AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to AssetMark's fourth 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 the 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 fourth 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 fourth quarter and provide an update to AssetMark's business outlook for 2021. 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.assetmark.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 at the date of this call, and actual results could 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 disclosure related to non-GAAP financial information. And with that, I'll turn the call over to my colleagues. Charles, take it away.

Thank you, Taylor, and good afternoon, everyone. I hope everybody's safe out there, remaining masked, and staying as productive as possible. Thank you all for joining our fourth quarter earnings call. I hope everyone is having a great start to 2021. Starting on slide three, we're going to focus on five key messages during our call today. I'll discuss messages one and two, while Gary will cover messages three through five. First, 2020 was a momentous year for Asimark, highlighted by strong operating and financial results. Second, Asimark is entering a new era of growth. Our existing growth strategy is being augmented, by attracting adjacent advisors in the RIA and hybrid RIA channels. Third, Gary will discuss our organic growth, which continues to gain momentum. In the fourth quarter, net flows were $1.5 billion, up 27% quarter over quarter. Next, Gary will walk us through our fourth quarter 2020 results, highlighted by strong top and bottom line metrics, and another record-breaking quarter for EBITDA margin. Lastly, Gary will provide some context on our financial position entering 2021 and provide an outlook for the year. So turning to slide four, our mission is to make a difference in the lives of our advisors and their clients. During last quarter's earnings call, I shared that 2020 was our best year ever in terms of living to our mission. This quarter, I would like to take that one step further. It was also the best year in terms of delivering strong operating and financial results. In 2020, we added $12.9 billion in assets, 306 engaged advisors, and over 24,000 households to our platform. We attracted 743 new producing advisors who saw the value in outsourcing to have some work. In 2020, net flows were strong and helped drive platform assets to $74.5 billion at the end of the year, the highest in our company's history. These strong operating results translate to strong financial results. We still grew despite the industry headwind of losing $15.7 million in net spread-based revenue for the full year and $6 million in asset-based revenue for due to moving all our open third-party mutual fund strategies to lower-cost share classes. Net revenue increased 3.4% year-over-year, driven by asset-based revenue, which was up 11%. Adjusted EBITDA grew 4.7% to $115 million, and adjusted net income grew 10.7% to $73.2 million. We reported adjusted EPS of $1.2 for the year, the highest in our company's history. We also had continued success driving scale in our business, evidenced by the growth in our adjusted EBITDA margin of 30 basis points. Lastly, in 2020, we also advanced our M&A strategy. In February, we closed the OBS acquisition, which remains highly accretive. The strong operating and financial results from 2020 were a testament to the strength and the resiliency of our business our advisors, and our employees. Let's discuss this in a bit more detail, starting with our business. Our platform enables advisors to outsource high-cost non-core services that would otherwise require significant investment of time and money. During the pandemic, the importance of having an outsource provider showed even greater value. Our advisors were not left alone to try and make sense of the volatile equity markets, navigate the pandemic, and figure out how to service their clients and prospect for new clients under shelter-in-place orders. Instead, they had Asimark by their side every step of the way. Prior to the pandemic, a Cerulli study found that advisors spend 51% of their time on back office, non-client-facing activities. Our comprehensive platform allows advisors to spend more of their time servicing existing clients and prospecting for new clients. Spending time with clients, albeit virtually, was and is crucial during these times. We also significantly improved the platform in 2020. Let me highlight some of these improvements. For the full year, we invested $50 million in the development of technology and our dedicated technology team with a focus on building and enhancing tools and services to help advisors. One example is our enhanced client proposal and new portfolio review tools which empower advisors to clearly demonstrate how the strategies proposed are chosen based on their clients' goals, concerns, and financial dreams. This is a crucial component of our financial wellness vision. We've also expanded the breadth of our curated investment platform. In February, we added fixed income solutions from American Funds, Dorsey Rights, and PIMCO to help advisors serve their clients' retirement needs, and enhance and diversify their fixed income portfolios. More than 2,100 advisors have invested client assets in these investment solutions, with assets quickly approaching $1 billion. In August, we introduced our Enhanced Security Backed Line of Credit, or SBLOC, program, which gives Asimark Trust Company clients faster access to low interest rate liquidity supported by digital and streamlined securities-backed lending. In less than six months, 309 lines of credit have been issued, which is well ahead of our goal. In December, we added CIBC, Private Wealth Investment Management Services and Wealth Planning Expertise, which will help provide advisors with customized solutions to meet the expanding needs of high net worth investors. In the first month, we built a robust pipeline for 2021. Continuing to invest in our platform allows our advisors to be more efficient, effective, and valuable for their clients. Speaking of our advisors, they remain highly engaged and complimentary of Asimark. I want to start by thanking our advisors for continuing to trust Asimark to help them grow their businesses. We continue to build strong relationships with our advisors, hosting over 530 webinars, and creating thought leadership materials that help inform, educate, and inspire. Through increased sales outreach and a great number of marketing initiatives, our sales activity was almost double in 2020 compared to 2019. While our increased activity allows us to serve our advisors during this challenging year, we also continued to scale our sales organization and drove unit costs lower by 7%. Finally, I would be remiss not to mention the people who make Asimark great. Our over 725 associates have been working tirelessly from home for almost a year, almost a year, and have done a fantastic job of serving our clients during this time of great need. I want to thank our associates for their dedication to our clients and how they have rallied to face up in this crisis. The improvements to our platform, doing right by our advisors, and having highly dedicated employees all contributed to our phenomenal operating and financial results in 2020. While last year shaped up to be the best in our company's history, we believe we are just beginning to scratch the surface of this immense opportunity that is right in front of us. Let's turn to slide five in our next topic. As we look ahead to 2021, we are excited about what is on deck for the new year, and we are already off to an amazing start. Our sales team just finished 18 highly successful premier advisor meetings, which were attended by over 950 advisors. In two weeks, we will host our largest annual advisor event, Gold Forum, which will be conducted, of course, virtually. We are excited to be able to spend three days engaging with our best clients who represent over $40 billion of assets on our platform. Our pipeline of projects, new products, and client experience improvements is robust, and work is already underway as our core pillars continue to define our strategy and guide our investments. We are focused on continuing to differentiate via digital experiences and expanding advisor engagement. We are addressing our advisors' evolving needs which include an emphasis on comprehensive financial planning and advice, increased reliance on technology, and the desire to outsource value added services. Our operations and services teams continue to wow our clients with their focus on customer obsession. The new business team supported a record number of new accounts applications in January. We are growing our ops and service team to support advisors and their growth while still achieving scale. Building off all the great work we are doing, we plan to start extending the reach of our platform in 2021 while continuing to deliver outstanding business results. Turning to slide six, last quarter we announced that one of our 2021 strategic pillars was to attract adjacent advisors through channel expansion and our biggest opportunity being under-resourced RIAs. Both hybrid RIAs and independent RIAs have experienced significant growth over the last 10 years, and these growth trends are expected to continue. As seen on the slide, hybrid RIAs and independent RIAs have outpaced other channels in both advisor headcount and advisor-managed asset growth. In 2020, RIAs and hybrid RIAs made up 15.8% of the production on our platform, up from 10.9% in 2018. Pure RIAs have grown their production on our platform 50% since last year and 100% since 2018. We continue to focus on enhancing our offering to better serve RIAs and their clients. This quarter, we are launching AssetMark Institutional, or AMI, to support these advisors. So let's take a look at slide seven. While Asimark Institutional will offer best-in-class service and access to Asimark's events, our advisors have come to know and value it will also provide a differentiated experience for the RIA community. AMI offers a fully assembled, holistic solution built specifically for RIAs, providing the right set of products, operational support, technology, and community resources to support their growth, efficiency, and scale. First, AMI will include a new suite of products such as advisor-managed portfolios, alternative investments, and other products to provide RIAs the products they need to be successful. Second, AMI offers a client experience that supports stronger relationships with financial planning, account reporting, and digital communication. Lastly, we plan to host specific events tailored for the RIA community and have thought leadership materials designed specifically for them. So with that, I'll now turn the call over to Gary to discuss our financial performance for the fourth quarter and share some thoughts on the outlook for 2021. Gary.

