Thank you for standing by. This is the conference operator. Welcome to the Envestnet Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

[Operator Instructions] I would now like to turn the conference over to Brian Shipman, Head of Investor Relations. Please go ahead..

Thank you and good afternoon everyone. Thank you for joining us on today’s second quarter 2021 earnings call. Before we begin, I would like to point out that our earnings press release, supplemental presentation and associated Form 8-K can be found under the Investor Relations section of our website at envestnet.com.

This call is being webcast live and a replay will be available for one month on our website. During the call, we will be discussing certain forward-looking information, which is not a guarantee of future performance nor are we obligated to update our commentary to reflect subsequent material developments.

Before we discuss our results, I encourage you to review the cautionary statement on slides 2 and 3 for our customary disclosures. Further information can be found in our regular SEC filings.

In addition, please refer to the appendix in our slide presentation for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, which is also posted to the Envestnet – Investor Relations website.

Joining me on today’s call are Bill Crager, Envestnet Chief Executive Officer; and Pete D’Arrigo, the company’s Chief Financial Officer. Bill and Pete will provide a company update as well as an overview of the company’s second quarter 2021 results. After our prepared remarks, we will open the call to questions.

During the Q&A, please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. With that, I’ll now turn the call over to Bill..

Thanks so much, Brian. It is good to speak with everyone today and I’m excited to report our second quarter results. I will start by providing some highlights from the quarter.

Our strong performance is a reflection of our market leadership, where we serve more clients than ever before and those clients are engaging with us in more ways given the breadth and essential relevance of our offerings.

I will also review our strategy and progress toward creating the most impactful and comprehensive financial wellness ecosystem of data, technology and solutions that powers our industry. Envestnet achieved strong adjusted revenue growth of 23% in the quarter and 17% year-to-date.

Our new guidance reflects the stronger than expected first half of the year as well as an improved outlook for the second half of 2021. This growth was enabled by our market leading position and the scale we have achieved and this is a market position we continue to expand.

I believe this is important to note, our position and ability to create scale, creates unique leverage for Envestnet as we drive our strategic plan forward. The number of advisors on the Envestnet platform is now almost 108,000 with 14 million accounts that make up $5.2 trillion in assets.

Our data aggregation business serves over 500 million aggregated accounts each day. Our MoneyGuide financial planning business continues to be the market leader in the industry while Envestnet TAMP services also stands atop the podium as the market leader.

We have the largest network of services, solutions and third-party providers and we continue to grow these options for our clients. New accounts are being opened at a faster pace and we are averaging well more than 10,000 new accounts every week. We added several new customers during the second quarter including notable firms such as Securian.

As we also continue to add services to the firms we serve today, our exchanges are activating more and more advisors, financial planning continues to add exciting new features we’ve rolled out to our existing clients, and in our RIA business we are seeing momentum adding managed accounts to a growing number of firms.

While our footprint continues to grow, total meaningful metrics such as assets per advisor, accounts per advisor and adjusted revenue per advisor, we are operating at significant scale as well. During the second quarter, we serviced almost 15 million trades and completed 1.8 million service requests.

We’re also generating more than 8 million data driven recommendations a day for our clients to better connect and better serve all of their clients. As we mentioned on Investor Day, we are on our way to 10 million recommendations a day by year-end and over a billion a day by 2025.

These proof points are unique to Envestnet’s market position and enables us to advance our vision and pursue the growth strategy we have discussed on earlier calls. I believe these are very clear leading indicators and as we continue to execute the future for Envestnet is brighter than it’s ever been.

Over the past several months, we have laid out a straightforward and executable strategy and we are driving progress towards enabling ecosystem that powers our industry.

No one has the strength of platform, user base and leadership position that we have and it is a significant differentiator positioning Envestnet to continue its leading position and drive the company towards achieving our mission and our stated financial goals.

This scale combined with our cloud-based infrastructure and unparalleled data and solution set opens up the growing opportunity for us.

We are making important progress in bringing the pieces together in a frictionless, intelligent and connected ecosystem, so that the advisor and the consumer sees a much clearer and much more powerful view of their money in one place while at the same time, our customers have easier access to the entirety of our offerings to help them serve their clients more completely.

