themselves. Because what happens sometimes is when they go out on their own,

They get into some bad habits. They don't cross the I's or cross the T's dot the I's anymore. And they kind of just do things the way they have time to do it.

And then by the time they bring us in, when there's an audit, you know, that's gone on for a couple of years and things are a bit messy. I do tell, try to tell my clients, like right from the moment you're registered, as you're onboarding your first clients, going through the KYP C process, KYP suitability, all of the technical things. Why not spend that little bit of time with your first clients, going through that process with your council, making sure you're doing it properly. Because if you start doing it properly from the outset, it really becomes more of a rinse and repeat exercise.

You start off doing it right, then you know you're doing it right and you just repeat it. If you do it on your own and you're not doing it right and you multiply that mistake for 50 or 80 clients, it's really going to start getting messy quickly. So I would say stick with council for a bit after you get registered to kind of make sure, look under the hood and make sure you're doing things right. And then you're going to be able to go at it on your own with more comfort.

Andrew Auerbach (47:27) Yeah, I also would just pile on here. I'm assuming, you know, if you're applying for registration as a firm, you're probably in the industry already. And you're probably with a larger firm. That larger firm has a big compliance team has mature processes. You've probably been working in that and I will, you know, share from personal experience. There's a lot to it, you know, that you probably were not actually doing yourself when you were in a big firm.

And so one of the advantages, Jason, of sticking with you for a little bit is even around a calendar, which is okay, there's a series of things that you must do monthly. There's a series of things you must do quarterly. There's a series of things you must do annually. And you know, you need to know what those things are. And although the materials are great at the OSC, I really wouldn't recommend somebody try and tease all that out on their own in terms of what exactly do I need to do?

because your monthly anti -terrorism filings or sanction reports or those kinds of things, you don't wanna miss these things even if you say, well, I've got a small number of clients. Of course I don't have any requirement to file those things. To your point, you don't wanna accumulate the mess and then find yourself with a problem two years from now.

Jason Streicher (48:48) Yeah, I mean, that's right. mean, look, a compliance manual is chock full of goodness, right? They're anywhere between 120 to 200 pages of dense compliance rules. And it's really a bit overwhelming for most people. Unless you've been a chief compliance officer before, I think it's a bit overwhelming even for people who have been in the industry a long time when it's really

Andrew Auerbach (48:54) You

Jason Streicher (49:10) If they're now for the first time the CCO, it's a lot of stuff to really go through. So you have to be pretty systematic about it at the outset. And again, I would just say if you spend a bit of money, time and energy to be systematic from the outset, once you get in the habit of doing it, and you've kind of...

in your own way, know, everybody works differently, but in your own fashion, you've absorbed it and you've calendarized it and you've made yourself the checklist and the work list and your own processes. As long as you're following a path and paying attention to it, it's not the most difficult thing in the world. It's just a lot of volume and a lot of discrete tasks. Once you've gone through it and really taken some time to understand it, I mean, you know.

You don't have to be a genius to do it well. You just have to take the time to learn how to do it. It's not a lot of science, right? It's not that complicated. So it's just a question of attention to detail more than anything.

Andrew Auerbach (50:00) Wow, this has been so informative.

You know what though, I imagine a rocket scientist would probably say every formula is not that complicated, but altogether you're a rocket scientist. So I do think that it's important. Before we close, just with all of your experience, have you noticed in your experience with firms and the regulator, are there any trends when things go wrong? You've seen things go wrong with firms and...

Jason Streicher (50:20) Bye bye.

Andrew Auerbach (50:38) you know, are there any patterns or trends or any kind of advice that you might offer?

Jason Streicher (50:44) I mean, the first thing I'll say, where I see the most difficulty in a registration process, and it's not typically, it's not a business model we've talked about, it's the discretionary PM usually.

It's a pretty clean application. People aren't usually giving advice before they're registered. Where we see issues often is the other side, is people who are looking to become an exempt market dealer to be able to solicit investors for specific investments and do capital raises. A lot of times we do get clients, people approaching us to register them and we uncover they've already potentially been doing on a limited basis anyway, some solicitation of clients for investment or some capital raising.

