Envestnet Inc (ENV) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to the Envestnet fourth-quarter 2014 earnings conference call. As a reminder, today's presentation is being recorded. At this time, I would like to turn the conference over to Mr. Chris Curtis, Senior Vice President and Treasurer. Please go ahead, sir.

Thank you. Good afternoon, everyone. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer, and Pete D'Arrigo, Chief Financial Officer. Our fourth-quarter earnings press release and associated Form 8-K can be found at envestnet.com under the investor relations section.

During this conference call, we will be discussing certain non-GAAP information, including adjusted revenues, adjusted EBITDA, adjusted net income, and adjusted net income per share. This information is not calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release.

During the call, we will also be discussing certain forward-looking information. These discussions are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause them to differ materially from what we expect. Please refer to our most recent SEC filings, as well as our earnings press release, which are available on our website, for more information on factors that could affect these matters.

This call is being webcast live and will be available for replay for one month on our website. All remarks made during the call are current at the time of the call. They will not be updated to reflect subsequent material developments.

We will take questions after our prepared remarks. With that, I will turn the call over to Jud.

Thank you, Chris. Hello, everyone. I add my own welcome to you this afternoon.

On today's call, I will review our fourth-quarter and full-year results, describe our business strategy in some broad strokes, and provide a sense of what we expect to achieve, operationally and financially, in the coming year. 2014 was a year of significant achievement for Envestnet. Business activity was strong across all channels and product offerings, including conversions, assets under management or administration, gross sales were just shy of $100 billion.

During the fourth quarter, Envestnet surpassed two important milestones. We now serve more than 40,000 advisors and support over $700 billion in total platform assets. This translates into almost 3 million investor accounts on the platform.

We also continued our strategic efforts during the year with the development of Envestnet retirement solutions for the advisor-assisted 401(k) plan market, earlier in the year, and the acquisition of Placemark in the fourth quarter. Additionally, we completed a successful capital raise of some $172 million through our convertible note offering in December. This is important for us as we execute on our multi-channel and multi-portal platform strategy.

These additional resources, which leverage our existing business, provide significant opportunity for continued top- and bottom-line growth in 2015 and beyond. As we help the financial advisory industry transform from an opaque and misaligned system to one that is transparent, objective, and one that follows a fiduciary standard of care, our North Star is to empower the advisor to be more productive and deliver better client outcomes.

Our cloud-based technology and services deliver powerful and unified solutions for advisors to deliver sophisticated strategies that benefit clients and provide operational lift for the advisor's practice. Our mission to empower advisors to deliver better client outcomes and to unify and fortify the entire wealth management process drives our business strategy.

During the fourth quarter, we continued to drive growth on several fronts. Including the acquisition of Placemark, we added more than 4,000 advisors to our platform, bringing the total number of advisors to more than 40,000. Nearly 29,000 of these advisors have assets under management or administration, which now total almost $246 billion. This is a direct indication of advisors continuing to do more business with Envestnet.

Gross sales of assets under management or administration, excluding conversion activity, were $19 billion, eclipsing the third quarter's record-setting $18 billion. Redemptions averaged 2% per month during the fourth quarter, in line with our expectations. As a result, we had net flows from our existing business of nearly $5 billion.

For the full year, we onboarded a record $95 billion in conversion assets, $28 billion in asset-based pricing arrangements, and $67 billion in licensing arrangements, reflecting strong demand for our unified offerings from large institutions and leading registered investment advisory firms. Our strong organic growth, plus acquisitions, resulted in full-year revenue growth of 44% and adjusted EBITDA growth of 45%, well ahead of our long-term targets of 20% organic top-line growth and 25% organic growth in adjusted EBITDA.

WMS integration continues to be an organizational priority. As of today, three clients remain on the legacy WMS mainframe platform. We expect two of them to transition during 2015 and the remaining one to migrate to the Envestnet platform in early 2016. Meanwhile, we are generating positive cash flow by improving our operational efficiency for clients converted to the Envestnet platform and by reducing our reliance on Prudential to support the WMS legacy business.

This migration activity is taking longer than we originally expected, and we have had to give some revenue concessions to a couple of clients to facilitate the transition and to share in some of the future operating leverage for being on the Envestnet platform. Still, given the multi-currency capabilities that we have acquired, further expansion into the Canadian market, and the entrance into the bank trust channel, as well as the significant cash flow we expect once converted, we are very pleased with the WMS acquisition and its contribution to our business, our platform and our financial results.

