SEI Investments Co (SEIC) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SEI fourth-quarter 2015 earnings conference call. (Operator Instructions)

(technical difficulty) and CEO, Al West. Please go ahead.

Thank you. Welcome, everybody. I'd like to begin this call on a sad note. Earlier this week Rick Lieb, current Board Director and past employee of SEI, passed away suddenly. Let's honor his 40 years of contribution to the Company with a moment of silence. Okay; thank you.

All of our segment leaders are here on the call, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. Now I'll start by recapping the fourth-quarter and full-year 2015; I'll then turn it over to Dennis to cover LSV and the Investments in New Business segment. After that, each of the business segment leaders will comment on the results of their segments, and then finally Kathy Heilig will provide you with some important Company-wide statistics. As usual, we will field questions at the end of each report.

So let me start with the fourth-quarter and full-year 2015. Fourth-quarter earnings increased by 6% from a year ago. Diluted earnings per share for the fourth quarter of $0.48 represents a 7% increase from the $0.45 reported for the fourth quarter of 2014.

For the year 2015, our earnings increased by 4% over 2014 earnings. Diluted earnings per share of the full year of $1.96 is a 6% increase over the $1.85 reported in 2014. We also reported a 4% increase in revenue from fourth-quarter 2014 to fourth-quarter 2015, and a 5% increase for the full year from 2014 to 2015.

Now also during the fourth quarter 2015, our noncash asset balances under management increased by $4.9 billion. SEI assets grew by $3.5 billion], and LSV's assets grew by $1.4 billion. For the year, assets under management fell by $3 billion, SEI's assets grew by $1.3 billion, and LSV's assets fell by $4.3 billion.

Finally, during the fourth-quarter 2015 we repurchased approximately 1.5 million shares of SEI stock at an average price of $52.78 per share. That translates to over $77.5 million of stock repurchases during the quarter. Now for the entire year, we repurchased approximately 6 million shares at an average price of just under $48.60 a share, representing just under $290 million of repurchases.

Now, between our stock buybacks and cash dividends during 2015, we returned approximately $370 million in capital to shareholders. During the fourth quarter, we capitalized approximately $6.9 million of the SEI Wealth Platform development and amortized approximately $10.8 million of previously capitalized development.

Turning to our sales, net new recurring revenue sales during the quarter were solid. Of the $27.2 million of net new sales events we generated during the quarter, $24.6 million are recurring revenues. Each of these segment heads will address their fourth-quarter sales activity. For the year, we sold $124 million in net new events, of which $100 million were net recurring revenue events.

As we look ahead at the start of 2016, the volatile capital markets promise to be a challenge (technical difficulty). In addition, as you know, we made a decision to augment the resources we have on the SWP's development, operations, installation, and service teams, particularly those related to the Wells Fargo event. This extra allocation of resources are necessary to prepare Private Banking for the conversion of Wells Fargo Bank and other large and medium-sized banks and will allow us to migrate more banks from TRUST 3000 to SWP.

In the fourth quarter, the Advisor team migrated a number of larger, more sophisticated Advisor clients to SWP. And the success of that migration confirmed our processes so that, like banking, the investment in SWP and its infrastructure will allow a more aggressive migration of clients from TRUST 3000 to SWP.

Now in the IMS section -- segment, excuse me, new investments are being made to prepare for the installation of large new clients. These clients are those we recently signed and those who are in late stages of a sale.

In the Institutional segment our strong sales throughout the world serve as living proof of the strong market adoption of our differentiated fiduciary management solutions. The Institutional business also has a number of market segment opportunities we are now focusing on, the newest being fiduciary management of defined contribution plans.

In summary, all of our business lines face significant headwinds due to the capital market's recent decline. We hope that abates; but regardless, we will follow through with our plans to invest in our strategic growth initiatives.

More than ever I am encouraged by the feedback I receive from clients and prospects across our Company's target markets. Our reputation for delivery remains intact, and the sales activities and events in all units confirm the positive feelings in our client bases.

Now, that concludes my remarks, so I will now ask Dennis to give you an update on LSV and the Investments in New Business segment. I'll then turn it over to the other business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the fourth-quarter results for the Investments in New Business segment, discuss the results of LSV Asset Management and a few other items of note for the Company during the quarter.

During the fourth-quarter 2015 the Investments in New Businesses segment continued its focus principally on two areas: the ultra-high net worth investor segment and the development of a web-based Investment services advice offering coupled with the use of mobile technologies. During the quarter, the Investments in New Business segment incurred a loss of $4.5 million, which compares to a $3.8 million loss during the fourth quarter of 2014.

The uptick in loss represents our increased spending on our web-based advice solution. We do not expect any material change in this segment during the year.

Regarding LSV, our earnings from LSV represented our approximate 30% ownership interest during the fourth quarter. LSV contributed $32.1 million in income to SEI during the quarter; this compares to a $35.3 million contribution for the fourth quarter of 2014.

