Manning & Napier's (MN) CEO Patrick Cunningham on Q1 2016 Results - Earnings Call Transcript

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Manning & Napier (NYSE:MN) Q1 2016 Results Earnings Conference Call April 28, 2016 8:00 AM ET

Executives

Patrick Cunningham - Chief Executive Officer

James Mikolaichik - Chief Financial Officer

Paul Battaglia - Director of Finance

Analysts

Adam Beatty - BofA Merrill Lynch

Andrew Disdier - Sandler O'Neill

Will Cuddy - JP Morgan

Bob Ryan - Wells Fargo

Steven Schwartz - Raymond James

Operator

Good morning. My name is Chrystal and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manning & Napier First Quarter 2016 Teleconference.

Our hosts for today’s call are Patrick Cunningham, Chief Executive Officer; James Mikolaichik, Chief Financial Officer; and Paul Battaglia, Director of Finance.

Today’s call is being recorded and will be available for replay beginning at 11 AM Eastern Standard Time. The dial-in number is (404) 537-3406 and enter Pin Number 83923214. At this time, all participants have been placed in a listen-only-mode and the floor will be opened for your questions following the presentation. [Operator Instructions]

It is now my pleasure to turn the floor over to Mr. Paul Battaglia.

Paul Battaglia

Good morning and welcome to Manning & Napier's conference call to discuss our first quarter 2016 results.

Before we begin, I would like to remind everyone that certain statements made during this call which are not based on historical facts, including any statements related to the financial guidance may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Manning & Napier assumes no obligation or responsibility to update any forward-looking statements.

During this call, some comments may include references to non-GAAP financial measures. Full GAAP reconciliations can be found in our earnings release and related SEC filings.

With that, I'll now turn the call over to Patrick Cunningham. Patrick?

Patrick Cunningham

Good morning. You've all heard the news that I announced my retirement from Manning & Napier last week. I know Jim has talked to many of you, but I appreciate the opportunity to tell you all first hand.

I was the one who initiated discussions with the Board of Directors last year, so that I could focus on important personal priorities. While I would enjoy the chance to continue leading Manning & Napier, leadership is not a part-time job. As a result, this will be my last earnings call and I want to thank you all for the attention and consideration you've given to our firm over the last five years since we went public.

I'm going to provide a few opening comments on the business, then Jim will review our financials and then I will end with a few closing comments.

Last year at this time Manning & Napier announced the new Director of Investments, Ebrahim Busheri, and a move to small portfolio teams with the goal of more focused and improved decision making. I'd like to start today's call with an update on those changes.

First, the smaller teams have been working well together. We have seen results from improved communication and decision making in the form of adjustments to our core portfolios. These adjustments have included an additional review of all securities, better deployment of cash, and a reduction of the total number of holdings. In general, the teams feel very confident in the portfolios they are overseeing.

Ebrahim has done a good job of continuing to evaluate personnel and the structure of the research department and he has made additional moves outside of portfolio management assignments in order to maximize the strengths of each individual on the team. We continue to have a strong, deep bench in our research department.

From a performance standpoint, the portfolios are transitioning though each at a different pace. Our core non-U.S. equity strategy has seen the most notable improvement in returns, having outperformed its benchmark in three of the last four quarters since our research reorganization. In contrast, our U.S. equity strategy continued to lag on a relative basis last year, but has seen a notable improvement thus far in 2016. Through mid April our equity series mutual fund is outperforming the Russell 3000 by 235 basis points.

Our multi-asset class strategies, which have held up reasonably well on a peer comparison basis, have seen short-term comparisons become more challenged in light of our fixed-income positioning. We have a shorter duration in the benchmark in light of what we believe to be a poor risk reward trade-off for longer maturities securities given the current environment.

As a reminder, none of the changes we've made were to our investment process, only to how we execute that process. As I look back, I'm confident that the changes we made just over a year ago were the right changes at the right time.

Client service continues to be an area of emphasis for us as we work through the transition and relative rankings for our core products. As said, new business conversations are perhaps as strong as they have been in a year or so. First of all, track records beyond our core products are compelling.

For example, our disciplined value and global quality strategies are equity portfolios that have a high emphasis on lowering volatility relative to the broad stock market. All held up very well in the volatility of the first quarter and finished the quarter outperforming the respective benchmarks by 150 and 285 basis points respectively.

