Nov 6, 2013
Executives
Jud Bergman - Chairman & Chief Executive Officer Pete D'Arrigo - Chief Financial Officer Chris Curtis - Senior Vice President & Treasurer
Analysts
Peter Heckmann - Avondale Partners Chris Shutler - William Blair David Grossman - Stifel Nicolaus Greg Smith - Sterne, Agee Matthew Roswell - RBC Capital Markets Jeff Houston - Barrington Research
Operator
Good day everyone and welcome to the Envestnet, third quarter 2013 earnings conference. Today’s call 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.
Chris Curtis
Thank you and 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 third quarter 2013 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 maybe 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 and will not be updated to reflect subsequent material developments.
We will take questions after our prepared remarks.And with that I will turn the call over to Jud.
Jud Bergman
Well, thank you Chris. I add my own welcome to everyone on today’s call, particularly to the new investors who are with us today as a result of our recently completed secondary offering, as well as to those existing investors who affirm their support with their strong participation.
Envestnet is uniquely positioned to both lead and benefit from the continuing transformation of the wealth management industry, as we unify the process for advisories, and empower them to deliver better outcomes in portfolio management and to run their practices more effectively. We believe this transformation maybe entering a third stage of growth.
During the first phase of our company’s history growth was tough. Our platform from day one has been web based and hosted and now that’s called software as a service or cloud based solutions.
But early on prospects we’re not familiar with and not comfortable with, employing software the solution that didn’t reside in their own servers or wasn’t installed in their own desktops. So early on our meetings with interested prospects often ran aground when we informed the prospect that our software was not installed, but host.
But by late 2003, 2004, as the cloud based software seems to be seen as more beneficial, we had an initial growth inflection, which commenced a very strong second leg of our company’s history and a time of very strong growth. Now today, eight or nine years after that first inflection point, the questions we hear more and more from enterprises include, can we benchmark advisor performance across all our advisors fee-based business or can you support a tablet environment for all our advisors.
Advisors tell us that they want their clients to be able to review their performance online with full fledged performance reporting and through continued innovation and development of our platform capabilities, innovation of our product offerings, more and more investment has the solutions that advisors and enterprises are seeking, enabling us to take advantage of our leadership position and benefit from this next growth phase for our company. We’ve been working hard to execute on our growth strategy and achieve our long-term growth targets.
Our organic growth comes as we add advisors and grow the number of accounts per advisory. We target mid to high teens growth in total accounts from our same store sales.
This comes from mid-to-high single digit growth in advisors and low double-digit growth in accounts per advisory. Conversion can typically add 3% to 5% per year in organic growth over this base level over the long term.
Although conversion numbers are much lumpier as we’ve often discussed, based on size and timing of specific client on boarding and disciplined acquisition activity can accelerate our growth beyond our long term target of 20%. So far this year we’ve exceeded our organic growth targets.
In the third quarter we grew our top-line by 64% when compared to a year ago and we grew adjusted cash flow or adjusted EBITDA by 58% over the same period. Gross sales during the quarter were more than $15 billion; including over $3 billion is assists under management or administration for new client conversion.
All totaled, more than 29,000 advisors and $486 billion in advisor assets are supported by investment. Our near-term growth outlook is solid as we see significant opportunities to future deepen our relationship with existing customers, to add new clients, to expand our presence in new channels and to accelerate our growth though continued and disciplined acquisition activity and we feel we have a very long runway for growth.
Today the 29,000 advisors we service with nearly $0.5 trillion in assets on the platform. But existing enterprise contractual relationships represent over 90,000 advisors and more than 2 trillion in assets.
Even after excluding those advisors that may never do fee-based business, it gives a significant opportunity to go deeper to our existing relationships, and we have the opportunity to build new relationships with firms that we don’t have contracts with. Those firms that we don’t have contracts with that are in the currently channels that we operate in represent another 138,000 and another $4.5 trillion in assets in the channels we currently service.
Combined, our total addressable market of more than 250,000 advisories and $7 trillion of assets give us ample opportunity for continued long-term growth. And while growing our same store sales is our primary organic growth drive.
