SEI Investments Co (SEIC) 2012 Q4 法說會逐字稿

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

And at this time we will turn the conference call over to your host, Chairman and CEO, Mr. Al West. Please go ahead, sir.

Thank you and welcome, everybody. All of our segment leaders are here on the call as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller.

I am going to start by recapping the fourth quarter and full year 2012 and I will then turn it over to Dennis to cover LSV and the investment and new business segment. After that, each of the business segment leaders will comment on the results of their segments. And then finally, Kathy Heilig will provide you with some important Companywide statistics.

Now as usual, we will field questions at the end of each report. So I am going to start with fourth quarter and full year 2012.

Fourth-quarter earnings increased by 27% from a year ago. Diluted earnings per share for the fourth quarter of $0.32 represents a 28% increase from the $0.25 reported for the fourth quarter of 2011. Now for the year 2012, our earnings increased by 1% over 2011 earnings and our diluted earnings per share for the full year of $1.18 is a 6% increase over the $1.11 reported in 2011. I'm sorry in 2000 -- yes, in 2011.

We also reported a 16% increase in revenue during the fourth quarter and a 7% increase from 2011 to 2012. Also during the fourth-quarter 2012, our non-cash asset balances under management increased by $5.6 billion. Of that SEI's assets under management grew by $3.5 billion during the quarter while LSV's assets under management grew by $2.1 billion.

Finally, during the fourth-quarter 2012, we repurchased 1.9 million shares of SEI stock at an average price of just over $22 per share. That translates to over $41.7 million of stock repurchases during the quarter and for the entire year the numbers are 7.5 million shares purchased at an average price of $22.60 a share, representing $155 million of repurchases.

I would also point out that during 2012, the Company return to shareholders close to $300 million of capital through regular and special dividends and stock buybacks. At the same time, we strengthened our balance sheet and added to our capital.

Turning to revenue sales, our new recurring revenue sales remain strong. We generated over $27 million of net new sales events of which $21.7 million will be recurring revenues. Each of the segment heads will address their sales activities. Now we are continuing our investment in GWP and its operational infrastructure, so critical to our future. During the fourth quarter we capitalized approximately $5.1 million of the global wealth platform development and amortized approximately $7.8 million of previously capitalized development. And our development agenda for GWP is to further automate our operations and deliver US functionality so important to the advisor and banking markets in their entry to US markets.

Turning now to our business segments. In the banking segment we are increasingly encouraged with our sales activity and our intermediate-term revenue potential associated with the rollout of GWP. At the same time, we are working hard to manage the cost of building scale, absorbing new business, and keeping pace with the challenges of a rapidly changing UK and US regulatory environment.

Our GWP sales and marketing efforts are concentrated on launching GWP in the US as well as continuing our success in the UK GWP market.

In the advisor segment, we have made solid progress in improving our asset gathering and advisor recruitment. And the rollout of GWP to this market is an important part of accelerating this growth.

In the institutional segment, the market adoption of our differentiated solution is reflected in our strong sales results for the year. While we are encouraged by this, we will continue to improve our offering to help us maintain this momentum.

Finally, our investment management services segment had a strong sales and client delivery year. We are a proven leader in this service industry and despite the good problem of having a lot of new business to absorb, we are excited about our future prospects.

Now behind all this I continue to be encouraged by the feedback I am receiving from clients and prospects across our Company's target markets. And our sales activities and events and all units confirm this. We believe our investment in infrastructure and new service offerings, coupled with our financial strength, positions us well for the long-term growth.

Now 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 will turn it over to the other business segments. Dennis.

Thanks, Al. Good afternoon, everyone. I will cover the fourth-quarter results for the investments and new business segments and discuss the results of LSV asset management and address a couple of additional items.

During the fourth-quarter 2012, the investments and new business segment continued its focus on the ultra high net worth investor segment, 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 and new business segment incurred a loss of just under $3 million when compared to a loss of $2.8 million (technical difficulty) the third quarter.

There has been no material change in this segment and we expect (technical difficulty) segment to continue in this range during 2013.

Regarding LSV, our earnings from LSV represent our approximate 40% ownership interest during the fourth quarter. LSV contributed approximately $25 million in income to SEI during the quarter. This compares to approximately $24.9 million in the third quarter of 2012. The increase in income is due to an increase in revenue from higher asset balances during the quarter, offset by an increase in year end compensation expenses. Asset balances grew by approximately $2.1 billion from the quarter due to increased market valuations offset by slightly net negative cash flows. Revenues for LSV for the quarter totaled $75.4 million.

In addition to the business update, I wanted to review a couple of events that have occurred during the quarter. First, during 2011, SEI made an initial equity investment in a Shanghai, China-based wealth services firm named [Gaufou]. During the quarter, we increased our investment and now own approximately 23% of this company. With this increase in investment and ownership, we were required to capture in our earnings our share of the accumulative losses of Gaufou since our initial investment in 2011. This resulted in a decrease in equity and earnings (technical difficulty) consolidated affiliate of $1.3 million. Our total investment made to date is approximately $10 million. The ongoing impact to earnings per quarter is expected to be approximately $300,000.

Gaufou presents SEI the opportunity to financially participate in and learn firsthand about the developing investment in the wealth services market in China serving the needs of the emerging and rapidly growing high net worth and mass affluent markets.

Another event during the quarter we are happy to report on is the end of the SIV story of SEI. During the quarter we sold our last SIV holding, Gryphon. We were able to sell the security to gain and I refer you to the earnings release for details. This sale occurred and closed during the fourth quarter. We are happy to finish the last chapter on the SIV story.