During the quarter, asset balances grew by approximately $1.4 billion due to increased market valuation, offset by negative cash flow during the quarter. Revenue was approximately $101.3 million, of which approximately 6% was performance fee related.

Corporately during the quarter, our tax rate benefited from state tax work, resulting in a refund of approximately $3.7 million. In addition, as I had referenced in prior calls, stock-based compensation expense during the fourth-quarter 2015 increased $1.29 million primarily from the acceleration of expense recognition for stock options that achieved performance vesting targets earlier than originally estimated.

Also, you will note on the earnings release we mentioned the move to our new London office. This increased our cost during the quarter by $1.6 million due to supporting both the new and old locations during the period.

I will now take any questions you have.

(Operator Instructions) Chris Donat, Sandler O'Neill.

Hi, good afternoon; thanks for taking my question. Al, just wanted to ask you about the additional investment spending around services. Is this something that you expect to go on for a couple quarters, or several quarters, or is it done? Just trying to gauge how much and for how long we should expect some elevated expenses.

Probably it's at least two years. It will ramp up during 2016 and then hit a high, and then hopefully we'll be able to ramp them back down.

Okay. And it's tied to the migration; so once migrations are complete, then it will likely abate a bit?

That's correct. But it is also for new clients as well, our new clients on SWP. While Wells Fargo is a client, they are acting like or we're treating them like a brand-new client, with a very extended version period.

Understood. Okay, thank you.

Chris Shutler, William Blair.

Hey, Dennis; good afternoon. Could you call out what the LSV flows were in the quarter? And did capital gains not reinvested impact that number at all?

Their cash flows were negative just a little bit over $1 billion. Most of that was from existing clients just reducing their position.

Okay.

Not so much from -- they lost a couple of accounts, but nothing significant.

Okay. The pipeline there, any color on how it looks from your perspective?

Well, what the market takes away in some of their products opens up capacity. So I think their ability to sell unfortunately improved in certain areas.

But overall, I think in particularly their large-cap strategies they continue to have success selling, so they did add new clients during the period. They continue to have good success outside the US and -- as their performance continues to hold up, even with the challenges value investing is -- the value segment of the market has been under, particularly throughout the entire year, frankly, at this point.

Yes.

So I think they feel like they continue to grow through the addition of new clients.

Okay, great. Then maybe just remind us on the performance fees, the outlook for Q1 there, how it typically trends.

Yes. Q1 is usually on the lower end of the spectrum. The bigger quarters are usually Q2 and Q3.

Okay. Thank you.

(Operator Instructions) Robert Lee, KBW.

Great, thanks; good afternoon, everyone. Good afternoon, Dennis. A quick question just on the move within London. I just want to make sure I understand it.

In the quarter, you had some moving costs and were paying I guess two rents. And then you mentioned starting, I guess, in 2016 there will be $700,000 a quarter of expenses related to the new location.

Is that -- I guess that's $700,000 over and above what you are paying for the last. It's not like that's $700,000 and then there's some other expenses that fall away, or -- I just want to make sure (multiple speakers)

That's right. Yes, it's $700,000 over what we were paying for the old facility.

Okay.

So the old facility will be roll off January 1. And if you take that $1.6 million out and add $700,000, so --

Okay, great; that's helpful. Then just curious. I think in the commentary you mentioned that LSV impacted a little bit I think in the quarter, both with some personnel costs and whatnot. Is there -- can you maybe update us -- is something, anything going on at LSV in terms of maybe are they going through a period of expansion or ramping up personnel costs, or anything that may pressure their marginal a little bit? Aside from market movements, just pressure their expense levels.

Well, I didn't mention that in my commentary, but I'll turn it -- I'll accept it as a question. Over the course of the year -- and it really started in 2014 -- they started to look at their compensation structures for their employee base and started to -- I guess the simplest -- say they improved those compensation structures. We, as obviously one of the larger outside partner, we certainly support that, because maintaining and retaining key talent is important to sustaining and growing the firm. So that's had an impact on our net profit take because it's impacted their cost of operations, if you will.

Part of that's in lieu of the fact that transferring partnership ownership interest is a little bit more -- is always a little bit more challenging. So rather than attacking the problem through continued partnership distributions, they've done it more through just straight-up compensation.

Okay, great. That was it. Thanks for taking my questions.

We have no further questions in the room currently.

Thank you, Dennis. Im' going to turn it over to Joe Ujobai to discuss our Private Banking segment. Joe?

Okay; thank you, Al. I'll start with an update on fourth-quarter and full-year financials for the Private Banking segment. Fourth-quarter revenue of $113.7 million was down slightly from the third quarter. 2015 annual revenue of $456,500,000 is up 3.5% from 2014.

Quarterly profit of $11 million is down slightly from the third quarter. 2015 annual profit of $45.5 million is up 9% from 2014.

Revenue and profit for the quarter were impacted by lower investment processing, one-time revenue, and market volatility and our asset-based businesses. Revenue and profit for the full year benefited from growth in investment processing and asset management recurring revenue while we continued investment in the build of the SEI Wealth Platform.

