AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to Asset Mark's fourth quarter, 2023, EARN's conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and introductions 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, Victoria. Good afternoon, everyone, and welcome to Asset Mark's fourth quarter, 2023, EARN's conference call. Joining me are Asset Mark's chief executive officer, Michael Kim, and chief financial officer, Gary Zyla. Today, they will discuss the results for the fourth quarter and introduce Asset Mark's business outlook for 2024. Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Michael and Gary will reference during their prepared remarks. It can be accessed on our IR website at .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. With that, I'll turn the call over to my colleague, Michael. Take it away.

Great. Thank you, Taylor. Good afternoon, and welcome to our fourth quarter earnings call. Today, my prepared remarks will focus on three topics. First, I will highlight our record 2023 results. Second, I will unveil our refreshed and simplified strategy. And lastly, I'll provide an update on our long-term priorities that I laid out during our last earnings call. Gary will then discuss our financial and operating results for the fourth quarter and introduce our 2024 outlook. Starting on slide three, 2023 was another record year for Aftonmark across many key operating and financial metrics. We ended the year with a record $109 billion of platform assets. We are serving an all-time high of over 254,000 households and over 9,300 advisors, of which 3,123 are engaged. We realized an all-time high NPS score of 72, a testament of our commitment to our clients. From a financial standpoint, total revenue in 2023 was a record $709 million of 15% -over-year, while net revenue was a record $545 million, also of 20% -over-year. These all-time high top-line results allowed us to achieve best-ever bottom-line results. Specifically, adjusted EBITDA was $250 million for the year. Adjusted EBITDA margin was a record 35.2 and was up 290 basis points -over-year. Net income was $123 million of 19% -over-year, while adjusted net income was $171 million of 31% -over-year. Adjusted earnings per share was $2.30 for the year, up 30% -over-year. In 2023, we also advanced our penetration into adjacent channels, such as RIA channel with integration of adhesion wealth, and the bank trust channel with our announced partnership with Architect Cheetah. We are already seeing meaningful contribution from adhesion and have few early when to announce from Cheetah, including First State Bank in Texas and National Exchange Bank in Wisconsin. Turning to slide four, we are simplifying our strategy, replacing our previous five strategic pillars, our three refreshed and simplified pillars that better align to our mission of making a difference in the lives of our advisors and their clients. For those that have been following the after-market story for a while, these new pillars will sound familiar. Our first pillar is offering a flexible integrated technology. Our technology suite is fully integrates with our core proprietary technology with third-party tools that help advisors get things done more efficiently and effectively, which allows them to spend more time with their clients. This fosters deeper advisor and client relationships, which in turn contributes to greater loyalty and more assets on our platform. We believe that our technology is a key differentiator and serves as a competitive advantage amongst our peers. The second pillar is delivering exceptional service and consulting. Our advisors are in the relationship business, so we're in the relationship business. Almost half of our employees are advisor-facing with the sole mission of making a difference with our advisors and their clients. Our -in-class business consulting offering helps our advisors with business strategy and planning, client experience and operations, marketing, and other key programs to increase the advisor's business value and efficiency. The third and final pillar is our compelling wealth solutions. Our focus on asset management begins with the client. Our products and those of our partners are easy to understand and use, and they are built with the advisors and their clients in mind. We perform careful due diligence to help ensure that we offer a wide range of wealth-suited products to help investors reach their long-term goals. In addition, we are committed to a holistic suite of wealth-planning solutions to empower our advisors to serve the growing needs of their clients even more effectively. 2023 was a monumental year executing on these three pillars, and we have plans to double down in 2024. Let's go into each one in further detail. Turning to slide five, we have made significant progress enhancing our technology offering in 2023. It starts with our enhanced eWolf Manager platform, most notably the pilot of our new advisor dashboard, which engages users in an attractive, cohesive design and provides tools that allow advisors and users to be proactive and manage their experience. The advisor dashboard has received positive reviews from advisors and the pilot who have raved about its useful and intuitive nature. In 2023, we also launched our mobile app, which has over 6,400 downloads. Adhesion continues to focus on enhancing their advisor platform as well, including the Adhesion Tax Alpha dashboard, which brings the ability to visualize tax alpha not only for accounts, but also at a business unit and firm level. Voyant launched the Voyant Wellness in late 2023, a module-based solution designed for enterprise companies to offer their clients a personalized mix of self-directed tools and services that help them plan for their financial futures. As we have said before, technology is an arms race, and in 2024, we have plans to continue to enhance our technology offering. We will continue to advance the work on building out the next version of eWolf Manager, focusing on the roll out of the advisor dashboard to all advisors and their teams. Our plan is to enhance our advisor insights, allowing the advisors to see a total book view of their assets, net flows, and fees. We're planning to add features that allow the advisors to gather more information from prospects, deepening their relationship, and increasing the opportunity to turn prospects into clients. In 2024, Adhesion will accelerate development efforts