AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to AssetMark's second 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. Please note that today's call is being recorded. Now, I'd like to turn the call over to Taylor Hamilton, head of investor relations. Sir, please go ahead.

Thank you. Good afternoon, everyone, and welcome to AssetMark's second quarter 2021 earnings conference call. Joining me today are AssetMark's Chief Executive Officer, Natalie Wilson, and Chief Financial Officer, Gary Zyla. Today, they'll discuss the results for the second quarter, 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 our outlook only 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. At that, I'll turn the call over to my colleagues. Natalie, take it away.

Thank you, Taylor, and good afternoon, everyone, and thank you for joining our second quarter earnings call. I hope everyone is doing well and that you all have been enjoying your fantastic summer. Starting on slide three, we're going to focus on five key messages during our earnings call today. I'll take the first two, and then Gary will cover the final three. The first message we're going to cover is that Asimark's strategy is working, as evidenced by our record results, ability to capture greater share of wallet, and advisor satisfaction scores. Second, we're reframing our growth strategy around the advisor. This aligns our advisor's growth with our company's growth, both of which over the long term should drive value for our shareholders. Third, Gary will discuss our organic growth, which has been a persistent and positive factor and has marked strong results. Organic growth has accelerated for four straight quarters And second quarter net flows of $2.2 billion are an all-time high, and year-to-date net flows are a fantastic 11.2% of beginning period platform assets. Next, Gary will discuss recent Fed commentary around interest rates and how earlier than anticipated rate hikes could speed up revenue diversification and earnings growth at asset mark. And then lastly, Gary will walk us through our financial results for the quarter, highlighted by record revenue, all-time high EBITDA, record net income, and all-time high EPS. He will also update you on our expectations for the rest of the year. So now, I'd like to turn to slide four, where you can see that our advisor-centric strategy is starting to pay off, supported by record results for the quarter, the ability to capture greater share of our advisors' assets, and strong advisor satisfaction scores. Let's discuss each of these in a bit more detail. I don't want to steal Gary's thunder, but as you may have seen when we released our June AMK report, we had record net flows in the second quarter. We also reported all-time highs in net revenue, adjusted EBITDA, adjusted net income, and adjusted EPS for the quarter. These are outstanding results and directly tied to our ability to live our mission and execute on our strategy. The enhancements we've made to our platform and the deep relationships we've built with our clients continue to pay dividends. and we continue to remain the outsource provider of choice for our engaged advisors. Our 2021 share of wallet study shows that we have captured more share of wallet from both our engaged and non-engaged advisors. Specifically for our engaged advisors, we have approximately 90% of their TAMP assets. Additionally, we have captured about 50% of these engaged advisors' total assets, This is up significantly from 2020 and still provides ample runway for future growth. While our advisors are entrusting us with more of their clients' assets, it should be no surprise that our advisors are extremely pleased with their relationship with Asimark. Based on our annual net promoter score survey from June 2021, we received a net promoter score of 67, an all-time record and up three points from 2020. So now let's turn to slide five to discuss our strategy in a bit more detail. As you know, Asimark is a mission-driven and client-focused company. Every decision we make as a company is centered around our 8,400-plus advisors and the approximately 200,000 investors they serve. With that said, and as we discussed during our recent analyst day, we reframed our growth strategy to put the advisor and their client at the center of all we do. We believe that there should be alignment between helping advisors grow their business, which in turn will help asset markets grow and drive long-term growth and value for our shareholders. Our growth strategy is focused on five key components. For each area, I will define our approach today. I'll add some color about what we are currently focused on, and I hope that this will give you a good idea about why each priority is important and how our initiative will help advisors succeed and grow. Comments and subsequent earning calls will focus on these five components, current priorities, and the progress we're making in each area to support our growth. We're now moving to the first component of our reframed growth strategy on slide six. This component is to meet advisors where they are and to serve their unique needs. To do this, we need to focus on serving advisors with different business models at varying stages of their careers, serving diverging investor needs, and across many affiliation types. Today, Asimark serves a large community of independent fee-based investment advisors, and we serve as an outsourced partner for these independent broker-dealer affiliated advisors, hybrid RIAs, and independent RIAs. Further, based on the 2020 Cerulli Advisor Metrics Report, advisors continue to migrate to the RIA channel, which includes both RIAs and hybrid RIAs. Asimark Institutional, an initiative we launched in March, looks to capitalize on this secular trend. It has only been a few months since we launched AssetMark Institutional, so let me provide you with an update on how it's going in the early innings. So while we're still a few quarters away from breaking out AssetMark Institutional results, I can say that AssetMark Institutional is growing at the same rate as our traditional broker-dealer-affiliated advisors already in the early months. In addition, there continues to be a groundswell of activity to generate demand from current AssetMark advisors as well as new leads. For example, in May, we hosted our first Asimark Institutional RIA Summit with over 250 advisors in attendance. And a third of these attendees were entirely new lead opportunities to Asimark. With Asimark Institutional, we're building a community of like-minded advisors that are all RIAs or hybrid RIAs, just as we have done with our other advisors over the past 25 years. So now let's turn to slide seven. The second component of our growth strategy is to deliver a holistic, differentiated experience to advisors and their clients, providing an end-to-end, easy-to-use platform designed to create meaningful conversations between advisors and their clients, while also saving advisors time. A few weeks ago, we closed