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WisdomTree Investments Inc  (NASDAQ:WETF)
Q1 2019 Earnings Call
April 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the WisdomTree First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce Mr. Jason Weyeneth, Director of Investor Relations. Sir, please begin.

Jason Weyeneth -- Director of Investor Relations

Thank you. Good morning. Before we begin, I'd like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements including but not limited to the risks set forth in in this presentation and in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2018. WisdomTree assumes no duty and does not undertake to update any forward-looking statements.

Now, it's my pleasure to turn the call over to WisdomTree's CFO, Amit Muni.

Amit Muni -- Executive Vice President and Chief Financial Officer

Thank you, Jason, and good morning, everyone. I'll walk through the important items for the quarter, give some updated guidance for 2019, and then turn the call over to Jono for some closing remarks before opening it up for Q&A.

So beginning on Slide 3, assets under management rebounded ending the quarter at just under $59 billion, driven by market appreciation and inflows across all three regions where we have listed products. Excluding HEDJ and DXJ, we generated $1.8 billion of inflows, which represent 16% annualized organic growth more two times the ETF industry and our second strongest quarter in six years. Flows were led by the strength of our floating rate treasury funds, USFR, which generated inflows of $1.3 billion and strengthened its position as the asset and liquidity leader in a category that we believe can meaningfully scale further.

Our domestic equity product suite generated 19% organic growth, representing $632 million of inflows, the strongest quarter in over two years. With strong performance track records, this suite of funds is very well positioned to continue to gain market share and drive demand from investors looking for alpha-generating strategies in the ETF structure.

For the second consecutive quarter, we grew our market share of European-listed gold products. The $287 million of inflows into our physical gold ETFs (ph) represented 33% market share, illustrating the importance of being first-to-market and establishing think (ph) awareness, particularly for beta exposures. Our Canada franchise continued to generate consistent inflows and strong organic growth as well.

And while our emerging market suite enjoyed the industry rebound in EM products, inflows into our broad-based EM funds were more than offset by outflows from our India ETF. These diversified flows are the results of the evolution of our distribution strategy to leverage data intelligence and digital marketing to optimize client coverage, entering into strategic partnerships and offering an award-winning Advisor Solutions program.

Now turning to the financial results, on Slide 4. Revenues were just under $66 million for the quarter, primarily due to lower average revenue capture due to the change in mix of our US AUM and two less revenue days in the quarter. On a GAAP basis, we had net income of $9 million. Excluding non-operating charges, our adjusted net income was $8 million or $0.05 a share on a GAAP and adjusted basis.

I'd like to highlight two of the unusual items that affected our results this quarter. The first, which had no net impact on our results, was a $4.3 million charge in other gains and losses that was fully offset by a benefit in our tax expense line. As part of our acquisition of ETF Securities, we held a portion of the proceeds in escrow to cover certain tax exposures. As the statute of limitations on those exposures expires, we release a portion of the escrow. Accounting rules require that we record the release as an expense and then as a reduction to tax expense. Again, it had no net effect on our results.

The second item we incurred, a $1 million non-cash charge associated with investing of stock-based compensation awards. Our normalized tax rate in the quarter was 26.9% and we continue to expect a 26% to 27% tax rate in future periods consistent with our previous guidance.

Turning to margins on the next slide, our adjusted operating margin was 20% for the quarter, which was down slightly from the fourth quarter of last year due to lower revenues and higher seasonal payroll costs. Gross margins for our US segment were 80.4%, up sequentially reflecting seasonal items in the prior quarter. Gross margins for our international segment were 70.1%, up sequentially reflecting the growth in average AUM.

On the next slide, you can see the changes in our expenses. For the US segment, operating expenses increased slightly as higher seasonal compensation costs were partly offset by lower use of consultants, as well as spending and marketing in sales due to timing. Third-party distribution expenses were above the guidance of 3.5% of advisory fees due to one-time expenses for onboarding a distribution platform, as well as for one of our overseas marketing arrangements. International segment expenses declined 4% primarily due to timing of lower marketing and sales-related spending. We do expect marketing and sales spending to pick back up in the second quarter.

