AssetMark Financial Holdings Inc. Q1 2023 Earnings Call

Speaker 2: Good afternoon, everyone. And welcome to Asset Mark's first quarter 2023 Erning Conference call.

Speaker 2: Currently, all participants are named with some only mode. Later, we will conduct a question and answer session, and instructions will be given at that time.

Speaker 2: Today's call is being recorded. Now, I'd like to turn the call over to Taylor Hamilton. Head of investor relations. Please go ahead Mr. Hamilton.

Speaker 3: Thank you. Good afternoon, everyone, and welcome to asset marks first quarter, 2023 earnings conference call. Joining me are asset marks chief executive officer Natalie Wilson and chief financial officer Gary Zyla. Today they will discuss the results for the first quarter and provide an update to asset marks business outlook for 2023.

Speaker 3: 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.acitmark.com.

Speaker 3: Before we get started, I'd like to note that certain statements made during this conference call are forward-looking statements. These forward-looking statements represent our outlook only as a data-based call, and actual results could differ materially. Additionally, in today's conference call, we'll be discussing NetRevenue, Adjust Vibhata, Adjust Vibhata Margin, and Adjusted Net Income, all of which are non- GAAP financial metrics.

Speaker 4: Today, I want to start with a discussion of our record results for the quarter as well as provide some color given the current market environment. I will then provide a detailed analysis of our five-board pillars highlighting the progress we are making on each. Finally, I'll turn the call over to Gary who will discuss our financial and operating results for the first quarter and provide an update about our 2023 outlook. Starting on 5-3, the first quarter of 2023 was another record quarter for ASLARC. The first quarter of 2020 was another record quarter for ASLARC.

Speaker 4: relative to 2021. As money continues to sit on the sidelines because of market uncertainty.

Speaker 4: I'm happy to say that first quarter 2023 production is at the highest level since the fourth quarter of 2021 and that flow has improved the clientially each month since November of 2022.

Speaker 4: All in all, results for the first quarter were excellent, and we feel we have a lot of momentum headed into remainder of the year. Before I turn to our growth strategy, I'm also pleased to announce the hiring of Josh Army who joined Asamark last month as Executive Vice President of Corporate Strategy. Josh brings decades of experience and enterprise strategy and transformation, having most recently served as the head of transformation at Evergones. Josh will serve as a member of our Executive Committee and will work with leaders across the organization to accelerate our strategic growth and maximize our long-term performance.

Speaker 4: Now, as I do every quarter, I want to give you an update on how we are moving the ball forward in each of our five key strategic pillars.

Speaker 4: On slide four, you can see how we are focused on advancing our growth strategy in 2023.

Speaker 4: We firmly believe that our record results in 2022 were testament to having the right strategy in place and entirely executing on that strategy.

Speaker 4: This slide shows what we're focused on for this year. Today we'll focus on the items involved.

Speaker 4: Moving to slide five, the first component of our growth strategy is to need advisors where they are.

Speaker 4: In late 2022, we closed on the acquisition of the Fusion models.

Speaker 4: Since then, we have been actively working with the ATEEE team on integration, cross-selling opportunities, lead sharing, and most importantly, ways to continue to help RAA's growing scale. ATEEE's models had a successful start to 2023, winning the Clio's building-up technology and adding new investment models to its model marketplace. The ATEEE can continue to focus on bringing new RAA firms to the Clio's building.

Speaker 4: and then light up in the first quarter.

Speaker 4: The Human Tax Alpha introduces new ways to visualize and demonstrate the value draw from ongoing active tax targeting in a unified managed account. It even has a long history of creating tax alpha and now has a new and exciting way to enable advisors to show the value to their clients. The region is alliance on the other hand, the premium program for the ETHESUM Afford Manager Community.

Speaker 4: Providing them with a bi-through usage and product adoption insight. This is a valuable offering for ask managers and underscores what is and is not working on the platform, putting the manager in a position to make better, more informed decisions while simultaneously encouraging collaboration between adhesion and their advisor communities. Adhesion also added new investment models to its model marketplace with quarter.

