SEIC
#About $3.5 million.
I think some of the largest firms, that is certainly the direction they want to head.
And I think we are seeing on the outsourcing side, we are seeing larger firms than historically we have sold to.
So I think Regions is an example of a larger firm.
A couple of years ago we moved SunTrust from ASP to BSP.
So we see in that what we call large or regional space a real powerful business model with outsourcing.
But the very, very largest wealth managers I think both here in the US and globally are looking to really run the operations themselves.
And so we think there is a pretty big market there.
We think there is opportunity to go to new segments within the wealth management space with that model and we are actively talking to both current clients and prospects in that space.
Not that much from a lower sales perspective.
It is really mostly any expense increase is really mostly tied to really two things, continued development as well as some of this infrastructure build for these two very large and important clients.
So the one time I think as we certainly sell more clients one time will increase and so we still have a ways to go to install Wells and there is one time associated with again large conversions particularly in the ASP space where we work on data conversion as well as integration to other systems inside the bank.
And again as we would announce additional large clients, I think there is an opportunity for that one time to continue to grow.
Dependent on how much we can sign in the coming quarters.
But yes, it is an increasingly important part of our revenue because there is a lot of work to be done and then an opportunity for us to drive revenue there.
Again, we have a decent amount of activity associated with the current pipeline, the current backlog and then it will depend as we sign bigger deals.
You know, it is hard to predict that.
We are spending a lot of time with our clients, we are talking to them about the future and the wealth platform.
I think that there are some smaller firms that may not necessarily have a growth strategy when it comes to wealth management and so we are seeing some of our competitors come in at fairly substantial price discounts.
But honestly where there is a growth agenda and a strategy to build out wealth management, I think we are in pretty good shape.
I think we have evolved our pricing model.
When we first started talking about the platform, we talked about a bundled model.
We have evolved that I think over time that there is pricing for sort of core functionality and then more a la carte pricing as clients would take advantage of some of particularly the front end.
We have also seen opportunities in the space around disaster recovery and data security where some of the larger banks want to significantly upgrade that.
So the pricing model has evolved but it remains still largely assets under administration based which I think is a win-win for everybody and I think our clients generally prefer that over the account-based model.
Our next segment is investment advisors.
<UNK> <UNK> will cover this segment.
<UNK>.
Thanks, <UNK>.
During the third quarter, we posted good growth in our traditional business.
At the same time, we continued significant progress toward the transformation of our business, one supported by the SEI wealth platform and the growth opportunities it holds for us in the future.
Assets under management were $55.1 billion at September 30, a 2.7% increase from June 30.
During the quarter, we had $690 million of positive net cash flow.
Revenues for the quarter were $85.3 million.
This compares to $81.9 million for the second quarter, a 4.2% increase.
Contributing to this increase were net positive cash flow, positive market returns, improved yields on money market funds and a shift from lower revenue liquidity products to higher revenue equity products.
Expenses for this quarter were up roughly 1% compared to the second quarter.
We experienced increases in the SEI wealth platform build and migration expenses but aggressively managed expenses in other areas to dampen the overall expense increase.
We will continue these efforts but it is becoming increasingly hard.
On the new business front, we signed 132 new advisors.
This is a slight increase from the second quarter.
Our pipeline of prospects remains strong.
Moving on to the status of the SEI wealth platform, we completed our largest migration at the end of September and now have $15.6 billion on the platform.
Significantly, we now convert about one-half of our new clients directly onto the wealth platform as opposed to Trust 3000 and expect to convert the vast majority of the new clients directly onto the platform by the start of next year.
Putting new clients directly onto the platform in combination with a migration of our existing book will now enable us to make significant progress in the migration of our entire business onto the SEI wealth platform.
During the third quarter, we also made big strides in enhancing both the advisor and end client experience on the SEI wealth platform.
For end clients, we have begun the rollout of our new end client website.
Initial feedback is very positive.
As for advisors, we continue to enhance their online straight through experience and now support functions like e-signatures, automated account maintenance and trade approvals.
Items like trade and cash management approvals are supported both through the desktop and tablet technologies.
In summary, we continue to recruit new advisors and gather net positive cash flow during the quarter.
Our third-quarter client migration onto the SEI wealth platform was a success and we are now converting new clients directly onto the platform.
In addition, our vision of a robust automated straight through experience is now taking shape.
I remain optimistic about our future prospects.
I now welcome any questions you have.
There is really two questions in your single question so I guess you really have three questions.
I want to answer the second question first but I will take this one.
There has been kind of the global fee pressure question which is sort of consumed within your DOL question, it is consumed in that.