Placemark brings to Envestnet industry-leading, unified managed account, or UMA, and overlay management capabilities. Placemark also expands our presence in the full-service broker-dealer channel. Until the WMS integration is complete, the Placemark platform is expected to run in tandem with Envestnet's and generate modest cash flow. Both acquisitions are expected to generate returns that exceed our 25% targeted return on invested capital for consolidating acquisitions once the integrations are complete.

We are evaluating additional opportunities to accelerate our growth, enter new channels, and extend our unified wealth management platform and service capabilities. Beyond the ongoing innovation we deliver through frequent enhancements to the basic features and functionality of our platform, we are looking to make selective strategic acquisitions to execute on our business strategy. And, we continue to evaluate consolidating opportunities as well. Our strategic development is driven primarily by the various channels we serve, or seek to enter, and the continued development of our unique multi-portal platform.

We often emphasize the advisor portal. That is the workstation which integrates a set of applications that help advisors spend less time on back-office and administrative tasks and more time with current and potential clients. Resulting not only in better client outcomes, but also, importantly, faster growth in their practices. Our platform is broad, and I believe, unique.

But the advisor portal is only one of our platforms for primary portal, we also invest in our enterprise portal. This is the dashboard for the home office that enables the program leaders at the home office of banks, financial institutions, broker dealers and larger RIAs to provide the service and operational support necessary for their advisors, to benchmark their advisors, to support their compliance efforts, and to drive improved performance across their organization. This is where the offerings of investment intelligence, advisor benchmarking and book-of-business aggregation for the advisor are highly valued.

Our manager portal, the third I'm describing, enables third-party strategists and separate account managers to implement client portfolios for advisors. Model-based trading is becoming the standard with which most of our managers and strategists implement their portfolios.

Using the model-management standards that have been adopted and that we have established for the MMI, the Money Management Institute, managers and strategists are each increasingly using our portal to access advisors and their investors to make changes to their model portfolios as we administer those changes. They also gain valuable insight into the practice patterns and preferences of the advisors who adopt their solutions. This offers real leverage to the managers seeking to access advisors in these independent channels.

And finally, an area of increasing investment is the investor portal, where we enable advisors to provide aggregated account reporting and digital communications with their investors via an advisor-branded portal. We are seeing a significant increase in the number of advisors and investors utilizing this core capability. As advisors attract younger clients, and as existing clients become more technologically savvy, today's advisors and their investor clients are demanding multiple ways of obtaining information about their financial plans, their retirement plans, their investment portfolios, and in digital communication.

We have been developing our unique multi-portal platform for a number of years. As we provide advisors with more sophisticated capabilities to leverage their interactions with clients, we are well-positioned to further leverage the power of the network we have assembled. The advisor selects the investment strategies, the manager implements the portfolios, and the end investor benefits from their unique collaborative efforts.

This is why we acquired Upside, which we announced earlier today. Upside helps advisors leverage technology to advise, manage and serve clients who want high-quality, customized services, delivered primarily over the Internet, the way that an increasing percentage of investors would like to receive it. When we combine the front-end digital portal that Upside has built with the breadth, scope, and scale of the Envestnet structure, the competitive advantage tilts towards our advisors and away from the pure digital strategies in a big way.

While this transaction is seemingly small, it is important because of how we believe it continues to help tilt the advantage towards advisors. We help advisors who work with Envestnet gain scale, grow faster, achieve better outcomes for their clients, and reach markets digitally, and this acquisition checks all those boxes.

It also sets the stage for continued investment in our multi-portal approach to delivering value to all participants in the Envestnet ecosystem: the advisors, the firms and institutions they work for, investment management managers and strategists, and most importantly, to the end investor.

I will conclude with a few remarks in a moment, but first I would like to turn it over to Pete D'Arrigo, our Chief Financial Officer, to discuss our financial performance in greater detail.

Thank you, Jud. Good afternoon, and thank you for joining us today.

In the fourth quarter of 2014, revenue from assets under management or administration grew 29% to $81.5 million, compared to $63.4 million in the fourth quarter of 2013. Licensing and professional services revenue in the fourth quarter was $15.3 million, up 39% from $11 million a year ago. Total adjusted revenue increased 30% to $96.8 million in the fourth quarter from $74.4 million last year.

