SEI Investments Co (SEIC) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SEI first-quarter 2016 earnings call. (Operator Instructions) as reminder, this conference is being recorded. I'll now turn the conference over to your host, Chairman and CEO Al West. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome. All of our segment leaders are here with me on the call as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller.

I'll start by recapping the first quarter of 2016. I will then turn it over to Dennis to cover LSV and the investment in new business segment. After that each of the business segment leaders will comment on the results of their segments. Then finally, Kathy Heilig will provide you with some important Companywide statistics. And as usual, we will field questions at the end of each report.

So let me start with the first quarter of 2016. First-quarter earnings decreased by 8% from a year ago. Diluted earnings per share for the first quarter of $0.47 represents a 6% decrease from the $0.50 reported for the first quarter of 2015. We also reported a 3% increase in revenue from first-quarter 2015 to first quarter of 2016.

Plus, during the first quarter of 2016 our non-cash asset balances under management increased by $2.7 million. And SEI assets grew by the $2.7 billion and LSV assets were flat.

In addition, during the first quarter of 2016, we repurchased approximately 2.1 million shares of SEI stock at an average price of $38.87 per share. That translates to over $80 million of stock repurchases during the quarter.

Finally during the first quarter, we capitalized approximately $9.5 million of new technology development, of which approximately $7.6 million was for SEI Wealth Platform development, and we amortized approximately $11 million of previously capitalized development.

Now turning to sales, our net new recurring revenue sales during the quarter were strong. Of the $38.6 million of net new sales events, we generated $33.2 million on recurring revenues. Each of the segment heads will address their first-quarter sales activity, including the signing of Regents Bank to a full service SWP relationship.

As we discussed last quarter, we are increasing the investment we are making to SWP's functionality and infrastructure, particularly related to our software and business processing offerings to the jumbo and large bank market. Also we are investing into the migration of advisers and banks from Trust 3000 to SWP as well as the installation of large new investment management clients. Now, the first quarter's results reflect some of these increased investments. I would note that while we are making these investments we will diligently manage total Company spending.

Now, as you know, the advisory team successfully migrated a number of larger, more sophisticated advisory clients to SWP during the fourth quarter. They have another tranche of large advisers ready to migrate later this month as the move to SWP continues. In the IMS segment, sales efforts have yielded a number of large new clients which are now or soon to be immersed in sizable conversion projects. These conversions are a testimony to the value of our solutions in the markets we serve.

Now, in the institutional investor segment, we are increasing our focus on a number of new market segment opportunities, the newest being fiduciary management of defined contribution plans.

I am continually encouraged by the feedback I received from clients and prospects across our Company's target markets, and our reputation for delivery remains intact. And the sales activities and the [bids in] all our units confirm the positive feelings in our client basis.

So now this concludes my remarks, so I will now ask Dennis to give you an update on LSV and the investment 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 first-quarter results for the investments in new business segment, discuss the results of LSV Asset Management and a few items of note for the Company during the quarter.

During the first quarter of 2016, the investments in new business segment continued its focus principally in two areas, the ultrahigh net worth investor segment and the development of a web-based investment services device offering, coupled with the use of mobile technologies. During the quarter, the investments in new business segment incurred a loss of $3.8 million, which compares to a $4.5 million loss during the fourth quarter of 2015. There has been no material change in this segment.

Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the first quarter. LSV contributed $29.2 million in income to SEI during the quarter. This compares to a $32.1 million contribution for the fourth quarter of 2015. Asset growth was flat during the quarter, although average assets were done approximately $5 billion. Revenue and LSV was approximately $92.7 million, of which about 1% was performance fee-related.

Corporately during the quarter, our tax rate returned to the more normal 35% range compared to the approximate 29% rate experienced during the fourth quarter of 2015. We also received our final payment related to the sale of SEI Asset Korea in the amount of $2.8 million.

I will now take any questions you have.

(Operator Instructions) Glenn Greene, Oppenheimer.

First question, on LSV -- so I heard the 1% performance fee, which was a lot lower than a year ago. Is it just sort of like where the assets -- asset decline in the quarter or the average asset decline in the quarter? And more importantly, do we step back up to the normal seasonality in 2Q? That's the first question.

Well, it's hard to predict because it's performance-related. But as you know, value, the whole value space had a tough 2015 and first quarter, particularly the first two thirds of this year were not very accommodative to value investing. So I'd say it's more indicative of that.

Their overall relative performance is good, continues to be good. We will see what second quarter brings. But because it's performance fees and it's specific to investment performance on specific client accounts, it's not easy to predict.

Is it performance fees versus a benchmark or how does the --

Yes, versus client-specific benchmarks.

Okay. just broadly, as it relates to the corporate expense level, obviously you have incurred some incremental investment expenses this quarter, and that was talked about and got a lot of focus on the fourth-quarter call. Just trying to get a sense of the expense level that we are at, how indicative it is of this and reflective of the investments there are, how much more there is to go.

Where are you in the incremental investment as it relates to what was alluded to in the fourth-quarter earnings call?

Yes. I think the first comment I would make is as we talk about and probably most everybody on the call I spoke to sometime subsequent to the call is that although the comments on the call last order were focused on increased spending in the area of SWP, whether it be on the technology side or the client implementation side, work being done to scale operations, that was -- inclusive and that is our overall management of expenses across the rest of the Company in the other things we're doing.

So I think what got lost is, while we might and are going up in certain areas, we are -- do what we need to do from a management standpoint to find ways to pay for that embedded within our existing expense base.