Now, I'd like to give you an update on our expense outlook for the remainder of the year, on Slide 7. First, what hasn't changed; we expect no change in our previous gross margin guidance. At current AUM levels and the current asset mix, we expect gross margins to remain in the 80% to 81% range and in the 70% to 72% range for our international segment. We expect our third-party distribution fees will be 3.5% of advisory fees in the US on a quarterly basis in the near-term, but there may be periodic spikes when we onboard new platforms. We also expect no changes in our prior guidance for compensation in both our US and international segment. You can see, if you annualize first quarter numbers, we are trending in the middle of the guidance range.

So what has changed? We gave guidance that we expect discretionary spending to be flat with annualized second half 2018 expenses. As discussed in our second quarter earnings call last year, we identified $7 million of annual cost reductions and we're working to identify additional savings. We are revising our guidance and expect an additional $3 million in savings, $2 million in the US and $1 million in our international segment. So in the last three quarters, we have taken out approximately $10 million from our cost base. We will continue to look for efficiencies or other areas where we can reduce expenses that will not sacrifice revenue growth opportunities.

Thank you, and now it's my pleasure to turn the call over to Jono.

Jonathan Steinberg -- Chief Executive Officer and President

Thank you, Amit, and good morning, everyone. I'll keep my comments brief for this morning before taking your questions. I am encouraged by the recent growth we've generated. As you see, on the right-hand side on the top chart on Slide 8, excluding the impact of DXJ and HEDJ, our recent organic growth has been mid to high-teens, roughly double the growth rate and at considerably better revenue capture than the overall ETF industry. And as seen in the dark blue bars on the chart, our organic growth all-in has steadily improved over the past five quarters reaching 4% in Q1, probably best-in-class.

Our more diversified products set and improved distribution platform has generated positive organic growth despite continued outflows from DXJ and HEDJ. While there will always be some volatility, the platform we have built should be capable of generating double-digit organic growth on a fairly consistent basis without excluding the impact of any of our funds. Our stronger recent growth and the bullish outlook we have can be directly tied to the initiatives we have undertaken over the past few years, focused on diversifying our AUM and positioning the firm to generate strong sustainable organic growth to a range of macro environments.

Today, our AUM is the most diversified it has ever been. As you can see in the pie charts, on the bottom of Slide 8, at similar total AUM levels, DXJ and HEDJ now represent just 12% of total AUM. We've built a platform that is truly balanced by product, asset class, client type and geographic region. We have transformed the way we reach clients and how we interact with them. We have expanded our distribution reach through platform relationships with the largest RIA custodians and the largest IBDs. Our differentiated solutions program allows us to have deeper conversations with advisors around the areas that they are looking for help; asset allocation, portfolio construction, retirement, behavioral finance and technology.

The combination of our solutions program and wider distribution is already having an impact on our organic growth. Our goals remain to generate strong, diversified and profitable growth, which should translate into attractive returns for our shareholders. While macro conditions the past few years have been challenging for our prior largest exposures, we remained focused on what we can control, the execution of our strategy. We've truly transformed our platform over the past few years to increase position for the next wave of profitable growth.

Thank you for your interest in WisdomTree and we'll now take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question or comment comes from the line of Craig Siegenthaler from Credit Suisse. Your line is open.

Craig Siegenthaler -- Credit Suisse -- Analyst

Good morning, Jono, Amit. I just wanted to start with the elephant in the room because many of us saw the press reports back in February with a potential merger between WisdomTree and a larger bank, and since this is the first sort of conference call since that, I'm just wondering what are your thoughts on the current operating environment and the ability to remain independent versus the benefits of a short-term sale?

