Q4 2020 AssetMark Financial Holdings Inc Earnings Call
Right.
Our non-GAAP.
On the margin.
[music].
Good afternoon, everyone and welcome to asset marks <unk> fourth quarter 2020 earnings conference call. At this time, all participants are in a listen only mode.
We will conduct a question answer session and instructions will be given at that time today's call is being recorded now I'd like to turn the call over to Taylor Hamilton head of Investor Relations. Please go ahead Mr. Hamilton.
Thank you good afternoon, everyone and welcome to <unk> fourth quarter 2020 earnings Conference call.
Joining me remotely or on March <unk>, Chief Executive Officer, Charles Goldman and Chief Financial Officer, Gary <unk>.
David will discuss the results from the fourth quarter and provide an update to <unk> business outlook for 2021.
Following our introductory remarks, we will open up the call for questions. We also have an earnings presentation that Charles and Gary will reference during their prepared remarks. It can be accessed on our IR website at IR dot asset Mark Dot com.
Before we get started I'd like to note that certain statements made during this conference call are forward looking statements. These forward looking statements represent our outlook only as the date of this call and actual results could differ materially. Additionally.
Additionally, during today's conference call, we 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 filings for more information on forward looking statements risk factors associated with our business on required disclosure related to non.
Non-GAAP financial information on.
And with that I'll turn the call over to my colleagues Charles take it away.
Thank you Taylor and good afternoon, everyone I hope everybody is safe out there remaining masked in standard as productive as possible. Thank you all for joining our fourth quarter earnings call I Hope everyone is having a great start to 2021.
Starting on slide three we're going to focus on five key messages during our call today.
I will discuss net one and two while Gary will cover messages three through five.
First 2020 with momentum here for as Mark highlighted by strong operating and financial results.
As the market is entering a new era of growth our existing growth strategy is being augmented by attracting adjacent advisors in the RIAA and.
<unk> channels.
Third Gary will discuss our organic growth.
Which continues to gain momentum in the fourth quarter net flows were $1 5 billion.
Up 27% quarter over quarter.
Next Gary will walk us through our fourth quarter 2020 results highlighted by strong top and bottom line metrics and another record breaking quarter for EBITDA margin.
Lastly, Gary will provide some context on our financial position entering 2021 and provide an outlook for the year.
So turning to slide four our mission is to make a difference from the lives of our advisers and their clients during last quarter's earnings call I shared that 2020 was our best year ever in terms of living to our mission.
This quarter I would like to take that one step further it was also the best quarter I'm, sorry, the best year in terms of delivering strong operating and financial results.
In 2020, we added $12 $9 billion on assets 306 engaged advisers and over 24000 households to our platform.
We attracted 743, new producing advisers, who saw the value.
Outsourcing tasks and work in 2020 net flows were strong and helped drive platform assets to $74 5 billion at the end of the year the highest in our company's history.
These strong operating results translated to strong financial results. We still grew despite the industry headwinds of losing $15 7 million in net spread based revenue for the full year and $6 million in asset based revenue due to moving all our opening third party mutual fund strategies to lower costs.
Share classes.
Net revenue increased three 4% year over year, driven by asset based revenue, which was up 11% adjusted.
Adjusted EBITDA grew four 7% to $115 million and adjusted net income grew 10, 7% to $73 2 million, we reported adjusted EPS of $1 two for the year the highest in our company's history.
We also had continued success driving scale in our business evidenced by the growth in our adjusted EBITDA margin of 30 basis points.
Lastly in 2020, we also advanced our M&A strategy in February we closed the obs acquisition, which remains highly accretive.
The strong operating and financial results from 2020 were a testament to the strengthening the resiliency of our business our advisers and our employees.
Let's discuss this in a bit more detail starting with our business.
Our platform enables advisers to outsource high cost non core services that would otherwise require significant investment of time and money during the pandemic the importance of having an outsource provider showed even greater value.
Our advisors, we're not left alone to try and make sense of the volatile equity markets navigate the pandemic and figure out how to service their clients and prospect for new clients under shelter in place orders instead. They had asked a marked by their side every step of the way.
Prior to the pandemic is to really study found that advisor spent 51% of their time on back office non client facing activities. Our comprehensive platform allows advisors to spend more of their time servicing existing clients and prospecting for new clients.
Spending time with clients, albeit virtually was and is crucial during these times.
We also significantly improved the platform in 2020, let me highlight some of these improvements.
For the full year, we invested $50 million on the development of technology, and our dedicated technology team with a focus on building and enhancing tools and services to help advisors.
One example is our enhanced client proposal in new portfolio review tools, which empower advisors to clearly demonstrate how this strategy has proposed or chosen based on their clients' goals concerns and financial dreams.
This is a crucial component of our financial wellness vision.
We have also expanded the breadth of our curated investment platform in February we added fixed income solutions from American funds Dorsey Wright and Pimco to help advisors serve their clients retirement needs and enhance and diversify their fixed income portfolios.
More than 2100 advisers have invested client assets in these investment solutions with assets quickly approaching $1 billion.
In August we introduced our enhanced security backed lines of credit or S Block program, which gives <unk> Trust company clients faster access to low interest rate liquidity supported by digital and streamlined securities backed lending.
