AssetMark Financial Holdings Inc (AMK) 2021 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to AssetMark's Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) 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, Austin. Good afternoon, everyone, and welcome to AssetMark's Fourth Quarter 2021 Earnings Conference Call. Joining me today are AssetMark's Chief Executive Officer, Natalie Wolfsen; and Chief Financial Officer, Gary Zyla. Today, they will discuss the results for the fourth quarter, provide an update to AssetMark's business outlook for 2022. 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.assetmark.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 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.

With that, I'll turn the call over to my colleagues. Natalie, take it away.

Thank you so much, Taylor. Hello, everyone, and welcome to our fourth quarter earnings call. We are a few weeks away from my 1-year anniversary as CEO, and what an amazing year it has been at AssetMark. Before we begin our prepared remarks, I would like to start by thanking our 8,600 advisers and 850-plus teammates. 2021 was a record year, and it would not have been possible without the loyalty of our advisers and the dedication and skill of our team. I also want to thank our analysts and investors for their continued support of AssetMark.

Starting on Slide 3, platform assets ended the year at a record $93.5 billion, driven by record quarterly net flows of $2.9 billion, which included our first $1 billion month of net flows in December. For the year, our net flows as a percentage of beginning period platform assets were 13.3%.

Households and engaged advisers were both up double digits for the year and ended the year at all-time highs. We also experienced record results for both top and bottom line financial metrics. Full year net revenue was up a little less than 28% year-over-year to $378 million. Adjusted EBITDA in 2021 was up more than 36% to $157 million and adjusted net income was up more than 41% to $103 million. And we continue to scale the business as evidenced by our ability to expand adjusted EBITDA margin a robust 300 basis points in 2021.

Turning to Slide 4. Our record results are a direct outcome of the value we bring to our advisers and their clients. For more than 25 years, we stood behind thousands of independent financial advisers and provided them with everything they need to serve their clients and run their businesses.

By redefining the adviser experience, AssetMark is also redefining what it means to be a modern TAMP. Our singular focus is bringing unmatched value to independent financial advisers and their clients. We recognize that independence is sacred, and we champion it. The independent advisers we serve are objective, unbiased and singularly focused on helping their clients reach their financial goals. When advisers work with AssetMark, they have a trusted ally. We are an extension of their team, and they are part of the community of thousands of like-minded advisers.

As we redefine what it means to be a modern TAMP, we're focused on 5 key areas. I'll now discuss the 2021 progress we've made in each. The first component of our growth strategy, on Slide 5, is to meet advisers where they are, catering to a variety of affiliations, new growth-oriented or mature advisers.

In March of 2021, we launched AssetMark Institutional. Since launch, AssetMark Institutional has gained a lot of momentum. Just as we have done with our broker-dealer affiliated advisers, we're building a community of like-minded RIAs who see the value in outsourcing to AssetMark. Because of our efforts and the value of our offering, we saw 49 new RIA firms join AssetMark in 2021 with current platform assets averaging $34 million during the first year of transition. In addition, RIA platform assets now account for a little over $20 billion of assets on our platform, and RIAs made up 20% of total production in 2021. In 2022, we'll be focused on continuing to build out this offering.

Turning to Slide 6. The second component of our growth strategy is to deliver a holistic differentiated experience to advisers and their clients, providing an end-to-end, easy-to-use platform designed to create meaningful conversations between advisers and their clients while also, and very importantly, saving advisers' time and resources.

In 2021, we took a huge step forward in building out our financial wellness offering with the acquisition of Voyant. We are pleased with Voyant's year 1 results and want to highlight 3 key areas of their success. First, let's focus on technology. In 2021, Voyant maintained exceptional approval ratings from users, upgraded numerous integrations and added dozens of new features. As a result, Voyant was a 5-star winner of FTAdviser's Service Award and was also voted the Best Non-Research Software for Paraplanners by readers of the U.K.'s Professional Paraplanner.

Second is growth and expansion. In 2021, Voyant Australia was launched, bringing Voyant's financial planning tools and technology to Australia's community of 20,000 financial advisers. Voyant also began its entry into the U.S. market through its acquisition by AssetMark. In August, we gave AssetMark's top advisers a free trial of Voyant, and feedback has been extremely positive. In 2021, Voyant's number of adviser and paraplanner licenses increased by approximately 10% year-over-year.

