Creating Value

We approached every new challenge during the year with a focus on how to help our clients as well as to ensure we were taking care of our associates. Our steps were measured by our values that begin with heart, focus on integrity and excellence and end with respect. As a result, we are entering 2021 as strong a company as ever.

In 2020, AssetMark achieved all-time highs across many key performance indicators:

• Asset on Platform of $74.5B, up 37% year over year
• Number of engaged advisors¹ : 2,536, up 14% year over year
• Number of households: 186,602, up 15% year over year
• Employee count at 732

As well as all-time highs for key financial metrics:

• Highest revenue ever at $432 million
• Highest adjusted EBITDA ever at $115 million
• Highest margin on adjusted EBITDA at 26.6%
• Highest adjusted net income ever at $73.2 million

In addition to the key metrics, the financial stability of the company has never been better. We ended the year with $70.6 million in cash and refinanced our long-term debt just prior to year-end, which both lowered our interest costs and increased the capital available to the business. Entering 2021, AssetMark’s new revolving credit facility has $175 million of capacity.

Every year, we are focused on our mission while delivering on revenue growth and margin expansion. In 2020, we maintain this focus despite the headwinds of the recession and declining interest rates. We focused on rethinking how we do business so that we can continue to invest in the future and expand our competitive position.

Asset growth on the platform was the best ever for the company, increasing $16.8 billion during the year. This was driven by strong organic growth, a second-half market rebound and the closing of our acquisition of OBS Financial in February. The organic growth of our non-acquisition assets was 10.3% for the year.² This strong organic growth was done amidst a complete shift in our sales and service model as we and financial advisors moved our business online to service clients remotely. Given that we welcomed 743 new producing advisors to the AssetMark platform in 2020, we believe the shift in our sales model was effective. By year-end, we had 2,536 engaged advisors on our platform, up 14% from the beginning of the year.

Despite falling interest rates and a very volatile equity market, our revenue was up 3% year-over-year led by our asset-based revenue, which was up 9% to $412 million. Offsetting this was a decline in our spread-based revenue as a result of the sharp drop in interest rates in early 2020.

Revenue, net of related variable costs, as a percentage of assets on platform was 48bps for the year. Asset-based net revenue was 45bps, which is down 3 points from the prior year driven by product mix and our shift to lower-cost mutual fund strategies. This shift will save investors $12 million annually. Spread-based net revenue declined 3 points to 2bps as the net spread earned on cash dropped from 1.93% for the full year 2019 to 0.56% for the full year 2020.

In 2020 our reported operating expenses, excluding variable asset-based and spread-based costs, increased 12% to $289.2 million. After removing adjustments to our expenses, our adjusted operating costs went up only 4.9% from $215.1 million to $225.7 million.³

We took quick and decisive action in April of 2020 as result of the economic changes that were happening. We rationalized our expense base and re-thought the timing and implemention of some longer-term investments. During the year, we held the line on our employee count, increasing from 729 at the beginning of the year to only 732 at the end. That small change belies the work that we did in terms of restructuring which allowed us to continue to invest in needed capabilities in sales, service and digital capabilities.

As a result of our ability to grow asset-based revenue to more than offset the lost spread revenue and our ability to adjust our cost structure to allow for needed investment while keeping costs increases at a minumum, our earnings for the year were impressively up 10.7% to $73.2 million of adjusted net income, or $1.02 per diluted share. In addition, we viewed adjusted EBITDA as an important measure of the company’s strength. Our adjusted EBITDA for 2020 was $115 million, up 3% from 2019.

There is no denying this: 2020 was a hard and trying year for our country and around the world. Our hearts go out to the millions of Americans whose lives were impacted by the global pandemic and the subsequent economic slowdown that put so many out of work.

We are very much looking forward to 2021. We are hopeful our economy and country can continue to heal and open up. AssetMark has been and will always be a mission-driven, client-focused business. We have continued to invest in the future and are well positioned to have another great year with sufficient capital, low leverage and strong earnings momentum.

Gary Zyla
EVP, Chief Financial Officer

• 1 Engaged advisors are defined as an advisor with over $5 million of assets on the AssetMark platform
• 2 This is a measure of net flows as a percentage of beginning-of-year assets. This calculation excludes the impact of the net flows from the 2019 GFPC acquisition and the 2020 OBS acquisition. Including those net flows, the 2020 organic growth was 8.9%
• 3 2020 Total Operating expenses were $424.6 million — excluding asset-based and spread-based expenses, costs were $289.2 million. For 2019, costs were $388.5 million and $257.5 million, respectively. Adjustments to expenses totaled $63.5 million in 2020 and $42.4 million in 2019. Adjustments were made for share-based compensation, IPO readiness, Reorganization and integration costs, acquisition expenses, business continuity costs and office closures