Less than six months 300, non at 309 lines of credit have been issued which is well ahead of our goal.
In December we added CIBC private wealth investment management services and wealth planning expertise, which will help provide advisers with customized solutions to meet the expanding needs of high net worth investors and the first month, we've built a robust pipeline for 2021.
Continuing to invest in our platform allows our advisers to be more efficient effective and valuable for their clients.
Speaking of our advisers they remain highly engaged and complimentary of Aston Martin I want to start by thanking our advisers for continuing to trust asset Mark to help them grow their businesses.
We continue to build strong relationships with our advisers hosting over 530, webinars and creating thought leadership materials that help inform educate and inspire.
Through increased sales outreach and a great number of marketing initiatives. Our sales activity was almost double in 2020 compared to 2019, while our increased activity allows us to serve our advisers. During this challenging year. We also continued to scale, our sales organization and drove unit costs low.
Sure by 7%.
Okay.
Finally, I would be remiss not to mention the people who make awesome work rate are over 725 associates have been working tirelessly from home for almost a year almost a year and.
And have done a fantastic job of serving our clients. During this time of great need I want to thank our associates for their dedication to our clients and how they have rallied to face.
To face up in this price.
The improvements to our platform doing right by our advisors and having highly dedicated employees all contributed to our phenomenal operating and financial results in 2020.
While last year shaped up to be the best in our company's history. We believe we are just beginning to scratch the surface of this immense opportunity that is right in front of us.
Let's turn to slide five and our next topic.
As we look ahead to 2021, we are excited about what is on deck for the new year and we are already off to an amazing start our sales team. Just finished 18 highly successful premier advisor meetings, which were attended by over 950 advisers in two weeks, we will host our largest annual advisor event gold.
Forum, which will be conducted of course virtually.
We are excited to be able to spend three days engaging with our best clients, who represent over $40 billion of assets on our platform.
Our pipeline of projects new products and client experience improvements is robust and work is already underway as our core pillars continue to define our strategy and guide our investments.
We are focused on continuing to differentiate via digital experiences and expanding advisor engagement.
Addressing our advisors evolving needs, which include an emphasis on comprehensive financial planning and advice increased reliance on technology and the desire to outsource value added services.
Our operations and services teams continue to Wow, our clients with their focus on customer obsession.
And new business teams supported a record number of new accounts applications. In January we are growing our ops and service team to support advisors and their growth while still achieving scale.
Building off all of the Great work, we are doing we plan to start extending the reach of our platform in 2021, while continuing to deliver outstanding business results.
Turning to slide six last quarter, we announced that one of our 2021 strategic pillars was to attract adjacent advisors through channel expansion.
And our biggest opportunity being under resources.
Both hybrid arrays and independent <unk> have experienced significant growth over the last 10 years and these growth trends are expected to continue.
As seen on the slide hybrid Ria's independent <unk> have outpaced other channels in both advisor head count and adviser managed asset growth.
In 2020, and hybrid <unk> made up 15, 8% of the production on our platform up from 10, 9% in 2018.
Pure ice have grown their production on our platform, 50% since last year and 100% since 2018.
We continue to focus on enhancing our offering to better serve <unk> and their clients.
This quarter, we are launching <unk> institutional or am I to support these advisors.
So let's take a look at slide seven.
While asset Mark institutional will offer best in class service and access to asset marks events.
Our advisors have come to know and value. It will also provide a differentiated experience for the community.
<unk> offers a fully assembled holistic solution built specifically for on providing the right set of products operational support technology and community resources to support their growth efficiency and scale.
First <unk> will include a new suite of products, such as advisor managed portfolios alternative investments and other products from <unk>.
The products they need to be successful.
Second <unk> offers a client experience that supports stronger relationships with financial planning account reporting and digital communications.
Lastly, we plan to host specific events tailored for the community and have thought leadership materials designed specifically for them.
So with that I'll now turn the call over to Gary to discuss our financial performance for the fourth quarter and share some thoughts on the outlook for 2021 Gary.
Thank you Carol and good afternoon to all those on the call.
As Charles discussed we are very pleased with our results from the fourth quarter and full year highlighted by great organic growth strong earnings and on best margin and revenue since going public.
And usual I will start with a discussion on our platform asset and then talk about net revenue per extension.
And then on earnings.
Turning on slide eight fourth quarter platform assets were a record $47 5 billion up 21% year over year.
This growth this is Kevin on a fourth quarter net loans, and one 5 billion $5 $7 billion market gain net of fees.
And our next loans quarter over quarter.
On the my increased production, while redemption rates have remained relatively stable.
In December we realized the highest month of production in our company's history.
From a full year net flows of $5 5 million or eight nine percentage from beginning of year platform assets in line with our target of 8% to 10% on.
Net loans, an increase each in the past three quarters as a result on our ability to efficiently and effectively transition from in person events to virtual events, while continuing to provide sign on them in service and our advisers have come to extent Matthew Mark.
Turning to slide nine as we discussed last quarter, we continue to see excellent growth in that business.
<unk>.
The recent acquisition.