Jonathan Steinberg -- Chief Executive Officer and President

Thank you, Craig. Good morning. So thanks for getting the elephant out of the room. So as we've already discussed, we have transformed our platform over the past few years into a truly global platform capable of scaling into multiples of our current AUM. And as I'd indicated in my prepared remarks, we believe that we have a platform and strategy that can drive at least double-digit organic growth, which would be a multiple or multiples faster of any of the other publicly traded traditional asset managers. So we really do believe in our strategy and our vision and ability to execute against that strategy, against the largest asset managers in the world. That -- and quite frankly, we do have built an irreplaceable platform. But that said, we fully understand our fiduciary duties and the need to generate shareholder value one way or the other. So we'll always do the right thing, but we are focused on our independent operating strategy.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you. And just my follow-up here. What are your -- I'm just trying to -- and I know this one is difficult to judge, but what is your view around the trough level of AUM for DXJ and HEDJ? I just want to see if there's is any insight to when we can see these outflows dry out?

Jonathan Steinberg -- Chief Executive Officer and President

First, if you want, I'll start maybe Jeremy Schwartz would like to participate also, but -- so, first of all, what's incredible for both DXJ and HEDJ, our market share against the other largest players in this space, we've actually seen our market share tick up for both HEDJ, which is still sort of 67% market share; it peaked at about 73% in 2016, but really the last couple of quarters, it's actually ticked up. And for DXJ, our market share is about 74%, topped at about 81%, but in the last couple of quarters, they've also ticked up.

So the industry both, hedged and unhedged, particularly for Japan, have been in outflow mode but we still have the liquidity asset and thought leadership in these strategies, and we expect that at some point, they will come back into favor.

Jeremy Schwartz -- Executive Vice President and Global Head of Research

And so I would just say, to supplement that, I mean, from three different points, we very much believe in the long-term merits of currency hedging. As Jono said, we are still the market leader and innovator and we continue to innovate and with a lot of excitement over our latest active executions, and finally the macro conditions may be turning more favorable just a little bit more on each point. Strategically, we still think most people get currency backwards, they hold contradictory views what they're actually doing themselves. They say they don't want to take on a currency call yet they default to being betting on the euro (ph) forever.

So we still think people -- there's a big opportunity, we're on the right side of history there and should be more hedged than they are, but we continue to innovate. So we launched dynamically hedged options, DDWM, three years ago, it has its anniversary, adding a three-factor model on top of our unhedged. It's beaten 97% of its peers; the small cap's, DDLS, beaten 88% of its peers. So these track records should build and garner more interest showing our thought leadership on Modern Alpha for international. But we've even expended there through these active executions international multifactor that adds a currency factor on top of our more active asset equities.

So we do think we can continue to build out that family with a lot of excitement. From the shorter-term macro side, we think -- as you think about why has international matter of favor, there's a global growth slow down, China trade concerns; China is now ramping up their stimulus and their economic initiatives are turning a little bit more positive. So if that trade deal comes together that could be very supportive for global multinationals in DXJ and HEDJ.

Jonathan Steinberg -- Chief Executive Officer and President

Thank you, Jeremy.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, guys.

Operator

Thank you. Our next question or comment comes from the line of Dan Fannon from Jefferies.

James Steele -- Jefferies -- Analyst

Hi, good morning. This is actually James Steele filling in for Dan. So just on the updated capital efficiencies, I assume this is an ongoing review that guys are doing on your discretionary spend, but just hoped you can maybe add some color to the $3 million where that's coming from and if we might expect to see additional revisions to this guidance?

Amit Muni -- Executive Vice President and Chief Financial Officer

Sure. So I'd say the cost savings came mostly from our discretionary category. As we continue to look for efficiency in our operations, leveraging technology, negotiating fees with our vendors. So this is an ongoing process that we always do. And I would expect, as we continue over the next couple of quarters, we are looking for more. So hopefully we will be able to talk about some more of that over the coming quarters.