Speaker 4: In the first quarter, Hesium added Manage Risk Parity Suite, Tividend Equity Strategies, Core Equity Strategies, Focussed All Cap Strategies, and an ESG Large Cap Core Strategy.

Speaker 4: Turning to slide six, the second component of our growth strategy is to deliver a holistic, differentiated experience to a size of an appliance. Here we'll focus on our continued re-platforming effort, which we can with the replacement of our trust accounting system last year. By replacing our trust accounting system, we have been able to grow with scale, save time for our buyers and have faster cycle times because of straight through processing for client requests. This quarter, I want to discuss two more ways we are continuing our re-platforming effort.

Speaker 4: EWELF Manager 3.0 will be a compelling data-driven advisor and investor digital wealth management experience that is reliable, scalable, and fast. It's focused on the intersection of a modern platform design with scalable and flexible architecture and compelling and intuitive digital capabilities all supported by data analytics to create a personalized user experience. We believe EWELF Manager 3.0 will help Astonmark increase wealth share of existing advisors, attract new producing advisors, and create opportunities to serve new markets all while we lower the cost of service.

Speaker 4: In the second half of 2023, SAID-1 of e-wealth manager 3.0 will launch. This SAID will include multiple synthesizer insights, new and improved navigation, and a new personalized landing page experience. That's the quick SAID-1 will launch over the next two years. Second, in July , we are implementing a subscription-based billing system responsible for collection of 90-plus percent of the firm's affabased revenue and for the collection and disbursement of advisories seized, totaling over 650 million annually.

Speaker 4: Our billing services are also highly valued offering to our advisors. A new billing system will provide enhanced reporting capabilities to our advisors with automated billing processing that's highly scalable. We spent a lot of time and resources building eWolf Manager 3.0 and replacing our billing systems. These are recent examples of how we invest in platform modernization and enhancements over time, all within the confines of our capital spend commitment of 6 to 7% annually.

Speaker 4: The third component of our growth strategy is to enable advisors to serve more investors across the long spectrum, varying life stages and generations. Let's turn to slide seven. Incentive

Speaker 4: We continue to help the budget of the clients navigate the prolonged market uncertainty, including recent regional bank failures.

Speaker 4: Additionally, following last year's pain in the non-market, we are seeing strong interest from investors seeking to lock in yields that haven't been seen in the high end years. Our platform has been well positioned with a breadth of cash and fixed income strategies to help investors address liquidity and diversification needs. Let me share with you a few examples and results from the first quarter. I will also share with you a few examples and results from the first quarter.

Speaker 4: First, we increase the rate on our high-oh-cash solution, which provides up to 2.5 million of FDIC coverage by an average of 130 basic points.

Speaker 4: Additionally, we had gross sales of $369 million in our SAVA ladder bond strategies, which provide ladder and short duration exposure to U.S. Treasury and agency securities. We have also provided timely and actionable information so that advisors were prepared to respond to their clients following the bank crisis.

Speaker 4: In fact, our bank crisis webinar was attended by nearly 700 advisors and even supported our NPA growth efforts as we added nine new producing advisors from this webinar column. While high quality short duration has been a particular interest, we expect more investors to add back duration and or risk at the end of rate, as the end of rate increases our years of college increased Tri retiring.

Speaker 4: Due to our robust platform offering, we are well positioned to achieve the strong influence we've seen in the space.

Speaker 4: We are constantly evaluating our investment offerings to ensure that we provide our advisors a serious suite of investments enabling them to serve more investors across the wealth spectrum. For now, let's turn our attention to slide 8 and the fourth component of our growth strategy.

Last quarter, I briefly mentioned our investment consulting program, and I'd like to discuss it in more detail with quarter.

The new program provides selected visors direct access to the ASMARK Investment Consulting team for guidance in creating customized model portfolios using strategies available on our platform.