On this trend continued in the fourth quarter on a full.
Full year 2020. These core net flows and understanding here on beginning period assets with 10, 3% above our standard target from 8% to 10%.
The strong net flows in the fourth quarter, plus some strong market in December resulting in record platform assets.
$74 $5 billion and gives us great momentum as we enter the new year.
We expect our fourth quarter revenue to be up.
8% quarter over quarter.
Additionally, we expect organic growth to continue to be strong in the first quarter based on advisor activity metrics and our January net flows.
$500 million as disclosed yesterday in our January A&P reported.
While our core business growth was strong we may continue to see outflows in the first quarter from our acquisitions of <unk> and Obs as previously discussed net outflows are from advisers, who have not engaged naphtha market. Both deals continuing to remain highly accretive NAV Mark Indeed outflows do not have a material impact on our.
Non mix on these.
And then in the past we will be sharing this close these items and are amongst the A&P board to give investors an understanding apparel on core business is performing.
Turning to our advisor metrics for our entire business, we added 177 NPA in the fourth.
Fourth quarter 2020 from <unk>.
Total adviser base at the end of the fourth quarter from a little more than 8450 advisers of which 2536 were defined as engaged advisers engage advisors were up 13, 7% year over year and now accounts for 90% on the terminal assets on our.
Our platform.
Now, let's turn to slide 10, and discuss this quarter's revenue.
And during the fourth quarter, our assets were at 67 3 billion.
Meaning to reported revenue of $110 $9 million.
This reflects a strong increase in our asset based revenue offset by the decline in spread based revenue due to last year's rate declines.
These phone component of revenue net of related variable expenses.
Fourth quarter of 2020, our net revenue was $76 $2 million from.
Down <unk>, 9% year over year.
Asset based net revenue was up seven seven percentage of $5 $3 million year over year.
$73 $7 million.
We call. This reflects our mid 2020 shift to lower cost mutual funds, which resulted in reduction of revenue what about $3 million per quarter.
So absent that one time products here.
Our asset based revenue growth would have been about 12%.
Spread based revenue was down of course materially at 73% year over year due to the aforementioned decline in interest rates.
Now, let's turn to slide 11 to more fully discuss the drivers on the change in net yield year over year.
The waterfall shows revenue was relatively flat year over year with the increase in asset based revenue offset by a decline in spread based revenue on.
On a waterfall Smith, the impact on our asset growth, which generated $8 $9 million in additional revenue and the impact on the compression of net revenue yield which reduced revenue by $3 7 million.
On this $3 $7 million impact about $3 million due to the shift to lower cost mutual funds with the remaining impact due to fee compression and fee waivers.
It is important to note that year over year fee compression impact was about a half a basis point marginally better than the one basis point, we expect each year.
Moving to spread based revenue.
Decreased $5 3 million on with year over year, chairman by yield decline from $1 six 5%.
Three 1%.
Lastly, other income decreased $700000.
For about a half a basis point driven by interest related income.
Overall net revenue as a percentage on total platform assets from the fourth quarter was 45 basis points down one basis point quarter over quarter and down eight basis points from 2019.
On the bottom of slide 11 helped detail on the year over year decline in yield I think shows three five basis points on your money asset based revenue.
This about 30 basis points on the shift to lower cost mutual funds.
The decline in spread revenue resulted in a decline of three eight basis points on our total yield.
Clarity and transparency the calculation of our annualized revenue yield net variable expenses is shown on slide 16 in the appendix from our earnings presentation.
Yeah.
Now, let's discuss expenses as shown on slide 12, total adjusted expenses decreased two 5% year over year to $84 $2 million our operating income.
The compensation of SG&A declined six 8% from the year.
This is Jeremy minus six 9% year over year decline in employee compensation and six 5% decline in SG&A.
We feel great about our efforts to hold the line on our operating costs from 2020.
Let me run through our intense adjustments now in the fourth quarter, we added back a total of $25 $7 million pretax income.
Comprised of five items.
First $13 $8 million of noncash share based compensation.
Second $5 $1 million.
Amortization expense related to our 2016 channel.
Third $2 $3 million.
Activation related incentives.
Low shaping our acquisition on <unk>.
Yes.
$4 million to $8 million related primarily to internal reorganization and integration costs.
And lastly, one $7 million in write off costs associated with our year end debt refinancing, which I will discuss more in a moment.
For additional color <unk>.
And adjusted expense reconciliation table.
Income statement line item can be found on slide 17 in the appendix from our earnings presentation.
Now, let's turn to slide 13 to discuss our earnings from the quarter.
We view adjusted EBITDA as an important measure on our company talent on our fourth quarter of 2020, adjusted EBITDA was $32 million up nine 2% year over year adjusted EBITDA margins on the quarter was 28, 9% our best quarter, we ever reported.
The full year on <unk>.
<unk> EBIT margin was 26, 6% up from 26, 3% in 2019.
Moving the margin year over year, despite the decline in spread based income and a testament to our management team and management team the ability to focus on expense management.
We're investing in future growth.
Our adjusted net income from the quarter was 22 million $22 $2 million were starting on <unk> per share.
This is based on our fourth quarter diluted share count from 72 3 million.