More importantly, they are outperforming by 340 and 460 basis points respectively over the past year. Specifically, we are seeing increased interest in the U.S. only version our disciplined value strategy.

Fixed income is also an area where we are having more conversations with prospects. Institutional investors in particular are interested in finding ways to increase yield without taking on too much risk. We are having good conversations about addressing these issues. While we are known for equity and multi-asset class strategies, some of our standalone fixed-income strategies date back to the 1980s. So we can point to significant experience in meeting fixed-income investors' needs.

Jim is going to provided full detail on year-to-date flows, but as you have seen flows continue to be challenged; however improved and we expect this to be the case until we have better relative comparisons. I can't predict exactly when this will happen. We are now in a position where our non-U.S. equity strategy has good relative performance over the past one, three, and five years. Sustaining that trend for the next few quarters will be important for our ability to improve flows going forward.

Lastly, we continue to work towards closing the acquisition of a majority interest in Rainier Investment Management. The addition of Rainier's capitalization based equity products including the five star rated International Discovery Fund will arm our sales teams with more high quality investment solutions to deliver across channels. We anticipate this transaction will be complete within the next few weeks.

Now, let me turn the call over to Jim to view our financials. Jim?

James Mikolaichik

Thanks Patrick and thank you everyone for joining us today. I'll take you through the financials before turning the call back over to Patrick for a few closing remarks followed by Q&A.

The first quarter was marked by market volatility that impacted investment managers and their client. While we were not immune from that impact, the absolute and relative returns for our major strategies were very competitive in the quarter and ranked well in their respective peer groups.

I'll start by addressing a few key metrics. We ended the quarter with assets under management of $34.7 billion. Net client outflows in the quarter were approximately $1.4 billion and overall improvement from recent quarters by over $1 billion in net flows and we reported economic net income per adjusted share of $0.18 for the quarter compared to $0.20 per adjusted share last quarter and $0.28 per adjusted share in the first quarter of 2015.

Turning to AUM and net client cash flows, our assets under management decreased by approximately $750 million during the quarter, a 2% decrease compared to December 31. Gross client inflows of $1.4 billion and market appreciation of $630 million were offset by gross client outflows of $2.7 billion. When compared to the first quarter of 2015 AUM has decreased by approximately $10.9 billion or 24%.

Our blended asset portfolios continue to provide asset flow for the firm contributing approximately $1 billion of our $1.4 billion in gross inflows for the quarter. This includes nearly $800 million of gross inflows into our lifecycle and retirement target products that are prominent in the defined contribution market. By vehicle we had approximately $400 million of gross inflows into separate accounts and $970 million in a mutual fund and collective trust.

The $2.7 billion of client outflows in the quarter was an improvement from prior periods which averaged $4.4 billion of outflows per quarter during 2015. The majority of our outflows were from blended asset products with $1.7 billion of outflows in the quarter. Another $1 billion in outflows came from our equity portfolios and approximately $75 million from our fixed-income products.

By vehicle we had $1.5 billion of outflows from our mutual fund and collective trust and $1.2 billion in outflows from our separate accounts and our rolling 12-month retention rate stands at 88%.

As a result, as of March 31, our blended asset strategies made up 64% of our assets under management or $22 billion and our various equity strategies represented 33% of our total assets and the remaining 3% invested in our fixed-income products. By contrast, this time last year our blended asset strategies contributed 56% to our assets under management.

Moving to our first quarter financial results, we reported revenue of $64.5 million for the quarter, down 29% from the first quarter of 2015 and down 11% from last quarter. The changes in revenue are resulting from decreases in average AUM when compared to prior periods. And overall revenue margins of 76 basis points in the quarter are down slightly from 77 basis points last quarter and 78 basis points reported this time last year.

Operating expenses were $41.8 million in the quarter a decrease of 10% and 21% compared to last quarter and the first quarter 2015 respectively. The decrease in operating expenses can generally be explained by the reductions in AUM and revenue along with decreases in certain fixed expenses resulting from the reduced size of our workforce. As of March 31, our employee headcount stands at 453, down from 474 as of December 31 and 518 this time last year.

As we've talked about in prior calls, while we continue to fund existing strategic initiatives during this period of transition and performance and client flows, we have not made significant new expenditures to new initiatives. By prioritizing focus across the firm and being prudent about discretionary spending, we have achieved some decrease in operating expenses.