I will now take any questions you may have.

(Operator Instructions). Jeff Hopson, Stifel Nicolaus.

The expenses in the new business triple upward. Is that related to NorthStar? And then in terms of use of cash flow for share repurchase going forward, will that approximately track cash flow from earnings from here? The question I guess is you've had balance sheet cushion, the SIVs are gone. Any thoughts of even more aggressive share repurchases from here?

Sure, I guess. On the expense side it's really kind of fourth quarter type expenses that you get more towards the end of the year. And we are doing a couple of other things in the investment new business segment around NorthStar, which is discontinued, but also some mobile technology work that we are exploring and areas around social media. So it is a little bit of creep in a couple of areas, but really not that material going forward.

On the stock buyback side, I would answer it the way I have always answered it, that we don't really commit to a capital amount that will deploy, but it is safe to say that when we look at our use of capital going forward, it will be fairly consistent with our use of capital in the past. At first it's a reinvestment of the business and second to return at the shareholders, mainly through buyback.

But is it fair to say that the reinvestment in the new business, given the stage of GWP, will theoretically moderate from here or go down?

I like the word theoretically. Generally we do have some -- as you know we have some continued investment analysts commented on that as we pushed to get into the US market full tilt. That will occur at this year probably. We always have investment. We always want to reinvest in our businesses, but certainly over time, that capital -- the use of capital in that space will come down, which just gives us more capital to buy towards something like stock buyback.

Thank you.

Tom McCrohan, Janney.

Thanks for taking the question. Dennis, regarding LSV during the quarter, I guess some insiders, employees purchased some ownership of this affiliate and I couldn't figure out from any of the regulatory filings what percentage ownership this group now has. Can you confirm how much they own in percentage terms?

I guess I think what you are referring to is that some of the employees, some of whom already had partnership interest acquired additional partnership interest from other partners.

Yes.

And they set up, they usually set up a private partnership to acquire that partnership interest to borrow the money necessary to enter that transaction and then use that partnership as the flow through to pay off that debt. So and all we do generally is guarantee, act as a guarantor against that debt. But it's really no -- it's nothing new for us. It is something that LSV -- has occurred at LSV, I think this is the third or fourth transaction of that type. It really is a -- it is a way to move partnership ownership from partners who want to liquidate a little bit to current employees that are key to the partnership, good solid employees that want to have the opportunity to buy in.

The $77 million that was sent from these internal employees purchased how much percentage of LSV?

I forget the exact percentage. I think around 8%.

8?

Give or take, yes.

And the -- that seems kind of high given how your ownership interest only went down by 1.4%.

They didn't buy it from us. Our ownership interest went down in the second quarter of last year as part of an equity distribution plan that we and the other partners keep partners at LSV put in place a number of years ago to facilitate equity distribution to ownership distribution to key employees. Clearly separate transaction or separate event. And if you go back to last year's second quarter Q, and even prior filings, you would see more detail on that.

But essentially we contributed roughly give or take 3% of our ownership interest to that fund, if you will. We retain our ownership interest in that until it is distributed to employees. And I think there is about 1% of ours left to be distributed out of that fund. That is clearly separate from the transaction that occurred during the latter part of this year. (Multiple Speakers).

Yes, that was helpful. Thanks. That's all I had.

Robert Lee, KBW.

Good afternoon. Just quickly on back to LSV a little bit. I'm just wondering if there is any color you can provide on their own kind of RFP activity, business pipelines. I note their general style has been somewhat out of favor for a while, but any kind of update on what they are seeing and maybe any kind of performance update if there is any kind of particular strategies that -- good bad? Just trying to get some additional color on it.

Yes, generally, their more recent performance although then kind of the sector they are in, the value sector has been good. They still -- they are challenged a little bit with that three-year, five year type performance numbers. Their cash flows during that quarter were -- although they were net negative, they did have about $600 million of new money come in from new clients. And part of their lost cash was, if you will, were really rebalancing cash that they -- or assets they lost as a result of clients rebalancing their portfolios. Not leaving LSV, just reducing their position with LSV as a result of their restructuring their overall portfolios.

So there is still -- they are active in the market. They are selling, they are adding new clients. Their intermediate term performance which we are in kind of moving away from has really progressed this year. Those numbers will drop off, if you will. But they feel like they will continue to sell and grow.

They're smaller cap products, the ones that have done well and they are, they have closed some of those products. But I think they feel pretty positive about where they are.

Great. Thanks for the color.

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

Good afternoon, everyone. Dennis, I don't know if you want to address it now or later, but I am wondering if there is any update on the Korean business, SEI AK. You disclosed previously you expected a net after-tax gain of something like $9 million to $21 million. I am wondering if either any update on timing or size of that amount.

I guess the only update is that there is no update. Everything kind of holds and we still expect end of first quarter.

That's all I was looking for.

At this time we have no additional questions in queue. Please continue.

Thank you, Dennis. And I am now going to turn it over to Joe Ujobai to discuss our private banking segment.

Thank you, Al. Today I will give you a review of the current financials and an update on our activity in the private banking segment. I will focus primarily on a comparison to the third quarter of 2012 as well as a short review of the full-year 2012.

Revenue for the quarter increased 5% to $96.5 million. For the year, revenue also increased 5% to $365 million. The revenue increase for the quarter and the year was largely due to increased GWP assets under administration, resulting in growing GWP recurring revenue; increased assets under management in our distribution business; and in the US, increased mutual fund trading activity and one-time revenues from Trust 3000 clients.

