Q2 2020 Envestnet Inc Earnings Call
[music].
Greetings and welcome to the and that's not second quarter 2020 earnings Conference call. At this time, all participants Arnie listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as or Am I.
After this conference is being recorded.
I'd now like turn the conference over to your host Mr., Chris Kurdish Division CFO and head of Investor Relations. Please go ahead Sir.
Thank you good afternoon.
Joined today by our CEO, Bill Krager and CFO Pete the Regal.
Our earnings press release supplemental information and associated form 8-K can be found at indefinite dotcom under the Investor Relations section.
During the call we'll be discussing certain forward looking information.
Such comments are not guarantees of future performance and therefore, you should not put undue reliance on them.
We also will be discussing certain non-GAAP information. Please refer to our press release and FTC filings for more information on forward looking statements.
Factors associated with our business and acquired disclosures related to non-GAAP financial information.
With that I will turn call over to Bill.
Thank you Christopher it is good to speak with everybody. This afternoon. Thank you so much for joining us.
I know these continued to be challenging days with uncertainty all around us regarding our economy. Our society. So many families concerned about the health of their loved ones and millions of families worried about their financial well being and Envestnet, we've been incredibly busy as our clients are dependent on us.
More than ever to help them navigate this period of time.
Somehow after months of working in a new way it feels like business as usual. Despite these very unusual circumstances, we've been able to deliver and adapt to the demands of this extraordinary time on behalf of our clients. We've also been able and been successful in securing new.
Expanded relationships delivering solid financial performance and executing on our strategic roadmap.
I'm incredibly proud of our team for their amazing resilient and commitment to our long term vision.
That's that's vision is clear to be the leading provider of financial wellness solutions and services in North America.
Given the accelerated reliance on cloud based solutions, such as what we offer and the number from advisers partners and consumers that interact with our network today. The stage is set for where we have been headed.
A new standard for personal financial advice is emerging and we are driving it.
Through our data initiative and platform modernization efforts, we're working to create a fully configurable platform that works effectively both in an end to end ecosystem and in smaller upsides pieces by leveraging investments digital environment deploying what we do will become increasingly friction.
Free and enable our climb to deliver essential advice ways that they've traditionally engage their claims and importantly also an evolving digital model that meets the expanding expectation of consumers.
And with the use of 80 eyes, we can take advantage of emerging distribution opportunities to which they can deploy our digital solutions demand for these solution is accelerating.
What we're doing here is important it will recreate how the infrastructure for financial wellness will be delivered in the future you addressable market opportunity. We see ahead of US is substantial and we are investing to capitalize on it we will build partner and what.
To make sense too we will acquire as we integrate the best capabilities that enable our customers success.
Our second quarter financial results exceeded our expectations and our outlook for the remainder of the year has improved Pete will provide all the details on that in a little bit but first let me provide some examples of the progress we're making across our business as we execute against our roadmap.
Well so solutions business, we continue to demonstrate the many levers we have for growth.
With our land and expand strategy that has worked for the better part of 15 years. Our focus is mainly been on the first part of that <unk>, adding advisors and accounts to the platform in ways. They want to be served by us by investment.
We've been very successful in doing that today, we have more than 103000 financial youd.
Advisers using the Envestnet wealth technology, those advisors oversee more than 12 million account with 3.8 trillion asset supported by our platform.
But we're beginning to see how our expanded integrated solutions and services create more value for our existing relationships ultimately data driven digital engagement is the foundation of everything we do in everything we provide to our clients.
Data informs the financial plan.
A recommendation engine prescribed tangible next steps and advisor and their clients can take these steps are all integrated with a variety of finance wellness solutions. This includes investments insurance credit and other elements, which advisors and clients can act on immediately all in one scale.
Okay and tested platform platform highlighting the value of advice is even more important in his virtual world.
Our next to actions data insights elevate the advisors value proposition by handing the advisors relevant point of contact with their clients.
This is how we expand the value we provide to our clients and deliver on our financial wellness vision.
Our money guide financial planning business is an excellent example of how this is working.
Financial planning is the cornerstone for finance wellness money YOD, which we acquired just last year had its best quarter in its history revenue and profitability are at its highest levels. Yet we continue to innovate, making financial planning more accessible and easier to leverage for millions of consumers.
