Pivoting back across the private equity frontier leaves one of the biggest advisor service platforms in prime position to chart the future of the entire wealth industry.
We could start this article right out with a discussion of where one of the biggest TAMPs in history is headed, but recent headlines force a brief review of the past to avoid leaving a key question unanswered until the very end.
Yes, AssetMark has agreed to a $2.7 billion takeout offer and will be reverting to the cool shadows of private equity ownership as soon as the deal closes and the public shares are retired.
But no, getting taken private is not an admission of failure. If the company had hit that kind of hard obvious wall, no seasoned investor would have even opened its checkbook.
The vision is alive and well. It’s just that the stakeholders didn’t share the same vision or even define victory the same way . . . and the ones who made the call had good reasons to take the exit.
The important thing to know now is that Michael Kim is still CEO and his team is still eager to keep doing what they’ve been doing all along. New ownership. No new bosses. Same platform.
If anything, AssetMark’s trajectory might even shift into accelerated gear now. After all, the new owners have every incentive to share their expertise, their connections and other resources to help their latest holding succeed.
They just aren’t looking to take over the operation themselves and run it their way. As every advisor who has ever accepted outside capital knows, there’s a bright line between investors and entrepreneurs even here in the financial sector where a lot of people spend their lives moving money around.
Investors can be silent or vocal, but what drives them is a competitive return. Entrepreneurs want to build something dynamic and durable.
The people who started AssetMark and those who run the company now are entrepreneurs. They’ve worked hard to build enterprise value for the long haul.
And the people who have owned AssetMark for the past two decades have always been investors happy to hit a target internal rate of return and then start looking toward the next harvest. Only the names of the firms and the strategic fit have changed.
There was the ill-fated Genworth between 2008 and 2013. Then private equity firms Genstar and Aquiline Capital took the ball and ran with it to 2016 before passing to Chinese brokerage group Huatai Securities.
Almost a decade later, Huatai traded its 68% stake in the company back to private equity, with GTCR paying $2.7 billion for the privilege. We’ll ruminate on the ramifications of all of this.
But when I talked with Michael Kim, none of this boardroom machinery weighed on his message. I’m sure the sale was on his mind. It just didn’t bend his vision at all.
The Advisors Stay in the Picture
“We’re a mission-driven company,” he says when I ask about the future of AssetMark. “Our mission is to make a difference in the lives of our advisors and ultimately their clients.”
That’s as simple as it gets. There isn’t any of the buzzword-heavy business plan sizzle that attracts venture capitalists and leaves the rest of us wondering what the meal will look like if it ever arrives.
The advisors are the first thing the boss thinks about, which makes sense because AssetMark depends on the people on the platform for the assets and practically all of its revenue. Take the advisors out of the picture and the company vanishes along with them.
That’s true of every professional network, but the clarity here is refreshing. We’ve all met technocrats who can spin a compelling science fiction epic about how advances in raw computing power liberate grand sociological forces and end up transforming the galaxy.
Kim’s take on that epic narrative brings it all back to earth. He appreciates computing power. But the liberation that drives AssetMark is incremental: it’s measured in the minutes that every advisor can claw back from other tasks and, with the right attitude, convert into AUM.
And it plays out on a scale every individual can appreciate. Kim loves the story of how one firm joined the platform “a few years ago,” which sets the pandemic scene nicely. Upheaval. Obstacles. At the time, the firm had a respectable $50 million of client money on the books and was struggling a little to run it effectively under prevailing conditions.
They were stuck. A lot of us were. AssetMark took some of the operational weight off their shoulders and gave them room to breathe.
Then the coaching started. Kim compares his 400 advisor-facing staffers to personal trainers in the gym. You can just go in and make up your own circuit on the machines, but the whole thing works a lot better with someone setting goals and cheering you on.
Just like the gym or your clients’ financial plans, the numbers confirm that it’s working. That $50 million firm has more than $400 million in AUM now without needing to scale up its staff or personal effort to operate at increased scale.
