Q2 2021 AssetMark Financial Holdings Inc Earnings Call

[music].

Okay.

[music].

Good afternoon, everyone and welcome to asset marks second quarter 2021 earnings conference call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

Please note that today's call is being recorded.

Now I'd like.

Call over to Taylor Hamilton head of Investor Relations. Sir. Please go ahead.

Thank you good afternoon, everyone and welcome to asset Mark second quarter 2021 earnings Conference call.

Joining me today are Mark <unk>, Chief Executive Officer, Natalie Wilson, Chief Financial Officer, Gary Viola net.

They will discuss the results.

Turn to second quarter provide an update to <unk> business outlook for the remainder of 2021.

Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Natalie and Gary will reference during their prepared remarks. It can be accessed on our IR website at IR dot asset Mark Dot com.

We get.

For this I'd like to note that certain statements made during this conference call are forward looking statements. These forward looking statements represent our outlook only as the date of this call and actual results could differ materially.

Additionally, during today's conference call, we'll be discussing net revenue adjusted EBITDA adjusted EBITDA margin and adjusted net income.

Started all of which are non-GAAP financial metrics. Please refer to our earnings press release and SEC filings for more information on forward looking statements risk factors associated with our business and required disclosures related non-GAAP financial information.

Now I'll turn the call over to my colleagues Natalie take it away.

Thank you Taylor and.

And good afternoon, everyone and thank you for joining our second quarter earnings call.

Everyone is doing well and that you all have been enjoying your fantastic summer.

Starting on slide 3 we're going to focus on 5 key messages during our earnings call today.

I'll take I'll take the first 2 and then Gary will cover the final III.

The first message we're.

We're going to cover its assets.

That aframax strategy is working as evidenced by our record results ability to capture greater share of wallet and advisor sexual satisfaction scores.

Second we're reframing our growth strategy around the advisor this aligns our advisers growth with our company growth both of which over the long term should drive value for our shareholders.

Thanks, Jeff.

He will discuss our organic growth, which has been a persistent and positive factor at <unk> strong results organic growth has accelerated for 4 straight quarters and second quarter net flows of $2.2 billion, an all time high and year to date net flows are fantastic 11, 2% of beginning period.

<unk> platform assets.

Next Gary will discuss recent fed commentary around interest rates and how earlier than anticipated rate hikes could speed up revenue diversification and earnings growth growth as Mark and then lastly, Gary will walk us through our financial results for the quarter highlighted by record revenue all time high EBITDA record net income.

And from high EPS. He will also update you on our expectations for the rest of the year.

So now I'd like to turn to slide 4 where you can see that our advisor centric strategy is starting to pay off supported by our record results for the quarter the ability to capture greater share of a greater share of our advisors assets and strong advisor side.

And of course, let's discuss each of these in a bit more detail.

I don't want to steal Gary's Thunder, but as you may have seen when we released our June and K report, we had record net flows in the second quarter we.

We also reported all time highs in net revenue adjusted EBITDA adjusted net income and adjusted EPS for the quarter.

These are outstanding.

The results and directly tied to our ability to live our mission and execute on our strategy.

Since we've made to our platform and the deep relationships, we've built with our clients continue to pay dividends.

And we continue to remain the outsource provider of choice for our engaged advisers.

Our 2021 share of wallet study shows that we have cash.

<unk> more share of wallet from both our engaged and non engaged advisers.

Specifically for our engaged advisers, we have approximately 90% of their assets.

Additionally, we have captured about 50% of these engaged advisers total assets. This is up significantly from 2020 and still provides.

Our runway for future growth.

While our advisors are entrusting us with more of their clients' assets. It should be no surprise that our advisors are extremely pleased with our relationship with Boston market.

Based on our annual net promoter score survey from June 2021, we received a net promoter score of 67, an all time record and up 3 points from.

2020.

So now, let's turn to slide 5 to discuss our strategy in a bit more detail.

You know aftermarket is a mission driven and client focused company every decision we make as a company is centered around our 8400 plus advisers in the approximately 200000 investors they serve.

With that said.

And we discussed during our recent analyst day, you Reframed our growth strategy to put the advisor and their clients at the center of all we do.

We believe that there should be alignment between helping advisors grow their business, which in turn will help advisers grow and drive.

Aftermarket growth and drive long term growth and value for our shareholders.

Our growth strategy.

And our focus on 5 key components for each area I will define our approach today I'll add some color about what we are currently focused on.

And I hope that this will give you a good idea about why each priority is important and how our initiatives will help advisers succeed in growth.

Comments from subsequent earning calls we will focus on these 5 components.

Current priorities and the progress, we're making in each area to support our growth.

So now moving to the first component of our Reframed growth strategy.

On slide 6.

This component is to meet advisors, where they are and to serve their unique needs to do this we need to focus on serving advisers with different business models.