Through the tens of thousands of advisors that are using our planning software each and every day.
We now have over 200 integrations and we continue to see success and renewing expanding in cross selling existing enterprise relationships. While we're also establishing new ones.
Recently, a client of ours citizens Bank signed an additional schedule for unlimited retirement block use for approximately 4000 personal bankers and on their pets public web site for consumers to access directly as an example of how we are deploying these upsized planning components.
We're also seeing a large uptick in the number of our A's leveraging money guide solution sales to independent advisors, those who are not associated with a large broker dealer enterprise were up 23% in the second quarter over last year.
We're implementing our app size my blocks to integrate tightly into our solutions. This changes the ball game from the App two answers to the ability to click and execute these easy deployed blocks illustrate the powerful disruptive advancement that integration drives for us relate.
Good to this is how we are paving the way to unlock additional opportunities within our installed base.
Both our insurance and credit exchanges continue to add product providers shelf space that investment clients and access to thousands of advisors, both our integrated within the investment platform and volume is beginning to ramp up in June we officially launched the advisor services exchange, which enables critical services.
Including access to capital.
It is which is incredibly timely given the backdrop of this current environment.
Another area, where data and technology has differentiated us is how we're growing high value fiduciary solutions that are increasingly be adopt being adopted by our clients a few data points to highlight.
The number of advisors, who are using our taxes impact overlay solutions grew 16% since just this past December and overlay accounts grew 19%.
Our impact portfolios are also growing as investors seek to align the social immoral priorities with their investment.
Advisors using new solutions are up 12% an impact portfolio counts are up 18% since the end of just last year.
Quantitative portfolios, our first direct indexing solution also experienced higher use usage with 23% more advisors using new solutions in 33% more accounts also since the end of two not 2019.
We're also making progress selling managed account solutions to our tamarac installed base of already several large firms, including a top 20 are a according to borrowings are transitioning a meaningful amount or their managed account plant assets to our platform as they seek and operationally efficient way to migrate.
Two modeled traded UN mates.
In our Envestnet <unk> Yodlee business revenue also outperformed in the second quarter. This period of time highlights why yodlee is industry, leading provider of a high quality secure data aggregation and analytic solutions.
Well covert has been disruptive for many industries financial institutions.
Specifically retail banking and wealth management firms are increasingly embracing digital solutions, which they're depositors and investors are accessing more frequently checking on their financial information.
We're also seeing acceleration of data access agreements being executed between banks.
And our Yodlee business.
Today, we secured open banking agreements with half of the top 10 US banks, we're actively engage with 25 banks at the moment and expect to have 10 more agreements executed by the end of the year.
Over the past year.
We've also significantly enhanced our aggregation platform modernizing our core architectures, so that fintech developers can easily utilize our comprehensive yet streamlined EBI platform. We're seeing results. So far this year investment youll be has more than double the fintech signings compared to last.
Last year in some customers have moved from incumbent Aggregators. The momentum here is definitely encouraging.
As we have updated in prior quarters, our investment manager analytics offering continues to face challenges in the market due to the proliferation of alternative data sources, and resulting pricing pressure for new and renewal business.
But we're bullish on the value embedded within consumer spending trends that can be glean from the data coming into our aggregation platform.
Just this week, we launched something called insights solutions. This is a hype hyper personalization capability for financial institutions.
Financial institutions to Raytheon size, the new solution enables financial service providers to provide experiences that engage customers proactively across their financial wellness and financial planning channel. They also empower firms to unlock the value of data to support more informed decision, making accurate customer segmentation.
And actionable guidance that they're providing to their clients.
Additionally, this quarter the Federal Reserve Bank of Chicago is now a customer of Envestnet yodlee there'll be leveraging our spending insights along with data from other providers to inform their economic research and policy, making.
Last quarter I shared our thoughts on the future key themes that are driving the industry as we get through this covert period.
The perspective guides us as we think about investments role in shaping the future and supporting our clients few weeks ago, We launched the advisors playbook for leading clients lowered a guide and supporting website covering these key themes. We also launched our virtual advisor summit in place of our in person and.
You will client conference.
Through both of these thousands of advisors in home office participants engage with us and our content and we've had great feedback the feedback has been tremendous setting our industry thought leadership and how valuable it is particularly during these times.
These are excellent resources to understand how we're helping lead the industry forward.