Expenses for the quarter and the year were largely due to direct costs associated with higher assets under management, sales and marketing costs due to increased sales resources and signed events, and costs associated with continued GWP development, operational build out, regulatory changing compliance and amortization.

We are working hard to manage cost as we grow the GWP business. Profit improvement is slower than any of us would like and sometimes choppy, but we will make progress as we grow our revenue and scale our operational and technology delivery.

Turning to business development. New sales events for the quarter including GWP, other cross sells to current Trust 3000 clients and increased transaction activity was 20 -- sorry, $12.3 million. Approximately 60% or $7.4 million of this is recurring revenue. Net sales events for the year were $38.6 million and approximately 60% or $24 million of this is recurring revenue. This represents a significant increase over prior year recurring sales events. As a reminder, it takes anywhere from nine to 18 months for recurring revenue to matriculate.

In the US, during the quarter, we converted our first US Bank to GWP. Centier is the first SCI bank client to migrate from Trust 3000 on to the new platform. GWP gives Centier a more robust infrastructure from which to grow and improve their client proposition.

Also during the fourth quarter, Kanaly Trust, a leading independent trust company, entered into an agreement with SEI to provide asset management and investment processing services utilizing GWP. Our investment processing pipeline is the largest that it has been in recent years and is now exclusively GWP.

In 2012, we significantly increased activity with existing clients and new names. We have invested in our global sales organization and are seeing progress in the quality and quantity of engaged prospects. 2013 is a year of sales execution for us in the US and continued sales momentum in the UK.

During the quarter, we recontracted 13 clients, at $11.5 million. For the year, we recontracted 33 clients for $33 million. For the first time, recontract statistics include a GWP client.

In the UK, we have broadened our relationship with HSBC Private Bank. The three primaries for the expansion are HSBC will be moving additional discretionary books of business on the GWP. HSBC will be consuming our new client acquisition services, the functionality we acquired from NorthStar and integrated into GWP. And our end client website and performance measurement will also now be consumed. While we have proven our ability to attract and grow new clients in the UK, I am very proud of our growing relationship with HSBC. We are also working hard to convert the backlog, grow assets under demonstration and scale the infrastructure.

Worldwide GWP assets and administration at the end of the fourth quarter were $22 billion. We have 24 signed GWP contracts and 19 clients are now live. We have an unfunded but committed backlog of $4.4 billion from conversion or infrastructure clients sold in 2012 and we expect this backload to convert over the next 12 months.

An additional contributor to our business is asset management. During the quarter, ending asset balances were up $1 billion to almost $19 billion.

In conclusion, all in all 2012 was a successful year in private banking on many fronts. Market awareness has grown and sales activity has increased significantly. US rollout has begun including the build out of a GWP US operation. We have consolidated our UK operating activities in London and are on a path to improved scale, quality of service, and greater efficiency.

We continue, however, to see substantial regulatory pressure on our clients, prospects and us. In the short to medium term, this regulatory activity can be distracting as we all respond to a rapidly changing environment.

Longer term, regulatory change has typically helped grow our outsourcing business as the markets look for solutions. The improvement in capital markets and the investments we have made over the past several years are beginning to deliver positive sales results. We remain focus on growing our existing clients, adding new clients, and closing GWP business in the US and the UK. We are working to drive the revenue as quickly as possible and manage costs while building scale.

Are there any questions?

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

I appreciate the commentary and I know you have all tried to help us with this before, but it takes nine to 18 months for the revenue to matriculate. Just trying to get at it another way. The $33 million of recurring revenue and the full year, can you give us any sense to our much of that was ultimately recognized as revenue in 2012? Or -- I'm just trying to understand some of the timing and what is flowing through from previously disclosed sales events into actual revenue at this stage.

I'm not sure what you mean by the $33 million. We recontracted $33 million. (Multiple Speakers). That was largely from our Trust 3000 and now (Multiple Speakers) so that will come over the course of the -- that is sort of the annualized revenue, yes, that will come over the core sell. It's there and it will continue because we have contracted them.

Right, sorry, I meant the $24 million of recurring that you mentioned midway through your comments.

So if you are referring to the $24 million of recurring revenue over the year. Some of that starts right away because some of that would be things like the mutual -- increases in the mutual fund trading business. And increases in some of our other products that we recognize right away.

But most of that would be traditional investment processing clients where there would be some form of a conversion project that would take, as I mentioned, anywhere from nine to 24 months. So not a lot of that is recognized yet. Most of that will start to flow into the financials in 2013.

(Multiple Speakers).

Glenn Green, Oppenheimer.

Good afternoon. A couple of questions. First on the sales activity and I guess I will ask for the full year. Either on the [38] contractor or the $24 million recurring, is there any way to give us a frame of reference how much of that is GWP related as opposed to core related?

We don't break that out. But it is -- if you look at the recurring, it is probably roughly half GWP-related. And then, some of that other recurring, I wouldn't say is direct contracts to buy GWP, but it is -- I think it is representative of the momentum we have in the market due to GWP's availability, so clients are committing to do other things with us. Whether that be a little bit more on Trust 3000 or some of our other products like I mentioned earlier. Things like our mutual fund trading capability. So I think the GWP momentum is helping us sell more business with current clients prior to their official move to GWP.