Now, that being said, we would expect some continued, I'd say, modest expense pressure in those same areas going forward. But at the same time, I would also couch it with, similar to how Al just spoke about it, that it's within the context of managing expenses overall. As the year progresses, if we stay with these stronger markets, if we stay with -- at least, if our sales performance stays strong, if our profit performance continues to pick up, we will see some incremental expense, certainly, associated with personnel costs in the sales compensation and incentive compensation areas.

But I think if you saw, which I would expect, some expense increase, because I expect those things to be positive, expenses will trend up slightly. I don't see any major double-digit percentage movement.

Okay, that's helpful. Thank you, Dennis.

Tom McCrohan, CLSA.

Dennis, can you just remind us -- the assumptions that go into the recurring revenue piece of the net new sales number?

I'm sorry, Tom. What goes into that number?

Yes.

So every unit is essentially new clients signed, so new contracts or cross sells with existing clients netted against any client losses that might occur during the period that were -- either occurred or notified will occur. And then in the investment advisor space it's really calculated based on net cash flow and the revenue expected off that net cash flow from our advisor distribution network. So it is all net of any losses.

Is that clear? Does that help?

I was trying to get into the recovering part of it, but I can follow up with you off-line, the assumptions that go into that.

Recurring is revenues that we -- are of a nature that they are repeatable on the multi-year basis, versus one-time revenue, which is more project-oriented or single transaction-oriented.

Okay, thank you.

Chris Shutler, William Blair.

So first, could you call out the net flows for LSV in the quarter and just give us some sense of, based on what you know today, what their pipeline looks like, so any sizable mandate wins or losses that you are aware of coming up?

They are net flows, so flows which would incorporate new cash flow from existing clients plus new clients signed, less cash -- lost cash flows from existing clients and then lost clients. The bulk of their cash loss came from existing clients. There was some new client wins during the period, but they also lost cash from existing clients. So their flows were pretty neutral.

In terms of their pipeline, the most recent conversation I had with them last week, frankly, was they feel pretty good about their pipeline. They have a lot of strong interest. If performance has been good, particularly at those important one-year, three-year, five-year numbers relative to benchmarks, value of benchmarks, particularly not just their US side of things but their non-US products have done well. And as you know, most of their business comes through the consultant community. They are, from what I hear, in pretty good stead with that community. So I think they expect to certainly win some business going forward.

All right, thank you.

Robert Lee, KBW.

Just a quick question on LSV with performance fees -- kind of understandable, given the market backdrop and the lower proportion from performance fees. But just thinking ahead to the second quarter, I know second quarter last year was a pretty big quarter for performance fees. Can you just remind us of any seasonality that flows through performance fees from LSV's book of business? And is it fair to assume, just given where things stand today, that likely to be subdued versus last year, at least proportionately, in terms of performance fees in Q2?

I think, based on the first-quarter results, there's probably some -- it would make some sense to be a little more subdued on second quarter versus last year. But last year was also particularly high, and so they did about just under $14 million last year, in the second quarter. So, but like I said on the earlier question, it's hard to predict this.

In terms of seasonality we have always -- historically, second quarter and third quarter were the stronger quarters. But last year second quarter was the outlier, but the other quarters were pretty consistent. So, and that's really -- like I said on prior call, that's really due to client calendaring on when these things hit.

Now, in the overall context of LSV, remember that performance fees still are a relatively small portion percentage of their total revenue. It's not as if that's what's driving, ultimately driving the success of the firm.

All right, great. That was all I had, thank you.

(Operator Instructions) We have no one else in queue. Please continue.

I'm going to turn it over to Joe Ujobai to discuss our private banking segment. Joe?

Great. Thanks, Al. I'll start with the financial update on the first quarter for the private banking segment.

First-quarter revenue of $113.3 million was essentially flat to the fourth quarter. Segment revenue growth was hampered by market and currency volatility in our asset-based initiatives. Quarterly operating profit of $9.6 million was down from the fourth quarter. Profit was impacted by increased sales compensation costs as well as additional expense as we prepared to convert our growing backlog of SWP clients.

We will continue to work hard on overall expense management as we grow the business. Total segment profit of $12.4 million includes the final gain on the sale of our Korean subsidiary.

Net sales events for the quarter were $25.2 million, of which $20.7 million is recurring investment processing revenue. The remaining $4.5 million is largely one-time professional services revenue associated with SWP signings.

The record sales quarter for the private banking segment was driven by the recently announced signing of Regents Bank, net new revenue associated with the signing of Webster Bank, a long-time SEI client converting from Trust 3000 to SWP, the signing of a new project client investment manager in the UK and newly contracted books of business for SWP at HSBC.

Last year we announced that Wells Fargo will be the first large-scale US wealth management firm to adopt the platform, leveraging the solution in a software as a service for ASP delivery model. [Regent's] wealth management will now be the first large-scale US wealth management firm to lever the platform in a fully integrated capacity, including utilization of our wealth advisory services and client experience and back-office securities processing support. We believe that these are two milestone clients.

Our total signed but not installed backlog for the SEI Wealth Platform is $44 million in net new recurring revenue. We expect half to install by the end of 2017 and the remaining to install in later years.

In the UK, in addition to signing new business, net cash flow and current clients to SWP was approximately $2.8 billion for the quarter but was offset by market depreciation and the fluctuating currency exchange rate. Assets under administration are now approximately $38 billion.