Uncertainty presents the opportunity for innovation.
And today there is a future that is emerging envestnet is helping our clients and millions of household navigate the current environment as they seek answers to these critical emotional questions. It theraskin like.
What should I do and will my family be okay.
Our role in answering these questions is to enable a new advice model for the industry that embraces the future and we are well on our way.
Everything we do is driven by our technology and data capabilities. They are the conduit to every service and every solution that we offer our opportunity to expand relationships with our current customers. Our installed base. If you will has never been greater we believe that opportunity will grow as we firmly established does that ecosystem.
Poor financial wellness.
I'll be back with some closing comments for first let me turn it over to Pete.
Thank you Bill and good afternoon, everyone.
Today I'm going to review, the second quarter and update our outlook for the rest of the year.
Our second quarter results were quite strong meaningfully exceeding our expectations.
Adjusted revenues for the quarter was $235 million well above the guidance we provided.
Asset base revenue was better despite the impact of the market sell off in March.
Mobility was primarily driven by product mix, including the increased use of our overlay a direct indexing solutions that bill mentioned earlier.
We also saw modest favorability in subscription and professional services revenue.
Across our business again relative to our expectations.
Cost of revenue was modestly above our guidance driven by the outperformance in asset based revenue. However, most of the revenue favorability flow through to adjusted net revenue has our overlay of direct.
Indexing solutions, there no direct cost of revenue.
Our operating expenses overall were in line with expectations, which had assumed lower levels of activities such as reduced near term hiring and travel expenses.
As examples as a result, our adjusted EBITDA of $55.8 million was up 29% compared to last year.
This translated to similarly strong performance of adjusted earnings per share a 59 cents, 28% above last year.
So what does this mean for margins and our longer term outlook.
The current environment has created larger swings in our asset base revenue that normal due to the sizable market fluctuations from the first half the year.
The effective the market while negative a quarter ago was meaningfully positive during the second quarter, leading to an increased outlook for asset based revenue in the back half of the year compared to our expectations set out in our last earnings call. However, the market at June 30 was still bought back to beginning of the year levels and our eight USA was.
Down around $22 billion from the beginning of the year.
Specifically second quarter market action was a positive $60 billion USA offsetting a good portion of the negative $82 billion in the first quarter.
Today's guidance assumes a market mutual outlook based on market levels as of June Thirtyth.
Additionally, with stay at home orders and travel restrictions in place in all states, where we have offices and with all of our employees working remotely and not traveling our operating expenses have been lower.
We've assumed that pandemic related circumstances will continue to impact our expenses in the near term, particularly in the third quarter.
We're assuming a modest increase of business activity as we headed in the fourth quarter. However, we recognize that normal will mean something new in the future.
With these assumptions, we would see a sequential increase in some operating expenses between the third and fourth quarter. Our guidance reflects these increases and this assumption is the primary reason behind the relatively flat adjusted EBITDA implicit between the third and fourth quarter in todays updated guidance.
At some point in the future business activity will start to pick up that our expenses will return to some higher level likely between where they are now where they were pretty cold.
We are already considering how our business should be organized and how we will manage expenses in the future.
Our goal is to further aligning the organization with our strategy and we are taking short term action, while evaluating the longer term organizational framework.
For example in the second quarter, we closed nine smaller offices across the U.S. with all of those employees permanently working remotely.
And we are assessing our optimal geographic footprint for the long term.
Having seen the effectiveness of remote working for certain groups, we are exploring how to operate more in a hub like fashion.
Over the next several years, we still expect to drive our adjusted EBITDA margin into the mid or upper twentys, but in the current environment. The path to that we'll have some variability quarter to quarter.
For the full year 2020, we're raising our top and bottom line expectations. This is driven primarily by the favorable market action during the second quarter and this quarter's outperformance relative to our guidance.
We now expect adjusted revenue for the year to be between $977 million to $980 million up 7% to 8% year over year.
Adjusted EBITDA to be between 221, and $223 million up 14% to 15% year over year and adjusted earnings per share to be between $2.28 at $2.31.
Turning to the balance sheet, we ended June with $92 million in cash and debt of $620 million.
Our net leverage ratio at the end of June was 2.3 times EBITDA down from 2.6 at the end of March.
With $225 million available on our revolver and positive cash cash flow generation.