Jonathan Steinberg -- Chief Executive Officer and President

But we're trying to balance the cost efficiencies but always with an eye toward maintaining our ability to invest in our growth initiatives. So it's a balance that we're always looking for.

James Steele -- Jefferies -- Analyst

Got it. And this is my follow-up. Looks like there's some industry news coming out of that (inaudible) structures. Just wanted to know if you had any thoughts on that or any other new structures that might potentially rival the ETF.

Jonathan Steinberg -- Chief Executive Officer and President

So this is Jono. I've been very vocal on my skepticism of the commercial viability of these non-transparent or semi-transparent, but if you're not transparent -- if you're semitransparent, you're not transparent, exposures to be very hard to commercialize themselves. They got it through, good for them, but not something that we're concerned with.

James Steele -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Chris Shutler from a William Blair.

Chris Shutler -- William Blair. -- Analyst

Hi, guys. Good morning. I just wanted to follow up real quick on that last point. Jono, I know you're not worried about it -- for passive products. But I guess, thinking about it from a broader industry standpoint, do you think that those new wrappers have an opportunity to take share from actually managed mutual funds? Is that -- do you think that could happen?

Jonathan Steinberg -- Chief Executive Officer and President

So we're extraordinarily excited about, it's fully transparent, active. So Jeremy was talking earlier about our multifactor suite for international and emerging markets using a dynamic currency hedge as one of our factors. We think that's the future of active, fully transparent. And then most -- even what we call Modern Alpha, which includes what some people would call smart beta, the absolute after-fee returns are off the charge relative to the active mutual fund. So again we think this is where the push for Alpha should be focused on from an investor standpoint. So we're -- I would not say what you're saying or what they're hoping for I think is a lesser execution that exists in the market today.

Amit Muni -- Executive Vice President and Chief Financial Officer

If I can add, Jono, if you think about the spectrum, on one hand of spectrum you have pure beta, on the other hand these active -- high-active share portfolios, and WisdomTree is watching those (inaudible) where if you think about our original dividends and earnings-related, fundamental-related (ph) processes, our core earnings family, which we rebranded this quarter, has a, let's say, our large cap has a 25% active share, a 2% (inaudible). It's closer to beta with an improvement on it, so it's a beta-like experience. Our latest multifactors are 85% active share, really going after the asset manager and getting more active in that execution. And so we do think fully transparent active will have a big place for us and we're going right after it.

Chris Shutler -- William Blair. -- Analyst

Okay. Thanks. And then my follow-up is actually on USFR, the big spike up inflows we've seen there over the last couple of quarters, good to see. Anyway to get a sense how much of that activity is sustainable kind of versus more temporary in nature? But obviously seen a big increase in money market and bond fund usage in recent quarters as investors are sorting their cash. So any sense how much of that is sustainable? Thanks.

Jonathan Steinberg -- Chief Executive Officer and President

So first on the security itself, I mean, it's really exciting for us is a (inaudible). We are the market leader in the space. And floating rate treasuries are becoming a growing importance for the treasury issuance. We know there's big tax and deficits, a $1 trillion of financing needs and the floating rate note is coming insides almost in equal amount to TIP securities. So when we think about TIPS is actually an interesting example where you have $40 billion in total ETF size and largest TIP ETF is $20 billion in size. Today, we have 80% market share in USFR for that securities, only two ETFs that have exposure to that security. And so we think last year was a great tax flow environment, but it has a true long-term core anchor of short-term bond portfolios. There's about $1 trillion in mutual fund in where it's competing. So we think there is a long-term strategic rationale that we can go after.

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

And this is Kurt MacAlpine here as well. And just from a distribution standpoint the distribution has been very broad and very diverse, so it spans virtually all of our client segments across all of our markets. So it's a very diversified underlying client base that's purchasing this strategy. In addition, based upon the demand that we've seen from our US structure, we actually recently launched the strategy and used it format a few weeks ago as well. So we expect demand for that to continue to scale up as well.