We continue to see meaningful opportunities to covert large books of business on to our platform. So far this year we have completed some $18 billion in asset base conversions and an additional $21 billion in license based conversions.
Our implementation pipeline remains full. We are focused on accelerating our on-boding time to reduce the backlog of new client conversions.
We have made meaningful progress and we believe we are at a reasonable level. Our sales effort continues to be strong, so we will need to continue to invest in our conversion efforts in order to get clients on to the platform as soon as possible.
We have made several acquisitions in our time as a public company, most recently Prudential’s Unit, WMS or Wealth Management Solutions. What makes our acquisition strategy successful is not our ability to structure deals well, although I believe we do a good job of that.
Our competitive advantage, particularly with consolidating acquisitions like WMS or FundQuest is our core competence in converting large and complex books of business. Our track record of completing large-scale conversions successfully is unmatched in the industry and this makes us a worthy partner in acquisition discussions.
It gives us confidence in our ability to convert and integrate the businesses once acquired. This core competence enables to both accelerate our organic growth, but also achieve additional strategic growth following our disciplined acquisition process.
And then WMS integration effort is well underway. We expect to convert some smaller clients early in 2014 and complete the implementation process for all clients by the end of 2014.
At that point we expect the financial accretion will be significant, generating an addition $10,000 of cash flow to the business once fully consolidated. I will conclude with a few remarks in a moment, but first I’d like to turn it over to Pete D'Arrigo, our Chief Financial Officer, to discuss our financial performance in greater detail.
Peter D'Arrigo
Thank you Jud. Good afternoon and I’d like to send my own welcome to those of you who have continued to support Envestnet and new investors from our successful secondary offering.
The offering was completed on October 10. In total three IPO shareholders sold 5.8 million shares at the price of $29.25.
Over two days of marketing we met with more than 50 potential investors and successfully continue to expand the breath of our investor base. Turning to the third quarter results, I’ll start with the components of revenue.
Revenue from assets under management or administration grew 79% to $59.6 million compared to $33.2 million in the third quarter of 2012. This and all of our third quarter 2013 results, including the WMS acquisition, which closed on July 1.
Licensing and professional services revenue in the third quarter was $10.3 million up 14% from $9.1 million a year ago on an adjusted basis. And total adjusted revenue increased 64% to $69.9 million in the third quarter, from $42.7 million in the third quarter of last year.
Our cost of revenue increased to $30.2 million for the quarter from $15.1 million last year as a percentage of revenue from assets under management and administration cost of revenue was 50.6%. Adjusted EBITDA was $10 million for the third quarter, 58% higher than 2012’s third quarter.
Adjusted earnings per share, was $0.14 in the third quarter increasing 56% from $0.09 last year. We reported GAAP net income in the third quarter of $1.3 million, which is $0.04 per diluted share.
This third third’s quarters GAAP net income includes approximately $1.5 million of after-tax expense related to amortization of acquired intangibles, which is increased from prior periods due to the acquisition of WMS and the amount also includes approximately $650,000 of after tax expenses related to a few discreet events, that WMS transaction, the secondary offering and one time charges related to restructuring office leases at a couple of our locations. I’ll note that in the third quarter our effective tax rate was 25% of a GAAP pre tax basis.
This lower than expected rate was driving by several factors, most notably research and development, tax credits and foreign tax credits. This resulted in favorable tax positions and we recognized the cumulative benefit of the first nine months of 2013 in the third quarter provision.
Additionally we recoded the benefited in the third quarter of 2013 due to the release of several uncertain tax positions; the resulting provision True-Up had a net favorable impact to our tax expense for this quarter. Our diluted share count during the third quarter was 35.9 million shares up 2.5 million shares from the third quarter of last year due to a higher stock price and the resulting impact or the calculation of deluded shares.
Looking forward we expect our revenue from assets under management to administration to be up 80% to 83% in the fourth quarter, compared to the fourth quarter of last year. This reflects an affective fee rate of approximately 15.6 to 15.9 basis points on our beginning AUMA asset base of a $160 billion.
Licensing and professional services revenue for the fourth quarter, this year should be up approximately 12% to 14% year-over-year on a GAAP basis. Adjusted revenues for the fourth quarter should increase between 65% and 67% year-over-year.