Energy at varying stages of their careers, serving diverging investor needs and across many affiliation types.

Today <unk> serves a large community of independent fee based advisors and.

And we serve as an outsourced partner for these independent broker dealer affiliated advisors hybrid Rnas and independent alright.

Further based on the 2020 really advisor metrics report advisers continue to migrate to the RA channel, which includes both <unk> and hybrid.

Aftermarket institutional and initiative, we launched in March look to capitalize on the specular trend.

It has only been a few months since we launched aftermarket institutional so let me provide you.

And based on how it's going in the early innings.

So while we're still a few quarters away from breaking out aftermarket institutional results I can say that aftermarket institutional is growing at the same rate as our traditional broker dealer affiliated advisors already in the early months.

In addition, there continues to be a groundswell of activity to generate demand from current appetite.

The marked advisers as well as the needs for example in May we hosted our first aftermarket institutional summit with over 250 advisers in attendance.

And a third of these attendees were entirely new lead opportunities that mark.

With Aramark institutional we're building a community of Likeminded advisors that are all <unk>.

400, <unk> just as we've done with our other advisers over the past 25 years.

So now, let's turn to slide 7.

The second component of our growth strategy is to deliver a holistic differentiated experience to a value from their clients, providing an end to end easy to use platform designed to create meaningful conversations.

Between advisors and their clients, while also saving advisors time.

A few weeks ago, we closed on our acquisition of <unk>, which will help us accelerate our financial wellness vision, which is a key component of this portion of our strategy.

I want to briefly provide you with a quick reminder of the strategic benefits of acquiring <unk> and then provide you.

With an update on their first half of the year.

But first buoyant accelerate aftermarket financial wellness vision and expand on our ability to attract advisors in core and adjacent channel.

Second Brian has had great success outside the U S market and still have a long runway of enterprise opportunities internationally.

Third.

Aframax strengthened client standalone growth prospects as volume will benefit from our Knowhow U S brand and relationships and strong financial position. When it will also help aftermarket enter the enterprise space in the U S.

Lastly, volume provides strong financial metrics and meaningful scale.

It is immediately accretive to EPS.

It provides earnings and geographical diversification plus a long runway for growth.

Now let me give you an update on <unk> financial results through the first half of the year why it's on track for 2021 revenue of $20 million and adjusted EBITDA of $8 million.

We expect to realize revenue of $10 million and adjusted EBITDA.

In the second half of the year as we closed the <unk> acquisition on July 1st.

1 has already been integrated into E wealth manager and we are currently building an income planner powered by <unk>, which will be implemented in August and used by our sales team to support income conversations between advisors and their clients.

Fourth we are so excited to have <unk> as part of the aftermarket family and I look forward to updating you on all the great things that point is doing to help create more meaningful advisor client conversation on future calls.

The third component of our growth strategy is to enable advisers to third more investors across the wealth spectrum varying life.

Stages and generation flow.

Let's turn to slide 8 to hear more about that.

1 of the areas that we've been aggressively building out is our high net worth offering.

And this is 1 of them. This is 1 of many areas. We're building out to serve different investor needs, but as it relates to high net worth per a recent to really study.

High net worth households are those with over $5 million in investable assets account for more than 43% of U S. Investable assets and this is up 27% or 27 points since 2010.

High net worth investors require a different set of solutions, including custom investment cash.

Management wealth transfer and more.

We have a very compelling high net worth offering and have further enhanced it. So some recent examples in September of 2019, we launched <unk> personal portfolios, which provide personalization and quality service and accessible and affordable manner and our for the aspiring affluent and affluent clients.

In December of last year, we also added a new custom high net worth solution to our platform.

If past year, we launched after Mark alternative investment and.

And in the third quarter, we will be launching separately managed accounts at a program around separately managed accounts that will provide advisers with a comprehensive menu of core asset class exposures.

Clients through a combination of recognized and boutique managers.

And this is just the beginning and a platform that we will look to continue to build on and investing to serve high net worth investors in the future.

We are excited about the hansman, we're making to enable our advisors to serve more investor needs. These enhancements will allow us to capture more share.

Share of wallet and create even stickier relationships with our existing advisors, while also attracting new advisors and investors to our platform.

The fourth component of our growth strategy as seen on slide 9 is to help advisors grow and scale their business by offering turnkey advisor solutions and programs.

As discussed during our analyst.

Analyst Day advisory spent less than 50 per cent of their time on non client facing activities.

By outsourcing by outsourcing to asset marks advisors are provided with investment and technology solutions aimed at reducing the time spent on non client facing activity. So that they can spend more time with clients and prospects.

Allowing them to build deeper relationships and also drive client acquisition.

And our 2019 impact about force and survey we found that 2 thirds of advisers surveyed surveyed cited that outsourcing help them create stronger client relationships higher acquisition of new clients and increased client retention.