Lastly is Voyant's integration into AssetMark. We integrated Voyant's financial planning capabilities into eWealthManager and also built Income Planner, a retirement income planning proposal technology, which is powered by Voyant. We are pleased with the advancement we have made in our financial wellness offering and are focused on continuing to build it out in 2022, and we look forward to telling you more as the year progresses.

The third component of our growth strategy is to enable advisers to serve more investors across the wealth spectrum, varying stages of life and generation.

Now let's turn to Slide 7. In 2021, we did a tremendous job of enhancing our platform, enabling advisers to serve investors. We did this by adding new products, features and tools to our platform. And through this, we were able to capture more share of wallet from our existing advisers as well as attract new advisers. In total, new products have added $8.5 billion of assets on our platform on a rolling 36-month basis.

For our advisers' wealthiest clients, we added a host of new solutions such as alternative investments through iCapital as well as a suite of separately managed accounts. This past quarter, we made enhancements to our tax loss harvesting capability, which will improve the client experience.

For mass affluent and emerging affluent advisers, we've expanded our Savos Personal Portfolios to include new sleeves. As a reminder, these portfolios offer features that are usually found in high-net-worth solutions at an accessible investment minimum.

Lastly, we added Pooled Employer Plans to help our advisers serve the retirement needs of small business owners. We are continually focused on building out our platform to enable advisers to serve more investors, and I look forward to discussing these new additions to our platform in upcoming earnings calls.

The fourth component of our strategy, as seen on Slide 8, is to help advisers grow and scale their businesses by offering turnkey adviser solutions and programs. Last quarter, I discussed our business consulting offer, which is a huge competitive advantage for AssetMark. In 2021, our business consulting team served over $26 billion of platform assets, a 33% increase in 2020. Additionally, they launched and supported over 20 new adviser benefits, 1 of which I want to discuss with you in more detail today.

In the fourth quarter, we soft launched Marketing Advantage, AssetMark's marketing outsourcing program. Having a defined and executable marketing strategy has never been more important for advisers. In fact, in a 2021 Broadridge Financial Advisor Marketing survey, it was found that only 26% of financial advisers have a defined market strategy -- marketing strategy. Yet, those that did have a strategy onboarded more than twice as many clients over the last 12 months as those who didn't.

Marketing Advantage, our response to this adviser need, is a suite of marketing tools and resources designed to enhance an adviser's brand, deepen client relationships and attract new business. Over 100 advisers have used Marketing Advantage during the soft launch period alone, and we just announced a full launch 2 weeks ago.

Turning to Slide 9. The final component of our growth strategy is to pursue strategic transactions by adding capabilities and assets that improve advisers' ability to serve investors and expand their business. In 2021, our M&A growth strategy was highlighted by our acquisition of Voyant, which closed in July. As I have mentioned in previous earnings calls, we are more deliberately focused on M&A than we've ever been before. To that extent, last month, we announced a new $500 million 5-year credit facility. We're very excited about the opportunity to significantly increase our access to capital and reduce our ongoing borrowing rate. We remain well positioned to execute on M&A with approximately $425 million of purchasing power while continuing, as always, to be a disciplined buyer.

Lastly, we would be remiss if we didn't provide some commentary about the current macro environment and how that impacts AssetMark. Later in the call, Gary will discuss the impact of interest rates on our spread-based revenue. Right now, I'd like to take a moment to briefly provide some thoughts about talent.

Talent acquisition and retention have never been more crucial. Our strategy has 2 components to address this need. First and most importantly is ensuring that AssetMark is a place where talented individuals want to work. We added more than 150 new team members in 2021 and received high marks in our annual employee engagement survey related to diversity, creating high-impact work, work satisfaction and teamwork. We need to continue to make strides against all these measures so that the best of the talent -- the best of talent wants to work at AssetMark.

The second component of our strategy is appropriate compensation. To that end, at the end of last year, we gave each team member a onetime year-end bonus. We funded our variable incentive compensation at a high level. And in early '22, we will increase salaries across the board. All of these changes have been accounted for in our current plan, which Gary will go through in a few minutes.

We believe that creating a workplace that embodies our values of heart, integrity, respect and excellence, along with having a robust learning and development program and compensating team members appropriately, will help us attract and retain the best talent.

In closing, 2021 was a record year for AssetMark. Platform assets grew to over $93 billion. We served more advisers and investor households than ever before, all while achieving the highest Net Promoter Score in our company's history. We realized double-digit growth for top and bottom line financials and expanded margins by 300 basis points. We expanded into a new and growing channel. We completed our first capabilities acquisition, allowing us to diversify revenue and entered 2022 with strong momentum.