In our Asset Management distribution business we had a challenging quarter, given marketing and currency volatility. Assets under management were up slightly to $18.3 billion. During the quarter we signed an important new distribution client, Janney Montgomery Scott. SEI will provide Janney with a custom-designed global goals-based investment solution. The offering helps Janney with the demands of the recent (inaudible) fiduciary role.

To continue to grow the private banking business, we remain focused on the following areas. Number one, to support and grow our current clients; number two, to install the backlog including our lead large-scale clients, Wells Fargo Bank and Regions Bank; number three, progress sales activity in all of our markets; and, four, manage expenses we continue to invest in the solution for scale as we convert and grow the business.

In summary, I am pleased with our progress and momentum is building.

At this time I'll take any questions.

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

Joe, can you remind us how that -- you said you had elevated sales commissions. Can you remind us how the payout works for your sales people when you have a big signing like a Regions or a Wells? Does all the sales commission happen concurrently, that quarter, or is there something of a trailer there?

Yes, so we accrue all the sales commission at signing and then we pay the salespeople a certain percentage at the signing and then a percentage when the firm converts to us.

Okay, but it's all accrued at signing?

Absolutely, yes.

Okay, and then on the $44 million number you gave for the backlog, I just missed how you define that. Was it signed but not something?

Yes. So the backlog will be signed but not yet installed, so we will be in the process of converting those clients. And I said half, we expect, will convert by the end of next year and the rest will convert a few years after that.

Okay, got it. Thanks very much.

Chris Shutler, William Blair.

So a couple of questions -- first, can you maybe help us think about the magnitude of the sales comp that was included in Private Banks this quarter? And then, secondly, maybe any commentary on the pipeline, how it's shaping up, whether it's weighted towards smaller banks or larger banks in the near term?

So it was a great quarter for sales for us. We did more than $20 million in recurring, which is about what we did all of last year. So I think it's terrific news. And we think we pay the salespeople a competitive rate, and it's a small percentage of, ultimately, the value of the contract.

The pipeline again, I think, is strengthening. I'm really trying to focus more -- there's a lot of momentum. We are trying to focus more, though, on backlog. But that's what's really going to drive revenue growth in the scale we need. So it's strong and strengthening, the announcement of Wells and Regions certainly helps drive momentum in the marketplace. And we think that's good news for us.

All right, and maybe one more on the AMD business -- the Janney was a nice win. Just remind us how you feel about your position related to in that business relative to the DOL role; because I think that you view it as a positive relative to some of the regulation out there. Maybe just remind us why and how that played into Janney's decision?

Obviously, there are a lot of distributors out there who want to grow, maintain and grow their business. So the DL rules have been largely finalized. And as we work with our distributors, either involve their products or new distributors around the greater recognition of what the underlying fees and commissions are, those kinds of things, I think it's a great opportunity for us. And our program fits very nicely into the opportunity.

And Wayne will probably go into more of that in his section.

Okay, thanks.

Glenn Greene, Oppenheimer.

Just a little bit more on the Regions when, just to get some more color behind it -- what were they doing before? Were they using an in-house solution? It was interesting to me that it was a new client for you and going toward the full outsource route. So I just to understand a little bit more entirely what the process was, how this came to fruition and, a little bit more specifically, what exactly you will be doing for them.

Well, so it's hard to talk specifically about any one client because we have confidentiality agreements. But let me give you a little color of what I think our opportunity is in that space.

Okay.

In the large regional bank space, many of the firms had gone out and done a best in breed. They had bought a number of different technology solutions and then the bank would integrate those solutions themselves. And I think there's -- the difference, really, between that model and our model is that what we really do is try to drive a heavily integrated front straight through process, straight through solution, which includes not only the technology but also business process and then, certainly, processing the underlying securities.

So I think there's real interest at a number of firms to be able to lower their risk and lower their expense based on a fully integrated solution that uses new, modern technology versus the legacy systems that many of these firms have that aren't quite as flexible going forward. So we are seeing a lot of interest in that type of a solution, which plays right into the value and the strengths of the SEI work platform.

Were they on an in-house solution or a competitive alternative?

You know, really can't talk about what their current state is. But suffice it to say they are on a lot of different technology platforms.

Okay, fair enough. Thanks.

Tom McCrohan, CLSA.

So for Webster's Bank, similar kind of question -- we know they were a Trust 3000 client. But does the opportunity there extend beyond the Trust business and go into the Wealth Management area as well?

Again, it's hard to comment on any one organization. But I think what we are finding inside of a number of these banks in the US where we had historically had provided principal income accounting to their Trust department, the SEI Wealth Platform that lets us expand into other segments like the advisor segments that banks have either created or acquired over the years. So, that's a big opportunity for us to grow. And again, the concept of replacing multiple technology platforms is also an opportunity for us to grow the business.

Okay. And I think at a prior investor day you sized the pipeline, this general opportunity of conversations you were having, like $100 million, I believe. Can you give us an update on that?

Yes, we had that number out there for a long time. And again, I would encourage you all to focus more on backlog because that means it's signed and is going to drive revenue in a reasonable period of time. But I would say that our opportunity continues to grow. Again, having these early adopters that will be significant firms across the industry is a real positive for us. So we are busy. We are on the road a lot and we're making good progress with our prospects. So it's pretty significant.

Excellent. And last question I had was in regards to Wells and the technology changes that you are making to make that platform SaaS-based. Can you just give us a sense of the complexity to do that? How big of a technology lift is it? I'm getting some questions that I just don't know how to answer in terms of the risk of making their existing platform SaaS-enabled. If you can just talk about it, that will be great.