Our cost of revenue increased to $38.6 million for the quarter from $32.4 million last year. As a percentage of revenue from assets under management or administration, our cost of revenue was 47.3% compared to 51% in the fourth quarter of 2013. This decrease was driven primarily by the addition of Placemark in the quarter and that revenue is recognized net of manager fees.

Adjusted EBITDA was $16.6 million for the quarter, 50% higher than the 2013 fourth quarter. Adjusted earnings per share increased to $0.23, up 53% from $0.15 last year. At the end of the year, we had $210 million in cash, and our revolving credit facility was undrawn with $100 million available.

Looking forward to the first quarter of 2015, on a consolidated basis, we expect our revenue from assets under management or administration to be up 20% to 22% compared to the first quarter of 2014. This reflects an effective fee rate of approximately 13.1 to 13.3 basis points on our beginning AUMA asset base of approximately $246 billion.

The fee rate decline, compared to recent quarters, is due, in part, to a shift in our mix of AUMA to lower-yielding products, and also due to the revenue concessions Jud mentioned, related to WMS clients in connection with retaining and expanding their business on the Envestnet platform over time. As we have previously discussed, converting and stabilizing the client base for consolidating transactions takes time, as much as one to three years, and this is a complex integration.

Licensing and professional services revenue for the first quarter should be up approximately 33% to 36%. We expect adjusted revenues to increase between 22% and 24%. We expect cost of revenue to be between 48% and 49% of AUMA revenue. Our adjusted EBITDA is expected to increase 38% to 42% compared to the first quarter of 2014. This includes the expected impact from Upside, which will be slightly dilutive in the short term.

Cash interest expense, pre-tax, should be approximately $800,000 in the first quarter, due to the convertible note on the credit facility. After-tax that's approximately $500,000. Regarding income taxes, we expect our effective tax rate for GAAP in the first quarter to be approximately 40%. Diluted shares outstanding should be approximately 37.5 million shares, based on the current stock price. These expectations translate to adjusted earnings per share of $0.22.

Thank you, again, for listening today and for your support of Envestnet. I will reintroduce Jud for some closing comments.

Thank you, Pete. Envestnet intends to continue to invest in and expand the channels we serve with our unique multi-portal platform offering and to implement our strategy to both internal development and acquired capabilities. We believe we are well-positioned to deliver meaningful organic growth and to accelerate that growth through disciplined, strategic activity.

During 2015, we expect to continue our strong growth in revenue and cash flow. We expect revenue growth of 21% to 24% when compared to 2014. We expect continued operating leverage in our core business, as we finalize the integration of WMS and take advantage of resources acquired in the Placemark acquisition.

We will continue to invest in our retirement solutions offering, in expanded PMC solutions, and in expanding our multi-portal capabilities. As a result, we expect adjusted EBITDA to grow between 33% and 38% when compared to 2014.

I want to thank you, again, for your time this afternoon, and thank you sincerely for your support of Envestnet. With the conclusion of these prepared remarks, we are happy to take your questions.

(Operator Instructions)

Chris Shutler, William Blair.

Good afternoon. So Jud, M&A in this space has picked up a lot in recent weeks with Advent, Orion, eMoney. I'm especially interested in the eMoney deal and the announcement by Fidelity that they're aligning their [career and custody] businesses and creating this new technology division. I know it's a big picture question, but I'd love to get your take on where you see those all heading and what kind of opportunities and threats you see for Envestnet as a result.

We see the same activity, the increased interest, not only by strategic, but also private equity participants in the wealth management technology space. It is going to be increasingly important to pick the right partners on the custody side and in the business development side. I think it's a very important time for us to maintain our activity as well as maintain our discipline. We are seeing an uptick in opportunities and we expect that we will be able to take advantage of the right ones of these.

Okay. Great. Then Jud, you spoke about portals a lot in the prepared remarks. In your opinion, what portal or portals do you think need the most development at this point? I'm assuming that the advisor portal is -- that's pretty well developed. But what do you view as the --

The advisor portal takes the lion's share of our development resources. It continues to -- multiple applications and it's generally where most of investor questions are about what are we doing at the advisor portal. We expect to continue to invest in these areas. We have identified areas that we are looking to expand our capabilities in, and those haven't changed.