Net sales events for the quarter were $3.7 million, of which $2.2 million is recurring investment processing revenue. Included in the quarterly sales event number is a newly signed SWP client, Mass Mutual Trust. Mass Mutual will convert from a competitive system and will be consuming the full complement of SWP services in the BSP delivery model.

Net sales events for the year were more than $47 million, of which 55% is recurring revenue and 45% nonrecurring revenue. As you all know, during the summer we reached an important milestone in our business with the signing of Wells Fargo Bank to convert to the SEI Wealth Platform. We have been hard at work with Wells from even before the contract was signed on the conversion program.

In the US, we've seen momentum with SWP prospects, both with current TRUST 3000 clients and new business opportunities. In the UK SWP business, we focus on growing and proactively re-contracting our clients as well as progressing the sales pipeline. We continue to experience organic growth from our client base.

Net cash flow from current UK clients to SWP was approximately $1 billion for the quarter and $5 billion for the year. UK assets under administration now exceed $37 billion.

During the year, we re-contracted many of our clients, including key firms such as BRUIN's, Tilney Bestinvest, True Potential, Fusion and Towry. We're working to re-contract the rest of this year.

In our asset management distribution business, assets remained relatively flat from the third quarter at $18.1 billion. Market volatility has impacted cash flow.

Overall, I am pleased with the progress we made in 2015, and we will continue to execute our strategy in 2016. To grow the Private Banking business, we remain focused on the following areas.

Number one, executing the Wells Fargo Bank conversion plan. This includes the continued buildout of scale on the platform for Wells Fargo and other large prospects, the build towards our software-as-a-service delivery model, as well as client conversion and change management programs.

Number two is progressing sales activity in all our businesses. We are encouraged by our progress with important prospects for both our SWP and the asset management distribution businesses.

And finally, growing our current clients. We're also focused on helping our current clients grow their business and convert additional books of business to all of the SEI solutions.

In summary, as we implement Wells Fargo and sign and install other large prospects, we will continue to make investments in our SWP offering to meet the market opportunity. Much of that investment is occurring ahead of recurring revenue recognition.

Market headwinds will also impact profitability of some of our revenue, as you know, is asset-based. Finally, quarter-by-quarter margins will be variable while we are making progress in executing our strategy.

At this time I will take any questions.

(Operator Instructions) Tom McCrohan, CLSA.

Hi, Joe, and condolences to everyone on Rick Lieb's passing. Yes, Joe, in terms of the margins for the quarter, can you parse out how much of the decline was from incremental investments, market sensitivity? Is there any way to quantify those two impacts?

Well, as I mentioned, the revenue went down a bit because of we had a little less one-time revenue in the quarter, and we saw some other hit to our revenue that's associated with assets under management -- our mutual fund trading business. So we had, as you know, a little bit of a revenue downtick in the quarter.

Then on the expense side, it's largely due to continued investments in the platform. We're investing in a couple of areas.

So we're certainly building out more software to scale the back office and to deliver the highly value-added front-end services. We're investing and hardware and software infrastructure as we look to bring on a lot more clients. And we're also investing in other services that we think are valuable and that can drive revenue and profit for us around risk-related services, like enhancing the DR capabilities, enhancing information security.

So there's investments across the board and that really is probably the bulk of the increase in expense.

Do you believe these investments need to be completed before you convert additional prospects in the pipeline?

Before we convert, say, the large prospects or before we convert the large clients like Wells, I think that the prospects are aware of our commitment to these investments and that helps in the sales process.

Has the market volatility impacted at all in any way the conversations you are having with your prospects?

Not really; not yet. I think certainly it distracts people, but we're not talking about a situation like we had in 2008 and 2009.

Yes, hopefully things will stabilize. And time will tell; we can't predict what the market's going to do.

Okay. Thanks, Joe.

Glenn Greene, Oppenheimer.

Thanks; good afternoon, Joe. Just a few questions. First one maybe on the Mass Mutual win. Could you just give us a sense for asset size, and a little bit of color behind the decisioning, and where they were, and how it ultimately came to be that they made the decision to flip from somebody else to you.

Yes, I can't give you the asset size, because we are under confidential agreements with our clients. But I can tell you that as we are rolling the sales out in the US and even in the UK we're looking at, I would say, some nontraditional opportunities for us.

As you know, they're a large insurance company and they have in the last couple years focused more heavily on wealth management. They've identified MassMutual's trust with the channel that they distribute -- they use for distribution to higher net worth clients with inside their firm.

They put some strategic focus on that. They have grown the business over the last couple of years and came to the decision that they wanted a more robust infrastructure. So they've moved from a competitive solution that was a BSP service run by, again, a large bank competitor; and they felt that the SAI Wealth platform would best meet the needs of their growth strategy.

Okay. Then as it relates to the Wells Fargo integration, you're probably well into it now and obviously a long time to get it completed. But I guess the observations, which you've kind of -- any surprises as you've gone through it? Or is it moving along as you thought? Obviously we're early on in this.