It's pretty big. Some of it is we don't share databases and access to some of the third parties that we get data from. So where we might go in, in an institutional wholesale way, large firms will want access to pricing, services and other third-party services based on just their firm.

That investment is good because I think it gets us into the large or the jumbo bank space. It also is going to help, though, our internal operations as we drive scale. So part of it is around scale, significant processing volume. Part of it is larger firms that want their own access to third parties. Part of it is allowing the large jumbo banks to provide and just to get more data out of SWP.

So it's an investment we think is certainly worthwhile for us to be successful in the very large Wealth Management space. But it also provides some progress for us as we grow the WSP business.

Okay. Thanks, Joe.

Robert Lee, KBW.

Some of these you went over on the call, but I had -- and I apologize; I had a bad connection so I didn't hear all of them. But I just wanted to confirm it was $20 million of recurring revenue won in the quarter; and then about the balance, $5 million or so was the one-time revenue?

Yes, it was $20.7 million in recurring and $4.5 million in one-time.

All right. And did any or all of that one-time flow through in the quarter, or that's in the quarters to come?

It's in quarters to come.

Okay. And also just clarify a number, the cash flows in the UK -- was that $2.8 billion?

That's correct. That was largely eaten up by market volatility and currency, unfortunately.

All right, okay. And I guess, just going back to the expense, understanding there was some sales commissions in the quarter and continued expenses, is there any reason, depending on sales activity, obviously, in this quarter, that current expense levels -- even with some of the pressure -- are [in] kind of at least an indicative level for the next couple of quarters, putting aside any big wins that may come on?

I think Dennis was very eloquent in his example, in his response to the question about expense. So we are working really hard to manage expense. We have ways that we can redeploy investment that we are maybe spending in other parts of the segment more and more towards the platform.

We're going to keep investing. We think we have got a huge market opportunity and we will keep investing, but we will do it in a very mindful way.

Currency has been hard to predict, so we will see what impact weak currency has on our business, less of an impact on our SWP business because some of our expenses are in local currencies, for example, UK business. Maybe more of an impact on our AMD business because the revenue is a variety of currencies but expense is usually dollar-denominated.

So we can't really control that but we've got to keep investing in the right areas to grow this business and to drive more efficiency and scale.

All right, great. And then maybe one last question, if I could, and make sure I heard it right. There was a client who converted from Trust 3000 to SWP, and if I understood correctly there were some one-time revenues around the conversion?

What I said was there is a Trust 3000 client, a long-term client called Webster Bank, and Webster has decided to convert from Trust 3000 to SWP, not only for their trust accounting but also for some other books of business that they have. And we signed that in the first quarter. We expect, generally, these smaller community banks to convert in nine to 12 months, so we would realize the one-time associated with that between now and the actual conversion.

And then the additional revenue they will pay us for the SWP platform over what they pay us for Trust 3000 will kick in, once they convert.

Okay. All right, now I got it. And I said one last question before, and I guess I lied. One more question -- was there any one-time revenue in the quarter?

Yes, there was some one-time revenue quarter. As you know, we have a big one-time revenue relationship with -- as we build out towards Wells. So we will realize that as we build the capability and help them convert. That was, I think, for the quarter was about $3 million across Wells and some other clients.

Great, thanks for taking my questions.

We have no one else in the queue at the moment.

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

Thank you, Al. The first quarter of 2016 was marked by volatile markets which did have some impact on our financial results. Despite this market environment, we still managed to post a good quarter of growth and the strategies we continue to implement support our growth strategies going forward. Assets under management were $52.4 billion at March 31, an almost 3% increase from December 31. During the quarter we had $850 million of positive net cash flow.

Revenues for the quarter were $76.7 million. This compares to $78.6 million for the fourth quarter of last year, a 2.5% sequential decline. A decrease in market valuations during the early portion of the quarter, which resulted in lower average assets under management, were the major reason for this decline. Improved yields on money market funds and positive net cash flow helped offset some of the total decline.

Expenses for the quarter decreased $1.7 million from last quarter. The major drivers of this decrease were declines in both compensation expenses and discretionary project expenses, partially offset by an increase in expenses from our account growth and SEI Wealth Platform. As I discussed in the fourth quarter, expanding our distribution footprint as well as SEI Wealth Platform development and client migration remained the strategic imperatives of this business. Expenses not related to these objectives are being closely scrutinized.

On the new business front we signed 213 new advisors. That pipeline of prospects remains very strong.

Moving on to the status of the SEI Wealth Platform, we are on track for another migration at the end of this month. This will be a migration of approximately $4.2 billion in SEI assets and will bring our total SEI assets on the Wealth Platform to $10 billion. We have our next migration planned for September 30 of this year.

Turning to some specific sales matters, the initial Curian event is now over, and in the end we acquired about $1.5 billion in assets. About $200 million of these assets moved into SEI Asset Management product in the first quarter of this year.

While the initial focus was on the assets held by advisors at Curian's custodian, we are now focusing on assets held by Curian advisors at other custodians. Additionally, we are focused on the recent DOL regulation as a catalyst for advisors to convert to SEI's asset-based B model.

In summary, despite volatile markets, net cash flow and new advisor recruiting were positive for the quarter. The transformation of our business onto one supported by the SEI Wealth Platform remains on track and I remain optimistic about our future prospects. And I will welcome any questions you may have.

(Operator Instructions) Robert Lee, KBW.

