Q3 2022 Envestnet Inc Earnings Call
Greetings welcome to invest that third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to Brian Shipman head of Investor Relations. Thank you you may begin.
Good evening, everyone. Thank you for joining us on today's third quarter 2022 earnings call before.
Before we begin I'd like to point out that our earnings press release supplemental presentation and associated Form 10-Q can be found under the Investor Relations section of our web site and invest net dot com.
This call is being webcast live and a replay will be available for one month on our website.
During the call we will be discussing certain forward looking information.
This information is based on our current expectations and is not a guarantee of future performance.
Encourage you to review the cautionary statement on slides two and three for potential risks uncertainties and other factors that could cause actual results to differ from those expressed by the forward looking statements.
Further information can be found in our regular SEC filings.
During this call, we will be referring to certain non-GAAP financial measures.
These refer to the appendix in our presentation for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
Presentation is also posted to the investment Investor Relations website.
Joining me on today's call are Bill Krager invest <unk>, Chief Executive Officer, and Peter Rigo invest <unk> Chief Financial Officer.
Bill and Pete will provide a company update as well as an overview of the company's third quarter 2022 results.
After our prepared remarks, we will open the call to questions.
During the Q&A. Please limit yourself to one question plus one follow up you may get back into the queue. If you have additional questions with that I will now turn the call over to Bill.
Thank you Brian Good evening, everyone and thank you for joining our third quarter earnings call.
<unk> continues to generate growth and extend our competitive position in the face of a significant global financial downturn. This is a testament to the essential nature of what we do.
<unk> is growing.
We've generated net asset flows we are growing the accounts we serve we've grown the number of services. Our clients are leveraging from us growing the number of users utilizing our DNA products and one the important mandates that we've competed for much of this has been supported by our accelerated investments.
I will share important updates on our progress in a moment, but first it is important to understand that while we navigate the market and economic cycle. There is another very powerful trend at work. This is a super cycle is data intelligence and digital engagement transform our industry.
Two connected hyper personalized active advice.
Investment is forging this we are executing on it.
To step back for a moment.
Investment drove the last transforming cycle cloud based feed based independent advice. When you look at investments growth over the years. It becomes so evident how essential investment has become to the core of the advice industry.
As we enabled the movement to fee based the assets on our platform grew at a 42% CAGR from 2010 to 2020, while the total advice industry grew only at 13% during the same period of time.
During this cycle, we created significant value for our shareholders today.
We are leading the future again.
Given our increasingly connected ecosystem the intelligent digital capabilities. We offer these are beginning to drive this generation Super cycle. This is what makes us even more essential more embedded more competitive competitively differentiated.
We are continuing to digitize streamline and foster more productive partnerships that expand our capabilities and generate new revenue streams and importantly across our business. We have made meaningful progress on the path towards margin expansion.
Let me spotlight some of the results from our efforts.
And our wealth segment net M&A flows were positive above both industry and our peer group during the quarter. We increased the number of accounts, we serve and the number of accounts per advisor increased 8% year over year.
This is an intended focus of ours and we're not surprised that clients are utilizing more and more of invest net services.
This growth will drive accelerated gains as current market conditions normalize something that I've referred to in the past as the coiled spring.
We continue to expand the footprint of who we serve and the solutions that they use which also generates more revenue growth.
On our client roster, we recently been engaged by a national credit Union.
We signed a national RIAA as a planning client we expanded our partnership on fiduciary and 401K solutions with a national wire house firm and finally, we saw strong conversion activity during the quarter.
We also experienced strong account growth and our proprietary solutions.
38% year over year growth for tax and impact overlay as well as direct indexing and well over a 100% year over year growth in our high net worth solutions.
These are especially notable as these are invest net managed solutions, meaning we capture 100% of the economics.
In our data and analytics segment, we have substantially grown the number of paid users to over $37 million today, and that's up from $25 million in 2019.
As economic conditions improve this will be another coiled spring for our business.
Total number of transactions that we've tracked this year are estimated to be 48 billion, which is two five times what it was in 2019.
You see the platform is getting smarter as we derive insights from this vast and growing dataset.