Absolutely. We are really early on, although we did start this before the contract was even signed. I think we're meeting the milestones, but we have a lot of work ahead of us.

But I think so far so good. As you know, they are a long-term partner of ours and I think that makes it a situation that we believe will be very successful over time.

Maybe just at a high level, some color commentary regarding the market and the response to the Wells deal, from both an existing client, large clients that you have, their desire to maybe make the decision to convert to SWP at some point sooner rather than later. And also prospects that are new logos potentially to you, has it been a wake-up call?

Yes, you know it's certainly been a positive impact to the prospects as well as to the current clients that may -- hadn't been considering it, to happen quickly. So our conversations have certainly elevated across the board, both with prospects and with the new name.

It still takes a long time to sign contracts. But it does make the move towards SWP a lot more eventual for our clients.

And then just a final one real quickly, directionally the level of profitability from the AMD business in the quarter?

Let me look at that real quick. I think pretty flat.

We ended the year down; we had a tough cash flow quarter. We had a better -- we had a pretty solid cash flow quarter in the first half of the year. We had a tougher cash flow quarter in the second half of the year.

A lot of that underlying expense is related to revenue with a sub-advisor. So I think we're pretty flat.

You mean flat in terms of year-over-year profitability from a full-year perspective, or Q-to-Q?

Yes, yes. For both really, and for year-over-year and from quarter-to-quarter. We have invested also in that business by building a stronger salesforce, because as we've talked about over the past several calls we think there's a huge opportunity for us.

So again some of that investment of the buildout of the salesforce occurs before the recurring revenue kicks in.

Okay, great. Thank you.

Robert Lee, KBW.

Thank you; afternoon, Joe. Just curious on the re-contracting in the UK. Curious what your experience was, since this is I guess in some ways really the first round of re-contracting those clients.

How did you find the pricing experience? Did the things you're pricing off of actually change to maybe more or less asset-based now that you've all -- both sides have lived with the contracts for a few years? Just curious what the experience was.

You know, I was expecting that question, so it's something I've been looking at over the last several months. It really is a case-by-case basis.

I'm pleased with the contract terms and the rates, the re-contract terms and the rates. In fact we were proactive: some of these contracts weren't expiring, but we felt that it was good to go out and do a couple things.

In some cases, our clients got acquired by other clients, so Towry had purchased a couple of our clients, so part of that we wanted to do was clean up contracts and simplify things.

In some cases we were able to sell new services that didn't exist when we first negotiated the contract. In other cases, we were able to get extended term, additional books of business committed to us.

So I think overall I'm quite pleased with the outcome of that proactive re-contracting. And I think that the value of our service has over these last several years really proven itself in the market.

Would it be fair to say that, everything being equal -- I mean I know for example, for many years TRUST 3000 they were -- definitely through some re-contracting cycles there was some fee pressure and stuff. So did you -- obviously this is different.

But all in all, it was existing clients. It wasn't like you're seeing revenue hits at existing clients. It was maybe more --

There is always fee pressure, and again it's a case-by-case basis. So when there's fee pressure we try to alleviate that, again, by contracting for additional books.

In some cases actually changing the service model. So there are certain things that over time we recognize cost us more money to do.

Their example is the amount -- the different asset types and number of asset types in the portfolios. So we certainly learn from all of that. We try to understand the profitability of each account, and we entered each re-contract knowledgeable about that.

But I think overall I'm pleased with the outcome. And we were able to really combat most of the fee pressures through other levers.

Great. I know the cash flows from that business remain pretty positive. I'm just curious. Is there any kind of metric around books of business, size of books of business that you're expecting to convert over the next two years that are -- from those clients?

The organic growth of these clients historically has actually been pretty good, and so I'm pleased with that. We talked in the beginning about clients that converted a small part and then had to take more time to convert their whole book. For most clients, that's turned out pretty well.

And again that sort of evened out amongst the client base, so we see growth there. Again, as the platform has matured, there are other areas of business that may have been as obvious to convert, and we're now able to go in there and get commitments to convert whole books of business.

So again, that's -- I'd always like more, but I think in general we're making progress. I think it's the confidence that the clients there have in us as their partner as well as the quality and the services we provide.

Thanks for being patient; just one last question on the cash flows from the asset management business. I know you said they were pretty negative. Is it possible to just quantify what the number was in the quarter?

Yes, I think we were down a couple -- $200 million or $300 million. I think in the third quarter I said to you that we saw some cash flow slowdown in emerging markets and non-US, and a pretty significant portion of our business is outside of the US.

We saw that more broadly across the book in the fourth quarter, particularly as some of the higher net worth investors went to the side. But again we've got a strong salesforce and we have good long-term relationships with a lot of these clients. I think this is an important business for us and a growing business for us going forward.

Great. That was it. Thanks for taking my questions.

Chris Shutler.

Hey, Joe. Just one; I just wanted to ask about the expenses and the comment earlier that we should expect expenses to rise for the next few years, which isn't shocking by any means. But can you give us any more color on how we should think about the magnitude of that expense increase, and I guess the incremental professional services or one-time revenue that should come along with that, which would I think offset or more than offset some of that expense?

