AssetMark Financial Holdings, Inc. (NYSE:AMK) Q4 2023 Earnings Call Transcript

AssetMark Financial Holdings, Inc. (NYSE:AMK) Q4 2023 Earnings Call Transcript February 25, 2024

AssetMark Financial Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone and welcome to AssetMark’s Fourth Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and introductions will be given at the 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.

Taylor Hamilton: Thank you, Victoria. Good afternoon, everyone and welcome to AssetMark’s fourth quarter 2023 earnings conference call. Joining me are AssetMark’s Chief Executive Officer, Michael Kim; and Chief Financial Officer, Gary Zyla. Today, they will discuss the results for the fourth quarter and introduce AssetMark’s business outlook for 2024. Following our introductory remarks, we’ll open up the call for questions. We also have an earnings presentation that Michael and Gary will reference during their prepared remarks. It can be accessed on our IR website at ir.assetmark.com. Before I 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 of the date of this call, and actual results could differ materially.

Additionally, during today’s conference call, we’ll be discussing net revenue, adjusted EBITDA, adjusted EBITDA margin and adjusted net income, all of which are non-GAAP financial metrics. Please refer to our earnings press release and SEC filings for more information on forward-looking statements, risk factors associated with our business and required disclosures related to non-GAAP financial information. And with that, I’ll turn the call over to my colleague, Michael, take it away.

Michael Kim: Great. Thank you, Taylor. Good afternoon and welcome to our fourth quarter earnings call. Today, my prepared remarks will focus on three topics. First, I will highlight our record 2023 results. Second, I will unveil our refreshed and simplified strategy. And lastly, I’ll provide an update on our long-term priorities that I laid out during our last earnings call. Gary will then discuss our financial and operating results for the fourth quarter and introduce our 2024 outlook. Starting on Slide 3. 2023 was another record year for AssetMark across many key operating and financial metrics. We ended the year with a record $109 billion of platform assets. We are serving an all-time high of over 254,000 households and over 9,300 advisers, of which 3,123 are engaged.

We realized an all-time high NPS score of 72, a testament of our commitment to our clients. From a financial standpoint, total revenue in 2023 was a record $709 million, up 15% year-over-year, while net revenue was a record $545 million, also up 20% year-over-year. These all-time high top line results allowed us to achieve best ever bottom line results. Specifically, adjusted EBITDA was $250 million for the year. Adjusted EBITDA margin was a record 35.2% and was up 290 basis points year-over-year. Net income was $123 million, up 19% year-over-year, while adjusted net income was $171 million, up 31% year-over-year. Adjusted earnings per share was $2.30 for the year, up 30% year-over-year. In 2023, we also advanced our penetration into adjacent channels such as RIA channel with integration of Adhesion Wealth and the bank trust channel with our announced partnership with Accutech Cheetah.

We’re already seeing meaningful contribution from Adhesion and have a few early wins to announce from Cheetah, including First State Bank in Texas and National Exchange Bank in Wisconsin. Turning to Slide 4. We are simplifying our strategy, replacing our previous five strategic pillars, our three refreshed and simplified pillars that better align to our mission of making a difference in the lives of our advisers and their clients. For those that have been following the AssetMark story for a while, these new pillars will sound familiar. Our first pillar is offering a flexible integrated technology. Our technology suite is fully integrated with our core proprietary technology with third-party tools that help advisers get things done more efficiently and effectively, which allows them to spend more time with their clients.

This fosters deeper adviser and client relationships, which in turn contributes to greater loyalty and more assets on our platform. We believe that our technology is a key differentiator and serves as a competitive advantage amongst our peers. The second pillar is delivering exceptional service and consulting. Our advisers are in the relationship business, so we’re in the relationship business. Almost half of our employees are adviser-facing, with the sole mission of making a difference with our advisers and their clients. Our best-in-class business consulting offering helps our advisers with business strategy and planning, client experience in operations, marketing and other key programs to increase the adviser’s business value and efficiency.