You are comfortable that we have the liquidity and flexibility as we balance managing the business in the current environment with continuing to invest in growth opportunities, both organically and through strategic activities.
Thank you again for your support of Envestnet at this point out Bill for his closing remarks.
Great.
Thank you so much for sharing that update Pete.
Recently I've been thinking a lot about progress last week, we celebrated the 10 year anniversary of our IPO.
During the 10 years after our founding extraordinary people many many who still work in investment today transformed an idea into a business into a company and ultimately was traded on the New York Stock Exchange, that's an incredible journey.
We accomplished a lot in our first 10 years, but after we rang the bell we did not stop we had more to do.
During the past 10 years, we've experienced tremendous growth both organically and through acquisition as we established envestnet as an industry leader.
Last week.
As we reach that milestone Jud Bergman with very much on my mind. He is every day, but especially last week. There is a great picture of him Pete and myself and the first trade crossed the wire we traded up.
One step and as you can tell by the photograph we've included in the material. It was a big one.
I'm grateful for each step that we the opportunity to take together.
We covered amazing ground.
But there's so much more for us to do and that brings us to today.
I mentioned earlier that despite these extraordinary in disrupted days there is a future that is emerging we're driving hard to push this future.
As we outlined in our view point for the industry data and technology. The idea that all advisors need to become digital is essential and the comprehensive integrated advice that households will receive in the future will come from the experts and that's the network of financial advisors and firms that were incredibly.
The fortunate to work with.
But there they will be more and more supported by technology that helps them provide insights that powers and engages consumers as they achieved their financial goal. This is where we live.
We are on our way to establishing the ecosystem that can make financial wellness and reality for everyone. A cloud based model, where advisors and their cline can tackle the financial questions that are big and small make the decision and executed.
In the platform.
We're fulfilling a vision that positively impacts millions and millions of family. We have work to do but I am incredibly excited about what these next 10 years, we'll bring for us.
Thank you again for your time. This afternoon. Thank you for your support of Envestnet with that peak NIE.
Are happy to take your question.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tonal indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q for parted confusing speaker equipment and maybe next year.
Sorry to pick up your handset before pressing the star Keith one moment, please while we pull for questions.
Your first question comes from line of Devin Ryan with it.
JMP Securities. Please proceed with your question.
Great. Thanks, so much hi, Bill and Pete how are you.
The Devin how are you doing data.
Doing terrific. Thanks. My first question here, just want to talk little bit about new client engagement and what I'm trying to think about is how the team.
It is really evolving are adapting to what remains very.
Difficult environment in the U.S. in terms of ability to obviously, a meeting person and engage in person and I'm curious kind of what you guys had warned about the organization.
I'm here through the last couple of quarters here in and where I'm going with this is to the extent, we do have a second wave or people just are not back to interacting in person until some point hopefully you know the latest next year.
What does that imply for new sales or ability to the kind of engage with with new folks versus new executing on business. It was maybe already you know somewhat developed prior to the pandemic.
Yep Yep, Great question, Devon, and yeah, I'm hopeful as well, it's it's not beyond next year for sure.
I would say out of the game. This was one of those areas, where where there was a lag right. So the business kind of this business isn't business operated we engage our clients able to serve they were opening accounts, we were able to invest those accounts new logos new engagements.
You know that there was a lag there and I would say.
Four to six weeks of.
How do we established a the activity a lot of things went into that number one is that the customers of the prospects that we were engaged with we're finding their their new ground in making sure. They're businesses were operating effectively and we were figuring out how to how to develop and engaged in the sales process I will say there.
During this period, we're signing new firm.
And we're also.
Extending contracts for existing client.
So so a new logos, we talked about.
On the Yodlee side of the business, we've doubled the number of fin techs that we've signed in 2020 versus.
Today versus last year on the well side, we've we've signed a new contracts and new clients that are converting onto the platform. Our tamarac business had a very robust new contract new advisor.
Contract rate over the over the last quarter.
So so the new logos and then the new firms that activity is occurring.
I would say that.
And I also talked about how money guide.
Had a record quarter and not included.
New logos. So we're getting there I wouldn't say, it's business as usual, but we aren't where our closing business.
As it goes on my expectation is that no firms may have put off decisions are pushed them out just a little bit because.