Just trying to get a sense of looking out a couple of years, whether margins in this segment should be higher.

Yes, I think looking out over an extended period of time we fully expect margins in the business to be higher. we are seeing that, for example, as we look at our UK business and as we have a pretty solid solution there to meet the needs of the current clients and a lot of the prospects. So we are seeing improvement there. So I feel good that we know how to do this.

I think that the investment you're going to see over the next couple years is, as I said, tied to a couple things. There is some investment that is tied to the actual conversion of clients, and some of that can be covered by these one-time professional services fees.

But we're investing in I think longer term, a longer-term commitment to the business. I mentioned earlier scaling the back office, building out the higher added-value front end. Some of that will get funded by clients, as they help us enhance and evolve a solution.

Again, investing in scale around the hardware. We expect to run over time millions of accounts, not hundreds of thousands of accounts, and there's ways for us to drive scale. We have to invest in that before recurring revenue occurs.

Again, new services like advanced disaster recovery, more robust data security, in some cases we can charge discretely to the clients for that. So these are all investments I think that all simply certainly grow our revenue and get us back to this profit -- to the profit margin we had become accustomed to.

It's really hard to predict the exact timing of that. But I think that the opportunity in the market certainly warrants the investment we're making.

All right, thank you.

Tom McCrohan.

Just as a follow-up in connection to the investing that's occurring, are any of these investments that you're making tied to commitments or incremental commitments from prospects or existing clients? Like, for example, Wells agreeing to migrate more portfolio assets onto the platform if certain investments are made.

The commitments are really tied -- or the investment is really tied to having a large business with a global wealth management -- and inside the global Wealth Management segment. So there are commitments being made around software-as-a-service versus the BSP model that we initially delivered to clients on the platform. There are commitments around our clients and prospects scaling their business, and there are certainly commitments around entering new opportunities like insurance and higher net worth clients and non-trust, nonfiduciary clients inside of our prospect base.

I think be mindful, we're managing expense very tightly. And when we make these investments, those investments are tied to the opportunity to grow revenue and to get back to a bigger margin. So we evaluate every one of those investments very carefully before we make it.

Thanks.

Patrick O'Shaughnessy.

Hey, good afternoon. One quick question from me to follow up on these expense questions that you've been getting. Is it conceivable, given the market headwinds and given the investments that you are making, that segment operating margin could be down in 2016 versus 2015?

Yes, absolutely; that is conceivable.

All right, thank you.

And with that, there's no other questioners in the queue. Please continue.

Thank you, Joe. Our next segment is Investment Advisors, and Wayne Withrow will cover this segment. Wayne?

Thanks, Al. In 2015 our sales momentum continued as we received $5.1 billion in net positive cash flow, including $1.5 billion in the fourth quarter. Our net cash flow in 2015 represented our best year since the year 2000.

Revenues were $307 million for the year, while fourth-quarter revenues totaled $79 million. Fourth-quarter revenues were $2.4 million better than the third quarter of 2015, driven by net positive cash flow and market appreciation. Our quarterly improvement of $5.7 million from the fourth quarter of last year was driven solely by positive net cash flow.

Expenses were up in the fourth quarter versus both last year's fourth quarter and the third quarter of this year. Increased expenses associated with our growth as well as increased costs associated with the SEI Wealth Platform were the primary driver of these increases.

From a profit perspective, expense growth outpaced our revenue growth, resulting in a slight decrease in profit from last year's fourth quarter. Reinvestment to support current as well as future growth opportunities, together with increased development and migration costs for the SEI Wealth Platform, drove our increase in expenses. We continue to invest where we see opportunity, even if this investment comes before the revenue growth we expect it to yield.

Assets under management were $51 billion at December 31, an increase of $2.4 billion from September 30. The increase was due to net positive cash flow, aided somewhat by market appreciation.

Year-over-year our assets grew by $4 billion. This was driven by net positive cash flow, offset slightly by negative markets.

During the quarter we recruited 288 new advisors, bringing our total for the year to 885. Our pipeline of new advisors remain strong.

As some of you are aware, one of our competitors, Curian Capital, decided in the summer of this year to exit the business. While we have not actively recruited all Curian advisors, we have sought out those that meet our profile. During the third and fourth quarters of this year we signed 195 new Curian advisors and brought on approximately $1.3 billion in assets from the Curian affiliated trust company. We are still seeking to grow Curian advisors.

For 2016 we will concentrate on three main areas. First, we are focused on the rollout of the SEI Wealth Platform. In 2015, we converted our first non-beta group of clients. We expect to convert two larger tranches of clients in 2016.

Second, we will continue to focus on new advisor recruiting and growing those advisors we have on our platform.

Third, we will work to continue our net positive cash flow. To this end, we are planting additional seeds by creating new sales territories and adding additional sales resources in 2016. They will take 6 to 18 months to develop; for example, in 2015 we saw positive results from the additional sales resources we added in 2014.