On the enterprise portal, data and benchmarking provides better business intelligence for the home offices and the institutions that employ advisors. Here there is a continued investment, as well. The manager portal is very interesting, because we see increasing demand from managers who want more insight into this channel. So as we continue to invest in the manager portal, we think that there will be some relatively near-term opportunities to monetize the extensive data that we have. The investor portal is driven in part by an uptick in the investor usage, as well as the advisor usage of the investor portal, [which] is requiring continued investment as well.

We would identify, again, the three areas that we consistently get requests from advisors to do more for them. They want deeper integration with financial planning and CRM applications at the advisor portal level. From a servicing side, they continue to ask for deeper and better workflow integration for alternative investments.

The home office looks for deeper and richer data. I think I just identified some of the things that advisors and we are looking to do to stay ahead of the developments on the digital investor portal front. So continue to invest most heavily in the advisor portal, but these other portals are a large part of what makes the Envestnet platform unique.

Alex Kramm, UBS.

Can you come back to the comments you made on the WMS integration. First of all, on the timing side, it seems like one is slipping into 2016. I think at some point, and maybe I misunderstood, but at some point I think people thought this might be more of a second half or first half of 2015 event to finish that, so maybe just flesh out what changed. And then, more importantly talk a little bit more about these revenue concessions, like in terms of magnitude, how exactly these discussions with these clients have gone, and why you had to concede and how this is fitting into the overall growth opportunity, because I think you're saying that it's going to drive incremental growth, so maybe flesh that out a little bit more?

Let me take a crack at the first. Yes, there is one that is going to take longer than what we previously expected. It is complex. It includes multi-currency capability and it is a large organization. So it is taking longer, and we expect that will be able to get across the finish line on the conversion and the integration side in the first part of 2016. That's a year or even a little bit more than what we originally expected that it would be.

We have given updates throughout the time and that slipped to three quarters, and now it looks like it's going to be four or five quarters longer than what we originally expected. I will point out that most of the institutions are already converted and we are generating operating efficiencies and positive cash flow from that business today. I will turn it over to Pete to address the second part of your question.

Alex, we are not in a position to discuss specific client outcomes publicly like this. But it is a large client. As you know, WMS has large clients with multi-billions, and it's a couple of basis points. So the annualized impact is probably in the range of $3 million.

Okay. Great. Very helpful. Then secondly, also little bit bigger picture here. There's been a little bit more news flow and noise around fiduciary standard, particularly as it comes to retirement, as -- I mean, obviously, the President's chimed in a little bit earlier this week. Jud, I think you talked about the advisor growth for a while and this whole trend. Maybe could refresh us on how you think this trend will continue in terms of fiduciary standard, and not just what it means for the industry, but also more importantly, what this would mean for you?

I would be happy to. I think you are referring to the Tibble versus Edison case earlier this week, where the court in that case narrowed its focus on to whether the Company was providing ongoing review of the fiduciary product. The court found that the company had a responsibility to do so. To us, it's surprising it is taking this long for the courts and others to recognize the fiduciary obligation of plans. So we believe our timing is very strong. This is just the latest of many developments following the Department of Labor's guidelines that came out in July of last year.

So we expect that more sophisticated clients, investors, are going to demand a fiduciary standard, not only from their 401(k) programs, but also from their advisor. As we all know, there is still a predominance of assets that are in brokerage or commission-based or transaction-based accounts. These accounts follow a suitability standard; that is, what's suitable for the investor. The higher standard is what is in the best interests of the investor, and that's the fiduciary standard. We empower the fiduciary standard of care.

We do this in taxable accounts, we do this for wealth management, but we also do this for the retirement industry through 401(k)s and 403(b) type programs. We expect that we are on the right side of investment management with all of this, and we expect that these trends are going to continue. We think we are very well-positioned to offer cost-effective fiduciary solutions for advisors who want to adopt the higher standard.

Okay, great, thanks for that answer. One quick one here, not sure how much you can say. The [continued] consolation in the end market, yesterday we've seen Stifel and Sterne Agee, I think from what I remember, Sterne Agee is a client RIA side. I don't know where you are with Stifel. So anything you can say around how that would impact, I think there's easily 700 advisors or something like that, so just some color, if you can give us?