Our platform and ecosystem is the industry standard for how advisors engaged digitally with their clients today and it will be the standard for how they serve their clients into the future. Digital transformation is the most powerful of several macro trends we benefit from.

And by capturing the lead here, we create a virtuous environment that opens more and more opportunity for our company. In addition to the digital transformation that is occurring, we continue to benefit from and also power several important industry trends.

These include the growth of fee-based advice, even faster growth of managed accounts and the hyper growth of personalization services like direct indexing, tax overlay and impact investing.

As you overlay these trends across the current business that we serve today, which is $5.2 trillion in assets, we believe we can increase our revenue by roughly 10 basis points on average on 10% to 15% of this asset base.

This creates a significant and growing revenue opportunity, which given our advanced market engagement strategy, we are increasingly identifying, engaging and executing on. And our opportunity will continue to grow given these macro trends, given our strong market position and given the significant capabilities that we have.

With that in mind, our leadership team has a laser sharp focus on three key drivers of revenue growth. We will capture more of the existing addressable market by supercharging our platform to leverage our comprehensive data and solutions set. This opportunity is large and it is sitting directly in front of us.

Next, we are leading and modernizing the digital engagement marketplace by extending our cloud-based migration, which allows us to connect the best of Envestnet for a truly seamless customer experience. And lastly, we are opening the platform for expansion.

Our developer portal enables over 625 third-party FinTechs to leverage APIs, embedding our capabilities and data into their environments. This usage has grown by 1700% since the beginning of January 2020.

At the same time, we are opening Envestnet’s ecosystem for more third-party providers, all of which will drive users and engagement ultimately accelerating our revenue growth and our opportunity.

I want to double-click on capturing more of the existing addressable market and why we are very confident given the early progress that we’re beginning to see. You see, we have a differentiated engagement strategy that is powered by the visibility and understanding we have given our data model.

This prioritizes the use cases that target large, identifiable, addressable pools of opportunity for Envestnet, which also deepen the relationships between advisors and their clients. We have the broadest number of solutions available to our advisors.

Our data driven recommendations drive increased adoption, and increased adoption – and increased solutions provide more data to improve the recommendations that we make.

We are accelerating growth utilizing the data in the ecosystem and removing friction from the tasks required for advisors to use and access our solutions and we are adding to our solutions. During the second quarter, we introduced several new products that continue to build out our offering to the advisor and ultimately to the individual consumer.

We’ve been piloting the new client portal with several large customers and early feedback has been incredibly positive.

We also added services such as residential real estate with the credit exchange and our recently launched alternatives exchange, which we launched in July, a collaboration between investment UBS and iCapital delivered a curated set of alternative investments in Envestnet clients via end-to-end digital platform.

2021 represents Envestnet charting the course for advancing a tremendous opportunity for our industry to better serve its consumers.

We are a catalyst for this future, and this is a moment for us to apply our efforts and taking advantage of the position that we have, and the strategy that we have created and the opportunity for sustained and accelerated growth. Envestnet organization is locked in on executing on this.

Let me turn the call over to Pete, who will take you through our financial results, and then I’ll be back with some closing comments before taking your questions..

Thank you, Bill. Today, I’m going to review our second quarter results and then provide an update on our revised guidance for the third quarter and the full year.

Our second quarter results continue to demonstrate the strengths in our business model, positive dynamics from the first-half of the year we expect to carry into the third and fourth quarter, which are reflected in our updated full year outlook.

Adjusted revenues for the second quarter grew 23% to $289 million compared to the second quarter of last year. Adjusted EBITDA grew 27% to $71 million compared to the second quarter of last year. Adjusted earnings per share was $0.67. Turning to the balance sheet; we ended June with approximately $370 million in cash and debt of $860 million.

The debt consists of our outstanding convertible notes maturing in 2023 and 2025. Our $500 million revolving credit facility was undrawn as of June 30, making our net leverage ratio at the end of June 1.8 times EBITDA. Turning to our investment initiatives, I want to reiterate our expectations.

We continue to expect the investments to account for roughly $30 million of operating expense during the year. We are making good progress on the hiring front, the impact of which is reflected in our updated guidance.

We expect the investments to ramp up throughout 2021 with most of the impact in the second half of the year and annualizing to a run rate of approximately $40 million to $45 million in 2022, growing at the same rate of operating expenses thereafter.