So we'd like to do more outsourcing for our clients and.

And 1 key priority that we're working on today and it's only 1 of the priorities if marketing outsourcing, which will help advisers acquire new clients through holistic marketing effort.

This new feature will be part of aftermarket entire offering helping expand our value proposition drive advisor growth.

To help create stickier advisor relationships, our marketing outsourcing solution launching in the second half of the year is the first of many outsourcing solutions and look to rollout over the next few years and I look forward to providing further color on subsequent further color on outsourcing solutions on subsequent earnings calls.

So turning to slide 10.

The final component of our growth strategy is to pursue strategic transactions by adding capabilities and scale that improve advisers ability to serve investors and expand their businesses.

We aspire to develop an ecosystem of SaaS and services offerings that are complementary to our core tap tap platform.

The ecosystem will empower advisors of all sizes with the highest quality capabilities and services, enabling to both serve enabling them to both serve clients effectively and grow their practice.

I just wanted to note that we're focused on both in mid sized wealth M&A wealth Tech M&A opportunities that are aligned with our top capability priority.

Marty and scale opportunities are a strong fit.

The cash on our balance sheet, the ability to generate cash and our low debt position, our low debt position us well to pursue future M&A opportunities.

As you can see our reframed growth strategy centered around the advisor helps us grow as a company.

Our strategy is built to attract new advisors drive additional share of wallet from existing advisers and increase the number of investors our advisor serve.

All of these will drive long term growth and value for our shareholders.

The result of executing on these 5 components of our growth strategy is the exceptional performance that Gary will discuss in a minute.

Before handing the call over to him I want to emphasize how extremely pleased I am for all you've accomplished in the first half of the year and I also want to take a moment to thank our over 800, Mark team members for their hard work and dedication to making a difference from the lives of our advisers and their clients 2.

2021 is shaping up to be the best year, yet for aftermarket.

Guided to deliver on what we have planned for the back half of the year from now Barry I'd like to turn it over to you.

Thank you Natalie and good afternoon to all those on the call as Mandy discussed our results from the second quarter were outstanding highlighted by all time high platform assets in record numbers from net flows revenue.

Adjusted EBITDA adjusted net income and adjusted EPS as usual I will start with a discussion about that from assets then.

Talk about our revenue finishes and then earnings I will conclude with an update on our 2021 out book.

Starting on slide 11 second quarter platform assets from a record $84.6 billion.

Up 34% year over year. This growth rate reflects second quarter net flows of $2.2 billion.

Our highest quarterly total in our company's history, and $3.5 billion of market gain net of fees and.

The improvement in our next lowest quarter over quarter is driven by increased production while on redemptions.

Again remained relatively stable.

In June alone and realized net flows of $934 million the highest month in our company's history strong organic growth continues in July and we expect net flow is north of $800 million per month.

Year to date annualized net flows as a percentage of beginning of year assets.

11, 2% comfortably ahead of our 2021 guidance of 8% to 10%.

<unk> strong growth rate includes over $600 million of outflows from our recent acquisition as.

As we shared last quarter, we are no longer sitting out there is lots of visits as they have been fully integrated into our core business.

Moving to slide 12, you can see that over the last year, our organic growth has accelerated with second quarter marks the fourth consecutive quarter of increasing net flows. We believe this means we are executing on our winning strategy that not only just outlined.

The enhancements, we have made and continue to make through our platform have.

Let us to capture more share of wallet from our existing advisors and continually attract new advisers to our platform.

Sticking to this point, let's turn our attention to advisor metrics, we added 201, new producing advisers, our NPA in the second quarter of 2021.

<unk> total since the first quarter of last year.

MPA serve as a source.

Source of our growth in the near and medium term, we are encouraged by the growing quantity and quality of new advisers on our platform.

Our total engaged advisers at the beginning at the end of second quarter was 2691, an increase of 80 advisors since the first quarter of 2021.

Over.

Over the last 12 months, we have added 364 engaged partners while our overall adviser count has remained relatively consistent we have transitioned 4.3 per cent of our adviser base to engage our engaged advisers now make up 91% from our platform assets.

Advisors are a large driver of our platform asset.

Growth is not only highlighted when discussing our share of wallet results.

Now, let's turn to slide 13.

To discuss this quarter's revenue entering the second quarter, our assets were $78.9 billion.

Leading to record revenue of $128 million.

Year over year. This reflects a strong.

Strong increase from our asset based revenue offset by the decline in spread based revenue due to the rate decreases that occurred in the first half of 2020.

We focus on our revenue net of related variable expenses for the second quarter of 2021, our net revenue of $91.4 million was up 33.

3% year over year. This is driven by asset base net revenue, which was up 37, 5% to $88.9 million.

Given the current macro environment, we have received 2 questions quite consistently.

How may inflationary pressures impacting our expenses and second power rising.

Rising interest rates impact our spread based revenue we have.