to advance their technology and platform. They are investing in providing the industry's very best model marketplace for RIAs and focusing on enhancing their Adhesion Alliance program. Voyant also has exciting plans for 2024 with the launch of new wealth management solutions, including social security optimization, Roth conversion, and advanced insurance modeling. They're also launching new retirement planning solutions, most notably, buoyant longevity risk, and buoyant long-term care and disability programs. Simply put, we are reimagining the advisor's digital experience. Turning to slide six, our second pillar is delivering exceptional service and consulting. As I mentioned before, we believe this is a competitive advantage for Asimark. In early 2023, we launched our investment consulting offering, providing select advisors direct access to the investment, the Asimark investment consulting team for guidance in creating customized model portfolios using strategies available on our platform. Our investment consulting team worked on 60 different opportunities in 2023 with over $2.5 billion in asset commitments. Also in 2023, we tackled one of the biggest obstacles facing our advisors, succession planning through the launch of AdvisorLink, a private succession marketplace for our advisors to post and search for opportunities among vetted advisors. As of year end, over 200 advisors were leveraging AdvisorLink with approximately two-thirds set up as buyers on the platform. In 2024, we will continue to focus on building out our service and consulting strategy to further distance ourselves from the competition. The biggest highlight is introducing the touchless new account opening at Asimark Trust, which will accelerate the onboarding of clients through a faster account setup and funding. Adhesion is also committed to elevating the advisor experience to new heights. To do that, Adhesion has expanded their executive leadership team to focus on enhancing the advisor's experience, expanded their service team, adding seven new client service specialists, and is focused on further integration with Asimark to drive additional scale and experience for advisors. Let's turn to slide seven and discuss our third pillar, compelling wealth solutions. As we mentioned earlier, our 2023 share wallet survey showed that we have over $380 billion of total business opportunity for all advisors who have responded. By consistently adding our wealth solutions offering, we build a better offering for our advisors and their clients while increasing the opportunity to gain share wallet from existing advisors and, of course, attracting new advisors. In April, we launched three first trust strategies that span the investment spectrum from core to satellite. In October, we launched Kensington Managed Income Strategy to provide investors with the potential to generate stable, above average total returns with low drawdowns. These new strategies have been used by over 650 advisors and have gathered close to a billion dollars in assets thus far. In September, we launched the pilot of tax management services. Early TMS users have celebrated the intuitive user experience, client-facing proposals, and informative reports. The value provided by the service relative to its cost is particularly compelling. Advisor adoption during the three-month early access period has exceeded our expectations with more than $100 million in assets already using this service. In 2023, Adhesion also executed on enhancing their compelling wealth solutions adding 88 products from 33 unique managers. Of the 33 managers, nine were new introductions to the alliance program. This year, we are focused on continuing to add and enhance our wealth solutions. First and foremost, last month, we formally launched TMS to all our advisors. In the first half of the year, we are launching certificate of deposit account registry services or CDARS. CDARS are termed bank deposits and are an efficient way to access CDs with attractive rates and extended FDIC insurance through a network of banks. Simply put, this will enhance our cash management offering, making it more competitive while also meeting advisors' number one request, higher rate options available for clients of all wealth levels. Next, we are focused on enhancing our donor-advised fund program with lower account minimums, robust reporting capabilities, streamlined processes for grants, and ability to customize portfolios through existing platform strategies. These enhancements will help advisors attract more investors, especially in the higher net worth segment, while strengthening relationships with existing clients. As you can see, we have accomplished a lot in 2023, and we will continue to enhance and add to our platform in 2024 to give our advisors and their clients an industry-leading experience. Turning to slide eight, I want to provide a brief update on how we are progressing on our long-term goals that we implemented last quarter with the goal of enhancing shareholder value. First, hypergrowth. As I discussed last quarter, we are absolutely committed to exceeding 10% organic growth rate and exceeding 5,000, engaged advisors by end of 2026. We are continuing to see green shoots that organic growth is coming back. In December, we realized net flows north of 625 million and saw net flows north of 430 million in January of this year. Regarding our AM5K initiative, we ended the fourth quarter with 3,123 engaged advisors at all-time high. We are focused on projects to get our more than 800 advisors who are between 3 and 5 million of assets on our platform to the engaged level while also improving the time and rate of NPAs to the engaged level. Gary will provide a lot more details on this later during his prepared remarks. Second, we increased our capex as a percentage of total revenue to 8 to 10%, allowing us to invest more into the business, specifically into projects that drive growth and scalability such as AccuTech Cheetah. Lastly, we are focused on scaling our business. In 2023, we expanded margin's 290 basis points and will look at opportunities like our Touchless New Account Opening initiative, as discussed earlier, to drive further scale into the business. Specifically, we are focused on reducing the cost per account by over 30% by 2026. With that, I will now turn the call over to Gary to take us through a deeper dive on our fourth quarter results and introduce our 2024 outlook.