The third and final pillar is our compelling wealth solutions. Our focus on asset management begins with the client. Our products and those of our partners are easy to understand and use and they are built with the advisers and their clients in mind. We perform careful due diligence to help ensure that we offer a wide range of well-suited products to help investors reach their long-term goals. In addition, we are committed to a holistic suite of wealth planning solutions to empower our advisers to serve the growing needs of their clients even more effectively. 2023 was a monumental year executing on these three pillars, and we have plans to double down in 2024. Let’s go into each one in further detail. Turning to Slide 5. We have made significant progress enhancing our technology offering in 2023.

It starts with our enhanced eWealthManager platform, most notably the pilot of our new adviser dashboard, which engages users in an attractive cohesive design and provides tools that allow advisers and users to be proactive and manage their experience. The adviser dashboard has received positive reviews from advisers in the pilot who have raised about its useful and intuitive nature. In 2023, we also launched our mobile app, which has over 6,400 downloads. Adhesion continues to focus on enhancing their adviser platform as well, including the Adhesion Tax Alpha Dashboard, which brings the ability to visualize tax alpha, not only for accounts, but also at a business unit and firm level. Voyant launched the Voyant Wellness in late 2023, a module-based solution designed for enterprise companies to offer their clients, a personalized mix of self-directed tools and services that help them plan for their financial futures.

As we have said before, technologies on arm’s race. And in 2024, we have plans to continue to enhance our technology offering. We will continue to advance to work on building out the next version of eWealthManager focusing on the rollout of the adviser dashboard to all advisers and their teams. Our plan is to enhance our adviser insights, allowing the advisers to see a total book view of their assets, net flows and fees. We are planning to add features that allow the advisers to gather more information from prospects, deepening the relationship and increasing the opportunity to turn prospects into clients. In 2024, Adhesion will accelerate development efforts to advance their technology and platform. They are investing in providing the industry’s very best model marketplace for RIAs and focusing on enhancing their Adhesion Alliance program.

Voyant also has exciting plans for 2024 with the launch of new wealth management solutions, including social security optimization, raw conversion and advanced insurance modeling. They’re also launching new retirement planning solutions, most notably Voyant Longevity Risk and Voyant Long-term Care and Disability programs. Simply put, we are reimagining the adviser’s digital experience. Turning to Slide 6. Our second pillar is delivering exceptional service and consulting. As I mentioned before, we believe this is a competitive advantage for AssetMark. In early 2023, we launched our InvestmentConsulting offering, providing select advisers direct access to the investment, the AssestMark InvestmentConsulting team for guidance and creating customized model portfolios using strategies available in our platform.

Our Investment Consulting team worked on 60 different opportunities in 2023 with over $2.5 billion in asset commitments. Also in 2023, we tackled one of the biggest obstacles facing our advisers, succession planning through the launch of AdvisorLink, a private succession marketplace for our advisers to post and search for opportunities among vetted advisers. As of year-end, over 200 advisers were leveraging AdvisorLink with approximately two-thirds setup as buyers on the platform. In 2024, we will continue to focus on building out our service and consulting strategy to further distance ourselves from the competition. The biggest highlight is introducing the touchless new account opening at AssetMark Trust, which will accelerate the onboarding of clients through a faster account setup and funding.

Adhesion is also committed to elevating the adviser experience to new heights. To do that, Adhesion has expanded their Executive Leadership team to focus on enhancing the advisers experience, expanded their service team, adding seven new client service specialists and is focused on further integration with AssetMark to drive additional scale and experience for advisers. Let’s turn to Slide 7 and discuss our third pillar, compelling wealth solutions. As we mentioned earlier, our 2023 share wallet survey shows that we have over $380 billion of total business opportunity for all advisers who have responded. By consistently adding our wealth solutions offering, we build a better offering for our advisers and their clients, while increasing the opportunity to gain share of wallet from existing advisers and, of course, attracting new advisers.