But insofar as DOL is concerned I think the initial reaction to the DOL rule was a lot of people were reading it or saying that really this means lowest fee.
And the reality of it is it does not mean lowest fee.
And when you look at what the commentators have said and what a lot of the experts have said, it doesn't mean lower fee, it means level fee.
However, it does bring into the spotlight the fact that you have to show value for the fee you charge.
So it is not that you have to be reduced from 100 to 75 but you have to show the value that you give for 100 in the example you posited.
So if I look at fee pressure I would say it is not primarily driven by the DOL it is just overall fee pressure in the industry and I don't see the DOL being a major driver independent of this global trend of lower fees of being a separate driver.
I think we are migrating over to that as we speak and I think you will start to see some revenue from that next year.
And I think it is really going to gain momentum probably in 2018.
(technical difficulty) really begin somewhere around the second quarter next year but it is not going to make a material difference.
It certainly it hasn't hurt our recruiting efforts.
I think it has however taken up advisors' time because they are very concerned about this and they need to spend some time on what I would call more of an infrastructure issue as opposed to a growth issue.
So that does hurt us more with kind of the existing buyers than going out there and getting some slice of their time if you will to talk about our value add.
But I think that is the major.
Overall, the DOL since we are in the fee-based business is a good thing for us not the sea change we thought it was going to be but it certainly is more positive than negative.
We have not.
I mean to the extent you are talking about broker-dealers as opposed to people in our business, it probably impacts them differently because they are figuring out what to do with these giant books of advisors.
Some of the industry [guys] will tell you that those books of advisors that may not be viable in the new model.
Well, we have started that process.
I think the two gating factors are the degree, the volume of new clients we have in the wealth platform because it only applies to the wealth platforms and then the degree to which we want to go whole hog in turning out these.
We are converting advisors over and we are trying to transition them over to a new pricing model.
So that takes some time.
We did not charge for this in the past so this is not like everybody is saying ---+ wow, I am excited to pay more fees.
By and large, the majority, the clients we recruit are shifting over to us as a new provider and send us all their new business.
It is not that they take their existing book and shift it over to us wholesale from the get-go.
So part of the strategy is we tried to get them to shift us new business, we try to prove ourselves in terms of the value that we can add to the practice, then we try to look at their existing business and look at pockets of that existing business that make sense for us to say look, this would be better for your clients, it would be better for you if you can move over that pocket of business.
But it comes in chunks, not all of once if that makes sense.
Thank you, <UNK>.
Our next segment is the institutional investors segment.
I'm going to turn it over to <UNK> <UNK> to discuss this segment.
Thanks, <UNK>.
Good afternoon everyone.
I'm going to discuss the financial results for the third quarter of 2016.
Third-quarter revenues of $76.2 million increased 2% compared to the second quarter of 2016.
Capital markets performance and net client fundings of $550 million positively impacted revenue for the third quarter 2016 compared to the second quarter 2016.
Currency translations negatively impacted third-quarter profits and client losses due to acquisitions negatively impacted third-quarter net fundings.
Quarter end asset balances of $81.4 billion reflect a $2.8 billion increase compared to the second quarter.
The unfunded client backlog at quarter end was $1 billion.
Third-quarter 2016 operating profits of $39.3 million increased 3% compared to the second quarter of 2016.
Third-quarter 2016 margins were 51.5%.
Client signings for the third quarter 2016 were $1.2 billion including a new large market UK fiduciary management client.
We anticipate making continued investments in executing our strategy to grow our defined contribution and foundation and endowment businesses and expand our global footprint into new markets that will embrace fiduciary management, OCIO, or standalone investment strategies.
Thank you very much and I would be happy to entertain any of your questions.
Yes, that is correct, <UNK>.
We have always had that reality as we go up market, when we have a fiduciary management fee or OCIO fee.
The client is going to have more leverage with us than they would with our competitor.
So that has been in existence for some time.
I think what is different in the institutional market now with OCIO firms is fee transparency.
So us segregating our fee and then us also showing what the cost of the implementation would be.
So that has some possibility for margin erosion but it has just been minimal to date.
What the benefit is for us is with the leverage that we have, $80 billion of assets under management, the cost of our delivery for the independent managers usually is far lower than what our competitors can bring.
So therefore when we add up a total cost, it is really a compelling story A versus status quo; and B versus the competitive framework that we are operating in.
So transparency is certainly a reality across all of our market segments but in this case it has actually been helpful in being able to showcase the difference vis-a-vis status quo and also versus competitors.
So the size of our DC business is $8 billion of the $80 billion so roughly 10% of our assets under management.
Our increase is larger than that for this year's contributions, probably closer to 20% of our contribution.