Additionally, the launch of the wealth data platform is a clear example of how we are creating value for our clients and driving incremental revenue growth.
Our platform allows home offices and advisors to connect to aggregate protect and analyze their own data.
It also generates extraordinary intelligence as we've grown the number of insights we publish to over 20 million a day.
Let me explain this.
Insights tell advisors about the most important needs or opportunities for their clients.
Our data shows that the greatest opportunity for advisory clients lies in their existing book of business. We are unlocking this for them.
Here's an example.
Example over.
Over the past 16 months within the tax overlay program advisers utilizing insights have experienced 57% growth in asset while advisers without insights have only grown at 20%.
So you can understand why insight utilization is up 40% quarter over quarter. There is very strong interest and growing utilization, which drives more and more flows which means our advisors will experience faster growth as we'll invest net.
We expect the wealth data platform to generate more than $35 million in annual revenue by 2025.
And the platform insights will continue to generate even greater usage of our marketplace, a fiduciary solutions, which will capture additional recurring revenue from this critical offering.
The last topic I will highlight related to our growth initiatives is something that we're incredibly excited about.
We recently announced the partnership with F N Z a global leader in wealth management solutions, we are partnering with them to create a fully end to end from prospect client from planned to portfolio to execution in custody digital environment that will automate scale and fully digital.
<unk>, our clients' engagement with investment.
This is another very significant step in value creation.
It enables us to pursue expanded revenue opportunities associated with custody.
Captured through our technology.
Platform technology integrated with FMC.
In addition, <unk> will distribute the invest net wealth data platform to their international clients, which represents a major step for investment in the international wealth market.
<unk>.
As we grow and are defining the competitive landscape by bringing the intelligent and transformational capabilities to the industry we've been investing.
<unk> the spur this next cycle investing wisely and also managing expenses and resources.
Earlier this year, we completed the investment driven hiring cycle and reached our peak in personnel in the first quarter.
This enables the future oriented organization that is driving these high value solutions, we've seen the benefit of this talent in so many ways over the last quarters and the marketplace is recognizing this as well.
That said, we recently announced an agreement with Tata consultancy services to outsource our data and analytics operations in Bangalore.
This partnership allows us to transition resources to Tcs, giving us operational flexibility and scale, while generating an estimated cost savings between $10 million and $13 million in 2023, and we expect savings will increase in the coming years as our data and analytics business.
<unk> continues to grow.
We're also modernizing our operating environment for our wealth business by consolidating and cloud scaling our portfolio trading accounting reconciliation and reporting capabilities.
This modernization will positively impact our bottom line in late 2023 with additional benefit realized from 2024 to 2026 as we put these systems into production, we have seen a significant efficiency and productivity lift that ultimately will create cost leverage across our business.
<unk>.
Yes.
Given the steps that we're taking we believe that by year end investments personnel will be nearly 25% lower compared to the peak in the first quarter of 2022.
We are investing in future capabilities, while rebalancing the organization to be more efficient in all areas of our business.
Lastly, another meaningful effort that has a long term client benefit and cost impact for our business is the successful integration of each of our recent acquisitions to maximize the value of these new additions to the <unk> family.
<unk> is now a key embedded component of the wealth data platform.
Ready to integration is on track, while also winning exciting new mandates with these revenue management offerings. We're also happy to share that our acquisition of 401K plans Dot com is immediately paying dividends as we recently entered into a partnership agreement with UBS workplace to streamline the.
The onboarding of retirement plans.
These are very targeted investments and are delivering the intended results.
Pete will provide.
<unk> guidance around margin expansion in his comments.
But I want to say this we remain committed to achieving the 25% adjusted EBITDA results by 2025.
And believe we are taking the steps. Despite this market to achieve that result.
With that let me turn to Pete So he can share results as well as what we expect for the rest of the year.
Thank you Bill investment continues to proactively drive our strategic imperatives, while responding to headwinds created by the economy and the capital markets for the third quarter, our financial results exceeded our guidance.
With adjusted revenue of $307 million, adjusted EBITDA of $53 $5 million and adjusted earnings per share of <unk> 45.
