Q2 2023 AssetMark Financial Holdings Inc Earnings Call
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Good afternoon, everyone and welcome.
Mark's second quarter 'twenty to 'twenty three earnings conference call. Currently 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 today's call is being recorded now I'd like to turn the call over to Taylor Hamilton head of Investor Relations. Please go ahead Mr. Hamilton.
Thank you Hannah good afternoon, everyone and welcome to ask Mark second quarter 2023 earnings Conference call.
Joining me are asset Mark <unk>, Chief Executive Officer, Natalie Wolfson, and Chief Financial Officer, Gary Zyla today, They will discuss the results for the second quarter and provide an update to <unk> business outlook for 2023, 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.
Before we get started I'd like to note that certain statements made during this conference call are forward looking statements. These forward looking statements represent our outlook only as the date of this call and actual results could differ materially. Additionally, during today's conference call. We discussed net revenue adjusted EBITDA adjusted EBITDA margin and adjusted net income all of which are non <unk>.
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 are required disclosures related to non-GAAP financial information.
That I will turn the call over to my colleagues Natalie taken away. Thank you Taylor I hope everyone on the call is having a great summer today I want to start with a discussion of our record results for the quarter and then provide a detailed analysis of our five growth pillars, highlighting the progress we are making against each I will then turn the call over to Gerry who will discuss our finance.
All in operating results for the second quarter, and then provide an update about our 2023 outlook.
Starting on slide three the second quarter of 2023 was another record quarter for <unk>. We ended the quarter, serving an all time high 247000, plus households, and around 9300 advisers of which over 300 of which over 3000 are engaged in <unk>.
And to growing the number of advisors that we serve we just completed our 2023 net promoter score survey, which we do annually and we received an all time high net promoter score of 72.
Lifting the previous record set last year by five points.
From a financial standpoint, total revenue was a record 183 million up 21% year over year, while net revenue was a record $1 $36 million.
23% year over year. These all time high topline results allowed us to also achieved our best ever Bottomline results.
Specifically adjusted EBITDA was $60 million for the quarter and this marks the fifth straight quarter of record setting quarterly EBITDA, a powerful testament to our diversified revenue mix and disciplined expense management.
Net income was $33 million up 30% year over year, while adjusted net income was $41 million up 27% year over year.
<unk> earnings per share was 55 in the second quarter up 25% year over year.
We're extremely pleased by these results and I'm also encouraged by some of our forward looking indicators, including organic growth and new adviser additions.
Our second quarter net flows of $1 7 billion Mark the highest quarter since the first quarter of 2022, while our 188, new producing advisers or N. P. Eight are the highest since the second quarter of last year.
I'd ask the Mark we continue to focus on driving new advisers to our platform, while capturing share of wallet from our existing advisors.
All in all results for the second quarter were excellent and we feel we have a lot of momentum headed into the second half of the year.
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 key strategic pillars.
Moving to slide four the first component of our growth strategy is to meet advisors, where they are and where they're going.
And he's in wealth had another strong quarter and continues to focus on bringing on new RNA firms right.
While also expanding share of wallet of existing firms.
And he didn't have added a total of $243 million of assets from new firms. During the first half of the year. Additionally, adhesion didn't excellent job of growing share of wallet from existing firms on the platform. In fact 88 of adhesions that 110 firms grew during the second quarter.
And he can also added new investment models to its model marketplace, which is currently the industry's second largest in the second quarter adhesion added four new managers in 75, new models to their platform.
He's in future strategic focus is on the RIAA and enterprise client experience.
Your platform and product enhancements and on partner building initiatives.
And he's in his focus on five key areas first we are expanding their market penetration with a focus on attracting new firms and expanding wallet share with existing firms.
Second he is focused on developing developing the asset manager community through programs such as adhesion Alliance our premium program for the adhesion asset manager community.
This solution provides asset managers with advisor usage and product adoption insights.
In the second quarter adhesion added six new managers to be adhesion program, which now has 290 models and 38 managers.
The third area of strategic focus for adhesion is enhancing direct indexing and tax transition capabilities.