In April, we launched three First Trust strategies that span the investment spectrum from core to satellite. In October, we launched Kensington Managed Income strategy to provide investors with the potential to generate stable above-average total returns with low drawdowns. These new strategies have been used by over 650 advisers and have gathered close to $1 billion in assets thus far. In September, we launched the pilot of Tax Management Services. Early TMS users have celebrated the intuitive user experience, client-facing proposals and informative reports. The value provided by the service relative to its cost is particularly compelling. Adviser adoption during the three month, early access period has exceeded our expectations with more than $100 million in assets already using this service.

In 2023, Adhesion also executed on enhancing their compelling wealth solutions, adding 88 products from 33 unique managers. Of the 33 managers, 9 were new introductions to the Alliance program. This year, we are focused on continuing to add and enhance our wealth solutions. First and foremost, last month, we formally launched TMS to all our advisers. In the first half of the year, we are launching Certificate of Deposit Account Registry Services or CDARS, CDARS are term bank deposits and are an efficient way to access CDs with attractive rates and extended FDIC insurance through a network of banks. Simply put, this will enhance our cash management offering, making it more competitive, while also meeting advisers to number one request, higher rate options available for clients of all wealth levels.

Next, we are focused on enhancing our Donor Advised Fund Program with lower account minimums, robust reporting capabilities, streamline processes for grants and ability to customize portfolios through existing platform strategies. These enhancements will help advisers attract more investors, especially in the higher net worth segment, while strengthening relationships with existing clients. As you can see, we have accomplished a lot in 2023, and we will continue to enhance and add to our platform in 2024 to give our advisers and their clients an industry-leading experience. Turning to Slide 8. I want to provide a brief update on how we are progressing on our long-term goals that we implemented last quarter with the goal of enhancing shareholder value.

First, hyper growth. As I discussed last quarter, we are absolutely committed to exceeding 10% organic growth rate and exceeding 5,000 engaged advisers by end of 2026. We are continuing to see green shoots that organic growth is coming back. In December, we realized net flows north of $625 million and saw net flows north of $430 million in January of this year. Regarding our AM 5K initiative, we ended the fourth quarter with 3,123 engaged advisers at all-time high. We are focused on projects to get our more than 800 advisers who are between $3 million and $5 million of assets on our platform to the engaged level, while also improving the time and rate of NPAs to the engaged level. Gary will provide a lot more details on this later during his prepared remarks.

Second, we increased our CapEx as a percentage of total revenue to 8% to 10%, allowing us to invest more into the business, specifically into projects that drive growth and scalability such as Accutech Cheetah. Lastly, we are focused on scaling our business. In 2023, we expanded margins 290 basis points, and we’ll look at opportunities like our touchless new account opening initiative as discussed earlier, to drive further scale into the business. Specifically, we are focused on reducing the cost per account by over 30% by 2026. With that, I will now turn the call over to Gary to take us through a deeper dive on our fourth quarter results and introduce our 2024 outlook.

Gary Zyla: Thank you, Michael and good afternoon to all those on the call. As Michael mentioned earlier, 2023 was another record year for AssetMark. During my remarks today, I will highlight our results in the fourth quarter and then introduce our 2024 outlook. So starting on Slide 9. Fourth quarter platform assets increased 19% year-over-year to $108.9 billion. Quarter-over-quarter, platform assets were up 9%, driven by a market impact net of fees of $8.1 billion and quarterly net flows of $1.3 billion. Annual net flows as a percentage in the beginning period assets was 6.7%. We are incurring for our strong net flows in December and early 2024. Turning to our advisor metrics. We added 154 new producing advisers or NPAs in the quarter and 666 NPAs for the full year.

We are pleased of the quality of these NPAs is much higher than it has been in the past. Out of the 666 NPAs in 2023, 7.5% have already achieved engaged adviser status during their first calendar year, an improvement of approximately 20% over the prior year’s rate. As part of our AM 5K initiative, we are actively focused on four key areas to improve our NPA to engage conversion rate. First, attracting more NPAs through digital lead generation, strong broker-dealer relationships and RIA initiatives; second, focusing on higher-value NPAs or those who initially onboard at least $1 million of assets to the platform. Third, implementing a much smoother onboarding process with the rollout of touchless new accounts, which Michael mentioned earlier.