Additionally, we continue to expect to begin to generate faster revenue growth in 2022 as we create a better more streamlined ecosystem, which elevates our value proposition to existing clients and expands our total addressable market.

Turning to our third quarter and full year outlook, you can find our complete guidance in the earnings release and in the earnings supplement, but to highlight a few items for the third quarter, we expect adjusted revenues to be between $298 and $301 million, up 18% to 19% compared to the third quarter of 2020 based on June 30 asset levels.

Adjusted EBITDA to be between $61 million and $63 million as we further ramp up the investments, and EPS to be $0.58 per share. For the full year, we are again raising our outlook to reflect the strength of the first half of the year.

For the full year, we expect adjusted revenues to be between $1.169 billion and $1.174 billion, up 17% to 17.5% compared to 2020.

Adjusted EBITDA to be between $253 million and $257 million, representing growth of 4% to 6% for the full year, and EPS to be between $2.30 and $2.35, which is $0.31 higher than the original guidance we gave back in February.

Adding some detail about our revenue outlook for the second half of the year to highlight some of the drivers of our revenue growth trends. First, our wealth business has performed increasingly well year-to-date.

During the second quarter, we completed the merger of two-like clients moving significant assets from an asset based relationship to a subscription-based pricing model. While this doesn’t hit the way we have reported reclassifications in the past, it is an effect of reclassification.

If we adjusted for this, the second quarter was ahead of even the first quarter in terms of net new flows from existing business. Further, our significant asset base benefited from favorable capital markets adding to our forecast of revenue growth.

Second, our data and analytics segment has grown subscription revenue around 4% in the first-half of the year compared to the first-half of last year. We expect this business to see improving revenue growth in the second-half of the year.

As we continue to execute on our strategy in the coming years and begin to benefit from the investments were making now, we will capture more of the opportunity we’ve identified, positioning us to attain our longer-term targets of mid-teens growth in revenue and adjusted EBITDA margin of 25% by 2025. Thank you again for your support of Envestnet.

And now, I will turn it back to Bill for his closing remarks..

Thanks so much, Pete. We are pleased with the progress we’re making and are focused on the execution of our strategy. The opportunity to be the leader of the ecosystem that powers the industry.

The ecosystem that connects data, technology and solutions to enable the intelligent financial life and is differentiated from every other provider as a fully connected, open architecture, hyper-personalized wealth management platform. As the industry leader, we will continue to enable the digital transformation that our clients need from us.

Our roadmap is very clear. We are capturing more of the addressable market opportunity with our data in our solutions. We are modernizing the digital engagement marketplace to reduce friction and land more clients and we’re opening up our platform to accelerate growth.

We will continue to execute on that roadmap and it will continue to create greater value for each and every one of our stakeholders. Thank you for your support in Envestnet. We’ll now open it up to your questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Devin Ryan with JMP Securities. Please go ahead..

Hey, Devin.

How are you?.

Hey, I’m good. Hi, Bill. Hi, Pete. I guess first question is, it’s something you guys spoke about quite a bit on the Investor Day and then, Bill, you referenced it again today, but wanted to just dig in a little bit more.

As we think about the firm moving from 10 million daily recommendation today up to over billion, by 2025, obviously, that’s kind of tremendous growth in penetration. And essentially you’re adding a lot more value in that you’re removing friction, you’re optimizing for the end customer, obviously in that.

So I just would love to just talk a bit more about how you can better monetize by doing that.

And if you can just help us think a little more about like what that looks like and the ability to monetize that material step-up in, call it, value-add that will occur over the next few years if we’re able to achieve that?.

Yes. And Devin, great question. Thank you very much. There are several ways that we’re looking to monetize our overall data strategy and then the more data that the firm provides, sort of clients provide to us the more intelligent our recommendations can be back to that firm.

So with our data strategy, the underpinning data strategy is how do we help firms manage their data, reconcile their data, create security and protect their data on an ongoing basis and then a feature level on top of that is the data intelligence, we call it Envestnet Data Intelligence.

Envestnet Data Intelligence will power these recommendations more and more to help the advisor understand the next appropriate action with each of their clients with the highest areas of opportunity are for them, the highest areas also of risk across their current business.

It will also help promote to that advisor, service tasks, other compliance issues.