Here, we are specifically focused on expanding into new markets with our SMA. In addition, we are enhancing tax transition capabilities with improved reporting and a new tax alpha insight module that shows tax impact within the context of direct indexing.
Force adhesion is galvanizing partnerships through its API toolkit, which will extend adhesions Apis for partners, allowing expanded platform assets.
This is a critical capability to support adhesions clients, who have invested their own resources to build out their own tech stack.
These tools will allow our clients to embed the capabilities of Adhesions Award winning managed account platform while at the same time, not losing the autonomy and control that they may need.
Lastly, he isn't as focused on continuing to upgrade their advisor platform, specifically, the RIAA desktop user experience and the manager and strategies portal.
But he didn't continues to receive accolades throughout the financial services industry. Most recently being named to final in the model marketplace sub category for the 2023 wealth management Dotcom industry Awards.
We are excited about the advantage that adhesion adhesion gives us in the RA market and look forward to sharing their continued progress during future earnings calls.
Now turning to slide five the second component of our growth strategy is to deliver a holistic differentiated experience to advisors and their clients.
This quarter I want to provide an update on <unk>.
It has been two years since we have closed the acquisition of <unk> and while their growth is slower than originally modeled we're seeing steady growth in all of their markets.
Let's discuss these geographies in a bit more detail.
I'd like to start in the U K one is realizing strong growth in the small business market in the U K.
Driving this demand is the rollout of the financial conduct authorities consumer duty regulations, which set higher and clearer standards of consumer protection across financial services and requires firms to put their customers' needs first Rob.
Our robust financial planning helps advisors demonstrate that they are complying with these new regulations.
Ireland also remains a valuable geography for <unk> and we continue to see growth in small and mid sized licenses in this country.
Next let's discuss the Canadian market as we've discussed previously while enterprise license expansion has been very strong growth in Canada has been a bit delayed as it took canada much longer to reopen post pandemic.
Accordingly growth in this geography has been slower than originally modeled.
Next let's turn our attention to the U S market.
One it continues to win approvals from broker dealers, allowing us to market and sell our financial planning software to their advisers.
Use of <unk> retirement income solution is encouraging even though the adoption of <unk> in the United States have been slower than we originally expected.
Lastly, in Australia, buoyant as being excellent momentum from small and mid sized firms. This is a newer geographies was land and strong strong word of mouth is driving our growth there.
Excluding foreign language pressures revenue from <unk> was up approximately 17% year over year, driven by an uptick in both enterprise and advisor consumer licenses.
Former up 59% year over year.
While we are pleased to points growth across their markets their growth has not accelerated at the pace. We originally modeled before acquiring the company.
We are actively working to further accelerate <unk> growth and currently we are investing in an expanded sales strategy a dedicated <unk> PR program expansion of Voya financial wellbeing program, including a new wellbeing dashboard and select unbundling of comprehensive financial planning tools for new financial advisors.
As always we look forward to providing you with further updates about <unk> progress as the year continues to progress.
The third component of our growth strategy is to enable advisors to serve more investors across the wealth spectrum varying life stages and generation.
Now, let's turn to slide six.
We recently completed our annual share of wallet study with over 900 respondents of which more than half were engaged advisers.
Expanding the share of wallet from our existing advisors as one of the many ways, we can accelerate our growth.
The study is invaluable as it allows us to see the assets that are held off our platform by advisors to work with us.
Two key points emerge from this year study.
First we have a total business opportunity of 380 billion across our advisor base up from 375 billion last year.
The bulk of this opportunity is with advisory assets and commission assets.
And while we don't support commission assets on our platform, we have a proven history of helping advisors moved from a commission oriented to a fee based business model.
Second we continue to do an excellent job capturing share of wallet from our engaged advisers, who are those with over $5 million in assets on our platform.
Our 2023 share of wallet study shows that we have 86% of our engaged advisers Tampa asset.
61% of all of their advisory assets and 39% of their total assets.
Each one of these percentages are up from our 2022 share of wallet study.
This year's study underscores that we are capturing assets from our existing advisors and still have a long runway of growth opportunity.
Opportunity ahead of us, which we believe which we believe we are well positioned to capitalize on.