The advisor comes away with a suite of investment models customized for their practice to bring efficiencies to their business and a consistent client experience. The advisor is provided with a comprehensive investment analysis backed by a simple story explaining and clarifying the why behind the proposed model portfolio. This is a model why the advisor remains in control of his or her client outcomes and their investment options.

We believe this exclusive operating will be a game changer for advisors, helping them differentiate from their competition, also helping them grow and scale their business and stay meaningfully engaged with their clients.

In the first three months since launch, we have had 13 advisors take part in investment consulting, of which over 50% were new producing advisors.

We take great pride in our ongoing ability to help our advisors grow and scale. And as I said before, it is why they win and why we win.

Turning to slide nine, the final component of our growth strategy is to pursue strategic transactions by adding capability and assets that improve advisors' ability to serve investors and expand their businesses.

We have approximately $140 million in purchasing power for future M&A opportunities and are doing a great job of increasing our purchasing power each quarter because of our strong cash generation. We are proactively looking at opportunities that will benefit our advisors and their clients.

As a last note, and as you may have already seen in our financials, we put up a $20 million accrual for this quarter. As we have disclosed in our SEC filing since 2020, we have been in discussions with the SEC regarding alleged incomplete disclosures relating to our past ICD program and third-party custodial support payments.

All alleged activities under use ceased between 2019 and 2021.

After working with the FCC, we are in discussions to resolve this matter and believe that we will come to a resolution soon.

working with the FCC, we are in discussions to resolve this matter and believe that we will come to a resolution soon. Transparency and trust are paramount to ACIDMark.

and its mission of making a difference in the lives of our advisors and their clients. Because of this, we wanted to provide you with this information today. We will also provide further updates as we are able to share more, and once the matter is fully resolved. I'll now turn the call over to Gary to take us through a deeper dive on our first quarter 2023 results and to provide a deeper dive into the results of our second quarter.

an update for our 2023 Outlook.

So on slide 10, first quarter platform assets increased 6% year-over-year to $96.2 billion.

Quarter over quarter, platform assets were up 5%, driven by market impact net of fees of $3.1 billion and quarterly net flows of $1.6 billion.

Year-to-date, our annualized net flows as a percentage of beginning-period assets is 7.1%. As you know, net flows are comprised of production, or money onto the platform, less redemptions, or money off the platform.

First quarter production is the highest that has been since fourth quarter of 2021, a strong sign of new money coming onto the platform, while redemption rates are still low, a strong sign of our advisors' satisfaction.

All in all, we have quite pleased on our net slows in the first quarter, giving the current market environment.

Let's just now discuss our advisor metrics. We end in 166 new caducer advisors or MPAs in the quarter.

As Naomi mentioned, this is the highest quarterly MPA number since the second quarter of last year, while March's MPA count is the highest in 24 months. We are focused on continuing to stay close to our existing advisors and doubling down on our in-person marketing events and digital advisor acquisition strategies.

We believe focusing on these areas of transmission as well can win new advisors and share a wallet from existing advisors, both of which can positively impact future net numbers. On slide 11, we show our engaged advice account.

Home engaged visors at the end of the 1st quarter was 2,976. During the quarter we added 94 engaged visors. Of the 94, 56 were core visors who qualified for engaged status from the first time.

and 38 were advisors that moved back above the $5 million platform asset threshold as a result of market appreciation. Our engaged advisors account for 32% of all advisors using our platform and make up 92% of our platform assets.

As always, growing the number of engaged advisors is a key focus for management as it is crucial to drive further growth of our business and its financials.

In addition to asset level and the V

The number of households up 13% year-over-year to almost 244,000.

Now let's turn to slide 12 to discuss this quarter's revenue, which was a record $177 million.

As you know, we focus on a revenue net of related variable expenses.

focus on a revenue net of related variable expenses for the first quarter of 2023.

our net revenue was a record $133 million, up almost 25% year over year. This is driven primarily by spread-based revenue, which was up $30 million or approximately 20 times from a year ago.