Thank you, Charles, and good afternoon to all those on the call. As Charles discussed, we are very pleased with our results for the fourth quarter and full year highlighted by great organic growth, strong earnings, and our best margin of revenue since going public. As usual, I will start with a discussion of our platform assets and then talk about our revenue our expenses, and then our earnings. Starting on slide eight, fourth quarter platform assets were a record $47.5 billion, up 21% year over year. This growth was driven by fourth quarter net flows of $1.5 billion and $5.7 billion of market gain net of fees. The improvement in our net flows quarter over quarter is driven by increased production, while redemption rates have remained relatively stable. In December, we realized the highest month of production in our company's history. In the full year, net flows of $5.5 billion are 8.9% of our beginning-of-year platform assets, in line with our target of 8% to 10%. Our net flows have increased in each of the past three quarters as a result of our ability to efficiently and effectively transition from in-person events to virtual events while continuing to provide high levels of service and our advisors have come to an extent to match the market. Turning to slide nine, as we discussed last quarter, we continue to see excellent growth in our business, excluding recent acquisitions. This trend continued in the fourth quarter. In the full year 2020, these core net flows as a percentage of our beginning period assets were 10.3%, above our stated target of 8% to 10%. The strong net flows in the fourth quarter plus a strong market in December resulting in record platform assets of $74.5 billion. It gives us great momentum as we enter the new year. We expect our first quarter revenue to be up about 8% quarter over quarter. Additionally, we expect organic growth to continue to be strong in the first quarter based on advisor activity metrics and our January net flows of approximately $500 million as disclosed yesterday. in our January AMK report. While our core business growth is strong, we may continue to see outflows in first quarter from our acquisitions of GFPC and OBS. As previously discussed, these outflows are from advisors who have not engaged with AssetMark. Both deals continue to remain highly accretive to AssetMark, and these outflows do not have a material impact on our economics. As we have done in the past, we will be sure to disclose these items in our monthly AMK report to give investors an understanding of how our core business is performing. Turning to our advisor metrics, for our entire business, we added 177 MPAs in the fourth quarter of 2020. Our total advisor base at the end of the fourth quarter was a little more than 8,450 advisors, of which 2,536 were defined as engaged advisors. Engaged advisors are up 13.7% year-over-year and now account for 90% of the total assets on our platform. Now let's turn to slide 10 to discuss this quarter's revenue. Entering the fourth quarter, our assets were at $67.3 billion, leading to a reported revenue of $110.9 million. This reflects a strong increase in our asset-based revenue offset by the decline in spread-based revenue due to last year's rate declines. We focus on our revenue net of related variable expenses. In the fourth quarter of 2020, our net revenue of $76.2 million was down 0.9% year-over-year. Asset-based net revenue was up 7.7% or $5.3 million year-over-year to $73.7 million. Recall, this reflects our mid-2020 shift to lower-cost mutual funds, which resulted in a reduction of revenue well, about $3 million a quarter. So absent that one-time product shift, our asset-based revenue growth would have been about 12%. Spread-based revenue is down, of course, materially at 73% year-over-year due to the aforementioned decline in interest rates. Now let's turn to slide 11 to more fully discuss the drivers of the change in net yield year-over-year. As the waterfall shows, Revenue was relatively flat year over year, with the increase in asset-based revenue offset by the decline in spread-based revenue. Our waterfall splits the impact of our asset growth, which generated $8.9 million in additional revenue, and the impact of the compression of net revenue yield, which reduced revenue by $3.7 million. Of this $3.7 million impact, about $3 million was due to the shift to lower-cost mutual funds. with the remaining impact due to fee compression and fee waivers. It is important to note that year-over-year fee compression impact was about a half of the basis point, marginally better than the one basis point we expect each year. Moving to spread-based revenue, it decreased $5.3 million year-over-year driven by yield decline from 1.65% to 0.31%. Lastly, other income decreases $700,000, or about a half a basis point driven by interest-related income. Overall, net revenue is a percentage on total platform assets from fourth quarter with 45 basis points, down one basis point quarter over quarter, and down eight basis points from 2019. The bottom of slide 11 helps detail the year-over-year decline in yield. As it shows, 3.5 basis points are driven by the asset-based revenue, and of this, about three basis points is due to the shift to the lower cost mutual funds. The decline in spread revenue resulted in a decline of 3.8 basis points on our total yield. Clarity and transparency, the calculation of our annualized revenue yield, net variable expenses, is shown in slide 16 in the appendix of our earnings presentation. Now let's discuss expenses as shown in slide 12. Total adjustment expenses decreased 2.5% year-over-year to $84.2 million. Our operating expenses, which include compensation and SG&A, declined 6.8% for the year. This is driven by a 6.9% year-over-year decline in employee compensation and a 6.5% decline in SG&A. We feel great about our efforts to hold the line on our operating costs in 2020. Let me run through our expense adjustments now. In the fourth quarter, we