In summary, 2015 reflected our continuing growth. Our goal in 2016 is to accelerate the SWP rollout while increasing our salesforce in response to the net positive cash flow we have been building.

Turbulent capital markets and the upfront investment required to achieve these goals may make near-term results challenging. But we are confident in the long-term opportunity in front of us.

I now welcome any questions you have.

(Operator Instructions) Chris Shutler.

Hey, Wayne. Revenue in the quarter looked really good, up 8%; expenses, continuing the theme, were elevated. Can you just help us think through what percentage or to what extent the expenses were higher due to incentive comp associated with the strong recruiting results, and how much was SWP or other spending, and how those should trend going forward?

Yes. What I would -- I think the bigger driver was increased compensation expense and increased expense associated with just the activities to support new business. The Wealth Platform expenses were definitely up, but they were not quite as big as in the other area.

Coming out of the year, you sort of reset goals, and we would reset how we would expect those sales comp, incentive comp numbers would be earned. But we do expect to see additional Wealth Platform expenses going into next year.

Okay. Then thus far in January can you just give us a sense of what you are seeing advisors doing so far, given the market volatility? Has there been any rotation into fixed income or cash that you've noted, that might impact the net new assets or fee rate?

Yes, I guess what I would say is -- keep in mind this is basically a three-week sample, since the year started January 4.

Understood.

So I would say, we are seeing slowdown somewhat in cash flows. People stand around and see what's going on. But again, it's a three-week sample and I wouldn't want to draw any long-term conclusions against that.

Okay, thank you.

Tom McCrohan.

Hey, Wayne, in terms of the plans for 2016 and the two other conversions that you are planning that are going to be larger than I guess the one you just completed in October, I think the one in October you said was $2 billion, I think, in assets. Can you size out the dollar amount that's going to be converted in 2016?

Well, without getting into exact numbers, I think that the October -- or end of September, it depends on how you look at it -- conversion was about $2.5 billion. I think our first conversion in April we expect to be 60% bigger than that.

Okay, thank you.

Roughly.

Glenn Greene.

Thanks; good afternoon, Wayne. I guess the first one, on the Curian advisor base, you've obviously been at this for a couple quarters. I guess the question is: Has the low-hanging fruit been picked, or is there still ample opportunity both the advisors and the assets to come over, potential?

The way I'd look at it, there is signing a new advisor; and then as we sign the new advisor we continue to work the new advisors actively. And they tend to be very active with us probably two years after they sign their first account.

So there's still opportunity for us with the Curian advisors, especially in growing those that we've already signed. And that's what we're actively working on.

Then when we get these two new tranches converted over to SWP, give us a sense for, like, what proportion of your book of business will be converted to SWP. And more importantly, when are you going to be more actively assigning new advisors to SWP? Is that still an early 2017 time frame?

We would expect to put some new advisors on -- not all new advisors, but we would expect to put some new advisors on the beginning of the end of this year. I think we are actively -- we expect to have ever-increasing conversions. So I would -- April's going to be bigger than October; we would expect next October to be bigger than April.

We're ramping up the resources, ramping up the capacity. That's part of the investment to get us over to the platform.

Yes. What I'm trying to get at is: Is 2017 really like, the turning point where all the technology and the capability that you've desired and will have for SWP strategically to go after a new tranche or perhaps bigger advisors, you'll have the capability heading into 2017 to go after that like you targeted?

Yes. At this point we are converting our largest advisors first, and we're confident doing that. That's where we see the opportunity both for cross-selling them and growing the business.

Okay, thanks.

Thank you. Then, with that there is no other questioners in the queue. Please continue.

Thank you, Wayne. Our next segment is the Institutional Investors segment. And as you are aware, this report will be the last for Ed Loughlin since he retires at the end of the month.

I'm going to turn it over to Ed to discuss this segment as usual, but at the end of the update we will introduce the new head of the Institutional Investors segment. And so, for one last time, Ed?

Thanks, Al. Good afternoon, everyone. As usual, I'm going to discuss the financial results for the fourth quarter as well as the entire year.

Fourth-quarter revenues of $73.5 million decreased 1% compared to the third quarter of 2015. Capital markets performance during September and December negatively impacted revenue for the fourth quarter compared to the third quarter.

As you know, the Institutional business generates revenues in a variety of currencies. The weakening of the pound, the euro, and the Canadian dollar against the US dollar negatively impacted revenue by $1.3 million for the full year.

Full-year revenues approaching $298 million increased 5% compared to the year-ago period. New client fundings and market appreciation contributed positively to revenue for the annual period.

Quarter-end asset balances of $75 billion reflect a $1.6 billion increase compared to the third quarter. Net new client funding of $1.4 billion helped to overcome the drag of negative market performance during the quarter. The unfunded client backlog at year-end was $1.2 billion.

Fourth-quarter operating profits of $36 million decreased to 3% compared to the third quarter of 2015, and increased 5% for the year, totaling $152 million. Fourth-quarter margins were 49%, a 1% decline from the third quarter of 2015. Margins for the full year were 51%, remaining flat compared to the full-year 2014.