Thank you, Michael, and good afternoon to all those on the call. As Michael mentioned earlier, 2023 was another record year for asset work. During my remarks today, I will highlight our results in the fourth quarter and then introduce our 2024 outlook. So starting with slide nine, fourth quarter platform assets increased 19% year over year to 108.9 billion dollars. Quarter over quarter platform assets were up 9%, driven by a market impact net of fees of 8.1 billion dollars and quarterly net flows of 1.3 billion dollars. Annual net flows as a percentage in the beginning period assets is 6.7%. We are encouraged by strong net flows in December and early 2024. Turning to our advisor metrics, we added 154 new producing advisors or MPAs in the quarter and 666 MPAs for the full year. We are pleased that the quality of the quality of these MPAs is much higher than it has been in the past. Out of the 666 MPAs in 2023, .5% have already achieved engaged advisor status during their first calendar year, an improvement of approximately 20% over the prior year's rates. As part of our AM5K initiative, we are actively focused on four key areas to improve our MPA to engage conversion rate. First, attracting more MPAs through digital lead generation, strong broker-dealer relationships, and RIA initiatives. Second, focusing on higher value MPAs or those who initially onboard at least $1 million of assets to the platform. Third, implementing a much smoother onboarding process with a rollout of touchless new accounts, which Michael mentioned earlier. And lastly, enhancing our new product offering, which will attract more high value advisors to our platform. In slide 10, we show our engaged advisor count. We ended the fourth quarter with a record 3,123 total engaged advisors, up from 2,995 engaged advisors in the third quarter, and up .4% from last year. While the -over-quarter increase was largely driven by market, we did add 34 new engaged advisors organically from incremental net flows. Our engaged advisor count, our engaged advisors account for 33% of all the advisors using our platform and make up 93% of our platform assets. In addition to the asset level and advisor count, a third way we measure our growth, which is not acid-based, is the number of households on our platform. The number of households are up more than 5% -over-year to 254,000. Now let's turn to slide 11 to discuss this quarter's revenue. Before we begin, I want to call your attention to a $30.5 million reclassification of spread-based expenses to spread-based revenue. This amount reflects the interest credited to customer accounts for all of 2023. The expenses related to interest credited to customer accounts was previously recorded in spread-based expense, and in prior years, this is not material. As part of our technical accounting review for 2023, we've elected to make this adjustment to net this cost out of the gross revenue line. As noted, the adjustment equally offsets our 2023 gross revenue as spread-based expenses. There is no impact to net revenue and no impact to our earnings from this reclassification. For clarity, shown on this page is our total revenue on a pro forma basis reflecting the new accounting treatment. As shown in the fourth quarter, total revenue on a pro forma basis was $180 million up 13% -over-year. And as you know, we focus on our revenue net of related variable expenses. For the fourth quarter of 2023, our net revenue was $137 million up 11% -over-year. All four components of our revenue increased -over-year with subscription-based income leading the way up 22%. Slide 12 details our -over-year net revenue walk. Asset-based revenue was up $9.7 million -over-year. $12.9 million of that increase can be attributed to the $12.2 billion increase in billable assets, excluding the adhesion-acquired assets. Asset-based revenue was also augmented by an incremental $1.8 million of revenue from adhesion wealth. These increases were partially offset by fee compression on approximately one basis point, which is in line with our stated expectations. Spread income was up $1.1 million -over-year, driven by yield improvement of 327 basis points to 405 basis points. Of this total yield, our security fat line of credit, program, or S-Block, contributed 10 basis points, excluding the contribution from S-Block, net yield for the quarter was 395 basis points. Subscription revenue from buoyant was off approximately 22% -over-year, driven by growth and software revenue. Lastly, other income increased $2.5 million -over-year, driven largely by higher interest income earned