And then back towards our asset managers and third-party providers on our platform, we’ll be providing recommendations back to them, Devin, also on an EDI or license basis to help asset managers third-party providers working in the Envestnet environment become more – far more informed about how best to engage opportunities across our platform..

Okay. Really appreciate that, Bill. Helpful. And then just a follow-up, I want to just maybe touch a bit more about more on the progress in tax overlay, kind of if you can give a little more detail about the roadmap just even over the next couple of quarters here, and just also how kind of the macro environment or even what’s being discussed in D.C.

around potential changes to taxes could either help accelerate what you’re doing or is affecting, if at all?.

Yes. Great, Devin. And just I’m going to add quickly to your first question, in that the client feedback we get around the use of the data and the analytics that were providing today has been phenomenal. We’re just – we’re cutting down lots of time for administration and helping advisors really zero in on the opportunity.

So, the early days as we’ve been delivering this to the market high value is being recognized by our clients. So I just wanted to add that.

Similarly, with tax overlay, there has been more and more interest, of course as the market has been very friendly for return over this period of time, but also has created a lot of embedded gains and then with the idea that there may be some new tax legislation that would impact capital gains clearly advisors.

This would be the number one on their interest list when we have discussions from a fiduciary standpoint with advisors.

You will see over the course of the next quarter, Envestnet really raising its voice when it comes to tax overlay, the capabilities that we can offer, the benefits that are derived by the end client, we’ll push hard from a marketing communication standpoint and also an advisory engagement standpoint in the field on tax overlay.

It is again the item that is probably number one from a fiduciary standpoint on advisors’ mind at the moment. From a development standpoint, we continue to expand the marketplace that we can treat from a tax overlay standpoint.

Today, it’s where they’re individually held securities in that portfolio, we’re growing that and ultimately, we will also include our Mutual Fund Strategist and ETF Strategist portfolios, which is a very substantial asset base for us and then delivering in the next release or next technology release will be fully integrated tax, after-tax reporting.

So that completes the lifecycle of the solution from the proposal as to what it will do for the client to the execution of that, and then the benefit that’s being derived by the end clients.

We have seen sustained increased usage by more advisors who are opening more accounts to the tax overlay solution and that is driving more and more assets into that program. So it is something that again early days of our very focused campaign on tax verbally, but the data that we’re seeing in these early days is very encouraging..

Okay, great. I’ll leave it there, but it sounds really interesting. So, appreciate it, guys. I’ll hop back in the queue..

The next question comes from Michael Young with Truist Securities. Please go ahead..

Hey, thank you for taking the questions. Bill, I wanted to start off maybe with more of a qualitative question just coming off of the Advisor Summit that you have hosted in July. Just any sort of takeaways from the conversations with clients early on and outlook for adoption and anything there would be helpful..

Absolutely, Michael. Hope you’re doing well. So attendance for the Advisor Summit was up substantially year-over-year, higher than our in-person conferences, and then hire off the virtual benchmark from 2020. So very pleased. I think it was over 33% growth in the attendees at the conference. So big audience, engaged audience.

The roadmap that we are pursuing here – the conversations I have had and the feedback I’ve gotten across the board is in the center of the bullseye. So advisory firms are headed in the direction of this integrated advice model and the digital engagement to do more with their – to serve their clients more fully from a digital standpoint.

We’re bringing those pieces together. So we were very encouraged by the feedback that we received from the conference. I think the idea that Envestnet is a financial wellness ecosystem and enables an intelligent financial life is being echoed back to us.

I think we’re being successful in not only kind of messaging, but in the actions and the capabilities that we’re introducing and showing to our clients, they’re getting it. It’s becoming very evident the direction that we’re headed in the progress that we’re making.

Note, just because you’re kind of on the product side, our client portal is in beta, the feedback at the conference was exceptional. Now that the client portal is in beta and I would say that there is pretty remarkable, consistently very positive, when can I get it, how can I fully roll this out feedback.

And what’s happening is with the client portal, we’re finding that it attracts data, so data that may not be resident in the investment environment across the affirm to really make it a more intelligent and integrated environment. So that has been a very positive.

And we think that will lead again to what I said to Devin, more and more opportunity for Envestnet Data Intelligence group. So again, and then the early feedback that we’ve gotten on the designs from our trading platform have also been very, very positive, both at the conference and then in follow-up meetings that we’ve had with clients..

