Q3 2020 AssetMark Financial Holdings Inc Earnings Call
Good afternoon, everyone and welcome to asset marks third quarter 2020 earnings conference call at this time. All participants are in a listen-only mode later. We will conduct a question-and-answer session and instructions will be given at that time is also a third quarter and provides an update to ask marks business outlook for the remainder of twenty-twenty while in our introductory remarks will open up the call for questions.
We also have an earnings presentation the Charles and Gary will reference during the prepared remarks. It can be accessed on our website at 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. May differ materially additionally during this conference call will 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 filing 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 colleagues Charles take it away.
Thank you Taylor and good afternoon to everyone. Thank you for joining our third quarter earnings call. We really appreciate your time today and hope you're all doing well with Covetous is on the rise. I'm just finishing up his highly contested election or close to finishing up. Anyway, our thoughts and feelings are with you and your family and your colleagues.
Starting on flight 3 we're going to focus today on five key messages. I will discuss messages one through three while Gary will cover messages four and five.
First twenty20 has been our best year ever in terms of our ability to make a difference in the lives of our advisors and their clients second as a result of living. Our mission is executing on our strategy. We are growing platform assets engaged advisors and households are up double-digit year-over-year third. I will discuss our 2021 Jeep TJ priorities all of which support our growth efforts next year. We will focus on enhancing advisor value and productivity attracting adjacent advisers and continuing to scale armor towards next Gary will discuss our organic growth in the third quarter. Net flows were 1.2 billion dollars up 33% quarter-over-quarter. Lastly just walk us through our third quarter twenty Financial results, which were highlighted by strong top and bottom-line metrics and our highest ebitda margin since going public in July 2019.
Turning is like 420 has been an interesting year underscored by an economic roller coaster societal uncertainty business model shifts and an extreme close presidential elections throughout it all we have truly embodied our mission. We have made a difference in the lives of our advisors and their clients in twenty-twenty. Our advisors have needed us more than ever and we have been there for them. Every step of the way advisers are craving information and actionable ideas during this time and we have delivered we have discussed on previous earning calls are advisor engagement during these uncertain times has been world-class year-to-date. We have hosted 450 webinars with over twenty thousand dead. And he's advisors have been extremely complimentary of these virtual events. We have provided perspectives and insights into the topics that matter the most to advisers these include wage.
Election and its impact on the market managing client expectation during times of volatility and growing your business when you're virtual in October. We held our virtual premier.
Advisor meetings and had over nine hundred attendees a 20% plus increase in attendance since we last host of these meetings in person in the beginning of the year last week. We held our field Advisory board meeting where we brought together Seventeen advisors from all over the country their feedback on Mark was nothing short of amazing. They were highly complimentary of our web page people digital tools and how we have enhanced their ability to manage during the pandemic. We have accomplished all of this while supporting increased service volumes.
Our net promoter score of 64 Five Points from last year shows. We are truly making a difference. Not only have we provided our advisors with a wealth of information and action will takeaways wage, but we have also strengthen our platform to enhance our advisors value and productivity.
As you can see on Slide Five, we have delivered meaningful technology enhancements and products to our advisors and their clients throughout 20/20 a good number of these enhancements have helped our advisory connect with clients and Prospects in a virtual setting. Let me highlight a handful of these features that we have added.
From a technology standpoint are enhanced client proposal and new portfolio review review tools and power advisors to clearly demonstrate how the strategies proposed are chosen based on their client's goals concerns and financial dreams.
Since launch in August over 18,000 proposals have been created in client proposal. We continue to deliver personalized and scalable service and have gone above and beyond to support our advisors first. Our new dedicated East service team helps financial advisors meet the increasing demand for digital servicing during the pandemic e service provides fast food wise digital response to advisers who have not who do not have a dedicated relationship manager since launching. We have delivered a little more than 10% of applicable service requests that have come through that channel.
Second we rolled out soon to our top advisors in April. These advisors have conducted nearly 24,000 meetings 340 plus webinars and reached over 90,000 investors. We have also expanded the breadth of our curated investment platform first, we introduced our enhanced security back length of credit or S block program, which gives after Mark trust clients faster access to low interest rate liquidity supported by digital and streamlined Securities back lending, which allows us to keep more assets on a platform.
And the program's first three months 185 lines of credit have been issued with demand running at 220% of year one goal.
Second salvo's personal portfolios, which we rolled out at the end of last year bring customized solutions to the mass affluent. This is an important and a creative part of our platform. So who's personalized portfolios finished the first year attracting 262% of plan client assets under management?
last week
In the first quarter, we launched two new fixed-income strategies that will help advisers diversify client fixed-income portfolios. Navigate challenging fixed income markets and remain focused on helping their clients achieve their long-term financial goals nearly 1,700 advisors have invested client accounts in these investment Solutions running at a rate of 600% of our first year goal.
The strengthening of our platform not only helps our advisors and their clients but it also helps us attract new advisors.