Compensation and related costs for the quarter were $22 million, a decrease of $2.4 million or 10% since last quarter and 18% from the first quarter last year. The majority of the decrease is the result of reduced variable incentives for sales, research and senior executives. And our compensation ratio as a percentage of revenue was 34% in the quarter in line with last quarter.

Distribution, servicing and custody expenses including some transfer agent fees and 12b-1 expenses associated with our mutual fund and collective trust offerings have decreased by approximately $1.4 million when compared to last quarter and by $5.4 million compared to the first quarter 2015 which is consistent with the changes in average mutual fund and collective trust assets for the respective periods.

Distribution expenses continue to be approximately 32 basis points of mutual fund and collective trust average assets for the quarter and other operating expenses were $8.5 million in the quarter down from $9.2 million last quarter and $8.9 million in the first quarter of 2015. And we reported pretax income for the quarter of $23.9 million an 8% decrease from last quarter and a 38% decrease in this time last year.

As it relates to our shareholder base, later this week we expect to complete an annual exchange process as legacy shareholders will exchange approximately $2.1 million Class A units of Manning & Napier Group for approximately $16 million and as in prior years these units will be retired and the exchange will be accretive to remaining shareholders. After these transactions have been completed, our adjusted shares outstanding will decrease from approximately 83.6 million at March 31 to 81.5 million adjusted shares.

With respect to the balance sheet, we continue to maintain a debt-free capital structure with a cash balance of $127 million and approximately $24 million invested in seeded products as of March 31. And as you are aware, during the quarter, we declared $0.16 per share dividend to our Class A shareholders.

And with that I'll turn the call back over to Patrick for some closing remarks and then we look forward to your questions. Patrick?

Patrick Cunningham

Thank you, Jim. I'll be brief. I would just like to say that my career at Manning & Napier has been truly extraordinary. I consider myself very a fortunate man. I'm very grateful to our clients whose confidence in the firm I feel is unparalleled. I'm grateful to my fellow employees, a very dedicated and hard-working team and I'll be forever grateful to Bill Manning who took a chance and hired me 24 years ago.

With that, let's open the call to questions. Operator?

Question-and-Answer Session

Operator

The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Adam Beatty with Bank of America Merrill Lynch.

Adam Beatty

Thank you and good morning. Patrick, all the best in retirement.

Patrick Cunningham

Thank you, Adam.

Adam Beatty

Just first to be sure, first a two-pronged question on M&A maybe an update on Rainier so far how their flow has been, asset retention, also employee retention? And then secondly, having done a couple of good deals in the past years and you mentioned your suite of products the long-standing fixed income, are there any product gaps or distribution gaps for that matter that you might still be looking to fill? Thank you.

Patrick Cunningham

Jim, you want to talk about Rainier please?

James Mikolaichik

Sure, that's a lot of questions Adam to start the morning. Thank you, though. As far as Rainier is concerned I'll tackle that one first. Everything is moving along as planned since signing. I'd say from our retention of personnel on the investment side things are progressing exactly as planned and the client consent process, the proxy process for the mutual fund lineup has moved along well and we've actually been continued to gather some assets in the International Discovery Fund that Patrick mentioned in his opening remarks which is five-star small-cap international product that we're very excited to get in the hands of our sales force.

We've also already been active on the selling side with that International Discovery product and we've had very good receptivity from our institutional sales force as well as our retail and intermediary sales force in being out in the marketplace even pre-close with that product. So I think overall very excited about the prospects with Rainier. They certainly have had some of their own difficulties in a few of their products, but they have a few really exciting products and a great asset base we think to move forward that will really complement ours and we're also excited to get the footprint on the sales side regionally in the Northwest and start to get our products accessible to their sales team in a region that has been probably underserved by our sales personnel.

As far as the additional products and additional M&A that we're looking at, I'd say one of the things we're considering are really capital light type partnerships, potential joint ventures, sub-advisory relationships to continue to give us access to alternative products, additional multi-asset class solutions that may use ETFs or other instruments to get exposures to markets in new and innovative products that we think we can put alongside our existing more traditional multi-asset class products.

And we've had a number of really good conversations and hopeful in the coming quarters and year or so we're able to address some of those additional product areas in the alternative space and more solutions oriented use of ETFs.