We expect fourth quarter cost of revenues to be between 51% and 52% of AUMA revenue. We expect our adjusted EBITDA to increase 48% to 52% in the fourth quarter compared to the fourth of last year.
We expect our effective tax rate in the fourth quarter to be approximately 30%. We expect to continue to benefit from R&D credits in the fourth quarter.
Diluted shares outstanding should be approximately 36.5 million for the fourth quarter based on the current stock price, a meaningful increase from the third quarter of 2013. Thank you again for your interest and support of Envestnet and I will hand it back to Jud for his closing remarks.
Jud Bergman
Thank you Pete. Envestnet empowers advisors to deliver better outcomes for their clients as we unify and fortify the wealth management process for advisors.
We believe we are well positioned to deliver substantial revenue and cash flow growth this year and beyond. Our long-term targets are to grow top-line revenue by 20% per year and to grow adjusted cash flow at 25% per year, reflecting improving operating leverage in our business.
We expect to exceed these targets significantly this year. As we previously indicated, we look to grow revenue by at least 30% this year and adjusted EBITDA by at least 50%.
Following up on Pete’s comments, full year revenue should be at least 53% higher than it was in 2012 and we expect adjusted EBITDA will be at least 59% higher than it was last year. Thank you again for your time this afternoon.
Thank you genuinely for your support of Envestnet and with the conclusion on these prepared remarks, we are happy to take your questions.
Operator
Peter Heckmann – Avondale Partners
Good afternoon gentlemen. Nice quarter.
Jud Bergman
Hey Pete, how are you doing?
Peter Heckmann – Avondale Partners
Good, thanks. I wanted to ask the question; it looks like the redemption rate picked up just a bit in the quarter.
Anything, additional color you can give as regards to that or just normal quarterly fluctuations?
Jud Bergman
It did kick up a little bit about a tenth of a percent, but we don’t see that that is appreciable and we’re not overlay concerned about it.
Peter Heckmann – Avondale Partners
Okay, okay and maybe just be with a bigger base of assets that maybe it stands out a little bit more. And then with regards to WMS and hitting some milestones, it sounds like you hope to convert some of the institutions here in 2014 and then knock the rest out as you go – I’m sorry, in 2013 and knock the rest out as you go through 2014.
What type of milestones should we be looking for and how do you anticipate giving us updates as it regards the conversion success?
Jud Bergman
Well, first of all Peter, we are not expecting to do any of the companies in 2013. We’ll begin expecting to do the smaller companies in 2014 early and have all of them done by the end of 2014, and I don’t indented, nor do I expect to give any real benchmarks up until that.
If by any change that’s going to be moved up, till lets say the third quarter, I don’t think we’re going to telegraph that or suggest its happening before hand, but you’ll basically be hearing the same progress report from us over the next three quarters.
Peter Heckmann – Avondale Partners
Okay, okay. And then just one additional question and I’ll get back in the queue.
Yesterday, you had an announcement out on Cetera and adding some functionality there. From the press release it wasn't clear?
Is that going to be over all of their assets or will that be a menu option for Cetera’s advisors? And then if you can talk about exactly what type of functionality you are providing?
Jud Bergman
Initially it’s over the fee-based, asset base. Over all their fee based asset base and its essentially our full service reporting solution with some of investment intelligence built into it.
Peter Heckmann – Avondale Partners
Okay, that’s helpful. I’ll get back in the queue.
I appreciate it.
Operator
We will move next to Chris Shutler with William Blair.
Chris Shutler - William Blair
Hey guys, good afternoon.
Jud Bergman
Hey Chris.
Chris Shutler - William Blair
So you obviously believe there's a lot of opportunity for additional conversions I think over the next couple of years. I just wanted to get a better sense.
I know that you already serve a vast majority of the IBDs out there. I know there is a lot of opportunity with RIAs on the licensing side, but can you just help us better understand on the AUM side of the business, the channels or types of partners that you might be looking at for conversions there?
Thanks.
Jud Bergman
Sure Chris. Well for both AUM and AUA we are seeing continued opportunity in the independent broker dealer channel.