There is going to be continued consolidation in the space; on balance, we benefit from that. We don't always benefit from that. As you look back, you've followed us for four years now, Alex, very consistently. There have been times when acquisitions in the space have worked to our benefit.

There have been a couple of cases where it hasn't. So we do have lots of relationships, contractual relationships, and I am not at this point clear which ones we are able to disclose and which ones we're not. We have to be careful about that. I would expect that, on balance, the consolidation in the space is going to benefit Envestnet because we are the market share leading platform provider.

Patrick O'Shaughnessy, Raymond James.

Good afternoon. So to follow up on the question on the M&A that has taken place in the space, I think in particular, Black Diamond and Orion are very close competitors to Tamarac. Do you guys see an opportunity from the disruption of those competitors at this point?

That is an interesting question. Advent and Black Diamond are incumbents in the space and Orion is a strong provider of cost effective technology for RIAs. As we have experienced as being an acquirer, there is a period of time when post-acquisition, the business needs to stabilize, and in some cases consolidate, before it can grow at the rate that our oldest and most established enterprise relationships grow at, at that core growth rate.

I wouldn't be surprised if there is some disruption, but we're certainly not counting on it. We expect our growth to continue in the way that we have indicated in the past based on our doing what we know we can do well, which is serve advisors.

Thank you for that. On a related M&A note, are some of the growing pains that you are having with WMS making you perhaps a little bit more gun-shy about doing more consolidating acquisitions in the future?

I would not say that at all. I would not agree with that characterization. The consolidation and the conversion timetable in the bank and trust marketplace is something that we have not been experienced with before with WMS. The consolidating transactions we had done previously were either in the RIA space, the independent broker dealer space, or the insurance broker dealer space. The bank and trust channel is a more highly regulated, it's a more complicated channel to do business in, and we're very pleased that we are in it.

We're learning a lot and we're crafting great solutions for banks and trusts. But we're a little bit wiser on what a consolidating transaction in that type of channel will be, and we're continuing to look for consolidating transactions that exceed our target rate of return on invested capital. I do not expect to announce a consolidating acquisition imminently. But we don't and aren't -- don't have the luxury of planning all of them well in advance.

They tend to arise, the opportunities arise on the target's timetable, not necessarily on our timetable. We're going to continue to evaluate and look for ways that we can accelerate the cash flow and investment returns for our investors. But I think if you picked up on my comments that in the near term there will probably be more likely some strategic acquisitions, you picked up I believe on the tone of my prepared comments, yes.

Chris Donat, Sandler O'Neill.

First one for me is on Upside. I got your comments that it is small, but important. I was wondering if you could give us a little color on your thought process there of why you went out and bought something rather than built it? I just want to understand how you think about those?

When it comes to strategic development for the platform, there is always the question of: do you build or do you buy? We've got some 300 engineers that are working very hard on all aspects of our platform. We've got -- and we're happy about this, we highly value our clients and they are demanding. They want more, they want it faster, and they want it now.

So the analysis that we go through any time there's a strategic acquisition, whether it is small, medium or large, is how do we gain the capabilities that we are looking for fastest and cheapest? In this case, given the relatively small purchase price and the talent, the human talent that we are bringing on board with the two principles at Upside, it was quite clear to us that this was a better ROI for our business to buy this capability and then integrate, rather than build it.

Okay. That is helpful. To shift the topic a little bit, I understand that on the conversion, that's always going to be lumpy business. Any comments either around your pipeline and also your capacity to handle conversions, because it seemed a few quarters ago, I don't know if you would call yourself capacity-constrained, but it seemed like you had to build some capacity. How do you feel about the pipeline and capacity right now?

We've added another team or team and-a-half over the last two quarters. We are now at probably five to six times the onboarding capacity that we were, when we first started talking about our pipeline back in 2011. We've been able to slightly lower the backlog on a couple of our channels. We still have a pretty strong backlog within the RIA channel. We work very hard to reduce it for the channels that service break-away wire house brokers, because we have to be very timely and responsive there.

The macro conversions, the mega conversions that come from the largest institutions, be they insurers or banks, still have a very long lead time, because of the inherent complexity of the business and the degree of regulation. So that's a long way of saying that our pipeline for conversions is as full as it's ever been, and we don't see that dissipating over the horizon that I've got some view in, which let's say, over the next couple of years, the next 18 months to 2 years, it's as full as it's ever been.