Both segments contributed to the outperformance within the quarter.
While the performance in Q3 was favorable the near term outlook for the wealth segment again was adversely impacted by unfavorable equity and bond markets.
Importantly, though in Q3 investment continued to deliver positive net flows well above most peers.
Over the last 12 months, we have posted $81 billion of net flows were an annualized organic asset growth rate of 11%.
Also the addition of over 100000 AUR may accounts and continued increase in accounts per advisor within the quarter demonstrate the importance of our platform to our clients through challenging times this bodes well for the longer term.
Our data and analytics business also performed well in Q3, although continues to face pressure as the economy is impacting its asset manager and Fintech client base.
As Bill noted we continue to make progress as we transform this segment from a product subscription strategy to a platform off with emphasis on content for wealth management consumers and small businesses.
Now I'd like to discuss our recently announced partnership with Tcs, which provides us significant expense saving opportunity for investment which will generate.
<unk> substantial progress as we work toward our margin goals.
The Tcs partnership allowed us to effectively transfer invested employees to one of the world's largest consulting companies, which should allow us to scale dysfunction in future years, consistent with the anticipated growth of the business.
In doing so we expect to get an immediate expense savings with a full year benefit in 2023.
Overall, we are pleased to be making significant progress in this area.
Turning to our outlook for the fourth quarter and the full year 2022, we are updating our guidance as follows.
For the fourth quarter, we expect adjusted revenues to be between $294 million and $296 million adjusted EBITDA to be between $52 million and $54 million and adjusted EPS to be 42 to <unk> 43 per share.
For the full year, we expect adjusted revenues to be between $1 $241 million and $1 billion and $243 million adjusted EBITDA to be between 218 of $220 million and adjusted EPS to be between $1 82.
At $1 84.
Our guidance as always does not assume any changes in the capital markets from the prior quarter end.
As such is based on market levels as of September 30.
Looking ahead to 2023 as is our standard practice, we won't be giving specific guidance until our next call in February however, taking into consideration the market levels as of September 30.
The annualized <unk> of this year's market performance would present, roughly 6% to eight percentage point headwind to our 2023 revenue growth rate.
In addition to the approximately 6% to eight percentage points of market impact to our 2022 revenue growth rate.
Despite these challenges to top line growth.
Given market values as of September 30, we currently expect to increase our EBITA margin in 2023 by around 100 to 125 basis points compared to 2022.
I'd also like to add some context around a few items that do not impact our reported non-GAAP financial results, but do affect free cash flow.
As we have implemented our broader strategy of 2021 and 2022, we have experienced increases in certain items such as capitalized software.
We have consolidated portions of the business and we are implementing practical cost management, given the very difficult market climate, creating a series of restructuring costs, including a write down of our real estate footprint.
We expect the growth rate of several of these items to come down significantly going forward, especially compared to the increase we saw from 2021 to 2022 and some areas, we expect to come down in absolute terms.
Looking at the balance sheet, we ended September with $241 million in cash and debt of $863 million, making our net leverage ratio of approximately two eight times EBITDA.
Thank you again for joining the call today and for your continued support of investment with that I'll turn it back to bill for his closing remarks.
Thank you Pete.
As you've heard Tonight, we have reported a positive quarter. Despite the historic headwinds that we face.
We drove 27 billion of net flows during the quarter non boarded over 100000 net new accounts to the platform.
We signed meaningful new clients and also made progress expanding the services, we provide to our existing clients.
After the quarter ended we took important strategic steps announcing two exciting partnerships.
Our new partnership with FMC opens up multiple significant addressable market opportunities for us to drive increased revenues associated with custody and our wealth data platform.
Our partnership with Tcs allows us to significantly reduce expenses immediately.
And as I stated a few moments ago, we are operating more efficiently scaling automating lowering the cost to administrate our business, while we invest in the areas of growth and long term value creation.
We're executing our strategy, which creates significant value for our clients and for the industry. While it enables our business to capture the next leg of accelerated growth and margin expansion.
Day, one this company has executed today, we once again are leading a transforming super cycle of data intelligence.