Even though we’ve got a lot of penetration there, there are still conversion opportunities from turnkey asset management platforms at firms; there maybe one, two or three platforms that are added to a particular broker dealer and the enterprise wants to bring more of that on to a single unifying platform. So we are seeing a fair amount of conversion activity from relationships that we’ve had for three, four, five even long years and even longer.
Significant opportunity in the registered investment advisor channel, significant opportunity in the insurance challenge, and more and more we are seeing opportunities in the bank and the regional brokerage channel. So we see a lot of opportunities for both AUM and AUA or asset based conversions in those channels.
Chris Shutler - William Blair
Okay, thanks Jud and then I just wanted to get your latest thoughts on the trajectory of the adjusted EBITDA margin now that we’ve felt the first full quarter impact of WMS. And specifically I know that last year you laid out the target of 100 plus basis points of the sequential margin expansion.
So just wondering, does that still hold today borrowing any additional acquisitions and assuming neutral markets?
Jud Bergman
Well its kind of hard question to answer, and the reason is that we have taken on a large revenue block with WMS and we are a year away from achieving any kind of efficiencies and margin efficiencies that will result form the conversion and then full integration of the business. So for this next period of time, I would say for the next three or four quarters what we are focusing on is growth in cash flow, growth in EBITDA and growth in top line, and we are committed to growing our bottom line and our cash flow faster than our top line.
But we are not able to generate anything close of 100 basis points of margin expansion, operating margin on a sequential basis, while we are working through the integration of WMS. And so for these next three to four quarters what we are going to be focusing on is as I’ve indicated, the absolutely growth in revue and absolute growth in cash flow.
Chris Shutler - William Blair
Alright, and then the last one if you don't mind, just one more question. On the QPs, just curious have those been rolled out yet?
And I know you probably don’t want to predict the size of how big those could ultimately be, but could you frame out the opportunity for us in terms of the amount of assets on the platform in ETFs or SMAs or just any other types of assets on the platform that could be addressable by the QPs? Thanks.
Jud Bergman
So we’ve completed the soft launch phase, which was through September 30 and really fell into the first couple of weeks of October. We are now very much in full launch with our QPs or our Quantitative Portfolios.
Getting the approval for shelf space and selection at the various enterprise and advisory firms that we work with and we think that it’s a potential game changer for how certain types of advisor invest. There is a tremendous amount of research; most often cited by Fama and French as to the benefits of low-cost, index based investing with tilts towards small cap and towards value.
And there are fund companies and exchange-traded fund strategies that have benefited from the low cost and from the index based approach. And where we see this as being hugely beneficial is that these are low cost and they will be able to be structured with factor tilts towards value or towards small cap or on the fixed income side, a different set of factored tilts.
But the end investor owns that basis, so these are tax manageable and they are also customizable around concentrated stock positions and many of the healthy, more successful RIAs have a significant portion of their client base that have created substantial wealth by single stock positions. Entrepreneurs, founders, early on investors in technology start-ups.
So we see that of the assets under management that we have on our platform today and for the advisors that are using that, we see that this is going to be a very valuable product that simply doesn’t exist today and we think that like all new product introductions there is going to be a fairly slow buildup first. We are not expecting significant flows in this through the first half of next year or for the next three quarters.
But as things ramp up, we think that this could be a hugely successful product and we wouldn’t be at all surprised but to see imitators out there. Now we do have the competitive advantage of having separately managed accounts software that works and it’s the core engine that supports the over 2 million accounts that we are already servicing.
So we think that our separately managed accounts, technology, which enables managers to manage centrally, portfolios, 1000s or even hundreds of thousands of accounts. It’s going to a very clear differential advantage for us and be very difficult for any new entrance to replicate in any short order.
So that’s a long answer and we’ve got the target channels, the target enterprises and the target advisors and we are making very good progress. But I don’t expect that this is going to be a meaningful continuator to our results until later in 2014.
Chris Shutler - William Blair
Okay, that’s very helpful. Thanks Jud.
Operator
We’ll go next to David Grossman with Stifel Nicolaus.
David Grossman - Stifel Nicolaus
Hi, thank you. Good afternoon.
I was wondering if we could just look at the growth sales trend. It looks like it's the fourth consecutive quarter of very strong sequential sales growth improvement.