on our corporate cash. Now let's discuss its census. Turning to slide 13, you will note that we are showing spread expenses pro forma for the accounting change noted earlier. On this pro forma basis, total adjusted expenses increased .8% -over-year, from $122.5 million. Orally adjusted operating expenses were up a little less than 2% -over-year to $70.6 million, driven by an increase in employment compensation, partially offset by a decrease in SG&A. Employment compensation increased 2.3 million or 5.9%, while headcount remained essentially flat -over-year. SG&A decreased from $1.2 million or .9% -over-year, driven by strategic and timing items. Now I'll quickly run through our adjustments for the quarter, as we always do. In the fourth quarter, we added back approximately $12 million pre-tax, which is primarily composed of three items. For a $4.1 million in non-cash share-based compensation, we anticipate approximately $4.5 million per quarter in the first half of 2024, and $5 million per quarter in the second half of 2024. The second adjustment is $4.8 million related primarily to reorganization and integration costs. And lastly, $2.2 million of acquisition-related amortization. Now let's turn to slide 14 to discuss our earnings for the quarter. For the quarter, adjusted EBITDA was $63.8 million, up 21% -over-year, while our adjusted EBITDA margin, again on a pro-forma basis, is 35.4%. Our reported net income for the quarter was $34.6 million, while adjusted net income was $44 million, or 59 cents per share. This is based on the fourth quarter of the Luce Share Cap of 74.6 million. Our estimated tax rate for the full year is 24%. For further color, please see the adjusted net income walk on slide 22. Now let's look at the reported fourth quarter balance sheet. I will highlight two items. First, we continue to do a great job of generating cash. We generated a robust $175 million in cash from operating activities in the full year 2023. Second, our capital spend was $11.4 million, or 6% of total revenue from the fourth quarter. As we have mentioned previously, we are increasing our cap at run rate in 2024 to 8 to 10% of total revenue so that we can invest in more growth and scalability projects. Now turning to slide 15, I would like to provide my quarterly update on our spread-based revenue and its drivers. So first, let's discuss our cash balances. In the fourth quarter, total cash as a percentage of assets, ATC, was 3.8%, of which ICD, or our non-discretionary cash, was 3.2%. Cash as a percentage of platform assets is down slightly due to the rising market value of assets with more and more strategies putting money to work in the equity of fixed income markets. Although the Fed is predicting to take down rates in 2024, we remain well-haged in having a portion of the insured cash deposits in fixed rate agreements. As of December 31st, 45% of cash at ATC is in a fixed rate term with an average maturity of 2.28 years and a gross rate of 4.77%. Also as a reminder, our revenue mix has a natural hedge, as we would expect Fed fund reductions to have a favorable impact on our asset-based revenue. Finally, let's turn to page 16 to introduce our 2024 outlook. We are uber exciting about 2024. Strong growth with a singular focus of serving our financial advisors. Our platform asset guidance is 12 plus percent, as we expect increased flows year over year, approximately 50%, reflecting strong growth in our core business and outside growth in our adhesion business. We will be targeting net flows as a percentage of beginning period platform assets in the range of 8 to 10%, coupled with our annual market appreciation assumption of 3.5%. A 2024 net revenue annual growth target of 10 to 14% as a result of strong momentum from the end of 2023. Our first quarter billing done in January was boosted by the strong year-end market, and we are encouraged by our net flows year to date. Our forecast has double digit growth across our major revenue line items. We have set operating expenses, which consist of compensation and SNA to increase 8 to 10%. We are confident that this level of expense growth allows us to continue to meaningfully invest in the future business while maintaining discipline, so that expense growth will not outpace revenue growth. As always, we are focused on realizing improved margins on our revenue and growing earnings. We have set our adjusted EBITDA to be up 15% plus year over year, and we have set margin expansion north of 50 basis points for the year. With that, I will hand the call back to Michael for his concluding remarks.