The margin year over year increase from the result of the.
Adjusted EBITDA.
$2 $7 million.
Lower taxes, and $4 million and lower interest expense on <unk>.
$4 million.
Offset by higher depreciation of.
On $1 million.
Our marginal tax rate is 25% from the year on 25, 2% from the quarter.
We have worked hard through the year to create cash efficiency and our adjusted net income now reflects the benefit from our current year recognized research and development tax credits.
$800000.
This translates into an adjusted effective tax rate.
Three 5% we have applied this adjusted effective tax rate on 23, 5% to our adjusted net income, reflecting a gain in the fourth quarter of $2 4 million.
Of which $1 $7 million as a catch up from the first three quarters of the year.
We plan to use this rate of 23, 5% in 2021, and we will true up from the actual rate at year end as always.
For additional color. Please see slide 18 in the appendix.
Now, let's look at the reported fourth quarter balance sheet on.
Our balance sheet strength and flexibility position us well to support our strategic objective to grow at scale just prior to year end on December 30, we secured a new $250 million revolving credit facility at that time, we drew down $75 million on the new credit facility and use those funds.
Plus cash on our balance sheet to retire our $124 million existing term loans.
In addition to expanding our available cash by $100 million.
Interest costs on the new facility will be LIBOR, plus 2%, which is one percentage point less in our own facility on a run rate basis. This will save us $1 $6 million pretax annually and total interest cost.
Following this new financing we ended the year with $76 million of cash on our balance sheet compared to $109 3 million at the end of third quarter 'twenty.
Let's discuss our capital expenditures next.
From the fourth quarter, our capital spending $8 million or seven 2% of total revenue as discussed last quarter in 2021.
Expecting our capital expenditures to be about 7% of on coal revenue as we continue to invest in the future of on it.
Now I'll discuss on our expectations for 2021, let's turn to slide 14.
Our growth expectations for the year reflect the positive momentum that we've been talking about on this call scale. We are cautious there are a lot on variables I think from the pandemic.
Market, New administration that could impact our results on.
Our financial model starts in the asset growth and reiterating our past comments, we estimate our organic growth to be 8% to 10%.
Assuming a market on modest market net we expect our assets to grow between Illumina and half from 13, 5% from.
2021.
We then its debt and our net revenue growth to be in the mid to high teens.
And by entering the year with strong asset level, while assuming about one basis point on fee compression that we often 19 and on a regular expectation.
This forecast is our expectation on interest rates will not increase from 2021.
<unk> seen a modest growth in spread based revenue due to higher cash levels.
Platform assets increase.
With.
We expect our operating expenses, which consist of compensation and SG&A to increase mid teens during the due to increased investment in 2021.
Now we breakdown the condition of investment and Tim three rough buckets volume growth near term investments and longer term investment on.
Understanding these three types of expense growth help give content from the flexibility we have to adjust the spend increase if circumstances warrant.
First approximately 3% to four percentage of our operating expense growth is volume related as we grow we need to add more staff and capabilities on our operations and services business to support this growth.
Second our near term investments, which contribute 45 percentage of growth here were spending on our new asset market institutional initiatives, some new product development and productivity investments.
Third is additional investments for even longer term growth, which makes up about 4% to 5% of the expense from.
These investments into digital lead generation transition services and outsourcing will help prepare act mark for growth from 2022 and beyond.
As always we are focused on realizing improved margin on our revenue. So we expect our adjusted EBITDA to be up about 15% to 25% year over year.
Based on the growth outlook, we have laid out we expect margin expansion of around 100 basis points from the year much higher than the 50 to 75 basis point goal, we have targeted in previous year.
With that I will hand, it over to Charles for his concluding remarks.
Thank you Gary and thanks to everybody on the call today.
Gary and I described we believe 2020 was a great year for asset Mark our advisors, especially and delivered by our associates.
I have never had I've never been more excited about our company's future I look forward to sharing our progress in subsequent earnings calls in future conferences, so with that.
On the conclusion of our prepared remarks, I'll turn it back to the operator for Q&A.
Thank you, Sir ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone again that as this tier one on your telephone Covid giant.
I have question press the pound key please just on myeloma compile the Q&A roster.
Sure.
Presenters, we have our first question from the line of.
Alex Bluestein from Goldman Sachs. Your line is open and the actual question.
Hi, Good afternoon. This is actually Ryan on balance.
First one if you could talk a little bit about <unk>.
And.
I guess only adoption many of the trends that youre seeing there and then how you're thinking about competition on the space I think.
What we've seen although temps.
<unk> to start to open up.
Just how you're thinking about that.
Hey, Ryan happy New year hope you're doing well.
Amp is adviser managed portfolios for those of you don't know Thats, a product name, where we're going to be providing.
Trading capability to allow advisors to build and manage their own sleeves.
This is key for our <unk> and hybrid arrays, who want to manage part of the portfolios themselves see value in that have sold at value, but also and very importantly understand the value of outsourcing over time. The key there is those adviser.
<unk> that are overwhelmed with technology are overwhelmed.