Can you help us understand, at least from your own perspective, how much of this may be cyclical from an improving market versus some of the secular trends that you talk about?
Jud Bergman
That’s the question David, isn’t it? It feels like there is still some strong element, which is coming from the strength of the markets.
Certainly we’ve seen redemption rates moderate although we did pick-up just a heir in the quarter. The macro environment I think is useful for the investing base of advisors that we have and their business models is winning and there.
And they are winning at the expense of the incumbents, which are primary the national wire houses. So we see that the base level of organic sales is strengthening and we are encouraged by that.
We are certainly not expecting or extrapolating how that movement is coning into the foreseeable future. But we are happy with it while its there and we certainly see that as – we are noticing that that’s building and in my first comments, now moving away from the cyclical strength.
We have seen over the last three to four to five quarters in the conversion activity a different type of enterprise conversion, where the higher percentage of these – like it used to be that we would be getting some from competitors and some from home grown solutions that the enterprises were now converting on to the investment or a version of the investment solution. Some of the larger enterprises are more consistently coming from legacy home grown systems and I believe that that’s being driven by things like the table environment that their advisor base is asking for.
So I think that there is some – we are seeing some pent-up demand that’s being satisfied now and I don’t think that’s going to be forever, but it certainly looks like its for – we can see out a couple of years and it looks – we don’t see that abating right now. I don’t know if that’s helpful or not, but that’s how we are looking at it, that’s how we are seeing it.
David Grossman - Stifel Nicolaus
No, no, it is. And can I ask you Jud, then when you look at the segments of the market that you talk about, including the dually- registered, the RIA and the insurance verticals, do they respond differently in your experience historically to fluctuations in the market, where one may be more cyclical than the other?
Jud Bergman
What we are finding is that the segment, the channel that is most forward in its technology adoption pattern is the hybrid, the dually registered advisor channel. They are driving innovation and technology change at the advisor level.
Those advisors are going to practice this faster and then the other channels, and again that dually is registered as an important part of both the independent broker dealer channel and the registered investment advisory channel, but that practice pattern, that practice model is growing faster and then there is an adjustment within the firms of the various channels to keep up to that.
David Grossman - Stifel Nicolaus
Okay. You talked about conversion capacity and I'm wondering if you could just revisit that for a minute.
There have been certain points historically when you’ve been capacity constrained. It sounds like you're feeling much better about where you are in terms of your delivery capacity.
Did I hear that right and if so, have you had good success in working off the backlog over the last three to six months?
Jud Bergman
So we were working hard on that and we are investing in that. We are investing in additional on boarding resources and we have made real progress in some areas.
We’ve made good progress on our capacity to do wire house breakaways, we are able to with very little lead-time respond to a firm that is able to attract a breakaway advisory from a wire house and has had great big success with that. We have also has a fair amount of success over the last couple of quarters in lowering the backlog, the number of months of backlog for RIA firms, registered investment advisory firms that want to convert off of the legacy portfolio accounting system on to the web based offerings that we have either Envestnet or Envestnet Tamarac and the investment we have made there has made that backlog come down.
Its still just under six months, but that’s a little bit less than what it had been even last quarter, two quarters ago. Where we still have the longest lead-time is in the large enterprise conversion backlog and this is not something that is entirely under our control.
In fact its very much a case where the enterprise, there are logical times to complete these conversions. People, everybody wants to have them at year end, but they are willing to accept in some cases quarter end and because many of them are complex and they’ve got underlying contracts that maybe coming up for renewal with a competitor or with a single point application providers to the legacy platform.
It is a lot of competing variables to get that timing down and I would say we’ll still have six to 12 months or more in terms of backlog from our large enterprise conversion pipeline and I don’t see that ever really changing. So we’re making progress where we can and where dependencies are less – we’re less dependant on the other side to make those conversions work.
I hope that’s helpful.
David Grossman - Stifel Nicolaus
Got it. No, it is.
And if I could just ask one quick one and I think you addressed this at least partially. On the WMS, can you at least – I can understand your reluctance to provide any updates, but could you perhaps help us understand how the expenses flow over the course of the next 12 months?
Does the expense stay relatively flat and then just fall off when you fully convert or do they gradually come off?