And we will continue to evaluate as our outlook for 2021 does not assume any material impact, but let's turn to slide 14 to discuss further.

First regarding inflation I would start with yes. This country has not seen an extended inflation in almost.

2 generations and the general consensus is that this inflation will subside as supply meets demand in the economy.

That said regarding its potential impact on our sensors and.

The inflationary environment could pressure future compensation and travel costs as no new zone, we see no near term impact.

In our industry and longer term, we and aftermarket tend to manage it within our budget.

Second regarding rising interest rates at the recent <unk> Federal Reserve meeting 13 of Aitken officials favorite at least 1 rate increase from the end of 2023 versus 7 at the March meeting 11 officials saw at.

These 2 hikes by the end of 2023 and in addition, 7 of them saw them move into early 2022.

An increase in interest rates will have a positive effect on asset mark spread based revenue.

Based on average second quarter.

Total cash of $2.5 billion at our trust company of 'twenty.

25 basis point increase in the fed funds rate what amount to about $6 million of spread based revenue annually.

I want to set that up 75 per cent of this will fall to our bottom line.

Simple it earlier than anticipated interest rate hike could speed up our revenue diversification and earnings growth.

Now, let's turn to slide 15 to more fully discuss the drivers the change in net yield year over year.

As the waterfall graph shows net revenue was up year over year, driven by the impact of our asset growth, which generated $26 million in additional net revenue.

Also adding to our increase from net revenue in the 3.

Million dollar reduction.

Asset based expenses.

This is ongoing savings, primarily driven by restructuring agreements with providers.

<unk> been focused on creating more scale regarding this expense. So we're very happy to see the impact this quarter.

Continuing through the waterfall the impact of the.

<unk> yield reduced net revenue by $4.9 million.

Of this $4.9 million impact about $3.9 million was due to the shift to lower cost mutual fund share classes that we completed last year.

Starting next quarter, you will no longer see this in our year over year walk.

We.

The remaining $1 million was driven by fee compression do ordinary mix shift.

Note that this year over year compression impact.

Exactly.

60 basis points, which is below.

I'm, sorry, I'm, sorry, my volume is <unk>.

6 basis points, which is below the.

1 basis point, we plan for each year.

Moving to spread revenue it decreased $1.3 million year over year in.

The decline in our average yield was 43 basis points to 29 basis.

Overall net revenue as a percentage of total platform assets from the second quarter.

<unk> 46, 3 basis points, and a little less than 3 basis points from 2020.

Turning to slide 15 helps detailed the year over just.

Year over year decline in yield as it shows 1 basis point is driven by the asset based revenue and $1.3 basis points are due to the decline in spread based.

It is a story in <unk>.

Order over quarter is the quarter over quarter change in net yield.

Slide 16 shows net yield trends over the last 5 quarters, what you'll notice is that a net yield of 46.3 basis points in the second quarter is up $2.2 basis points quarter over quarter.

Driven by the measures we've taken to reduce asset based expenses that I made mentioned earlier.

As we have communicated historically, we still expect a 1 basis point decline in asset based fee yield as a result of mix shift.

Now, let's discuss expenses.

As shown on slide 17.

We continue to do an excellent job of managing our expense base that doesn't outpace our revenue growth. Although adjusted expenses increased 18, 6% year over year to $93.3 million spread based expenses, while small doubled year over year as a result of our growing S block program.

<unk> training expenses were up 19, 1% year over year to $51.2 million, driven by a $3.4 million increase in compensation and a $4.8 million increase in SG&A.

The increase in compensation expenses, largely driven by 2 factors first our variable sales incentive costs.

Costs increased as a result of our strong sales in the quarter as well as increased head count on our strong sales results increased our compensation expense.

We will realize the revenue benefits from it of course in the upcoming quarters.

Second we added 76 employees over the last year about 10% of our current employee accounts primarily.

Finally in our client facing functions.

The increase in SG&A was largely driven by a variety of incremental factors, including an increase in professional fees and increased costs associated with higher volume.

Well, let me run through our expense adjustments in the second quarter, we added back a total of $14.7 million.

Pre tax which is comprised of 4 items first $6.7 million noncash share based compensation, which is lower than previous quarters due to the acceleration of share based compensation costs, we realized last quarter.

The run rate for the rest of the year should be about $6 million to $8 million per quarter.

Primarily second adjusted to expenses is $5.1 million of amortization expense related to our 2016 sales as a reminder from modeling purposes. Most of this expense will be fully amortized from the ended 2021.

Third $1.5 million in acquisition related expenses associated with our acquisition volume.

Integration of <unk> and Obs.

Lastly, $1.4 million related primarily to reorganization and integration.

Now, let's turn to slide 18 to discuss our earnings for the quarter.

Second quarter 2021, adjusted EBITDA was a record $40 million up 58% year over year.