We are consistently evaluating our investment offerings to ensure that we provide our advisors a curated suite of investments, enabling them to serve more investors across all spectrum, while positioning us to capture more share of their clients' wallet.
Now, let's turn our attention to slide seven in the fourth component of our growth strategy to help our advisors grow and scale their businesses.
According to a recent to really study 106000 advisors plan to retire over the next decade, representing 37% of industry head count and 39% of total assets.
Among advisors retiring in the next 10 years, 26% are unsure of their succession plans with 95% of those advisors survey, citing that finding a qualified buyer is a challenge for them.
We just completed our pilot advisor link in response to this demand.
If either link as a private succession marketplace marketplace that will help aftermarket pfizer's discover succession solutions within the asset market community.
<unk> provides a secure private platform for our advisors to posts and search for opportunities among bedded advisors and facilitates agreements from beginning to end, making the entire process less complicated for both adviser.
We believe that advisor linked not only solve the critical need facing the industry, but also promotes the retention and recruitment of advisers on our platform.
Numerous advisors participated in our pilot and the feedback was very positive highlighted by the ease of use and simple navigation.
We look forward to launching the solution in the next few weeks.
We take great pride in our ongoing ability to help our advisors grow in scale and as I've said before it is why they win and then why we win.
Now turning to slide eight the final component of our growth strategy is to pursue strategic transactions by adding capabilities and assets that improve advisers ability to serve their investors and expand their businesses.
As we've said before we have approximately $500 million in purchasing power for future M&A opportunities and are increasing our purchasing power each quarter because of our strong cash generation.
We are proactively looking at all opportunities that will benefit our advisors and their clients and we will continue to be disciplined acquirers, while we search for new opportunities.
Now before turning the call over to Gary I wanted to circle back around to the $20 million accrual, we put up last quarter.
The case is still under review and we remain confident that the accrual we put up in the first quarter will be the maximum amount.
We will provide further updates as we are able to share more and once the matter with the FTC is fully resolved.
I will now turn the call over to Gary to take us through a deeper dive on our second quarter 2023 results and to provide an update on our 2023 outlook.
Thank you Natalie and good afternoon to all those on the call as Manny mentioned second quarter was another record quarter for aftermarket and my remarks today I will highlight our results for the quarter and then provide an update for our 2023 outlook.
On slide nine.
Second quarter platform assets increased 23% year over year to $108 billion.
Quarter over quarter platform assets were up 5% driven by market impact and a fee of $2 9 billion and quarterly net flows of $1 $7 billion.
Year to date, our annualized net flows as a percentage of beginning period assets is seven 3%.
Net flows in price war.
More money onto the platform less redemptions or money OSM platform second quarter, if not the highest but it has been since the fourth quarter of 2021 strong signs to be money coming onto the platform while redemption rates are.
We're still well.
I'm fine around advisor satisfaction.
It's the largest satisfaction.
Highlighting our record NPS, which now means it's Scott.
So we are quite pleased with our net flows in the second quarter.
Let's now discuss our advisor metrics, we added 188, new producing advisers or NPA in the corner.
Now you mentioned it was the highest one the NPA numbers.
Wonder if last year, we're focused on continuing to stay close to our existing advisors and doubling down on our in person marketing events and adviser.
Acquisition strategy, we believe focusing on these areas position us well when new advisors and share of wallet with this new modules, both of which can positively impact future flows.
On slide 10.
Slide 10, we show our engaged adviser count in the second quarter eclipsed 3000 engaged advisers for the first time in our company's history, ending the quarter with 3032 total engaged advisers during.
During the quarter, we added 56 engage advisors of those 50, 628% core advisors, who qualifies regained status from first time in 28, whereby you that moved back above the $5 million platform asset thresholds as a result of market appreciation.
Our engaged advisers account for 33% of all advisers using the platform and make up 92% of our platform asset.
It's always growing the number of engaged advisers is a key focus for management as it is crucial to drive further growth of our business and financials.
Maybe if you can the asset level and adviser count the third way, we measure growth non asset base isn't there.