Chris Shutler -- William Blair. -- Analyst

Okay. Thanks a lot.

Operator

Thank you. Our next question or comment comes from the line of Michael Cyprys from Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Hi, good morning. Thanks for taking the question. Just hoping to get a little bit of an update on some of the distribution initiatives. I know you expanded some partnerships in the quarter. Just curious if you can talk about some of those recent initiatives and how are you thinking about new and innovative approaches to the distribution as we look forward from here?

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

Great. So it's Kurt MacAlpine here again. Why don't I take a moment to remind you some of the changes that we made to our distribution strategy over the course of the past couple of years and then we can talk about some new partnership that we've announced and also some new things in the pipeline. So if you think about the transformational changes we've made, there is really four different components to it. So the first is the foundational element around building an industry-leading data intelligence function, which we've talked about in the past that includes predictive analytics and things like IBM Watson to really help us identify and prioritize the client opportunities across both our distribution business but also marketing as well.

The second piece to that process is the striking these strategic partnerships, which is the hardier question, and we've done more of those over the past couple of years than any asset manager in the industry. And the objective and what has this allowed us to do is to make it easier than ever for clients to do business with WisdomTree than what they've ever been able to do in the past. The third piece then is to build this our award-winning Advisor Solutions program, which just allows us to go deeper with the individual advisors, the RIAs and independent firms. Then, what we were able to do historically, because we now have more things to talk to them about in addition to the individual product strategies. And then lastly we change our client coverage model and fully integrated our distribution and marketing teams into one integrated sales process.

So those are from a strategic perspective kind of the elements that we've put in place and a number of the changes that we've made. Specifically, on the partnership front, we continue to have a robust pipeline. I would say the most exciting announcement that came in the first quarter was the expansion of our relationship with Schwab. So we have increased the number of funds that we have available commissioned free on the Schwab platform from 21 at the end of February to 65 at the beginning of March. So it's really a transformational change for us in our relationship with Charles Schwab and early flows that we have seen and received from them have been very positive to-date. So I think as you look forward on the strategic front what you'll see from our is, we have a great pipeline of partnerships in the queue and we will likely be announcing some of those in the coming quarters.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. Thanks for that. Appreciate the color. And just as a follow-up maybe you could just give us an update on AdvisorEngine. How that's shaping up in terms of the pipeline there, and just any sort of expectations as we look forward from here in terms of growth and contribution from AdvisorEngine?

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

Sure. So it's Kurt here again. In terms of the AdvisorEngine, WisdomTree relationship couldn't be stronger. We continue to work together in a very collaborative manner going to market jointly, selling both the platform and the features that AdvisorEngine has in addition to our individual strategies and ultimately our model portfolios. Earlier this week, you might've seen a press release where we won a very important strategic mandate with a firm called IFP, where AdvisorEngine is going to be the underlying digital wealth platform and WisdomTree is going to be providing the model portfolio strategies. So we think that's a great case example of something that we just won in a very competitive process that positions both AdvisorEngine to be the core platform and WisdomTree to be the core provider of intellectual property, model portfolios and underlying strategies. So looking forward the plan is to continue down that path. We do have a great pipeline together and then we'll continue to work on executing on them.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. Thanks very much.

Operator

Thank you. Our next question or comments come from the line of Michael Carrier from Bank of America.

Bank of America -- -- Analyst

Good morning, guys. This is actually (inaudible) on for Mike. So it's clear you guys are focused on efficiencies, but can you just tell us some of the areas where you guys continue to invest and are you confident that investing is enough for future growth?