We're trying to grow their business and really help their clients plan for the future. Those are the types of advisers that we're looking for and we believe that through the folks that we've had on the product that first of all the product works really well we've had flow.
In beta test for some time.
We're thrilled with the results there, but we've lived through our research and through our.
Early discussions out in the marketplace. So we're going to see.
Good growth good growth and we're excited about that launch the omnia launch the brand wrapper that I just talked about this being more formally launched in a couple of weeks at our gold Forum event, where we're going to talk more publicly about the brand and the experience.
Some of the other products that are going to go along with it.
In terms of competition.
Ryan It's interesting if you think about where advisers are today.
<unk> are by and large I mean, the vast majority close to probably 99% managing money themselves the core RIAA.
<unk> has always been to do the due diligence to construct portfolios to buy a portfolio accounting trading CRM.
And planning software to cobble, all that stuff together and to really do everything for their advisors.
The sea change that we're seeing in the industry is that starting with the investor The Investor is looking not for those things, but they are looking for planning and deep relationships and so all of that work on the back office and all of that work of trying to do due diligence and everything else on everything.
There is really not value added from the investor's perspective.
So our belief and our bet is that advisors, you're going to say.
Hey, I want to outsource more and I want to transition using using the amp capability.
When we look at competition I'm not quite sure how to think of it right. There's no. One is doing what we're doing taking the exact same approach, but there's lots of ways that advisers can manage their own sleeves. Every custodian has that offer a free portfolio accounting system does that trade order management does that so really what the opportunity here is to move toward outsourcing.
And the move towards partnering and getting an integrated experience and back office and getting much more capability much more community and that's where we think the opportunity is going to differ from <unk>.
Got it got it.
And then kind of sticking with that.
On a discussion I think you answered that.
On passing on platform and growing a 100% on Opex since 2018, I guess does that kind of a day had grown debt platform.
I guess from question is based on assets on the platform are they confirm that books because they were previously under resource and being part of the asset on platform and sort of taken on.
<unk>.
A lot of the processes that they had to go through and give them more time.
So it's a function of the way we grow so the existing advisers on our platform are growing because they are bringing more assets.
Asset Mark some of that is a function of them do.
Using our high net worth capabilities or other capabilities to gather new clients. Some of it is share of wallet growth and then of course new.
As new producing advisers, we call them joining the platform. So it's all of the above.
Got it okay guidance.
Ryan This is Gary.
On the clear.
It was production has doubled over the two year period, not AUM on 17 and on what Charles and saying the same reasons why it's growing but I just want to make sure Yender correct metric.
Got it okay. Thank you.
Thank you Sir we do have another question from the line of Michael Young from tourists Securities. Your line is open you may ask your question.
Hey, good afternoon, thanks for taking the question.
How's it going on Michael Good to have you and welcome and welcome to the call.
Thank you. Thank you I appreciate it.
Wanted to maybe drilling a little more into the growth outlook for 2021, I know obviously, the macro overlay is a bit challenging but just as you look at sort of disaggregated that how much are you expecting to come from kind of the RIAA and raw adjacency versus kind of the core legacy business.
Gary you want to do that one.
Sure sure.
I think.
Okay.
So first Mike.
Graduation, I understand on baby is quite imminent so best of luck with that.
Very exciting.
Okay.
Net.
So to your question.
I'm trying to think I had on it.
So.
I'm trying.
Loans.
Here's what I am saying.
I would say.
In general a growing percentage of our growth if you will and growing percentage of that.
9% organic growth is coming from the Orange block now the majority of our growth still come from IBD Rep Center core.
Sure.
On a constituency and.
And who we share.
I don't have a breakout for you in terms of how to.
Other than to say, we are focused on growing and then as we talk more in detail.
Upcoming quarters about.
Charles was talking about we will start comping more some more metrics about whats coming from accident, which from that.
Some strength versus.
What you might call that net larger.
Neither.
Gary I would just look Michael I would just add to that a little bit debt.
When we talk about the RA segment in the hybrid segment.
The aggregate segment.
Everyone uses those terms because theres some differences I guess debt that are important to think about and certainly the language in the communities are are different.
They can test some different growth dynamics, but what we would expect to see as fluidity as more people go more towards independent as people join.
Producer groups or <unk> J groups that are hybrid we'd expect to see fluidity by registration.
Today, our assets are about 15% hybrid.
Our RNA from <unk> that combination.
Production numbers I gave a few minutes ago, what I would expect to see as we launch into this endeavor with amp, which is.
In Ams, which is new for us.
Allowing advisers to.
Do that work on their own on our platform, we'll see what that growth rate looks like and how quickly that great growth rate is I think right now when we look at our 8% to 10%. It's really looking at the base of our advisors. It's looking at cross registration, it's looking at kind of the history that we've had.
How big the beginning of the year, it's obviously a ratio rates at the beginning of your number is it how long does COVID-19 lasts.
So many dimensions in there that are going to drive that performance way more than registration so theres not some hockey stick.
Growth in that number it's really based on the kind of history.
We've been able to deliver and what we've been able to deliver on this tough macro environment.
Yeah understood. So the core message is just more optimism kind of on a year over year basis organically, we will see if we end up at the high end low end of that range based on macro and various adoption characteristics.