Number of households on our platform the number of households are up 13% year over year almost 248 now.
Now, let's turn to slide 11 to discuss this quarter's revenue, which was a record $183 million as you know we focus on our revenue net of related variable expenses for the second quarter of 2023, our net revenue was a record $136 million up 23% year over year.
This is driven primarily by spread based revenue, which was up more than $22 million from a year ago.
More than this more than offset the decline in asset based revenue, which was impacted by market depreciation.
Slide 12 details our year over year net revenue walk the waterfall shows net revenue was up year over year, driven mainly for spread income, which we just discussed.
Year over year yield on spread improved to 396 basis points.
This total yield on our securities backed lines of credit program or S. Block contributed 10 basis points, excluding the contribution from S block net yield for the quarter was 386 basis points.
Asset based revenue was down $1 million year over year, primarily driven by $1 $6 million decrease in revenue due to the $1 $5 billion decline in billable core assets.
And $1 $4 million as a result of fee compression.
This offset a $2 million of revenue from adhesion, well, which is not part of our financials. This time last year.
Subscription <unk> was up approximately 13% year over year.
Excluding <unk> subscription revenue from Boeing.
With 13% year over year.
The impact of FX subscription revenue was up 17% year over year.
Lastly, other income increased over $3 $4 million year over year, driven largely by higher interest income earned on our corporate cash.
We continue to do a great job diversifying our revenue base, which will serve us well as market conditions fluctuate.
Now, let's discuss expenses turning to slide 13, although adjusted expenses increased 18, 9% year over year and $129 million.
Quarterly operating expenses were up 21% year over year $73 million driven by increases in both employee compensation and SG&A.
Employee compensation increased $7 million or 20% year over year, driven by increased head count of 94 of which a little less than half from the acquisition of adhesion.
SG&A increased $5 $8 million or 24% year over year, driven by increased travel events and volume related.
The Boeing I'll quickly run through our adjustments for the quarter and second quarter.
<unk> totaled $9 $7 million pre tax which is comprised of three items.
First for $2 million noncash share based compensation, we anticipate this to increase to approximately $5 million per quarter in the second half of 2023.
Second adjusted was $3 $6 million related primarily to reorganization and integration costs.
Instead of this related to one time strategic projects now being led by our new head of strategy.
Lastly, $2 $2 million of acquisition related amortization in 2023, we expect this to be a poorly run rates.
Now, let's turn to slide 14 to discuss our earnings for the quarter.
Second quarter 2023, adjusted EBITDA was a record $60 $1 million up 22% year over year more than the then record $58 $8 million last quarter.
We are extremely pleased with our adjusted EBITDA in this quarter you can.
Testament to our growing revenue diversification and the flexibility of disciplined management of our expenses.
Adjusted EBITDA margin was up 20 basis points year over year to 33%.
Our reported net income for the quarter was a record $32 $9 million on adjusted net income was also a record at $41 $2 million were a record 55 cents per share.
This is based on the second quarter diluted share count of $74 5 million.
Our adjusted effective tax rate for four years now 24% for the corner. Please see the adjusted net income walk on slide 20.
Now, let's look at the reported second quarter balance sheet highlight two items first we continue to do a great job generating cash in the second quarter, we generated a robust $66 million in cash from operating activities.
First half of 2023 alone we have generated over $105 million in cash from operating activities. We ended the second quarter with $187 million of cash on their balance sheet, we still have $375 million credit facility that is available to the company I'm doing to generate meaningful cash from operations.
Our strong cash balance and our credit facility to give us a lot of dry powder for future M&A deal remains an important focus is key a key component of our growth strategy.
Second capital expenditures.
Hi, My name is Mike are long term investments focus on creating new capabilities increase down improving service.
In the second quarter, our capital spend was $11 2 million or six 1% of total revenue in 2023, we will continue our re platforming efforts productivity initiatives and build on the new solutions for our advisors.
Got to do all of this while maintaining our run rate between 6% to 7% of revenue.
Now turning to slide 15, I would like to provide some commentary in the meaningful impact of spread based revenue continues to make on our financial results and how we look to maintain that.