Okay. And then, if I look at the revenue in the quarter, the $96 million plus, very nice step up Q to Q and I know you had some unusual revenue in the third quarter if I recall, so even better if you sort of strip that out. And you called out some one-time revenue and some mutual fund trading activity that had stepped up. Maybe you can help us sort of think about the revenue growth in the quarter, how much of this was the mutual fund trading or the one time. And really what I am trying to get at is are we on a good quarterly run rate from here?

I think as we make progress, the run rate is getting increasingly more predictable. So it has come from a couple of things. So the increase in revenue in the quarter has come from, again, as I mentioned, some mutual fund trading activity, but also recurring revenue on GWP as we bring more assets on to the platform largely from current clients over the quarter.

So in your mind there was really like nothing unusual in terms of the quarterly revenue number?

No I think [Brookridge] was actually up a bit in the fourth quarter. That had -- we have a tendency to have a strong quarter in the fourth quarter. So Brookridge was up a bit and as I mentioned also, we are starting to see the benefits of the assets coming onto the platform and then I think our activity in the market is spurring other revenue increase.

One final one for me. Any way you could quantify the pipeline at this point, maybe break it down UK versus US for GWP?

I think the pipeline remains strong. We have talked about numbers in the $45 million to $50 million, $60 million range for in the UK. The underlying characteristics of the pipeline change a little bit. They are larger firms that probably have longer sales cycles and I think we talked about that. That is really where our strategy is headed.

In the US, the pipeline is growing nicely. It is obviously our clients are in earlier stages, but we are pleased with the activity and would expect over time (technical difficulty) start to turn into sales events.

Great. Thanks.

Robert Lee, KBW.

Good afternoon. A quick question. Maybe -- I don't think I heard one of the numbers correctly or --. The GWP assets, was that $22 billion that it is up to now?

That's correct.

So I guess if we wanted to think of that for maybe a kind of net new inflows, my guess would be probably half the sequential increase or so. Would that be a reasonable guess?

For the quarter, yes. About half was net new inflows. The other half some market appreciation and currency.

And maybe shifting gears to margins a little bit, I understand that you are still rolling on the US and all the other costs and expenses, but is there any update you can give us on how we should be thinking, given the continued improvement in the topline growth in this segment about the progression of margins as we look ahead into 2013 and 2014? Is it going to be like we are -- do you think we are going to be down around these levels for the next couple of quarters and it is really knock on wood and more late 2013 to 2014? You see some noticeable improvement? How do you think we should -- (multiple speakers)?.

It is like I said in my comments. It is lower than any of us would like and it is also choppy. So we are beginning to see revenue increase, recurring revenue increase across the board in most of our revenue areas.

But there are expenses. So for example, we report on the asset management side, funds that are not SEC registered we consider the underlying subadvisor costs as expense based on the way those funds are structured. So that shows a little bump in the expense. It is obviously covered by the fact we get revenue from those, but sometimes it creates a little confusion on expense increase.

We spent a lot of time this year moving, centralizing the operations for our clients in the UK and are now focusing on continued stability and scale. And sometimes you have to invest to create that scale.

We are building out the US operation. We are -- for GWP -- we are selling, considerably more in recurring revenue. Our recurring revenue sales were doubled. So sales comp didn't double, but it has certainly gone up because -- and we are expecting to sell even more in 2013.

So while we are going through this transition period from the legacy trust business to the new GWP business, it will take a little while, I think, for the profit to catch up, and it will be choppy or bumpy. But ultimately we believe there is significant opportunity to grow our margin in this business and the goal is to try to make that happen as quickly as possible.

Maybe just a quick refresher on how you compensate for sales events. Is it -- trying to remember, is it on the signing of the contract or is it as the assets and revenues start rolling in? On the signing (multiple speakers).

For traditional client that has a second version which we would call an infrastructure, a conversion client, we pay a salesperson a percentage of expected first year revenue largely at the signing of the contract. So sales comp is front end loaded from an expense standpoint.

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

Jeff Hopson, Stifel Nicolaus.

HSBC, any sense of how much bigger the relationship is? And can you give us that new Kanaly Trust? And can you maybe spell that or I didn't hear it completely.

We don't hardly ever talk about specific clients financials, but I think that the increase of opportunity at HSBC as they have identified some more books of business and also decided to consume some more -- some of our newer of our services that weren't available when we first contracted with them along with the recontracting in the third quarter are all really positive signs for us. And they are definitely increase in the income that we -- the revenue that we receive from them. So that is the positive sign. HSBC Private Bank is not, in the UK, is a reasonable but not a very, very large book of business. So I think it is positive for us, but it doesn't dramatically change our financials.

Kanaly is a larger community bank in the US and we have struck a deal with them both for asset management as well as investment processing. And we would expect to see when that converts later this year some increase in our revenue larger than we would typically get from a community bank that acquired or that purchased trust because we are providing a lot more services and the pricing model is a bit different. So they are not gigantic breakthrough financial events, but they are good progress for us.

And then, on the assets under management, most of those are European, Canadian distribution partners. So is it that investors are now moving assets to a greater degree? I know you hired a couple of new guys recently to focus more on that. So how much of it is just the market versus things that you are doing specifically?

It is largely the increase in the quarter was largely market-related, but we do have, as you mentioned, we have made some hires and we continue to focus on the growth of our asset management business, both with distribution partners and also with consumers of GWP. So we see opportunity and momentum there.

Great. Thanks.

Tom McCrohan, Janney.

The 3% margins, does the quarter include any one-time expenses, elevated expenses related to anything that could be considered one time?