Client signings for the fourth quarter were $1.2 billion and totaled $6.6 billion for the year. We're pleased with the continued growth of our fiduciary business, and especially in the UK with the signing of several larger clients. Our fiduciary management program for defined contribution plans continues to gain traction, and we saw the signing of a larger DC plan during the year.

Our new clients were well diversified by geography and represented all of our market segments.

Our focus for 2016 is in three areas: continue to build a globally diversified institutional client base; continue to provide clients with value-added advice and discretionary services; and place increased emphasis on defined contribution fiduciary management sales opportunities. Emerging favorable trends towards engaging a fiduciary partner to manage a defined contribution plan like a defined benefit plan represents the growth opportunity for SEI. Our pipeline remains strong and we're optimistic about the continued opportunities in the Institutional space.

In closing, it's been my pleasure working with each of you, and I thank you for your support and wish you continued success. I'm happy to entertain any questions you may have but from my end, that's a wrap. (laughter)

Chris Donat.

Hey, Ed. Just for old times' sake here I wanted to ask you one question on --

Oh, come on, Chris. I thought I could count on you for no questions.

I was going to; but then you made the comment about FX, and it begged the question. Just curious if, since you mentioned exposure to the pound, the euro, and the Canadian dollar on the revenue side, do you have similar exposure on the expense side? Or is it a little different? Are most of your expenses in dollars?

They're mostly in dollars.

It's a little more muted.

Yes.

Got it. Okay.

Chris, my replacement loves to answer questions. So just write them down throughout the quarter.

I've got a long list.

Okay.

I wish you well, Ed. I wish you well.

Thank you very much.

Robert Lee.

Hey, and Ed, congratulations. I want to wish you the best of luck in your next chapter.

Thank you, Rob.

It's always been a pleasure dealing with you. So I'm not sure if this is appropriate for you or your replacement, but one of the things I'm curious about is, obviously the DC market's been a focus for the last year or so. You had, I guess, the decent win earlier this year.

I'm just curious how you position yourself. Because there is a lot of I guess traditional managers and others who have tried to position themselves as -- I guess I would call it glide path managers. I know it's maybe not exactly the same thing that you're selling.

But I'm just trying to -- curious how you're approaching that business differently than what we're seeing, whether it's -- I don't know -- to throw names out, a BlackRock or an AllianceBernstein or whoever may be out there trying to pitch some of that business.

Sure, sure. Well, I guess from our perspective where we see managers trying to position themselves as glide path managers, many of those are in the DB space where they are trying to help a client with a less aggressive asset allocation as they get better funded.

In the DC space, the opportunity that we see is that there is a fair amount of visibility about fiduciary responsibility in the DC space, because unlike the DB space there can be a lot more lawsuits. Some of them are real, some of them are frivolous, because they are brought by participants. So the more that the whole idea of a who-is-the-fiduciary is a question that has to be answered, I think then there is a need for service.

What we see and we certainly have -- we have target date funds that have a glide path that are age-appropriate, but we see a bigger opportunity for us to be able to create custom target date funds for the clients and custom-wrapped simpler solutions -- a US equity or a global equity kind of a selection for a participant that has combined US, large and small, international emerging markets. So it's one selection, but we would still serve as a fiduciary for that.

So we have the glide path covered in both of those particular areas. I wouldn't say that's the positioning. I think the positioning is more we are going to stand as a fiduciary. DB results have always done better than DC results because those plans -- the DB plans are better diversified and they are a longer-term type of an investor, and so they have had better results. So as a fiduciary, we would strive for that.

Great. That was it. And again, congratulations. I hope you are getting away from the snow and settling somewhere nice and warm. Best of luck.

Thank you.

(Operator Instructions) Allowing time for participants to queue up, there are no more questions at this time.

Thank you, Ed; that was terrific, as usual.

Ed's successor is Paul Klauder. Paul has been with SEI for 22 years, and 20 of those years he has been in the Institutional Investors segment, where he has been an important contributor to the success over the years. Most recently he's been -- served as Head of Sales, and he is an able successor to Ed.

Paul is with us today and -- Paul?

Good afternoon, everyone. I am Paul Klauder, and I have some big shoes to fill, but I look forward to expanding on the success that Ed has brought this segment for so many years. I also look forward to meeting you and working with you in the coming quarters and coming years. Thank you.

No more questions for Ed. (laughter) our final segment today is Investment Managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Not sure how to follow that; but good afternoon, everyone.

For the fourth quarter of 2015, revenues for the segment totaled $68.2 million, which was $1 million or 1.5% higher as compared to our revenue in the third quarter of 2015. This quarter-over-quarter increase in revenue was primarily due to new client fundings and implementation fees.

For the full year of 2015, revenues for the segment totaled $268 million, which was $16.7 million or 6.6% higher as compared to our revenue for the year-ago period.