Ability to earn spread as a direct result of our owning our own custodian has embarked on a company or a T C.
And you know spread based revenue is a function of the amount of cash held by investors ATC at ATC and interest rates.
First lets discuss cash balances.
Quarter total cash and the percentage of assets ATC, 4.0%, while ICD or non discretionary cash was three 2% cash.
Cash as a percentage of platform assets has been on a downward trajectory as more and more strategies put money to work in the equity and fixed income markets.
Unless something drastic happens in the capital markets, we have spent ICD connections.
Asset at ATC.
Turning to the more historical level of about three 5%.
Moving on to interest rates and increased rates once more during the winter and just raise rates again during their July meeting these rate need.
The increase is a highly beneficial for the growth of our spread income rates will not stay high forever.
As discussed in previous quarters, we are starting to deploy a portion of uninsured cash deposits to fixed term agreements in the second quarter, we added $250 million, new fixed rate term contracts and have reduced journey, 38% of cash at ATC is at a fixed rate term with an average mature.
Any 163 years and a growth rate of 459%.
As a reminder.
Now, it's about 40% of cash <unk> fixed rate term, we will continue to update you on the deployment of cash into fixed rate term on future earnings calls.
Turning to slide 16, we are well hedged when rates do begin to decline.
On this slide I wanted to try to give you a sense of our sensitivity to future interest rate decline and most of the market assumes rates will start coming down in 2024.
To start we are expecting total 2023 net spread revenue.
From the $120 million.
24 remodeled three different interest rate scenarios with some basic assumptions one the average pack ATC will grow approximately 10% year over year.
ATC tantrum fixed rate term will be approximately 35% and three the change the variable gross rate will have many mid point of the year.
Given these assumptions when interest rates go down 50 basis points, we expect 2024 net spread revenue to be effectively flat from 2023 total.
Interest rates go down 100 basis points, we believe spread income and revenue will be down 5% to 10% in 2023 total.
Lastly, if rates go down 200 basis points.
On a 2024 net spread revenue to be down 10% to 15% year over year.
This is very rough math of course, there are a lot of variables could be different hopefully this gives a sense of our thinking for next year and the positive impact of our fixed term deposits.
Let's turn to slide 17 to discuss our revised 2023 outlook.
We previously guided to 10% platform asset growth because of our annual market assumption of three 5% and annual growth outlook there.
Increasing our platform asset growth to 15, plus percent because of a stronger market impact deeper engagement and better than expected organic growth.
This coupled with the fact that we have billed and collected approximately three quarters of our asset based revenue for the year gives us confidence in increasing both our top and bottom line 2023 outlook.
We are increasing our revenue growth and set expectations.
I'm, a range of 18% to 22% to 20% to 22%.
Turning to expenses, we are revising our expense growth outlook for the year from 16% to 18% to 15% to 17%. This level of expense growth well allows us to continue to meaningfully invest in the future of our business, while maintaining disciplined so that our expense growth will not outpace our revenue growth.
As a result of our increasing revenue growth outlook and revising our expense growth outlook, we are increasing our adjusted EBITDA outlook.
<unk> percent plus 22% plus.
Based on the growth outlook I, just laid out we feel confident in our ability to expand adjusted EBITDA margin by 50 to 100 basis points.
We are extremely pleased about our financial results. This year and are on track for that.
That year.
The company's history.
With that I'll hand, you over now need for concluding remarks, Thank you Gary and thanks to everyone on the call today I look forward to seeing you in person at upcoming Investor conferences. This concludes our prepared remarks, Gary and I will now turn the call back to the operator to begin Q&A.
Yeah.
Certainly.
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The first question is from the line of Michael <unk> with J P. Morgan you May proceed.
Yeah.
Hi, Good afternoon, Natalie Gary Thanks for thanks for taking my question.
My first question is just quickly on the guide Gary that Julianna I mean, just high level.
Basically tightened the revenue growth guide to the higher end of the range and tightened lower Opex growth guide to.
The lower I'm, just curious I mean anything to call out on the expense and investment side in terms of.