A quick question on the DOLs. I certainly can appreciate how the DOL rules are going to drive more demand fee-based products like -- and platforms like what you offer. But I'm just curious; within that, what kind of pressure, if at all, are you seeing to, whether it's include more index products or somehow change the fee structure, just given that as part of the DOL fiduciary movement there's this ever-present -- there has always been a focus on fee levels. But do you feel like it's accelerating and, then, you may have to adjust some of your offerings within your platform to accommodate that?

And if you do, how do you deal with that from your own kind of revenue and margin prospectus?

Yes. A lot of people talk about it that way, but I think when you talk about index management and you talk about active management, they are really two different animals. And it's not -- when you look at DOL, it's not 100% focused on the absolute level of fee. The real focus of DOL is really in three areas: some fee transparency, fee reporting and moving into an asset-based fee model.

And that's the three things we support, and I think that's the three things that are going to make us successful in this effort.

Do you see any, just as you work with your advisors, any incremental costs that you guys will have to concur, whether it's doing something new functionality on SWP to deal with the changing or evolving DOL rules?

No, not at all.

And just one last question -- how do you think of the competitive universe out there? The other day, I guess, LPL announced putting in place a BlackRock/Aladdin platform. I guess you've had -- some competitors out there are obviously doing different aspects. Are you seeing the competitive landscape change? Are you seeing, with the changing distribution landscape, new competitors maybe like BlackRock Solutions come into the market? What changes are you seeing?

Well, I would look at it in two different ways. Number one, when you talk about people like LPL, I think you need to talk about people that have a big commission-based business, and they need to change their business model.

So they have a whole different challenge ahead of them than people like us. Right?

When you look at SEI, and we will go back to some of the investor day dialogue, you can talk about active-based fee product, and we do offer that. But really, when you look at SEI, we have a consultative sales process. And really there are three aspects of our product.

It's the investments, it's operations and technology support, and it's the whole practice management business consulting report. I feel we are the leading provider in helping advisers figure out -- and it always has been and still is the strength of ours -- how you convert from a commission-based business to a fee-based business. We've always done that and we still do that. And this just goes right to our wheelhouse.

So this really levers one of our major strength, which is our whole practice management expertise.

Great, thanks for taking my questions.

Chris Donat, Sandler O'Neill.

I was curious to see if, with the DOL rules and if you have anything with adviser behavior on their decisions to work with you or really work with any other platform provider. I'm just wondering if you got any sense that there's like a backlog of advisers who have been waiting for the final rule before making a decision. Or is that really not part of their decision-making process?

I'd bifurcate the question. I think A, it's true; they are waiting for the final rule before they took action. And I think the other part of it, which is related, is trying for -- and we are doing this, trying to convince advisors to get in front of this, to own it and to get in front of it because this requires them to have a fee conversation with their clients. And as you can imagine, advisers are not all excited about going and having fee conversations with the clients. So we are helping them get in front of it, helping them frame that conversation with their client. So this is an opportunity for us not only to support our new business model but to help them transition to that model.

Okay. So would it be reasonable to assume, like you did 213 new advisers this quarter, that we might see some pickup in the number of advisers coming on, in coming quarters, just as we get past DOL?

Yes.

Okay. Thanks, Wayne.

Glenn Greene, Oppenheimer.

First question, just numerically just so I understand it, is it clear to think that the net flows ex-Curian were in the $600 million range this quarter?

Yes.

Yes? And then --

About $650 million, yes.

Okay. And is it just the somewhat slower pace than we've gotten spoiled by over the last couple of years, is it just the market volatility in the early part of the year? And where I'm going with this is, did you see any improvement in March and April?

Yes. It's kind of hard under the short timeframe to say whether I saw any improvement or not. I think the pace is about the same.

The thing I'd comment on Curian is that we have a certain capacity or throughput on the sales side. So I think Curian -- at one level that improved the quality of the overall leads. It didn't necessarily change the overall leads. We only have a certain capacity to sell new advisers. It only increase the likelihood of success with some of those sales because we had some capacity. So people that focused on Curian advice now are going back to focused on what they focused on before Curian. So that's the way I look at it.

Okay. That's leading into my next question, too, as it relates to the DOL regs that are now finalized and you obviously presumably are well-positioned for this. But how have you positioned the sales force in advance of this? And how much incremental investment or the degree that you've increased the sales force to tackle this sort of opportunity?

As you know, this is a mass production business. So I would go all the way back to the beginning with lead generation. Just like we focused our lead generation machine on generating leads from Curian advisers, we have refocused the lead generation machine over the past two months to focus on areas where advisers may have issues with DOL regulations. So we see this all the way to generating good leads for our sales force where we can help them.

Beyond the lead generation, though, have you ramped up your sales force, maybe re-segmented your regions or anything like that in front of this?

We absolutely have done that. And I think we talked about that the prior call or the call before, where we've expanded into more sales territories. We started the third quarter. And actually I thought I'd get a question about this. I'm actually happy to report that we've completed, substantially completed the filling out of the enlarged distribution footprint during the first quarter. So I'd like to tell you I was smart enough to do this in anticipation of DOL regulation, but we did it in anticipation of the opportunity in general, of which this is just one.

Okay, great. Thanks, Wayne.

Chris Shutler, William Blair.

Curious what your expectation is when investors are looking at your numbers. When should we begin to notice the benefits of advisors moving outside assets over to SWP? Should that be noticeable this year or next year? What should we be thinking?

We anticipate starting to see some impact from that next year.

Okay, so 2017?

Yes. It's going to ramp; it's not instantaneous.