added back a total of $25.7 million pre-tax, which is comprised of five items. First, $13.8 million of non-cash share-based compensation. Second, $5.1 million of amortization expense related to our 2016 sale. Third, $2.3 million in acquisition-related expenses associated with our acquisition of GFPC and OBS. Fourth, $2.8 million related primarily to internal reorganization and integration costs. And lastly, $1.7 million in write-off costs associated with our year-end debt refinancing, which I will discuss more in a moment. For additional color, an adjusted expense reconciliation table, our income statement line item, can be found on slide 17 in the appendix of our earnings presentation. Now let's turn to slide 13 to discuss our earnings for the quarter. We view adjusted EBITDA as an important measure of our company's health. Our fourth quarter of 2020 adjusted EBITDA was $32 million, up 9.2% year-over-year. Adjusted EBITDA margin for the quarter was 28.9%, our best quarter we have reported. In the full year, Our adjusted EBITDA margin was 26.6% up from 26.3% in 2019. This improvement in margin year over year, despite the decline in spread-based income, is a testament to our management team's ability to focus on expense management while still investing in future growth. Our adjusted net income for the quarter was $22.2 million, or $0.31 per share. This is based on a fourth quarter diluted share account of $72.3 million. The marginal year-over-year increase was the result of the adjusted EBITDA of $2.7 million, lower taxes of $0.4 million, and lower interest expense of $0.4 million, offset by higher depreciation of $1 million. Our marginal tax rate is 25% for the year and 25.2% for the quarter. We have worked hard through the year to create tax efficiencies, and our adjusted net income now reflects the benefit of our current year recognized research and development tax credits of about $800,000. This translates into an adjusted effective tax rate of 23.5%. We have applied this adjusted effective tax rate of 23.5% two-hour adjusted net income, reflecting a gain in the fourth quarter of $2.4 million, of which $1.7 million is a catch-up from the first three quarters of the year. We plan to use this rate of 23.5% in 2021, and we'll chew up to the actual rate at year-end, as always. For additional color, please see slide 18 in the appendix. Now let's look at the reported fourth quarter balance sheet. Our balance sheet strength and flexibility position us well to support a strategic objective to grow at scale. Just prior to year end on December 30th, we secured a new $250 million revolving credit facility. At that time, we drew down $75 million on the new credit facility and used those funds plus cash on our balance sheet to retire our $124 million existing term loan. In addition to expanding our available cash by $100 million, the interest cost on the new facility will be live or plus 2%, which is one percentage point less on our old facility. On a run rate basis, this will save us $1.6 million pre-tax annually in total interest cost. Following this refinancing, we ended the year with $70.6 million of cash on our balance sheet compared to $109.3 million at the end of third quarter 20. Let's discuss our capital expenditures next. For the fourth quarter, our capital spend was $8 million or 7.2% of total revenue. As discussed last quarter in 2021, we are expecting our capital expenditures to be about 7% of our total revenue as we continue to invest in the future of our business. Now I will discuss our expectations for 2021. Let's turn to slide 14. Our growth expectations for the year reflect the positive momentum that we have been talking about on this call. Still, we are cautious. There are a lot of variables, such as the pandemic, the market, new administration, that could impact our results. Our financial model starts with the asset growth and reiterating our past comments we expect our organic growth to be 8% to 10%. Assuming a modest market lift, we expect our assets to grow between 11.5% and 13.5% for 2021. We then expect our net revenue growth to be in the mid to high teens. This is driven by entering the year with strong asset levels while assuming about one basis point of fee compression that we often mention as our regular expectations. Part of this forecast is our expectation that interest rates will not increase in 2021, but we will see a modest growth in spread-based revenue due to higher cash levels as platform assets increase. We expect our operating expenses, which consist of compensation and SG&A, to increase mid-teens due to increased investment in 2021. Now, we break down this additional investment into three rough buckets. Volume growth, near-term investments, and longer-term investments. Understanding these three types of expense growth help give context to the flexibility we have to adjust this spending increase if circumstances warrant. First, approximately 3% to 4% of our operating expense growth is volume-related. As we grow, we need to add more staff and capabilities in our operations and services business to support this growth. Second are near-term investments. which contribute 4% to 5% of the growth. Here we're spending on our new asset market institutional initiative, some new product development, and productivity investments. And third is additional investments for even longer-term growth, which makes up about 4% to 5% of the expense growth. These investments into digital lead generation, transition services, and outsourcing will help prepare our asset market for growth in 2022 and beyond. As always, we are focused on realizing improved margin on our revenue. So, we expect our adjusted EBITDA to be up about 15 to 25 percent year-over-year. Based on the growth outlook we have laid out, we expect margin expansion of around 100 basis points per year, much higher than the 50 to 75 basis point goal we have targeted in previous years. With that, I'll hand it over to Charles for his concluding remarks.