And lastly, enhancing our product offering, which will attract more high-value advisers to our platform. On Slide 10, we show our engaged adviser count. We ended the fourth quarter with a record 3,123 total engaged advisers, up from 2,995 engaged advisers in the third quarter and up 8.4% from last year. While the quarter-over-quarter increase was largely driven by market, we did add 34 new engaged advisers organically with incremental net flows. Our engaged advisers account for 33% of all the advisers using our platform and make up 93% of our platform assets. In addition to the asset level and adviser count, the third way we measure our growth, which is non-asset based, is the number of households on our platform. The number of households were up more than 5% year-over-year to 254,000.

Now let’s turn to Slide 11 to discuss this quarter’s revenue. Before we begin, I want to call your attention to a $30.5 million reclassification and spread-based expenses to spread-based revenue. This amount reflects the interest credited to customer accounts for all of 2023. Expenses related to interest credited to customer accounts was previously recorded in spread-based expense. And in prior years, this was not material. As part of our technical accounting review for 2023, we’ve elected to make this adjustment to net this cost out of the gross revenue line. As noted, the adjustment equally offsets our 2023 gross revenue and spread-based expenses. There is no impact to net revenue and no impact to our earnings from this reclassification.

For clarity, shown on this page is our total revenue on a pro forma basis, reflecting the new accounting treatment. As shown in the fourth quarter, total revenue on a pro forma basis was $180 million, up 13% year-over-year. But as you know, we focus on our revenue net of related variable expenses. For the fourth quarter 2023, our net revenue was $137 million, up 11% year-over-year. All four components of our revenue increased year-over-year with subscription-based income leading the way, up 22%. Slide 12 details our year-over-year net revenue walk. Asset-based revenue was up $9.7 million year-over-year, $12.9 million of that increase can be attributed to the $12.2 billion increase in billable assets, excluding the Adhesion acquired assets. Asset-based revenue was also augmented by an incremental $1.8 million of revenue from Adhesion Wealth.

These increases were partially offset by fee compression of approximately 1 basis point, which is in line with our stated expectations. Spread income was up $1.1 million year-over-year, driven by yield improvement of 327 basis points to 405 basis points. Of this total yield, our securities-backed line of credit program or SBLOC, contributed 10 basis points, excluding the contribution from SBLOC, net yield for the quarter was 395 basis points. Subscription revenue from Voyant was of approximately 22% year-over-year, driven by growth in software revenue. Lastly, other income increased $2.5 million year-over-year driven largely by higher interest income earned on our corporate cash. Now let’s discuss expenses. Turning to Slide 13. You will note that we are showing spread expenses pro forma for the accounting change noted earlier.

On a pro forma basis, total adjusted expenses increased 7.8% year-over-year to $122.5 million. Quarterly adjusted operating expenses were up a little less than 2% year-over-year to $70.6 million, driven by an increase in employee compensation, partially offset by a decrease in SG&A. Employee compensation increased $2.3 million or 5.9%, while headcount remained essentially flat year-over-year. SG&A decreased $1.2 million or 3.9% year-over-year, driven by strategic and timing items. Now I’ll quickly run through our adjustments for the quarter as we always did. In the fourth quarter, we added back approximately $12 million pre-tax, which is primarily composed of three items. For a $4.1 million in non-cash share-based compensation, we anticipate approximately $4.5 million per quarter in the first half of 2024 and $5 million per quarter in the second half of 2024.

The second adjustment is $4.8 million related primarily to reorganization and integration costs. And lastly, $2.2 million of acquisition-related amortization. Now let’s turn to Slide 14 to discuss our earnings for the quarter. Fourth quarter adjusted EBITDA was $63.8 million, up 21% year-over-year, while our adjusted EBITDA margin, again, on a pro forma basis is 35.4%. Our reported net income for the quarter was $34.6 million, while adjusted net income was $44 million or $0.59 per share. This is based on the fourth quarter diluted share count of $74.6 million. Our estimated tax rate for the full year is 24%. For further color, please see the adjusted net income walk on Slide 22. Now let’s look at the reported fourth quarter balance sheet.