Jud Bergman
So it’s basically the former. We have a – that allows us many components to the ongoing operating expense support base and the largest single component of that is a master services agreement that we still are paying the parent prudential for a shared services agreement.
When all the assets are converted, that’s when that legacy system can be retired. So the big savings occurs when the last account gets converted.
David Grossman - Stifel Nicolaus
Okay, got it. Thanks very much.
Operator
We’ll hear now from Greg Smith with Sterne, Agee.
Greg Smith - Sterne, Agee
Yes, hi guys. Just looking at the cost of revenue, it was 50.6% of AUM and AUMA revenue in the quarter and then you guys are guiding to 51% to 52%, a little bit of a jump up.
Is that just mix or anything else going on there?
Jud Bergman
Its largely mix. It’s a trend that we have been seeing over the last several quarters and expect, given the mix of the business that we’ve been experiencing coming on the platform we’ll continue to watch and we’re working on it, but for the near term that trend will likely continue.
Greg Smith - Sterne, Agee
Yes, okay. And then just back to WMS, I think you guys have talked about sort of the Canadian opportunity and also getting into the bank trust market.
I know it's early days, but any positive signs during the quarter that you can talk about?
Jud Bergman
We’re very encouraged by the opportunity in both the trust and private bank markets and that’s not just state side, but also in Canada. So we’re just very pleased with the acquisition of WMS and the attendant opportunities that we’re seeing from it.
Greg Smith - Sterne, Agee
Okay, and then lastly, obviously you’ve done the WMS acquisition, but is there anything sort of in the near-term acquisition pipeline or nothing at all imminent?
Jud Bergman
Yes, certainly there is nothing that we have to report right now. Its not our policy to comment or make any suggestion than probably something that news, but what we have said is that at least on the consolidating acquisition side we’re taking a bit of a rest until we get further down the consolidation and into a good conversion integration path in WMS.
Greg Smith - Sterne, Agee
Okay, thanks guys.
Operator
We’ll go now to Chris Donat with Sandler O'Neill.
Unidentified Participant
Hey, good evening guys. It’s actually Rob Hater (ph) filling in for Chris tonight.
Jud Bergman
Hi Rob
Unidentified Participant
So most of mine have been answered at this point, but I just wanted to sort of go back to the M&A front and just looking historically, you guys have tended to use cash when doing deals. But just with the stock moving higher here, I just wanted to sort of take the temperature of what you guys would be willing to do maybe using stock in a deal or I guess more importantly and its just more about potential targets favoring taking cash in a deal?
Just want to get your thoughts there.
Jud Bergman
Yes, I would say we focus on the deals on a more case-by-case basis and whenever the appropriate structure for a certain situation may be is what we will pursue. Obviously we’ve used cash in the past as you noted and we expect that that will be typically our first choice, but again I think we’re not averse to using whatever funding mechanism makes the most sense.
Unidentified Participant
Okay, got it, that’s helpful. Thanks for taking my questions.
Operator
And Matthew Roswell with RBC Capital Markets has our next question.
Matthew Roswell - RBC Capital Markets
Yes, good afternoon. I just wanted a couple of clarification points.
First of all, I think this goes back to the question before the last. Should we essentially think that in terms of the big enterprise acquisition, you guys are kind of out of the market until you get WMS fully integrated next year?
Is that a fair statement?
Jud Bergman
Well, from a consolidating and physician stand point I think that’s a good conclusion to make. From the part of our business that relies on organic growth through conversions, no we’re still very much in that business; business is open.
Matthew Roswell - RBC Capital Markets
Okay. And do you feel now with WMS that you kind of have all of the various channels filled?
You mentioned insurance; WMS brought you a bank. It obviously has the independent advisor to begin with.
Are we pretty much all the boxes checked?
Jud Bergman
Well, it’s an interesting question. When we started the business 12 years ago I didn’t anticipate the number of regional firms, large regional firms that would be looking to outsource the core wealth management technology and so we’re finding some of our biggest opportunities right now with self clearing regional firms and that’s relatively new, but that’s very promising.
