SEI Investments Co (SEIC) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to SEI third-quarter 2012 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, SEI's Chairman and CEO, Mr. Al West. Please go ahead, sir.

Good afternoon, everybody. All of our Segment Leaders are on the call as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. I'm going to start by recapping the third quarter 2012. I will then turn it over to Dennis to cover LSV and the Investment in New Business segments. After that, each business Segment Leader will comment on the result of their segment 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 third quarter 2012. Third-quarter earnings increased by 3% from a year ago. Diluted earnings per share for the third quarter of $0.29 represents a 7% increase from the $0.27 reported for the third quarter of 2011. We also reported an 8% increase in revenue turn the third quarter versus the third quarter of 2011. And in addition, during the third quarter 2012 our end of quarter non cash asset balances under management increased by $11 billion. Of that SEI's assets under management increased by $7 billion during the quarter while LSV's assets under management grew by $4 billion. Finally during the third quarter 2012, we repurchased 1.55 million shares of SEI stock at an average price of $21.70 per share. That translates to $33.6 million of stock repurchases during the quarter.

The net new recurring revenue sales remain strong. We generated over $23.7 million of new-- of net new sales events, of which $21.4 million will be recurring revenues. All segments posted good sales quarters, and each one of the segment heads will address their sales activity.

We are continuing our investment in GWP and its operational infrastructure so critical to our future. During the third quarter, we capitalized approximately $7.7 million of the Global Wealth Platform development and amortized approximately $10.4 million of previously capitalized development. $2.7 million of the amortized expense was accelerated as Dennis will explain.

In the Banking segment, while we are increasingly encouraged with our sales activity and intermediate term revenue potential associated with the rollout of GWP, we're also working hard to manage the cost of building scale and absorbing new business. Our GWP sales and marketing efforts remain concentrated on capturing UK GWP markets as well as launching GWP in the US. We're reaching another important milestone in our launch of GWP in the US, we're in the process of releasing another tranche of US functionality which will be important to the advisor and banking markets. I recently admitted trip visiting with the CEOs of a number of our US Banking clients and prospects, and I continued to be encouraged by the feedback I'm receiving over the launch of GWP.

Favorable feedback from clients and prospects is happening across the Company and it's confirmed by our sales events in all of our target markets. Our investments and infrastructure and new service offerings are helping us differentiate ourselves from our competition and these offerings coupled with our financial strength positions us very well for long-term growth. This concludes my remarks, so I will now ask Dennis McGonigle to give you an update on LSV and the Investment in New Business segment. After that I'll turn it over to the other business segments. Dennis?

Thanks, Al, good afternoon, everyone. I will cover the third-quarter results for the Investments in New Business segment and discuss the results of LSV Asset Management and address a couple of additional items. During the third quarter 2012 the Investment in New Business segment continued it's focus on the ultra-high net worth investor, the integration of our capabilities acquired in the NorthStar acquisition and the further development of new web-based investment services. During the quarter, the Investments in New Business segment incurred a loss of $2.8 million, which compares to a $2.7 million loss during the second quarter of 2012. There has been no material change in this segment and we expect losses in this segment to continue in this range during the remainder of the year.

Regarding LSV, our earnings from LSV represent our approximate 40% ownership interest during the third quarter. LSV contributed approximately $24.9 million in income to SEI during the quarter. This compares to approximately $22.7 million in the second quarter of 2012. The increase in income is due to an increase in asset balances during the quarter. Asset balances improved by approximately $4 billion during the quarter due to increased market valuation offset by slightly negative cash flows.

In addition to the business update on LSV, I wanted to review a couple of events that have occurred during the quarter. First, we have entered into another loan agreement with certain employees of LSV to enable them to purchase an ownership interest in the firm. This is similar to other transactions we have done in the past and I direct you to our 8-K filing and our upcoming 10-Q filings for additional information.

As you also saw from a prior 8-K filing, on July 31, 2012 we entered into a sale agreement of our Korean business interest SEI Asset Korea. We expect this transaction to close by the end of first quarter 2013. The sale of this business, of which we owned approximately 56%, resulted in us recording a tax liability for prior undistributed earnings which needed to be recaptured for US tax purposes. This had the effect of increasing our effective tax rate for the quarter by approximately 2 percentage points or $4.7 million. The closing of this sale, which is subject to obtaining the requisite regulatory approvals and the meeting of other specific conditions, will result in a future gain to the Company. We estimate the net after-tax gain to be in a range of approximately $8.9 million to $20.6 million. The range in gain is due to deal structure and timing.

As we also previously disclosed, we accelerated the depreciation on a component of GWP that we replaced during the quarter. This resulted in a one-time charge to the private bank segment of approximately $2.7 million.

Finally, I would like to make a general comment on expenses. We've experienced expense growth mainly in the personnel area around compensation and benefits over the past year. This increase is driven by increased sales compensation directly related to stronger sales results, an increase in our overall incentive compensation costs as a positive consequence of improved business results, and an increase in expenses related to the digestion and management of the expanded global regulatory and compliance environment. All of our business units, as well is our general and administrative areas, have shared in this expense growth. I will now take any questions you may have.

