Tom Sipp: I’ll take both those and I think they’re not related. So one the fee rate, what’s going on there, when you’re kind of backing into the fee rate for the fourth quarter? That’s being driven by really two primary things. There was a big client conversion, about $17 billion of assets that starts off as low fee reporting only assets. And then next year, we’re going to see the managed accounts convert onto our platform. So that will lead to higher fee incremental assets next year. So that’s one of the drivers in the Q4 fee rate. The other is just the mix between AUM and AUA. And clients when they move more to cash, it affects our fee rate, because that’s mostly a reporting-only relationship. So again, nothing to do with pricing.
It’s that conversion, and then as clients move, and that’s happening across the industry, more AUA more cash, and that affects your blended fee rate. And then if you move to the pricing, I’d say we’re making a lot of progress with RIAs, where our unit pricing is going up. But then also what we’re doing is we’re bundling more with our RIA relationships. So we are with our Tamarac RIAs, it’s an operating platform relationship, trading reporting, rebalancing. We’ve now bundled insights and analytics. So the fee goes up, but they’re also getting more for — more enhanced platform. And then from our perspective strategically, when they use those insights and analytics, over time that will lead to further adoption of our solutions. So we not only get the higher fee, with that bundle, but you’re going to get better penetration rate for our fiduciary solutions over time.
Alex Kramm: Great, thank you. That’s helpful. And then maybe for my second topic, and this is for Josh. I mean, I know you’re not taking over CFO until next week, but obviously you made some comments here. So just, I guess bigger picture, you’re stepping into the role with the stock being down year-to-date, I think 39% and the market is up 15% or 14%, 15%. So from the outside looking in, this is this is looking like something is broken. So I heard your comments, obviously, it sounds like you’re very supportive of what’s been going on and I guess, what’s in place, in terms of the operating leverage. But just wondering if you look from the outside in and now having a chance to look from the inside a little bit more, what else do you think you can enact here to obviously improve the picture because the market is obviously not buying in what’s been laid out so far? Thanks.
Josh Warren: Sure. Well, thank you for that question, Alex. I mean, look I’d say this, I’ve gotten to know Envestnet over many years as a partner, as a counterparty. All of this is public information and well known in the marketplace, but Envestnet is a core partner of Blackrock. I worked for the last eight plus years. It’s a core partner of iCapital an alternative investment marketplace where I’ve been on the Board in audit and risk committee for the last four. As the leading vertical provider that serves the needs of financial advisor, of financial advisors, Envestnet delivers the operating environment. And as Bill talked about, that operating environment is the gateway for many in the ecosystem. I think that creates a unique opportunity to grow from.
Alex Kramm: Fair enough. Looking forward to more.
Bill Crager: Thanks, Alex.
Operator: Our next question comes from the line of Pete Heckmann with D.A. Davidson. Please proceed with your question.
Pete Heckmann: Hey. I appreciate you answering the question. I just want to go back to that pricing issue that we — on the last question. It does appear that the fee rate declines really quite a bit in the fourth quarter, and I can’t remember, I heard the one thing about the one big client conversion with $17 billion. But on that base of assets, I wouldn’t think that would move the needle quite so much. So you said once they move in the managed accounts over the fee rate should go up. And then as you continue to collect assets in the wet first party managed, should we start to see the fee rates start to move higher in 2024?
Tom Sipp: Well, Pete, thank you for the question. So that $17 billion comes over at a very low fee rate. Their managed accounts don’t come over till next year. So that’s when we’ll make, six, seven basis points on that on that asset base versus one or less than one. But there’s two things that are driving your Q4, calculation. One is that specific client and then two, the mix of AUA versus AUM, more money across the industry and our platform is in AUA and then more money as within a UA is moving to cash. So as more money moves to cash, it shifts from AUM higher fee assets to really a reporting only, you know, fee for us. So those two are the drivers that are affecting that fee rate. So it’s not prices decreasing with existing clients. It’s really that new client and the mix issue that’s affecting that fee calculation.
Bill Crager: Yeah, Pete, this is Bill. Yeah, it’s the dynamic. And I would just spotlight kind of the overall market net flow environment. And in the past quarters have really have spotlighted and I’ll do it now, the success we’re having in selling into our existing client base, more of these high value solutions. But year-to-date, or year-over-year, for our high net worth solutions, account growth of 63% and assets of 55% year-over-year. Direct indexing assets of 48% growth year-over-year and account growth of 27%. Overlay 41% year-over-year growth with account growth of 28%. So we’re being successful, but it’s not enough to defy the overall AUA flow that is coming in the platform. That AUA flow is healthy. We’re able to see more of the advisors business, as they position their clients in more cash or defensive positions, and ultimately rebalance into these types of solutions when the market normalizes, and the rate environment becomes clear.
So that’s just the dynamic, and we’re managing it. And again, there’s a conversion, good thing, $17 billion, low fee rate, ultimately becomes higher fee rate. There’s a big flow of a way. But our focus and our success, our continued success, in penetrating our current book of business is meaningful.
Tom Sipp: I would also — we see our fee rate as stable. Both on an AUM and AUA it’s the mix that’s changing the calculation, but then as you look forward, and think about our subscription revenue, we’ve got a lot going on in the retirement space. There’ll be growth in subscriptions, driven by those initiatives. We’ve talked about our partnership with MPOWER. That will come through a subscription revenue, it’ll also come through as fiduciary revenue, as we’re the default manager on those plans. We have a lot — we talked about the asset managers. We’re going to get different economics going forward from the asset managers. And that will mostly come through incrementally as subscription revenue. And then we have organic growth, new clients coming on board.
We talked about First Command. That’s a pretty material client. It’s about 500,000 accounts, $35 billion of assets. They will come on, second, third quarter of next year. And then we see solid growth in our insights and analytics, based on the signed deals in the pipeline. And then our RIA growth, it’s one, the subscription standalone platform, we bundle analytics. And then we cross sell from there to do manage accounts, tax overlay, direct indexing, and then at some point next year, call it the middle of next year, we will start to cross sell custody, to those existing relationships.
Bill Crager: And the only thing I’d add to that, Pete not to pile on, but also stabilization in the DA subs line, because that has not been the case that has been a heavyweight, that has kind of dragged down our overall subs growth. And so we have made a lot of progress this past quarter, and we’ll report on more as we get to the end of the next quarter — the quarter that we’re in now.
Pete Heckmann: Okay, that’s helpful. And then I should probably remember why but professional services in your guidance is up, over 90% year-over-year, remind me what’s driving that dynamic.