Digital engagement and personalized offerings, we are delivering more and more effectively making ourselves even more essential to the industry into our clients.
Investment is a leading indicator for people of Investnet lean in lead and execute.
We have positioned the investment ecosystem to drive the future once again.
With that we're happy to take your questions.
Operator.
Thank you Steve I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if he would like to remove your question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Our first question is from Devin Ryan with JMP Securities. Please proceed.
Great Good evening Bill Pete Brian .
Just have one question here.
Wanted to talk little bit about the F&B partnership.
The custody solution sounds interesting so how is that going to be positioned in the market and then how should we be thinking about some of the both short term and long term revenue opportunities to investment that you highlighted there.
Awesome, Devin Hope you hope you're well good to talk to you soon.
Yes.
A very exciting partnership for US we are something that we've been <unk>.
Incredibly deliver.
Deliberate in assessing how we can extend our.
Our platform and our capabilities to include some of the services that we will introduce through F. N Z first and foremost important to understand investment is the most open architecture environment in the industry period, we trade back to about 32 different trading and custody partners. So we are the.
Tree and we network to the industry.
But you know.
In our conversations with clients.
They are looking for more digital options more efficient operating environment and the industry needs to really advance how we work together and investment took the step and we're driving that advancement in our mind with this partnership.
This partnership is a step ahead for the industry investment in F&B are extremely complementary capabilities.
We also have very complementary geographies right, we are accelerating <unk> entry into the United States market and they are bringing us into the international markets. This is truly a global deal. We also have a very complementary approach to how we approach our clients were.
<unk> collectively to create success and growth and also profitability.
For our clients. So we're very aligned in that way.
So with <unk> Z invest net will provide the leading capabilities on the front end everything that we've modernized and all the operating technology that we offer the marketplace today and with FMC, we will deliver the most advanced digital automated opening and servicing for the full lifecycle of a client account.
Which includes custody and so.
A truly kind of a digital end to end environment that we'll be introducing to the market Devin.
It opens up some new revenue streams for investment.
Which we're excited about.
I think over time are meaningful for us.
As we use our technology platform to enable services like custody you noted that there's also cash management.
Theres also lending other capabilities that utilizing our technology platform will be able to enable will be in market in the second half of 2023, as we approach that kind of entry.
Released into the market.
We'll start to forecast what contribution from a revenue standpoint, we think this can produce for us.
But I do believe.
Given the streamline digital nature of this and the real time.
Nature of the data that we'll be.
Able to provide during that account opening and administration process. It is differentiated and has the opportunity to be very successful.
Okay terrific and just one follow up on that is the right way to think about it.
We understand all the ways the custodians, Ken Ken essentially interact with customers make money that invest in that will have some revenue share on that with any customers end up custody through this new.
Partnership platform.
That is exactly right Devin and I would just add to that in addition to that there is the global distribution of certain solutions at invest now will.
Work and partner with <unk> to two.
<unk> International client base.
Okay, great. Thank you very much look forward to following alright.
Alright, Thank you Devin good to talk to you.
Our next question is from Alex Kramm with UBS. Please proceed.
Yeah, Hey, good evening everyone.
First one is a quick numbers question.
I was surprised to not see an update in your prepared remarks.
I Miss it or in the deck.
The personalized solutions I think in the last few quarters, you've given the.
AUM number and even last quarter. The account numbers I thought that was going to be a major kpis for you too.
The measure of success so a.
Can you give us a number and be any reason why maybe you didn't report it.
Yes, I've mentioned, Alex. Thank you I mentioned in the script, but I'll just kind of highlight some of the progress there and then we reformatted slide.
In the.
Supplement.
There.
Wanted to simplify so that are pure gross net revenue products were bundled into our revenue line. There so happy to walk you through that but.
It's page 14, Alex.
So direct indexing year over year assets are up 4%. Despite the market. So very strong asset growth accounts were up 37% year over year and advisor growth a number of advisers using the direct index product is 53% growth.
So clearly a lot of progress there and an overlay 2% year over year asset growth again impressive given the headwinds of the market accounts were up 38% year over year and advisors using the overlay services is up 33% year over year sustainability as you know.