I will now turn the call over to Gary, who will take us through a deeper dive of our fourth quarter 2021 results and provide an updated outlook for 2022.

Thank you, Natalie, and good afternoon to all those on the call. As Natalie discussed, 2021 was a record year for AssetMark, highlighted by an all-time high in platform assets and record numbers for net flows, revenue, adjusted EBITDA, adjusted net income and adjusted EPS. As usual, I will start with a discussion of our platform assets, then talk about our revenue, expenses and then earnings. I will conclude with an update on our outlook for 2022.

Starting on Slide 10. Fourth quarter platform assets were a record $93.5 billion, up 26% year-over-year. This growth reflects fourth quarter net flows of $2.9 billion, the highest quarterly total in the company's history and the fourth consecutive quarter of record-breaking flows. We also realized $3.7 billion in market gain net of fees. For the full year, we achieved net flows of almost $10 billion. This is over 13% of our beginning-of-year platform assets, well in excess of our annual target of 10%.

Let's now turn our attention to the adviser metrics. In the fourth quarter, we added 215 new producing advisers or NPAs. This marks the third consecutive quarter of NPAs north of 200 and is the highest total NPAs since the beginning of the pandemic in first quarter 2020.

Our total engaged advisers at the end of the fourth quarter is 2,858. We added 109 engaged advisers in the fourth quarter and 322 engaged advisers in 2021. Our engaged advisers make up 92% of our platform assets. As we always point out, growing the number of engaged advisers on our platform is a key focus for management, and it is crucial to drive further growth of our business and its financials.

Now let's turn to Slide 11 to discuss this quarter's revenue, which was a record $144 million. As you know, we focus on revenue net of related variable expenses. In the fourth quarter of 2021, our net revenue of $103 million was up 35% year-over-year. This is driven by asset-based net revenue, which was up 32% to $97 million, and the addition of subscription-based revenue from Voyant, which was $3.2 million. Spread-based revenue for the fourth quarter was $1.7 million.

Speaking of spread revenue. Recent commentary from the Fed on rising rates will have a positive effect on AssetMark's spread-based revenue.

Turning to Slide 12. Based on ending cash on January 31 of about $2.9 billion at our trust company, a 25 basis point increase in the Fed funds rate would result in about $4.5 million of spread-based revenue on an annualized basis. Historically, about 75% of annual revenue fall through to our bottom line. Simply put, AssetMark is well positioned to benefit in a rising interest rate environment, and this may speed up our revenue diversification and earnings growth.

That said, we are always cautious in our planning. You will see that our 2022 guidance, which ties to our operating plan, does not include rate hikes in 2022. We look forward to providing more color next quarter once we have greater clarity.

Slide 13 details our year-over-year net revenue walk. As the waterfall shows, net revenue was up year-over-year driven by the impact of our asset growth, which generated $21 million in additional net revenue. Also adding to our increase in net revenue is a $2.4 million reduction in our asset-based expenses. As a reminder, this ongoing savings that is primarily driven by restructuring agreements with providers that we first realized in the second quarter of 2021.

On another positive note, fee compression was negligible year-over-year. Subscription revenue from Voyant added $3.2 million in additional revenue, and Voyant's consulting revenue drove the increase in our other revenue line item as well. Lastly, spread-based revenue decreased about $300,000 year-over-year due to the decline in our average yield from 31 basis points to 26 basis points.

Now let's discuss expenses as shown on Slide 14. Total adjusted expenses increased 32% year-over-year to $111 million. Quarterly operating expenses were up 47% year-over-year to $64.7 million, driven by an $11.6 million increase in compensation expense and an $8.9 million increase in SG&A.

So turning to Slide 15, let me provide you some more -- some additional color on our operating expense increase. As the graphic shows, we started with fourth quarter 2020 operating expenses of $44.1 million. We added $13.4 million due to increased volumes, travel and events. This growth in expenses is commensurate with revenue growth. I mean perhaps [saying commensurate] my time. It's very exciting.

Secondly, we added $2.9 million for the addition of Voyant, which, as a reminder, was not in our expenses in 2020. This brings us to a core operating expense of about $60.4 million in the fourth quarter of 2021, up 37% year-over-year.