(Operator Instructions) Robert Lee with KBW.

Just a quick question LSV, could you just for our records here, could you quantify the modest outflow at LSV?

It was negative about $700 million.

Okay.

A chunk of that was really rebalancing, though, client rebalancing.

Okay. And also, just that the expected gain from selling the South Korean business, I know it's a pretty wide range, but was that an estimated pretax or after-tax impact or--?

After tax.

After tax, great. That was it, thank you.

Chris Donat with Sandler O'Neill.

Good afternoon, just another one on the Korea transaction. Did you say that would be before first quarter or after, sorry for the misunderstanding?

Yes, before the end of first quarter (multiple speakers). It could happen in the-- yes, it could happen by the end of the year, but we're really thinking more towards the end of first quarter.

Okay, and then you wouldn't book the gain until it actually closes, correct, not when it's --

Correct, when we close and then there are a couple of earn out periods that we would book additional gain as those occurred.

Okay and then I guess that last part, so with the wide range that $8.9 million to $20.6 million, is earn out structure one factor that is for the wide range, I'm just trying to understand why this is as wide as it is?

Yes, and it's really, Chris, you know in deals like this part of this structure would include things like what the business look like on the date of close versus the day you entered the transaction. So where revenues are, client retention post the transaction, so there's different metrics that would affect the ultimate price of the deal a, on closing and then b, a couple years after closing.

Got it, okay. Thanks, Dennis.

(Operator Instructions) Glenn Greene with Oppenheimer.

On Korea the revenue and expense impact to be thinking about going forward as we take that out of the business?

Yes, it's pretty minimal and this business actually was part of Banking, but the impact is a few hundred thousand dollars in profit a quarter. So very minimal.

Okay.

And a way to get a direct feel for that frankly is on our income statement you'd see income contributable non controlling interest, that's essentially the 47 -- or I'm sorry 44% that we didn't own. So you can back into what the income was year to date or for the quarter off of that number.

And how meaningful a revenue number is it?

A few million a quarter I think.

Okay and then finally the LSV revenue in the quarter?

I meant to give that to you on my comments, $74.2 million.

Okay great. Thanks.

I meant to explicitly say for Glenn, $74.2 million and I missed that.

Thanks.

There is no one else in queue with the question at this time.

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

Yes, thank you, Al, and good afternoon. Today I will give you an update on our activity and a review of the current financials for the Private Banking segment. I will focus primarily on a comparison to the second quarter of 2012. Revenue for the quarter increased 4% to $92 million. Nonrecurring or one-time revenue associated with the implementations and other client projects was a strong contributor to revenue growth. Expenses for the quarter are primarily due to the $2.7 million one-time write-off of previously capitalized software, GWP infrastructure costs as we convert larger clients, hone our operation for efficiency and increased client satisfaction in the UK and build our operation in the US. Also sales and marketing costs related to our US launch and overall increased sales activity.

Turning to new business. With a strong new business quarter, net sales events were $10.3 million, approximately 80% of this is recurring revenue. In the US, our investment processing pipeline is accelerating as we get closer to delivering GWP to the bank market and our sales activity is now exclusively GWP. During the quarter, we extended and enhanced our multi-year partnership with SunTrust into 2020. SunTrust is currently an ASP client. As part of part of the arrangement, SunTrust will soon be SEI's largest BSP client. During the quarter, we renewed six clients recontracting $14 million. In the UK, in early August we announced the signing of Guardian Wealth Management, a large independent wealth advisor. We're also working hard to convert the backlog, grow assets under administration and build the new business pipeline.

GWP assets under administration at the end of the third quarter grew 13%, or $2.3 billion to $19.9 billion. Asset growth includes approximately $1.4 billion due to net new cash flow and $900 million to a market depreciation and currency movement. We have an unfunded but committed backlog of $4.3 billion of assets under administration from conversion or infrastructure clients that we sold in 2012. We expect this backlog to convert over the next 12 months. As a reminder, business transition clients convert over time and infrastructure clients typically convert 9 to 18 months after signing. To date in the UK, we have 20 signed contracts and 17 clients are now live. Finally as a review of our Asset Management Distribution business, any asset balances were up $1 billion to $18 billion total.

In conclusion, the investments we have made over the past several years are beginning to deliver positive sales results. Profitability will continue to be challenged near term as we build out the GWP business. We are working to drive the revenue as quickly as possible and controlling costs while building for scale. Any questions?

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

In terms of what Al was talking about as far as the amortization, or sorry the capitalization for GWP at $7.7 billion and I guess we're getting into the last major US tranche of the software, are we getting to the point where we're going to see much or significantly less capitalization to maybe more like 2013? And then the second part of that is in terms of the expenses, is it something soon you'll be sharing with other segments within SEI?

I'll actually answer the second question first. We do share some of the expense so the Banking segment takes the majority of the expense, but the Advisor segment also takes a chunk of the expense. Overtime I think the spending becomes more discretionary as the core is built out and we'll decide based on which markets are going to be impacted by that spending and divide some of the expense that way.