And the adjusted EBIT margin from the quarter was 31, 3% up 570 basis points year over year.

This improvement in margin year over year. Despite the decline in spread based income as a result of favorable macroeconomic conditions and our management's team ability to focus on expense management, while investing in future growth.

Our reported net income was $10 million as compared to a loss of $9.3 million in the second quarter of 2020 with improvement in reported net income as a result of the lower costs associated with share based compensation at the IPO related grants have almost fully amortized.

Our adjusted net income in the second quarter was 20.

<unk> dollars 6 million or.

Our <unk> was.

<unk> 36 per share.

This is Dan from the second quarter diluted share count $73.5 million.

Our effective tax rate from the second quarter was 23, 5% lower than our effective tax rate by 6% from the second quarter of last year.

The.

6 driven by tax efficiencies, we've created in 2020 from a color. Please see the adjusted net income walk on slide 23.

Turning briefly to our reported second quarter balance sheet, Let me update you on our cash and cash position.

We ended the quarter $179.8 million in cash this.

The decrease reflects $75 million of cash that we drew down from our credit facility at the end of June to fund the close of volume which occurred in July.

To close in line, we then use some excess cash to reduce our outstanding debt and it stands as of today at 125 million.

Number of remaining cash on our balance sheet, the ability to generate cash and I don't know that positions us well to pursue future M&A opportunities.

Now, let's turn to slide 19, and discuss our expectations for 2021 as a reminder, our long term expectation is to grow revenue in the low double digits.

And adjusted.

Margins in the range of 50 to 75 basis points and grow earnings.

By 15%.

Our revised expectations for 2021 reflects strong organic growth and market impact in the second quarter as well as the impact of voyage in the second half of the year.

We are increasing our net revenue growth outlook to.

<unk>, 26% to 28% from the year compared to our previous expectation of 18 to 21 per se.

Our operating expenses, which consist of compensation and SG&A are expected to increase 20% to 22%.

Due to increased investment in 2021 is important to note that we will maintain this.

Second our expense growth was to not outpaced revenue growth.

As a result, we are revising our 2021 adjusted EBITDA growth aspirations of 35 per se.

<unk>, plus which is above our previously guided range of 22% to 26 per cent.

This outlook reflects the strong momentum from the first half of the year.

Impact from Blaine and our ability to continue to find ways to scale our business.

Based on our revised growth outlook, we've laid out we have set in margin expansion for the full year of around 250 basis points much higher than our previous expectation of 150 basis points and our ongoing 50 to 75 basis points target.

It gives is phenomenal given that we are still investing significantly.

With that I'll hand, it over to Natalie for concluding remarks.

Thank you Gary and thank you to everyone on the call today, it's a great time to be an aftermarket visor team member and shareholder I look forward to sharing future updates at upcoming conferences and I'm.

Subsequent earning calls.

This concludes our prepared remarks, and I will now turn the call back to the operator to begin Q&A.

Thank you speakers participants we will now begin the question and answer session to ask a question over the phone. Please press the star key followed by the number 1.

To withdraw your.

You May press the pound key.

Again, Thats star 1 to ask a question.

<unk> withdraw your request.

First question is from the line of Gerry O'hara of Jefferies.

Jefferies. Your line is now open.

Thanks for the update or around the economics, and buoyant and especially into the back half of the year.

Was hoping you might be able to give us a little color as to what we might be able to expect beyond that are beyond this year. It sounds as though there's some from integration efforts.

That could leverage.

The leverage that platform and.

And perhaps.

Some I don't know if there'd be any investment that would be required to grow that but what's the contribution to volume. It could look like down the road beyond beyond just the back half of this year.

Thanks, so much for that question Jerry I really appreciate it so I'll start.

And I'll hand off to Gary to give a few more specifics.

But related to the point, we are planning on investing in further integration of foundational financial planning capabilities to be delivered domestically to aftermarket visors.

And we expect to cover the cost of that further integration.

<unk> further development within our regular capital budget, so within the budget that we tried to keep around 7% of revenue.

In addition to that we've already started the introductions of Lance to several of our.

Partners in the United States, and we expect that 1 of those relationships.

Chips will grow over time.

And then David Kaufman CEO of <unk> and I are speaking about what the next level of investments should be for moving it outside the U S. In fact, we're very close to launching.

The next generation of their investor.

<unk>, a brand which they call.

Investor go or the game.

And that should be launching within the coming weeks and so the investment and that has already started.

They had good traction outside the U S in terms of their relationships with their existing providers of new providers.

Don't intend to announce what that means in terms of the number.

<unk> of new licenses or incremental revenue until the new seats are on boarded.

We wanted to make sure that the revenue is realized before we announce that.

And so Gary I don't know if you'd like to take it from there.

Thanks Natalie.

And.

Thanks for the question Gary.

David.

I don't think we have any any any details to share with you on 2022.