The remainder of the expense increase was driven by specific investments we made in the quarter as a result of our strong year. First, we paid $3.1 million related to bonuses, which Natalie alluded to, including an excellence award paid to all employees and an increase in our annual bonus accrual. Second, we chose to spend an additional $1.2 million on a few specific strategic initiatives. The spend was not originally in our plan for 2021 but will help accelerate growth in 2022 and beyond.

Before wrapping up our expense discussion, let me quickly run through our adjustments for the quarter. We added back a total of $12 million pretax, which is comprised of 4 items: first, $5.6 million of noncash share-based compensation. We expect this number to decline in 2022 to an average of about $4 million a quarter. Second adjustment to expenses is $2.9 million of amortization expense related to prior acquisitions. Again, we have set this number to decline in 2022 to about $1.5 million a quarter. Third, $3 million related to primarily reorganization and integration costs and onetime costs related to the pandemic; and lastly, $400,000 in acquisition-related expenses, primarily associated with our acquisition of Voyant.

Now let's turn to Slide 16 to discuss our earnings for the quarter. For the fourth quarter 2021, adjusted EBITDA was $38.3 million, up 20% year-over-year. Adjusted EBITDA margin for the quarter was 26.7%, down 220 basis points year-over-year due to the increased expenses that I have previously just discussed. Excluding those non-repeating expenses, fourth quarter adjusted EBITDA would have been $42.6 million with an EBITDA margin of 29.7%.

On an annual basis, we have expanded our operating margin 300 basis points, well above our long-term target of 50 to 75 basis points. Our reported net income was $12.4 million compared to negative $9.9 million in the fourth quarter 2020. This marks the third consecutive quarter of positive GAAP income, and we finished 2021 with positive reported net income of $25.7 million. Our adjusted net income for the fourth quarter was $24.7 million or $0.33 per share. This is based on the fourth quarter diluted share count of 74.7 million. Our adjusted effective tax rate for the whole year is unchanged at 23.5%. Further color, please see the adjusted net income walk on Slide 20.

Turning briefly to our reported fourth quarter balance sheet. Let me update you on our cash and debt position. We ended the quarter with a little over $75 million in cash, and we continue to generate cash at about 50% conversion rate from operating activities and capital investments. In 2020 -- I'm sorry, in 2022, we expect to generate about $100 million of cash.

Turning to our debt position. As Natalie mentioned, in January, we announced a $500 million 5-year credit facility with an interest rate of adjusted SOFR plus 1.875%. We used the new $125 million term loan in this facility to retire our existing debt, which had a rate of LIBOR plus 2%. As Natalie noted, we're really excited about the opportunity to significantly increase our access to capital and reduce our borrowing rate, highlighted on the margin improvement of 12.5 basis points.

Now let's turn to Slide 17 to provide an update on our 2022 expectations. As you know, we bill in advance platform asset totals at the end of the quarter. As a result, we have already collected revenue for the first quarter of the year based on ending platform assets from December 31, 2021. So far in 2022, we have seen increased volatility in the market, and assets in our platform are down in January from year-end. However, there is still 6 weeks remaining in the quarter, possible upside [mid Streets] and strong business momentum. As a result, we are reaffirming the guidance we presented in November and anticipate earnings growth in excess of 20%.

We are incredibly excited about 2022 and AssetMark's ability to continue to thrive and grow. This will be highlighted by a full year of revenue from Voyant, a likely increase in spread revenue and strong adviser net flow growth. This will lead to double-digit growth in revenue and adjusted EBITDA and a margin expansion in excess of 100 basis points. We will, of course, provide an additional update during our 1Q '22 earnings call as we will have certainty around end-of-quarter asset levels and perhaps more clarity on the impact of any rate movements.

So with that, I'll hand it over to Natalie for her concluding remarks.

Thank you, Gary, and thanks, everyone, for being on the call today. I've never been more excited about our company's future. I look forward to sharing future updates at upcoming conferences and on subsequent earnings calls. This concludes our prepared remarks. I will now turn the call back to the operator to begin questions and answers.

(Operator Instructions) Our first question is from Ryan Bailey of Goldman Sachs.

Natalie, a high-level question for you. We often hear about the aging of the financial adviser population and we might have a potential over time, an acceleration over the coming decades. So I was wondering, could you speak to what net attrition of advisers for the industry might mean for the day-to-day impact of the businesses of the remaining advisers and then what that might mean for AssetMark?