Our quarterly profit for the segment of $22.7 million was approximately $500,000 or 2.3% lower than the third quarter of 2015. This decrease in quarter-over-quarter profit was primarily driven by an increase in sales compensation for the fourth quarter as well as an increase in our operational investment expense.

Our full-year profit for the segment of $95.9 million was approximately $3.7 million or 4.1% higher than the annual profit of 2014. From a profit perspective, expense increased ahead of revenue expansion this year to support both current growth and increased investment to support future growth opportunities.

Third-party asset balances at the end of the fourth quarter of 2015 were $390.3 billion, approximately $14.1 billion or 3.8% higher as compared to our asset balances at the end of the third-quarter 2015. The increase in assets was primarily due to market appreciation of $13.5 billion and new client fundings of $600 million.

In turning to market activity, during the fourth quarter of 2015, despite market volatility we had a strong sales quarter. Net new business sales events totaled $12 million in annualized revenue.

These events include new name wins across all our market segments, including a large alternative manager takeaway from a competitor and several private equity outsourcing mandates won in a competitive process. Additionally, we secured a full middle and back office outsourcing mandate from an international manager who previously performed these functions internally.

As we enter 2016 we will look to focus on several key areas. First, we will focus on continuing our sales momentum with new name sales and growth of existing clients. Additionally, we will look to continue our success with the larger end of the market.

Second, we will focus on implementing the new business that we have won and look for opportunities to grow with these clients.

Third, we will look to further expand our market segments and opportunity for growth. We have seen early success in a few new markets and believe there are additional opportunities to expand our reach.

Fourth, we will continue to invest in and expand upon our solutions. For example, we continue to see expanding opportunity in our global regulatory and compliance platform as well as the private equity markets. We will aggressively pursue these opportunities.

In summary, while 2015 was marked by a volatile market and increased expenses ahead of revenue, we continued our growth momentum, especially with new sales. We look to carry that momentum into 2016 while continuing to build out for the future.

Despite the market challenges, we see steady demand for our solutions and we remain optimistic on the opportunity for future growth. That concludes my prepared remarks, and I will now turn it over for any questions you have.

(Operator Instructions) Glenn Greene.

Hey, good afternoon, Steve. Really good sales here. We know revenue growth decelerated this year, and so I guess what I'm trying to get at is the momentum we've seen on the sales side. Should we start to see an acceleration on the revenue growth going into 2016?

Then related to that, are we still comfortable with a mid-30% margin parameter?

You don't disappoint me, Glenn.

Good to hear.

So, yes, I would consider with the sales we had we would expect, all things being equal, for revenue to increase. I'd say one of the things that when we look back 2015, Glenn, that hurt us a little bit, there were a number of liquidations in especially the alternative side of the market. And the unfortunate thing with liquidations, you have funds closing or large redemptions out of funds; they tend to happen right away. So the net effect to revenue and the negative effect happens immediately.

The new sales, as we've talked about and as you know, tends to take a longer time to bring in. So obviously that gave us a little bit of headwind last year. Hoping that headwind dies down this year and, with looking at the sales success, all things being equal, I would look for revenue to increase.

On the margin question, what I would say is I still feel comfortable looking at the long term. As I said before, this business should be in the mid-30%s margin. However, I'm not managing it for that quarter-over-quarter.

We're making investments which we believe are important for the long-term and long-term sustainable growth. And we're not going to dissuade from those investments we feel is best for the long term.

Okay, great. Thanks.

And with that there is no one else in the question queue.

I would now like Kathy Heilig to give us a few Company-wide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter.

The fourth-quarter cash flow from operations was $117 million or $0.69 per share, bringing year-to-date cash flow from operations to $391.5 million. Fourth-quarter free cash flow was $101 million, and year-to-date free cash flow was $317 million.

The fourth-quarter capital expenditures excluding capitalized software were $8.7 million. The total capital expenditures for 2015 were $44.5 million, and we would expect that to go down a little bit next year. This year, of course, you know we did some facility work over in London.

The tax rate was noted on the release but for the fourth quarter, but the annual rate was also affected by the state tax petitions that were refunded during the fourth quarter. So our annual tax rate for 2015 turned out to be 33.7%. We would expect it to be in a more normal range next year, around 35%, really just backing out the refund.

We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks, and that the financial information presented in our release and on the call is uaudited. Future revenues and income could differ from expected results.

We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results.

And now, please feel free to ask any other questions that you may have.

(Operator Instructions) There are no questions at this time. Please continue.

Thank you. So, ladies and gentlemen, we feel that 2015 was a solid year created by concentrating our efforts on maintaining highly satisfied clients, and growing new business events, and investing in products critical to our future. Looking ahead, we intend to keep our focus on long-term growth and revenues and profits.

I want to end this call by thanking Ed Loughlin for his 36 years of significant contribution to SEI's success and the success of the Institutional Investors segment. I look forward to working with Paul to continue the successful tradition set by Ed. From the bottom of our hearts, thank you, Ed.

Good afternoon, everybody, and I hope you have a good one.

Thank you. Then ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.