This more than offset the decline in asset-based revenue, which was impacted by market appreciation.

By 13, details are year-over-year net revenue walk. As the waterfall shows, net revenue was off year-over-year during the mainly by screening come, which we just discussed.

year-over-year yield on spread improved to 388 basis points. Asset-based revenue was down $6.8 million year-over-year, primarily driven by an $8.5 million decrease in revenue due to an $8.8 billion decline in billable core assets.

and $300,000 as a result of negligible feed compression.

This is offset by $2 million of revenue from Adhesion Wealth, which is not part of our financials this time last year.

Description of MOI was up 7% year over year.

I'm sorry, subscription revenue from Voight was up 7% year over year. Screwing the impact of FX, subscription revenue is up possibly 16% year over year.

We are in coverage of avoidance growth process, built in existing geographies, and in high potential with substantial geographies. Avoidance increased enterprise licenses by more than 6,858% year over year, while they increase small and medium-sized business licenses by 820 or 15% over the same time frame.

Lastly, the other income increased $2.8 million a year, driven large of a higher interest income, earned on our corporate cash. We continue to do a great job diversifying our revenue base.

which will serve as well as markets continue to fluctuate. Now let's discuss expenses. Turn this slide 14, hold a little justice expenses increase 12.3% year-over-year to $124 million.

Quarterly operating expenses were up 16.7% year over year to $72 million. Your MMI increases in both employee compensation and SD&A. Employee compensation increased $5.6 million or 15.3% year over year. Your MMI increased headcount of 82, of which about half are from the acquisition of adhesion. SD&A increased $4.7 million or 18.6% year over year. Your MMI increased travel.

events, and volume related items. As a reminder, our first quarter SG&A is elevated as it includes the expense for our largest annual advisor event, Gold Forum.

As always, I will quickly run through our adjustments for the quarter.

Excluding the $20 million reserve that Natalie already discussed, we added back a total of $8.2 million pre-tax, which is comprised of four items.

For a $3.28 million non-cash share-based compensation, we anticipate this to increase just under $5 million per quarter in the second half of 2023.

That can adjust into expenses is $300,000 related to acquisitions.

Third adjustment is $1.9 million related primarily to reorganization and integration costs. Lastly, $2.2 million of the acquisition related...

Lastly, $2.2 million of acquisition-related amortization.

In 2023, we have set this to be our quarterly run rate. Now let's turn to slide 15 to discuss our earnings to the quarter.

First course 2023 adjusted EBIT was a record 58.8 million dollars of 32% year over year and 6 million dollars more than the then record 52.9 million dollars, Lackler.

We are extremely pleased with our adjusted evenness quarter, which is a testament to our growing revenue diversification and the flexibility and discipline management of our expense base. Adjusted even a margin with up a robust 330 basis points year-over-year to 33.3%. I reported an increment quarter.

with $17.2 million, while adjusting net income with a record $39.7 million or a record $0.53 per share.

This is based on the first quarter dilute share count of 74.4 million. Our adjusted effective tax rate for the full year is now 24%.

For the caller, please see the adjusted net income walk on slide 20.

Now let's look at the recorded first quarter balance sheet. I would highlight two items. First, we continue to do a great job of generating cash. In the first quarter, we generated $39 million of cash from operating activities.

We ended the first quarter with $136 million of cash, which is flat quarter over quarter, which reflects $25 million we used to pay down a portion of our long-term debt.

Additionally, we still have $375 million in our credit facility as available to the company.

Our ability to generate meaningful cash from operations, our strong cash balance, and our credit facility gives a lot of dry powder for future M&A deals, which remains an important focus as a key component for growth strategy.

Second capital expenditures primarily reflect our long-term investments, focus on creating new capabilities, increase in scale, and improving service.