The cadence and maybe anything that might be pushed out to 'twenty. Four just curious if you increase revenue growth, but then took down the opex go up but just curious if there's anything else to call out there.
Sure absolutely, Michael and nice to hear from you and hope you're doing well.
On the operating expenses, what we have focused on this year is making sure. We are well set up for the future I mean, we always do that but.
Markets have been pretty favorable this year, how much tailwind this year, but we want to make sure that we are prepared I've been talking about interest rates turning around at some point. So we've been very cautious in our hiring this year.
We've added net about 3% to 4% of our head count this year, which is conservative by our standards and we're certainly adding where we need to do in terms of adult and dressing growth as well as investing in our strategy investing in new products in the company and whatnot, but not particularly area, where we have been a bit more cautious and a bit more.
We're conservative in investing.
And as we see this less mature and develop and get into next year, we may start again.
At the level that we were investing perhaps in 2021 'twenty two.
Okay. That's great. Thank you for that Gary and then just a follow up on <unk> I. Appreciate the update there very very helpful and I know you touched on some of the.
The nuances between the geographies, but if we just look at you call up the USA and Canada, excluding kind of the pandemic effects was wondering if you could just kind of flush out in terms of what are some of the hesitation towards increased adoption that you're seeing in the marketplace today Super buoyant. Thank you.
So I'll I'll take that one as it relates to <unk> in Canada. We continue to see really good enterprise advisor license growth at enterprises, where brand has a long standing relationship or an existing relationship.
The large enterprises, the large banks in Canada are extending those financial planning programs throughout their enterprise.
Which was something that we had thought would happen and is planned for although earlier and earlier years of our model. When we acquired win what's been a little slower than expected in Canada as the small and medium business license growth.
And at the same thing the inverse is true of the U S.
So in the U S. The enterprise license growth has been delayed and flowed relative to plan and the small and small and medium business total licenses have grown although growing modestly.
And so what we've done in the <unk>.
Early part of this year is we've changed the marketing program, we have a plan for enhancing our sales efforts.
We've expanded the product development work, they're doing in Brent.
Just make sure that we have a solution that appeals to the broadest possible spectrum of enterprises small and mid sized businesses.
And we haven't yet seen the return on those investments because they started as I said earlier this year.
Okay, great. Thanks, guys.
Thank you Mr. Chow.
Our next question is from Dan Fannon with Jefferies. You May proceed.
Thanks.
Question on cash looking at the monthly is it looks like April was the low.
Not surprising given tax season, but I think in your commentary Gary you mentioned getting back to the three 5% versus I believe closer to four now as a percentage. So just wanted to get a sense of how youre thinking about client behavior and what's been happening if anything has really changed it seems like it's slowing but just wanted to verify that and then kind of how youre thinking.
Got it going forward.
Yes, so first of all take a step back and Dan and nice nice to hear from you again.
The cash most of that client cash is not direct me directly by and investment remember most of our platform is driven by the strategies of the stranded gifts that investors want someone money gets put to work if those stranded costs.
<unk> you take the cash and put it to work in their mutual fund or ETF.
Vehicles and whatnot.
And so.
Given that.
And as the market becomes more stable generally we returning to this sort of three 5%.
And during market volatility, one way or the other to Cancun Wyman spike up when people when strategies funding.
Safety old it oral spike back down when you kind of see a minimum we're anticipating collectively had been run in the market.
So.
The absolute dollars are going to be up and down.
Our overall assets grow on the dollar and the cash should continue to grow you can make food stay somewhere in that let's call. It anywhere from three 2% to $3 eight but on average three five.
And then the only other thing I'd add to what Gary said is the behavior, we're seeing in the market from our strategists and advisers now as behavior we.
We anticipated as market recovers and so it's consistent with the modeling we've done and our operating plan.
Understood that's helpful and then.
The 188, new producing advisers.
Are you talking about the channel channels, they are coming from or sources of that growth and if it's different than what you've been seeing in recent quarters.
The new debt the 188, new producing advisers are actually coming from a variety of channels everything from event to.
Referrals from existing advisers to growth academies, we do with <unk>.
Oh S Jay's, where they invite advisers, who are affiliated with them and they learn more about asset mark through to.