And to your first question, we're going to continue to invest in GWP. The core is largely built but the stuff we're building now, post say the US entry point will be around creating more efficiency of the platform as well as driving more revenue and overtime probably entering new markets. I think we'll continue to see investment, some of that will continue to be capitalized and some of that will be expensed.

Okay, thanks, Joe.

Thanks.

Chris, this is Dennis I would just comment on the $2.7 million accelerated depreciation why all that went to Banking if that's what you're maybe asking about as well, because that had to do with 100% with functionality of the platform in the UK market.

Okay.

And the Advisor segment and our other business segments don't operate there with GWP, just Banking does.

That was specific to our UK tax functionality and we decided to change third-party tax vendors and there were some costs associated with that change as well as some enhancement of the write-down.

Got it, thank you.

Jeff Hopson with Stifel.

Thanks, could you give us the amount of the one-time revenues in the quarter? And then the sales number, so did that include the SunTrust or can you give us a little more detail as to how many new business contracts I guess you signed in the quarter?

So we-- as far as one-time revenue, we always have some element of one-time revenue in our quarter -- in the quarters that's usually tide to one or two things. It's either projects for current clients or implementation projects.

Okay.

And we had a-- actually we've been signing a fair amount of additional business over the little last several quarters. We did have some higher than usual one-time, so for the quarter it was about 7.5-- sorry, it was closer to $8 million of one-time which where last quarter it was closer to $5 million. So the $3 million of additional one-time quarter over quarter.

Okay.

And from a sales standpoint, that two big deals for the quarter would be the SunTrust deal which is included in that number because the flip from ASP to BSP is increasing in our relationship with them, the Guardian deal in the UK and then some other smaller deals both in the US and some additional business and current clients in the UK.

Okay. And I'm sorry, of the $1.9 billion or $1.4 billion of flows, how much of that was new business converted I guess what, infrastructure versus cash flows from the transition of clients?

It was largely due to cash flows from the business transition clients.

Got it,.

We still have a pretty strong backlog of $4.3 billion from in structure clients that we'll convert over the next year or so.

Got it, okay, sorry one last question. Some of the financial services process providers I guess have been talking about a slowdown in decision-making in the last quarter or two, any sense for you guys, it sounds like your discussions have accelerated but any thoughts on that?

We're still pretty active. I think if anything we're -- Al mentioned he was on the road for a week talking to CEOs, some of our clients and prospects. I spent a fair amount of the time, my time doing similar things and I think we're -- we'd loved to see-- we'd always love to see decisions made more quickly, but I think the pressures that some of these larger institutions are under over time is going to help us get these decisions done and they'll be open to new models going forward. So we haven't seen that -- I haven't experienced that in the Banking business.

Okay, great. Thank you.

Tom McCrohan with Janney.

Hello, Joe. The UK pipeline, is there any update on the $54 million amount that you assigned to that UK GWP pipeline back in May?

I think the pipeline remains strong, the-- the good news is one is we're starting to see some of our current clients and the business transition asset starting to flow while we continue to work the pipeline. And I've said in previous calls the pipeline is skewing more towards infrastructure clients then business transition clients and it's skewing towards-- and we're focusing more on larger clients, those larger prospects may have longer sell cycles, but as we have built momentum and have created some scale and stability in the market we're looking at larger firms.

And again the pipeline that $55 million or so is just UK, not US, correct?

That's correct, yes. We're in still pretty early stages of the US, so we haven't really quantified that pipeline, but I'd say as I've said before it's strong and accelerating.

Great. And then just hoping you could just speak to how I'm viewing the recurring revenues that-- the projections you provided back in May. It seems like based on your projections, you get to about $45 million of recurring revenues from just the UK book by 2015. I think you called that a base case, but it seems like if you add to that some sort of conversion from the pipeline, and I think you said back in May you're expecting about a third of the pipeline in the next 12 months, just some assumptions around business transition clients getting more client assets, one-time revenues and not assuming anything up in the US it seems like that $45 million number if you add in pipeline conversion, (inaudible) business transition it would be more than 50% of assets and assume some one time revenue, you get to closer like $80 million revenue contribution from GWP just in the UK book. Is there anything you can speak to that's wrong with that thinking?

Well, I think that's really positive thinking. I think that we've got to continue with strong business transition flows and I think we're generally beginning to see that as some of these business transition clients have been clients of ours for a year or two where we're starting to see more predictable flows from them. And we are also being able to-- as we get more experience to be able to be more supportive of moving those assets more quickly and that number will also be largely dependent on our ability to sign some of these larger firms that are in the pipeline and continue to execute against the strategy. So, I think we believe there's a significant business opportunity for us in the UK over time. We believe that we've got some strong momentum there and continue to invest in efforts to grow that business.

But you still believe that you can convert about a third of existing pipeline, Joe, in the next 12 months?

Yes, I think -- as I mentioned as we're talking with bigger firms, the sell cycle is a bit longer, but I believe that that's still a pretty solid number for us.

Great. My last question, I'll jump off, you discussed GWP at all with SunTrust and if so, is there any feedback you got from them or anything you can talk about?