Now let's turn to slide 6 and our next topic. We believe that by continuing to live our mission and execute on our strategy strong business and financial results will follow not only have we truly embodied our mission this year, but we have also executed on our strategy which is allowed the company to grow despite the challenging environment our platform a tip growing 16.2% year-over-year and ended the third quarter at an all-time high the number of engaged advisors to find as those with over five million of assets on our platform have increased 11.1% year-over-year lastly households have increased 14.5% year-over-year.
New producing advisors have also been strong in the third quarter were $171 a year today. We have added $566 new producing advisors bought the 2020 vintage of npa's is showing higher quality than prior Year's 2020 size year-over-year is up 10% measured by average production per month. This is driven by higher quality npas from the Independent broker-dealer and riaa channels. We have a long history of winning in the IBD space and we are working tirelessly need further capitalize on the opportunity.
I'll spend some time in a bit discussing our plan to drive quality and quantity of npa's in 2021 and Beyond.
We have indeed you accomplished a lot in the past year, but we still have a long Runway of opportunity ahead of us with only weeks left until 2020 ends. I want to briefly highlight birthday party priorities for 20 21 and then talk about how we were thinking about organic growth next year. So let's turn to page seven in the slides. We're focused on three areas about twenty Twenty-One, which we believe will allow us to gain market share attract new advisors and grow organically first. We as always we will look to enhance advisor value and productivity.
We are building a financial wellness program with solutions to support meaningful Wellness conversations virtual interactions are the new norm and improving digital experiences comparative. We will look to enhance our advisors digital toolkit and educate them on how to grow their practices leveraging these tools. We will also be expanding Outsourcing services to help advisors with marketing and cooperations.
second
We will focus on attracting adjacent advisors through Channel expansion. Our biggest opportunity is subscale Ras, but we believe are greatly under serviced by their providers. We both are better served by us as we can help scale their businesses enhance their client experience and drive Enterprise growth and value lastly. We need to continue to invest in the platform and infrastructure to support our future growth. We are strengthening our back office security and Training Systems all to enhance competitiveness.
Turning to slide Aid our strategic priority support our growth efforts. We aspire to get back to a 10% Plus organic growth rate in 2021, I believe we can get there. However, we do want to be realistic in a covert in virement where people continue to shelter-in-place and money isn't in motion at the same rate. We believe that we could deliver organic growth in the 10% range still an outstanding result.
Let's discuss the drivers of organic growth next year first. Let's look at netflow contribution from our existing advisors, which historically makes up about 66% of our annual net flows.
There are a lot of there are a lot of positive signs that are existing advisors will continue to grow and meaningfully contribute to our 20 21 net flows down here today. We have added 566 mpaa's who will become existing advisors next year as I mentioned earlier. This core heart is exhibiting much higher quality as measured by average production per NPA. We expect continued to grow from these advisors as we have found that new advisers tend to grow very quickly during their first year as existing visors on our platform.
Second we added a hundred sixty-eight engaged advisors since the beginning of the year.
Engaged advisors make up almost 90% of our platform assets and those assets are very sticky with no Redemption rates.
Third as we talked about earlier, our existing advisors are highly engaged in highly satisfied with us as as a shown by our NPS score of 64.5 points year-over-year.
Lastly we have integrated to Acquisitions this year GF PCN ovs. We have typically found that the year after integration new acquired advisors grow on our platform as they are surrounded by our service operations and Technology.
Second let's look at our net flows from npas which historically make up about 33% of our annual net flows. There are a variety of things. We are doing internally that we believe will lead to higher quality and quantity of npa's as you may have noticed. We recently revamped our corporate website. This is a small part of our much larger digital lead generation project that I mentioned last quarter.
Starting the pilot phase in October. This project will allow us to attract more high-quality. Npa's at a lower cost of acquisition once fully launched. We estimate this project will increase the number of leads into our sales Pipeline and deliver incremental and fees per year. I look forward to sharing more as we progress through the pilot phase.
We've also made strategic Investments to ensure that we are well-positioned to gain additional wallet from existing advisers as well as attract new producing advisors first, we have added new technologies and investment Solutions as I described a bit earlier helping to expand the breadth of our platform second. We are adding tools and features to make our platform more attractive to riaa's let's discuss the opportunity in the are a channel a bit more we've been working with riaa's at the Hybrid riaa's for years as of the third quarter. We had over 800 riaa's or hybrid RI is on our platform representing approximately 10% of our total advisor basis and 18% of our platform assets.
Well, we have had success with our a is using our managed platform offering most are a is also are interested in building at least parts of their own portfolios advisor manage portfolio or amp will allow riaa's the ability to do just this.
We have selected eight of our top firms who have a long history on our platform to Pilot amp amp will help these advisers consolidate more assets on our platform so we can be a mortgage business partner and Outsourcing solution for them. We believe this will enhance our value proposition to the community and help us further penetrate the $700 billion dollar Surplus. Riaa addressable Market.
Regardless of where things stand with the pandemic we are focused on what we can control gaining share of wallet from existing advisors increasing the quality and quantity 3 days and capitalizing on the opportunity in the riaa market all of these areas contribute to driving organic growth.
With that I'll now turn the call over to Gary to discuss our financial performance for the third quarter and our outlook for the remainder of the year.