Okay. That’s really helpful.

And I may have missed the exact specifics on I think the10 bps of additional revenue you think you can drive on, I think it was 15% of the 5 trillion in assets, but I was curious; A, if those numbers are right; and then B, if they are, is that informed by sort of the beta program and pilot that you’re running so far or are there other assumptions that sort of underlie that data?.

So, yes, those are the numbers we’re talking about. This is Pete. Thanks, Michael. Those are numbers we’re talking about looking at the sort of captive addressable market and how much of that we could capture. And then what the incremental pricing would be on some of those assets if they move into these newer initiatives like tax overlay.

So on an average, that’s where we come up with the 10 basis points. I’ll let Bill to talk about the pricing..

Yes. So, yes, Michael, just to give you the numbers again. 10 basis points on $5.2 trillion in assets that we serve today.

We think we can penetrate that by 10% to 15% of that asset base across a series of use cases, beginning with tax overlay, we spoke about that, but that will include our direct index product, that will include our Impact program on moving brokerage accounts to managed account other types of opportunities like that.

Each of those have a substantial addressable market in that $5.2 trillion and in all roughly as we blended it out across those programs and looked at the size of those program, it blend back to the 10 basis points that I cited on the call..

Okay, great. Thank you. I’ll step back..

All right. Thanks, Michael..

The next question comes from Alex Kramm with UBS. Please go ahead..

Yes, hi, good evening. Just going back to the quarter in the guidance here for a second, clearly, you beat your own guidance on the EBITDA line and the cost side in particular, so maybe you could just – when I look at the outlook, it looks better on the cost as well.

So just wondering what happened here relative to, few weeks ago when you gave us the last update. It seems like maybe spending isn’t coming in as fast, but you just said you reiterated your spending outlook for the year, so I was just curious what happened here.

And then as your guidance has moved up, what does this mean Pete for next year as you had talked about maybe obviously your margins for this year are expected to come in higher.

What does this mean for next year as that flows through the delta between margin expansion or no margin expansion? Any changes there for 2022 that you can talk about already?.

Yes. So two parts there. Thanks, Alex. The first piece of that we have – we are making progress on the initiatives. We are reiterating that because we have had a significant amount of hiring that has come in and we expect that to continue throughout the rest of the year.

We did beat on expenses again less so on what we would define as initiatives and more so on sort of an existing operating base and there were a number of things in there.

I would characterize it mostly as where we had thought there were some costs coming back from COVID, maybe not coming back quite as quickly in both the personnel and in the sort of travel lines. So there was better-than-expected operating expense performance in kind of that core business.

So when you look at it in those two elements, there is – our performance on the one hand and the continuation of the initiatives on the other.

As we look to 2022, I would say it’s a little early, I don’t want to start giving guidance on 2022, but I know we talked about having flat margins, so that was when margins were expected to be a little bit lower than they are turning out to be this year.

So I’m not exactly sure where to throw it out for 2022 quite yet, but I would estimate that it’s likely more in where we were before with the estimated guidance at about 20.5 or so, 20 to 21 in that range, when we made that statement, just because as we make these investments, it is going to annualize on and I talked about that in the prepared remarks..

Okay. No, thanks for that color. And maybe just coming back to the question before on the kind of TAM and the 10 basis points is actually something I wanted to ask at the Investor Day too, but didn’t get a chance.

But as you think about this, in particular, from a multi-year perspective, how comfortable are you with that 10 basis point outlook? And I’m asking because obviously, you see fee erosion everywhere in the asset management space and you’re not the only one who talks about tax overlay or ETF portfolios and in other things you obviously excited about and probably have a great addressable market.

And the question is just as others obviously are not standing still, how much do you really think this 10 basis points is something you can obtain in 2025? So, any color would be great..

Yes. I think in the overall outlook – Alex, it’s Bill. Good to speak with you. In the overall outlook, we’ve incorporated a view that there’ll be a little more competition as the space matures and really Envestnet validates the space, I think you’ll see more people developing services around a lot of these things.

Clearly Impact investing, Direct Indexing are already pretty interesting spaces for asset management. The difference that we have and I wanted to make this very clear earlier is that we have address, we have the scale, we have $5.2 trillion and we have the insight for identifiable opportunities given the characteristics of accounts.