Adam Beatty

That's great, thank you for hitting on all that. And then a question about the regional representatives and sales force, just given some of the headwinds although they seem to be abating, have there been any challenges in terms of retaining those reps, keeping the momentum going and have you been able to outreach with those folks? Thanks.

Patrick Cunningham

Yes, we've had great success with retention of our reps I think for a variety of reasons. One is that we've been through this before and so they lived or more senior the reps will have the largest client bases have seen this before and they know that when we go through the [indiscernible] we come out stronger than we were when we went into them. So there's that, also we do have many products that are very marketable.

We have some great track records that are not our traditional core products, but they are products that have great relative and absolute return characteristics, so that we are concentrating on and I mentioned the global quality, I mentioned the disciplined value of fixed income products. We have great products that are very strong. So we still have lots of arrows in the quiver for driving new sales.

In addition, as I've mentioned on prior calls, our sales representatives unlike other firms where they either you have a sales team who gets paid a commission and then it gets transferred to a relationship manager, our sales reps not only close the business, they service the business for the life of the business and they get paid a service commission on that business. So our reps have the ability to build an annuity if you will and further their own personal book of business.

Adam Beatty

That’s great, I appreciate that. Thanks again.

Patrick Cunningham

Thank you.

Operator

Your next question comes from the line of Michael Kim with Sandler O'Neill.

Andrew Disdier

Hi guys, this is Andrew Disdier sitting in for Mike. Thanks for taking our questions today and Patrick, best of luck. So it is least based on the numbers that we're looking at and that you’ve detailed one year track records of meaningfully improved more recently, so I’m just wondering based on your attribution analysis and I know you spoke about it a little before, how much of the recent outperformance can be tied to the changes that were made to the portfolio following the restructurings? And then on the other end any sense on client reaction and how it might impact retention rates?

Patrick Cunningham

Sure, client reaction to the changes or client reaction to my situation?

Andrew Disdier

To the changes in the portfolio and the obvious what seems to be recent outperformance?

Patrick Cunningham

Yes, I mean first of all I think we did make some changes. We reduce the number of holdings in the portfolio. We did reduce the energy holdings fairly significantly, it was overweight, now it is an underweight in the portfolio. We are concentrating on businesses that will thrive in the slow growth environment.

We believe that the world is not growing fast and we are not alone in that view but that's certainly the view we've held for quite some time. It's not new to us. And so the businesses that will thrive, our businesses that are disruptive or will be gaining market share because they have superior products, technologies et cetera.

So I think it was - the changes did help and as I said earlier, things don’t just – you turn on a switch and things flip from fair to great, it takes time for those - our average holding in our stocks is multiple years and many times we are buying securities when they are going through short term periods of difficulty.

So, but I do believe that the changes that we made and the way that teams are operating now not only have contributed to the improved recent performance, but also to what I believe will be sustained improved performance.

James Mikolaichik

The changes in the portfolio that we made have been well received by clients. We spend a lot of time communicating with our clients, and we do – we have outreach programs and I think by and large they are positively received. But I think there is also a wait and see sort of attitude as well. They want to make sure that the changes we made are going to result in improved performance and we're starting to see that happen.

Andrew Disdier

Great, and then now that we’ve just gotten the final fiduciary rules from the DOL which generally seem less onerous than expected, curious to get your initial reaction and thoughts on how they might impact your business?

Patrick Cunningham

Yeah, we are positive. We’ve been supporters of having the fiduciary rules apply to anybody who is touching retirement plans including IRAs. So we are positive on it. We don’t think, we think it's not going to impact our business in a meaning way. We have, we’ve been working as a fiduciary with our plans for many, many years.

We are especially in the life cycle space we are, not only are we acting with our collective trusts, we are in fact acting as fiduciaries when they are used on the plan. And we’ve worn that mantle comfortably for decades now.

So we think it’s a good thing and we don’t think it's going to dramatically impact our business. It will probably impact the lower end of the markets to a great extent. I think the global advisors and other offerings may be beneficiaries of it, but that really doesn’t come into our marketplace.