Thank you Charles and good afternoon to all of those on the call is Charles discussed. We are very pleased with our results this quarter highlighted by great organic growth strong learning and our best margin on revenues is going public.
Engagement and satisfaction. Give us great momentum heading into
Discussion of our platform at 6 then talk about our Revenue our expenses and then our earnings will end of our outlook for the rest of the year.
Third-quarter platform access your records and 67.3 billion dollars 16% year-over-year and 6.4% Order of or leave me great progress in our growth since our IPO is assets up 20% over these past fifteen months.
During the third quarter we had net flows of one point two billion dollars and realized two point eight billion dollars of market gains Menifee the improvement in our net flown over quarter is driven by increased production while Redemption rates have remained relatively stable.
Through third quarter next loan or 4.0 billion dollars. Annually, I'm sorry an annualized basis. This is 8.6% beginning of your assets within the line with our previously communicated guidance of eight to 10%
Now I would like to take a deep dive into our next lowest of the year in our September. Amk report. We provide an additional detail regarding our flows and I'm going to expand found out a bit more now on slide ten, you'll see that we show the impact on our net flows from our two recent acquisitions the FTC and ovs month as well as from what we will call our Core Business as of any acquisition in the first 12 months or so. There is a bit more volatility at certain clients will never agree with us in this resolved outside Netflix in general the faster we can surround the advising with our service operations and Technology the more likely they will engage wage isn't always possible.
Even think it will be helpful to share the trend of the non acquisition block. We think it shows the underlying sense of our business model and our success did hear it making a difference the lines of our advisors and their clients as you can see our core business has an annualized growth rate of 10% in 2020 compared to 8.6% for the entire business.
What will the S. The redemptions you ever seen in? Our monthly reports have been viewed as specific advisors never engage with an accent mark leaving the platform.
Can you clear now our business where the revenue earnings lowest rating on you and give you a break in the third quarter? We have 465 devises from OBS up with 65 are defined as engaged to gfcc we had a hundred twenty-eight divisors as wage order on 163 are defined as engaged also ninety percent of the advisors on our platform kind of sales activity in the last 30 days to prove a point of nearly about half of the outflows have been from the advisor married business, which have as we've discussed before yielding nominal wage half the month.
You're very pleased with the engagement both devices.
One last, the next level today. We release our October amk Report with net flows of $399. Another great month specific power cord business is 436 million dollars net flows with a difference representing our clothes from the obst.
Additionally production continues to remain strong and didn't know better last week was our highest week of production since March.
Let me do this is Charles at the end of June with a little more than $8,455 of which 2398 with a v as in James devices gave the visors are off 11.5% year-over-year and now account for 89% of the total assets in our platform.
Now let's turn to slide 11 to discuss this quarter's rent.
Entering the corner and during the third quarter our assets were 63.2 billion leading to reported revenue of 107.1 million and 2.7 years of age or over here.
Now we focus on our Revenue net of those related variables sentence with the third quarter 2020 our net revenue of 73.3 million was down 2.4% year-over-year.
Acid base net revenue 7.2% or four point seven million a year 70.4 million. This is offset by a decline instruct Revenue am 73% mood changes in rates earlier this year.
Let's turn to slide 12 more fully discussed the drivers of the king in net revenue year-over-year.
and the water bowl showing
77.0 million year over year to asset growth as well as the OBS acquisition. This is split off six million dollars and next load growth and 1 million dollars from the OBS acquisition.
This is Austin tattoo actions in 2020 that has reset the revenue base for us going forward.
Previously discussed transmission to lower cost for reporting mutual fund model reduce Revenue by 2.3 million dollars year-over-year. This actually was off I'll look for the here and played out as anticipated. But in terms of the revenue and back and the impact on the revenue yield until discuss more in a minute.
Second off the climbing for just over 2% last year concerning three basis points in the third quarter 2020.
Who's client cash on the 3rd order was two point six billion dollars remainder 2020. We expect annualized next few months has to be around 25 to 30 based off at the end of third-quarter cash or trust company was two point six billion dollars of which approximately 15% within our high-yield cash program dead.
Lastly all their income which consists primarily of interest earned an accent marks operating cash decrease $600,000 again view the lower interest rate of Iron Chef house.
I am from last year. You were here 7 days from decline was driven by a 4.4 basis-point decline from Sprint.
2.3 basis points from the shift to lower-cost mutual funds and point five basis points from the interest in, Carter Cash.
Quarter of a quarter to decline is mostly due to the mutual fund change. You will know and quarter-over-quarter there was little-to-no and he'll decline to do other products makeshift. This is a good sign and our platform maintains its Revenue missed over these.
Declaring his parents see the calculation of our annualized Revenue yield that are variable sentence is shown in slide 17 independence of our earnings presentation.
Now, let's discuss options as shown by 13 decreased 3%
Year-over-year to eighty two point six million a decrease in a sense is 0 year is driven by a 1.8% year-over-year decline an employee conversation took a 4.9% decline an STNA. Please feel great about our effort to hold the line on our conversation costs and STNA costs throughout 20 25 days in our first quarter 2020 earnings call. I mention that we had eliminated $22 from our operating budget in 2022 a variety of cost measure including the issue of a handful roll reduction and travel events and conferences and follow the volume related items. This is variable conversation and training costs.