I would highlight two items. First, we continue to do a great job of generating cash. We generated a robust $175 million in cash from operating activities in the full year 2023. Second, our capital spend was $11.4 million or 6% of total revenue from the fourth quarter. As we have mentioned previously, we are increasing our CapEx run rate in 2024 to 8% to 10% of total revenue so that we can invest in more growth and scalability projects. Now turning to Slide 15. I would like to provide my quarterly update on our spread-based revenue and its drivers. First, let’s discuss our cash balances. In the fourth quarter, total cash as a percentage of assets ATC was 3.8%, of which, ICD or our non-discretionary cash was 3.2%. Cash as a percentage of platform assets is down slightly due to the rising market value of assets with more and more strategies putting money to work meet equity of this income markets.

Although the Fed is going to take down rates in 2024, we remain well ahead in having a portion of the insured cash deposits in fixed rate agreements. As of December 31st, 45% of cash at ATC is in a fixed rate term with an average maturity of 2.28 years and a growth rate of 4.77%. Also as a reminder, our revenue mix as a natural hedge as we would expect Fed fund reductions to have a favorable impact on our asset-based revenue. Finally, let’s turn to Page 16 to introduce our 2024 outlook. We are uber exciting about 2024, strong growth with a singular focus on serving our financial advisers. Our platform asset guidance is 12-plus percent as we expect to increase flows year-over-year, approximately 50%, reflecting strong growth in our core business and outsized growth in our Adhesion business.

We will be targeting net flows as a percentage of beginning-of-period platform assets in the range of 8% to 10%, coupled with our annual market appreciation assumption of 3.5%. Our 2024 net revenue annual growth target of 10% to 14% as a result of strong momentum in the end of 2023. Our first quarter billing done in January was boosted by the strong year-end market, and we are encouraged by our net flows year-to-date. Our forecast has double-digit growth across our major revenue line items. We have set operating expenses, which consist of compensation SG&A to increase 8% to 10%. We are confident at this level of such growth allows us to continue to meaningfully invest in the future business, while maintaining discipline so that expense growth will not outpace revenue growth.

As always, we are focused on realizing improved margins on our revenue and growing earnings. We expect our adjusted EBITDA to be up 15% plus year-over-year, and we expect margin expansion north of 50 basis points for the year. With that, I will hand the call back to Michael for his concluding remarks.

Michael Kim: Thank you, Gary and thank you to everyone on the call today. I look forward to seeing you in person at the upcoming investor conferences. This concludes our prepared remarks. I will now turn the call back to the operator to begin our Q&A.

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Q&A Session

Operator: Of course. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Dan Fannon with Jefferies. Your line is now open.

Dan Fannon: [Technical Difficulty] You’re clearly improving in January or to start the year. Just curious as to what you think are some of the drivers of that acceleration as you think about the year progressing? I think you mentioned Adhesion being a part of that. I don’t know if you’re able to break down what you think the contribution from that platform might be versus the rest of the business?

Michael Kim: Hey, there. Thank you for your question. You cut out a little bit on the front end, but I think really the gist of your question was the contributors and the drivers for our growth and really sort of thoughts around Adhesion and its contribution to the overall growth. So let me start here and then Gary, please chime in with additional details. So we’re absolutely seeing really a renewed turnaround from the advisers and their investors and their clients and really the sentiment. A couple of things I just want to mention, and we saw this, obviously, with the market improvement in the fourth quarter, and certainly, we’re seeing this as we start the first quarter of this year. A lot of the assets that were sitting on the sidelines, some of the industry surveys point to over $2.5 trillion of cash sitting on the sidelines, and we see a lot of those cash coming back into the market and really advisers working very closely with their clients to help them find the appropriate solutions to meet the clients’ goals.