For the for the reasons of the uncertainty, but but the longer the uncertainty goes on the more certainty. There is that said that this is an environment and you have to move the business forward. So we're sensing that in the prospect of conversations that we're having.
Okay terrific color. Thanks, Bill and then I'm just a follow up here on.
You know that data and analytics and aggregation capabilities and invest that obviously I just tremendous across the board and.
As you think about the future and kind of further harnessing you know that data out and really kind of the next action if you will around optimizing.
Advice digitally.
What additional capabilities do you think about potentially adding around that or what type of investments or are you looking at I'm also curious kind of where machine learning it falls and to play here whether that.
I'm kind of a priority it or just yeah machine learning or array I in any other parts of the business. Thanks, Yeah, Yep and thank you Devin.
So yes data is the fuel and the few data and technology fuel engine very powerful and we're making real progress in servicing actionable intelligence to our our clients so that they know where to focus their business.
If you if you dig into our virtual advisor summit, you'll see a presentation by by a gentleman named frame codes as part of our business and in that you will see how we're beginning to surface recommendations inside an advisors book of business when they walk into the office. The next day, what should I do worse, we're finding the data.
That that discovers the opportunities and service items that they should get in front of in their book of business and telling me advisor explicitly what they should do and then the exciting part of that as you click through and you can execute or you can engage with that that client on that opportunity. So so that's a first step.
Where I see it going are no more and more as you get consumer portals are inclined portals that are delivered to the end client benchmarking peer comparison.
Just just recommendations based on on their demographic best based on their wealth based not based on the needs that we we see.
Are they advisor can serve them best we can help that advisor engaged that end client in the conversation about those neat. So so a great first step or illustration of how we've put this into market would be.
With the data analytic solution that is now sitting on beginning to sit on advisers desktops.
Okay.
Okay, Great I'll leave it there thank you guys.
Thank you Devon.
Your next question comes on line of that Chris Shutler with William Blair. Please proceed with your question.
Hi, guys good afternoon.
Hey, Chris.
So maybe first on the favorable.
Mix in the quarter within yes, it based revenue.
How much of the revenue outperformance was attributable to the you mentioned overlay indirect index and can you just give us a sense of how we how big those are today and you know what what.
So the magnitude of the outperformance there and I'm just trying to think through the I guess sustainability of of that and then is there any changes that you've made in terms of how you're going to market with of solutions that drove the increase.
Sure.
No I think a notable kind of a number in our results is the just short of $7 billion net flows me when and if in a large component of that Chris has been these what I'll call value added fiduciary solutions or services.
I believe that these these direct index product and then the ability to Matt is that on a very personal basis is going to be a major theme for the asset management industry going forward, we use technology and into our data insights to help us power that and so would it is incredibly.
Scalable for us and where it where we're beginning to make real progress I don't think its environmental I think I don't think because we're in encoded uncertain aid that we're seeing the growth that weve sort saw over the last quarter I think it's there because.
The solution.
Is resonating in the marketplace and makes sense to the advisor to deliver is very cost effective way to to to make a very individual.
Portfolio solution and the consumers liking it because they're able to that only securities have the cost basis and manage it on an ongoing basis, whether that's for four for tax reasons or impact reasons and so we're beginning to get real traction there Chris. So it was it was absolutely a contributor of the overall.
Net flow that we saw in a whim and and there is no cost of revenue in that right. So it it is being delivered directly by the PMC and Envestnet PMC team. So that is that there's a profitable those are very profitable revenue generating assets for us.
Okay. Thanks, Bill, Yeah, and insight and Chris just to answer the second part of that question as I look forward I do think it's a theme I think again I don't believe this was environmental I believe that these are beginning to get traction in the marketplace and we've got an advantage because we own the technology, we've built the technology to be able to deliver.
For that at scale across you know very large body of portfolios in for a lot of different consumers.
Okay. Thanks.
And secondly, the not to nitpick here, but just looking at looking at the.
Asset or yeah, the anyway redemptions looked like they were elevated so just what what happened there and what are you seeing so far in July.
Yep.
Absolutely, Chris So so specifically in a way a.
Hey client using investment for held away assets I took that it took that held the way assets off the platform. So there were reporting assets immaterial from a financial from a from a financial standpoint, our clients still working with Envestnet utilizes our platform for a bunch services. So if we were to to look.