<unk> is an asset class that has been reasonably challenged from a performance standpoint that said, we're eating out growth.
36 billion.
In sustainable assets on the platform, we've got accounts up year over year by 9% nine.
9%, despite the performance headwinds and advisors are growing as well for that solution. So we can it continues to be a major focus which I highlighted in the prepared remarks, and something that will become a more and more meaningful driver of our growth as we penetrate the asset base, which is an intended.
A focus of ours.
Okay, Great I'll follow up on the exact numbers. There later, but shifting gears to the to the Tcs deal may be dating myself here, a little bit, but when I think back to the to the IPO days.
I remember that your.
I guess back office organization overseas.
I think you're viewed as a key differentiator and you really wanted to have control because everything needs to be right everything needs to be timely et cetera. So now that youre outsourcing that I'm, just curious what has changed and looking forward.
At all worried that now as you lose control that <unk> at some point the costs may may balloon, because you don't control it anymore.
Or or or the I guess the service May go down so maybe just touch on that but related to that $10 million to $13 million in savings. That's a 23 number is that it or are there any opportunities to actually get more savings down the road as.
Potentially Randall this is a onetime thing and thats it.
Thank you thank you Alex and <unk>.
Good memory and I would say that we continue we have two substantial back office operations for our business one for data and analytics and that's the office in Bangalore.
We've transitioned to Tcs and I'll talk about why and the thought process around that the other one is in <unk> and that supports our wealth platform. We continue to believe that we can create a substantial competitive advantage utilizing the wealth.
Infrastructure in the wealth back office.
However, it will become more and more operationally efficient more and more offer.
More and more automated I'm sorry.
<unk>.
So, but we'll continue to resource out of <unk> to serve that wealth business why is it so competitively advantaged at our peak.
At some point this year, we were at $5 seven trillion in asset serve we're trading.
Millions and millions of blocks tens of millions of trade blocks each.
<unk> with servicing 18 million plus accounts, we have a unique scale.
Unique functionality in our wealth platform, we're committed to it and we will continue to invest in it.
That said.
With the Bangalore operation, which is the operation that Tcs.
We're partnering with Tcs on.
The business, we've seen has transitioned pretty substantially from a screen scraping administrated business to more of an open banking and direct connectivity and that's something that we've driven we've driven a network of direct connections with more and more.
Financial institutions to streamline the way data moves around this system versus the hard old school way of screen scraping screen scraping required a substantial.
Back office support and human support to fix the breaks that occurred as you did that so as we look forward. We think there is so much more agility with tcs as it transitioned from the former way that screen scraping administrative platform to open banking and really saw that.
It is an opportunity to transition that.
Pool of resources in an effective way to create immediate and near term cost savings 23 noted 10 million to $13 million, but as we go forward and we scale as our volumes grow which they are growing pretty substantially and the data and analytics business there'll be more and more leverage that will be created there from a cost savings standpoint.
So the starting point for that is $10 million to $13 million in savings, but we anticipate that will grow.
Alright, that's all I needed. Thank you guys.
Thank you Alex.
Our next question is from Surinder.
With Jefferies. Please proceed.
Thank you.
For my first question.
Just in terms of the update that you provided on the insight engine.
Our impressive numbers in terms of the users that use that product in terms of the account growth and asset growth.
Versus the non users can you maybe provide a bit more color on.
The current number of users that you have for that product or maybe what the penetration rate is how much more there is.
Given that.
Yes.
It's available to some extent at this point like how much more runway is there in terms of why people there are more on the platform at this point.
Yes.
Surinder. We are early days is what I'd say from the insight engine.
User ship of.
The.
Recommendations are the insights is growing.
By 47% year to date.
So we're continuing to.
We're all that out to the to the marketplace, but there is a there is a very substantial product that's tied to the insight engine and thats. The wealth data platform in the wealth data platform really we announced that rollout a couple of weeks ago and beginning to introduce that solution to our clients.
What's the wealth data platform.