Probably the biggest hurdle is when you sell DC you have to sell to the sponsor and the sponsor has to sell to the participants.
So in a DV, an endowment, a foundation, a healthcare you are just selling to the investment committee.
Here you have to have two sales where we have to sell a sponsor they have to sell to the participant.
So consequently the decision tree will just go on longer and the conversion cycle may take a little bit longer.
But the real positive is this segregation of record-keeping from asset management and the fact that people are looking to simplify the menu, they are looking to go to custom target date and they are looking to move away from brand.
And that really speaks volumes for firms like SEI who have a heritage of building these diversified portfolios and combining our unique asset allocation to come up with custom target dates for the QDIA.
So I hope that answers your question.
So the decision around a customized target date would be whether or not they provide a defined benefit plan and whether that is open or active, closed or frozen and whether we need to incorporate those benefits that a retiree would be getting or a participant would be getting in conjunction with the DC.
And whether or not there is some specifics with regard to their demographics as far as risk tolerance and risk appetite that would warrant custom.
And then the last thing would be size.
If they are sizable enough to go custom, custom will usually result in lower overall fees.
So those are really kind of the decision trees there that a sponsor would go through in making that evaluation.
Nobody wants to talk about DB anymore.
But we still think that is healthy.
But I realized it was on DC.
Thank you.
Our final segment today is investment managers and I'm going to turn it over to <UNK> <UNK> to discuss this segment.
Thanks, <UNK>.
Good afternoon, everyone.
For the third quarter of 2016, revenues for this segment totaled $75.7 million which was $4.7 million or 6.7% higher as compared to our revenue for the second quarter of 2016.
This quarter-over-quarter increase in revenue was primarily due to new client fundings and market appreciation.
Our quarterly profit for this segment of $27.1 million was approximately $3.1 million or 13% higher than the second quarter of 2016.
This increase in profit quarter-over-quarter was driven by the increase in our revenues offset by an expense increase of $1.6 million largely due to implementation costs and incremental personnel expense needed to support our new client wins.
As you will recall last quarter we pointed out that our expenses would uptick over the next several quarters as we increased our expenses in support of our new revenue implementations.
While this quarter's expenses were up modestly, this was less than expected mainly due to timing.
Looking forward, we do expect that our expenses will uptick again in the next few quarters as we continue to implement previously sold business and bring on additional new business.
This increase in timing will be in line with the range that <UNK> provided in his comments.
Third-party asset balances at the end of the third quarter of 2016 were $451.2 billion which was $32.1 billion or 7.7% higher as compared to asset balances at the end of the second quarter of 2016.
The increase in assets was primarily due to net new client fundings of $27.5 billion combined with market appreciation of $4.6 billion.
Turning to market activity, during the third quarter of 2016, we had another strong sales quarter.
Net new business sales events totaled $9.3 million in annualized revenue.
These sales were comprised of new name business and expansion of existing business with current clients across all our segments.
These events include a competitive win of a large, middle and back office outsourcing mandate by a large traditional manager as well as several new competitive wins in the private equity outsourcing market.
Additionally, we continue to see strong demand for our comprehensive outsourcing platform and the market is telling us that it is differentiated.
We are further encouraged by the opportunity we are seeing with our new solutions that we are investing in such as our compliance and regulatory platform.
So in summary, we are in the midst of implementing new clients and revenue, expanding our solutions and platforms for continued growth and investing in our future.
Our pipeline remain strong and we remain optimistic in regards to our future opportunity.
I will now turn it over for any questions you may have.
Do I have to.
You don't disappoint me, Rob.
No, our backlog, if you remember back to Q2 I said it was around $46 million, it remains around $46 million.
We did fund some.
We are still funding some that are in implementation phase and conversion phase.
But obviously with the new wins in the quarter, we filled it back up.
So the good news is we are seeing the fundings.
I think this quarter spoke for that and we still are winning new deals to put more into the backlog.
I think that is still going slower.
I think it is just really a result of the market.
It is just slower outside the US right now.
With that said, we are seeing an increased activity ---+ and when I see the activity kind of from an RFP client fall spike up, it is something I would expect that results would follow.
Thank you, <UNK>.
Now I would like <UNK> <UNK> to give you a few Company-wide statistics.
<UNK>.
Thanks, <UNK>.
Ladies and gentlemen, we feel that we are making significant progress throughout the Company.
Our sales activities and backlog are strong even though the new business we have garnered with larger clients require investment ahead of revenues.
Now looking ahead, we will keep our focus on sound execution across the Company while we work to increase our rate of growth.
That concludes today's session and thank you very much for joining us.
Have a good evening.