Economics for <unk>.

To me there and if you are on the same page with now having said earlier.

Stepping away from the 2021 would be about $20 million full year.

About $8 million full year.

EBITDA.

We are obviously, hoping for outsized growth from that.

Net business right. So in terms of thinking about how it compares to our core business.

But I think what we'll do later on and net quarter or into the fourth.

If there is.

A more firm update of where we see net revenue might go.

So I don't know if I know, it's not very helpful. Mike.

Don't have any updated numbers right now from Cleveland.

Yes.

Totally reasonable.

And then perhaps just wanted to follow up I think perhaps a little bit more around the strategy and kind of.

Quarter their share of wallet capture.

Clearly quite quite strong as it relates to the tamp assets, but.

Curious as to where you might see or hope the share of engaged advisers around the total assets could go, especially as you start to rollout some of these some of these new.

Thanks.

That would that'd be helpful.

Yeah, absolutely and Jeremy Thanks for that question as well so.

Our existing share of total wallet from our engaged advisers as 50% as I mentioned earlier in the call and what's really.

Limiting us in terms of capturing.

No problem the remaining 50% is 2 things.

The first is advisors use solutions elsewhere that they can't access at asset Mark and so alternative investments is a good example of that before we launched our third alternative investment platform separately managed accounts is another example of that but we're launching.

Separately managed accounts.

In the latter part of this year some lending solutions would be another example of that which we're hoping to launch in 2022 and so they're just they're assets that could be offered by our platform that we don't have an investment solution today and methodically working our way through that that potential.

On.

On a size of total capture of basis.

The other component of the share of wallet that is currently available as share of wallet that isn't eligible because its not fee based so assets.

Assets that are more commission in orientation, and we have extensive programs that.

We put in place an extensive projects in place to help advisors and their clients understand the benefits of moving towards fee based moving away from commission to fee based.

And this has been an incredibly these programs have been incredibly successful in helping advisers.

Growth driving businesses and helping investors.

<unk> find their way to solutions that are better suited to their investing needs and.

And increasing the total number of assets that are eligible on our platform will commission. The top 2 commission categories would be insurance oriented assets and the other would be mutual fund oriented commission assets.

Great.

Great. Thank you for taking my questions.

Thank you.

Next question is from the line of Alexander <unk> of Goldman Sachs. Your line is now open.

Hey, good afternoon, thanks for taking the question everyone.

Couple of questions around just organic growth I guess, maybe.

1 clearly really nice improvement here in a very good momentum over the last couple of months. So I'm curious if you guys can talk a little bit about the sources behind this acceleration and then.

Bigger picture of Natalie probably for you.

As you sort of outline asset March kind of Reframed approach in the market.

Kind of incremental organic growth.

Growth do you think this could create for the firm over time. So is it reasonable to think that can get you guys more into a more consistent double digit organic growth.

Or are there some offsets in the business that we all should consider.

Thank you so much Alex so for the first part of your question organic growth in the sources of our current acceleration.

There are really.

There are really 4 main sources of our current.

Our current success the first is share of wallet and.

The games that we've the gains that we've achieved because we've expanded the universe of solutions on our platform too.

To include those that.

<unk> currently receive from that Couldnt previously.

Previously received from aftermarket second is the move to commission to fee.

Third is just the general growth of advisers on our platform. So the efficiency of advisors and then the force is kind of a payback from the work.

Work that we did last year to serve our advisors and help them serve their clients and clients picking as a result, those advisers at greater frequency. So let me take them started in order as it relates to share of wallet. Our sales teams are actively engaged in business planning.

Exercises with all of our advisers to.

To help.

Them understand what are the best sources their future growth and then to help us understand what.

Pieces of their investor portfolios could be served on our platform.

Rank those opportunities each year and then we expand the solutions on our platform to tackle the areas that have the greatest.

Potential share of wallet improvement for us and for our advisors and so I think the point I think a portion of our organic growth as a result of those initiatives whether it be with our SAVAS personal portfolio launch, which is already over $1 billion.

Our addition of alternative investments is very new and really we haven't.

It's too.

It has big results from that yet and then expansion in other areas of our platform like lending.

The second part is the.

The general move from.

From commission to fee.

Regulation best interest or Abi has really.

Opened the conversation between advisory from their clients.

I asked about why moving to a more fee based orientation is more explicit in terms of the pricing.

And can be in the best interest of the Investor because theres more ongoing management of the investment and so we have programs, where we work with advisors, who are interested in moving from commission fees and we help them.

Early client communications, our investment assessments diligence et cetera.

The third is that our advisors are growing as I mentioned in our.

Earlier in the call 1 of our main initiatives is extending our outsourcing offers so that advisers can spend more time with our clients.

What we know from.

With total outsourcing service is that when advisors outsource investments are they outsource more of the aftermarket a growth factor and we see that accelerated growth from new advisors on our platform and that leads to org.