In addition to the steps earlier here. There are a number of excellent examples of expense management our entire team is done.
Patrolling a conversation cost. We have managed Staffing all year to focus only on investing and critical roles related to volume as well as investment in our future all the while holding on Staffing and non-critical area as a result while aniki roles for growth. We have held our employees can't schedule year with our headcount of only one in the beginning of the month at the end of October.
That's it.
All rights petition is to accelerate Staffing by 20 to 30 Associates were not 3% in the next quarter of these additional roles will be focused on our technology Bill and 12 or in a Jason channels
second hand held r s t e n a a sentence down to our shift virtual events and meetings very high engagement with our advisors mentioned earlier are virtual October Premiere advisor meeting and attended the morning 900 advisors, which is about 20% more than our in-person attendance in the beginning of the year.
Turn as of the end of the third quarter. We have closed three of our eight offices in an effort to reduce ongoing costs. We have positively learned that many in our Workforce is just as productive working remotely and they enjoy it giving a trial modifier. We have a during the summer. It was the right time to right-size our real estate footprint while we will take a charge for about two and a half million dollars in quarters. Including we expect to save about one point five million dollars annually from this action.
Wednesday is closed return the normal. We will focus on maintaining the suspense discipline and continue to find more effective ways to reach and serve our clients for example in early 2012 one our annual client event gold Forum will be virtual and allow us to repurpose notice savings need to grow that into the growth activities that Charles discussed earlier.
Let me run through our expense account and back twenty three point seven million dollars pre-tax, which is comprised of four items first twelve point nine million, non-cash share-based compensation. Second five point 1 million dollars is amortization related organization sense related to our 2016 sales rep. There are three million dollars and acquisition-related incentives associated with the acquisition and integration of T and o b s and fourth two point six million dollars may have a guy come out of the office closure that I mentioned above.
Traditional color and Reconciliation table for income statement line items can be found this like 18 in the attendance of our earnings presentation off. Now, let's turn to slide fourteen discuss our earnings to the quarter.
Our order was 18.2 million dollars an increase of 6.1% over a year. This is based on the third quarter diluted Share account page seventy two point eight million dollars.
The year-over-year increase was a higher adjusted ebitda a point 1 million dollars.
Lower adjustment taxes a 1.5 million are set by lower interest income of six million dollars or marginal tax from the third quarter was 25.3 months and is 25.7% year-to-date.
Can adjust in addition to just they may come leave you adjust even as equally important measure of our companies help for whatever we add back the same intents items set the amortization related items account corner of twenty-twenty and just even if with 29.3 million dollars off of 0.3% year-over-year adjusted ebitda. Margin for the quarter was 27.4% off. The highest is going public and on a daily basis points year-over-year.
I was looking to be recorded balance sheet have a finite two items first. We could even do a great job of generating cash and in fifteen point seven million dollars to our cash position quarter-over-quarter dead end recording 109.3 million dollars in cash.
Basically still have a $20 credit line that was available for the company our cash balance as well. As our loan debt leverage will give us flexibility to play in cash.
Second capital expenditures primarily reflect on long-term investment in technology create new capabilities and improve service in the third quarter. Our cat will spend with 853 million dollars or 7.8% of total revenue in 2021. We are setting your Capital expenditures to be about 7% of total revenue as we continue to invest in the future of this month.
Now I will discuss our application to your remainder of twenty-twenty. Let's turn the flash 15 either are excellent record of results are expense management strong. Netflow. And Thursday is Market. We expect our 2020 Outlook at the top end of what we forecasted last quarter specifically net revenue for the full-year referring $293 and $290,000 representing a 2% year-over-year growth and let me point of the year to fall between $112 and $113 and adjusted Morgan coming around 26% about a hundred basis points from last quarter's Outlook of 25%
You understand me, please in your over your well in these key financial metrics. What's that will handle over to Charles for his concluding remarks?
Thanks, Gary. And thanks to all of you on the call today despite the VIN demek. We have grown in 2020 and we have invested the time resources and capital to accelerate our growth into age 21. I look forward to sharing our progress in on subsequent earnings calls with you and in future conferences. So with that this concludes our prepared remarks and we'll hand it back to the operator for some questions and answers.
Thank you. In order to ask a question. You will need to press star one on your telephone to withdraw your question. Press the pound key. Please stand by while we compiled the queue and a roster off.
Your first question comes from the line of Kevin mcvea with Credit Suisse. The line is open.
Great. Thank you so much. Hey congratulations on the results page consolidation the sector and just any thoughts as we're thinking about positioning within the context of a a change in movie.