Beyond that, I don't know, and I can't believe it's going to continue to be as strong as it has been recently over the long term, say 3 to 5 years. But I've been saying that for four years. So I'm going to say it again. I don't expect that it is going to continue over the very long term, because there's so many things coming together: the demand on advisor's part for a digital solution, the demand on enterprise's part for a cloud-based solution that is cost-effective, and this increasing demand of the most forward thinking, the most progressive advisors, wanting a multi-portal platform that serves all their needs.

I think that the time is right, right now, for Envestnet, and I expect that is going to continue, and conversions are one very healthy way, one sign that that demand at the enterprise level and the large RIA level is robust. I don't see that dissipating over the near term, let's call it 18 to 24 months.

David Grossman, Stifel.

I'm going to apologize in advance, because I got dropped from the call, so if you covered this, do feel free to defer me off-line, but I wanted to circle back to the WMS conversions. What I'm curious about is, could you help us better understand the mechanics of this? Did you have to re-sign everybody? Some of the three or so that are deferring, were they technology issues, were there other issues?

Without getting into the specifics, that may be difficult to talk about in this forum. Secondly, if you could help us understand where we are in terms of EBITDA contributions from both WMS and Placemark, relative to what they should contribute when the integration and conversions are completed?

These are great questions, very logical. I don't know how much we are going to be able to answer them, David, to your satisfaction, but let me take a crack at it, okay? On these large conversions, it is a combination of technical capability. We've got reg 9 reporting, we've got some additional functionality that we have built for the home office to administer portfolios, and we have created a multi-currency capability within the investment platform to service these Canadian claims. So there was a technology and platform development arc, but that is not the longest pole in the tent, so to speak. That, for the most part, has been completed, and that is why a number of these clients have already come over onto the new platform.

Another element is the customization that's done for particular clients that may have account opening or account servicing or service requests that are done within the institution in a way that hasn't been encountered before by an Envestnet client.

You'd think that with tens of thousands of advisors, and literally several thousand organizations, that we would have encountered just about every service requirement or way of administering business as there exists, and that is just not the case. It seems that just when you think you've covered every possible permutation, there's another one that comes forward, and they say we want you to do this, and we are going to delay conversion until this happens. So there is that element to it.

And then there is just the processing, the more intensive regulatory environment for banks and trusts that is taking longer. So it is a combination of technology features and functionality in the core platform, multi-currency would be an example; the specific customizations that we do end up doing for large clients, because they deserve it, and then the particular regulatory piece on the bank and trust regulatory fund. In terms of the -- is that satisfying, David?

Yes, very helpful. Thank you.

On the contributions, we did quantify the Placemark contribution in the near term during the fourth quarter. On an annualized basis, it is about $2 million. We don't see that changing over the near term considerably. So let's say for the current forecasting period, where we've given some guidance for the year, that is a good number.

WMS is harder for us to get a very clean quantification on because the more we integrate, the more the costs that are saved, where do we say that comes from? Does that come from WMS or does that come from Envestnet? So I want to think about how we quantify that, because I know why that is important to analysts to gauge progress, as well as to quantify what the continued upside is from that consolidation dividend. We haven't quantified that. I don't believe we are prepared to quantify that today, but we will work to give you some guidance over the coming conversations we have more broadly. Certainly, we will want to give something along that line by no later than mid-year here.

Great, that is actually very helpful. Can I ask you, in the context of WMS, is it contributing more to EBITDA now than Placemark? I think you did say that it is positively contributing, even with these three outliers that haven't fully come over to the platform yet.

I understand. I am going to turn that over to Pete.

I'd just reiterate what Jud was saying, that we will work in the next quarter to come up with a better quantification of where that is. Originally, we thought we'd have the full dividend by the end of 2014. We're not there. But I would say we are ahead of where we thought we'd be, prior to the impact of the complete conversion and integration. So it is contributing and we will work to find a way to quantify that in the coming periods.

Okay. Fair enough. So can I transition to the day-to-day nuts and bolts business? It was another very strong quarter in terms of gross sales ex-conversions. The business momentum improved significantly starting in the second half of last year, but then continued and has continued throughout this year.