Understood, understood. And then one question on the DOL. So broker-dealers are the ones I think most of us think are going to be under some pressure as a result of the fiduciary rule. And that is a big part of your client base in this segment. So, on one hand, I would think it would be good for outsourcing investment but on the other hand I could see some broker-dealers try to roll out more proprietary asset allocation models and other things to try to offset some of that revenue they are losing elsewhere.

I know it's early, but help us think through that dynamic.

I would say is no different than Curian. I think when Curian announced they were going out of business, the largest of the broker-dealers try to capture those assets and proprietary programs. And there's hundreds of broker-dealers.

Once you get outside of the top few, they have limited capacity to do some of that. So I think that, as you move out -- we can help all of the broker-dealers. But as we move out of the top few, there's really a big line of people like us to help them.

Got it. Thank you.

Tom McCrohan, CLSA.

In terms of converting the legacy advisors to SWP, what proportion of the base -- can you update us on that? -- do you expect to be converted by the end of this year? And when do you expect to get them all converted into SWP?

I think by the end of this year we will probably have a third of them done. I think our goal is to have been converted at the end of 2018. I will say that is an aggressive goal, so don't mark that date on your calendar and have a party. That's certainly what we are shooting for.

And for those that you have converted thus far, are there any learnings you can share with us now that they have been on the platform for a couple months?

I think that the learning is a lot. The degree of acceptance of the platform varies across clients. Some clients, the clients that totally embrace the platform really like it. I think that for some clients that are not as receptive of change, we've changed management, process is a little harder than we thought. But we are getting there and I think it's no different than we anticipated. It's something that we can't manage through.

Thank you.

Patrick O'Shaughnessy, Raymond James.

So there has been some discussion about how advisers are in a holding pattern because of market volatility and because of some of these DOL roles. But what are we seeing about advisors' clients and about advisors' ability to grow their businesses in this market environment? And I ask because just the other day Ameritrade was talking about with its RA custodian business, it wasn't seeing its advisers grow their businesses as fast. I think it chalked it up to market volatility. Are you seeing something similar in your business?

Yes, I think that's true. I think it's not the advisers so much as the end investor. The end investor is a little bit hesitant to try and decide what to do.

Got you. So what sort of market environment do you think that investor back and starting to sign up with advisers more? Just the lower volatility, more calm environment?

Just more stability, yes. And I've always said we don't necessarily need a raging bull market, but we do need some stability.

Got it, thank you.

Robert Lee, KBW.

Thanks again, Wayne. One last question maybe kind of related to the previous one, on kind of investor behavior, you've seen kind of the fee rate migrating down, and obviously some of that is related to maybe some less risk taking among clients.

Are you seeing any change in that behavior? Is there anything else going on that could be influencing the fee rate?

No, I think that's primarily it. We are seeing a little more fixed income migration and I think that's a big impact on fees right now.

Okay, great. That was it, thank you.

Chris Shutler, William Blair.

On the expenses in this segment, is there much expense that occurred in Q1 that is going to fall out of the P&L due to the Curian opportunity going away?

Not in a material nature.

And we have no further questions.

Thank you. Our next segment is the Institutional Investor segment. I'm going to turn it over to Paul Klauder to discuss this segment. Paul now runs this segment and was introduced to you on our last call.

Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the first quarter of 2016 for the Institutional Investor segment.

First-quarter revenues of $72.9 million decreased 1% compared to the fourth quarter of 2015. Capital market performance during January and February and currency translations negatively impacted revenue for the first quarter of 2016 compared to the fourth quarter of 2015. Quarter-end asset balances of $76 billion reflect a $700 million increase compared to the fourth quarter.

Net new client fundings of $550 million helped to overcome the drag of negative market performance and currency translations during the quarter.

The unfunded client backlog at quarter end was $1.1 billion. First-quarter 2016 operating profits of $37.5 million increased 3% compared to the fourth quarter of 2015. First-quarter 2016 margins were 51.5%, a 2% increase from the fourth quarter of 2015. Client signings for the first quarter of 2016 were $900 million.

We are pleased with the continued growth of our fiduciary management/OCIO business across our focused market segments. And we continue to see an increased appetite for delegation by Institutional Investors.

Our focus for 2016 is in three areas. Continue to build a globally diversified institutional client base, continue to provide clients with value-added device and discretionary services and place increased sales emphasis on defined contribution fiduciary management, larger endowments and foundations, and megaplan investors looking for standalone investment strategies.

Now I am happy to entertain any questions you may have.

(Operator Instructions) Glenn Greene, Oppenheimer.

Maybe just a little bit on the client signings, the $900 million, or just a little bit subdued relative to what has been the last few quarters. Is it similar to what Wayne saw in his business, the market volatility cost somewhat of a pause in signings, or some other factor there?

We did see a little bit of slowdown in decisions, given the dramatic market volatility in January and February. We are seeing a slowdown on defined-benefit corporate decisions as clients put more focus on DC, so we are ramping up our efforts and putting more efforts around these growth markets that are really critical and we have a very good track record with, most notably other defined-benefit plans such as governmental, UK defined-benefit, multiemployer, foundations and endowments, hospitals have all been real great markets for us. So we are putting more emphasis of our sales resources around those growth markets.

And then the margins look tremendous, getting close to records, I guess. But the sustainability of the margins? Or is there anything that gives us pause as we think going forward, maybe some expense ramp or anything we should just be thinking about in terms of the level of profitability?

Well, we were able to take Ed's salary out of the first quarter.

That's a huge factor, certainly.

So that was a big relief. I think it's a little bit of a normal ebb and flow with margins. We did have lower travel costs. We typically have lower travel costs in Q1.