Thank you, Gary, and thank you to everyone on the call today. I look forward to seeing you in person at the upcoming investor conferences. This concludes our prepared remarks. I will now turn the call back to the operator to begin our Q&A.

Of course. We will now begin the question and answer session. If you would like to ask a question, please press star, followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star, followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Dan Fannin with Jeffery. Your line is

now open.

Clearly improving in January or to start the year. Just curious as to what you think are some of the drivers of that acceleration as you think about the year progressing. I think you mentioned adhesion being a part of that. I don't know if you're able to break down what you think the contribution from that platform might be versus the rest of the business.

Hey there. Thank you for your question. You kind of cut out a little bit on the front end, but I think really the gist of your question was, you know, the contributors and the drivers for sort of our growth and really sort of thoughts around adhesion and its contributions to the overall growth. So let me start here and then, Gary, please chime in with additional details. So we're absolutely seeing really a renewed turnaround from the advisors and their investors and their clients and really the sentiment. You know, a couple of things I just want to mention, and we saw this, you know, obviously with the market improvement in the fourth quarter, and certainly we're seeing this as we start the first quarter of this year. A lot of the assets that were sitting on the sidelines, you know, some of the industry surveys point to over two and a half trillion dollars of cash sitting on the sidelines, and we see a lot of those cash coming back into the market and really advisors working very closely with their clients to help them find the appropriate solutions, you know, to meet the client's goals. And so we are seeing kind of at the macro level that sentiment improving. Secondly, you know, from an adhesion perspective, we're absolutely seeing a very accelerated momentum with adhesion. In fact, their January of 2024 flows were almost double what they did last year's January. And so we're absolutely seeing the momentum grow. A big part of the adhesion story is really around our commitment to bringing our world-class service and operational experience to the adhesion advisors. There's been a lot of hard work amongst the teams to really integrate the asset mark service and operation processes into the adhesion platform. So we're starting to see dividends pay off of that effort. The other aspect is really the expanded executive and sales management team. One of the key things that we're focused on is working closely with the strategic clients of adhesion to not only expand the share of wallet, but also help with their recruiting efforts. Many of the clients of adhesion are the strategic RIA firms out there recruiting either breakaways and or other advisory firms. And so adhesion is an integral part of that recruiting process. And we're delighted to see the momentum, you know, continue with adhesion. Gary, any other thoughts to add onto that question?

Yeah, you know, hey Dan, how you doing? Nice to talk to you again. You know, I think, you know, we're still not going to be breaking out adhesion results, we just say from the rest of the business. You know, I will note, you know, adhesion came on the platform in the end of 2022 with about $7 million of assets. It comprises a little bit over $9 billion of assets in our platform now. And that's really indicative of, you know, the strong organic growth that Michael's talking about and its strong contribution to our business. So, you know, we're really excited about both the initiatives we have on the core business, you know, new advisor acquisition, wallet share opportunities, as well as the adhesion business model.

Great, thank you. And then just as a follow-up, you know, last quarter you talked about an increased focus on M&A and partnerships and it was reiterated again today. So maybe talk about the current environment that you're seeing and the, you know, kind of prospects of areas that, you know, generally you're looking at to potentially, you know, fill those holes.

Yeah, no, thank you again for that question. And you're absolutely right. M&A, as we mentioned last quarter and certainly reiterated this quarter, it remains a very important part of our overall growth strategy. There's two areas that we're focused on in terms of kind of key M&A opportunities. One is really the consolidation opportunities and the second is capabilities. You know, one of the key things that we bring to a potential seller in the marketplace is really the scale that we bring, our credibility and the renown, sort of the service and the advisor experience that we deliver, the distribution network that we have. And so we're engaged in a number of, a number of high quality firms that would, that desires to be part of the Aston Martin ecosystem. And what really, what's really unique here is that together with those firms, we have an opportunity to bring this unique joint value to the advisors. And so we're absolutely excited and committed to accelerating our acquisitive mode that we have. And certainly even on the capability side, we're looking at a number of different technology providers, asset management providers, and even marketing and lead generation providers for advisors to help them grow. And so there's a lot of unique assets. Our corporate development team is heads down, working very hard and managing a very active pipeline. And so we hope to share a number of great news with the audience in the near future, but that is absolutely an important part of our overall strategy.

Gary? Yeah, and then I would just add to that, like Michael says, over the past, let's call it six months, we've really reinvigorated these types of discussion. And of course, M&A, there's a lot of different ways to think about it, right? There's Michael said, consolidation, the capabilities of what you're looking to add, but you can buy, you can partner, you can become a minority investor. There are a lot of different ways we're looking at trying to put that capital to work. Acutec Sheet is one example where, you know, an acquisition happening there, but we're investing a lot of money to kind of create this partnership. And while that's not truly M&A, that is truly something that is an inorganic, you know, starting point to kind of progress.