So that we can engage that account in a much more effective way than another party just because, we have the insights that drive a beneficial outcome to that account through that advisor. And so, we have the tools that will really help us penetrate the asset base.

And again given the quality of our services, given the range of basis points that we’re talking about, we believe that net-net, we will drive consistent – we will drive the revenue expectations that we’ve stated, which on that asset base the penetration of 10% to 15% is roughly going to be 10 basis points..

Okay. Now. Thanks again. That’s helpful..

The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead..

Hi, Peter..

Good afternoon, everyone. Hey, good afternoon. Could you talk a little bit about your vision for the iCapital partnership? And I think you may have mentioned that there was an investment made in that company.

But are you seeing demand – increased demand for alternative investments both private equity, fixed income, there’s also kind of alternative fixed income assets from advisers?.

Yes, thank you, Peter. So the partnership on the alternatives exchange is with UBS, which is helping to curate and provide access to the alternative investments, hedge funds, private equity other vehicles and then the supporting platform for the administration and execution of those is with iCapital, two fantastic partners.

We think that UBS for the high net worth category does an exceptional job in identifying managers that will add value over time and there access is pretty significant. And iCapital is a leader clearly in the platform space when it comes to alternative investments.

We brought that together inside our environment introducing it primarily to our RIA clients out of the gate. We believe that asset class – that the allocation to that asset class will grow over time.

We don’t believe that it will be kind of a rapid shift toward us, but more and more, people are looking for greater return in the portfolios and people are becoming more and more aware and interested down that net worth chain too, they just more aware of private equity and alternative investments. So, we think there is a significant market here.

we think it will take some time to build, but ultimately is a great component to the integrated based model or platform that we’ve constructed in the long only options on the investment platform, our exchanges, insurance, credit, trust, healthcare and now we’re adding alternative investments to that as well, Peter..

Got it.

And any investment from Envestnet that’s fairly material?.

No, no investment. All in partnership with UBS and with iCapital, again tremendous blue chip partners..

Okay. And then just one follow-up.

How are you thinking about when you’re targeting this upsell and providing additional solutions? I know there’s a lot of internal development going on, but how are you thinking about M&A, in that context? So is there some capabilities, or some niche markets that you’d like to go after through acquisition here?.

Yes, I mean, when you step back and you look at the Envestnet, the breadth of what Envestnet is doing today, we have the broadest platform in this space. Now, we’re demonstrating ways to partner and we’ve done that through investments, so that we’ve invested to launch the insurance exchange. We’ve invested to create the credit exchange.

We’re partnering to build the alternatives exchange.

We will continue to kind of deploy a three-prong strategy when it comes to further inorganic growth or partnership growth of the platform will acquire, we will invest to partner in things like the insurance exchange et cetera and then, we will do commercial partnerships that get us to market sooner with again blue chip partners.

There is no glaring hole in our offering today, but there is the ambition to be a complete platform that integrates the financial lives of individuals and families and that’s really what we’re focused on..

Got it. Okay, thanks so much. I’ll get back in the queue..

Thanks so much, Peter..

The next question comes from Ryan Bailey with Goldman Sachs. Please go ahead..

Hey, Ryan..

Hi, Good evening, Bill, Pete and Brian. Sort of coming back once again to the asset-based solutions question. Say, we would roll forward a year from now and you were reporting 2Q 2022 results.

What level of penetration would you view as acceptable on the way to 10% to 15% or if you want to kind of view it in a different way like, what would you view as disappointing?.

Yes. So, Ryan, I think we continue to have really our early momentum here is pretty significant. So, year-over-year, if I look back a year, last year, we grew an impact advisors over 100%, and what you do in these programs as you look at the revenue – the ultimate run rate revenue of an advisor, who has been utilizing the product for a period of time.

And if you add the advisor, then you’re able to kind of run rate how they’re going to grow from an account standpoint and revenue they would generate on a go-forward basis.

So I think if we continue to add the numbers of advisors that are being added to, say, the tax overlay program that are utilizing a Direct Index platform or utilizing our Impact platform, et cetera, and again, the year-over-year, advisor use of those are all very, very significant 2020 over 2021. We want to continue that momentum.