In the first quarter, our capital spend was $10 million, or 5.6% of total revenue. In 2023, we will continue our re-platforming efforts, productivity initiatives, and build other new solutions for our advisors.

Natalie discussed this in detail during her prepared remarks.

We expect to do all this while maintaining a run rate between 6 to 7 percent of revenue.

During slide 16, I would like to provide some commentary on the meaningful impact that SRAE continues to make on our financial results and how we look to maintain that.

Our ability to earn SREAD is a direct result of owning our own custodian at the Mark Trust Company or ATC.

As you know, red-based remuneration of the function of the MATCH has held by investors at ATC and interest rates.

First, let's discuss cash balances. In the first quarter, total cash as a percentage of assets of the agency remains elevated at 4.6%.

while ICD or non-discretionary cash was 3.9%.

As previously discussed on past earnings calls, we expect ICD cash as a percentage of assets at ATC to return to more historical levels of about 3.5%. Turning our attention to interest rates, the Fed increased rates two times during the first quarter. These rate increases are highly beneficial for the growth of our spread income.

but rates will not stay high forever. As discussed last quarter, we have started in the poignant portion of our insured cash deposits to six term agreements.

In the first quarter, we added $125 million of new fixed-rate term contracts, and as of March 31, 27% of cash at APC is in fixed-rate terms, an average maturity of 1.6 years, and a gross rate of 4.5%. That new microaggres by SP

We have the optionality of placing what there are 40% cash at ATC into fixed rate term. We will continue to update you on the deployment of cash into fixed rate term on future earnings costs. Finally, let's turn the slide 17 to discuss our 2023 outlook.

We are reaffirming our 2023 guidance. As a reminder, we are extending platform asset growth 10% plus in 2023, which is driven by two components. First, we have set net flows as a percentage of beginning to period platform assets in the high single digits.

Second, we have a market appreciation assumption of 3.5%. Driven by the growth in spread revenue, subscription revenue, and a full year of adhesion revenue, we have set our net revenue growth to be about 20%. This assumes the asset growth is slightly offset by about one basis point of feed compression, this is on regular expectation.

We set our operating expenses, which consists of compensation and S DNA to increase in the mid-to-high teens.

For clarity, about 25 a set of the year over your increase, it's due to the full year impact of adhesion. About a third of the increase is due to volume. And the remainder is during my strategic investments into talent acquisition, advisor growth, and technology initiatives.

So she's our advisor benefits program and billing system replacement.

As a reminder, our expense growth is disciplined and closely managed, and we will not let our expenses outpace revenue growth.

Always, we are focused on realizing approved margin on our revenue growing earnings. We have set our adjusted even at a B-up 20% plus year over year, and we have set margin as mentioned to be between 50 and 100 basis points for the year. We will update our outlook again during the second quarter earnings call.

That I will head back over to Natalie for concluding through. Thank you Gary and thanks to you to everyone on the call today. I look forward to seeing you all in person at upcoming, upcoming, industrial conferences.

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

Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad.

Can we have a question? Please press star followed by two. Again to ask the questions, it's star one.

As a reminder, if you're using a speakerphone, please remember to pick up your handset prior to asking your question. Our first question comes from Michael Cho with J.P. Morgan. Please proceed. Hi. Good afternoon, Madeline and Gary. Thanks for taking my question.

I get the first topic, I just wanted to touch on what was just around the guide and kind of the pipeline you're seeing in terms of just kind of organic growth on the platform. I realize you're just supposed to, you know, some senualize it. It sounds like you feel pretty good about the environment looking ahead as well. So I'm just trying to get a sense of how you're seeing the landscape kind of for the remainder of the year. And then, and then also...

You know, you touched on kind of the production of existing advisors kind of reflecting as well as new advisors. So I'm just trying to get a sense of. Of that split of of growth from the existing versus the new advice as well. Thanks.

All right, so I'm going to start with the first question related to organic growth and what we're seeing, and then Gary will take the second, which is related to how we're seeing production from existing advisors versus new advisors. So related to organic growth.