Hey, Kevin Charles could you just see the last part of change in I cut out on me to the extent there's any change in administration, you know in the new guinea pigs clean activity as well. You know, I I promise you suggest that so Kevin. Thanks for your question. I hope you're doing well. So so, you know, it's been an interesting time. I would say for our advisors and the broad advisor Community. I think we talked a little bit in the last quarterly call. We saw across the community from a variety of different surveys lack of Engagement from advisors with their clients. There's a JD Power survey that came out in June that reflects that you know, and and and talking to two different folks and different people around the industry. It was interesting that there was less engagement than one might think particularly given that we all know what happens after these kinds of crises or I should say any kind of Crisis crisis dead.
Money goes in motion and money goes in motion because at the investor level they're unhappy with the experience. They got at the advisor level. They're unhappy with the experience. They got from their providers office. And so those that are aggressive in their their activity and as we have been with the number of webinars, the number of clients sales contacts, the number of service experience Thursday is all the intellectual capital and helping our advisors meet with so many of their clients via the zoom that we we enabled and and all the intellectual content that we actually delivered through advisor to their clients. We expect to be in a really good position for money in motion specifically to your question around Investments. We you know, it's interesting as as the election approached Thursday. We didn't see a ton of it investors our advisors moving or strategist frankly moving to massively more conservative positions. Remember we managed for the Long Haul and birth
Strategist manage for the Long Haul and so while there are some tactical strategist that will make movements generally on quantitative measures Factor based measures, you know, they were sort of sucked into the election. I'm sure you read all the same commentary we all did you know people were guessing one way or the other what was going to happen and I think people were just looking for for clarity. I think the other big issue that that people were preparing for and we saw this particularly with the ultra-high-net-worth was around estate-planning, you know in a Blue Wave election. You would have known fact that are many I should say expected that there would be pretty meaningful tax changes around estate planning. So the the 11 half-million-dollar exemption would would be changed and wage. There's been quite a flurry of of estate planning going on be interesting to see what people do now they continue to execute those plans. I suspect most will yep
But less around Investments much more rounded planning for a staple.
Planning and tax planning. I guess the other thing I would add and we had our field Advisory Board last week where we bring together. I mentioned Seventeen advisors to those advisors represented by the way, we cut up the geography and they have a responsibility to communicate and connect with the broader engaged advisors within their geography. So it's another way we communicate both towards us and and back to the to the marketplace and and it was interesting as they want around the room and talked about what they were doing and have been doing it was one hundred percent about behavioral issues with clients about connecting at the emotional level a couple examples that stuck out in my head were where you know one advisory was running ran a a seminar a webinar on how to cook when you're alone cuz a lot of investors are alone and and you know how to how to you know, think about and keep birth.
Your spirits High, you know how to manage true COVID-19 a lot of Behavioral things that really were not about Investments are tangentially about Investments and and what else surprised and excited about was was that was where advisors heads were at 100% in that group.
The cell phone of Larry see more activity in terms of Outsourcing just cuz obviously advisors sales processes change given more remote sales rep to make the in person just any changes you highlight as a result of that and then I'll get back to you. So we believe we're seeing that you know, our our NPA are not producing adviser numbers are really strong this year but down, you know, so they're not as strong as they have been and it's really a function of what we're seeing with advisors and investors Thursday. We're seeing with advisors Making Moves In in the remote environment. It's been harder for people to move people have been a little bit more stay in place. Let me get my business in off for investors same thing, but our strong belief and I'm going to repeat what I said a minute ago is money goes in motion after after crises it always happens. It always happens around my career and those that state
Be focused on on the value proposition, whether it's the advisor value proposition or us or as a manager or custodian whatever maybe we'll reap the rewards those that froze up or made a bunch of mistakes. And mostly it's freezing up won't and so, you know our sales teams have been incredibly busy. You know, we've I think last quarter reported that we were sort of double our normal sales contact we are we are out there are digitally Chan which I mentioned a minute ago, which is just in Pilot where we've defined advisors by Persona and I'm willing uh-huh specific messaging based on the kind of advisor you are if you go to the website and check it out, you'll kind of get a feel for that and then our ability to focus content to those advisors that's relevant to them intellectual content. And of course see where they are and deliver messaging to them through different web platform.
All of that is brand new to us. And so we think that that you know,
the number of advisers both in our traditional space that will choose to Outsource our platform or or their broker-dealers platform, but let somebody else manage the money and in the riaa segment we think is is we're just on the cusp of that that opportunity and I think it's going to be big
Your next question comes from the line of Ryan Bailey with Goldman Sachs your lines open. Hi Charles Gary Taylor. I hope you're all keeping. Well, I just had a quick question to start off with on guidance. I was wondering if you could speak a little bit to to some of the revenue Dynamics. I think based on the guide you're implying about 73 million for for key, which is essentially flat quarter-over-quarter, but the asset base looks like it's up about 6% if not a little more. So just wondering is that something in play there, which is holding back the revenues at all.
Hey Ryan, this is Gary. Thanks for the the greetings. And I hope you guys are using that as well as well. No, I think you know there is wage there a small Dynamics at play in terms of the holidays and and and tactical stuff in terms of obviously the number of days of the month, but you can earn for the quarter off Gavin speaking. We can renew thing. Our our Revenue basis points are going to be relatively flat quarter-over-quarter and Thursday. We there are no other items. So, you know as we give our forecast, we're trying to thinking about the variability in the market etcetera. But you're on vacation is correct off my off of that. We we are not accepting any material compression on our you know.