Charles Lee Thank you, Gary, and thanks to everybody on the call today. As Gary and I described, we believe 2020 was a great year for Asimark, our advisors especially, and delivered by our associates. I have never had – I've never been more excited about our company's future. I look forward to sharing our progress in subsequent earning calls and future conferences. So with that, those are the conclusion of our prepared remarks. I'll turn it back to the operator for Q&A. Thank you, sir.

Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Presenters, we have our first question from the line of Alex Blosting from Goldman Sachs. Your line is open. You may ask your question. Hi.

Good afternoon. This is actually Ryan on behalf of Alex. I was wondering if you could talk a little bit about AMP and, I guess, early adoption, any of the trends that you're seeing there, and then how you're thinking about competition in the space. I think we've probably seen other tents start to open up, and just how you're thinking about that.

Hey, Ryan. Happy New Year. Hope you're doing well. So AMP... is advisor managed portfolios for those of you who don't know that's a product name where we're going to be providing a trading capability to allow advisors to build and manage their own sleeves this is key for rias and and hybrid rias who want to manage part of the the portfolios themselves see value in that have sold that value but also and very importantly understand the value of outsourcing over time. The key there is those advisors that are overwhelmed with technology or overwhelmed with trying to grow their business and really help their clients plan for the future, those are the types of advisors that we're looking for. And we believe that through the folks that we've had on the product that, first of all, the product works really well. We've had folks in beta test for some time, and we're thrilled with the results there. But we believe through our research and through our early discussions out in the marketplace that we're going to see good growth, good growth, and we're excited about that launch. The AMI launch, the brand wrapper that I just talked about, is being more formally launched in a couple weeks at our Gold Forum event where we're going to talk more publicly about the brand and the experience and some of the other products that are going to go along with it. In terms of competition, you know, Ryan, it's interesting. If you think about where advisors are today, RIAs are, by and large, I mean, the vast majority, you know, close to probably 99% managing money themselves. The core RIA approach has always been to do the due diligence, to construct portfolios, to buy portfolio accounting, trading, CRM, and planning software to gobble all that stuff together and to really do everything for their advisors. The sea change that we're seeing in the industry is that starting with the investor, the investor is looking not for those things, but they're looking for planning and deep relationships. And so all that work on the back office and all that work of trying to do due diligence and everything else on everything is really not value added from the investor's perspective. So our belief and our bet is that advisors are going to say, hey, I want to outsource more, and I want to transition using the AMP capability. You know, when we look at competition, I'm not quite sure how to think of it, right? There's no one doing what we're doing, taking the exact same approach. But there's lots of ways that advisors can manage their own sleeves. Every custodian has that offer. Every portfolio accounting system does that. Trade order management does that. So really what the opportunity here is to move toward outsourcing. and the move towards partnering and getting an integrated experience in back offices and getting much more capability, much more community. And that's where we think the opportunity is going to be for Asimark.