It collects the data that's on the investment platform, but expand it to collect all of our clients data to normalize it to verify it to reconcile it to then publish it and it goes through the insight engine to create these insights for the advisors to take action on.
Cross their complete held in held away book of business and so we are in the very early days of utilizing the insights to grow deeper pocketed to drive deeper penetration of our.
Our.
Solutions that are on the investment platform. It is in its purest way a demand generation tool because advisors.
The greatest opportunity that they have for growth is in their current book of business. They are unaware of it. We're surfacing. These things at their desktop then connected to the workflow to go and execute.
And in the F&B instance, all the way back through the full administration.
The account and so it is a one of a kind of truly transforming capability that is making its way to market and I believe will create very substantial adoption over the.
Over the quarters ahead, we're just getting started and have 47, surinder I just want to make sure I'm clear the 47%.
Because the average account growth for the users of the insight engine is theyre growing accounts at a 47% a higher clip.
Got it.
And then in terms of just.
When I think about flows conversion activity.
Can you maybe talk about.
If there's kind of any change in the conversion pipeline our outlook at this point, obviously conversion activity has been very strong but it also reflects.
Decisions that.
Were made earlier.
There was less.
When the economy wasn't.
When the economy was more robust.
Can you talk about the pipeline at this point in the conversations that youre, having with advisors and so forth how should we think about.
<unk>.
And kind of the slower macro.
And the market clearly is more tentative.
Given the market environment, but we had a very strong conversion quarter in those 10 year notes.
They tend to be lumpy.
We will have more conversion activity in the fourth quarter, but the third quarter was strong.
This quarter and in the last couple of weeks, we did sign a national credit Union for a bunch of our services, we signed a national.
For our leading financial planning capabilities.
We have.
Worked with.
UBS too.
For our fiduciary and 401K solutions to their workplace.
Offering.
We are out and we're winning the mandates we want to we're focused on winning.
I think we've seen exceptional.
Win rate this year not only in the wealth business, but in the data business as well as a number of firms that are working with the company today is higher than it's ever been before and have had a pretty substantial win win rate this year.
Other thing I would note.
We've been very focused not only on those new logos or those new opportunities. It's been very much focus on expanding services with our existing clients and we've been very very successful I believe in doing that.
This year, despite the market and you can see it you can see it in the numbers and the way that we're expanding how many services and advisor is using the total number of accounts.
Per adviser on the platform is up pretty considerably the number of AUM and accounts on the platform are up considerably and the number of services. Those accounts represent has broadened pretty considerably. So when we said on the investment program, we're going to focus we're going to go deeper.
<unk> and our existing client base that is occurring and you can see it.
The market headwind and the overall industry flow rates those are performance related issues. The performance related things that we're able to focus on and drive we are driving and I think the results of those underlying kpis are very encouraging.
That's a very helpful Bill.
Get back in the queue for my follow up questions. Thank you Sundar.
Our next question is from Peter Heckmann with D. A Davidson. Please proceed.
Peter you and everyone. Thanks for taking the questions you've presented a ton of information so far just one follow up on <unk>.
The partnership with <unk> the limit your ability to market either your wealth technology or wealth solutions.
To sum of Fmc's core markets like UK and Australia.
We have.
It's a global partnership, but I would say Peter we're just starting with the wealth data platform in that international market, but the area that I would be focused on next would be some of them, which are less regulatory or less.
Have have the shortest window to get to market would be some of our software solutions right and some of our software solutions includes the very powerful fin apps, we've designed for our client portal or things like our financial planning capability, which which is world class is best in class.
And believe there is a global opportunity for those capabilities.
Ultimately, we will work together.
As we.
Really forge and execute on this partnership.
To be able to think broad more broadly about some of the fiduciary things, we do as well.
Okay, Alright, that's helpful. And then I think you've completed three acquisitions to date.
None of them are all that big but.
Could you maybe give us a.
Annualized aggregate run rate for revenue for those three deals just so we can think about.
Modeling them out for the next couple of quarters.
Yes, Pete So this is.
Yes, those three in Q3.
Total was a little over $3 million, so annualize that it's about 12.
Okay.
But what I would say Peter I would just add to that as well.