Okay, maybe just turning to be engaged advisors was wondering if you could speak to kind of over maybe the loss, you know, either lost quote over the last two years how much of the increase in engaged advisors has been the cause of Market appreciation those you know floors and wallet share games and I mean just stepping back. It looks like the the Aged it by as a percentage of total advisors has increased by about 1% year of you. Do you see any key drivers that could accelerate the mix of engaged advises relative to Total advisor that that's something you could you could push through and and 21
Your service to the first part, I'll do the second part of that package recorded in the market drop and a large Rebound in second quarter of the market came back. You know, I think at the margin is always a little bit that goes back and forth but no in third-quarter the growth of a gauge advisers a lot less to do with the market and more due to the the net flows.
And and Ryan good good to talk to you. Thanks for joining, you know, in terms of of the number of engaged advisors and the percentage of engaged advisors the numbers kind of the most important thing. You know, what we're trying to do is bring on new producing advisors that become engaged advisors and and when I mentioned earlier, you know the size of being about 10% more money in terms of production, then we saw last year is a really important thing and what we're trying to do with those new producing advisors, obviously, you know as classic funnel management at the top of the funnel, we're trying to make sure that they know as much about us as as they can and we know as much about them as we can so that we're delivering the right information and the right page experience second thing. We want to make sure we're doing is we bring people through the funnel is really understanding their business and the kinds of things that are doing and then birth
Aligning that sales experience and and the early experiences with us so that they see the value of Outsourcing and they don't they don't think of it as the traditionally the business was was formed. You know, I'm twenty-five years with really everybody in in our business. You know, let's try an account or two, you know, cuz that that generally transition allows the experience for everybody. And so we're focused on this. How do we bring on more accounts high-net-worth has been a real important part of that as as our high-net-worth capabilities custom portfolios has been a big driver for advice need to go gosh, you know, I can I can gain wallet share from my clients by bringing these added capabilities then becoming engaged advisor at a Saint Mark. I get better better everything right better experience and all the rest of the other big component to that is Cheryl wallet focus on products. So as I mentioned earlier, we added set of fixed-income capabilities this year wage.
We just launched think it was last week and it was a week before another high-net-worth manager CIBC who who is going to do custom portfolios really very attractive very experienced in this market place where where number of us have had experience with some of their predecessor firms over the year. What we're doing with Savo in Saugus portfolio wage has been phenomenal terms of getting that custom feeling down to more of the mass affluent area. And so it's it's really a function of of having the right knowledge about the adviser and delivering to that knowledge and then having a product set that makes it easy for the adviser to Outsource and and that adviser go wild I can grow faster on the platform that really is what needs to drive that engaged number up in 20 21 and Beyond.
Thank you for the call is very helpful.
Thank you.
Again, if you would like to ask a question, press star one on your telephone, your next question comes from the line of Chris schuttler with William Blair your line is open.
Hey, good afternoon. This is Devon for Chris Charles. Just a quick one. Give it a likelihood on the broker-dealer landscape which continues to consolidate in the coming years and the need to replace lost interest rate Rising you for these companies. What are some of the implications for active Mark? And then what do you think broker-dealers doing around their home office advisory offerings. Are you seeing some of the larger BD's getting more effective in terms of our service offerings or in terms of pricing? Yeah. You're welcome. Good to talk to you. Let me start with the second part of that question. I might ask you repeat the first part so so on the second part we continue to see the broker-dealer community-at-large becoming more sophisticated more capable. We're seeing investment in in products and services mostly product and and Technology particularly from the larger broker-dealers. We're also seeing strain on their systems. Of course there there are lots of spread revenue and some of the impacts on their own birth.
Changes in in product revenue is sort of counterbalancing that but but there's no doubt that the broker-dealer community recognizes the value of of having advisors bring assets to their own platforms as a revenue source. And so we we continue to expect to see particularly for the larger broker-dealers an investment in in in capability now for us with that, what does that mean a number of things one? We just brought on a new SVP of strategic account gentleman who has worked at several of the bigger broker-dealers person. We've known for many years and and we're really actually quite excited about our size and scale and positioning that we can work really well as we always have with broker-dealers to help them grow their businesses. We work in a world where in dog
And then advisers are independent for reason they want choice and they aren't at the wires because they don't want that experience. They want choice and not any given situation whether it's acid Mark or a broker-dealer or whatever. It may be is right for every adviser. And so what we want to do is partner with those broker-dealers to to to have more advisory Outsourcing investment management and technology. So that adviser can spend time growing their business and really serving clients with with planning capabilities, which we all know is both better wage investor better for the advisor better for the broker-dealer better for us. And so what we're we're I think we're going into a period where where because of the consolidation of the Tamp side because of our positioning of our desire to to work hand-in-hand with broker-dealers because so many broker-dealers have had great success with us where although they are investing in in capabilities know continue to do so dead.