on our acquisition of Voyant, which will help us accelerate our financial wellness vision, which is a key component of this portion of our strategy. I want to briefly provide you with a quick reminder of the strategic benefits of acquiring Voyant and then provide you with an update on their first half of the year. But first, Voyant accelerates Asimark's financial wellness vision and expands on our ability to attract advisors in core and adjacent channels. Second, Voyant has had great success outside the U.S. market and still has a long runway of enterprise opportunities internationally. AssetMark strengthens Voyant's standalone growth prospects as Voyant will benefit from our know-how, U.S. brand, and relationships and strong financial position. Voyant will also help AssetMark enter the enterprise space in the U.S. Lastly, Voyant provides strong financial metrics and meaningful scale. It is immediately accretive to EPS and provides earnings and geographical diversification plus a long runway for growth. Now let me give you an update on Voyant's financial results. Through the first half of the year, Voyant is on track for 2021 revenue of $20 million and adjusted EBITDA of $8 million. We expect to realize revenue of $10 million and adjusted EBITDA of $4 million in the second half of the year as we close the Voyant acquisition on July 1st. Voyant has already been integrated into eWealth Manager and we are currently building an income planner powered by Voyant, which will be implemented in August and used by our sales team to support income conversations between advisors and the client. We are so excited to have Voyant as part of the AssetMark family, and I look forward to updating you on all the great things that Voyant is doing to help create more meaningful advisor-client conversations on future calls. The third component of our growth strategy is to enable advisors to serve more investors across the wealth spectrum, varying life stages and generations. Let's turn to slide eight to hear more about this. One of the areas that we've been aggressively building out is our high net worth offering. And this is one of many areas we're building out to serve differing investor needs. But as it relates to high net worth, per a recent Cerulli study, high net worth households, or those with over $5 million in investable assets, account for more than 43% of U.S. investable assets. And this is up 27 points since 2010. High net worth investors require a different set of solutions, including custom investments, cash management, wealth transfer, and more. We have a very compelling high net worth offering and have further enhanced it. So some recent examples. In September of 2019, we launched Savo's Personal Portfolios, which provide personalization and quality service in an accessible and affordable manner for the aspiring affluent and affluent clients. In December of last year, we also added a new custom high net worth solution to our platform. This past year, we launched Asimark alternative investments. And in the third quarter, we will be launching separately managed accounts at a program around separately managed accounts that will provide advisors with a comprehensive menu of core asset class exposures through a combination of recognized and boutique managers. And this is just the beginning and a platform that we will look to continue to build on and invest in. to serve high net worth investors in the future. We are excited about the enhancements we're making to enable our advisors to serve more investor needs. These enhancements will allow us to capture more share of wallet and create even stickier relationships with our existing advisors, while also attracting new advisors and investors to our platform. The fourth component of our growth strategy, as seen on slide nine, is to help advisors grow and scale their business by offering turnkey advisor solutions and programs. As discussed during our analyst day, advisors spend less than 50% of their time on non-client-facing activities. By outsourcing to AssetMark, advisors are provided with investment and technology solutions aimed at reducing the time spent on non-client-facing activities so that they can spend more time with clients and prospects, allowing them to build deeper relationships and also drive client acquisition. In our 2019 Impactive Outsourcing Survey, we found that two-thirds of advisors surveyed cited that outsourcing helps them create stronger client relationships, higher acquisition of new clients, and increased client retention. So we'd like to do more outsourcing for our clients. And one key priority that we're working on today, and it's only one of the priorities, is marketing outsourcing, which will help advisors acquire new clients through holistic marketing efforts. This new feature will be part of Asimark's entire offering, helping expand our value proposition, drive advisor growth, and help create stickier advisor relationships. Our marketing outsourcing solution, launching in the second half of the year, is the first of many outsourcing solutions we look to roll out over the next few years. And I look forward to providing further color on outsourcing solutions on subsequent earnings calls. So turning to slide 10. final component of our growth strategy is to pursue strategic transactions by adding capabilities and scale that improve advisors' ability to serve investors and expand their businesses. We aspire to develop an ecosystem of SaaS and service-based offerings that are complementary to our core TAP platform. The ecosystem will empower advisors of all size with the highest quality capabilities and services, enabling them to both serve clients effectively and grow their practice. I just want to note that we're focused on both mid-sized wealth M&A, wealth tech M&A opportunities that are aligned with our top capability priorities and scale opportunities that are a strong fit. The cash on our balance sheet, the ability to generate cash, and our low debt position as well to pursue future M&A opportunities. As you can see, our reframe growth strategy centered around the advisor helps us grow as a company. Our strategy is built to attract new advisors, drive additional share of wallet from existing advisors, and increase the number of investors our advisors serve. All of these will drive long-term growth and value for our shareholders. The result of executing on these five components of our growth strategy is the exceptional performance that Gary will discuss in a minute. Before handing the call over to him, I want to emphasize how extremely pleased I am for all we have accomplished in the first half of the year. And I also want to take a moment to thank our over 800 AssetMark team members for their hard work and dedication to making a difference in the lives of our advisors and their clients. 2021 is shaping up to be the best year yet for AssetMark, and I'm excited to deliver on what we have planned for the back half of the year. So now, Gary, I'd like to turn it over to you.