At the overall redemption rate in a way I think overall being more like 1.8% versus the 2.2.
So so that materiality of the of the net flow is insignificant the that those assets left the platform.
And I would say that that we're seeing you know a lot of consistency, we're not seeing a big spike in activity.
Either on us on that.
You know the inflow into our or on the outflow and it feels fairly consistently.
Okay. Great Lastly, just talk about that the recent hires you hired a head of strategy I had a strategic development.
Just one what are those two roles focused on.
Yeah. So we're we're you know we've got a roadmap.
To kind of.
Creep create and connect this financial wellness ecosystem.
And we're using you know.
Either organic investments to two to build and create product that we're delivering in the marketplace were partnering.
With the ecosystem of third party providers, we're also making smaller investments and things to accelerate their kind of go to market things like our exchanges.
And then where we're evaluating acquisitions in and what I, what I found what Pete Stuart and I found is that those activities were kind of happening in three different areas and do get the the fulsome picture and to create an integrated strategic roadmap, we wanted to bring them together and bring perspective into the organization that was.
You know just just just had a heck of a broad view of what that ecosystem looks like and how we could take the assets inside envestnet and look at the outside world and how to how to push our strategic roadmap.
Forward in a way that we believe mix makes.
Real.
Disruptive on them.
It will be disruptive.
To the industry and also how we can improve and deliver on this this promise of financial walnuts.
Okay. Thanks Bill.
<unk>.
Your next question comes from line of it will continue with JP Morgan. Please proceed with your question.
Leaving.
As for taking my questions.
Turning to M&A.
So we're seeing consolidation among some of your peers in the space.
You've had a little bit of time central last acquisition.
How attractive as the M&A market right now and is it fair to think about invest at more aggressively pursuing opportunities given that we've had some more time behind us from money got in portfolio Sir.
Yes, thanks, well.
Good question I hope you're doing well.
I think I think we we will you know we're very much focused on on those levers on how we're going to kind of execute on this this vision of completing that the financial wellness ecosystem. There are lots of exciting things that are going on internally as far as the technologies were building and beginning to bring to market.
Super excited about some of the advances on the data side, we've got some really powerful capabilities from a client engagement standpoint, and then in our PMC business, we talk about some of the and value added fiduciary solutions.
So so what's happening organically, we've got these exchanges in which were invested in and we're partnering to help bring those.
It is to market and then there are pieces that hey, either we're going to find partners to do those things or we're going to acquire acquire those pieces and really it's matter prioritization, and where we see opportunity and where we see our business headed and where we see the industry needs of our clients at it. So I would I would say that were very inclined to can.
Can you to be an acquisitive from the opportunity has to be right. The devaluation has the right, but we will be opportunistic in really.
No.
Take advantage of any opportunity to me that makes sense to help us push push this.
Vision that we have forward.
Great Thanks for that.
I'm not a large broker dealer recently announced that they were winning the managed to run a bank.
Bank Trust.
Technology infrastructure.
I think about investments history.
That seems to have success in that channel and accelerate growth up acquisition from potential some years ago could you talk about I'm focusing on the Bank Trust channel.
What activity are you seeing I get that that's an area of growth for you and then.
That's a little bit higher level, and what we segment the wealth management industry, where are you seeing the greatest opportunity.
By Channel I guess is it all right is still with Tamarac I'm just trying to understand.
[music].
The channel opportunity.
Great.
Thanks, well, yeah, I mean, we serve the bank trust market in where we've been very successful is it's kind of unifying.
The fiduciary strategy for banks. So you worked for a bank and you have a trust area. You also have a retailer and right and in those infrastructures that support the two of them well are different backend system. When investment does is kind of lie on top of them and brings it to together so the top of the house can offer the investment thesis and so.
Strategy and then throughout the entire enterprise, you're able to get scale in conformity around.
The way that portfolios are being managed at the high end in the in the Trust group you may be using different vehicles, then in the retail group exist because of net worth it being served as you get conformity across the enterprise and that's something we've been successful in doing would typically successful in the mid to smaller size bank, and which were able to bring those those components together and really.
Hello power.
Very consistent kind of scalable investment strategy for bank, So where we can integrate with the third party trust systems and in really enable that.
Enable that process I think when we look at growth by channel.
We we are seeing.