Digital lead generation, where we send out to the marketplace thought leadership and advisers respond to that thought leadership either related to investments or how they run their business or a key issues impacting their clients.
And that is a source of leads for us and so all of those channels.
Have worked well for us in the past and certainly this last quarter.
And we're absolutely focused on making sure we have a diversity in our lead generation going forward.
Dan I'm going to jump back on that question and if I can jump back on the cash collection and a new one.
It's been clear to total cash that we report is a mix of the ICD cash that ensure cash deposit program, which we target a three 5% plus our high yield cash program, which that is more discretionary and that's where and clients who signed put money into a higher yield accounts.
The cash received was quoted.
Even even in this last quarter, it's about the total when you do the math about 397% of our coal assets and asked them across the company, but the ICD cash and about three 2% on a high yield cash somewhere about seven 5% and so while I mentioned that is and we look forward in the outcome.
Look I was giving you were actually expecting our cash balances to increase.
As a result of the ICD cash growing to going back to it.
Historical levels of 3%.
No.
Thank you yes.
Yep.
Okay.
Thank you Mr Bannon.
Our next question is from the line of Jeff Schmitt with William Blair You May proceed.
Hi, good afternoon.
Sure Janet growth its up from last year could you maybe discuss how much of that is being driven by some of these new initiatives I think from last quarter, the new tax strategies basket models.
The consulting program.
Is that rolled out to everyone and I mean can you see what type of production bump that may be driving.
So when we look at all the initiatives that we've launched over the last say 18 months, we absolutely track be the assets that are generated by each of them.
Some you know get immediate traction and grow quite quickly.
Now some examples of that would be the fixed income solutions that we launched last year. Many of that many advisers and their clients were looking for safety and yet they still wanted yield on.
On their portfolio.
And so those solutions in that part of our market grew quite quickly and then others.
Take a little longer.
To gain traction and that's a little bit by design because.
A little while for advisors to get comfortable with the solution and it also takes a little while.
For them to fully implement and adopt that in the platform. So an example of that would be investment consulting.
We're a while.
The program is meeting our objectives, it just hasn't and never was expected to.
Having an immediate impact more of a longer term impact other areas of our platform, where we've had a lot of success is the addition to our high net worth program. Our continuing efforts to help advisers move from commission to fees and to enhance their practice.
And then obviously moving from a shares held direct to advisory we have extensive programs to help advisers migrate in that way.
So again the good news here is that we have a portfolio of new solutions. Some in technologies and services as you know geared towards share of wallet gain and others geared towards attracting new segments of advisers, which are the first of our four our first four of our five pillars and we have initiatives that are.
Producing results across all four as it relates to our new producing advisers and that's what we want to see we want to see a variety of different attraction points for asset Mark with new producing advisers.
Okay very helpful.
And then the.
The wealth manager update is that still on track for this year.
And could you maybe give us an update on kind of what you are modernizing their I think you've referenced it a pathway to the insight engine that appeal.
Cross sell products through that are using AI, maybe if you could just give us an update on where that stands.
<unk>.
Absolutely so.
We're in the midst of re platforming as Mark and obviously re platforming our advisor workstation E wealth manager is a big part of that.
And before I go into the timing and the the early.
Purely planned launches I do want to say that this is something that we're funding within our 6% to 7% budget that we have for capital expenditures as a percentage of revenue.
And this fall late this fall early winter, we are planning to launch phase one of that E wealth manager redesign and phase one includes a new logging and new navigation and then enhanced adviser insights where they can look at their clients' activities.
With their accounts and their portfolios.
And.
Determine whether clients are engaging and likely to contribute more to their relationship with their clients or disengaging and require outreach from the financial adviser also give some insights into their business insights into their portfolio performance and other things, but that's just phase one and again, we're hoping to launch.
That sometime between the end of October and beginning and the beginning of November .
If for whatever reason, we feel it is not ready it might drift into two January just because of launching a new technology solution at fiscal year end is not a great idea, it's not great service for financial advisors.
And then phase two.
[noise] aimed at enhancing how advisors.