No, it was actually a pretty clean quarter. We do have one-time activity in our, predominantly in our US trust business where we do some custom programming, but that was pretty much at a normal rate. So it was a relatively clean quarter.

And in terms of your strategies to convert the pipeline of prospects particularly in the United States, would you consider selling pieces or components of GWP prospects as opposed to selling the entire offering just as an effort to accelerate adoptions, kind of get your foot in the door?

I think the way to get our foot in the door is, really, we are talking to our clients and prospects about books of business. So would not really be disaggregating the overall benefit of GWP which has -- again, a lot of the value of that is associated with the integrated nature of it. But our foot in the door is more around let's identify books of business or different end clients or segments as a starting point of wealth management activity with inside these organizations and get started that way rather than the entire wealth management business, which may be across many, many different (technical difficulty) segments. So that has been our strategy to step into larger opportunities.

My last question is on your comments regarding the regulatory environment. I mean it has been a challenging regulatory environment for everybody for a number of years now. Is there anything specifically that has changed, that caused you to call that out?

I think the regulatory environment is getting even more challenging. We have got situations in the UK with RDR and in the US with things like Dodd--Frank. Dodd--Frank may not directly impact wealth managers, but it changes sometimes the position with inside the firms. We have mentioned before that the ongoing audits and scrutiny of the regulators feels like it is increasing for everybody. We talked about that in our -- some of our filings.

So I just point it out that there seems to be a great opportunity for us in the longer term, but in the shorter term we have to invest potentially in what we are building to keep up with the environment. So it is a pretty -- it is a challenge I just want to put out there because I see it everyday particularly with our clients.

Great. Thank you.

Robert Lee.

I did have a follow-up. Is it possible to get any update? I don't think you gave it on your transition clients. I guess thinking back six months ago or so when you talked about it last at the investor day, but any kind of update on expectations for the revenue that could fall in over the next couple of years as those clients kind of transition more books of business?

I think we see clients that have been on GWP longer. The momentum of those clients get stronger but it takes a while for them to get up and running and the assets flowing. Most of our clients are meeting the contractual minimums that we have agreed to. Some of them are beginning to exceed. So I think it's going not as fast as we would like, but certainly probably going as expected. And, again, I think we feel good about the movement we had this year and we put more focus on gathering more assets from those clients going forward.

So, and we have great plans with everybody and they -- our clients understand what our expectations are from them and we are helping them meet and hopefully over time exceed those expectations.

Maybe just if we look at just the contractual minimums at this point, going forward and would certainly like to be better, maybe we should be thinking that they're still I don't know, $30 million, $35 million of annualized revenue that could flow in over the next couple of years. Or --?

Yes, there's still more revenues to come where we definitely have more opportunity and the minimums would increase the longer the contract was in existence. So there's definitely more opportunity and we are -- and again as, certainly, as these clients get bedded down, they get used to the new proposition, we get better at transitioning assets, our expectations are that those numbers improve.

But the pipeline also is largely moving towards more traditional clients with an upfront conversion.

Thanks.

Tom McCrohan.

Just two follow-up questions. Joe, when clients add additional books of business, what's the incremental margin on that?

As you know that the overall GWP proposition is not breakeven at this point. So we look at individual client profitability through a series of trying to assign certain fixed and non-fixed expense. So it is really not a very easy question to answer at this point. And we think overall profitability at GWP is not imminent and -- but we do see that pricing continues to strengthen as we have more solutions, more greater solutions to the marketplace. And again our expectations are that from a client-by-client standpoint, bigger relationships have a tendency obviously to provide a better contribution to the overall improvement of the financial situation. So it is really hard to put a number right now on that for GWP.

But conceptually it should be higher, right? [They added a new], I understand if you don't want to give guidance (Multiple Speakers).

There are fixed costs for clients. The cost of servicing that client, the cost of the infrastructure associated with a single client. And some of that is fixed, some of that is variable. But we are in too early days to I think put too much credence on individual client profitability. We are more focused on how do we approve the overall profitability of the banking segment and that will happen as we grow the GWP business and the infrastructure.

That's fair. And last question on HSBC given that they are consuming more functionality, future functions, is there anything you could talk to in terms of arch implications from that, revenue implications from that?

It increases our revenue, but again, as I said it is not really appropriate yet to be captivating margin. I think the good news is that we have built a system that is largely integrated with a variety of services from the front to the back. That was always our strategy. We built from the back to the front and clients that consumed us, we had less functionality are beginning to talk to us about taking the broader functionality and I think over time that will definitely have a positive impact on our margin.

Thank you.

(Operator Instructions). Peter Stewart, Surveyor Capital.

Just a quick question. Can you let us know what the expense space from GWP was for 2012?

We don't disclose that.

I thought you had given that in the past.

(Multiple Speakers) directionally usually at the investor conference in June but we don't break out the GWP versus trust in an exact way.

When you look at the overall expense space of the segment, I guess it looks like expenses were up almost $20 million year over year. Can you give any kind of color as to what we could expect in a best case scenario going forward?

Certain things will go up like sales and parking cost I expect will go up. There will be some expense associated with the rollout of or the building of an operation here in the US as we bring more clients on to GWP. We try to mitigate some, not all of that, by getting more efficient in our longer term legacy business.

So it will definitely go up as we add more clients because there is some variable cost associated with bringing on clients, but our goal is to manage the fixed as tightly as possible and to make sure that every client we bring on is an improvement in our overall profitability. Certainly once we get some of the fixed infrastructure built out in the US. We have higher amortization costs, but we are still in testing. We are capitalizing less so there are a lot of different factors in this.