James Mikolaichik

And Andrew I think it's important just to note that, we are a single source of really revenue in terms of the way our business is structured. We get paid asset management fees from managing money for our clients. So we are not sitting in the place where some of the brokerages are where they are flipping between commissioned schedules and brokerage business and then trying to also be in the fee-based advisory business. We are purely an asset manager with a fee-based business for managing money. So we think that also is much more conflict for even a number of other businesses.

Andrew Disdier

Great, thanks for taking our questions.

Patrick Cunningham

Thank you.

Operator

Your next question comes from the line of Ken Worthington with JP Morgan.

Will Cuddy

Good morning, this is Will Cuddy standing in for Ken. First Patrick, best of luck with your retirement.

Patrick Cunningham

Thank you.

Will Cuddy

On the national [ph] equity fund pipeline have been under pressure previously and the performance has been improving, how does that pipeline look today?

Patrick Cunningham

Yes, I mean I think it is the – it takes a little bit of time before you see a turnaround and performance that information being disseminated and being understood by the marketplace. So there hasn’t been to be frank a big increase in activity, but we would anticipate with sustained improved performance that it will increase. So, do you want to add something to that Jim?

James Mikolaichik

Yes I think the big change is really the dampened outflow, which is what we typically see first where we are still visible and available on many platforms. Once the outflows start to abate, you have inflows hopefully replacing on the other side and we've started to see the two of them squeeze together here in the past quarter or so on the non-U.S. equity side. And non-U.S. really had what started to have its turn in the fourth quarter and really has done very well year-to-date. So we’ve started to see the flows tracking behind that. Most notably though, first and foremost on the outflows side coming down and now is when we can start to be a little bit more positive and forward looking as we move forward.

Will Cuddy

Great, thank you. So on comp, I know Adam as asked about the registered reps, more broadly, do you see comps impacting retention across the firm?

Patrick Cunningham

Yes our comp levels are still reasonably elevated just because of the outsized, I think absolute returns in the past couple of years and we do compensate our research team based on absolute returns more than relative returns. Relative returns are also a component of that, but between the two, our comp is not come down as quickly as revenue given sort of a bit of an asset fall off and the comp ratio is sitting still at about 34% which I said earlier.

And as a result I think we’re watching retention closely, but we’ve got a very deep bench, we think we have a good compensation program that the analysts here on the research side have grown accustomed to and understand very well and they understand it ebbs and flows with markets and it rewards them personally for their achievements based on a real meritocracy.

And we feel that between the deep bench the succession planning, the compensation program tied to their individual performance coupled with continued stock ownership in the company and the way the private units which are still held by much of the research team, we think there is a solid structure around them for the near term and foreseeable future. But certainly something we watch closely and we work with the compensation committee on making sure we’ve got the right type of incentive alignment for the future.

Will Cuddy

Okay, thank you, the detail is helpful. Thank you for taking our questions.

Operator

Your next question comes from the line of Bob Ryan with Wells Fargo.

Bob Ryan

Good morning.

Patrick Cunningham

Good morning.

James Mikolaichik

Good morning.

Bob Ryan

With the extreme volatility we saw in capital markets during the first quarter, despite that your flow situation improved markedly. So how much of it has to do with the individual fund's performance as compared to overall market dynamics?

Patrick Cunningham

Well, as I mentioned several of our products and that we have a history of protecting in down markets a long history of doing that. So I think what our clients saw and what those people are interested in Manning & Napier saw was a pattern that they would expect to see, and I think that helped in terms of the flows and I think it helps in terms of attracting the business. So and we expect volatility in this market will continue. It is not going to go away.

If you – in our core portfolios, we’ve always had the philosophy that, if you buy a good business when is undervalued two things happen; number one, if the market is volatile and goes down, the securities [ph] shouldn’t go down as much. Secondly, if it is a good business, once the fear has subsided it will be one of the first to come back. And we've seen that happen in the first quarter.

Bob Ryan

Great, thank you.

Patrick Cunningham

Yep.

Operator

Your next question comes from the line of Steven Schwartz with Raymond James & Associates.

Steven Schwartz

Good morning everybody. Congratulations Patrick on the retirement, I hope that goes very, very well for you.

Patrick Cunningham

Thank you.

Steven Schwartz

Three quick questions, if I may follow ups I think for the most part. Jim, could you talk about the comp ratio as you just noted it is kind of state high, give past absolute performance and relative performance, do you see that coming down at all over the remainder of this year?