Yes, we're talking to all of our big important US partners and clients about GWP. I think that as you know the plan is to deliver GWP in the US in a BSP or an outsourced mode not in an ASP orientation. I've warned, talked to everybody that it's a little bit different, some of the words are a little bit different because GWP is such a straight through system that the concept of an operation starts to change over time because of the straight through nature of GWP. So I would view that large clients of ours that our ASP, that either flip to BSP or ask us to take on certain functions or certain services in the BSP mode, is a positive move towards the GWP solution. I think people are giving us more business in the US because they like the vision, they like the investment we've made, so I view that as these kinds of things as a positives step toward GWP.

Was that it for Mr. McCrohan?

That's it, thank you.

Robert Lee with KBW.

Thanks, good afternoon. First question, is there -- how should we think about a point where maybe you could start seeing the business scale up? Understanding your spending on building up the platform the US rollout for GWP, but as we look at business starts to -- new business wins pickup, revenue pickup, if we're thinking say it's assets under administration, is it-- when that gets to $25 billion is where you really start hitting a scale point? I'm just trying to get a feel for if there's any kind of metric that we can track externally that would be a place where literally the margin would start to accelerate from there or is it just not that black and white?

I which was black and white, it's not black and white. We -- I watched assets under administration really closely because probably 80% to 80% plus is tide to assets under administration, so that's what's really going to drive our revenue. We have 20 clients and some of them are smaller, they look more like our community bank clients from a revenue standpoint. So I think when you start to see us win some larger business, I think that will be key to us. I think we continue to build out the platform and make it more efficient. We continue to hone the infrastructure, so we for example, we largely leverage infrastructure here in the US when we had a handful of clients in the UK. We have I think made a significant step this year to move more of that UK operation to the UK because we think that's important to continue to improve client satisfaction and to drive more business on the ground there. There's some cost of making those changes, so there's a lot of moving parts, but I follow assets under administration and I am looking closely at as we're able to close larger clients and again I think getting into the US market which is substantially larger than the UK market and getting some of our current clients converted and winning some new business. And I think that we're still into this over the next year or so until we start to see it impact ultimately what's the most important to us which is profitability.

Okay and this is probably just a presentation or modeling type question, but you have call it $20 billion of GWP assets under administration, when you report your segment asset balances you report $11.6 billion, how should I be thinking of -- what's the difference?

This is Dennis, Rob, the $11.6 billion is actually like proprietary regional fund administration type revenues.

Okay.

It's the legacy business and banking. A lot of that has moved over the years over to the IMS group. So we don't report on that schedule in the earnings release that assets processed on the platform. That's something we could in the future but those two are not the same bucket of assets.

Okay and I don't know if maybe along those lines I don't know if you've broken it out, call out at least on a quarterly basis broken out separately, but if we look at the $92 million of revenues in the quarter, what would you attribute directly to, if you can, directly to the GWP platform?

We don't break that out yet in the reports. So we do break out our overall investment processing and then some of the transaction based things like brokerage and then asset management where we actually have discretion of where we manage the portfolios, but we haven't broken out yet trust versus GWP at this point.

Okay, those are my questions. Thanks.

Glenn Greene with Oppenheimer.

Thanks, you're getting a lot of air time today, Joe.

I'm used to.

Just back on SunTrust, I'm a little curious how this works. They're obviously extended out to 2020, does that mean they're-- for the time being they're on Trust 3000, do they have a natural pathway to GWP or-- and is that incremental over time, how does that whole transition work especially generally selling GWP going forward?

So as you know we've talked a lot of our US clients about GWP and they're-- if you look at banks around the US, there's a lot of pressure in banks around financials. Certainly the interest rate environment, the regulatory environment has taken away a fair amount of revenue. Your Dodd-Frank doesn't necessarily impact the trust department or the private wealth area, but it does impact revenue overall at banks. And so, we've talked for a long time to our clients about the BSP model being a more efficient model for them to run their wealth processing infrastructure. And so, Sun like some of our other clients, BMO Harris, have agreed that it does make sense to do that and so as part of that relationship and arrangement we are moving them from ASP to BSP and as part of that we extended our overall relationship with them from a timing standpoint to 2020. My expectations are though that we would move these clients to GWP prior to the ending of that contract, but it does just lock in our current relationships for a longer period of time and then it certainly opens -- nothing precludes us in fact it opens the door to talking about the benefits of moving to GWP. But it's a good step towards that given that we would (inaudible) GWP in a BSP model.

Okay. And then on the interest of time I'll just ask one more, but the expense run rate to think about absent if we exclude the $2.7 million write-off is this a good run rate going forward and in the context have you talked about profitability remaining under pressure over the near term?

There's a number of-- unfortunately there's a number of factors, so I hope we sell a heck of a lot more and my sales comp numbers go up because we've made obviously a huge investment in GWP and we want to have SEI's quarters that are-- we had a good sales quarter, we want to have sales quarters that grow substantially larger than that in the coming years, so I would expect some of those expenses to go up. I would expect things like client service and relationship management expenses to go up. And then we try to balance those as best as possible with creating efficiency around the operation and overtime not investing in technology at the same rate we've invested today. But that's a balance that is achievable in short periods of time like the next three months or so. So we work closely to control expenses, but it will stay a little bumpy as we bring on some new clients and don't realize the revenue right away. But we're certainly mindful of trying to manage those expenses as tightly as possible.