And if you continue that momentum, then they’re going to open more and more accounts in that service and we can generate more and more run rate revenue from them.

So what we’re focused on is activating advisors, getting those advisors to open those accounts, supporting that process through our go-to-market and engagement model, and then getting that advisor to go deeper into their book of business and that’s been our experience.

So I think when I look at the numbers headed towards next year I want to see continued momentum in activated advisors, who have opened their first account because ultimately that will drive success for us..

Got it. Okay. And maybe just another question on the guidance to Pete. I just want to make sure I’m thinking about it right, and based on sort of what you’ve given us for 3Q and the full year and what sort of happened so far. I think the implication is that for 4Q at the high end, you can get 23% EBITDA margin.

I just want to make sure I’m not missing anything of thinking about that wrong..

For 3Q?.

Just if I took the high end of the guide for 3Q for revenues and EBITDA and I back that out of the full year guide, and I backed out the first half, which we know, I think the implication is for pretty high margin for 4Q, unless I’m running something wrong. And I’m happy to sort of connect offline, if I’m missing something..

Yes, I don’t know. The way we have the initiatives ramping up, I think EBITDA margin is going to be coming down over the back half of the year..

Okay. I must be calculating something wrong..

Yes, maybe we should take it offline. We’ll follow-up with Brian..

Yes. Happy to chat offline, right..

Thank you..

The next question comes from Chris Donat with Piper Sandler. Please go ahead..

Hey, good afternoon, everyone.

I had two sort of pedestrian questions, just one on the fee rate in the second quarter coming in at 9.8 basis points, a little better than what your guidance implied? Anything notable there or is that just sort of typical bounce around like you either asset mix or any really early sign of the 10 basis points, which I doubt but just wanted to check if anything is going on there?.

Well, it’s – well, a couple of things. So, I would say, no, there is nothing that dramatically happened other than the mix that you talked about. We’re moving a little bit higher on AUM. I would also say it’s kind of hard to say when we flip a switch when we start to see the benefits of some of the strategies that we’re implementing here.

And so the fact that we are seeing higher AUM is a result of the initiatives that we’re starting to see the benefit, so that we will continue, but in a much more dramatic way, I think over the five-year period we’re talking about. Yes..

Okay. And then just on severance, I think you’ve addressed this before, but it had sort of five or three quarters of, I’ll call it, elevated severance and you’re hiring on one side anyway.

Is anything notable going on there or is it just sort of some changes of the personnel on the severance side?.

Yes. Thanks, Chris. Hope you’re doing well. This is Bill. So we did a project as we got – as we started to move the organization into an integrated company. We were business unit aligned, now we’re really focused on the integration of the organization.

As part of that process, we did an early retirement program, which people have opted into and you’re seeing the tail end of that process, really to make sure that we treated employees who have been with us in a really supported way, but then cleared the space so that we can move forward to drive an integrated organization going forward.

So we’ve had lots of success in bringing the company together, lots of momentum, lots of energy inside the company as we’ve done that..

Okay, got it. So it’s more tail end and nothing new..

Nothing new..

Okay. Thanks, Bill..

The next question comes from Surinder Thind with Jefferies. Please go ahead..

Hey, Surinder..

Thank you for taking my question. Hi, guys. I’d like to start with a question on kind of the big picture about the 10 basis points on roughly 10% to 15% of the $5 trillion in assets.

Is there any color that you can provide perhaps on how you think about it in terms of AUM/A versus the subscription in business when I think about where the bulk of the asset sits through subscription and licensing that are greater than 80%.

So how should we think about where those incremental revenues would be split between the two segments?.

Yes. Primarily, predominantly, we’re focused in on the asset-based segment in driving even subs based assets to asset base, Surinder. And so one of the great examples of that would be in that subs base, there are a very substantial number of brokerage accounts that we report on.

We can understand that brokerage account very well and how it might benefit from transitioning to a managed account. And then build a program with our broker dealer bank partner of ours to transition assets from one program to another. I noted in the last call of how successful we’ve been with a pilot client in doing that.

And again, the flow rate is 100% higher for that client moving from brokerage – moving assets into managed accounts that it was before we started the program and that is sustained itself over the quarter. So, now it has been live for over six months of experience for us.