Jonathan Steinberg -- Chief Executive Officer and President

So this is Jono. Where we invest is in -- and again, it's perfectly phrased if we will call so efficiencies. So we've closed some funds, we're launching funds. We're investing in our people, we're investing in our partnerships. I mean, it's the area -- I mean, our's is a relatively simple business model. So we're just focus on the area that we've been focusing on for the last number of years. It's the same thing. Now, because much of the spend is behind us and because we been spending since 2006 consistently, we're farther along than almost most firms. I mean, others had said things about the prior question like the AdvisorEngine. If you haven't started this type of program, you are probably three or four years behind WisdomTree now in some of this execution. So these are the areas that we're putting our time and energy and dollars against.

Bank of America -- -- Analyst

Okay. Thanks. And then just given the level of competition in the industry for management fees and distribution, how do you guys think about the outlook for net organic revenue growth particularly ex DXJ and HEDJ?

Jonathan Steinberg -- Chief Executive Officer and President

So again Jono. We feel very strongly about our pricing strategy and our ability to deliver strong after-fee returns. I think pricing in general is trending down and we should continue to be generating superior fee capture relative to others. Now, some of this is just market sentiment related. So if emerging markets come back, it'll be in a bigger way or alternatives, there'll be at the higher end of these. If it's certain of our domestic fixed income, it might be at lower ends. Some of our more proprietary domestic fixed income would be sort of in line with our average fee capture today. It's just -- it's all variable. Each new vintage of fund is priced competitively with where the market is today. And then you have longer more differentiated product that should again continue to generate superior fee captures. So I feel very good about what we have done in the past and where we stand today.

Bank of America -- -- Analyst

Okay. Thanks.

Operator

Thank you. Our next question or comment comes from the line of Bill Katz from Citi. Mr. Katz, you may need to unmute your phone.

Jonathan Steinberg -- Chief Executive Officer and President

Well that was an easy one.

Operator

Okay. We'll go on to next one. Our next question or comment is from Alex Blostein from Goldman Sachs.

Ryan -- Goldman Sachs -- Analyst

Good morning. This is Ryan on behalf of Alex. Actually maybe kind of just bouncing off the question before Bill's. In terms of strong fixed income flows you've been having in the last couple of quarters, can you help us think about when that AUM bucket is going to kind of reach scale and how we should think about the puts and takes for the margin there?

Jonathan Steinberg -- Chief Executive Officer and President

Could you just repeat the part last part of that sentence -- the puts, I missed that last part.

Ryan -- Goldman Sachs -- Analyst

Sure. I guess what I'm just trying to get at is, as we think about the flow there, how that will impact incremental margin for the firm?

Amit Muni -- Executive Vice President and Chief Financial Officer

Obviously, the fixed income products are lower fees and so the revenue capture is lower, so the margin profile is different on those types of products. But I would say a couple of things. So first, we are -- we now have the ability to compete and gather flows in asset class and products that we didn't have products before, so we're able to gather flows. As as you can see that we believe that these are very either core allocations that can be large and very sticky. The second thing I would say is that, look, the operating leverage in the business is there. We have operating leverage in compensation, we have operating leverage in our fund cost, and as you've seen in the discretionary spending. So while the revenue margin profile be a little bit less, there is upside on the expense side of the business to gain operating leverage there.

Ryan -- Goldman Sachs -- Analyst

Got it. Got it. Thank you. And then maybe one on the commission-free platforms. So the additional fund at Schwab definitely a win for you guys. I'm just wondering we've seen all the ETF providers have their ETFs added to some commission-free platform. Does that dilute the impact of your funds being added to those platforms at all? Or is it enough demand that that kind of is an offset and should be beneficial to everyone?