Okay, thanks.

Sam Hoffman with Nomura.

Thanks for taking my questions, I just had two questions on the development of the platform and the margins. Can you talk a bit about what is happening operationally on the ground that prevents the margin from increasing, is it mainly that the investments in the platform are taking longer and more expensive than it's been expected or is it that clients are acquiring more customization than you expected for each client?

No, I would say if you look at the maturity of the platform it's still a pretty young technology and so we have invested a fair amount in it in additional functionality and new features as well as entering the US market. We're turning some of our investment now from a technology standpoint towards making the operations more efficient. Our goal is always to -- our thought is always to invest in technology to try make the operation more efficient and scalable. We're just getting to some of those investments, now. And so there are probably more manual processes in the operation than we would like and we will really start to kick off a number of situations where we will create more technology to make the operation more scalable. Probably the operation isn't as scalable as we would like it to be.

And I use the word hone earlier, so we've learned a lot also in the UK market. For example, mutual fund trading is not nearly as automated in the UK as it is in the US. So that's an area where we've had to spend some -- put some more people and more resources and overtime we would hope to try to automate that as much as possible. I mentioned earlier that we largely moved the UK operation from a leverage organization that was primarily based here in the US to an on the ground organization to be closer to the clients, to I think enhance our client satisfaction, to be able to convert assets more quickly, to have people in the market that understand the nuances of the market. So that adds some cost to the infrastructure. But I think we're working every day to determine how to make this the most efficient organization possible and we'll continue and invest from a technology standpoint and overtime I think that will scale the operation so we're more efficient and profitability improves.

Okay and second question is can you give an update on the progress in terms of converting Cullen/Frost and [Centier] here in the US?

Yes, we are on target to convert Centier at the end of this year and then we would convert Frost/Cullen sometime probably around the middle of next her.

Okay and then just one clarification on SunTrust, just the amount that you booked as sales, is that the amount which is the increase in revenue that's going to come from SunTrust or does part of that come out of one area and into sales and so we shouldn't really count it as the increase in revenue just from an accounting standpoint or modeling standpoint, how should we think about the number that you gave us for SunTrust?

Yes, so we book, we call it net sales event growth. So we would book the additional revenue that we expect based on this newly negotiated SunTrust enhanced relationship. So only the additional net new revenue from them would be considered part of the $10.3 million net sales event number that I announced today.

Terrific, thanks for taking my questions.

Eric Bertrand with Surveyor Capital.

Hello, it's actually [Peter Seuss], how are you Joe?

Hi, Peter.

Just a couple of quick questions, one ex-GWP, is this segment still generating about a 35% pretax margin, I think you've given that number in the past?

Yes absolutely, in fact it's actually increased a little bit so we've had some focus on that and yes the Trust 3000 business and the rest of the business has margin between 35% and 40%.

And as your client servicing and relationship management expenses go up, should we think about one-time revenues going up with them?

Well, we -- I think as we work with larger organizations that are often more inclined to want customization or the conversions are more complicated, that's generally where we start to see one-time revenue opportunities.

And is there any way that you could give-- it just sounds like there's a lot of moving pieces. This year you've had a little bit of incremental investment spend and I guess you have some sales commissions, can you just give color on what the core run rate expenses are for GWP excluding any sales commissions or one-time investment spend that you've had? And what I'm trying to get at is just when I think about the $80 million number that Tom gave earlier, I know you guys gave $50 million as a minimum for 2015, but I think it's probably pretty easy to get to the $80 million number, I'm just trying to think about on an ongoing basis, what kind of a pretax profit or I guess a little bit of a loss that would imply in 2015?

Yes, we-- I've talked a little bit about expense run rates at the summer annual investor conferences and so I would refer you back to those last couple year presentations to take a look at some high-level numbers around the expense run rate. Our ultimate goal here is that we believe we can get the GWP business to be as profitable, if not more profitable, than our current book of business, the trust business and that is why we're investing significantly in it. I would say that we're -- there are a lot of moving parts and we are in multiple markets and we do continue to invest and the operation isn't fully scalable yet and we are -- we have 20 clients but they're smaller and as we get larger clients we think we will gain scale. But I'd refer back to those meetings for some direction around overall expenses.

Yes I think if I recall you've talked about around $100 number-- $100 million number for core expenses, is that -- and so then if you did $80 million in revenue in 2015 it would imply a little bit of a loss for GWP, but if you look at the 35% to 40% pretax margin ex-GWP you actually get to more of a 20% plus pretax margin for this overall segment. Does that sound reasonable?

I think you're directionally correct but the goal is to get this to fairly substantial margin like our Trust 3000 businesses that my colleagues run. The timing is the hardest thing to predict here but as both Al and I said, we are having terrific conversations in the market with our clients and prospects and we see -- we made this investment because we think it's a significant opportunity for us that will ultimately drive strong profitability. Timing is the hard part to predict.

Yes, no for sure. What's so good though about what Tom said is that it seems like in 2015, those numbers are just with your existing contracts and existing pipeline which is just UK. So it's not -- it's almost-- it's a pretty conservative number when you think about what you're doing in the US. So anyway just thanks for the thoughts and best of luck. Thank you.