Great, thank you.

Thanks, Ben.

Thank you for your question. The next question comes from a line of Jeff Schmidt with William Blair. Your line is now open.

Hi, thank you. On client cash, it appears to have stabilized around 2.9 to 3 billion, you know, when you adjust for seasonality. And just regarding where that may go, you know, what are you seeing in terms of new cash coming in from organic growth? Is that kind of largely sorted already, and so it isn't providing much of an uplift to client cash, or should we kind of expect to see some uplift from that this year?

Well, that's a great question, Jeff, and nice to talk to you again. So, you know, here's how I would start, and then to Michael, feel free to come up on any more details. But here's how I would frame this. Most of that cash, Jeff, right, is the non-discretionary cash. This is not the end investor choosing it. This is our strategist allocating part of their strategy to cash, and therefore, it's not really susceptible to the kind of cash sorting that some other banks are dealing with, but it is a reflection as that percent has settled, it's generally around 4% of our total asset market assets, and as that percentage has settled, right now it's 3.8%, as we said today, that's a reflection actually of the strategist putting that money to work, because they're getting more confidence in the equity markets. Now, that being said, the cash balance grows as our asset level grows. So when we think of our overall asset level growing, that 10 to 12% we talked about for the upcoming year, that's gonna be reflected in our cash balances at our trust company. To the extent that we have an outsized amount of money go to our trust company versus other custodians, that will even further help the growth of our cash that we will put to work.

You know, I think maybe just to kind of build off of that, Jeff, you know, a couple of other things to consider. So number one, you know, to Gary's point, we're seeing just given the improved sentiment and the investors coming back into the equity market that we're seeing more and more of the strategist deploying the cash into their strategies and to the equity allocation. At the same time, really given the expansion into adjacent markets, and Gary alluded to the AccuTech Cheetah, which is really our partnership that will help us expand into the regional banks and regional trust companies. We believe that the new relationships that we sign on, which will also be custody at ATC, that will add to the overall cash balances as well. So we're super excited about that new partnership and the additional balances that we know will, those relationships will drive. And then the other thing that, again, just to underscore Gary's points earlier, one of the unique things about our model is just sort of this natural revenue hedge that we have. And I think we all expect at some point, probably longer than expected, but at some point, the Fed will begin to reduce their rates. In a way, we actually welcome that, and that, given our revenue model, we know that that is going to create a tailwind for the asset-based revenue stream as well. So one of the key and really the unique aspects of our revenue model is that there's this natural hedge built in between the spread revenue and the asset-based revenue. And so we're fully prepared for those changes that are forthcoming.

Okay. Yeah, that's very helpful. And then I guess that takes me to the next question, just looking at, I think you have 45% of cash getting fixed right now. Average maturity still fairly low, 2.3 years. Is there potentially, could we expect to see roll that over into four or five-year contracts, especially with the Fed likely to cut at some point here? And what type of rate, I guess, could you get for that if you are looking at that?

So that's a great point, Jeff, and we actually have just started that. So I believe previously when we talked, we had a one, two, and three-year ladder in terms of our contracts. We did just recently add one contract for a four-year and one contract in a five-year to kind of extend it. I think it was like, just we extended the term from like two to 2.2 or whatever it is now. So we absolutely are focused on extending that. Now, the trade-off in rate and whatnot, and I can't actually tell you what those rates are now in the four or five-year, I've got my head, but that is our consideration to make sure that we are not giving up too much value in extending it. The goal of having the fixed rates, Jeff, is to give us a good glide path, 18, 24, 32 and a half years, 30 months or so, that good glide path where Michael said pointed out, you have this natural head, you have rates come down, equity markets should rebound, and that glide path can help us match the revenue offsets effectively.

Yeah, I mean, Jeff, the only thing I would add is that our product team, they do an excellent job. We have a monthly pricing committee meeting, and it is really our way, and the process that that team has incorporated, it's a way for us to actively monitor and make the appropriate adjustments. We wanna make sure that we put really the liquidity and the client experience as our first principle, but really there's a very stringent process in place to have regular and active monitoring of the fixed terms and make sure that we're optimizing the cash balances at ATC today.