We're seeing a lot of movement in our pipeline in a way that in the second half of 2022, we did not. As we discussed in those, the Erding calls in the latter quarters of last year, as advisors, we're turning to serving their clients and giving them information and providing them comfort in the very volatile market environment. They weren't spending their time.

as much time managing their business and growing their business. And this is honestly guidance that we give advisors. The services that you provide in years where things are tense and the degree to which you are proactive helps investors stay invested, helps them have confidence in their portfolios, and then over time that leads to more business with existing advisors, and more advisors with existing investors, and also referrals from their existing investors to investors in their community. So advisors grow both ways. At the tail end of last year we started hearing from our advisors in our conversations with them that they really wanted to move from defense to offense in 2023.

And there were some reasons for that. The first is the bond market had become a little more healthy and understood. The interest rate environment was much better understood based on the Fed actions today.

Additionally, investors had their hands around inflation in the geopolitical environment, while all those things were still volatile and concerning, they at least understood the trends and the direction. What we've seen from advisors in the first part of 2023 is them going on offence in partnership with us.

more activities related to growth, more activities related to high net worth clients, share wallet campaigns, all the activities that you like to see from advisors as they're growing in a healthy way.

related to the specifics of the numbers from existing and new advisors, I'll just hand over to Gary. Thanks, Malian. Thanks for the question, Mike.

So, you know, as we mentioned, our net flows list for the quarter was 7.1%, and that's our best list in a year. You know, we've seen a nice uptick in our gross production. And you know, it's really on both sides. You know, we talked about our existing business list on that we report and also our need the allegiance of time to a

We've left a much stronger contribution to new producing of viruses than we had seen since probably late in the pandemic period. And so we're pretty excited about that trend. Great, thank you so much. And if I could just squeeze one more in on adhesion, you know, you put up some statistics and some new end.

opportunities that Adeze has continued to add into. And this is kind of the pace that we should kind of expect in terms of growth from the Adeze platform as well. Thank you. Yeah, as it relates to Adhesion, the services they provide to financial advisors, to largely RAAs.

If they help them scale and broadly speaking, automates are trading and investment selection process.

So at Adhesion, the advisor retains discretion. They are managing the selection of the investment from a model marketplace where the models in the marketplace give them a starting point and then Adhesion provides them with the trading rebalancing services related to that. In addition, Adhesion also provides scalable direct indexing.

scalable tax management, and other support services for financial advisors. So these items are highly time intensive for an individual independent advisor to do on their own, and Adhesion is able to perform those duties for them. The advisor saves time and effort so that they can spend their time growing their business and expanding their services.

And that's what adhesion does and it's incredibly powerful in the RIAA community because many RIAAs don't have either the time or capacity to do it themselves or the interest to execute on these trading responsibilities on their own.

This is a megatrend for RAAs outsourcing these types of activities. And so adhesion we feel is in a great place in the market to capture assets from RAAs as they move towards outsourcing in this fashion.

related to the activities that we've seen with adhesion today, we're very, very happy with what we're seeing from adhesion. As with trend grows, we hope adhesion share of that trend will continue to expand and grow, but clearly no guarantees at this time. Okay, great. Thank you so much.

I'd say around 3.5% historically. Does that include the high yield savings account? Because if not, I think there are around 500 million that would add, I guess that would bump up the percentage to 4% to 4.2% maybe.

without about $500 million.

Okay.

And then the sweep rate looks to be around 65 basis points currently. Correct me if I'm wrong. I think that was fairly consistent with the 4th quarter. But could you see it remaining at these levels? Even if interest rates obviously they. Moved up again today, you know, they could in June , but. Do you see that sweep rate sort of remaining around here or.

are peers sort of getting more competitive, could that sort of force your hand to increase that? So related to our rates, we do raise our rates each quarter, commensurate with what's happening in the competitive environment. So we raised our rates quite a bit in the high yield.

what you should expect from us is as the Fed rates increase for our rates, generally speaking, although not specifically every single time in the same amount, to increase and absolutely be competitive with the environment around us.