And so we are seeing at the macro level, that sentiment improving. Secondly, from an Adhesion perspective, we are absolutely seeing a very accelerated momentum with Adhesion. In fact, their January of 2024 flows were almost double what they did last year’s January. And so we’re absolutely seeing the momentum grow. A big part of the Adhesion story is really around our commitment to bringing our world-class service and operational experience to the Adhesion advisers. There’s been a lot of hard work amongst the teams to really integrate the AssetMark service and operation processes into the Adhesion platform. So we’re starting to see dividends pay off of that effort. The other aspect is really the expanded executive and sales management team, one of the key things that we’re focused on is working closely with the strategic clients of Adhesion to not only expand the share of wallet, but also help with their recruiting efforts.

Many of the clients of Adhesion are the strategic RIA firms out there recruiting either breakaways and/or other advisory firms. And so, Adhesion is an integral part of that recruiting process, and we’re delighted to see the momentum continue with Adhesion. Gary, any other thoughts to add on to that question?

Gary Zyla: Yeah. Hey, Dan, how are you doing? Nice to talk to you again. I think we’re still not going to be breaking out Adhesion’s results when you say from the rest of the business. I will note Adhesion came on the platform at the end of 2022 with about $7 million of assets. It comprises a little bit over $9 billion of assets in our platform now. And that’s really indicative of the strong organic growth that Michael was talking about, and its strong contribution to our business. So we’re really excited about both the initiatives we have on the core business, new advisor acquisition, wallet share opportunities as well as the Adhesion business model.

Dan Fannon: Great, thank you. And then just as a follow-up, last quarter, you talked about an increased focus on M&A and partnerships, and it was reiterated again today. So maybe talk about the current environment that you’re seeing and the kind of prospects of areas that generally you’re looking at to potentially fill those holes.

Michael Kim: Yeah. No, thank you again for that question. And you’re absolutely right. M&A, as we mentioned last quarter and certainly reiterated this quarter, it remains a very important part of our overall growth strategy. There’s two areas that we’re focused on in terms of key M&A opportunities. One is really the consolidation opportunities. And the second is capabilities. One of the key things that we bring to a potential seller in the marketplace is really the scale that we bring, our credibility and the renowned the service and the adviser experience that we deliver, the distribution network that we have. And so we’re engaged in a number of high-quality firms that desire to be part of the AssetMark ecosystem. And what’s really unique here is that together with those firms, we have an opportunity to bring this unique joint value to the advisers.

And so we’re absolutely excited and committed to accelerating our acquisitive mode that we have. And certainly, even on the capability side, we’re looking at a number of different technology providers, asset management providers and even marketing and lead generation providers for advisers to help them grow. And so there’s a lot of unique assets. Our corporate development team is heads down, working very hard and managing a very active pipeline. And so we hope to share a number of great news with the audience in the near future, but that is absolutely an important part of our overall strategy. Gary?

Gary Zyla: Yeah. And Dan, I would just add to that, as Michael said, over the past, let’s call it, six months, we’ve really reinvigorated these types of discussion. And, of course, M&A, there’s a lot of ways to think about it. As Michael said, consolidation and the capabilities and what you’re looking to add, but you can buy, you can partner, you can become a minority investor, there are lot of different ways we’re looking at trying to put that capital to work. Accutech Cheetah is one example where an acquisition happening there, but we’re investing a lot of money to create this partnership. And while that’s not truly M&A that is truly something that is an inorganic starting point to kind of for growth.

Dan Fannon: Great. Thank you.

Gary Zyla: Thanks, Dan.

Operator: Thank you for your question. The next question comes from the line of Jeff Schmitt with William Blair. Your line is now open.

Jeff Schmitt: Hi, thank you. On client cash, it appears to have stabilized around $2.9 billion to $3 billion when you adjust for seasonality. And just regarding where that may go, what are you seeing in terms of new cash coming in from organic growth? Is that largely sorted already? And so it isn’t providing much of an uplift to client cash? Or should we expect to see some uplift from that this year?