Yes. Thank you so much for the question, Ryan. So you are correct in that the average age of the adviser has been increasing for quite some time, and many advisers are reaching what you would classically call retirement age. A few things I just want to say, though, is it is very, very common because advisers get so much value and satisfaction out of their work that they don't fully retire in the classic way that we would think about retirement. Instead, what they do is they bring on a successor or they sell off a part of their business or they bring on a team so that they can continue to serve clients much, much later in life than you would normally expect.

Even so, as advisers age, many of them are looking to retire fully and fundamentally change the aspects of their work. And for those advisers, some of them are selling. Some of them are becoming part of bigger practices. But many, if not, all of them have succession plans where younger advisers are entering into the business in one form or another.

In fact, if you look at the total number of certified financial planners, just as an example, there have never been more new certified financial planners than there were in 2021. And those certified financial planners are of much, much younger age, a much more diverse group. And this group of new or emerging advisers, they're entering the field at a rate and replacement rate of the advisers who are leaving.

And so I don't expect that there will be a huge rotation where there will be a much, much lower amount of advisers. But instead, you'll see these new financial planners, these new and emerging advisers enter the industry.

The last thing I'll just say is that our business consulting group, which I mentioned on the call earlier, one of the things that, that group focuses quite a lot on with the advisers that we serve is making sure that they have a robust succession plan, both emergency succession plan and long-term succession plan, and that they are actively grooming a younger generation to take over their business.

Got it. Okay. And maybe a separate point. Maybe it's somewhat related to this. So your households per adviser for AssetMark is up about 19% over the last 2 years. I was just wondering if you could comment on what the driver of that is. Is it that you guys are winning more sort of wallet share from the financial advisers? Are they growing organically while they work for you because what you're doing is freeing up time for them? Or is there anything else that we should keep in mind?

Yes. I mean the answer to that question is really all of the above. So in fact, our advisers are absolutely growing. We just completed our 2021 value of outsourcing survey. And what we found is advisers that outsource grow at a faster rate. They attract more new clients than advisers that don't. We've also been investing in helping our advisers market more efficiently and better, and our marketing outsourcing program that I mentioned on the earnings call earlier today is just the most recent example of that, so increasing our advisers' growth rate and ability to track new households.

Our advisers are highly likely to be referred and specifically coming out of 2020, that the level of service that they provided to their clients really outpaced the competition. And so they saw tremendous growth in 2021 from new clients. And then also, we're adding new products and services to our platform so that we can serve categories of investors that we haven't been able to serve before. The example of that, our AssetMark Personal Portfolios where we added new sleeves and also new high-net-worth offering.

One other thing I'll just mention is the high-net-worth offering that AssetMark has been building for over a decade now, we've added products, services that serve the entire wallet of the high-net-worth individual. And that has really helped us grow our advisers' businesses from much, much larger clients.

Got it. And maybe if I can sneak one more quick one in. Gary, related to that comment about 75% of spread revenues falling through to the bottom line, is that -- the 25%, is that a deposit beta comment? Or is that reinvestment into the business? Or is it both?

Deposit beta.

Our next question is from Gerry O'Hara from Jefferies.

Okay. Great. So just kind of a question around M&A and how you're thinking about it on a go-forward basis. Are there any kind of particular identifiable opportunities or product gaps that you've kind of seen or identified? Or is it sort of just more opportunistic in nature? Any sort of color or context there would be helpful.

Yes, absolutely. Thanks so much for the question, Gerry. As it relates to M&A, first thing I just want to say is we look at the universe of opportunities that there are to serve advisers. And related to that, the technology they use, the services they need, what's powering advisory practices that are growing and thriving. And all of those areas are high-opportunity areas for AssetMark.

So Voyant financial planning, obviously, is a huge part of a successful advisory business. And so we wanted to own that part of the adviser experience. There are other aspects of technology, other aspects of asset management, other aspects of servicing that are critical to the adviser's ability to deliver quality support for their clients, and those are the areas that we'll focus on.

In an M&A environment like the one we're in right now, you have to be both strategic and opportunistic. We need to -- we have identified the parts of the market we're most interested in acquiring. And as those opportunities become available, we are very aggressive about researching and ensuring that we're part of those conversations.

That said, the environment is tough. I mentioned this on the last earnings call, and we're going to continue to be a disciplined buyer. We want to make sure that, that asset, whether it's scale or capabilities, does it fit for our business and that we feel like we can deliver in the medium term accretive acquisitions. And in an environment like this one, that means you have to sift through quite a lot of opportunities to get to those that make sense. And Gary and I and the entire leadership team at AssetMark are dedicated to doing that.