Got it. Got it. Maybe kind of sticking with the RIA discussion, I think you had said that pure RIAs on the Asimark platform had grown 100% in assets since 2018. I guess Was that kind of they had grown their platform? I guess the question is, had they grown assets on the platform or they had grown their books because they were previously under-resourced and being part of the AssetMock platform had sort of taken or relieved a lot of the processes that they had to go through and given them more time?

So it's a function of the way... So, the existing advisors on our platform are growing because they're bringing more assets to AssetMark. Some of that is a function of them using our high net worth capabilities or other capabilities to gather new clients. Some of it is share of wallet growth. And then, of course, new RIAs, new producing advisors, we call them, joining the platform. So, it's all of the above.

Ryan, this is Gary. Just to be clear, it was production that had doubled over the two-year period, not AUM. It doesn't change at all what Charles is saying, right? It's the same reasons why it's growing, but I just want to make sure you have the correct metric. Got it. Okay. Thank you.

Thank you, sir. We do have another question from the line of Michael Young from Tourist Securities. Your line is open. You may ask your question.

Hey, good afternoon. Thanks for taking the question.

How's it going, Michael? Good to have you. Welcome to the call.

Thank you. Thank you. Appreciate it. Wanted to maybe drill in a little more into the growth outlook for 2021. I know obviously the macro overlay is a bit challenging, but just as you look at sort of disaggregating that, how much are you expecting to come from kind of the RIA and RIA adjacency versus kind of the core legacy businesses?

Gary, you want to do that one?

Sure, sure. You know, I think so first, Michael, congratulations. I understand a baby is quite imminent, so best of luck with that. That's very exciting. But so to your question, I'm trying to think of how to put it. So I'm trying to work on Here's what I was saying. I would say, in general, a growing percentage of our growth, if you will, a growing percentage of that 8% to 9% organic growth is coming from the RIA block. Now, the majority of our growth still comes from IBD reps. That's our core constituency and who we serve. But I don't have a breakout for you in terms of how to spin it, other than to say we are focused on growing. And as we talk more in detail in the upcoming quarters about AMI, you know, what Charles was talking about, we will start talking in more, some more metrics about what's coming from that group, which is that RIA subset, versus, you know, what you might call the larger IBD reference.

You know, Gary, I would just, Michael, I would just add to that a little bit that, you know, when we talk about the RIA segment, the hybrid segment, the IBD segment, you know, everyone uses those terms because there's some differences, I guess, that are important to think about. And certainly the language and the communities are different. The segments have some different growth dynamics. But what we would expect to see is fluidity as more people go more independent, as people join producer groups or OSJ groups that are hybrid. We'd expect to see fluidity by registration. You know, today our assets are about 15% hybrid or RIA, wholly RIA, so that combination, you know, the production numbers I gave a few minutes ago. You know, what I would expect to see as we launch into this endeavor with AMP, which is an AMI, which is new for us, allowing advisors to do that work on their own on our platform. We'll see what that growth rate looks like and how quickly that growth rate is. I think right now, when we look at our 8% to 10%, it's really looking at the base of our advisors. It's looking across registration. It's looking at kind of the history that we've had, you know, how big the beginning year, you know, it's obviously a ratio, right, to the beginning year number. It's how long does COVID last? And there are so many dimensions in there that are going to drive that performance way more than registration. So there's not some hockey stick RIA growth in that number. It's really based on the kind of history that we've been able to deliver and what we've been able to deliver in this tough macro environment.

Yeah, understood. So the core message is just more optimism kind of on a year-over-year basis organically, and we'll see if we end up at the high end, low end of that range based on macro and various adoption characteristics.

Totally, right? So we're not forecasting some kind of weird number, right? We did 8.9% in 2020, 10.3% if you just look at the core business without some of the M&A stuff. noise in there. And, you know, this year, 2021, obviously with a fantastic fourth quarter and December market result, I mean, December was, you know, a torrid market environment. The beginning period asset number is really high, you know, at $74.5 billion because of market return. So to get that 10%, the higher end, it's somewhat a function of that, right? You know, to get to the higher end, What we're going to have is outstanding performance within our core market. You saw our January results very strong. And then what we're doing in new markets, RIA and hybrid, and then, of course, new products and new capabilities being added, all to support to get to that 8 to 10 number. And we think that's a very good result.