James Mikolaichik

Yes, it is largely based as you said on markets and performance. So when looking at the one year numbers at this point, we have – yes it is certainly expected to come down on an absolute dollar basis given the fact that our core U.S. and our core non-U.S. products which are two of the larger asset bases coupled with multi-asset class certainly have had either lower absolute returns or even negative absolute returns on the one year with the twos and the threes still contributing some positive returns to that, but a larger portion of it still has some, is booed [ph] by some absolute returns and in prior years.

So that is keeping it elevated for a longer period of time with an asset base that where we've had some outflow on a continued basis. If we can get the revenues stabilized some and the asset base stabilized some, I do expect that the ratio would follow. But on an absolute side of comp should be coming down based on the performance and the numbers you are seeing in the near-term negative market impact from the one year numbers. But on an absolute I think you have to market against how what our revenue, where our revenues are trending.

Steven Schwartz

Okay, fair enough. And then just on the new management structure how is that going to work? Maybe Patrick you can go into that, maybe?

Patrick Cunningham

Sure, I'll be happy to. Bill Manning is the name CEO and we created an operating committee that will work with Bill. Let me put this in some historical perspective. Prior to me becoming the CEO in 2010, we had a very, very, if not identical structure. We have what we call the executive group. I joined in 1999. Bill Manning was on it when I joined it. Bill Manning left the executive group in 2003 and there were five of us who operated the firm effectively being the office of the CEO, although we never called it that. We called it the executive group and we made all of the decisions.

We meet regularly and ad hoc as needed and it consisted of representation from the major functions within the firm. That's pretty much what – that's almost identical to what we're doing now. We've created this operating committee and the operating committee consists of five people; Jim Mikolaichik of course, Richard Yates, our Chief Legal Officer, Ebrahim is Director of Investments, Jeff Coons, who is President and Chuck Stamey, who is the Head of Distribution for the firm. And these are five people who my five direct reports, I had only five direct reports and those were my five direct reports.

So I know and I have worked very closely with these individuals for a long time and so I'm comfortable and confident that not only will the transition go smoothly, but also that more importantly, it will be a very effective governance structure. Bill Manning has always helped play the role of as I say he has involved in anything that's involved strategically with the firm.

He will - if he sees an article that is involving a trend in the industry he will always review that with us and talk to us about it, but not involved with the day-to-day sort of grind it out decision-making you have to do as a CEO and that will be the case with this new operating group to handle the operating functions of that office.

So I'm comfortable and confident. I remain a client and a shareholder and I'm comfortable because this is a structure that we've had before and it's a structure were in fact Jeff Coons and Chuck Stamey were part of the old executive group and are part of this new operating committee and I am confident in their ability to function effectively.

Steven Schwartz

Okay, thanks for that. And then one more just a follow up on the DOL understanding that it is probably none of this will probably affect your revenues, I am just wondering if you have to make changes in fund families or in some way that you pay distribution because of the new dealer rules?

Patrick Cunningham

We don’t anticipate that we have to make changes at this point. I mean we are certainly watching it closely as it rolls out and just I think brokerages or other platforms need to adjust I think we will be talking with our partners and intermediaries. As of right now we don't have any immediate actions.

Steven Schwartz

Okay, thank you guys very much.

Patrick Cunningham

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Adam Beatty with Bank of America Merrill Lynch.

Adam Beatty

Hi again, thanks for taking the followup. I just want to follow up DOL fiduciary rule. There's been some concern since the final rule came out about access of smaller plans to investment advice despite the threshold being lowered, there are a lot of plans out there with a lot of participants but not a ton of assets. Give your traditional strength in smaller company markets is that an opportunity to gain share for Manning & Napier? Thanks.

Patrick Cunningham

Almost all follow on K plans even those that are smaller now have an advisor associated with them. So it will be very important for that advisor to be cognizant and operate using the – under the new fiduciary rules. However, that doesn't change the way we distribute. We are a lifecycle fund provider and we provide that primarily through intermediaries. So I think it's – I'm not – I don’t think and Jim you may, if you have your own opinion on this, but I don't think it's going to materially impact the way that we operate in that space.

James Mikolaichik

I would agree with what you said.

Adam Beatty

Okay, makes sense. Thanks very much.

Patrick Cunningham

Thank you.

Operator

At this time there are no further questions. Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

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