We were very prudent about our travel in Q1 and our discretionary spending and a little bit of reduction in compensation expenses, and that drove the margins to the 51.5%.

Okay, great. Thanks a lot.

Chris Shutler, William Blair.

Similar to the last question, I just wanted to clarify on the expenses -- they were pretty flat year over year. Just remind us how we should think about the trajectory over the course of the year. This segment looks like one that historically the expenses are lowest in Q1 and it builds over time. Would you expect the same kind of trajectory this year?

I think we have a little bit of trajectory off it. We have more signings come on. Obviously, we have sales comp that ties to the signing period.

Again, we have been very smart about our travel. And one of the things that we've done is a lot of the client means we have, if we can have people participate instead of setting multiple resources, participate with one resource that's on the phone, that has been very effective for us. But as signings do come on, we will have incremental -- we will have associated sales comp through those signings, and we should see some increase of that in Q2 and Q3 around the sales comp side.

Okay, thank you.

Robert Lee, KBW.

Just wanted to drill down a little bit into the fiduciary DC business. And maybe just trying to better understand how that differs from some of the other offerings out there, and I'm thinking specifically of the different firms that specifically offer things like glide path to management and whatnot as opposed to just the turnkey target date. But how should we think of what your offering is? Maybe it's not different or how it may be different from what others are doing?

Sure, that's a great question. I think for years we saw in 401(k) most plans would hire a record keeper and would give the majority of assets to the record keeper. And now what is happening is there's a segregation of investment from administration.

Because of that, plan sponsors are also pausing and saying, and I offering too much choice? And is there just too much volume out there of menu options that my participants are getting overwhelmed? And do I need a custom target date?

When those decision trees happen, organizations are going to look for firms that have qualified capabilities around DB because they are almost DB-ing the DC. The same practices that have been applied to the DB for years are now being applied to DC. Plans are moving to white label. They are moving to custom target date, as you noted. They are moving to simplify choice.

And firms like an SEI are in a great position to be able to capture that investment business, given our vast heritage on the DB side so that's why we are quite excited about it and we are putting a lot of energy and emphasis around it.

And maybe just a follow-up -- it's really the same question I asked Wayne about the pressure you are seeing from clients to offer lower cost options. Obviously, in the DC world one of the things any fiduciary has to look at is -- it's not the only thing but certainly it seems to get -- at least, it gets a lot of press -- is fee structure.

And obviously you are bringing more to the table than just low costs, but are you seeing that get -- as you look into fiduciary DC, are you starting to see that, gee, in those types of situations, we have to offer lower cost options? And can you offset that because you are charging kind of like the glide path management, as a way to think about it?

Just trying to get a sense of the pressures in that market.

We understand the need for (technical difficulty) decision, so that probably would not be where we would play. But we see many clients who have a hybrid approach, in corporate best of asset classes that are more challenging and use active management in asset classes that have worked. And that way they can offer the best option to their participants. And it's no different than how they have managed their DB plans over years, so we are adopting those same precepts and same practices and applying it to the DC world.

Great, thanks.

We have no further questions.

Thank you. Our final segment today is Investment Managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone.

For the first quarter of 2016, revenues for the segment totaled $69.9 million, which was $1.8 million or 2.6% higher as compared to our revenue in the fourth quarter of 2015. This quarter-over-quarter increase in revenue was primarily due to new client fundings and implementation fees. Our quarterly profit for the segment of $24.6 million was approximately $1.9 million or 8.4% higher than the fourth quarter of 2015.

This increase in profit quarter over quarter was primarily driven by the increase in revenue, offset by slightly lower expenses this quarter.

The primary expense declines in the quarter were compensation expense and reduced discretionary project spending. While we continue to invest in our implementations and solutions, we will also aggressively manage all other nonpriority expenses.

Third-party asset balances at the end of the first quarter of 2016 were $400.6 billion, approximately $10.3 billion or 2.6% higher as compared to asset balances at the end of the fourth-quarter 2015. The increase in assets was primarily due to net new client fundings of $18.3 billion offset by market depreciation of $8 billion.

Returning to market activity, during the first quarter of 2016 we had another strong sales quarter. Net new business sales events totaled $7.1 million in annualized revenue. These events were comprised of new-name alternative business, including competitive wins of several private equity outsourcing deals and expansion of existing business with current clients across all our segments.

During the quarter, we announced the win of Centerbridge Partners. Centerbridge is a large, well-known manager in the alternative space, and we are proud to be selected to provide a comprehensive outsourcing solution and platform for them. This sales event was included in our Q4 sales and announcements, and will be implemented in phases over the next 12 months.

We continue to see strong opportunity and momentum in the market. We're focused on selling and implementing larger deals, expanding our business with current clients, expanding our solutions and entering new markets.

As mentioned last year, we continue to invest ahead of these new sales, and this has positioned us well in the market. We remain optimistic about our growth opportunity.

I will now turn it over for any questions you may have.

(Operator Instructions) Glenn Greene, Oppenheimer.

So, in Al's opening remarks, he talked, I think, specifically about your segment having a lot of a lot of large conversions in the backlog. So I was wondering if you could provide a statistic similar to what Joe provided of an unconverted backlog.

Well, I think our backlog right now is around $35 million. So Q4, it spiked up a little bit and then, due to implementations, etc., it has come back down to about $35 million.

And the timing one we should be thinking about when this would be converted?

Over the next, hopefully, 12 to 14 months. Sometimes you have delays with certain deals. But really, I think that we are looking at backlog, the majority will be within the next 12-14 months.