Okay. Okay. And just maybe as a second question, just on the EBITDA outlook, I mean, I think that's very strong and looks very positive. I'm just curious if there's some, you know, maybe lessons learned or new business implementation strategies that you've kind of discovered through the pandemic and operating in a work-from-home environment that may stick that's helping support some of that.

Yeah, it's a great, great question. I think every executive, I want to say every industry, but I'll certainly say in financial services, has learned a lot about operating in different environments. So first of all, you know, we've all figured out that we can travel less and be much more productive. Now, that doesn't mean we want to travel not at all, right? We want to be back out in the field. We want live events. But we've learned that we can be much more productive than we thought by not having to drive around and all the rest of it as much. And that's going to stick forever, I think. Another thing that we've learned is that In events, and we are a very event and contact-based company, clients like getting certain kinds of content remotely. So if it's investment content or things that they are trying to digest but don't really require community engagement, discussion with other advisors, kind of closer work, It's a much better way to deliver it, you know, via Zoom. It just works really well. So I mentioned earlier our premier advisor meetings, the 18 meetings that we had in the first quarter here. You know, we can do that content in much shorter time. And, you know, if you live in – I used to live in Los Angeles when I grew up. You know, if you have to drive 30 miles in Los Angeles, you're talking about, you know, an hour and a half probably in the car each way. And so for delivering investment, return, content, that kind of thing – it's really easy to digest this way. And so one of the things that will stick is we'll deliver much more content that way. We'll deliver much more regular, smaller group content and community that way. And then when we're out in the field, it will be much more about interaction. And I think that will stick. And that, by the way, is much lower cost. The other thing, and I'll just mention one more and then I'll stop, but you know, that we've learned is that we can recruit, attract and recruit and hire people that are remote and that are happy living where they're living, have great experience or great cultural fits. And that also is a big productivity enhancer, may not be a, you know, cost per person enhancer, but you get highly trained, great people, and you're not constrained by the geographies in which you live. So there's a lot of changes that are occurring because of COVID. COVID is obviously a disaster, a horror, a nightmare, but there's a lot of learning there that I think is going to make our business better as well as many others.

Okay. Thank you for the color, and Gary, appreciate the well-wishing. Luckily, she held off long enough to make the call.

Congratulations. Congratulations, man. Thanks.

Thank you. Our next question comes from the line of Christopher Schaller from William Blair. Your line is open.

Hey, guys. Good afternoon. Charles, looking out over the medium term, what are the main technology items that you want to invest in, especially as you move more into the RIA world?

Thanks, Chris. Good to talk to you. So you mean advisor-facing, not back office and all that stuff? Exactly, yep. So the theme, the thematic approach is financial wellness. And I know we've talked about it, but our view of financial wellness is really three elements to it. One element is planning and the visualization of planning. We've launched partnerships with some of the major planning firms. We believe that incorporating planning, whether it's Monte Carlo deep cash flow planning, scenario planning, or more importantly, the visualization onto one page, a simple visual view of the investor's life, their goals, their risks, the likelihood of meeting that success, integrating that experience into eWealth Manager and into the entire advisor conversation is job number one. Job number two, which is somewhat, well, I don't know, it's more complicated than the other, but, you know, the way we deal with risk in our industry is we basically ask people, what's your risk tolerance? You know, can you take a 20% drawdown over what period of time? You know the story, you know, six, eight questions. But that's not the way human beings think about risk and about portfolios. there's really three concepts that we need to think about. One is that, sure, risk tolerance. The other two are risk need and risk capacity. So tying back to that visualization of planning, of that sort of one page, here's my life, well, what's my risk need? How much risk do I need to take? Maybe I need to take a lot less, or maybe I need to take a lot more. And then, of course, there's capacity. You know, if I'm 28 years old, you know, Google employee making $200,000 a year, my capacity to take risk may be huge. My need may be large because I want to, you know, have an airplane, but my tolerance may be low. And if you think about the way that interaction works and the visualization of that dialogue and then, of course, the compliance issues, integrating that experience into the eWealth manager to make that conversation automated is is the second part of wellness for us. And then the third part is portfolio construction and proposal. And you've heard me and us talk a lot about portfolio engine or portfolio construction tools. You've heard about our new proposals and integrated other elements of proposals and visualization of income and all these other things. So if you think about financial wellness and the individual tools in there, that's where we're investing from an advisor-facing technology perspective, and it's going to be a multi-year investment.

Got it. Okay, super helpful. And then can you give us an update on capital allocation, you know, how actively you are looking at M&A right now and Let me just remind us what's most interesting to you. Is it more kind of capability types of deals or consolidating deals?