Okay. That's helpful. And then perhaps one -- and apologies if I missed this, but as it relates to the strategic initiatives of $1.2 million that are not expected to recur, did you give any kind of context on what exactly that was? Or can you if you didn't?

Yes. Sure. Gary, why don't you do it?

Yes. So look, we've discussed -- I did not, Gerry, so you didn't miss anything. But basically, we began initiatives -- we have an initiative for our adviser growth. We have a digital lead generation initiative. We have another initiative related to our online web presence and whatnot. These are initiatives that we were planning to begin in 2022, again, with the thought of bringing in more advisers, making it easier for them to do business and creating leads.

And they're nonrecurring in nature because, in many instances, we engage in consulting projects or worked on advertising, again, to pull forward 2022 expenditures into 2021.

Our next question is with Kenneth Worthington of JPMorgan.

Just following up on that question and sort of the onetime bonuses. Is AssetMark going to pay these sort of onetime bonuses in the future? And why isn't onetime going to be sort of an ongoing tradition there?

And then there was sort of the pull forward of expenses, the one-timers that aren't recurring. Does this sort of happen again and again? Like things are going great. You've got some more money to play with, so it all makes sense. But why don't we sort of see this in the future as well?

And then as we think about the 16% to 20% expense growth, is it inclusive? Does it incorporate these onetime expenses in 4Q, so we're growing off the higher number? Or is it sort of exclusive of the onetime investments? Sorry I couldn't quite tell.

Yes. So why don't I take the first 2 of those questions and then let Gary speak to the modeling of the 16% to 20% expense growth? So as it relates to the onetime bonuses, as Gary and I mentioned in our prepared remarks, 2021 was an extraordinary year, best in history in terms of assets, best in history in terms of net new asset growth, best in history in terms of revenue, best in history in terms of EBITDA, best in history in terms of EBITDA expansion. And we're a team here at AssetMark, and we wanted to share that success with the team.

They had a change in leadership in 2021. It was an incredibly great year in terms of results but also a difficult year in terms of still being in the pandemic and everyone working hard. And so for the first time in our history, we did a onetime bonus for everyone at the firm. And I got to tell you, the team here, they earned it. It's just a wonderful, wonderful group of people dedicated to making a difference in the lives of advisers every day.

But the bonus came at an extraordinary time with an extraordinary set of results. And so that's why we categorized it as onetime. If we have an extraordinary year in 2022 like we did in 2021, maybe we will deliver the same kind of bonus. If we don't, then we won't. And so it felt onetime in nature to us.

The second thing I just want to comment on is your very good question about is this something where we invest more in the fourth quarter because there's money to be invested, is something we should expect in the future. And the answer to that question is probably yes. We always have more visibility into our overall business results in the fourth quarter because we bill in advance based on the assets at the end of the quarter before. And so by the fourth quarter, we know, give or take a very small margin, what our results will be at the end of the year. And Gary and I feel that working with the executive team, we should invest for future growth when we have the opportunity to do that.

Last year, we had already expanded margin by 300 basis points, and we wanted to make sure that we are investing appropriately in growth. And that's part of how we balance the need for revenue growth and margin expansion. We tried to be clear about that in the third and fourth quarter last year, and I just want to reinforce that we're committed to investing in future growth where we can. And then, Gary, I'll hand off to you to talk about the expense expectations.

Yes. And so Ken, it's a great question, right? And one of our goals, Ken, is make sure that we're trying to communicate to you and the investors, like so there are no real surprises in what's coming forward, right? We try to be -- try to go through our outlook for the upcoming year. And in fact, what Natalie was going through, as we think through, as we go through the year.

So when you think about our 20% -- 16% to 20% growth next year in expenses, I would bucket them into 4 categories. About 1/3 of that is related directly to volume and salaries. So that does capture -- that's why we always had captured that when we made the plan late last year, the increase in cost for talent that Natalie was talking about. That's about 1/3 of our expense rates next year.

About 1/4 is due to a full year of Voyant, right? We only had a half year cost for Voyant in '21. And so part of our expenses will go up because of a full year of Voyant. About 1/4 of our increased expenses are going to be related to what we would call a travel and events budget. Specifically, in a week from now, we're going to hold our Annual Gold Forum Event. It's a $3 million to $4 million event. It's what we have done every year for 20 years except last year. And so this is very exciting, and we're stoked about going out and seeing our top 500 advisers on our event.