And when you think about your pipeline of new activity going forward, or you are certain -- you obviously talked about a few P/E wins. Are you seeing any noticeable change in the SKU or the mix of prospects?

No. I think right now we see a strong surge continuing in alternatives, especially in private equity and what we would call hybrid managers, which are managers similar to Centerbridge, which have both private equity and hedge funds, and might have a hedge product in a private equity structure.

So we are seeing a strong opportunity there but we are also seeing good momentum in our traditional business as well. I think that has just been a little longer and the market has been impacting that a little bit more. What I tell you is the pipeline remains at the highest it has been in years that I remember.

Have you got a figure for that?

It's in excess of $150 million.

Okay, great stuff; thank you very much.

Chris Shutler, William Blair.

So I guess curious, just even the market volatility that happened over the course of the quarter and late last year as well -- how has attrition in the business been trending?

Define attrition. Attrition among client assets or among clients themselves?

Both. I guess I'm curious on both. The assets is a little bit more self-explanatory, but --

I guess I handed you that one, didn't I?

Yes.

So what I'd say is that we saw this last year. Let's start first with client assets. I think we are still seeing, and I think if you look at the headlines Q1 was a tough quarter for the hedge and alternative plays. So we are still seeing redemptions and liquidations out of clients' books of business.

We are seeing new fundings but I think we are seeing a heavier pace of the redemptions. On the client stickiness that we have, we are still seeing a pretty solid and very high retention rate among them.

Okay. And there's two other ones. First, since you just gave the pipeline number, you said in excess of $150 million. How do you define pipeline? Is that just --? I guess, how do you define it?

These are deals that we have in a process that we have started the sales process with and are engaged in an active sales process. We have certain gates. Typically, these are somewhere in a gate 2 or above.

Got it, okay. And I guess lastly, can you just give us the latest stat on what part of your assets are tradition managers, hedge funds and P/E?

So right now, I think it's trending right around 53-54% of our business is alternative versus traditional versus traditional side.

Thank you.

(Operator Instructions) Okay, we have no one queuing up.

Thank you, Steve. I would now like Kathy Heilig to give you a few Companywide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. The first-quarter cash flow from operations is $78 million or $0.47 per share. First-quarter free cash flow was $64 million or $0.39 share. First-quarter capital expenditures including capitalized software, $4.6 million. And we project an additional $30 million, again excluding the capitalized software, for the remainder of the year.

As noted in the release, the tax rate for the first quarter was 35.2%. And we projected tax rate for 2016 to be approximately between 34.5% and 35%.

We also would like to remind you that many of our comments are forward-looking statements that are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited. Future revenues may 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 additional questions that you may have.

(Operator Instructions) Glenn Greene, Oppenheimer.

Hey, Dennis, just one quick question -- the FX revenue drag in both private banking and trust and II?

Banking was just a little over $1 million in revenue. And in II was just over $500,000. But then also -- on the expense side the net P&L impact, because we did get some benefit on the expense side, is pretty neutral. Across the Company it's about $250,000 negative across the Company. That's just so you don't over -- you remember, there's two sides of the coin with that fact sometimes.

I got it, I got it. Thank you.

Robert Lee, KBW.

I guess this is for Dennis. It's pretty clear from everyone's comments that comp accruals are down in the quarter, discretionary spending down in the quarter. Is there any way to just, outside of SWP spend and things, are you guys targeting zero expense growth for the year outside of SWP? How are you guys thinking about expense spend this year ex-SWP?

I wouldn't say zero because I think we have to run our businesses effectively. And to the extent we think we are making a good decision that requires us to spend money to enact that decision, we are going to do it.

I think the compensation variation depends on what period you are talking about. Fourth to first -- certainly in Wayne's business, sales compensation would be down because he had certain factors in the fourth order. A, you had greater net asset flow production. B, he had end of year -- it was in the fourth quarter, so many of his salespeople had hit accelerators on their compensation plans. So he had some incremental expense associated with that, compared to first quarter, where he did -- the better comparison would be to last year's first quarter because he did a little bit over $1 billion last year and $900 million this quarter. And probably he has more people in the field, so it's probably more comparative that way.

If you look at Joe's business, his sales compensation in the first quarter certainly is higher than it was in the fourth quarter because the sales activity was so much higher. So, it depends on what period you are talking about the comparatives on compensation. On non-sales compensation, that's really just something that we generally would build during the year as the year starts to take shape relative to our internal goals and objectives.

But, Rob, our only business here isn't about SWP. We are an aggregation of businesses, and they all require us to manage effectively. Steve's business really has nothing to do with SWP. So the investments he makes are all about growing that particular franchise for us. And his client signings and his acquisition of clients, really going back a few years now but really accelerating, particularly with the larger clients, does require us to put more money into our operation, into technology.

And that's aside from us staying ahead of our competition just in product and service offering and value to client.

So and I wouldn't want to leave the impression that the only place we are going to spend more money here is SWP, because that's not the case. But our job is to manage the business, businesses.

I appreciate the added color. Thank you.

Tom McCrohan, CLSA.

Just a question for Joe, just a clarification. The Webster Bank win -- I remember seeing a press release. That was just announced today on the call or did I miss --

That was just announced today on the call.

Okay, thanks.

(Operator Instructions) We have no further questions.

Thank you. So, ladies and gentlemen, we feel that 2016 is off to a good sales start while we manage our way through some choppy waters, choppy markets.

Looking ahead, we will keep our focus on sound execution across the Company while we grow. And thanks again for joining us today, and have a good afternoon.

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