Gary Zyla: That’s a great question, Jeff, and nice talk to you again. So here I will start and then Michael feel free to come up on any more details. But here I want to frame this. Most of that cash debt is the non-discretionary cash. This is not the end investor choosing it. This is allocating part of their strategy to cash. And therefore, it’s not really susceptible to the cash sorting out what the banks are dealing with. But it is a reflection as that percent has settled. It is definitely around 4% of our total AssetMark Trust assets. And as that cash and that percentage is settled right now in the 3.8% we said today, that’s a reflection action to the strategy is putting that money to work because they’re getting more confidence in the equity markets.

Now that being said, the cash balance grows as our asset level grows. So when we think of our overall asset level growing that 10% to 12% we talked about for the upcoming year, that’s going to be reflected in our cash balances at our Trust company. To the extent that we have an outsized amount of money go through our Trust company versus other custodians, that will even further help the growth of our cash that we will put to work.

Michael Kim: I think maybe just to build off of that, Jeff. A couple of other things to consider. So number one, to Gary’s point, we’re seeing just given the improved sentiment and the investors coming back into the equity market that we’re seeing more and more of the strategist deploying the cash into their strategies and to the equity allocation. At the same time, really, given the expansion into adjacent markets, and Gary alluded to the Accutech Cheetah, which is really our partnership that will help us expand into the regional banks and regional trust companies. We believe that the new relationships that we sign on, which will also be custodied at ATC, that will add to the overall cash balances as well. So we’re super excited about that new partnership and the additional balances that we know will those relationships will drive.

And then the other thing that, again, just to underscore Gary’s points earlier, one of the unique things about our model is just the natural revenue hedge that we have. And I think we all expect at some point, probably longer than expected. But at some point, the Fed will begin to reduce their rates. In a way, we actually welcome that in that given our revenue model, we know that, that is going to create a tailwind for the asset-based revenue stream as well. So one of the key and really the unique aspects of our revenue model is that there’s this natural hedge built in between the spread revenue and the asset-based revenue. And so we’re fully prepared for those changes that are forthcoming.

Jeff Schmitt: Okay. Yeah, that’s very helpful. And then I guess that takes me to the next question. Just looking at, I think you have 45% of cash getting fixed rate now. Average maturity is still fairly low 2.3 years. Is there potentially – could we expect to see roll that over into four, five-year contracts, especially with the Fed likely to cut at some point here? And like what type of rate, I guess, could you get for that if you are looking at that?

Gary Zyla: So that’s a great point, Jeff, and we actually have just started that. So I believe previously when we talked, we had like a one, two and three-year ladder in terms of our contracts. We did just recently add one contract for four years and one contract in a five year to extend it. I think it was like just we extended the term from like 2% to 2.2%, whatever it is now. So we absolutely are focused on extending that. Now there’s the trade-off in rate and whatnot. And I can’t actually tell you what those rates are now in the four and five year on top of my head, but that is our consideration to make sure that we are not giving up too much value in extending it. The goal of having the fixed rate yet is to give us a good glide path 18, 24, 30 months or so, that good glide path, where Michael pointed out, we have this natural hedge that rates come down, equity markets should rebound and that glide path can help us match the revenue offsets effectively.

Michael Kim: Yeah. I mean, Jeff, the only thing I would add is that our product team, they do an excellent job. We have a monthly pricing committee meeting, and it is really our way and the process that, that team has incorporated, it’s a way for us to actively monitor and make the appropriate adjustments. We want to make sure that we put really the liquidity and the client experience as our first principle, but really, there is a very stringent process in place to have regular and active monitoring of the fixed terms and make sure that we are optimizing the cash balances at ATC today.

Jeff Schmitt: Okay, great. Thank you.

Gary Zyla: Thanks, Jeff.

Operator: Thank you. Thank you for your question. The next question comes from the line of Patrick O’Shaughnessy with Raymond James. Your line is now open.

Patrick O’Shaughnessy: Hey, good afternoon. So in December, Bloomberg reported that Huatai was exploring strategic options for its investment in AssetMark. I’m sure you can’t or don’t want to speak for them directly, but what have they communicated to you guys about this process?