Totally right. So we're not we're not forecasting some kind of weird number right. We did eight nine percentage in 2000 2010 three.
Three if you just look at the core business without without.
Some of the M&A stuff noise in there.
This year <unk>.
'twenty, one obviously with a fantastic fourth quarter and December market resulted in December was.
It towards market environment, the beginning period asset number is real.
Hi.
$74 5 billion positive market return, so to get that 10% the higher and it's somewhat a function of that right. So.
To get to the higher end.
What we're going to have is outstanding performance within our core market you saw our January results very strong and then what we're doing in new markets and.
In hybrid.
And then of course, new products from new capabilities being added all to support to get to that eight to 10 number and we think thats a very good result.
Okay, and just maybe on the second question just on the EBITDA outlook I mean, I think that's very strong and looks very positive I'm. Just curious if there is some.
Maybe lessons learned or new business implementation strategies that you've kind of discovered through the pandemic and operating in a work from home environment that may stick on that.
<unk> supports some of that.
Yes, great.
Great question I think every every.
Executive.
I want to say every industry, but I'll certainly say in financial services has learned a lot about operating in different environments. So first of all.
We've all figured out debt that we can travel less and be much more productive now that doesn't mean, we want to travel not at all right. We want to be back out on the field, we want on live events, but.
We've learned that we can be much more productive than we thought by not having to drive around and all the rest of it as much and that's going to stick forever.
Another thing that we've learned is that in events and we are on a very event in contact based company.
Clients like getting certain kinds of content remotely. So if its investment content or things that they are trying to digest, but don't really require community engagement.
In discussion with other advisors.
Kind of closer to work, it's a much better weighted deliberate via zoom.
It just works really well so I've mentioned earlier, our Premier Advisory meeting with the team meetings that we had in the first quarter here.
We can do that content in much shorter time than if you live in and I used to live from Los Angeles from I grew up.
If you have to drive 30 miles in Los Angeles, you're talking about.
On hour and a half probably in the car each way and so for delivering investment return content that kind of thing.
It's really easy to digest this way and so one of the things that will stick as will deliver much more content that way, we will deliver much more.
Regular smaller group content and community that way and then when we're out in the field it'll be much more about interaction and I think that will stick and that by the way is much lower cost.
On the other thing on I'll just.
And I mentioned, one more then we'll stop but.
What we've learned is debt.
We can recruit attract and recruit and hire people that are that are remote.
And that are happy moving where they are living has great experience our great cultural fit.
That also is.
Is a big productivity enhancer may not be.
On cost per person and answer but you get highly trained great people and you are not constrained by the geographies in which you live. So there is a lot of changes that are occurring because of COVID-19.
Covid is obviously, a disaster or a nightmare, but theres a lot of learning there that I think is going to make our business better as well as many others.
Okay. Thank you for the color on Gary appreciate the well wishing Luckily she she held off long enough to make the call Sir.
[laughter].
Granulation game.
Thanks.
Thank you. Our next question comes from the line of Christopher salary from William Blair. Your line is open.
Hey, guys. Good afternoon, Charles looking out over the medium term what are the main technology items that you want to invest in and especially as you move more into the <unk>.
World.
Thanks, Chris Good to talk to you. So you mean advisor facing not not net.
Back office and all of that said exactly yes.
So.
The theme the thematic approach as financial wellness and I know, we've talked about it but.
Our view of financial wellness is.
There's really three elements to it.
On element is planning and the visualization of planning we've launched partnerships with some of the major planning firms, we believe that incorporating planning, whether it's Monte Carlo deep cash flow planning, a scenario planning or more importantly, the visualization onto one page.
A simple visual view of the investors life their goals their risks the likelihood of meeting that success integrating that experience into a wealth manager.
And entered the entire advisor conversations.
Job number one.
Number two.
Which is somewhat flatter on it's more complicated the other but.
We deal with risk in our industry is we basically ask people what your risk tolerance can you take a 20% drawdown over what period of time.
The story six to eight questions, but that's not the way human beings think about risk and about portfolio Theres really three concepts that we need to think about what is that your risk tolerance. The other two are risks need and risk capacity, so tying back to that visualization of planning.
That sort of one page here's my life on what's.
What's my risk need how much risk do I need to take maybe I need to take a lot less or maybe I need to take a lot more.
And then of course, there is capacity.
Im 28 years old Google employee, making $200000 a year my capacity to take risk may be huge.
My need may be large because I want to have an airplane, but my tolerance may be low and if you think about the way that interaction works on the visualization of that dialogue and then of course, the compliance issues integrating that experience into the wealth manager to make that conversation automated is the second part of.
Wellness for US and then the third part is portfolio construction and proposal and you've heard me and US talk a lot about portfolio engine our portfolio construction tools.
You've heard about our new proposals and integrated.
Other elements of proposals and visualization of income and all these other things. So if you think about financial wellness in the individual tools in there that's where we're investing.
From an advisor facing technology perspective, and it's going to be a multi year.
Investment.
Got it okay Super helpful.
And then can you give us an update on capital allocation how actively.
You are looking at M&A right now and maybe.