Winning some really off the bat currently early early in the mass early in the game here, we're winning some important mandates. So we're accelerating their growth across the board.
<unk> is a core and embedded in our wealth data platform. It is a one of a kind valuation.
Capability for financial advisers and advisory firms.
The ready to is going deeper in the RA market as well as with asset managers, which is something we highlighted.
When we acquired the company and 401, K Plan's Dot com.
UBS would be would be an indication of how that's being received in the market.
Okay, Alright, thats helpful and good to hear I appreciate it.
Thank you Peter Hope you're well.
Okay.
Our next question is from Jeff Schmidt with William Blair. Please proceed.
Hey, guys. Good afternoon could you talk to you and how are you Jim.
Good question on the insights engine.
The AI that helps kind of determined where advisers, Ken can upsell bore solutions, but I guess my question is do they have to opt into that or I guess why wouldn't they or do you run that on the backend and sort of determined where the opportunities are we.
We use it both ways.
This is a very valuable service, so bundling that in bringing that to their desktops has value creation and we're going to capture revenue there as part of that service and.
That will be bundled into our wealth data platform that has high high value and has a unique I think very high potential offering that we have compared to any of the data solutions that are in our space, but then we utilize it and it's important to note that we use.
<unk> heavily in our internal sales and marketing focus because we can reach out to an adviser.
And not try to sell them a service like tax overlay or social or direct indexing. We can actually say your account could benefit from this service and you have an 88% chance of closing that here the marketing tools that we have customized for you let us know if you need to.
Engaging the client and that is a very powerful.
Connection with that adviser versus what typically happens from a sales standpoint, where people are trying to sell benefits and features.
I'll go through all that without.
We're hitting that nail on the head to say this client of yours has this opportunity let US help you go close it.
Got it Okay, that's great and then.
On the I guess, which personalized solutions are seeing the greatest uptake and more importantly, I guess, having the biggest impact on the fee rate I mean, I would just see that the overall average fee rates starting to inflect upward and just wondering whats driving that the most.
Yes, I would say that.
All things being equal these are all.
Very positive impactful contributing.
Capabilities, but the direct index solution is the highest fee rate and as explicit.
I'm sorry fee rate in that it offers both gross and net revenue.
From 15 to 20 basis points kind of thing, but then when we bundle some of these things together in our high net worth and I talked about it in the script we've seen.
This year.
2022, we've seen a 100% growth in our high net worth.
Our solutions business and there were bundling consulting.
Asset allocation overlay execution of the portfolio and really.
For very high net worth individuals and helping advisors close that business and that tends to be in the 30 to 35 basis point range. So.
Smaller target market, because it's truly the high high net worth but we've been very successful there and we will continue to grow there from a more.
Mass marketer or affluent market that direct index solution will probably be a primary driver.
Got it thank you for the answers.
Thank you.
Our next question is from Patrick O'shaughnessy with Raymond James. Please proceed.
Hey, good evening. So your insight engine is delivering about $20 million in sites per day that is a little bit more than one per and account how do you deliver insights in a way that it doesn't overwhelm the advisor and they can actually determine which ones too.
To work on with them.
Yes.
Patrick I hope you're doing well.
The.
I am excited to share this with investors and with analysts.
Because we have built a.
Our platform.
And the platform that we've built.
Extends beyond the advice that an advisor is offering a client to how the advisor can best optimize and grow the valuation of their business and so what we do is we create.
The insights.
And then there'll be published to that adviser in the cat.
In a ranking of.
Accounts at risk accounts with opportunity and then the financial impact to the adviser based on executing on that transaction, we're executing on that service or protecting that revenue going forward and that's that's really all powered by that wealth data platform. So if we have the data we can understand the implications.
<unk> of <unk>.
Ah and insight for that advisor, we automated and it's published in a way that is highly utilized are highly <unk>.
Ability to highly utilized these insights so they are not.
Like a grocery list of things they are categorized and then the categorized and then theyre kind of stack rank by impact.
And.
That particular capability is the one that's bundled with the wealth data platform that is just making it to market. So the utilization of our insights today tends to be a less structured.
