AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to the Asset Marks First Quarter 2021 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, Celine. Good afternoon, everyone, and welcome to AssetMark's first quarter 2021 earnings conference call. Joining me remotely are AssetMark's Chief Executive Officer, Natalie Wolfson, and Chief Financial Officer, Gary Zyla. Today, they will discuss the results for the first quarter and provide an update to AssetMark's business outlook for the remainder of 2021. Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Natalie 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 only our outlook as 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 disclosures related to non-GAAP financial information. And with that, I will now turn the call over to my colleagues. Natalie, take it away.

Thank you so much, Taylor. And good afternoon, everyone. And thank you for joining our first quarter earnings call and my very first as CEO. I'm excited and honored to talk with you all today. I met many of you during the IPO Roadshow back in July of 2019. But for those of you who I've not had a chance to meet, let me briefly introduce myself and provide some perspective about why the board has selected me to lead Athamark into the future. I've been at asset Mark for about seven years now, and I've spent two plus decades in the financial services industry, helping financial advisors and their clients. I have a deep understanding of how advisors and their clients think and what solutions tools and technology they need to be successful. Prior to taking over as CEO in March, I was asset Mark's chief solutions officer responsible for building and executing asset Mark's current strategy. Our mission and our strategy remain unchanged. As a result, the leadership transition has been seamless for our associates, our advisors, and their clients. I'm very excited to continue to set the strategic vision for the firm and to create continued value for our advisors, their clients, and our shareholders. The board and I have a shared vision on growing our technology capabilities with Voyant, our recent announced acquisition being a prime example. I will look to leverage my expertise in technology, investment solutions, and financial wellness to further expand our entire offering. Lastly, I'm deeply committed to ESG and diversity inclusion, not only at Acidmark, but industry-wide. And I'm excited to work with the leadership team here at Acidmark to expand our focus in this area. In the coming months, I look forward to re-engaging with those of you I met during the Roadshow and building relationships with those of you who I haven't met yet. Now I'd like to transition to the heart of today's earnings presentation. Starting on slide three, we're going to focus on five key messages during our earnings call today. I'll discuss the first three, and Gary will cover the final two. First, because of our unwavering focus on our mission, making a difference in the lives of our advisors and their clients, Asimark is a strong company and has successfully delivered for our advisors and their clients, and as a result, our shareholders, since going public in 2019. Second, our addressable market is almost 1.5 times larger than it was two years ago, providing a long runway for future growth. We have also grown our market share and are now the largest TAMP in the industry. Third, our future has never looked brighter. We're making great progress on our 2021 strategic priorities, maintain a strong financial position, and we'll be returning to in-person events soon. All of this will help us continue to attract new advisors, accelerate organic growth, and gain market share. Next, Gary will discuss our organic growth, which has returned to pre-COVID levels. Net flows are up 26% quarter over quarter to $1.93 billion, an all-time high for Asimark. Lastly, Gary will walk us through our financial results for the quarter, highlighted by record revenue and EBITDA. He will also update you on our expectations for the rest of the year. When I last spoke to many of you, it was two years ago during our IPO Roadshow. Since then, our strategy has progressed substantially. We have strengthened our strategic pillars to make our platform more attractive to advisors. We have grown our operating and financial metrics while adding scale to our business. And we have expanded into adjacent markets and pursued opportunistic M&A that has increased our total addressable market. Let's discuss each of these in a bit more detail. So if you turn to slide four, this slide shows the evolution of our offering over the last two years. Continual platform innovation allows us to attract new advisors and to capture greater share of wallet from existing advisors. Since going public, we've added over 1300 NPAs or new producing advisors and almost 500 engaged advisors to our platform. Let me provide a few specific examples of how platform enhancements have supported our growth. Since our IPO, we have added six new investment strategies to our platform, and these new solutions account for $2.7 billion of our assets as of March 31st. In addition, in August of last year, we introduced our Enhanced Securities-backed Line of Credit Offering, or SBLOC, program. And since launch, over 500 new lines of credit have been issued, which is well ahead of our goals. More importantly, our securities-backed line of credit provides long-term benefits to AssetMark and to advisors and clients, and the benefits to AssetMark are stickier assets on our platform and incremental sources of revenue. In January, we launched our Advisor Growth Program that helps advisors establish a formal marketing plan and activities to drive practice growth. This will not only help our advisors grow, it will also help AssetMark grow. The improvements we made to our platform have allowed us to attract more advisors, impact more households, and grow more platform assets. And on slide five, you'll see the dramatic growth of our business over the last two years. Engaged advisors have increased 23% since going public and now account for 91% of our total platform assets versus 88% in the second quarter of 2019. Engaged advisor growth is a crucial part of the Asimark plan as these advisors exhibit stronger levels of growth and stickier assets. For example, engaged advisors' redemptions are in the high single digits. The number of people getting closer to reaching their financial goals and dreams because of Asimark is also growing. Households have increased by 35,000 households or 23% since going public. Platform assets have also increased and may have increased by 41% since we went public, driven by $9.9 billion in net flows and $2.1 billion in assets from acquisition. The amount of assets on our platform serves as an important indicator of the strength and growth of our business, our increased customer footprint, and the market acceptance of our platform. The evolution of our offering has not only allowed us to drive strong operating metrics, but has also translated into strong financial results. On slide six, you can see the growth of our financials since going public. First and foremost, we are growing our top line, even with the loss of revenue from our switch to lower cost mutual fund share classes and the absence of spread revenue due to declining interest rates. Trailing 12-month net revenue is up 14% to $300.3 million and up 22% when excluding the impact of spread revenue. We are investing in the future of our business while also growing EBITDA. Trailing 12-month adjusted EBITDA is up 24% to $120.8 million and up a robust 55% when excluding spread income. Our business continues to scale nicely as evidenced by our growing margins. We have realized adjusted EBITDA margin expansion of 260 basis points and one excluding spread income expansion over 600 basis points. Last but not least, we are also growing our bottom line with trailing 12-month adjusted EPS up 18% to $1.07. We remain highly focused on what we can control and our business is flexible to adjust across different market environments as we have seen over the past two years. During Gary's prepared remarks later, he will share that we are raising our 2021 expectations as we are expecting even stronger