Additionally, in our ICD program, we're going to be implementing tiering, and so you'll see different rates dependent on the balance that the clients have in the program. And this is consistent with our pricing strategy generally across the Asselmark platform, where the larger the client households, without the mark, the larger the household.

lower the price or the higher the rate. And so when you look at that 65 basis point, it's different depending on whether or not you have a small balance at ASIMR trust or a larger balance.

All of those actions are built into the operating plan that Gary went through earlier.

Got it. Great. Thank you. Our next question comes from Alex Blosey with Goldman Sachs. Please proceed.

Hey guys, this is Michael on for Alex. So yeah, a lot of questions on wallet share. It seems that looking at the households growth quarter over quarter, it was, I think, absent some of the recent volatility, one of the slower quarters since pre pandemic. So on that topic, like what is kind of the green way for wallet share expansion? How much of that is the summation of?

the average advisor's wallet you guys currently have. And maybe what missing pieces are you adding obviously with Adhesion and some of the other things you're doing? What do you think you can add in terms of incremental capabilities to kind of capture whatever is remaining there?

So I just want to start by saying this was not one of the lower quarters that we've had since the pandemic. So I just want to clarify that. And then, Gary, he's going to give you some details related to that. Yeah, Michael, how you doing, man? So I think the way we look at it is we do a survey of our advisors once a year to try to understand the share wall. And we survey hundreds in the five hundred.

which is not, I guess many other companies don't do that, but that is our measure of that production coming in, new money coming in, divided by the base of assets that are there. And that lift has generally been about 20%, a little bit lower over the past couple of quarters, it's generally been around 20%. And that is definitely our target for the existing books annual lift to our platform. And then Michael just wanted to add, I'm sorry, you go. All right, go ahead Natalie. I was gonna say one other thing to add, our net flows list in the first quarter, which is a combination of the list from existing business, which Gary just mentioned, and also new producing advisors with 7.1%, which makes it the highest it's been on a quarterly basis since the first quarter of 2022. And much higher than it was in the fourth quarter of 2022 and the third quarter of 2022.

at 3.9 and 5.2% respectively. So that's what I mean by we're actually seeing great performance this quarter relative to recent experience in EB and NMPAs.

That's helpful. Thanks. Yeah, I was referencing the household change, but I think that's been clarified. For the follow-up, I did want to touch on M&A. You guys mentioned that you're kind of building up the reserve here. Maybe you can comment on what you're seeing out there in terms of availability. Obviously, you know, deal volume has been slow, but maybe in terms of availability.

earnings call at AsaMark, we're absolutely committed to both capabilities M&A because we want to make sure that advisors have access to the capabilities they need to compete in scale on our platform and scale M&A because we view that as a key way to continue to grow our platform and reduce our cost to serve. As it relates to...

scale M&A, you know as markets become challenging you start to see activity from small camps or small camps like firms that are feeling that they may need a partner to continue to compete and we're obviously actively engaged in all of those conversations. You never know.

If you're going to be the chosen partner, you also never know if you can come to a agreement on price. And as we've mentioned before, we'll continue to be incredibly disciplined, is it related to price?

On the capabilities front, we're still looking for technology capabilities that round out our services in the second pillar of our strategy. You know, Voinen and Hision both help us with the first two pillars of our strategy. And together other technology capabilities that advisors would like access to in a fully integrated way.

These are service offerings that we can provide advisors to help them scale and compete. And there's all sorts of potential targets in this area.

You know, advisors need help with their financial, how they financially run their business. Advisors need help, especially the smaller ones with how they implement compliant services. Advisors need help with how they build and create financial plans. And so, you know, those are just, that's just a high level overview of those services that we continue to look at.