There there's a chance for real partnership. And so we're excited about that. What was the first part of your
Question yesterday was on the impact of consolidation for tomorrow. Okay. All right. Great. Thank second one if I may for Gary on expenses appreciate the offer is there how should we thinking about in 2021? I just in terms of kind of splitting the amount of money that might be lost due to go to the growing through DNA versus more real feeling that might stay down and 21 here, you know. Yeah. I mean, I appreciate the fact we knew feel very proud of the job. We didn't really 20 managing our expenses. You know what we are going to address further in the next few quarters as I mentioned and now I'm twenty twenty-one.
There will be a return on some travel some event is cost for this code process stretches out before that even will stretch out but we are rethinking the number and so, you know, it will be more than 20 20. It will not be back to our normal 2019 level. I don't know if I can give much more clarity on that page, you know, I do see ourselves kind of getting back to our normal investment rate in terms of growing our defense based on our conversation and our and and you know the account but I can't really give a detail on where we're not going to go for travel with the vents because it's still somewhat company are
let me add something to that the part that makes it hard for twenty twenty is, you know, we should be sitting I'm sitting here in my home office and much as I enjoy that I sure would like to get back out and and have dinner with you and and and our clients and our employees but it's hard to know whether we'll be doing that in I doubt January or February but maybe March or April or June or July, you know, it's it's just really hard to know that you know, certainly the news from Pfizer yesterday was off the charts good and you know, the Marcos office had a great reaction that and we're all super hopeful for that and that makes 2020-21 hard to forecast on some of these things having said that we may be engineering and I mean re-engineering our events strategy and our travel strategy as you probably know maybe not but but as we talked about at least someone in the past month
Years ago assetmark and and most of us in the business had all of our sales forces out in the field. Now most of our sales force are on the phone either fax from you know, one of our offices are now from home and and that has made us incredibly more productive and and as allowed us to have way more meetings and deeper engagement now with the Advent of zoom and and other technologies that are really getting used those meetings are fantastically productive. We've also had enormous success delivering wage content this way and I think one of the things that's become obvious to us, is that where we used to the the premier advisor meeting like we had two weeks ago where we had almost a little over nine people, you know, you know, if you were going to La and you had to drive up from, you know from from Newport or something, you know up to Irvine, you know, it was said,
And a half and most of that meeting.
Who is in fact content-delivery? Well, we can deliver that content in bite-sized chunks via technology, you know far far better way and create Dynamic conversations around the content. Now, what you can do is you can't have the human experience but then delivering The Human Experience in smaller ways more close to the advisor is how he's going to happen and and so it'll be lower cost all around and more engaging and as we think about that re-engineering of you know, our events strategy of our client engagement mod frankly of of some elements of our servicing model using technology. All of those things is to Kerry's point of not returning to the nineteen levels will drive productivity enhancements from a cost perspective and from an Effectiveness perspective.
Make sense. Thank you very much.
Next question comes from the line Patrick O'Shaughnessy with Raymond James your lines open.
Good afternoon related to OBS and gspc. Can you remind us how you underwrite your acquisition to take into account potential upload?
Sure, absolutely. Absolutely. So what were you look at page? There is a block of business that we that we evaluate evaluate the overlap and the advisers. We evaluate their uh off on the stationary. What were you looking for our a percent of lowest access to remain on our platform those that will generate Revenue off and then we we managed the expenses that we need information on what we generally looking for Patrick. And in most of these deals is an active Synergy multiple uneasy in the midst new single digit somewhere between six and eight times more pay lock code into that including the synergies cost our ongoing wage.
Cost as well as the retention of Assets Now, I would say, you know for both only SDF you see we're pretty pleased that the level of assets that are retained on the platform for gft. See we have filled three billion dollars of assets that we acquire for OBS a little bit less than 2 million dollars in assets and those assets are turning into a vehicle off.
Yeah. Yeah Gary if I could add to that Patrick had to talk to you a couple of things. So so there's different kinds of Acquisitions that we may do that. We've talked about the past and we generally break it down in a solid addition and capabilities and in the consolidation realm small ones need to be cost synergies only, you know, you notice Gary didn't mention Revenue centers. We don't look at that we do is we'll get it but we don't we don't talk about that when the modeling part comes in the underwriting we underwrite cost synergies, which is fundamentally uncontrollable and then ask the retention which is pretty Forecastle. And we as Gary said we really wanted to be in that single-digit range, which is highly accretive. If we were to do a bigger consolidating acquisition. It would have a different look to it in a different feel to it. And then of course the capabilities deal which we are focused on looking at all the time as as we've mentioned in the past will have again different kinds of of multiples and dead.
kinds of underwriting criteria
No, thank you. And then for my follow-up so you talked about how your
Mrs. An advisor managed platform alternative for them. I apologize if you probably can you remind me how do you monetize the way German assets and and what is the the business model for that particular strategy? Sure, happy happy to do it. So the core birth strategy is is an Outsourcing model. And so we expect that riaa's join. Our platform will overtime do more of a regular way business with us, you know do high-net-worth with us or whatever. It may be strategist and start to Outsource what we recognize though and I think most of you know that that I ran the custodian for many years in the custodian at Fidelity and many many of the senior Executives had asked them or have been in the business traditionally riaa's have have been on out Samsung.