Organic growth from those advisors, who are starting to outsource more and more.

And then in 2020, we spent.

A lot of effort.

Effort, making share advisors.

<unk> had great technology tools had communications roadmap materials thought leadership best practices to help them and their investors navigate through what was a very tough environment and what you see is in the years following years, where you really invest in client service.

Some are about the advisors.

Advisors in there for our platform.

We are beneficiaries of the growth to recite advisers receive because their investors want to do more business with them.

So those are really the 5 areas of organic growth.

Do you have any more questions about that before I talk about the future.

No that all makes.

That we can.

Go to the next part of the question.

In terms of a feature as Darren mentioned, we target.

Low to low to mid double digit organic growth as part of our ongoing objectives.

All of the investments, we're making now all of.

Suntrust mints that we're making in our new strategy is an attempt to achieve those long term objectives and each of those numbers I just want to say, they're averages like overtime. Some years, we'll do better than that other years will not too as long as that but over time, we expect to achieve the targets that Gary outlined in his earlier comments.

Got it great. Thank.

Thank you for that and then Gary maybe 1 follow up for you just around the guidance slide I.

I guess when we just look at the run rate of the business today in the second quarter and the asset levels exiting the quarter and then you're layering on the acquisition as you described it feels like you guys are there if anything.

It actually feels like you could run well ahead of the guidance that you provided so are we missing anything or.

That would sort of detract from from the back half of the year or there is just a big plus next to the 35% plus.

[laughter].

No.

Sure.

Beginning in the second half of the year as continued investments in the company and so.

We didn't see expenses us investing both in people and compensation cost kind of ongoing stepping up in terms of that.

Client facing people that we need as a company, but also some kind of some more.

Kind of 1 time.

Jaime investments that we're going to invest in specialty and some other things non compensation base. So.

So what you're probably missing in sort of that step up in spending in the second half of the year that will keep us overall, where we're planning to come in but we have if you say it might be say control some.

And then in the first half per year to make sure we had the earliest thing.

Got you that makes sense all right. Thank you all very much.

Yeah.

Next question is from the line of Michael Young with tourist Securities. Your line is now open.

Hey, Thank you for taking the.

Actually wanted to maybe just follow up on that comment Gary just.

You guys have had very strong revenue growth and things are looking very positive again in the back half. So when you talk about that accelerated investment and its been there is it.

You know things that you've kind of already articulated and talked about are these.

My question is still on the drawing board that we should expect to hear about over the next 6 months or so.

Now on the I'll start and then from some of the numbers and maybe you can talk about where we might invest on the thing.

Michael part of it is what not only was talking about in terms of the things that we're going out to meet the advisors where.

Things and to bring them the tools they need in general from the current calendar year. These are things that had been on our board and within that budget to spend during the year.

Our nature is to manage our expenses. So we are cautiously and youre right. We havent realized if now bill third quarter already we feel very confident.

They are third quarter revenue and so we feel more confident about about making even more investing.

Net.

Upon their Natalie do you want to give a little color on where we might be investing in the net Q3 quarters.

Other than that.

Yeah, absolutely so.

First thing I, just want to say Michael is there are things.

We're investing in that are in aviation things. There are other areas that we're investing in that are in research and development.

Items that I talked about here are either newly executed nearly executed or well plan.

No.

So we have many initiatives at each stage of our product development lifecycle and.

In years like this 1 we like to take the opportunity to invest in more R&D initiatives.

And to look at how we might be able to expand our offering to advisors in ways that can help.

Them compete.

Compete and succeed and sometimes some examples from the presentation earlier some of the outsourcing initiatives that I mentioned are in the earliest stages of.

Development, and then others like marketing are much more close to launch. So we can talk to you about them in greater detail our.

Plan looking at.

Always looking at expanding our technology offering.

Making sure that our technology can scale.

Serve our growth.

And that we are meeting the needs of advisers, which are changing and emerging every day. So we didn't spend as much time today talking about that but as per feature.

Our earnings calls.

And expecting to take you through the technology road map as well.

Okay, great. Thank you for that and I apologize to switch gears here, a little bit but Gary.

Good to see the net yield improvement this quarter as you talked about could you just talk about is there any other opportunities.

From where we could see that continue to kind of offset the natural pricing pressure that we would expect to see over time.

Scale or any other.

Things that could drive that going forward.

Yes, great question Michael.

And so you have to take a step back make sure on the same page rank was asset based expenses.

Expenses, where payments from makes it kind of.

Or different groups price, we pay our strategist who are on our platform. They earn part of the platform fees from the work. They do you pay broker dealers we pay.

Advisers to marketing allowances, and we paid for Sony per party custodians.

That all is the asset bases for all of them.

There are contracts that we have from many of them, they're already structured with great point, so as we scale up even wind up paying less per basis up her per dollar of assets become the scale and many other than to them.