So it is predominantly asset based and moving assets from sub to asset-based pricing you need value, you need a service that will provide value, a fiduciary value to the advisor into the end client and that’s why we’re focused on the areas we’re focused on..

That’s helpful. And then as a follow-up, I think one of the things that you mentioned was, if you adjust for the demerger of two clients, it sounds like that the net flows in the quarter were pretty strong.

Any color you can provide there? It sounds like a subscription-based client acquired in AUM-based client and then converted them over to the subscription model, is that correct?.

That’s correct. Yes. And so, like, I don’t know if I was clear enough in the prepared remarks, but we’ve defined reclassification from typically it goes from asset based to the subs as a change in the relationship with the client.

And so, this one again was moving from one client to another client, which didn’t quite hit that, so we wanted to be consistent with the definition in the presentation showed up a little bit differently, but that’s basically what happened. Yes..

Got it.

And so what was the size of the SME?.

I don’t want to give specifics about individual clients, but it would have moved the flows. So when you take out conversions in both Q1 and Q2, it would have been higher in Q2 than we saw even in Q1, when you look at net new assets or net flows, excluding conversions. We have very significant second quarter inflows in AUM/A..

Got it. Yes, because the AUM number was very strong, but the AUA number was flat, so I’m assuming that’s where the delta was..

That’s exactly right..

Yes, that’s it..

Okay, thank you..

Great. Good speaking with you..

[Operator Instructions] The next question comes from Alex Kramm with UBS. Please go ahead..

Hey, Alex..

Hey, hello again. Just wanted to squeeze in a couple of follow-ups. On the asset side, you always have that slide that shows the growth in Impact portfolios et cetera. Maybe I missed it, but can you give us the latest dollar number in terms of billions, because I think that’s really gone from almost virtually nothing to a pretty sizable numbers.

If you can just remind us about a couple of the actual dollar, asset numbers in those new portfolios or in your proprietary products in general over the last couple of quarters or years that would be helpful. Sorry if I missed them..

Yes, Alex. Yes, we could do it in a follow-up, but I mean the percentages have been significant in each of those programs, Impact, Overlay, Direct Indexing services, but exact dollar numbers I don’t have at my finger tip..

There is a slide in the supplement, I’m not entirely sure, I think it’s Slide 9, Alex. Take a look at that and see if that answers your question. Otherwise, we can follow-up..

Yes. I think Slide 9, if I’m correct only has the percentages right, not the dollar numbers, maybe I’m wrong, but anyways.

And then just secondly, since nobody has talked about your data and analytics segment, I think you made some comments in your prepared remarks about subscription growth there, but quarter-over-quarter that business was still again slightly down, so maybe just give us a quick update what’s working, what’s not working and the path to returning to growth in that segment again..

Thank you, Alex. It seems to make very encouraging signs in the data and analytics business. Our organic growth, first half of the year is in low-single digits, but we think, we’re going to be modestly better in the second half of the year. It’s been driven by a couple – the growth has been driven by a couple of dynamics.

Number one is the analytics business, part of that business is restoring its growth rate, so we’re beginning to turn that into a much more positive a percentage growth rate. Our financial institution business continues to be strong. We continue to sign many new FinTechs. That revenue is typically down the road.

The firms that are successful in that FinTech portfolio of ours, then drive more and more users, we get paid on those users. But our pipeline for FinTech and the contracts we’ve signed for FinTech competitive engagements in each of those has been very kind of encouraging over the last quarter. International continues to return to growth.

In international, again, open banking, in the UK market primarily really slowed things that firms couldn’t screenscrape unless – or aggregate unless they were certified. Those firms are certifying and we’re beginning to restore our growth rate in international.

The one that continues to be a decreasing revenue line for us, but this has been intentional as professional services as we really de-emphasize those engagement costs for our clients..

Yes, excellent. Thanks for the update..

Great. Thank you, Alex..

This concludes the question-and-answer session. I would like to turn the conference back over to Bill Crager, CEO, for any closing remarks..

Thank you so much. Thanks for joining the call this evening and thank you for your support of Envestnet. I want to thank the Envestnet team for a very successful quarter and the work that everybody in this organization is doing to power the ecosystem for our industry. I look forward to speaking to everybody again next quarter. Thank you very much..

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..