Interact with our technology to invest or redeem from the portfolios that they've put in place with our clients and to do that in a much more effective efficient way for their practice as well as redesigning how we provide status to our advisors about their client activity.
And then there are various phases. Afterwards, we have about five phases that we've outlined for financial advisors and at the end of the five phases the platform the new platform.
We'll be complete for now as you know with technology Youre never really finished and so I'm sure at the end of this five phases there'll be another five basis, we want to complete with new services to our advisors.
Oh, and then ask okay, great and I do want to do.
Wanted to say.
We are doing R&D around AI for our operations and our technology teams and we've done some testing with some interesting results. So far and then as it relates to those adviser insights absolutely.
There is machine learning embedded in those insights to the benefit of the advisers and their clients. So apologies for missing that the first time around.
Yeah no. Thank you very helpful.
Yeah.
Yeah.
Thank you Mr. Smith.
Our next question is from the line of Patrick O'shaughnessy with Raymond James You May proceed.
Hey, good afternoon, so as Mark reported four net new total advisors in the quarter and 66 over the past 12 months.
Given that.
They're engaged advisers are certainly more important to your model at this point, but at what point does the lack of new total advisor growth become a concern and a headwind for your pipeline of engaged advisers.
So Patrick absolutely.
I would like to have our total number of advisors growing and growing quickly more important to us though is that when advisors come in our platform. They engage with US and then they grow on our platform because it's when they do that that they see the full benefits of asset mark their business.
Grows the number of clients they serve grow and therefore aftermarket grows too and so what you saw.
This quarter with the net for advisors is some some clients at the bottom end of our platform that had maybe try it after mark out with one or two accounts, leaving the platform and then more clients than ever engaging with us in.
In addition were really excited because this 100 this class of 188, new producing advisers is actually the highest quality than we've seen in a while the most likely to become engaged them and then the last thing I'll. Just say is we implemented beginning this quarter a set of programs on our.
What form that are geared specifically towards re engaging the disengaged advisors and ensuring that the 188, new producing advisers achieve their full potential and so I'm glad you mentioned that because it's something that we're actively working on right now and there are some green shoots in.
The quality of the new producing advisers and the rate with which those.
Gauged advisors became engaged in the second quarter.
The last thing I'll, just say as we've also really started focusing on <unk>.
Adding advisors to N P $8 million to $1 million and then a specific engagement program after the $1 million to get them to $5 million and we're seeing good results from that too.
Got it I appreciate it thank you.
And then Gary maybe a question for you I think if I heard correctly earlier, you mentioned youre expecting 3% to 4% head count growth for the year.
So if I look at your expenses I think conversation then.
Benefits is probably turning to be up mid teens for the year and.
General administrative and professional also probably up mid teens can you maybe help us bridge between 3% to 4% head count growth.
The total company expense growth outlook.
Sure so.
Youre not going to write on what I said was that we were at 3% to 4% year to date. So so I would say more of our total growth for the year.
Total growth for the year will be closer to having a 7% or so.
That also and then when you think about year over year expense, though Patrick.
<unk> 40, or so folks of 4%.
Folks from our on adhesion joined US right at the end of December So if you can.
Our organic growth.
When we've done so far this year and a 35 people on a three and a half year to date with a tsunami of about 7% for the full year, but we're adding and up four points also from the adhesion group that came on at the end of December you're talking about kind of head county from any of them beginning in December growing about 11%.
A couple of years.
And then when you think about the average for the full year of last year versus this year, you are getting something closer to the mid teens in terms of both the head count as well as our normal salary increases about 3% to 4% that we affect every April .
Yeah.
Very helpful. Thank you.
Thank you Mr Oshaughnessy.
Once again to ask a question press star one.
There are no additional questions waiting at this time, so I will turn the call over Denapoli for any closing remarks.
Thank you and thanks, everyone for attending our second quarter earnings call. We're looking forward to seeing you next quarter.
That concludes today's Bok Financial Holdings, Inc.
In 2023.
Earnings Conference call. Thank you for your participation you may now disconnect your lines.
Conference call. Thank you for your participation you may now disconnect your lines.