Maybe just remind us what's most interesting to use it more capability types of deals are consolidated deals.
Yes happy to do that so we remain.
Very focused on M&A we.
Connect me personally some of our key team members on our head of corporate development, we are connected across the industry.
We love seeing deal flow I think we have great relationships and get to see a lot of deal flow. Our strategy is pretty straightforward. It has two legs to it strategy number one by the way nibbles on more important than what you're seeing in that net order number one is consolidation the deals that we've done have all been consolidation deals.
Those deals.
As prevalent as they once were there is still quite a few smaller players out there. If we think they'll move the needle. If we think they can be accretive if you look at the ones we've done recently.
We were able to buy them.
Very very attractive multiples for our investors and on the other side of it there is relatively small and they're relatively complicated deals and so we'll keep looking at those there's always a trade off between what do you have to pay and how complicated is it to get it done does it move.
The needle, but that's consolidation on the capability side, we are spending a lot of time and effort. There. If you heard my description on how you did Chris.
Financial wellness you can imagine the suite of tools that are out there that are either tools or businesses that debt do some of those things and how they might integrated into RF Tech platform. We look at all of that kind of thing across the entire kind of wealth landscape and as you know deals our share.
It is to get them done they are all competitive and multiples are nose bleed.
On the capability side, so we'll be disciplined, but we will look at a lot of things on that capability side and hopefully if we get something done.
Alright, Thanks, a lot Charles.
Thanks.
Thank you Sir we do have another question from the line of Patrick O'shaughnessy from Raymond James Your line is open.
Hey, good afternoon. So we continue to see a lot of consolidation in the independent broker dealer in the RF space and it seems like it's even picking up on late can.
Can you talk about.
What that means for asset Mark and does it make things harder for you to increase opportunity or is it kind of irrelevant.
Hey, Patrick good to hear your voice.
So consolidation is one of the major trends.
Im pretty sure on one of the calls we talked about investor trends advisor trends.
Industry trends and regulatory trends.
Those four big trends are the ones, we're watching and consolidation across financial services, either to find growth or to drive lower cost scale.
Our major major.
Competitive competitive environmental issues that we're paying attention to on the <unk> side.
It doesn't matter.
The number of deals that are actually happening are low. So if you are.
On our a consolidator obviously on matters a lot too.
But for US there's 300000 advisors entering 16 or 18000 or something like that there's just a lot and there's a lot of sub scale.
Out there theres a lot of these.
These groups of hybrids that we call producer groups. Some people call most Jacobs, but these producers a lot of those in there from those are big opportunities for us and so we're excited about what we see there on.
On the on the broker dealer side.
It's interesting.
It's both opportunity and threat like many things in life on the opportunity side as these broker dealers get larger and larger.
Community as a connective tissue for many advisors isn't there anymore and they seek that connective tissue and we are able to provide that very high level white glove experience that debt is just hard to do hard to do at scale and most most others don't do it and so that's an opportunity for us in addition.
<unk>.
As some of these broker dealers come together, we're actually quite excited about partnering and helping those broker dealers find ways to move advisors from commission to fee for managing their own money to outsourcing and while most broker dealers on the larger side the consolidated ones with pro.
<unk> them on their own platform. They also recognize that they are independent advisers for a reason and having a scaled provider that does really good work and supports and wants to be a partner is very helpful. So those are all real opportunities for us.
On the threat side.
With anything else as these folks get larger and larger there of course investing in capabilities.
Because they want to grow and they want to find revenue sources in a world where they've got killed on spread they've gotten killed on product internal revenue sharing.
Grid is tougher and tougher so so adding capabilities camp type capabilities is something a larger firm might like to do and so that makes them better mix.
A more competitive and that of course.
Our glass three quarters full guy believes it make us better because we've got to get better to win and so that threat of investment is there. The other opportunity I would say related to that is you're seeing this bifurcation or multi modal.
On set of broker dealers out there were many don't have the money to invest to build their own platform to to bring in outside technology to do that and we see a real opportunity, particularly as were adding things like amp and other capabilities to be that debt provider for some of these other broker dealers we think.
That's a real opportunity so Patrick like all things right. We see the world is full of opportunity Big Tam great growth dynamics, but increasingly competitive to make us better as well.
I appreciate that insight.
And then as we're thinking about your push into the RF space with little bit more gusto here can you talk a little bit more about how the needs of <unk> differ from the needs of independent broker dealers and what different functionality, that's going to require from your platform.
Yeah.
So when you say on a temporary deals you mean the adviser right.
Correct independent broker dealer revenue so.
At the highest level.
The differences are not are not much right. So most IBD reps that our advisors right there.
Theyre not on commission right. So let's say okay. There's many that are still on commission. There is many that are still selling a lot of insurance, that's a big difference right, but for those advisers that are fee based and are really thinking about advisory managing their own rep as PM in the IBD world.
And the our IL construction mutual fund portfolios Theres not really much difference.
<unk> has much less support than than the IBD wrapped because the IBD itself. The broker dealer is providing many more platforms services and compliance where the RIAA as to and everything and so while at the highest level.
I am helping clients from a planner I'm doing it with fee based approach those of the same day.