results this year than when we last spoke. In addition to adding and improving investment solutions, features, and technology on our platform, all of which help track new advisors and gain share of wallet. We've also expanded our offering, allowing us to increase our total addressable market. Let's turn to slide seven. When we went public, the majority of our clients were independent broker dealer affiliated advisors and retirement oriented advisors. The total addressable market in these two areas has increased double digits since we went public. With the independent broker dealer affiliated advisor total addressable market now at $2.7 trillion, and the retirement segment at $1.7 trillion. We remain extremely committed to those channels. In addition, since our IPO, we've added multiple new channels, expanding our total addressable market by approximately $1.8 trillion. In March of 2020, we acquired OBS Financial, allowing us to explore the bank trust opportunity, which is a total addressable market of $583 billion. In addition, in March of this year, we agreed to acquire Voyant, which provides diversified revenue with a vast addressable market. Once closed, Voyant will add $460 million of total revenue opportunity between its existing and expansion markets. And just a few months ago, we launched At-the-Mark Institutional, which will help us further penetrate the RIA market. And for us, this has an addressable target market of $1.2 trillion. So not only have we grown our addressable market, but we've also captured market share. When we went public, we were the number two TAMP as measured by platform assets, and we trailed the leader by more than 10 billion. As a result of a relentless execution on our strategy and our unwavering focus on our mission, coupled with opportunistic M&A, we took over the top spot this quarter and are now the largest TAMP in the space, exceeding the second competitor by 1.4 billion in assets. As you can see, Atomark is a strong and growing company. Even so, we're not taking our foot off the gas. We are making great progress on our 2021 strategic priorities, maintain a strong financial position, and have started returning to the road. All of this will help us to continue to gain market share, attract new advisors, and accelerate our organic growth. Let's discuss each of these in further detail. So turning to slide eight in the presentation, let me provide you a mid-year update on our strategic priorities which support our growth efforts. First, and as always, we look to enhance advisor value and productivity. We are building a financial wellness program with solutions to support meaningful wellness conversations between the advisor and their client. The announced acquisition of Voyant will be a big step forward in delivering our financial wellness solution. As discussed when we announced the deal, we plan to integrate key features of Voyant's financial planning tools and capabilities to enhance the Athermark Advisor experience, adding foundational financial wellness tools from Voyant to our eWealth Manager solution. In addition, adding these foundational Voyant features to Athermark RIA's offering will also help us attract new RIAs. We expect the deal to close. We still expect the deal to close in the early summer. Additionally, we are exploring other ways to enhance our financial wellness offering. We're building out a redesigned investor dashboard that will provide investors an interactive platform with a holistic view of their financial life. We are also building a new interactive investor timeline, which will create engagement and collaboration and a holistic view to facilitate advisor-investor conversations. Investors will be able to easily and interactively add life events and goals through their timeline and to analyze how the timeline changes when unexpected life events are added. The timeline will include both cash flows and probability of success outlooks, while also incorporating a clear view of risk, comprising risk capacity and risk need, in addition to the traditional risk tolerance approach. Our second strategic priority for 2021 is to attract adjacent advisors through channel expansion, and our biggest opportunity right now is subscale RIAs. In March, we launched Asimark Institutional, or AMI. While still in the very early innings of this launch, we are already seeing strong interest in AMI and are running at about 114% of our AMI production goal. As Asimark Institutional becomes a more meaningful part of our business, we intend to break out these results for all of you. And last week, we launched Asimark Alternative Investments. This solution will help RIAs attract and serve high net worth clients, and is a critical part of our AMI offering. Later this month, we'll also be hosting our inaugural RIA Summit, which will not only introduce many advisors to Asimark Institutional, but will also help position Asimark as a thought leader in the RIA space. Overall, we are very pleased with the early success of Asimark Institutional, and I look forward to updating you as we make more progress. Our last strategic priority for 2021 is 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 our competitiveness. And as a reminder, these investments are already part of our planned capital expenses, and capital spend will remain about 7% of our total 2021 revenue, as previously disclosed to all of you. The next area that excites us about the future is our strong financial position, highlighted by our resilient balance sheet, ability to generate cash, and low net debt. We currently have about 86.8 million of cash on our balance sheet as of the end of the first quarter and have generated 82.4 million in cash from operations over the last year. We have a revolving debt credit facility with commitments and aggregate principal amount of about 250 million, of which we drew 75 million as of the first quarter. Due to our refinancing in 2020, the interest cost on our debt remains very low. Our strong financial position not only allows us to invest in our platform, but also to pursue opportunistic M&A, which remains a very important component of our growth strategy. We continue to view M&A in two avenues, consolidation M&A and capabilities M&A. While we've had great success in augmenting our organic growth through consolidation M&A, we are encouraged about the prospect of adding new technologies to our platform, especially given our recent announcement about our planned buoyant acquisition. Capability M&A helps us enhance and improve our platform. This not only benefits our advisors and their clients, but also our shareholders. Capabilities M&A has the potential to provide revenue growth and diversification, as well as to accelerate our operations cost synergies. M&A also has the opportunity to open new markets for AssetMark and to expand our total addressable market. We continue to leverage our deep relationships within the industry and analyze all opportunities that would be a strong fit for AssetMark. our advisors, their clients, and our shareholders. Lastly, we believe our outstanding results will only accelerate with the reopening of the economy and increased in-person engagement. While we are taking every precaution and closely monitoring case and vaccination rates, we've started to return to the road. Beginning this month, vaccinated sales associates have started meeting with advisors in person again and hosting small group events. We plan to begin hosting larger live advisor events in late summer as vaccinations become more widespread. We are excited to see our advisors and to see each other in person in the coming months. So on the last note, before I hand the call over to Gary to tackle the final two items we want to discuss with you today, I wanted to emphasize how extremely pleased I am about all we've accomplished in the first quarter of this year and over the past two years. I'm very excited about our future and truly believe the best days of Asimark are ahead of us. Because I have such a strong belief about Asimark and our mission, I just wanted to let you all know in the vein of full transparency that I canceled my 10b51 plan and have no plans to implement another for the foreseeable future. So with that, I'll hand off to Gary.