Insight listing for advisors and yet we're driving the growth and the penetration that we're seeing in the environment that we're rolling out and introducing to the market here in the fourth quarter. It becomes a very powerful platform of capabilities that that the advisors business begins to optimize on.
And thats, a meaningful meaningful step for us.
Got it that's helpful. Thank you.
And then your fourth quarter outlook. It implies that subscription revenue will be down a little bit quarter over quarter can you speak to what's going on there.
Yes, I think the big thing we had some.
Some clients who have minimums.
Data and analytics business.
Had user ship go above their minimums and.
While we recognize that revenue they reset in the fourth quarter. So I think that was the big thing driving.
That difference in Q4.
Sure.
Okay. Thank you.
Thank you Patrick hope you're well.
Our next question is from Ryan Bailey with Goldman Sachs. Please proceed.
Good afternoon, everyone.
Hey, Ryan how are you.
Good thanks.
Coming back to the insights engine. Once again I was wondering if you could help us think about the demographics of the advisors are using insights.
Larger smaller more or less sophisticated further along in that Chris.
<unk> Becker is.
Just any sense on like who is actually using would be very helpful.
Yes, Ryan early early adopters have been at larger institutions, we've seen a lot of adoption in the bank broker dealer space as the banks are looking to transition accounts and add higher services.
So probably not the exact demographic that you would anticipate I do believe that this will be a.
Highly adopted by.
That newer more digital inclined advisor and.
As we as we drive our cloud service the wealth data platform into the market I would anticipate that we'd see.
Quite a bit of adoption there in the pipeline for that offering which again, we just announced a few weeks ago is significant so we're enthusiastic about it but primarily the early adopters have been in the bank broker dealer space.
Got it Okay, and then might be a little too early to sort of thing.
About this just yet but maybe not.
Are you seeing any difference in retention for.
Our advisors are accounts that are using both inside and some of the asset based solutions like is this a way that.
We are seeing real value in signing.
Signing the sustainable platform.
Any any noticeable difference in behavior, causing equally.
Yes, the redemption rate overall has been very resilient and you can see that in our numbers and if you scrub down underneath that you see that the value added services have been very very resilient and it's because there's a proposition here that is very personalized.
And you'll hear the industry and I think I think it is important to note the industry.
Is driving towards these very personalized.
Offerings to two individuals they are stickier, because they are addressing ryan and not the masses right in and that matters and so when you scrub under our redemption.
Data you see that these tend to be more resilient.
Accounts, and I think Theyre long term accounts.
There'll be also accounts that evolve with that individual versus static to the.
The risk profile that you created five years ago right. This evolves with with the client and.
And the return mechanism, there's very personalized to by that I mean, your performance reporting and everything kind of is that cycle that lifecycle of an investment.
This here's what it's doing for me how is it doing for me and it continues to evolve.
There's real power in that investment is incredibly well positioned.
Two.
Deliver that.
At scale, so we call it personalization at scale and something that we've <unk>.
<unk> invested quite a bit and part of our investment program was to create scale there.
And I think we've been successful at it in overall I would say.
Devin despite the market and it's been I know for everybody on the call Tonight as it's been it's been a very difficult headwinds. We're forging ahead. We've made we stated we were going to make investments we've made the investments and we're driving growth in those areas in a very difficult environment, but.
We're also.
We're also.
<unk>, our position with partnerships with folks like F&B, and Tcs and <unk>.
Our ecosystem.
Partners. So I think it really speaks to the to the to the focus.
The discipline, we put around that investment strategy execute it and now we're rebalancing the organization and turning towards margin expansion, which we're committing to for 2025.
So I hope that's helpful. Ryan Thank you.
Thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to Craig for closing.
Amen.
Thank you so much for joining us this evening.
And very much appreciate support the analyst community and all of our investors.
As I, just said to Ryan a moment ago investment. We're forging ahead, and we are executing I'm thankful for I'm very thankful for the people of investment and all the partners in our ecosystem for the difference that we're making I look forward to seeing you all very shortly and speaking again to you next quarter. Thank you and have a good evening.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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