And then the last third of our expense growth next year is further investments, right? And so, Ken, there is a long list of investments we are excited about making and bringing to advisers over time, the $1.2 million that I alluded to [that was in] fourth quarter because we could, that accelerated some stuff, and we still have a large bucket of investments that we have budgeted now for 2022. That helped?

Okay. Awesome. That's excellent. Sort of the elephant in the room for me sort of remains the fundamentals seem to be good. Management execution seems to be good, very good, great. The stock price is not reflecting that. How does Huatai think about the stock, if at all, if they're even communicating with you about it? I guess my question is are they receptive to suggestions about what might get the stock to act better. Or do they have suggestions about what might improve the stock price performance?

There's been a number of things floated to me. I'm sure to everybody else. I'm sure to you. Anyway, do they want to be part of a potential solution there? Or is this not really a concern and they're half a world away and this never even comes up with you and the management team?

Yes. So Ken, thanks so much for asking the question. And I agree with you. It is the elephant in the room. And so I'm really glad you asked the question. First thing I just want to say is Huatai, they're our majority shareholder, and so they care deeply about the stock price as any majority shareholder would. They are frustrated by the stock price. And they and the management team and the Board, we talk about the stock price to make sure that we're doing everything we can for our shareholders to understand their needs.

At the same time, what we control is fundamental. What we control is making a difference in the lives of our advisers and their clients. And over the long and medium term, if you don't do that, nothing else matters. And so we are absolutely having conversations with Huatai. As our majority shareholder, they are absolutely focused on the stock price. And at the end of the day, all that matters. If you don't deliver fundamentals, if you don't delight your clients, if you don't have a strong and happy team, nothing else matters. And so we're focused on that.

Our next question is from Michael Young of Truist Securities.

Wanted to maybe start with one for Gary. Just as we kind of think about the year and market appreciation, that's the part that could be maybe most elusive kind of within the target, at least at this point, with the potential offset from higher rates. But if we just think about that 3.5% market appreciation weren't to materialize and we were just kind of flat year-over-year, how much of an impact is that as we think about kind of EBITDA and EBITDA margin expansion for the year, again, ex rates?

So I mean this is very ballparky. If you're talking about the revenue impact, if you missed on the 3.5% growth, very ballparky, I'd say, $10 million to $15 million of revenue to take -- it would be about $3 billion of assets to sell about 40 basis points, somewhere in that range.

That said, Michael, we've already locked in a quarter of it, right? So we already entered the year with billing first quarter. And so in short, whatever the market does in the fourth quarter of this year, that doesn't quite actually matter because that will go into next year. And so we've already mitigated about 1/4 of the market risk of any given year when we're talking to you in February, right?

And so the main focus will be what the market will be doing the rest of this quarter and into next quarter. And at the same time, Natalie, myself, the executive team, we are always focused on making sure that we are planning our expenses and our investments appropriately. And so as the market recovers or does not, we will alter the timing of some of our investments.

Right. No, fully appreciate that you guys have a lot of leeway and lead time on the expense side, which is great. And then the other piece would be kind of higher rates. It seems like that could offset an additional 50%, 75% of kind of lower market performance if that were to materialize.

I guess the other question I did have was a follow-up kind of on the rate outlook and spread revenue. Just twofold: one, the cash balances, can you just remind us what we should expect in terms of gearing of cash balances as rates rise? Do those tend to come down as a percentage of assets? Or has any mix shift occurred since the last time we were in higher rates that, that might impact that? And then as well, we may see higher absolute levels of rates this cycle. So at what point do kind of deposit betas catch up later on maybe in the rate hike cycle.

Yes. So a couple of things I just want to say about cash balances when interest rates go up. Cash balances, the type of cash balances that we have at AssetMark Trust those cash balances are cash held in a model to pay client fees. And so they're less elastic than true cash balances that you would see at a -- like at a custodian.

We do have position-based cash, high-yield cash, and that tends to be a little bit more elastic, but the bulk of the cash assets we have on our platform are less so because they're held for the short term to pay for fees. In aggregate, it's about 3.5% of the assets held at the trust company.