So I don't know, Jud, if you have any perspective on how much of that is just the market going up and the advisor spending more since they are making more, versus other dynamics, fundamental, secular trends. I know you've talked about many of these trends already, but is there anything specifically that you are seeing that may be a catalyst to be driving that number? Particularly in the second half the year, you were up reasonably well versus the first half.

So again, it's a very good question. We're focused on the broad trends, the commissions to fees, and the movement away from captive wire houses towards independence, and we see all of that. We also believe that there is a productivity dividend to advisors that use a fully integrated platform. We've talked about that as well. There's -- advisors that use a fully integrated platform, spent 40% less time on back-office problems, and that translates to 90% more face time with clients and prospects.

Advisors that are seasoned and trained on using the platform are growing their fee-based practices at two to three times the rate that the average advisor is. So these are all things that go to that core trend line, and I think that that's been an uptick in that over the last two quarters. The question is why. I believe that the cloud-based solution that is available in a variety of tablet or digital formats is something that's -- I don't want to use spiking, that's the wrong word -- but it is boosting demand in the short run.

I also think that the strong equity markets, even though that doesn't necessarily translate to a predictable increase of asset value, since we're about 45% exposed to domestic equity, because -- most of our assets under management or administration are advisor managed, meaning that they are actively managed, and in the last couple of quarters active management lagged the passive portfolios. So that's a factor that is going on, too.

That is more performance factor and yields with assets. Let me bring it all down. I think that the strong markets are a contributing factor to the increase of business. I think it's nice while it lasts. We're expecting perhaps some slight moderation of that activity, but we've given you our best estimate of what we will be able to deliver on, on the year, given where the market is today.

Very good, Jud, thank you.

Peter Heckmann, Avondale.

Good afternoon. Thanks for taking my question. Just to be clear, on Placemark, did I hear correctly that the final conversion or consolidation of that platform will now wait until after the final WMS conversion? And if so, and perhaps my second question is, is there a need to develop functionality there as well, to convert off the platform that Placemark is using? Are they using a third-party solution where they're paying maintenance fees or something like that?

The details of Placemark -- Placemark offers overlay and unified managed account services. Their service offering is a subset of the broad investment offering. There is not extensive -- there is rudimentary performance measurement and performance reporting. There's not an investment in an investor portal, so it does a subset of what Envestnet does, but what it does, it does quite well. There are some things that need to be replicated in the Envestnet code base, things about how certain securities are tagged within sleeves of the unified managed accounts.

We expect that that will happen over the next two to three release cycles of our internal development. There's also the disruption of the client basis. The disruption of the client base -- the client base is currently very satisfied with the Placemark offering. There isn't the legacy mainframe challenge that there is with WMS. The full benefit of that Placemark acquisition will probably be realized sometime in the middle of 2016.

Okay, that is helpful. Could you give us a little bit more on investment retirement, some of the opportunities that you see there? And then how do we think about the investments for Envestnet retirement, and can we quantify those in terms of what type of drag they might have on margins for the full year?

So again, we are investing there, it is not making a positive contribution to cash flow at this point. We are still essentially very early revenue. We have made great progress in completing the platform, and in gaining our first adopters on the institutional side. We think that this is going to be several years, two to three years before it makes a meaningful contribution to our top side -- our top line and to our bottom line, but we know we are in the right spot. I don't believe we are too early.

But I go back to the early days of Envestnet where it was several years before the cloud-based solution was broadly adopted, the adoption in the early stages of ERS, of Envestnet Retirement Solutions, is coming on a lot easier than it was in the early days of Envestnet. Part of that is because we're leveraging relationships that we have on the wealth management side, but we have been able to gain a couple of very nice enterprises, institutions that aren't wealth management clients. So we are very excited about it. The investment that we are making in it is reflected in the guidance we've given, and we haven't broken out a specific amount of what that is.

Fair enough. I appreciate the feedback.

This concludes today's question-and-answer session. At this time, I would like to turn the conference back to Mr. Jud Bergman for any additional remarks.

Thank you. I think we're running up on an hour, which is about what our year-in-review and prospective has run in the past. Our quarterly ones are sometimes a little bit shorter, but we very much appreciate the quality of question and the insights that are represented by the questions that you've asked. Thank you for your support. We very much appreciate it, and we look forward to continued communications over the coming months. Thank you very much.

This concludes today's conference. Thank you for your participation.