Eric Connerly at Robeco.

Hello, Joe. Could you rough out for us what an additional $1 billion or sterling from existing clients for GWP would contribute to the operating profit line annually?

Yes, I'm not prepared to do that. I think we've talked about that we charge somewhere between 10 and 25 basis points depending on the complexity of the clients and their overall commitment to us and the timeframe of that commitment. And so, I think we've given-- tried to give some indication around revenue and we're doing our best to scale this operation and not spend every new dollar of revenue on cost. But we're not really disclosing or sharing those kinds of models at this point. Frankly, we don't have enough experience I think to do that yet, we're still in early days of this.

Okay, would the contribution margin be similar to what it is for Trust 3000 for new --

Not on the next billion, no, but again the long-term goal is to get there.

Okay, thank you.

Peter Heckmann with Avondale Partners.

I had a follow-up question, you mentioned the BMO Harris relationship renewing on Trust 3000 and I was curious if that's inclusive of the M&I merger?

We've extended our relationship up with BMO Harris. We talked about that several calls ago and so that's not included in the $10.3 million that I announced this afternoon, but we have extended our relationship with BMO Harris and have taken on additional business based on their growth strategy.

Was that it, Mr. Heckmann?

That is it.

Okay, thank you. No one else in queue with a question at this time.

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

Thanks, Al. During the third quarter, we had good net cash flow, increasing momentum and a full quarter of GWP operations with our early adopter clients. Assets under management was $33.1 billion at September 30, a 4.3% improvement from June 30. During the quarter, we had $511 million of positive net cash flow, this is the highest quarterly cash flow we have received since the first quarter of 2002. Cash flow momentum remains strong. Revenues for the quarter were $51.4 million, a 4.1% improvement from the second quarter. Margins improved only slightly as we increased staff to support our volumes, enlarged our sales force and saw increases in variable compensation related to our overall business and sale success.

On the new business front, we signed 124 new advisors during the quarter, our pipeline of new advisors remains very strong. Moving to the status of our GWP rollout, our early adopter advisors have now completed a full quarter of operations on GWP. This continuation of the GWP beta rollout is going well. We are on track to convert our second set of early adopter clients at the end of November and still expect to be getting more generalized rollout of GWP beginning in 2013. We continue to receive positive feedback from advisors with respect to our GWP strategy.

In summary, net cash flow and new advisor recruiting were positive for the quarter and momentum continues to build. The impending rollout of GWP has helped build this momentum and I'm excited about the platform's rollout to the entire market beginning in 2013. I welcome any questions you have.

(Operator Instructions) Jeff Hopson with Stifel.

Okay, thanks, Wayne, so when you're talking about the fact that this conversion is helping the momentum, are you talking about the pipeline of advisors that are more interested in joining you guys or how do you think about that?

Yes, I think what it does is it helps our brand and helps people get interested in doing business with us because they see us as a forward thinker. So they're willing-- so they convert over to our existing platform in hopes of moving to the more robust plan from in the future. So we're not seeing what I would really called GWP related revenue right now, but it's helping our conditional book of business.

Okay, and as far as the early adopters, anything that you're learning there as far as I guess coming out of it as far as behavior, et cetera, that you can share that is helping or hurting them, I guess on GWP?

I guess what I'd say is the early adopters are very engaged in the platform and very engaged in our success and we're getting a lot of true on the ground type of experience as to how to make the platform better. And we weren't 100% right in every area, but we're making modifications in respond to their feedback quickly and it's going very well.

Okay, thanks.

Peter Heckmann with Avondale Partners.

Good afternoon, Wayne, I wanted to follow up on some of the comments you had made at the analyst day as regards to the flexible tamp functionality. Can you talk about what type of market interest you're seeing there and if a portion of those strong flows we saw in the quarter may have been existing advisors that were in managed products that are bringing some additional assets over to allocate towards more of an AUA or third-party products?

Yes, Pete, that's actually a good way to look at when I say GWP is contributing to the momentum. When I talk about the $511 million of positive net cash flow, that's cash flow into existing SEI investment programs. That is not cash flow into non- SEI programs. And as you recall one of the bedrock of flexible tamp strategy is we will accept afore fee both SEI assets and non- SEI assets. So while the $511 million is solely SEI assets, they're doing that in anticipation of perhaps being able to consolidate their non- SEI assets onto the SEI platforms so they have a single operation.

Got it, that make sense. And so, in terms of the tranche, are we talking about between the early adopters of the next tranche is that 1%, 2%, 3% of advisors, more than that and how do you anticipate the milestones through 2013?

Well, I think when I look at the second early adopter clients that we're proving out the technology now. I would say the second early adopter clients I look at proving out our conversion strategy because part of our objective is to move to this new platform without any effort or disruption of our advisors business, so we want to have them to have a very good experience and we're working hard on that right now and early adopter [speed] will help prove that out. I think as I go into the 2013, we expect to be able to convert 10, 20, 30, a lot of accounts at once as opposed to converting 2,000, 3,000 accounts at a time.