There's. You know, they they say to themselves. You know, I'm independent. I want to be fully independent. I I'm going to manage that a mutual fund portfolios. I'm going to buy my own technology package to integrate it and years ago. That was okay. But as time has gone on mutual fund portfolios have tended to not be what clients want particularly I Network clients the managing of Technologies become more and more complicated and more and more expensive and the compliance requirements for the real work. You gotta do on due diligence which you know, frankly most people don't do and we do do has has made it so that those businesses are are tougher and tougher particularly below the, you know, five hundred million seven hundred fifty million range of of a um, and also as an entry point, we need to be able to say to those advisors. Look if you want to manage, you know, large cap growth or whatever on our platform you can do that wage.
And and learn, you know, you know Outsource your high-net-worth or Outsource, whatever it may be and we expect that the Persona the kind of adviser that we're going to attract is going to have a mindset for that there needs to come to us to just be you know, a custodial offer that they could go to to a Schwab or a Fidelity or a Persian or whatever directly and so the monetization question is is pretty straightforward. So the regular way business will be the regular way and then on the amp part of the business, it'll be a much lower cost right because what we're offering is often is custody reconciliation and Reporting and you know the ability, you know, the trading tools all the model management and Technology the integrated technology that that is at the marked proposal, you know proposal account open any movement, you know, all those things practice management and community. So there's a whole set of birth.
There but we can't charge our our our our full platform fee on that.
It'll it'll be you know, meaningful meaningfully less but still still meaningful to us.
Thank you. Welcome. Thank you.
Next question comes from the line of Ken Worthington with JPMorgan your lines open.
Hi, this is Jenny today in Spokane, Washington. Good afternoon. Maybe just a quick one from me. How is SM are thinking about the integration of g into his investment portfolios. Are you seeing more demands from advisors 4G per folio?
Agent thanks for joining the call great to hear your voice. When said it was Kenan and your voice was right? So that doesn't sound like him but nice to talk to you. So so we believe is is an important element for investors, you know, if you'd asked me this or Natalie Wilson who runs product development strategy for us two years ago. I would have said hey globally ESG and Sr. I are taking on some momentum and we're seeing certainly on the institutional side some momentum but really not seeing it on the retail side that's changing and and it's changing driven by lots of issues which are we're going to do but but you know about the having said that it's it's interesting, you know, we're doing a lot of research with our advisors and and they are not getting a lot of demand for for ESG. We asked we asked that specifically but done research on it. We actually asked the wage
F a b group The Field Advisory board group last week and and it was very lukewarm at best and and maybe maybe it was Luke cold and their their answer was yeah, you know, I might have some clients that might want it but they're not asking about it and I might have some some that I would want to attract and and I'd like it in the tool kit and we do have you know, how long it already but you know, the next generation of the toolkit there was pretty lukewarm reaction to it. So having said that I'll tell you we will invest in more concrete tools and capabilities. I'm not sure it's going to be in twenty Twenty-One though given the feedback that we've consistently gotten will will continue, you know to to add to what we have and am having said that I suspect 20 22 23 24. It'll come over like a more like a wave and we'll be ready for that to empower our advisors with education and knowledge.
Capability so that they can turn it on and as they see the need.
Thanks a lot. Maybe similarly maybe Tax Solutions from what text overlays Solutions currently offer. Are you seeing what you ma'am are or it's not going to be as near-term as well.
So tax on the other hand, everybody's interested in tax and and we offer quite a few tax Solutions already. Most of them are in our custom high-net-worth, which is is I think you know goes down into the mass affluent. So we have a lot of tax work out capabilities already and people are focused on tax because it's it's one of those things that every every investor is focused on and well aware of in April when they or October when they pay their taxes and so people want that people also often and investors also believe that it's a source of value that that is although quite hard to measure light hard to measure actually in quite hard to put on a report that it's it's awful things you can talk about so we uh-huh enjoy quite high quality tax capabilities and in the fields Advisory Board last week we talked about more time.
Villa T's maybe more, uh
Outsourcing when we talked to earlier in our presentation about Outsourcing taking work off the advisor allowing us to to illustrate some of those tax workouts for the advisor walk outside of the strategist doing it. We think it's an opportunity. So so taxes is an area will continue to develop and it is one of high interest.
Thanks a lot.
Thank you.
No further questions at this time. I will turn the call back over to mr. Goldman.
All right. Thank you. I I know we went over time folks that I apologize for that. I hope you found today's call valuable. It is a strange time 20/20 feels like the year of no time. I hear you know, it seems like the days go by as we we work in our offices, but what does feel fantastic during this time is the client engagement client interaction the ability to use technology the ability to make a difference in the lives of advisors and their clients we continue to do so we're proud of the results. We've been able to deliver in this environment and and proud of our people at a Saint Mark for all the Fantastic work that they're doing each and every day so stay safe and and thanks again for your interest and and time on the call today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and I disconnect.
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