And honestly, there are 2 activities that influence cash balances, and neither are related to rates. One is, if there's extreme volatility in the market, we see our cash balances go up. And the cash balances go up because clients moved to cash to be more conservative or the strategists on our platform rebalance to cash to be more conservative.

And so market volatility is one thing that really influences our rates. And then the other thing that influences our rates is when the strategists reallocate for one reason or another. They might move to cash for the short term as they reallocate their assets. And then the third, which is not related to fees either, is the amount of assets that we're attracting to the platform will raise the overall level of cash because 3.5% of those assets go to cash.

So it's a great question. It's something we look very closely at. And AssetMark and the nature of our cash makes the elasticity a little different here.

Great. And then, Gary, kind of the last one was just on the beta. As we move into maybe 200 basis points up in rates, et cetera, do we see sort of diminishing returns at that point?

Another champagne problem to have, but I think yes. Generally speaking, right now, what we would say, our beta was about 75% that we would call to our bottom line, a little bit diminished as we get higher into that 200 basis point range but not that much, but it is less -- will be less.

And obviously, as you get above the 200 basis point range, if we get there, you're returning a lot of those incremental rates to the client. So yes, you're -- as we get above 2.4 -- I'm sorry, [2.53%], we'll want to be returning some of that -- much of that to clients.

Last question is from Patrick O'Shaughnessy from Raymond James.

Question on the expense outlook for 2022. Was -- when you guys last quarter gave your initial outlook of, I think, 16% to 20% growth, did that contemplate the non-repeating spend during the fourth quarter?

No. Sorry. Go ahead, Natalie. [Maybe you can answer].

So what I want to say is one of the reasons that we provide a range is so that we have flexibility at the lower end of the range to implement things that are absolutely essential but could not be predicted. And so the onetime bonus that we did at the end of last quarter, as I said, it was an extraordinary year. We were very, very happy to do that for our team, and we could do it within the bounds of the range that we had given and then adjusted upwards.

And so we expect to stay within that range. And again, the lower end of that range is given so that we have the flexibility to make decisions that we think are important for future growth or the health of our business.

Okay. Understood. Appreciate that. Your January net flows, $650 million, up year-over-year but your lowest quarter since -- or lowest month, rather, since May of last year. Is there typically seasonality in January? Is there an Omicron factor? Obviously, just 1 month, don't want to read too much into it. But kind of what sort of commentary can you provide on January flows?

Yes. I mean, absolutely. So yes, definitely down versus fourth quarter of last year but up 31.6% versus January of last year. There is absolutely an Omicron element to it as well as the market volatility. Even so, I'm really, really happy with our pipeline and what we see in our pipeline and one of our strongest Januaries ever in 2022. So obviously, we'd love every month to be like December or better, but January can have seasonality into it. It's a month where there is a lot of volatility in flows, and we couldn't be happier with the pipeline. And we also just couldn't be happier that it's up 31.6% year-on-year.

Got it. And then last for me, I know you guys pay a lot more attention to engaged advisers rather than total advisers, but you did add, I think, 97 new total advisers this quarter, which was your strongest quarter since 2018. Anything you would call out is really driving that? And would you expect to maintain that momentum going forward?

Yes. So a couple of things that we would just call out as it relates to our -- the number of our advisers increasing as well as the number of our engaged advisers and the number of new producing advisers, all 3 were high in the fourth quarter of last year and in 2021.

First thing I'll just say is we have a concerted effort to make sure that we're growing the advisers that are disengaged to be engaged. We've invested heavily in a new channel of digital account development, so raising awareness of our brand, raising awareness of our offer broadly in the adviser community in ways that we haven't done before.

And then lastly, with our Net Promoter Scores being as high as they've ever been, advisers are referring AssetMark to their friends and colleagues. In addition, we are helping them save time and money and grow faster. And so advisers' colleagues are seeing that success and wanting to take part in it. So all of those things are leading to the number of advisers, in general, going up and that -- sorry, new producing advisers going up as well.

The last thing I'll just say is entering new channels, RIA, our enterprise channels where we have relationships with credit unions and bigger institutions, has made an impact as well. We have a program. We call it leadership advantage, where we bring these types of enterprise clients together, and we help them learn how to attract new advisers and for their advisers to grow. And we're seeing a lot of momentum from that part of our business.

There are no further questions registered at this time, so I would like to pass the conference back to Natalie for any closing remarks.

Thank you so much for your time today. We look forward to talking to you again next quarter. Everyone, stay safe, and have a great spring.