Okay, okay. And last question there is that I think Al mentioned at the analyst day maybe a little bit increased appetite towards acquisitions and there's been a lot of M&A activity in this space around advisor technology and flexible tamps and would you say that there are -- that SEI has an appetite within this area and if there are any holes that you're looking to fill in terms of the functionality?

Well I think that NorthStar acquisition filled some holes for us. I think can't think of any other holes that an acquisition would fill at this point, but the other way to look at that is we're building this end to end unified platform straight through processing, it includes front middle back office functionality. And as there are a lot of acquisitions going on in the marketplace and advisors have cobbled together end to end solutions that incorporate or integrate different providers, the acquisitions of some of those different providers create some disruption in the marketplace and that's an opportunity for us.

Okay, I appreciate it.

Robert Lee with KBW.

Real simple question I'm just curious in the quarter, if I look at a simplistic fee realization rate to average assets it's jumped up a little bit or maybe it's been trending up a little bit, is that simply just the mixed shift towards more equities as markets have rebounded or is there any thing within revenue or types of products that's putting some upward pressure on the fee rate?

I think a lot of that is the leverage that 's just inherent in the business. As the values go up, there's a lot of leverage embedded in the realization rate in funds.

Okay, that was it. Thanks.

And no one else is in queue at this moment.

Thank you, Wayne. Our next segment is the Institutional Investor segment and I'm going to turn it over to Ed Loughlin to discuss this segment.

Thanks, Al, good afternoon, everyone. I'm going to focus my remarks on the financial results and also the continued progress we've made during the third quarter compared to the second quarter of 2012. Third-quarter revenues of $58 million increased 4% compared to the second quarter primarily due to new client fundings and market appreciation. Operating profits of $28 million increased 5% compared to the second quarter. Quarterly margins of 49% were similar to the second quarter. Quarter end asset balances of $63 billion reflect the $4 billion increase compared to the second quarter of 2012 and net new client funding during the third quarter was $953 million. The backlog of committed but unfunded sales was $1.5 billion at the end of the quarter.

Client signings for the third quarter were $2.7 billion and total $8.2 billion year to date through September. New sales have returned to pre-crisis financial-- pre-financial crisis production levels as Institutional Investors continue to seek a fiduciary partner who can actively manage managers, near-term asset allocation and also plan liabilities. SEI's fiduciary management program has a proven track record of adding value for clients in these areas and competes favorably in the outsourcing space. Our pipeline remains strong and we continue to be optimistic about the growth opportunities in the Institutional space. I'm happy to entertain any questions you might have.

(Operator Instructions) Jeff Hopson with Stifel.

Hi Ed, so when you look at RF activity, some of the closings and some of the things that are out there I see a lot of CIO outsourcing indications, I guess. And obviously that's helping you guys. Is that -- does that represent the type of business that you're bringing over today for the most part?

Yes, I think that the space has really expanded to your point. At one point there were primarily managers in this particular space. Our solution has always been broader than that because of the fact that we took on fiduciary responsibility 16 years ago. So whether you call it outsource investment office fiduciary management, you can call it a variety of different types of things, but having more competitors like that in the marketplace is generating more activity. And I think we're benefiting from that.

Okay, so you would say that clients making a decision as time moves on actually more competitors in the market would be helping this whole issue of, I don't know who came up with this term, but fiduciary fatigue I've heard, anything else out there regulatory that you think is helping at the-- helping accelerate momentum, I guess?

I think that the complexity around pension certainly is helping because of the fact that it is a more complex environment. I think the other aspect of this is in a low return environment I think clients are really forced to look at different types of investment strategies. And as it relates to pension plans in particular, I think anything new creates an opportunity because many times there's not in-house expertise on that like alternatives or really like liability management. And I think those are positive catalysts for us.

Okay, great thank you.

And there's no one else in queue with a question at this time.

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

Thanks, Al, good afternoon, everyone. For the third quarter of 2012, revenues for the segment totaled $49.3 million, which was $2.6 million, or 5.6% higher than the second quarter of 2012. This quarter-over-quarter increase in revenue was primarily due to an increase in our asset balances and new client fundings. Revenue on a year-over-year basis increased $3.7 million, or 8.2%. Our quarterly profit for this segment of $17.2 million was approximately 3.9% higher than our profit for the second quarter of 2012. This profit was also 6.3% higher than our profit for the third quarter of 2011. The quarter-over-quarter increase in profit was largely due to our increased revenues, partially offset by an increase in our investment, operational and compensation expenses.

Third-party asset balances at the end of the third quarter of 2012 were $241 billion, approximately $9.4 billion or 4.1% higher as compared to our asset balances at the end of the second quarter of 2012. The increase in assets was primarily due to market appreciation of $7.9 billion combined with net positive cash flows of $1.5 billion. During the third quarter of 2012, we had net new business sales events totaling $7.1 million in annualized revenue, this represents another solid sales quarter. Of equal importance, a majority of the sales came from expanding our wallet share with existing clients. As you'll recall, this continues to be a key strategic initiative for us.

Turning to the market, despite the traditional seasonal slowdown in the third quarter, we continue to see encouraging activity in the market and managers continued to make decisions. We remain optimistic at this continued activity in the market and feel well positioned for growth. I will now turn it over for any questions you may have.

