Tom Sipp: Yeah. Michael, this is Tom. I’ll start and maybe Josh can add. The — so we — in the RIA space, we have changed our pricing. We’re considered a premium product and our pricing is premium compared to our competitors. And we do have pricing leverage based on the investments that we’ve made over the past couple of years. We have really the best trading platform in that space and the overall platform and client service, feedback is really, really positive, and our approach has been to bundle, mainly analytics and then integrate and cross out managed accounts and create a more holistic relationship with the RIA versus just the technology or software relationship. So if you look at just the software, you’re seeing higher rates, higher pricing, bundling with analytics.
But more importantly, we’re cracking open a very, very different holistic relationship with the firm. That has meaningful upside opportunities as you then integrate and scale the fiduciary opportunity.
Josh Warren: Maybe I would just add, to Tom’s point of bundling that which is previously sold separately or that which our competitors need to sell separately, that’s a major differentiator for us. But as far as some of the, ins and outs of pricing, things like minimums, things like breakpoints, we’ve been taking a fresh look at it. And most of the quarter-to-quarter stuff you see is generally a function of mix. As you know, Michael, our contracts are long-dated. Our clients are on long-term contracts. And a lot of these initiatives are going to play out over the course of the next couple years ahead and that’s why we’re so enthusiastic about the runway we have in front of us.
Michael Cho: Okay. No. Great. Thank you for all that color. And then just a quick follow-up on free cash flow, you highlight the seasonality from 1Q. Just kind of thinking through how we should frame kind of cadence of free cash flow for the remainder of 2024 and any kind of I realize it’s early, but any kind of initial thoughts or framework around how we might be thinking about normalized conversion ratios as we kind of look beyond the maybe the 25% margin once we get there.
Josh Warren: Sure. Well, you’re right. I mean, Q1, like we mentioned, obviously has some seasonality there. That’s been evident in the first quarter of 2023, the first quarter of 2022 and was evident again in the first quarter of 2024. But what we were able to deliver as far as improving our free cash flow of $42 million relative to where we were in Q1 is something we’re proud of. We’re proud of the fact that we are leaving Q1 with more cash on hand and a lower leverage ratio than we were a year ago. With regard to the general flow through, the guidance that I provided as far as our overall cost outlook, that’s everything. That’s a fully cash-based approach, which is consistent with how we think, consistent with how we budget, consistent with how we are thinking about the company and thinking about the opportunity ahead.
So as far as conversion going forward, some of the cash consumers, things like severance, things like one-time restructuring, you should all expect 2023 numbers to not be appropriate run rates going forward and we’ll just keep you updated as we continue to make progress there.
Michael Cho: Wonderful. Thank you so much.
Operator: Our next question comes from the line of Alex Kramm with UBS. Please proceed with your question.
Alex Kramm: Yeah. Hey. Good evening, everyone. Just following up on the pricing question, but specifically, I guess, related to the guidance for the second quarter, it looks like a pretty steep decline in the implied fee rates quarter-over-quarter. I assume that some of the one-time changes here in terms of the flows that you pointed out, those two items. Just wondering is that the bulk of it or would you highlight any other specific mixed items that is contributing? And I’m asking because, really, if I look at the last three quarters, the deceleration in pricing, again, implied pricing has accelerated a little bit. So just wondering, is there any other underlying trends you would point out?
Josh Warren: No. Alex, you’ve got it. I mean, the fee rate is declining, but I would say, it’s declining for the right reasons. These are new revenue opportunities which are consistent with our strategy. From quarter-to-quarter, mix is the primary variable. And I would say the blended fee rate is probably two things, the two headlines. One is just clients holding assets in cash, number one, and then this higher mix of reporting assets that I referred to earlier. Those are the major drivers.
Alex Kramm: Figured I’d ask anyways. Thank you. And then just another one on the kind of first-party managed products. I’ve asked about this in the past. I mean, you certainly highlighted some of the high net worth, some of the managed accounts here as growing faster. But if I look at that number in aggregate, that $40 billion that you’re standing at, it’s kind of been both on a quarter-to-quarter, year-over-year basis, very much in line with the overall AUM and AUA growth. So look, it’s keeping up, but at the end of the day, I think this was supposed to be a big focus area. So just wondering what you need to do to really accelerate that and having those growth rates stand out. And if there’s anything else going on where maybe those products are just not getting the right traction in the marketplace for whatever reason? Thanks.
Jim Fox: Yeah. I would say there is — when you look at the data, the high net worth, tax overlay and direct indexing growth rates, as I said in my remarks, are very strong. And if anything, they’re accelerating. The 38% plus growth rates in advisors, assets, flows, accounts. The — where we’re seeing net outflows is in our proprietary models business and these are models that we created 10-plus years ago and we created the marketplace and then opened it up with third-party managers, which thus created more competition if you look at it just from that lens. So those third-party — those proprietary models have been in net outflows. We’ve just recently launched our proprietary ETFs and we’re recapturing some of those assets instead of them leaving the firm.
And they’re just less competitive over time, just based on the broad marketplace and other options that are available. But now that we’re launching the ETF business or products and we’ve created an ability to recapture those assets, those outflows will decrease and then you’re going to see the growth from the other initiatives really take hold, because we see this high net worth, DI, tax overlay as very sustainable, persistent growth. So it’s been really the drag from that long-term proprietary models business that’s impacting the numbers.
Alex Kramm: Fair enough. Thanks, guys.
Jim Fox: You’re welcome.
Operator: And our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question.