And then it becomes, you know, okay, well, what have you been doing when you put forward your application? Are you going to be starting on the wrong foot because you've been potentially in the view, in the eyes of the regulator already be conducting registrable activities without registration. So that's one of the major issues we see over and over again is on the capital raising side. On the discretionary PM side, as far as trends, I would just point out right now, you know,

Again, think if you know, you know, most people are upstanding citizens that are going to do a great job of this. I do think that it's the attention to detail on conflicts is right now the biggest, you know, is where you don't want to fall short. Again, you don't want to be because right now it's they're looking at it with a fresh eye. Nobody knows what the answer is going to be. If you have a difficult conflict that you haven't been addressing correctly, I can't predict, you know, how

serious the amount of trouble you might get yourself into. I don't know what their answer will be if you haven't addressed the conflict and have embarked on a course of action and are now in front of the regulator trying to clean that up. What kind of fines, sanctions, terms and conditions on your firm or what the actual consequence will be of not complying with these rules. So my best advice is really to take conflicts to heart and then followed by the other trend is obviously there's an increased focus on KYC, KYP suitability.

anything client facing is very important right now.

Andrew Auerbach (52:53) Fantastic, and if I can pile on, the one I always tell people is note taking. I do find that sometimes, particularly at big firms, we could be sloppier around how diligent we are with note taking and the occasional very rare time things go wrong, not having notes is not helpful. So, being a good note taker.

Jason Streicher (53:18) Yeah, well, with the focus on, you know, with all those things, the ball is really, when there's a complaint, just understand the ball is really in the complaining party's court, right? They have a large advantage. If they go to make a complaint to the regulator about that you haven't done, you've done something that's not suitable for them.

It's an uphill battle for the firm to convince the regulator that they're in the right. And if you don't have notes and documented suitability and good KYC, you're not going to win that battle. to your point, note taking is very important. And the other thing we're seeing as a trend, and I would just as a shout out to be careful on is, it's more we're seeing it a lot in the US is when you're communicating with clients about KYC suitability, taking client instructions, don't fall in the habit of doing that through any texting. People sometimes in my clients who I'm friendly with,

Sometimes they'll send me texts and ask me for advice on this. We're all used to texting our buddies on all these different chats. Don't text your clients about business activities. You've got to make sure you're communicating with them by email. You can face significant fines if you're using what they call off -channel communications to interface with your clients for business purposes.

Andrew Auerbach (54:32) Yeah, that's a great point, particularly in this digital era where we're in the client service business and so many clients want to engage you the way they engage everybody else, which is with WhatsApp or iMessage or whatever it might be. And of course, there's no trail of any of that communication and therefore all the things you talked about with the CCO simply don't happen in that context.

Jason Streicher (54:59) So you can text your client, if you're following NFL football, can text each other who's winning a bet or who's going to score the next touchdown, but don't text them about whether or not you think whatever stock opportunity is the right opportunity for them. That should be only in proper emails between the client and the firm.

Andrew Auerbach (55:19) Well, Jason, it's been an awesome conversation. Super helpful, I think, for somebody who is contemplating embarking on this path. Is there anything in closing that you wanted to put into the mix that we haven't covered?

Jason Streicher (55:33) I'm a bit at a loss. I think we've covered a lot of ground. Again, I would say that, you know, if you're at the stage where you want to look towards registration and break out and branch out on your own, I mean, I think maybe, Andrew, you could speak to it as it's a great experience and probably nothing like running your own, you know, running your own shop and doing things your own way. You know, just be serious about that decision and, you you got to be, it's a very...

You you've got to be ready for some challenges to get there. But certainly you can if that's what you want to do. But it might not be as, you know, you have to be just realistic on the timing and expense to get there.

Andrew Auerbach (56:13) Yeah, I think that's an excellent way to close. mean, we're all analysts in this industry and this is the quintessential do your research and, you know, do not go down this process without doing really significant research on all the different facets. It's incredibly rewarding. We are very happy for having done it, but also we're happy that we were well prepared for it. It is a heavy lift and

You know, having great experts like yourself, think is something I certainly feel is an important part of that too. So I think this is a great place to close, Jason. You've been just super informative. Thank you for that. And for those of you who want more information or are thinking about going down this path, our guest today is definitely a true expert in this field. Jason Stryker at AUM Law has been our guest today. And Jason, thank you so much for joining us.

Jason Streicher (57:10) Thank you, Andrew. was really my pleasure.