But I think you should take comfort that we are spending a lot of time focusing on it and trying to create the most efficiency we possibly can as we roll this business out and we transition from our Trust 3000 business to our GWP business.

At this time there are no additional questions in queue. Please continue.

Thank you, Joe. And our next segment is investment advisors and Wayne Withrow will cover this segment. Wayne.

Thanks, Al. As you all know, over the past couple of years, we have been recovering from the damage done by the financial market in 2008. We saw a small breakthrough when we recorded $436 million in net positive cash flow in 2011.

In 2012, our momentum accelerated as we received $1.8 billion in net positive cash flow for the year including $603 million in the fourth quarter. Our gross receipts in the fourth quarter represent the best we have recorded since the first quarter of 2001.

For the year, revenues were $203 million, a 7% increase in 2011. Our fourth-quarter revenues totaled $52 million and improved 2% sequentially from the third quarter. Profit for the fourth quarter totaled $20.8 million, a slight decline from the third quarter. Our expenses grew more than our revenues primarily due to additional GWP expenses and additional personnel expense, due to increased variable compensation, as well as personnel to support our growth. I do not expect this increase of expense growth to continue into the first quarter of 2013.

Assets under management were $33.7 billion at December 31, an increase of $646 million since September 30. This increase was primarily due to debt positive tax flow and market appreciation partially offset by the loss of $356 million in assets due to the closing of our stable asset fund, which I previously discussed.

During the quarter, we recruited 129 new advisors, bringing our total for the year to 488.

For 2013, we will concentrate on three main areas. First, we are focused on the rollout of GWP. Our second set of early adopters went live on December 1 and we continue to work with all of our early adopters to continually prove the GWP experience. We already have enhancements in the pipeline as a direct result of this early client feedback.

Second, we will continue to focus on new advisors recruiting.

And third, we will work to continue to improve upon this segment's rate of net cash flow growth.

In summary, 2012 and the fourth quarter in particular reflect the momentum we have been building in this business. Our goal in 2013 is to improve upon this momentum to increase both revenues and profits while at the same time continuing the rollout of GWP.

I now welcome any questions you may have.

(Operator Instructions). Jeff Hopson.

So the GWP, I know you are taking a bigger portion of that here. So that is basically going to level off here? Or was the fourth quarter some one-time expense?

And then two, in terms of client behavior, what we have seen in the industry is especially in December, a lot of tax-motivated activities in equity outflows moving to cash and ten we have seen a reversal in January. Are you seeing the same type of thing? And any expectation as to what that means for your revenues. If we get a sustained move in equities I assume that is a lot better. But any comment on that.

Yes, I am not sure what you mean about taking a larger portion of GWP expense. I think we are seeing a little more expense as we have gone live with clients. We have the operational expense associated with those clients. I would expect, at 2013, we would continue to see some uptick in GWP expense, but we are focused on controlling expense in other areas for the benefit of the segment.

In terms of the movement of assets, I don't know if we are seeing the exact same phenomena you see. We had a lot of activity in December as people tried to reposition their portfolios and perhaps for the first time we had tax gain harvesting as opposed to tax loss harvesting as people tried to take advantage of the change in tax rates. But we have not seen a shift into money market funds that you discussed.

And I note you don't like to talk about the future or January, but there in the movement we have seen two equity funds that may our may not affect you, your financial advisors don't necessarily get new cash flows because of that. But are you seeing any behavior change here with the markets up and equity flows improving for the overall industry?

I guess what I would say is we are having a good January.

Great.

Robert Lee.

I was curious. Is it possible to get a little bit of color, deeper color on the new advisors? I am curious, are there any particular platforms or channels that you are having the most success in in terms of getting new advisors to sign on?

I guess the only one I would highlight is we have built and continue grow our national accounts team which is focused on serving the broker-dealer community. And as you know, that 71% of our advisors have a broker-dealer affiliation. And as we get the word out, more and more to the home office of the power of our solution, we see the number of referrals and recommendations from those home offices increasing.

And I know it is still in the early stages, the GWP rollout and the beta testing stages to some degree, but you have had some out there for a while and I guess part of the attraction of GWP is that advisors can put more of their assets under that platform and you guys can capture more revenues. And any color at least on the early adopters if you are actually seeing that take place that when they actually go live you are seeing your revenues from those advisors pick up and you are seeing more assets come on to the platform that you can earn some fees on?

At this point we are still building out the full suite of functionality so that we can efficiently do that. So while we are not seeing a big shift in the assets, immediately, in terms of a current revenue event, that is clearly what they had in mind as they moved to the platform. They are getting positioned so that when we are ready and they are ready, the assets will move.

So as part of the build out for the whole platform, are you thinking that you will be in a better position as this year progresses and that by the end of this year you will have a lot of that product suite available so that, hopefully, you would start seeing more of that flow?

I think that is an accurate statement.

Great. Thank you.

Chris Donat.

Just to try to put some numbers on this, for the expenses about $32 million in the fourth quarter. Is that a decent run rate for quarters of 2013?

I think Al would shoot me if I increase them much more. But --.

Don't get yourself in trouble, but okay.

We had pretty good sales comp numbers in that and I think in the first quarter, you'll see us aggressively attacking any growth in those expenses.

So on the non-GWP side like you referred to before?

I think in total.

Total. Okay.

I am not getting into the categories. I'm just looking at the total number.

Okay.

(Operator Instructions).