Life got better without getting harder.
“They’re enjoying the capacity and the time they have with the clients but also time they had with their friends and family before they were trying to juggle so many different things,” Kim notes. “Before, they were pulling their hair out.”
Clearing The Air
Of course, that story really boils down to a motivational or even aspirational anecdote, but when you multiply it across the 9,200 advisors on the platform, the aggregate is almost as compelling.
And the details are like a refreshing breeze circulating in an industry that tends to standardize around the biggest prospects and forget everything else. As in the real world, AssetMark advisors rarely run billions or handle massive client books on their own.
The reality tends toward about 25–30 client accounts per advisor. A few of these households might be considered “high net worth,” but most barely rise into the $400,000 zone.
Their money is as good as everyone else’s. But the fees they generate rarely support the dedicated resources it takes to deliver the sophisticated service ultra-high-net-worth investors require, expect and demand.
At that level, they’re really just looking for a decently constructed portfolio, regular rebalancing and the occasional progress report. But they’re also fickle and risk averse. Volatile markets make them more skittish than their wealthier counterparts.
The proof of AssetMark’s platform is that even these Main Street advisors held onto their Main Street clients through the pandemic and even made significant net progress along the way.
Rewind to 2019, and the average AssetMark advisor covered 20 households worth $7.8 million in the aggregate. Not a bad book. Enough to support a solo practitioner . . . but not a lot extra to reinvest in the firm, and reading between the lines, those advisors were pretty much pushing capacity limits.
According to the latest quarterly filing, that average book has expanded to 28 households, which means that for every nervous or alienated client who went elsewhere, these advisors found the resources to convert three prospects for a net gain of two new accounts per year.
And these clients have been nudging the overall book up market. Average AUM per household is up 16% in the past four years, which is actually a number to conjure with when you’re dealing with a lot of retirement accounts getting spent down at RMD rates or faster.
New cash is coming in faster than it’s going out. More clients are signing up than leaving. As the company flagged in its recent earnings release, “we realized an 18.6% annualized production lift from existing advisors for the first quarter, indicating that advisors continued to grow organically and increase wallet share on our platform.”
Needless to say, it’s good stuff. Throw in a 16% increase in the number of advisors on the platform and AssetMark’s footprint has nearly doubled over the past four years. All those “little” and not-so-little firms add up to something a lot larger than they could ever achieve on their own.
Green Shoots On The Grow
One way or another, a lot of AssetMark advisors are also closer to the start of their career than retirement. They’re ambitious enough to want to build their businesses instead of simply coasting. And they aren’t so stuck in their professional habits that they can’t rethink the way they work.
Some spun out of wirehouses or regional brokerage environments. Others are new to the business. That’s important. Remember, 100,000 advisors are in the opposite position and are at best a decade out from retirement.
It’s like the old Harvard Law School joke. Look to the advisor on your left, then look to the one on your right. By 2035, either one of them will be out of the industry or you will.
And someone needs to step in to fill that gap because Michael Kim sees no reason to doubt the Cerulli calculations that $84 trillion is going to shift in the next two decades as the baby boomers leave the stage.
Much of that money is going to flow from big accounts to the smaller ones that AssetMark currently supports. Advisors with the focus and the free cycles to market themselves will capture the rest.
“Assets in motion really just scream opportunities,” Kim says. In his view, those who can provide even a veneer of personalized financial guidance will win the day . . . which favors independents willing to push their practices in direction their clients dictate.
When there’s too much institutional baggage stretched across too many clients, the real relationships that develop are between advisor and institution. The process is in control.
Advisors who work with AssetMark, on the other hand, get all the back-end support that comes with partnering with a platform of this scale but without any unified client-facing brand to serve. Every front office is different. All the coaching does here is help the advisor align that unique front office with clients and prospects.
That’s fine. An advisor who takes full advantage of the platform can concentrate just about every working hour on keeping existing clients happy while hunting new ones. In this world, you’re the front office, and the front office is all you do. Your job is relationships.