Okay, great, thank you. Thanks, Jeff.

Thank you, thank you for your question. The next question comes from the line of Patrick O. Shaughnessy with Raymond James. Raymond James, apologies. Your line is now open.

Hey, good afternoon. So in December, Bloomberg reported that Wattai was exploring strategic options for its investment asset mark. I'm sure you can't or don't want to speak for them directly, but why have they communicated to you guys about this process?

Hey, Patrick, thank you for the question. Yeah, I mean, obviously I think we've seen all those different articles as well, and as you mentioned, our positions that we don't comment on these rumors and these types of articles, what we can tell you, Patrick, is that we have regular conversations with our majority shareholder as well as the entire board. I got to add, they remain very, very supportive of the business and the entire management team. With that in mind, one of the key things that we talk about on a very regular basis as a management team is really thinking about the three key areas of our focus. The organic growth, we talk nonstop about getting back to that 10% plus organic growth rate. As we talked about number two, let's make sure that we deploy the capital in the right way and focus and have that really targeted focus on the right M&A opportunities. We believe that we have an opportunity to really win in a strategic way, leveraging all of the financial resources that we can bring as well as our position in the market. And then the third area of focus is really driving scale, we talked about number of the automation initiatives, the touchless new accounting opening initiative as an example, and our goal is to really remove up to about $25 million of operational costs over the next few years. And so those are the key areas that we're super focused on, Patrick. Like obviously there's a lot of distractions and rumors and talk. One of the key things that we as a leadership team, we talk a lot about is that let's focus on what's within our control and not get hung up on the different articles and the rumors that are floating out there. And again, going back to the board, they are just super supportive of the entire team and the business. And so we're excited by the opportunity that really the momentum that we have in the business here today.

Yeah, Patrick, I would just add that we've got our thousand employees and our 9,000 advisors here and we are focused on a great 2024. We talked a little about the outlook already and the board has been so supportive of the investment that Michael has stepped up for 2024 and for our technologies and et cetera. And so we've got our mission clear for ourselves and that is constant and that motivates all our employees and our service to the advisors.

Okay, fair enough, appreciate that. And then with your tax management services solution, is that an incremental monetization opportunity for you guys?

Yeah, absolutely, I'll start. And then Gary, please share some specifics on the financial value there. So tax management services or TMS, it is a incremental service with an incremental revenue opportunity, 10 basis points gross in terms of what we charge to our clients. And Patrick, I gotta tell you, I mean, I've been with the firm for over 13 years now and over 13 years now. And this is one of the most exciting, this is one of the most exciting initiatives that we've launched and that it is being received so well by our advisors and they see the value. They are super excited by it. As I mentioned earlier, we are getting more assets being enrolled into this program than ever before. And so this is one of those unique programs where we know that it's resonating. And while the end clients, they're engaged with their advisors and understanding and wanting to understand kind of different portfolio construction strategies and all the nuances about the portfolio. But at the end of the day, the end clients, the investors, they understand taxes and they view, they look to their advisors as really the steward of not only meeting the financial goals, but tax management. And so I can't say enough about the opportunities that TMS is creating, not only from a revenue and tax point of view, but also to really attract new producing advisors onto the platform. And one of the big upticks that we're seeing from an NPA perspective is really related to the excitement around TMS. And so, Gary, you know how much I'm excited about TMS and why don't we share with Patrick some of the financial value that TMS will bring to the firm.

Sure, so Patrick, this is a great opportunity for us to, normally we, most of our pricing, the wrap pricing, this isn't like Michael said, income 10 basis points. So many folks at AssetMark have spent a good 18 months building this system, a significant capital spend to set this up and the partnership we have. And it's a nice example of where it's just win, win, win all around. Clients should be recognizing material improvements in their tax position. Advisors now have another tool in their quiver, another arrow in their quiver to service their clients. And we were able to capture some of those economics.

Great, thank you.

Thank you for your question. There are currently no questions registered. So as a reminder, it is star one to ask a question.

There are no additional questions

waiting at this time. I would now like to pass the conference back to Michael Kim for any closing remarks.

Great, thank you. Let me just wrap up with a big, big thank you to all of you that have joined us here today, as well as everyone that is supporting AssetMark. We truly value the partnership and your continued support. And we're excited about 2024. And a big, big shout out to all of the AMK employees who make it happen every single day. So with that, thank you everybody. And we will call it a wrap. See you, see you everybody.