Our IAA has very little support and help and so we believe that the opportunity to bring that support and help to bring more outsourcing tools more practice management more community all.
All of those things are going to create real opportunity and we actually think the need is greater there, although the history of who's outsourcing who's not has been different so that's the biggest.
Difference the other thing I would just add is that for an IBD rep.
They can use their own platform at the broker dealer to trade stuff if they want to do it and then outsource to us for our capabilities. So the share of wallet discussions for most ria's. They are trading at the custodian and using their own tools excel or buying trade order.
Management.
We don't for most of them to say, hey start using a platform like ours for your high net worth it's just not in their mindset to do that their mindset is much more about how do I bring my book there how do I make my life easier completely and so amp is what we believe the approach weighted portfolio is allowing them to manage the sleep is really.
Critical really critical for the way that advisor thinks about value added is that helpful.
That's terrific. Thank you.
Thanks, Patrick.
Thank you too we do have another question from the line of low cutting from Jpmorgan. Your line is open and ask your question.
Good afternoon.
Yes.
Oftentimes.
And on financial services can I have a number of conflicts of interest on these conflicts of interest from very pretty significantly depending on the firm as an example, it seems like an advisory solution using products from an affiliated asset management arm could create a comfort that requires disclosure.
Can you help us understand the most significant conflicts of interest with asset Mark.
And how do you think about the framework to address and mitigate these conflicts of interest.
So let me, let me give a little bit of structure and that answer first and then try to dig in a little bit so asset mark.
Our relationship with the advisor is one of where a service provider. So we don't supervise the.
Advisor were not the advisers not affiliated with us.
In any way the advisor is choosing us hiring and firing us based on the competency of our.
Solutions and the quality of our work so there's not a like a natural conflict of interest like.
If I were affiliated with a broker dealer and the broker dealers, making money on the product and therefore somehow I'm, making money on the product even if I'm not getting that trail that the conflict of interest that you are describing for us we don't have that right because the advisers charging their fee.
Our feet and they are fully disclosed to the client and they're completely different we're not paying or doing anything like that so so there isn't that conflict of interest.
Where we see conflict starts.
With our field force you know, what we would hate to have as a field force that is incentive by product revenue. So we pay our field force.
Our consultants in the field as a percentage of coal.
And so they are asset based goals and they don't care, if it's something we make money on and lose money on make alignment is they don't care.
We're focused on the advisor on there on the advisor side of the table. So we try to avoid any conflict there.
Obviously in our mutual fund family and all that stuff.
Mutual fund rules and everything and we do I think a very good job of avoiding that conflict as well so Gary I don't know if you'd add anything to that but I think I think the very fundamental structure of our relationships are very helpful on that.
Yeah.
Echo on your point that.
Ours.
Michigan, and Nevada as seen in our structured being outsourced provider does eliminate a lot of.
The thing that you would hear about because again, we are just a service provider and net.
And also you're absolutely right Karl we pay are we paying our sales folks present, the goal regardless of the assets that come in and we do learn doesn't earn different amounts based on different type of product from them, we make from our third party vehicles and whatnot and it's not in reality, but we're not directing on me that since and we feel great about that.
Net center.
Great. Thank you book and then Charles I want to go back to a comment you made I think on response to Patrick's question about selling the asset more platform too.
Broker dealers that are potentially subscale.
On initiatives currently underway and we could see the fruits of that near term or is that a longer term potential options for that business.
I'd say more of the latter will.
We have a strategic accounts team that we've had for many years.
Net are very focused on broker dealers.
Their full job fulltime job, we brought in a new leader of that group.
Let's say six months ago could have on three could have been.
Months ago.
And it was.
<unk> got a great history in this space.
And as he's thinking through the strategy, there and as we're thinking through opportunities what we're seeing with this consolidation back to that question about the IBD is kind of a.
As I said, a bimodal or at least at least two maybe for different kinds of broker dealers out there you know the big ones certainly can afford to invest the small ones certainly cannot.
And so the question really is what's the value proposition of those smaller ones do they need more closer partnerships or can they kind of go on the way they have been going on.
Kind of offering a lot of different things and we think that that is changing and that theyre going to need more value added and theyre going to need a partner to do it and while we don't sell instances of asset Mark so like.
Competitors debt that are selling to the broker dealers. An instance in building technologies. It would still be asset Mark as Essent, Mark is but it would be a closer alignment and so we're not we're not at a place where I would say youre going to see.
Some kind of.
Big Hockey stick return this year, but we do think that that trend and when I was answering that to Patrick's point. It was really more about trending in the industry and sort of what's going on we see that as an opportunity.
Alright that makes sense, thanks for taking my questions.
Sure well thank you.
Thank you again, everyone of you would like to ask a question you will need to profit per one on your telephone keypad.
There are no further question from the line presenters you may continue.
Great. So thanks, great question to usual.
I hope everybody got what they needed from the call today, we really appreciate your time your engagement and we're excited to us on at this time. So we will talk to you all soon thank you.
Bye bye.
Thank you presenters, ladies and gentlemen.
This concludes today's conference call you may now disconnect. Thank you for participating have a good day.
Yeah.
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