You know how much of your week it takes to serve 20 households. Does that strain your capacity? If it does, you’re unlikely to get to 25 on your own. And even if you have spare cycles, are you using them as effectively as you can?
It takes courage to let go of aspects of your professional life that you consider essential. Change is scary, especially after all the upheaval of recent years. But it takes courage to start going to the gym too.
Michael Kim has already let go of any claim on how advisors work with their clients. That’s what he calls an “intimate” relationship of trust. He just wants you to be the best advisor you can be, and that means scaling in the right direction.
It’s so simple it often gets lost, but growth is not just an abstract number. The bigger you get, the more money you manage and the more money you make, which means you have more money to reinvest in the kinds of programs that keep you competitive in the eyes of the clients you want.
The platform already has scale. You already have the relationships. Why not grow together?
A Drop In A Blue Ocean
Although AssetMark is already one of the biggest TAMPs we track, that still translates to about 9,000 advisors . . . roughly comparable to Raymond James in terms of head count and a mere fraction of the reach of Envestnet, for example.
But AssetMark has grown its network twice as fast as either of those companies in the past four years. It’s catching up. The challenge is to keep attracting advisors from elsewhere. Kim welcomes the challenge because the independent RIA model itself has a long way to go before it conquers the industry landscape. Firms such as Raymond James, LPL and the wirehouses are still the establishment.
But even they haven’t been able to set the tone for the entire advisory community. The business as a whole has critical mass around the fundamentals (there’s an “advisor,” and there’s a “client,” and investment is involved in what we do together), but competing channels and business models keep the conversation fragmented and fractious.
Some executives would look at that fragmentation and despair of ever getting anything done. Kim sees it as one of our industry’s leading glories: we’re still inventing the journey along the way.
“There’s just huge opportunities in terms of advisors to build their own business, to really craft their own process,” he says. “There isn’t sort of this mature playbook that they can reference.”
That process of invention is still going on. AssetMark’s share of the industry is substantial in real dollar terms but still minuscule compared to the overall market. There’s vast room to consolidate as legacy providers get stuck or fall away.
An industry in motion will naturally develop in ways that few people in it can predict or plan around. I think of all the financial projections we make for clients showing how the future “might” unfold . . . fully aware that real life is about rolling with surprises.
Who’s The Boss?
Four years ago, few would have predicted that a company like AssetMark would come out of a global pandemic with $117 billion on the platform or that the stock would be taken off the market before it really got much time to run. But it happened.
Kim is so focused on swimming in the present that he isn’t dwelling on how we got here. This story has nothing to do with his own climb up the AssetMark org chart from head of the consulting team (he went straight to Coopers & Lybrand from UCLA and still shifts seamlessly into consultant gear) to president and then, when Natalie Wolfsen jumped to Orion last year, CEO.
That’s all in the past. Likewise, I could obsess over all the corporate twists that took AssetMark itself from advisor-owned startup to the crown jewel in GTCR’s fintech portfolio, but how does that help anyone?
What I know is that the old ownership arrangement was comfortable without being exciting. While Huatai might have had strategic plans to build out a U.S. wealth management presence back in 2016, real life evidently got in the way.
Plans change. The landscape shifts. The investors got a reasonable return on their capital and decided it was time to move on.
Odds are good the managers at GTCR are thinking along similar lines. Maybe they want to build something bigger around AssetMark, and maybe they just want the platform to grow enough on its own to give them a satisfying exit when it’s time for them to go.
Life is an open conversation. I’m sure the people at GTCR have been having a lot of those conversations with Michael Kim and his people. How can we work together? Where can we take this thing?
But at the end of the day, one way or another, the investors step back and the leaders step forward. Yes, the people running AssetMark have a duty to their investors, whoever those people happen to be.
Their primary duty, however, is to the customers who sustain the enterprise day by day. That’s the advisors and indirectly the clients. Those 9,200 advisors on the platform are the enterprise. Collectively, they call the shots. Always have.