So right now the channels that we’re serving and that we’re currently in have got tremendous growth for us, in every single channel, even in the ones that we’ve been in the longest. We are interested in expanding our footprint in the Canadian market, which we already were in, but the WMS acquisition strengthens that presence and for now we think that that’s really where our channel opportunities are going to be best attended to; North America in the channels that we’ve identified.
Matthew Roswell - RBC Capital Markets
Okay. Switching gears a little bit, I know it's a little early, but as we think about calendar ‘14, fiscal ‘14, is there anything that should cause the fee rates to change from kind of 15.6 to 15.9 basis point level, either in terms of asset mix or product mix or anything like that?
Jud Bergman
We haven’t given any guidance on that and I’m really reluctant to give any real answer. I would just point out that if you think about the WMS acquisition, which raised that average fee rate, during the next three or four quarters, we are going to be consolidating that base and in that integration process, it’s the rest of the business that I would expect to grow at a faster rate than the acquired business.
That will have – the math just will work out to have any affect on our key rates.
Matthew Roswell - RBC Capital Markets
Okay. And just to sort of ask that somewhat in a slightly different way, are you seeing a shift back towards equity in the asset base, because I think earlier in the year it was a little more fixed income?
Jud Bergman
We are seeing a slight shift, but its – I look back to where it was at the beginning of ’08 and its significantly down still. There are domestic equity allocations on new accounts, even more fully invested accounts are still around 50% on the new accounts.
We’re seeing larger allocations to international, larger allocations to alternative asset classes, larger allocations to cash. We are seeing some of the allocations of fixed income coming down, that is true, but we have not seen big allocations back to domestic equities yet.
Matthew Roswell - RBC Capital Markets
Okay. Well, thank you very much and congratulations on a great quarter.
Jud Bergman
Thank you. Thanks.
Operator
(Operator Instructions) We’ll go now to Jeff Houston with Barrington Research.
Jeff Houston - Barrington Research
Hi guys. Thanks for taking my questions.
We’ll start with equity markets having improved and I’m just curious if you've noticed any slowdown, even moderate, in the trend of advisors of leaving the wire houses.
Jud Bergman
Well the year’s date is not in yet, but ’12 was a big increase over ’11. ’13 everybody is expecting there will be an increase over ’12.
You know we’ve got a very good seat in the arena as it were and we’re not seeing any abatement in that activity.
Jeff Houston - Barrington Research
Okay. And then separately, I was hoping to dig a little bit deeper into the business intelligence tools and the new mobile functionality.
Could you talk a bit about the timeline for rolling those out and maybe how many advisors are currently up and running the beta versions of that or may be fully rolled out?
Jud Bergman
So on the tablet, on the mobile offering, that’s not a beta offering. That’s a fully functioning offering now and we’re going – on a fairly systematic level going through our enterprise and advisor base and we’ve had a number that raised their hands; that said that they wanted to start, they wanted to be first in the queue.
Others said I want to be in it as soon as possible. I expect that and it’s not a back office or accountant version.
It’s just nearly a front end or a technology kind of version for the enterprise, which requires some training and education. We expect that that’s going to continue through all of ’14 and probably into ’15 and so that process of going from the last generation of the investment platform to ENV2 well underway.
I mean, that’s an intelligence. This is increasingly a feature, ENV2.
Its built into the features and functionality with enhanced benchmarking, enhanced analytics for the advisor and so we see that investment intelligence, which is essentially business intelligence for the enterprise and the advisor. It’s going to be a primary driver of adoption for ENV2 and for continued conversion activities.
We’re never going to report, well, here is the line of revenue that’s coming from investment intelligence. Investment intelligence and the analytics benchmarking and reporting that we built in to ENV2 is a fundamental part of the value proposition and we expect that it’s going to be a factor in keeping conversion rates high for us.
Jeff Houston - Barrington Research
Got it. That’s good detail.
I appreciate it. Thank you.
Operator
And at this time I’ll turn things back to Mr. Bergman for closing remarks.
Judson Bergman
Well, thank you. It was a good quarter; a solid quarter and we very much appreciate our new investors on the call.
We thank you for your support and we look forward to talking with you in a few months time. Good evening.
Operator
Again, that will conclude today’s conference. Thank you all for joining us.