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

So it's Kurt here. So I would say, you're seeing -- I think the first part of your statement is you're absolutely seeing a lot of activity and energy that platforms are putting behind offering commission-free access to ETFs, giving ETFs more prominent placement on platform than what they've seen historically. So I would say, as platforms to continue to open up the ETF opportunity and depending upon the platform they may not have been opened up before that creates opportunities for ETF sponsors to increase their shelf space in market share. This is an initiative we started earlier than most of our competitors and we're really pushing on it as much as three, four years ago, and I think we're starting to see the benefits of being kind of in front of this as opposed to on the back end of it. So if you look across the relationships that we have, we have preferred relationship with TD Ameritrade with the vast majority of our strategies available. We now have that exact same relationship with Schwab. We have an emerging relationship with Pershing where we have been adding more of our strategies to their commission-free platform and you really see as this kind of the first and only firm to date in the working across the IBD platforms offering commission-free strategies as well. So I would say as the platform continue to open up, we've demonstrated that we can be a good partner and certainly been additive to our business and very additive to the platforms themselves. So I think as firms continue to -- platforms continue to expand in the space, it's only going to benefit WisdomTree.

Jonathan Steinberg -- Chief Executive Officer and President

This is Jono. You talking about it from the perspective of benefits. So one of the elements that -- so there's a cost to being on the platforms but as they add competition other exposures that could reduce expenses or as they cut their own commissions so that -- what they're offering could also lower the expense ratio. So it's an interesting dynamic. It's not a one-way direction on the expenses and we always try to balance that cost analysis, and obviously, we really do strive for as much exclusivity as possible. But on a platform the size of Schwab, I mean, it's just net-net a great positive.

Ryan -- Goldman Sachs -- Analyst

Got it. Thank you very much. That was really helpful.

Operator

Thank you. Our next question or comment comes from the line of Brennan Hawken from UBS.

Brennan Hawken -- UBS -- Analyst

Good morning, guys. Thanks for taking the question. On the third-party distribution fees, you guys flagged that there were some one-time components to this quarter. Could you maybe help us understand how much of the $2.4 million was one-time in nature, so that we can get a sense for how the ongoing piece of that is running?

Amit Muni -- Executive Vice President and Chief Financial Officer

Sure. Yes. So I think the majority of the increase was sort of one-time fee that we are for onboarding onto the platform, but we think on a go-forward basis, it still will be 3.5% of the advisory fees. You may get a spike every once in a while as we onboard new platforms, but I think on a steady state you should see on a quarterly basis from about 3.5%.

Brennan Hawken -- UBS -- Analyst

Okay. And as my follow up, you guys have really flagged one-time fees when onboarding a platform before, so were these expenses that previously were borne and can you maybe help us understand what is really involved in these of one-time fees and how -- like how we should think about them?

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

So it's Kurt here. So if you think about the on boarding fees, every platform relationship that enter into is different. Some platforms and not all do charge a one-time onboarding fees from taking a fund in the commissionable format and making it accessible commission free across that platform. So what you see here as an increase in spike was a number of our funds going from non-commission free but available on a platform to that firm change in the infrastructure firms to make them available commission free. So that's really what you're paying for. So it's a point and time at which a single strategy either enters the platform our moves from commissionable to commission free. But once again, it depends on the nature and type of the platform relationship. So some have it and some don't.

Brennan Hawken -- UBS -- Analyst

Thanks for that color.

Operator

Thank you. I'm showing no additional questions in the queue at this time. I would like to turn the conference back over to management for any closing remarks.

Jonathan Steinberg -- Chief Executive Officer and President

I just want to thank you all for your time and interest and we'll speak to you next quarter. Have a good day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.

Duration: ?? minutes

Call participants:

Jason Weyeneth -- Director of Investor Relations

Amit Muni -- Executive Vice President and Chief Financial Officer

Jonathan Steinberg -- Chief Executive Officer and President

Craig Siegenthaler -- Credit Suisse -- Analyst

Jeremy Schwartz -- Executive Vice President and Global Head of Research

James Steele -- Jefferies -- Analyst

Chris Shutler -- William Blair. -- Analyst

Kurt MacAlpine -- Executive Vice President and Global Head of Distribution

Michael Cyprys -- Morgan Stanley -- Analyst

Bank of America -- -- Analyst

Ryan -- Goldman Sachs -- Analyst

Brennan Hawken -- UBS -- Analyst

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