The are a channel and gets gets enormous attention we're growing a really well there we've made progress not only in signing new contracts and from a from a technology standpoint, but we are beginning to cross sell into that marketplace with money guide with our financial planning and also with some of our fiduciary solutions.
Into the are a market so thats, a very promising signing up in a faster growing channel, but in any independent broker dealer channel. We're also finding a lot of growth.
They themselves are.
Kind of into Transitionary phase with the moving from more of a product mindset to two more of a fee based advice mindset and with the engine behind that so as they do that our growth rate inside the broker dealer is likely faster than the growth rate of that channel and we serve predominant market share for the broken down.
Dealer channel and they're absolutely moving towards the planning based advice based.
Model and and they're doing that with this board of investment.
So we're we're definitely participating in the growth the already market.
Strong market lead there.
But I don't want to diminish the opportunity that we have in the broker dealer channel in how we're where we're seeing growth in there as well.
Okay. Thanks for that though I appreciate you taking on the questions.
Yeah, Thanks, well.
As a reminder, if you'd like to ask the question. Please press star one on your telephone keypad.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now one moment. Please while we pull from more question.
Your next question comes from line of Chris Donat with Piper Salmon. Please proceed with your question.
Hey, Bill on peak good afternoon, Thanks for taking my question.
Wanted to ask.
Go back to the on the fee rate and sort of the outperformance in the quarter.
Earlier in your comments, Phil you said that.
That quantitative portfolios.
And our direct indexing were up 23 per I think is 23% year on year, but correct me, if I'm wrong and I'll, just and you mentioned in response I think Chris Charlotte question. Let this is a trend is is this been building for a while it that sort of double digit 20 plus percent rate or.
Or or did anything change recently and I'm, just wondering 10 out of that speeds through specifically to the fee rate.
Thanks, Chris it's good it's good to speak again hope you're well.
No we made a lot of progress in 2019 in finding distribution.
You know we've spent a lot of time with firms and with advisors on the benefits of the.
A direct indexing and then all the services that's around it and then the value proposition that they should engage clients with and spent a war.
A dedicated team that's been out in the market consultants that have been working with advisors to pave the ground and you can see the assets begin to tick up in 2019, what we've seen since the beginning year those stats that I've said that I articulated worsened.
January one.
2020, so so we're we're seeing increased adoption in those solutions by advisors.
You know across the board and and again these does category that I I'd I'd call value added.
Fiduciary solutions because again there is.
You are able to create very individual unique portfolio solutions manage them for that individual do that at scale and inferring from an investment standpoint. There is no cost of revenue. There that is that is envestnet service.
That were where were earning a higher basis 0.4.
Okay and then.
Hi, just for my follow up regarding this so it's.
It's been a bit driven by your your marketing efforts that you put in last year I'm. Just wondering if there's any seasonality we would expect in those sort of flows into direct indexing that might be more common say around tax season or because of the.
The shock, we had to the market, which you know affecting people's cost bases for the you know earlier this year or if those were really not those sorts of things that actually drive behavior in interest in the same direct indexing and kewpie.
Yeah, I mean, you know tax season it.
We I Wouldnt say that we saw a surge.
Around and our tax season of course was pretty late this year, Chris So.
But the.
I think there's going to be resilient growth here I think that we're well positioned.
To build.
You know a pretty good sized service and solutions business around these offerings and.
You know, where we're sitting with a lot of advisors a lot of advisors are working to differentiate their offering and add more value to their.
Their clients.
Maintaining their fee rate these tend to be pretty low cost. When you know what we're doing is delivering this without again, an underlying asset manager as part of the equation into in Envestnet solution able to deliver it and then able to automate the management of that on on a on a scale basis. So to me.
He's got a lot of attractiveness and when you when you compare versus.
A portfolio that say is that unallocated portfolio Bts again, that's low cost and that is easy to manage but you can you can go to vanguard or another.
Third party and purchase that that at a low cost with the direct index portfolio again, that's a unique differentiated offering that that the advisors able to present to their clients, but we're seeing a mix, we're seeing high high usage of the product in those portfolios, but we're seeing increasing usage of these portfolio.
Yes.
Got it okay. Thanks, very much though yeah, and Chris I'll, just make one more note I think the trick will be.