(Operator Instructions) Robert Lee with KBW.

Just one quick question or maybe two, but in terms of the rate of which new business is coming on and we've seen a little bit of an upper trend again in the, I'll call it the fee realization rate, is there-- is the new business that you're taking on is that coming on incrementally higher fee because of mix or for whatever reason compared to the legacy book? Or how to we be thinking about that going forward?

No, I think if you're asking as far as pricing terms, no, I think pricing-- there is price pressure out there but we continue to bring on business at historically what we have-- the pricing terms we have. I think maybe a little bit of the uptick this quarter was again if you looked at this business was the majority taken from existing clients that typically within the clients that it came from might have a little bit of a higher rate depending on the product if they're alternative versus traditional. So the mix of the assets this quarter might have been a little bit of higher products but I wouldn't say I'm ready to say that's an ongoing trend.

Okay, and maybe just I guess over the last several quarters, you've had a couple of large competitors sell, I guess GlobeOp and Goldman getting rid of-- selling its business at State Street, are you seeing any kind of increased RFP activity or dislocation or opportunity related to some of the M&A activity out there?

We are seeing a little bit of a spike in RFPs and what I would say is I think we definitely -- whenever there's a change like that, you typically go through phases. People take a wait and see attitude, but typically in the mid- to long term, you do see opportunity flow from transactions like that and I think we are seeing that.

Okay, that was it. Thanks for taking my questions.

And no one else is in queue at this time.

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

Thanks, Al. Good afternoon, everyone, I have some additional Corporate information about this quarter. Third quarter 2012 cash flow from operations was $70.8 million, or $0.40 per share. Year-to-date September cash flow from operations, $145.9 million. Third quarter free cash flow was $57.7 million, or $0.33 per share, and year-to-date free cash flow, $98.2 million. In the third quarter the capital expenditures excluding the capitalized software were $3.5 million. The year-to-date capital expenditures, excluding capital software, about $20 million and we would expect about another $3 million in the next quarter. The accounts payable balance at September was $3.6 million.

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

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

Hello I don't know if Ed's still on the line, but just looking back at some of the numbers and comments-- commentary about competition, with the operating margins just under 50% for awhile here, I'm just wondering if with more competition you're seeing anything on pricing in your business there, Ed?

Chris, at this particular point in time I think if you were to look at the pricing realization I think is going to reflect the fact that we have had a pretty good successful year as far as bringing in larger clients. So larger clients their effective C rate continues to go down with more assets that they bring in. I think the thing that we have to really keep an eye on is just this whole issue of pricing transparency. As the market moves more towards that, some of the newer competitors, especially in the consulting space, they're moving from what used to be a fixed fee and potentially they have I think the ability to really confuse and cloud the pricing issue because they may not really price their services for the value that really needs to be delivered.

Okay, that helps. I was just wondering if there was anything -- what some of the dynamics are out there since you are about right now about 40% of the operating profit for the Company, so, I thought at least one question should be out there or another question out there. Thanks.

Tom McCrohan with Janney.

Hi, thanks. Quick question on amortization then a follow up on consulting and professional fees. With the pending release of I guess 13.1, the US functionality for GWP, does that mean there will be some accelerated amortization going to the P&L when that goes into production?

There won't be accelerated amortization, but when we put that asset-- when we turn that asset live, we'll begin to amortize it over the remaining life is about 9.7 years, so would amortize over that timeframe, Tom.

(Inaudible).

There'll be a slight pickup in quarterly amortization expense as a result.

So, the recent case in Q say that the GWP platform is amortized over 15 years, is that dropping to 9 or are you talking about (multiple speakers).

No the original life was 15 years and we brought it into service as you remember in the summer of 2007.

Yes.

So we're five-- over five years into that original life. We have 9.7 years left.

Got it.

So anything new we bring live we amortize over the remaining life which is at 9.7 as of today.

Okay. And Dennis, in terms of consulting outsourcing professional fee that line item on your P&L, how much of that do you believe is related to GWP activities, implementation, conversion, that type of stuff?

How much of the total or how much of the negative delta?

How much in total or how much of your run rate of consulting, outsourcing, professional service fees?

Tom, I had a--I will only answer generally, I'd say that a significant portion of it is related to Banking. So it's GWP as well as some of the things we do on the Trust 3000 side, but also a piece of that is in technology development work as well as operational outsourcing services work we do in the IMS side.

Okay.

But those are the two markets and then advisor picks it up, picks up a piece as it relates to GWP.

Okay, thank you.

And at this time there's no one else in queue to ask a question.

Thank you, Kathy. So in conclusion, we're concentrating our efforts on maintaining highly satisfied clients, growing new business events, controlling costs and investing in projects critical to our future. Our focus on long-term growth in revenues and profits is unwavering and as our momentum grows in the near term, I really remain bullish about our intermediate and longer term business opportunities and the positive impact we'll make on the markets we serve. That's all that we have this afternoon. If you have any lingering questions, please ask them now.

(Operator Instructions) And no one else is queuing up at this time.

Good afternoon, everybody, and thank you very much for your attendance.

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