Thanks, guys. Thank you. Our next question comes from Patrick O'Thonancy with Raymond James. Please proceed. Please proceed.

previous to the current market environment, really starting when the Fed was very clear the Fed was very serious about raising interest rates. We started looking at our cash portfolio and determining what it was that we could do. and with always.

top of mind being ensuring that we provide a great rate and the right liquidity for our clients and The first step of that process was doing a very very detailed Sensitivity analysis taking a look at what cash balances look like in different interest rate environment

actively added short fixed income solutions to our platform, more duration oriented solutions to our platform. In addition to that we looked at our ICD program and the balances where they were in 2022 relative to where they could be if there were other attractive rate options in the market.

through money funds or fixed income. And we built those assumptions into our operating plan with the understanding that we're in the business of serving advisors ever clients. So we're off the gathers. We want those client relationships to grow and we want to make sure that our platform has the solutions that help advisors attract those assets.

What that means is that for the suite of cash and fixed income solutions on our platform, we built in what we think the distribution of those assets will be based on our experience in the past and that's in the operating model.

As it relates to the ICD program specifically, and the high-yield cash program specifically, and why we feel comfortable at adding fixed terms to our solution at this time, that's where the sensitivity analysis comes in for that particular program.

We took a look at how balances in the program have changed over time. We also took a look at the percentage of balances that were insured or not insured. And by the way, the vast majority of the balances are insured because our insurance level is 2.5 million. And what balance movement could look like. Then we took two and three standard deviation events.

And with those in mind, we calculated how much of the portfolio could be fixed term in nature. And that fixed term percentage is conservative to make sure that again, we're managing the liquidity and the rate for the client.

The last thing I'll just say about the work that we've done is we also took a very hard look at duration. On so many factors, the world's biggest fortress is new fascinated by daydreamers and storytelling,

given how our balances flow over time. And right now, we're keeping our duration short for two reasons. One is that's the part of the curve that's attracted right now. You're being paid to be defensive, but also wanting to make sure that we were conservative about the duration of the portfolio. And then I'll just hand off to Gary, who's the sponsor. So in just a few more points Patrick and nice to hear from you again.

I think one point is the ICD program is that cash, we call it non-discretionary in our script because there is a requirement to hold 2% of every account in cash. And so while we say it averages about 3.5% historically and has been much higher than that of recent, 2% will be in cash.

that's a functionally total asset base for a billion. I'm sorry, the 2% is for billing purposes. It's to make sure that- Yeah, oh, it's for billing. Yeah, I'm sorry, I'm sorry. Yes, I'm sorry. So that 2% is there and that will be in cash.

for billion. I'm sorry, the 2% is for billion purposes. It's to make sure that's all. Yeah, I'm sorry. I'm sorry. Yes. So that 2% is there and that will be in cash going forward.

Great, appreciate that answer. And then, you know, today you've spoken about your investments in technology and client service and investment solutions. How has the relative importance of those three factors in terms of attracting engaged advisors to your platform, how's that relative importance changed over the last few years?

You know, it's interesting. I would say that the importance of technology and, broadly speaking, services to help...

Investors understand their portfolios and how important portfolio construction and affid allocation is for long-term results. As well as the technology that helps illuminate that for advisors in a scalable way, has increased relative to the importance of

the investment solutions on the platform. If you go back, I don't know, 10 years ago, five years ago, TAMP's were product access point for investment solutions. And now, we are a comprehensive wealth management platform because that's what advisors need to compete relative to the much much larger competitors in the market.

And so you'll see us not just adding new investment solutions in our platform to make sure advisors have access to what they need to serve their clients, but also investing extensively in technology and servicing so that these independent financial advisors can remain independent, and so that their clients can have access to a broad set of technology and solutions even if their advisors are not.

small relative to other competitors in the market. Terrific, thank you. Thank you for your question.

There are currently no questions registered at this time, so as a reminder, it is star one to ask a question. There are no further questions, so I will pass the conference back over to the management team for any further remarks. Hello, everyone.

Thank you for your participation. You may now disconnect your line.