Is how do we bring those solutions more down markets. So that more investors can take advantage of it because that which would include fractional shares and other capabilities that they are what they were working to to introduce overtime.
Oh, Okay, I'll try to sneak one more and is there a.
Is there a minimum on them right now or is there some sort of the fee structure that make some less attractive for down market.
It's it's harder to execute and provide the diversification that we'd want to as you get too far down market, but but for a typical 100 $150000 portfolio that that if we can achieve that it's just it just to be far more effective as we continue to product develop things like.
Fractional shares.
Okay.
Got it thanks again.
Yep.
Thank you Chris I Hope you will.
Your next question comes from lineup Patrick O'shaughnessy with Raymond James. Please proceed with your question.
Hey, good afternoon, so DISA paid a pretty big amount of money for took our Plaid Mastercard are the same for finished city pretty attractive purchase multiples for those businesses.
So did those acquisition prices and valuations suggest that there's still currently ONTAP use cases for yield is data and if so can that potential be unlocked with guilty as part of Envestnet.
Thanks, Patrick I hope you're doing well.
Yeah.
I think I think those two data points are incredibly important ones because you see the value of using data to.
Fuel.
I know a purpose and in this in those particular purposes, it's around payments. It's around credit. It's about these issues of of how money will move in how money will be used in how individuals can can better.
Manage the way there there.
You have visibility into their their finances.
You'll be is a market leader.
We have the largest footprint of of.
Data points that were connected to we we have tended to be very successful with the largest financial institutions were critical provider to them. We've built a lot of infrastructure on privacy and security and all these.
Necessary components is we built out there the yodlee platform and we spent the last year and a half really modernizing that platform. So that we can compete and really when share back in the fintech market and we're seeing a lot of progress there I think there's incredible value to be unlocked within the yield the business.
We spent the last 18 months really.
Modernizing the platform reestablishing.
You will be as a preferred service provider to firms that we're choosing others because it would you know because of the modernization of those platforms, where we are beginning to win back and see real momentum. There overall I think the affirmed their utilizing our our data are across the spectrum and finance.
Actual services, whether that's payments company, where the credit whether that wealth business, whether thats banking, we're really fueling a lot of the different channels that are out there from a financial services Stan.
Great. Thank you and then yeah, you guys talk about potential wellness and it feels like I hear that phrase being spoken by more and more companies as time goes on what makes envestnet uniquely positioned to deliver financial wellness and maybe a ways that other companies or not.
Yep and you know it is it's a little bit it's like a hallmark cards right I mean, it's.
It's a feel good but but in my mind, you know people have been experiencing.
Just dig chopped up financial lives the park, we how they engage in their daily financial lives and how you keep track of all those things and then they've got these aspirations are goals that they want to reach these long term goals that they want to reach on how do you connect those parts.
And as you connect those parts, the where I live my daily financial life, and where I want to ahead, what do I want to achieve with with the money that I'm working hard to earn how do you connect those being so that they begin to work together and as you as you do that you really begin to create a much.
More encompassing kind of approach to money to well and to me you know finance wellness is a comprehensive approach it can be accessed in bits and pieces, but its most effective when all these pieces are pulled together when it's pulled together that individual has a much better sense much better balance much better.
Ability to manage their daily financial life and reach their long term goals.
That no to me Patrick it's a it's a financial plan that headed you in a direction than the best way to to achieve that plan investing protecting income credit banking, how I balance healthcare with health care costs with within all of that how do I pull that picture together to create back.
Thanks, imbalances, where financial wellness lives.
And you know, we're really yeah, and why Wouldnt why I believe we're best positioned to do it is only invest that has the depth of data first question. You asked was about Yodlee data the scope of technology from front to start market, leading financial planning and then the network of solutions.
Our investment platform, but then remember Weve launched his exchanges insurance exchange a credit exchange others that will be coming and were scaled you can do it at scale for millions tens of millions of family.
Okay.
Patrick are there any further questions for me.
Thats It from me thank you.
Patrick Thank you hope you're well.
Ladies and gentlemen, we have reached the end of the question answer session and I would like to turn the call back to Mr. Bill Krager for closing remarks.
I just want to thank everybody for joining today appreciate.
Your your time.
And your kind of attention to invest that we really appreciate very much I hope everybody is staying safe I hope everybody stays healthy and I'm looking forward to our next conversation. Thank you so much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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