Yeah, I'm happy to do that. So we remain very focused on M&A. We connect. Me personally, some of our key team members are head of corporate development. We are connected across the industry. We love seeing deal flow. I think we have great relationships and get to see a lot of deal flow. Our strategy is pretty straightforward. It has two legs to it. Number one – by the way, number one is not more important than number two, but just saying in that order. Number one is consolidation. The deals that we've done have all been consolidation deals. Those deals aren't as prevalent as they once were. There are still quite a few smaller players out there. If we think they'll move the needle, if we think they can be accretive, if you look at the ones we've done recently – We were able to buy them for very, very attractive multiples for our investors. And on the other side of it, they're relatively small and they're relatively complicated deals. And so we'll keep looking at those. It's always a tradeoff between what do you have to pay and how complicated is it to get it done and does it move the needle. But that's consolidation. On the capability side, we are spending a lot of time and effort there. If you heard my description, I know you did, Chris, of financial wellness, you can imagine the suite of tools that are out there that are either tools or businesses that do some of those things and how they might integrate into our type platform. We look at all that kind of thing across the entire kind of wealth landscape. And as you know, um, deals are serendipitous to get them done. They're all competitive and multiples are nosebleedy, uh, on the capability side. So we'll be disciplined. Uh, but we will look at a lot of things on that capability side and hopefully get something done.

All right.

Thanks a lot, Charles.

Thank you, sir. We do have another question from the line of Patrick O'Shaughnessy from Raymond James. Your line is open.

Hey, good afternoon. So we continue to see a lot of consolidation in the independent broker-dealer and the RA space, and it seems like it's even picking up of late. Can you talk about what that means for AssetMark, and does it make things harder for you? Does it increase opportunity, or is it kind of irrelevant?

Hey, Patrick, good to hear your voice. So, consolidation is one of the major trends. I'm pretty sure on one of the calls we talked about investor trends, advisor trends, industry trends, and regulatory trends. Those four big trends are the ones we're watching, and consolidation across financial services, either to find growth or to drive lower cost scale, are major, major trends. competitive environmental issues that we're paying attention to. On the RIA side, it doesn't matter. You know, the number of deals that are actually happening are low. So if you are an RIA consolidator, obviously it matters a lot to you. But for us, you know, there's 300,000 advisors. There's 16,000 or 18,000 RIAs, something like that. You know, there's just a lot, and there's a lot of subscale RIAs out there. There's a lot of these groups of hybrids that we call producer groups. Some people call them OSJ groups. But these producer groups, there's a lot of those in their form. And those are big opportunities for us, and so we're excited about what we see there. On the broker-dealer side, it's interesting. It's both opportunity and threat, like, I guess, many things in life. On the opportunity side, as these broker-dealers get larger and larger, the community, the connective tissue for many advisors isn't there anymore, and they seek that connective tissue, and we are able to provide that very high-level, white-glove experience that is just hard to do, hard to do at scale, and most others don't do it. And so that's an opportunity for us. In addition, as some of these broker-dealers come together, We're actually quite excited about partnering and helping those broker-dealers find ways to move advisors from commission to fee, from managing their own money to outsourcing. And while most broker-dealers on the larger side, the consolidated ones, would prefer them on their own platform, they also recognize that they're independent advisors for a reason, and having a scaled provider that does really good work and supports and wants to be a partner is is very helpful. So those are all real opportunities for us. On the threat side, like with anything else, as these folks get larger and larger, they're of course investing in capabilities because they want to grow and they want to find revenue sources in a world where they've got killed on spread, they've gotten killed on product internal revenue sharing, the grid is tougher and tougher. So adding capabilities, camp-type capabilities, is something a larger firm might like to do. And so that makes them better, makes it more competitive. And, of course, I'm a glass three-quarters full guy, believes it makes us better because we've got to get better to win. And so that thread of investment is there. The other opportunity I would say related to that is, You're seeing this bifurcation or multimodal set of broker-dealers out there where many don't have the money to invest to build their own platform to bring in outside technology and do that. And we see a real opportunity, particularly as we're adding things like AMP and other capabilities. to be that provider for some of these other broker-dealers, and we think that's a real opportunity. So, Patrick, like all things, right, you know, we see the world as full of opportunity, big TAM, great growth dynamics, but increasingly competitive to make us better as well.

Yeah, I appreciate that insight. And then, you know, as we're thinking about your push into the RIA space with a little bit more gusto here, can you talk a little bit more about how the needs of RIAs differ from the needs of independent broker-dealers and what different functionality that's going to require from your platform?

Yeah. You know, so when you say independent broker-dealers, you mean the advisor, right? Correct. Independent broker-dealer, right, yeah. So, you know, at the highest level, The differences are not much, right? So most IBD reps that are advisors, right, that are not on commission, right? So let's say, okay, there's many that are still on commission. There's many that are still selling a lot of insurance. That's a big difference, right? But for those advisors that are fee-based and are really thinking about advisory, managing their own rep as PM in the IBD world, RIA in the RIA world, you know, construction mutual fund portfolios, there's not really much difference. The RIA has much less support than the IBD rep because the IBD itself, the broker-dealer, is providing many more platform services and compliance where the RIA is doing everything. And so while at the highest level the sort of I'm helping clients, I'm a planner, I'm doing it with fee-based approach, those are the same. The RIA has very little support and help. And so we believe that the opportunity to bring that support and help, to bring more outsourcing tools, more practice management, more community, all those things are going to create real opportunity. And we actually think the need is greater there, although the history of who's outsourced and who's not has been different. So that's the biggest thing. difference. The other thing I would just add is that, you know, for an IBD rep, they can use their own platform at the broker-dealer to trade stuff if they want to do it and then outsource to us for our capabilities, so the share of wallet discussion. For most RIAs, they are trading at the custodian and using their own tools, Excel, or buying trade order management, and we don't You know, for most of them to say, hey, start using a platform like ours for your high net worth, it's just not in their mindset to do that. Their mindset is much more about how do I bring my book there? How do I, you know, make my life easier completely? And so AMP is what we believe the advisory portfolio is allowing them to manage this lead is really critical, really critical for the way that advisor thinks about value added. Is that helpful?