Michael Kim: Hey, Patrick, thank you for the question. Yeah, I mean, obviously, I think we’ve seen all those different articles as well. And as you mentioned, our position is that we don’t comment on these rumors and these types of articles. What we can tell you, Patrick, is that, we have regular conversations with our majority shareholder as well as the entire Board, they remain very, very supportive of the business and the entire management team. With that in mind, one of the key things that we talk about on a very regular basis as a management team is, really thinking about the three key areas of our focus. The organic growth, we talk non-stop about getting back to that 10%-plus organic growth rate, as we talked about.

Number two, let’s make sure that we deploy the capital in a right way and focus and have that really targeted focus on the right M&A opportunities. We believe that we have an opportunity to really win in a strategic way, leveraging all of the financial resources that we can bring as well as our position in the market. And then the third area of focus is really driving scale. We talked about a number of the automation initiatives, the touchless new accounting opening initiative as an example. And our goal is to really remove up to about $25 million of operational costs over the next few years. And so those are the key areas that we’re super focused on, Patrick. Look, obviously, there’s a lot of distractions and rumors and talk. One of the key things that we have the leadership team, we talk a lot about is a less focus on what’s within our control and not get hung up on the different articles and the rumors that are floating out there.

And again, going back to the Board, they are just super supportive of the entire team and the business. And so we’re excited by the opportunity and really the momentum that we have in the business here today.

Gary Zyla: Yeah. Patrick, I would just add that we’ve got 1,000 employees and our 9,000 advisers here, and we are focused on a great 2024. Talking a little about the outlook already and the Board has been so supportive of the investment that Michael has stepped up for 2024 and for our technology spend, et cetera. And so we got our mission clear for ourselves, and that is constant, and that motivates all our employees and our service to the advisers.

Patrick O’Shaughnessy: Okay. Fair enough. Appreciate that. And then with your Tax Management Services solution, is that an incremental monetization opportunity for you guys?

Michael Kim: Yeah, absolutely. I’ll start and then Gary, please share some specifics on the financial value there. So Tax Management Services or TMS, it is an incremental service with an incremental revenue opportunity, 10 basis points growth in terms of what we charge to our clients. And Patrick, I can tell you, I mean, I’ve been with the firm for over 13 years now. And this is one of the most exciting initiatives that we’ve launched and that it is being received so well by our advisers, and they see the value. They are super excited by it. As I mentioned earlier, we are getting more assets being enrolled into this program than ever before. And so this is one of those unique programs where we know that it’s resonating.

And while the end clients, they’re engaged with their advisers and understanding and wanting to understand different portfolio construction strategies and all the nuances about the portfolio. But at the end of the day, the end clients, the investors, they understand taxes and they view, they look to their advisers as really the steward of not only the meeting the financial goals, but tax management. And so I can’t say enough about the opportunities that TMS is creating not only from a revenue and tax point of view, but also to really attract new producing advisers onto the platform. And one of the big upticks that we’re seeing from an NPA perspective is really related to the excitement around TMS. And so Gary, you know how much I’m excited about TMS.

And why don’t we share with Patrick some of the financial value that TMS will bring to the firm?

Gary Zyla: Sure. So Patrick, this is a great opportunity for us to – normally, most around pricing, the wrap pricing, which is like Michael said 10 basis points, so many folks at AssetMark have spent a good 18 months building the system, a significant capital spend to set this up and the partnership we have. And it’s a nice example of where this win-win-win all around, clients to be realizing material improvements in their tax position. Advisers now have another tool in their quiver, another arrow in their quiver to service their clients, and we were able to tax some of those economics.

Patrick O’Shaughnessy: Great, thank you.

Operator: Thank you for your question. There are currently no questions registered. [Operator Instructions] There are no additional questions waiting at this time. I would now like to pass the conference back to Michael Kim for any closing remarks.

Michael Kim: Great. Thank you. Let me just wrap up with a big, big thank you to all of you that have joined us here today as well as everyone that is supporting AssetMark. We truly value the partnership and your continued support, and we’re excited about 2024 and a big, big shout out to all of the AMK employees who make it happen every single day. So with that, thank you, everybody, and we will call it a wrap. See you everybody.