Thanks, Wayne. Our next segment is the institutional investor segment. I am going to turn it over to Ed Loughlin to discuss the segment.

Thanks, Al. Good afternoon, everyone. I am going to focus my remarks on the financial results for the fourth quarter as well as the entire year.

Fourth-quarter revenues approaching $61 million increased 4% compared to the third quarter. Full-year revenues of $227 million increased 9% compared to 2011. New client fundings and market appreciation drove revenue growth throughout the year. Operating profits $30 million increased 7% compared to the third quarter and increased 8% for the year, totaling $111 million. Margins expanded during the fourth quarter to 50% and were 49% for the entire year. Quarter end asset balances of $64 billion reflect a $1.4 billion increase compared to the third quarter and a 21% increase for the calendar year. Plan terminations and plan takeovers by the [PBGC] resulted in the negative net new client fundings during the quarter of $557 million. And throughout the quarter, all client assets in the backlog were funded.

Client signings for the fourth quarter were $1.1 billion. 2012 sales totaled $9.4 billion for the year, representing a new unit record. New sales activity has returned to pre-financial crisis levels as institutional investors continued to seek a fiduciary partner to actively manage managers, near-term asset allocation, and 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 focus for 2013 is in three areas.

First, to build a diversified pipeline of institutional investors from our target segments with an increased emphasis on larger investors. Second, to provide clients with value-added advice and discretionary services. And third, to continue to differentiate our solutions with investment strategies that are designed to support the clients in attaining their business goals.

Our pipeline remains strong and we are optimistic about the growth opportunities in the institutional space.

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

(Operator Instructions). Glenn Greene, Oppenheimer.

Good afternoon. Just a clarification of a few things. I just want to make sure I heard it. Could you clarify the rationale or the reasoning for the outflows of the negative [550] or so?

We had a couple of plans that we had worked through with clients over the last couple of years to a plan termination. And we had a couple of corporate clients that had financial problems and the plans were turned over to the PBGC and all that. It is just cleaner if all those kinds of things to happen at your end.

So nothing unusual and you won't expect any -- obviously you could, but you don't expect anymore going forward as far as you know?

Going forward, what, PBGC takeovers or (multiple speakers)?

Yes.

Well we have had those for the last 15 years. So will there be more going forward? I'm sure. But I think that the numbers speak for themselves or we were able to pretty much absorb it and grow through it.

And then the signings on the fourth quarter, it looked like it slowed a little bit from the pace of the first three quarters, but you're suggesting the environment's back to normal. Is it timing of deals and getting things over the goal line?

Yes. Again, it is not a business where you can look at it and get 25% of the sales each quarter. So I think it was a situation where to a large degree we saw some larger client sales per on in the year. So that gave us some healthier quarter sales the first three quarters. These were nice size in the fourth quarter, but not quite as large as some of the others. But the whole combination when you put it together, it was a pretty good year.

And then just to clarify, the unfunded backlog basically -- or [hurt] rate that means is zero, so everything that you signed and you converted and it was in your book of business by the end of the year.

Correct.

Great. Thanks a lot.

Jeff Hopson.

We have seen an increase in RFPs for CIOs and I know you have won a couple of those. Are those that were publicly announced, are those already in and can you comment on this increase in that type of RFP activity? Seemingly, there is a lot of reasons why that is going to increase, but can you talk a little bit more about that overall trend and your hope for participation in that category?

Sure. Our fiduciary management program or our discretionary management program, outsourced CIO program, those are also synonymous. So the purpose behind all of that is for the institutional investor to delegate a lot of that responsibility to a firm like SEI. So we are competing in that space all the time.

I guess I would separate out two issues. One would be, I think, [loyalty]. The interest on the part of institutional investors delegating or outsourcing continues to increase and we are seeing an increase in pretty much all of the market segments that we operate. So that is positive. Again I think that is reflected in the results.

The second piece that you talked about in so far as the increase in the RFPs, I think just generally as a part of due diligence, we see that almost every single deal there is some kind of an RFP process that a client goes through in order to do the due diligence on making a selection.

Interestingly enough, which we had never really seen until the last couple of years, for clients that are current clients, we see them going through a process every five or seven years insofar as issuing an RFP. So just generally the industry is seeing a lot more RFPs as a part of new due diligence or ongoing due diligence with a provider.

Thanks.

At this time there are no additional questions in queue. Please continue.

Thank you, Ed. And now our final segment today is investment management and I am going to turn it over to Steve Meyer to discuss it.

Thanks, Al. Good afternoon, everyone. For the fourth quarter of 2012, revenues for the segment totaled $51.3 million which was $1.9 million or 3.9% higher than the third quarter of 2012. This quarter over quarter increase in revenue was primarily due to an increase in new client fundings combined with some one-time revenue events.

Annual revenue for 2012 was $193.5 million which was 8.7% higher than our annual revenues for 2011. Our early profit for the segment of $16.4 million was approximately $800,000 or 4.4% lower than our profit for the third quarter of 2012. This decrease in quarterly profit was primarily due to an increase in compensation expense caused by higher sales as well as additional operating expenses that we incurred in preparation for implementing new business.

For the year, our annual profit was $66 million, which was 6.4% higher than our 2011 annual profit.

Third-party asset balance at the end of the fourth quarter of 2012 were $244.7 billion approximately $3.7 billion or 1.5% higher as compared to our asset balances at the end of the third-quarter 2012. The increase in assets was primarily due to net positive cash flows of $1.3 billion enhanced by market appreciation of $2.4 billion. During the fourth quarter of 2012, we had net new business sales events totaling approximately $12 million in annualized revenue. This represents our largest sales quarter of the past four years. These sales were primarily in our alternative and global segments of our business.