Thank you, Natalie, and good afternoon to all those on the call. As Natalie discussed, our results in the first quarter are outstanding. highlighted by an all-time high in platform assets and a record number for net flows, revenue, and adjusted EBITDA. As usual, I will start with a discussion of our platform assets, then talk about our revenue, our expenses, and then our earnings. I will conclude with an update on our 2021 outlook. So, starting on slide nine, first quarter platform assets were a record $78.9 billion, up 41% year-over-year. This growth reflects first quarter net flows of $1.9 billion, the highest quarterly total in our company's history, and $2.4 billion in market gain net of fees. The improvement in our net flows quarter over quarter is driven by increased production, while redemption rates have again remained relatively stable. In March alone, we realized net flows of $901 billion, the highest month in our company's history. Annualized net flows is a percentage of our beginning period assets 10.3% ahead of our 2021 guidance of 8 to 10%. Our net flows now have increased by at least 20% each quarter since the second quarter of 2020, and they're now back to pre-COVID level. Turning to slide 10, we continue to see excellent growth in our business. As we have broken out the past few quarters, our core growth, excluding recent acquisitions, is even stronger. In the first quarter of 2021, core business net flows as a percentage of beginning period assets were 11.6%, ahead of our 2020 annualized core growth rate of 10.3%. In the spirit of transparency, we do expect one or two more large advisors from JFTC with a total of about $450 million of assets on our platform to leave in the second or third quarter of this year. And we will update you as such. We expect organic growth to continue to be strong in the second quarter, based on advisor activity metrics and our April net flows of approximately $750 million, which will be disclosed next week in our monthly AMK report. Turning to advisor metrics, we added 194 new producing advisors, or MPAs, in the first quarter of 2021. This is the highest total since the first quarter of last year. MPAs serve as a source of our growth in the near and medium term. While still leveraging a remote business model, we are encouraged by the growing number of new advisors on our platform. First, March was one of our best months ever for the number of MPAs and the best month ever for MPA production. Second, year-to-date production from this year's cohort is up more than 25% compared to last year's cohort. We are also excited about our recently launched digital lead generation capabilities, our upcoming RIA Summit, and our return to in-person engagement with our advisors. All of these will allow us to attract new advisors and deepen relationships with our existing advisors. Our total engaged advisors at the end of the first quarter is 2,611. Engaged advisors are up 22% year-over-year and now account for 91% of the total assets on our platform. Since the beginning of 2020, that is over the five quarters, our total number of engaged advisors is up 381. Now let's turn to slide 11 to discuss this quarter's revenue. Entering the first quarter, our assets were at $74.5 billion, leading to reported revenue of $119 million. This reflects a strong increase in our asset-based revenue, offset by the decline of spread-based revenue due to last year's rate decline. Now, we focus on our revenue net of related variable expenses. In the first quarter of 2021, our net revenue of $82.2 million was up 4.6% year-over-year. asset-based net revenue was up 12.9% to $79.7 million. Recall, this reflects our mid-2020 shift for lower-cost mutual fund share classes, which resulted in a revenue reduction of $3.5 million per quarter. So, after that one-time product shift, our asset-based revenue growth would have been about 17%. Spread-based revenue is down, of course, materially at 71% year-over-year due to the aforementioned decline in interest rates. Now let's turn to slide 12 to more fully discuss the drivers of the change in net yield year-over-year. As the waterfall shows, revenue was up year-over-year with the increase in asset-based revenue outpacing the decline in spread-based revenue. Our waterfall splits the impact of our asset growth which generated $14.2 million in additional revenue, and the impact of the compression of net revenue yield, which reduced revenue by $5.2 million. Of this $5.2 million, again, about $3.5 million was due to the shift to lower-cost mutual fund share classes, with the remaining impact due to fee compression. It's important to note that the year-over-year fee compression impact was in line with the one basis point we expect each year. Moving to spread-based revenue, it decreased $4.7 million year-over-year due to the yield decline from 1.36% to 0.31%. Lastly, our other income decreased $700,000, or about half the basis point, driven primarily by interest-related income on our corporate assets. Overall, net revenue as a percentage of total platform assets for the first quarter 2021 with 44 basis points, down one basis point quarter over quarter, and down seven basis points in 2020. The bottom slide 12 helps detail the year-over-year declining yield. As it shows, 3.1 basis points are driven by the asset-based revenue, and of this, about two basis points is due to the shift to lower-cost mutual funds. The decline in spread-based revenue resulted in a decline of 3.3 basis points on our total yield. For clarity and transparency, the calculation of our annualized revenue yield net of variable expenses is shown on slide 17 in the appendix of our earnings presentation. So the takeaway from this slide is twofold. First and most importantly, our strong organic growth and market gains have mitigated the revenue loss from the move to lower-cost mutual fund share classes and the decline in interest rates. Second, yield compression from lower interest rates is stabilizing down only one basis point quarter over quarter. Now let's discuss expenses. As shown in slide 13, we continue to do an excellent job of maintaining our expense base, even as we have grown our company significantly over the past year. Total adjusted expenses decreased 1% year-over-year to $90 million. Operating expenses were down 3.2% year-over-year, with $48.1 million driven by a $2 million increase in compensation expense, offset by a $3.6 million decrease in STNA. The increase in compensation expense was largely driven by our variable sales incentive comp as a result of our strong sales in the quarter. Our strong sales results increased our compensation expense. We, of course, will realize the revenue benefit from it in the upcoming quarters. Also driving the increased year-over-year compensation was the fact that our headcount increased 2.2%. The decrease in SD&A is largely driven by our new business environment, driven by lower event costs and travel costs. We successfully held our annual client event gold form entirely online in February, generating material savings for 2020. As discussed previously, we are eager to get back on the road and meet clients in person. That said, there are permanent changes we've made to our business model, and we have always expected to absorb the increased spend related to travel in our operating expenses. We have learned to become a much more efficient and effective in a virtual environment and will not lose that competitive advantage. Now, let me run through our expense adjustments, which were unusually large due to the acceleration of share-based compensation costs as a result of our February vesting and the CEO change. In the first quarter, we added back a total of $46 million pre-tax, and this is comprised of four items. First, $33.4 million of non-cash share-based compensation due, again, to the acceleration of amortization of the pre-IPO grant. of our total equity charge of $33.4 million in the first quarter, $30.6 million was related to these pre-IPO restricted stock awards, and $2.9 million was due to our ongoing equity incentive program. Larger cents related to the pre-IPO grants were driven in part due to the large vesting event in February, as well as the accelerating recognition of costs as a result of the CEO change. As a result, the remainder of the year will see far less expense related to this flip-flop of grants. To set expectations for you, you should expect to see equity costs drop for the rest of the year between $5 and $8 million per quarter. Looking ahead to 2022, our quarterly equity costs will reflect only the ongoing programs and settle into the $4 to $5 million per quarter range we've previously discussed. Second adjustment to our expenses is $5.1 million of amortization expense related to the 2016 sale. Like the equity charges, this expense will be fully amortized also by the end of 2021. Third, $1.7 million related primarily to reorganization and integration costs, the majority of this cost related to the CEO transition. And lastly, $2.8 million in acquisition-related expenses associated with our announced acquisition of Voyant and the integration of JSTC and OBS. For additional color, an adjusted expense reconciliation table for income statement line item can be found in slide 18 in the appendix in our earnings presentation. Now let's turn to slide 14 to discuss the earnings report. We view adjusted EBITDA as an important measure of our company's health. Our first quarter of 2021 adjusted EBITDA was a record $34.1 million, up 20.2% year-over-year. Adjusted EBITDA margin for the quarter was 28.6%, up 390 basis points year-over-year. 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 investing in future growth. Now, adjusting net income for the quarter was $22.2 million.30 per share. This is based on a first quarter diluted share count of $72.9 million. Now, let's look at the reported first quarter balance sheet. I would highlight two items. First, we ended the quarter with $86.8 million in cash. As Natalie mentioned in her prepared remarks, our cash position, ability to generate cash, and low-debt positions as well to pursue opportunistic M&A. Our expectation is that we will use about $50 million of our corporate cash plus $70 million from our revolving credit facility when we close our acquisition of Buoyant later this year. Second, capital expenditures primarily reflect our long-term investments in technology to create new capabilities, increase scale, and improve service. For the first quarter, our capital spend was $8.2 million, or 6.9% of total revenue. Now, as Natalie previously mentioned, we are expecting our capital expenditures to be about 7% of 2021 total revenue as we continue to invest in the future of this business. Now, let me update you on our expectations for 2021. Before I get into those numbers, I want to be clear that these expectations do not include the impact of buoyant, given the unknown timing of the close. Let's turn to slide 15. We are increasing our net revenue growth outlook to 18% to 21% for the year, compared to a previous expectation of 16% to 19%, giving much strong momentum to the first quarter net flows and market gains. We continue to expect our operating expenses, which consist of compensation and SG&A, to increase mid-teens due to increased investment in 2021. It's important to note that we will maintain discipline in our expense growth so as to not outpace revenue growth. As noted earlier and on previous calls, this expense outlook assumes business fully reopens by mid-year. As a result, we are revising our 2021 adjusted EBITDA growth expectation range 22% to 26%, which is above our previously guided range of 15% to 25%. This outlook reflects the strong momentum from the first quarter, our confidence in top-line growth, and our ability to find ways to scale our business. Based on the revised growth outlook we have laid out, we expect margin expansion of about 150 basis points for the year, much higher than our previous expectation of 100 basis points, and the 50 to 75 basis points goal we have targeted in previous years. This is phenomenal, given we are still investing significantly in our business. With that, I'll hand it over to Natalie for her concluding remarks.

Thank you. Thank you, Gary, and thank you, everyone, on the call today. I'm extremely pleased with all we've accomplished and feel we're well positioned to create further value for advisors and their clients, as well as our shareholders. We look forward to sharing future updates at upcoming conferences and on subsequent earning calls. And this concludes our prepared remarks. I will turn the call back to the operator to begin Q&A.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Again, that is star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Ryan Bailey with Goldman Sachs. Your line is open.

Hi, good afternoon. I was just wondering if we could get a quick update on the advisor-managed portfolios. I know you said you'll stop breaking out the assets once it becomes a bit more meaningful, but if you could give us kind of an indication of maybe how many advisors sit on the platform now or how many are using it, whether you've seen any wallet share gains from those advisors, and then how you're thinking about pricing and sort of how those conversations are going.

Thanks, Ryan. Appreciate the question about asset mark-managed portfolios. Asset mark-managed portfolios, as you know, they're a subset of the offering that we've put in place for RIAs, so a subset of the asset mark institutional offering. And as I said in my prepared remarks, we're really happy with how the asset mark institutional offering is going and are tracking 14 points ahead of plan, which is fantastic. And what we're focused on is we're focused on attracting RIAs to our platform and providing the services that those RIAs need from AssetMark. And a piece of that is AssetMark managed portfolios, the ability to trade their own sleeve of a portfolio on our platform. But by no means is it the only piece. access to investment solutions, the ability to participate in our growth programs. All of those things are important to RIAs and specifically subscale RIAs. Even so, within Asimark Institutional, we have seen adoption of our Asimark managed portfolios, particularly from the larger RIAs that are on our platform. And the conversations are going well as it relates to pricing. And our approach to pricing isn't specific pricing for the technology itself, but to look at the whole relationship and make sure the whole relationship price works for us and our margins and then also for the advisor and what they're trying to achieve. And so I would say that the pricing conversations and pricing negotiations are going well, because what attracts RIAs to our platform isn't just asset market managed portfolios, but the entirety of the solutions we can offer, how much we can help them outsource their business and then refocus that time on growth. So while I didn't give you, Ryan, any specific numbers on the number of advisors, you know, using Asimark managed portfolios know that the top line metric we use, which is the growth of the number of advisors and how many are attracted to our platform is growing quite nicely right now in the first two months.

Got it. Okay. Thank you. And then maybe you mentioned that you have an alternative investments offering that's sort of coming through AMI as well. I was just wondering maybe specifically for that, is there a way we should think about revenue contribution from that over time?

Yeah, so as it relates to athamark, athamark, institutional alternative investment platform. We announced a partnership with iCapital to provide our advisors with access to an array of alternative investments offerings that have been diligent and that are easier for them to administer than it would be if they go direct. Because we are partnering for that offering, it does contribute revenue, but it's immaterial. What's really more important is the holistic relationship with the Got it.

Thank you. I'll jump back in the queue.

Sure.

Thanks, Ryan. We have our next question coming from the line of Brian Nguyen with Credit Suisse. Your line is open.

Hey, it's Kevin here with Brian. Congratulations, Natalie and Gary. Quick question. Gary or Natalie, I wonder, can you give us a sense of how we should think about the revenue impact from the stepped-up investment? I mean, the performance gave an opportunity to step up some of the investment, but how are you thinking about that from a revenue perspective as it relates to 21 and to 22?

Thanks so much for the question, Kevin. Gary, do you want to take that one?

Sure.

Thanks, Natalie.

Sure.

Hey, Kevin, how are you doing? Hey, Gary. So, look, you know, We are – I'm trying to think of the right way to put it in context for you, Kevin, right? So we are focused on the investment resulting in that double-digit top-line growth with margin expansion creating, you know, the double-digit, you know, mid-teens EBITDA growth that we target every year. You know, what we're trying to do with our investment is broaden our offering both for existing advisors so they can grab share of wallet as well as to bring in new advisors. So, yeah, we're not going to be able to give you a sort of like IRR on the investment that we're bringing in, but the investment, all the investments we're making are designed to attract assets from existing advisors as well as bring new advisors, particularly RAs. Is there a way I can, go ahead, go ahead.

Yeah, no, that's helpful, Gary. I guess I was thinking more, is there any way to think about how much revenue, you know, is associated with the incremental investment, whether it's, you know, percentage, you know, associated with it? Because obviously what's nice is you've been able to step up the investment, but also, or rather maintain the investment, but then also drive some incremental adjusted EBITDA, which is a nice outcome for you folks.

Yeah, I mean, you know, you're absolutely right. I mean, that's exactly the right way to think about it. The way we characterize it is, look, the new assets coming in, particularly on our managed platform, you know, is a very high what you would call incremental margin, right? And so we view it more as we have the investment to bring in the assets so that we can – recognize that revenue at a much better margin than our overall book, right? And that's how you create that margin expansion.

That's helpful. And then just real quick, Gary, is it too early to start thinking about impact of interest rates as it relates to maybe 22 or just any shift in thinking around rates, just given some of the recent activity?

I mean, Janet Yellen saying today that rates might go up, that was exciting. You know, so I do think it's a little early to talk about it. You know, we always disclose our cash, you know, and what we're earning. We earn 31 basis points on the cash right now. So we're not baking it into a near-term outlook for ourselves. So the numbers we talk about for 2021 do not assume any interest rate improvement. But, you know, one can hope that in 2022 or, you know, by 2023 we'd see some movement. Natalie, do you have anything to add on that?

No, other than to say that, as we've disclosed in the past, for every 25-ish increase in rates, we capture just shy of 20 basis points of it, or at least that's what we've done in the past. Clearly, past isn't exactly equal to what will happen in the future, but for modeling purposes, that might be a way to handle it.

That's awesome. Thank you all.

We have our next question coming from the line of Patrick O'Shaughnessy with Raymond James. Your line is open.

Hey, good afternoon, guys. In light of your proxy being filed last week, I want to touch base on AssetMark's board composition and ownership. I believe that five of your directors are affiliated with Watte, which still owns around 70% of your shares. Can you provide an update on how close AssetMark's relationship with Watte is and whether there's any update on Watte's ownership plans?

Yeah, I'll take that one. Uh, so Patrick, thanks so much for the question. So, um, you are correct that five of our board members are, uh, uh, employed by what I, um, uh, one in the U S and the others, um, outside of the U S. Um, a couple of things to note on that. The first is that, um, they are our majority shareholder. As you mentioned, uh, they own about 70, a little over 70% of us, and they believe in asset Mark, uh, for the longterm. and remain very pleased with the phenomenal results that Athermark has delivered for them. And as our top shareholder, they are excited about the results that we just shared with you and our strategy and our mission and our strong operating and financial performance. With that said, both Watai and I agree that our strong fundamentals are not really reflected in our stock price right now. And the underlying drivers of this involves improving investor demand and improving the relatively low trading volume. And fixing these issues is one of the boards, including Watai's top priorities, as well as mine and Gary's for this year. And then finally, I'm having great dialogue with the board and our controlling shareholder right now about their ownership plans and the status of the shelf offering. And we know we need to provide incremental clarity to you and to our shareholders. And that's something we're working on right now. so i guess you know a summary of that is we understand the question and given where acid mark is right now in terms of its fundamentals we're incredibly excited about the company and know that we need to provide clarity as it relates to the shelf filing and are working on that gotcha i really appreciate that detail thank you um and then

A question on your share of wallet for your engaged advisors. Where would you guys estimate that stands today? Maybe where was it a year ago? And where do you realistically think that it can go over time?

So why don't I start that one, Gary, and then you can provide more details. Sure. So our share of wallet for our engaged advisors, it varies depending on the level of engagement. So it ranges. We have the lowest level of engagement, which is over 5 million, and then the highest level of engagement, which is above 75 million. And we actually have many clients on our platform that are well above that. And at the higher tiers, our share of wallet ranges from 80% to 100%. And at the lower tiers, It can be much smaller. The great news about that is there's potential, you know, relationship share of wallet growth potential from our advisors, and it's one of the main reasons that we look to add new types of solutions to our platform, like alternative investments, so that formerly unaddressable share of wallet becomes addressable. We did that with our asset market. managed portfolios offering. We've done it with alternative investments by adding some fixed income solutions to our offering. All of that sort of expands the addressable wallet. But know that, you know, the share of wallet ranges are quite wide depending on the level of engagement. And Gary, maybe I'll hand off to you if you have more specifics.

Sure. So, you know, I would say, reiterate what Natalie was saying about, look, at the high end, those advisors have a large amount with us. Naturally, they have the highest share of wallet with us. I would say, generally speaking, though, if you look at the 2,600 engaged advisors, their share of wallet worth, on average, is probably somewhere in that sort of 40% to 50% level. But it's interesting, Patrick, right, because it's like almost a self-fulfilling thing. We are focused on, let's say, let's use those 2,600. We focus on the share of all. How can you help those advisors bring more assets to our platform? At the same time, you have the new producing advisors coming on and the new class of engaged advisors starting out in the lower end. And so our overall percentage has moved along in that, you know, But what you're seeing when we talk to you about the growth of engaged advisors and their percent on our platform is the evidence that the existing advisors are moving up the ladder and we're replacing them with new advisors who give us more runway for growth in the future as well.

That's very helpful. Thank you.

We have our next question coming from the line of Kenneth Worthington with JP Morgan. Your line is open.

Hey, good afternoon. So net sales recovered to above your target organic growth rate. I wanted to dig into a bit more the factors that might influence the growth over the next few quarters. So I guess, number one, you went over this, I think, sort of fast. You mentioned another handful of departures. and maybe $450 million of outflows that might take place, and I thought it might be 2Q as a result, so just a little more flavor there. I'm curious to see if you thought that either stimulus checks or tax refunds might have had any noticeable positive impact on net sales in 1Q. And then when you talk about the migration back to face-to-face meetings, it seems like Asset Mark and your advisors have both adapted well to the remote work environment. So maybe to what extent is face-to-face, might that just be a marginal positive, or does it have the likelihood of being, you know, more significant? So thanks.

Sure. Thank you so much, Ken. I appreciate those questions. Gary, why don't you take the question about outflows in more detail on outflows, and then I'll take the question on stimulus checks and refunds and the impact on 1Q results. And then as it relates to the return to the road and the sales impact, we'll share that one.

Yeah, that sounds great. And how are you doing, Ken? I hope you're doing well. You know, Yes. What we said was there's two advisors. We leave two advisor offices. They have about $450 million of assets. We do believe most of that will go in 2Q. It could bleed over to 3Q. We mention that, Ken, because back a quarter ago, we actually thought those were going to happen in first quarter. but it was delayed as things often are and whatnot. And so we will break those out if they do happen in 2Q. And we do feel that's a very, you know, that's kind of a one-timey thing, and certainly it's part of our core numbers, but part of our numbers, not part of our core. And so hopefully that gives you the color. Again, we believe that will be the last time we talk about these kind of one-offs and the acquisitions because it's basically a closed story. But again, Again, we thought it was going to happen in the first quarter. It's been delayed.

Got it. Thank you.

And then, you know, as it relates to stimulus checks and tax refunds in the first quarter and their impact on the first quarter results, Well, I can't say specifically how much of the first quarter results are related to either one of those two things. What I can say is that typically the assets on our platforms are transferred in. They're transfers of other assets rather than cash. And so we didn't see any unusual increase in new accounts opened with cash. And so in fact, we saw instead kind of broad improvement or broad increases in contributions from accounts of all size, from advisors who are engaged with us, from, you know, various different places, meaning various different, you know, former suppliers or providers of our advisors, I mean, of our clients. So growth in contributions from existing clients of advisors, cash and non-cash at the same rate that they're has always been growth of advisors, them attracting more clients to the platform and then transferring assets to us, and then growth from new advisors and specifically attracting new advisors that are larger than the advisors that we've attracted in the past. And then, Gary, I didn't know if there was anything you wanted to add to that before I get to the sales impact of returning to the road.

No, no, you got it.

So as far as the sales impact of returning to the road goes, a few things. We are returning to the road in a very careful and measured way because obviously the safety of our associates as well as their clients is the most important thing to us. And so we'll be seeing sort of a waved approach to the return to the road as each of these associates completes their second vaccine and scheduled meetings with their clients. So in the second quarter, the return to the road is gradual, and then we expect it to accelerate in the third quarter as vaccinations progress and we gain experience. Our sales teams and our clients are incredibly excited to see each other and to work together on initiatives that are more complex, and then also to re-engage with new advisors who were a little hesitant to completely change their outsource provider without meeting members of the team in person. And so we're very hopeful that this will have a positive impact. But we clearly can't say anything because we don't know what the exact rate of vaccinations will be, both for our associates as well as our clients.

Great. Thank you so much.

Thanks, Ken. Nice hearing from you.

We have our next question coming from the line of Gerald O'Hara with Jefferies. Your line is open.

Great. Thanks. Maybe just a quick one from me. Curious to kind of hear your thoughts on the bank trust channel highlighted here in your kind of addressable market slide. But, you know, you kind of highlight talking about a low-risk entry into this channel and obviously, you know, presumably through OBS. But if you could talk a little bit more about, you know, how you feel see that kind of playing out and perhaps what resources you might put behind it to accelerate some of that wallet share. Thank you.

Thanks so much for the question. So you are correct that the reason we talk about that as a low-risk entry is because bank trust was a channel that OBS served and one that at Asimark we want to serve. And so what we have done in the transition process is we've learned a lot about bank trust clients, potential existing bank trust clients, and potential bank trust clients. and the technologies they use, and the services that they like to see from an outsourced provider like AssetMark. We've successfully transitioned several of the bank trust clients from OBS over onto our platform, and we're learning from those relationships. In addition, we've hired a sales specialist to work on the bank trust channel and to help us attract new bank trust clients. We bank trust opportunities to Asimark. As we are with Asimark Institutional, we're in the early innings of our bank trust offering and very much learning and determining what types of incremental investments we'll need to make. And so no real specifics at this time other than to say that many of the transitions have completed and we're happy with where we are.

I suppose a follow-up, staying on the same slide for a moment, do you anticipate sort of as you kind of get more advisors out on the road or more associates out on the road meeting with advisors, there's an expectation for kind of an uptick in assets in motion, or have people, have advisors sort of gotten comfortable with the, you know, the current work-from-home environment or what have you over the past six months, and it'll just be sort of more incremental growth opportunity for you all?

I'm sorry, would you mind repeating that? I didn't quite understand what you were asking.

Sure. I mean, I think there's sort of a thesis whereby as, you know, you're out in front of advisors a little bit more, there's an opportunity to do a little bit more recruiting of RAs, broker-dealers. Otherwise, you know, blocks of business might be willing to move. Or on the flip side of that, what was going to move has already moved, and it will just be sort of regular way type of recruiting. Okay.

Yeah, so we think it's a combination of those that we absolutely know of and can see in our sales funnels. Opportunities that have stalled because the advisor or the REA or broker-dealer-affiliated advisor would like to meet the team in person before they make a big decision to outsource. In addition, we've gotten very effective in our remote recruiting. And so we've seen success. The larger the business transition, it feels the more important it is to meet in person. And so I know I speak for our entire sales team when I say how excited they are to begin meeting folks in person. and they believe that that will help them attract new advisors in the medium term.

Okay, great. Thanks for taking my questions.

We have our next question coming from the line of Michael Young with Ruiz Securities. Your line is open. Thank you.

Hey, thanks for taking the question. I wanted to start with the, you know, growth outlook for the year, Gary, that you laid out. You know, it sounds like there's good market share gain opportunity ahead of you from the reopening, but does the guidance contemplate some macro impacts from maybe lower savings rates, lower stimulus, you know, those sorts of things as well? Could you maybe just talk about that qualitatively?

Yeah, so I think the quick answer is no, Mike. The outlook just contemplates a kind of average market growth of about 3.5%, right? And so, you know, it's kind of unknown what's going to happen with these stimulus, like if the government gets another $2 billion, trillion with a T, right, into the economy, what that's going to do for savings and whatnot. So our outlook is going to take a little more on the conservative side. We just assume a steady 3.5% annualized growth rate in the market starting, you know, we lock in first quarter and we're forecasting going forward. We feel good about our outlook because, you know, we built at the beginning of the quarter, right? And so as we're standing right now today, we've already recognized almost half, like collected actually, half of our revenue for the year because we did a huge building in April, right? And so when you have market appreciation or other appreciation to assets in the second half of the year, that's going to give you a great tailwind the following year as opposed to the current year.

Right. That makes sense. And, you know, I guess maybe just another bigger picture question. You know, we've heard kind of potentially a higher tax rate, higher capital gains tax rate. Have you all done any sort of review or thought process, you know, kind of around that, whether it be new products or impacts to your current business, et cetera, that you would look to take advantage of if something like that changed?

Yeah, so clearly as we think about the solutions that our advisors will need from their clients, understanding macro trends like that is incredibly important. Already on our roadmap for 2021 to begin working on in 2021 is enhanced tax services. So expanding to offer separately managed accounts where there can be individual tax services provided with the account at the advisor's direction. In addition to that, tax transition services will become even more important as and if taxes increase. And so we're working on expanding our services to include tax outsourcing. And then clearly, you know, we and our compliance and regulatory department are keeping our eye on any emerging trends or any emerging themes to make sure that we're delivering thought leadership, we're delivering consulting support and services to our advisors so they can answer their clients' questions and they feel well prepared for whatever changes might come.

Okay, great. Thank you.

Again, in order to ask a question, simply press star, then the number one on your telephone keypad. And there are no further questions at this time. I will now turn the call back over to Natalie.

Thank you so much. And I just wanted to say thank you to all of you for joining the call today. And I'm looking forward to getting to know all of you in the coming months and talking to you again in the third quarter. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.