That's terrific. Thank you. Thanks, Patrick.

Thank you, sir. We do have another question from the line of Will Cuddy from JPMorgan. Your line is open. Let me ask your question.

Good afternoon. Hey, how are you doing? Oftentimes, financial services can have a number of conflicts of interest, and these conflicts of interest can vary pretty significantly depending on the firm. As an example, it seems like an advisory solution using products from an affiliated asset management arm could create a conflict that requires disclosure. Can you help us understand the most significant conflicts of interest at AssetMark? And how do you think about the framework to address and mitigate these conflicts of interest?

So let me give a little bit of structure in that answer first and then try to dig in a little bit. So at AssetMark, our relationship with the advisor We're a service provider, so we don't supervise the advisor. The advisor is not affiliated with us in any way. The advisor is choosing us, hiring and firing us based on the competency of our employees. solutions and the quality of our work. So, so there's, there's not a, like a natural conflict of interest. Like, like, you know, if I'm affiliated with a broker dealer and the broker dealer is making money on the product and therefore, you know, somehow I I'm making money on the product, even if I'm not getting that trail, that's a conflict of interest that you're describing for us. We don't have that, right? Because the advisors charging their fee, we're charging our fee. and they're fully disclosed to the client and they're completely different. We're not paying or doing anything like that. So there isn't that conflict of interest. Where we see conflict starts with our field force. What we would hate to have is a field force that is incented by product revenue. So we pay our field force and our consultants in the field as a percent to goal. And so they have asset-based goals, and they don't care if it's something we make money on, lose money on, make a lot of money. They don't care. They're focused on the advisor, and they're on the advisor side of the table. So we try to avoid any conflict there. You know, obviously in our mutual fund family and all that stuff, you know, there's all the mutual fund rules and everything, and we do, I think, a very good job of avoiding that conflict as well. So... Gary, I don't know if you'd add anything to that, but I think the very fundamental structure of our relationships are very helpful in that.

Yeah, I just echo your point that our position in the value chain and our structure being the outsource provider does eliminate a lot of the things you would hear about because, again, we are just a service provider. And also, you're absolutely right, Charles, You know, we pay our sales folks percent to goal regardless of the assets that come in. And we do earn – Aspen does earn different amounts based on different types of products. Some of them we make some, you know, our third-party vehicles and whatnot. And so that's a reality. But we're not directing any of that. And so we feel great about that setup. Great. Thank you both. And then Charles, I want to go back to a comment you made, I think, in response to Patrick's question about selling the asset more platform to broker dealers that are potentially subscale. Is that an initiative that's currently underway and we could see the fruits of that near term or is that a longer term potential option for your business?

I'd say more of the latter, Will. You know, we have a strategic accounts team that we've had for many years that are very focused on broker-dealers, you know, that's their full-time job. We brought in a new leader of that group, I want to say six months ago, could have been three, could have been nine months ago, and who's, you know, got a great history in the space. And as he's thinking through the strategy there and as we're thinking through opportunities, what we're seeing with this consolidation, back to that question about the IBDs, is kind of a, as I said, a bimodal or at least two, maybe four different kinds of broker-dealers out there. You know, the big ones certainly can afford to invest. The small ones certainly cannot. And so the question really is what's the value proposition of those smaller ones Do they need more closer partnerships or can they kind of go on the way they have been going on just kind of offering a lot of different things? And we think that that's changing and that they're going to need more value added and they're going to need to partner to do it. And while we don't sell instances of asset marks like competitors that are selling to the broker-dealers an instance and building technology, it would still be asset mark as asset mark is. but it would be a closer alignment. And so we're not at a place where I would say you're going to see, you know, some kind of, you know, big hockey stick return this year. But we do think that that trend, and when I was answering that to Patrick's point, it was really more about trending in the industry and sort of what's going on. We see that as an opportunity.

Great. That makes sense. Thanks for taking my questions.

Sure. Well, thank you.

Thank you again, everyone. If you would like to ask a question, you will need to press star 1 on your telephone keypad. There are no further questions from the line presenters. You may continue.

Great. So thanks. Great questions as usual. I hope everybody got what they needed from the call today. We really appreciate your time, your engagement, and we're excited to have spent this time. So we'll talk to you all soon. Thank you.

Bye bye.

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating. You have a good day.