Additionally, we signed recontracts for current clients of $15.2 million in the quarter which brings our total recontracts for the year to $29.1 million.

And looking back at 2012, I believe we saw validation of our optimism that we started the year with. We continue to see an uptick in market activity, increased decision-making and a strong market acceptance of our solutions. We have also seen larger prospects in the market validating, we believe, our overall solution offering the general movement towards outsourcing. They are terrific opportunities but do present a particular set of challenges.

For 2013, our focus for growth will continue to be centered on four main areas.

First, successfully converting and implementing in that new business we have sold. Second, continue to sell aggressively into our existing markets globally with particular focus on the large end of the market. Third, continue our expansion of wallet share with existing clients. And fourth, continue to deliver market-leading solutions that are aimed at our clients' emerging needs.

With that in mind we continue to feel optimistic and well positioned for success. I will now turn it over for any questions you may have.

(Operator Instructions). Chris Donat.

Just on the $12 million in net new sales. Is there typically a seasonal pattern with your clients, or something else that would be making out unusually strong and also any comments about the competitive landscape with some other mergers that have happened earlier in 2012 and any effects you are seeing from those?

The seasonality, there used to be a time when I would say Q4s tended to tighten up a little bit because people were getting ready for year end. But I think things have changed over the years. So really, I think with the size of the pipeline we have, it really depends who you are talking to, the size of the deal and where they are in the process.

I do think this year it will spike a little bit with the people going through a process, a long process that we have talked about before how the sales process has lengthened out. But these people really want to come to a decision before year end. So I think that helped us.

But we are still seeing strong activity even as we go into Q1, which is a typically slow quarter because people are getting ready for year end audits, et cetera.

In regards to the competitive landscape. I think it is really still there is no increased activity, I would say due to the mergers and acquisitions. There have been a couple of them over the past 12, 16 months. I think there's some opportunities to fall out of that. Opportunities that us as well as I am sure some of our competitors are still going after.

Thank you.

Jeff Hopson.

On the expense side, so it sounds like some of that is variable, but on the cost for preparing for new clients, et cetera, how much of that is one-time expense versus ongoing expense?

I would say most of the preparing for new business is ramping up in either infrastructure or people which really will be -- there is an uptick, but then it is ongoing expense. I would continue -- I do believe for the first quarter or so in 2012, our expense uptick to continue. So there will be some short-term pressure on margins, but I think it is for a good reason. In looking at the opportunities that we have already sold and that we have still to execute on and really building up the infrastructure and preparing for the implementation of those pieces of business.

And recently, I guess, there was a very large hedge fund that had outsourced and then they named a secondary outsourcer and I know that may be perhaps a little bit above your market, but any sense on what is happening there? Does that represent any particular trends as far as more people doing outsourcing? Could they as a very visible player, could that help with the overall visibility of others doing some outsourcing?

Well, two things. One, the prospect or the firm you are mentioning I wouldn't say that that is necessarily above our threshold. I think we have clearly established ourselves into that space. But, two, I think overall that was a firm that insourced for a long period of time. Actually from their inception. They outsourced to another firm and then they announced they are bringing another firm in.

I don't think that is a new trend. As a matter of fact, I don't think that is the end state that that will wind up on, but that is my speculation. I do think it is just another tip towards outsourcing has gained a ton of momentum even with long time insourcers and I think that will continue to stay and that continues to provide some moment of especially at that higher end of the market.

(Operator Instructions). I am showing no additional questions. Please continue.

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

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

Fourth-quarter 2012 cash flow from operations was $111.6 million or $0.64 per share. That brings year-to-date cash flow from operations to $257.5 million.

The fourth-quarter 2012 free cash flow was $105 million or $0.60 per share and brings the year-to-date free cash flow from operations to $203. (technical difficulty).

Fourth-quarter capital expenditures excluding capitalized software $1.4 million and it brings the year-to-date capital expenditures, including capitalized software to $21.3 million. Next year we would expect that capital expenditures to be around $18 million.

The tax rate for the fourth quarter was 35%. The annual tax rate expected for 2013 will be between 35% and 36% although the rate will vary by quarter. Accounts Payable balance at December 31 was $11.2 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 and 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 may have.

(Operator Instructions). Tom McCrohan, Janney.

I'm sorry if I missed this, Joe, Inc. your prepared remarks, did you mention a new GWP client and if you did, can you restate who that was?

Yes. It was Kanaly Trust in the US.

Kanaly.

K-A-N-A-L-Y.

Thank you.

At this time there are no additional questions. Please continue.

Thank you. And so, ladies and gentlemen, we and summary are concentrating our efforts on maintaining highly satisfied clients, growing new business events, controlling costs, and, finally, investing in projects as critical to our future. And so our focus on long-term growth in revenues and profits is unwavering.

As our momentum grows, I am very bullish about our intermediate and long-term business opportunities and feel good about what we accomplished in the short term.

Now before you go, our annual Investor Day will be held on Wednesday, May 29 with a dinner the night before on Tuesday, May 28. So please save the date. Invitations will be sent out in advance as usual. Thank you.

If there is any -- this is one last chance to ask any question you might have.

(Operator Instructions). And I am showing no additional questions.

Thank you very much and thank you for your attention today and joining us and have a great afternoon.

Thank you and, ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect.