AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to AssetMark's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Today's call is being recorded. Now, I'd like to turn the call over to Taylor Hamilton, head of investor relations. Please go ahead, Mr. Hamilton.

Thank you. Good afternoon, everyone, and welcome to AssetMark's third quarter 2020 earnings conference call. Joining me remotely are AssetMark's Chief Executive Officer, Charles Goldman, and Chief Financial Officer, Gary Zyla. Today, they will discuss the results for the third quarter and provide an update to AssetMark's business outlook for the remainder of 2020. Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Charles and Gary will reference during their prepared remarks. It can be accessed on our IR website at ir.askmark.com. Before we get started, I'd like to note that certain statements made during this conference call are forward-looking statements. These forward-looking statements represent our outlook only as the date of this call, and actual results differ materially. Additionally, during today's conference call, we'll be discussing net revenue, adjusted EBITDA, adjusted EBITDA margin, and adjusted net income, all of which are non-GAAP financial metrics. Please refer to our earnings press release and SEC filings for more information on forward-looking statements, risk factors associated with our business, and required disclosures related to non-GAAP financial information. With that, I'll turn the call over to my colleagues. Charles, take it away.

Thank you, Taylor, and good afternoon to everyone. Thank you for joining our third quarter earnings call. We really appreciate your time today and hope you're all doing well. With COVID cases on the rise, just finishing up this highly contested election, or close to finishing up anyway. Our thoughts and feelings are with you and your family and your colleagues. Starting on slide three, we're going to focus today on five key messages. I'll discuss messages one through three, while Gary will cover messages four and five. First, 2020 has been our best year ever. in terms of our ability to make a difference in the lives of our advisors and their clients. Second, as a result of living our mission and executing on our strategy, we are growing. Platform assets, engaged advisors and households are up double-digit year over year. Third, I will discuss our 2021 strategic priorities, all of which support our growth efforts. Next year, we will focus on enhancing advisor value and productivity attracting adjacent advisors, and continuing to scale our platform. Next, Gary will discuss our organic growth. In the third quarter, net flows were $1.2 billion, up 33% quarter over quarter. Lastly, Gary will walk us through our third quarter 20 financial results, which were highlighted by strong top and bottom line metrics, and our highest EBITDA margins since going public in July 2019. Turning to slide four, 2020 has been an interesting year, underscored by an economic roller coaster, societal uncertainty, business model shifts, and an extremely close presidential election. Throughout it all, we have truly embodied our mission. We have made a difference in the lives of our advisors and their clients. In 2020, our advisors have needed us more than ever, and we have been there for them every step of the way. Advisors are craving information and actionable ideas during this time, and we have delivered. As we have discussed on previous earning calls, our advisor engagement during these uncertain times has been world-class. Gear-to-date, we have hosted 450 webinars with over 20,000 attendees. Advisors have been extremely complimentary of these virtual events. We have provided perspectives and insights into the topics that matter the most to advisors. These include the election and its impact on the market, managing client expectation during times of volatility, and growing your business when you're virtual. In October, we held our virtual premier advisor meetings and had over 900 attendees, a 20% plus increase in attendance since we last hosted these meetings in person in the beginning of the year. Last week, we held our field advisory board meeting where we brought together 17 advisors from all over the country. Their feedback on asset mark was nothing short of amazing. They were highly complimentary of our webinars, people, digital tools, and how we have enhanced their ability to manage during the pandemic. We have accomplished all of this while supporting increased service volumes. Our net promoter score of 64, up five points from last year, shows we are truly making a difference. Not only have we provided our advisors with a wealth of information and actionable takeaways, but we have also strengthened our platform to enhance our advisors' value and productivity. As you can see on slide five, we have delivered meaningful technology enhancements and products to our advisors and their clients throughout 2020. A good number of these enhancements have helped our advisors connect with clients and prospects in a virtual setting. Let me highlight a handful of these features that we have added. From a technology standpoint, our enhanced client proposal and new portfolio review tools empower advisors to clearly demonstrate how the strategies proposed are chosen based on their clients' goals, concerns, and financial dreams. Since launch in August, over 18,000 proposals have been created in Client Proposal. We continue to deliver personalized and scalable service and have gone above and beyond to support our advisors. First, our new dedicated e-service team helps financial advisors meet the increasing demand for digital servicing during the pandemic. E-service provides fast, personalized digital response to advisors who have not who do not have a dedicated relationship manager. Since launching, we have delivered a little more than 10% of applicable service requests that have come through that channel. Second, we rolled out Zoom to our top advisors in April. These advisors have conducted nearly 24,000 meetings, 340-plus webinars, and reached over 90,000 investors. We have also expanded the breadth of our curated investment platform. First, we introduced our Enhanced Securities-backed Lending of Credit, or SBLOC, program, which gives AssetMark trust clients faster access to low interest rate liquidity supported by digital and streamlined securities-backed lending, which allows us to keep more assets on our platform. In the program's first three months, 185 lines of credit have been issued with demand running at 220% of year one goal. Second, Savo's personal portfolios, which we rolled out at the end of last year, bring customized solutions to the math affluent. This is an important and accretive part of our platform. Savo's personalized portfolios provide finished the first year attracting 262% of planned client assets under management. Lastly, in the first quarter, we launched two new fixed income strategies that will help advisors diversify client fixed income portfolios, navigate challenging fixed income markets, and remain focused on helping their clients achieve their long-term financial goals. Nearly 1,700 advisors have invested client accounts in these investment solutions, running at a rate of 600 percent of our first-year goal. The strengthening of our platform not only helps our advisors and their clients, but it also helps us attract new advisors. Now let's turn to slide six and our next topic. We believe that by continuing to live our mission and execute on our strategy, strong business and financial results will follow, not only have we truly embodied our mission this year, but we have also executed on our strategy, which has allowed the company to grow despite the challenging environment. Our platform assets have grown 16.2% year over year and ended the third quarter at an all time high. The number of engaged advisors defined as those with over 5 million of assets on our platform have increased 11.1% year over year. Lastly, Households have increased 14.5% year-over-year. New producing advisors have also been strong. NPAs in the third quarter were 171, and year-to-date, we have added 566 new producing advisors. The 2020 vintage of NPAs is showing higher quality than prior years. 2020 NPA size year-over-year is up 10%, measured by average production per NPA. This is driven by higher quality NPAs from the independent broker dealer and RIA channels. We have a long history of winning in the IBD space, and we are working tirelessly to further capitalize on the RIA channel opportunity. I'll spend some time in a bit discussing our plan to drive quality and quantity of NPAs in 2021 and beyond. We have indeed accomplished a lot in the past year, but we still have a long runway of opportunity ahead of us. With only weeks left until 2020 ends, I want to briefly highlight some of our key priorities for 2021 and then talk about how we were thinking about organic growth next year. So let's turn to page 7 in the slides. We're focused on three areas in 2021 which we believe will allow us to gain market share, attract new advisors, and grow organically. First, as always, we will look to enhance advisor value and productivity. We are building a financial wellness program with solutions to support meaningful wellness conversations. Virtual interactions are the new norm and improving digital experiences an imperative. We will look to enhance our advisors' digital toolkit and educate them on how to grow their practices leveraging these tools. We will also be expanding outsourcing services to help advisors with marketing and core operations. Second, we will focus on attracting adjacent advisors through channel expansion. Our biggest opportunity is subscale RIAs who we believe are greatly underserviced by their providers. We believe they are better served by us as we can help scale their businesses, enhance their client experience, and drive enterprise growth and value. Lastly, we need to continue to invest in the platform and infrastructure to support our future growth. We are strengthening our back office, security, and trading systems, all to enhance competitiveness. Turning to slide eight, our strategic priorities support our growth efforts. We aspire to get back to a 10% plus organic growth rate in 2021, and we believe we can get there. However, We do want to be realistic. In a COVID environment where people continue to shelter in place and money isn't in motion at the same rate, we believe that we will deliver organic growth in the 8% to 10% range, still an outstanding result. Let's discuss the drivers of our organic growth next year. First, let's look at net flow contribution from our existing advisors, which historically makes up about 66% of our annual net flows. There are a lot of positive signs that our existing advisors will continue to grow and meaningfully contribute to our 2021 net flows. First, year to date, we have added 566 NPAs who will become existing advisors next year. As I mentioned earlier, this cohort is exhibiting much higher quality as measured by average production per NPA. We expect continued growth from these advisors as we have found that new advisors tend to grow very quickly during their first year as existing advisors on our platform. Second, we added 168 engaged advisors since the beginning of the year. Engaged advisors make up almost 90% of our platform assets and those assets are very sticky with low redemption rates. Third, As we talked about earlier, our existing advisors are highly engaged and highly satisfied with us, as is shown by our NPS score of 64, again, up five points year over year. Lastly, we have integrated two acquisitions this year, GFPC and OVS. We have typically found that the year after integration, new acquired advisors grow on our platform as they are surrounded by our service, operations, and technology. Second, let's look at our net flows from NPAs, which historically make up about 33% of our annual net flows. There are a variety of things we are doing internally that we believe will lead to higher quality and quantity of NPAs. As you may have noticed, we recently revamped our corporate website. This is a small part of our much larger digital lead generation project that I mentioned last quarter. Starting the pilot phase in October, this project will allow us to attract more high-quality NPAs at a lower cost of acquisition. Once fully launched, we estimate this project will increase the number of qualified leads into our sales pipeline and deliver incremental NPAs per year. I look forward to sharing more as we progress through the pilot phase. We have also made strategic investments to ensure that we are well positioned to gain additional wallet share from existing advisors, as well as attract new producing advisors. First, we have added new technologies and investment solutions, as I described a bit earlier, helping to expand the breadth of our platform. Second, we are adding tools and features to make our platform more attractive to RIAs. Let's discuss the opportunity in the RIA channel a bit more. We have been working with RIAs and hybrid RIAs for years. As of the third quarter, we had over 800 RIAs or hybrid RIAs on our platform, representing approximately 10% of our total advisor base and 18% of our platform assets. While we have had success with RIAs using our managed platform offering, most RIAs also are interested in building at least parts of their own portfolios. Advisor Managed Portfolio, or AMP, will allow RIAs the ability to do just this. We have selected eight of our top RIA firms who have a long history on our platform to pilot AMP. AMP will help these advisors consolidate more assets on our platform so we can be a more valuable business partner and outsourcing solution for them. We believe this will enhance our value proposition to the RIA community and help us further penetrate the $700 billion-plus RIA addressable market. Regardless of where things stand with the pandemic, we are focused on what we can control, gaining share of wallet from existing advisors, increasing the quality and quantity of NPAs, and capitalizing on the opportunity in the RIA market. All of these areas contribute to driving organic growth. With that, I'll now turn the call over to Gary to discuss our financial performance for the third quarter and our outlook for the remainder of the year. Gary?