We knew regularly where we go into discussions with our partners about the value, we're bringing them and theyre, bringing up et cetera, and so it's a long answer there just to make sure on the same day.

What all this is.

And so we are continuously looking at net the majority of those cost naturally expenses RQ strategist with loans.

Sort of breakpoint type contracts.

And so I don't want to highlight anything now to kind of build in because there's nothing to announce but this is an ongoing focus Michael and we do hope to continue seeing improvement in that exactly to your point to offset the natural.

Cost decrease to the Endovascular.

Okay. Thanks I appreciate it.

Next question is from a lot of Kevin's day occurred.

Switch your line is now open.

Yeah.

Great. Thanks, so much.

Just following up on your last point I don't know if this for you or Gary but.

What type of revenue run rate.

Your current infrastructure support and.

And it's I guess, a 2 part question because it seems pretty intriguing if you're adding on the marketing so wanted to understand Natalie what other modules.

<unk> can you add.

In terms of framing.

Framing out what the.

Digital addressable market can be and do you expect to do that organically inorganically or combination of both so just trying to get a sense of how we should be thinking about scale as it relates to current infrastructure and then what those initiatives can bring.

It there.

Yeah. So I'll start and then Gary do you have anything to add please feel free to follow on as.

As it relates to the scale that our current infrastructure can support a couple of things I just want to say the third thing.

Infrastructure investments of technology investment.

It's an arms race he needed to be and we believe you need to be investing all the time.

So the capital expenditures that we build into our budget and that we grow in absolute terms every year, but an attempt to keep it around 7% of revenue inside that capital budget is the investments we need to make in infrastructure.

Ahead of our growth.

It's a discipline that we in our technology team and our leadership team we employ.

When we do our infrastructure investing budget total.

Capital budget every quarter.

Yes.

And so in terms of the expense side of the equation I just want to say that we're in.

Being an infrastructure every day, we have been for the last 8 years and we will continue to.

And we will do that in a disciplined way.

In terms of the revenue and the total addressable market now we're.

Looking always looking for ways to expand our total addressable market as we talked.

When we acquired <unk>.

There is a technology component to services that advisors need by that Akamai Qualcomm has been able to serve in the past on a standalone basis, and so we're investing in that not only in the U S, but true buoyant.

Worldwide that increases our total addressable market pretty significantly from.

Adding services that are geared towards <unk> and the Bank Trust channel and when we do that we expand our total addressable market into those new segments.

We're expanding the share of wallet that we conserve from the existing adviser segments. We have so that also increases from.

Our total addressable market and the resulting revenue.

<unk>.

In every way we're always looking at ways, we can serve advisors more thoroughly.

You know different regions different affiliation types to see how we can expand our addressable market and then as it relates to revenue.

As Gary said right now we have asset based revenue we have spread base.

So new and then we're adding subscription based revenue through plant and other technology solutions and so over time as we give updates on our 5 strategic areas. What youll see is there'll be new sources of asset based revenue.

Currently managed accounts as an example of that alternative investments there'll be new sources of spreads.

Based revenue so as we expand our lending solutions or as interest the interest rate environment changes and then subscription based revenue as we launch new technology services to advisors with financial planning being the first 1.

Got it so the marketing things like that would that fall in the subscription or where would that fall.

Uhm.

How has it been kind of the initial client reaction to volume in terms of.

Have you seen a lot of conversion into a boy this is.

The model as opposed to the more basic plan that you already have in place and so really thank you for all thank you for that question and clearly it's early as it relates to <unk>, but.

I'll tackle both first thing as it relates to the marketing outsourcing that would fall into subscription based revenue again, we expect it to be small to start and the main benefit of marketing based outsourcing to be the growth with the advisers on our platform achieve and how that feeds.

Both our spread based revenue with interest.

First rates change and our asset based revenue.

For the growth of those advisers on our platform.

As it relates to brand the early feedback from our advisers about Atlanta has been fantastic.

Interested in volume.

Cash flow you have planning alongside the probability of success.

Planning they like seeing both on the same page.

Only closed on July 1st So these conversations are just starting.

We've only just integrated <unk> into our platform about a week ago.

And so we really don't have any data to share with you today as it.

If you look too.

Adoption or usage at this point that the early conversations are really fantastic and then in terms of using basic financial planning asset mark versus being up sales to buoyant.

Conversations haven't really starting and it's only been about 4 weeks and so those conversations haven't started yet.

But the basic introductions are where we are right now.

Thanks, so much.

Thank you everyone I'll now turn the call back over to Natalie Wolfson.

For closing remarks.

Well. Thank you everyone. We really appreciate.

Joining our call today, and we look forward to talking to you again next quarter.

And that concludes today's conference.

Thank you all for joining us.

You may now disconnect.

Okay.

Yeah.

Sure.

[noise].