Al West - Chairman and CEO Dennis McGonigle - CFO Kathy Heilig - Controller Steve Meyer - EVP and Head, Investment Manager Services Joe Ujobai - EVP and Head, Private Banking Wayne Withrow - EVP and Head, Advisor Network Paul Klauder - EVP and Head, Institutional Group.

Chris Shutler - William Blair Robert Lee - KBW Chris Donat - Sandler O’Neill Glenn Greene - Oppenheimer Tom McCrohan - Mizuho.

Ladies and gentlemen, good afternoon. Thank you for standing by and welcome to the SEI Fourth Quarter 2017 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, there will be opportunities for your questions and instructions will be given at that time.

[Operator Instructions] And as a reminder, today’s conference is being recorded. I would now like to turn the conference over to our host, Chairman and CEO, Mr. Al West. Please go ahead..

Thank you. Welcome, everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI’s CFO; and Kathy Heilig, SEI’s Controller. I’ll start by recapping the fourth quarter and full year 2017. I’ll then turn it over to Dennis to cover LSV and the Investments in New Business segment.

After that, each of the business segment leaders will comment on the results of their segments. And finally, Kathy Heilig will provide you with some important company-wide statistics. As usual, we will field questions at the end of each report. So, let me start with the fourth quarter and full year 2017.

Fourth quarter earnings increased by 38% from a year ago. Diluted earnings per share for the fourth quarter of $0.75 represents a 36% increase from the $0.55 reported for the fourth quarter of 2016. Now, for the year 2017, earnings increased by 21% over 2016 earnings.

Diluted earnings per share for the full year of $2.49 is a 23% increase over the $2.03 reported in 2016. We also reported 11% increase in revenue from the fourth quarter 2016 to the fourth quarter 2017 and a 9% increase for the full year. Also during the fourth quarter of 2017, our non-cash asset balances under management increased by $9.3 billion.

SEI assets grew by $5.9 billion and LSV assets grew by $4.3 billion -- excuse me, $3.4 billion. For the year, assets under management grew by $42.5 billion. And finally, during the fourth quarter 2017, we repurchased approximately 865,000 shares of SEI stock at an average price of $69.21 per share.

That translates to over $59.8 million of stock repurchases during the quarter. For the entire year, we repurchased approximately 4.4 million shares at an average price of $56.36. a share, representing just over $248 million of repurchases.

Now, between our stock buybacks and cash dividends during 2017, we returned approximately $339 million in capital to shareholders. Also during the fourth quarter, we capitalized approximately $10.8 million of the SEI Wealth Platform development and amortized approximately $9.2 million of previously capitalized development.

Also in the fourth quarter, we capitalized $1.7 million of IMS development. Now, fourth quarter 2017 sales events, net of client losses, totaled approximately $9 million and are expected to generate net annualized recurring revenues of approximately $355,000.

Now, these numbers include the loss of our only federal government client who advised us they will not be removing their TRUST 3000 contract which ends later this year. This will result in an approximate $17.8 million annual investment processing revenue loss commencing no sooner than the fourth-quarter 2018.

Excluding the loss of this unique client, we would have generated $26.8 million of sales events in our target markets, of which $18.2 million would have been annualized recurring revenues.

Now, for the year ended 2017, excluding the fourth quarter loss of the government contract, sales events, net of client losses, totaled approximately $95.6 million and are expected to generate net annualized recurring revenues of approximately $66.9 million.

As we mentioned in our fourth quarter press release and in our investor conference in November, while our business has experienced some headwinds, our revenues and operating profits are growing and mainly because the tailwinds across our business are stronger. Important to our ultimate success, SWP continues to make important strides.

Regions Bank was converted to SWP in the fourth quarter. And since that time, we have been helping them through their very complex business transformation. The same is true in advisory unit. During the fourth quarter, we migrated a large tranche of advisors to SWP and since then have been helping them through their particular transformation.

Now, IMS continues to make investments in its core platform. These investments are aimed at building and integrating new services and entering new markets. Two new markets are the family office market and the market made up of institutions that provide services to family offices.

The acquisition of Archway Technology is helping us enter these large adjacent markets. Now, in the Institutional Investors segment, we’re concentrating our efforts on non-U.S.

corporate DB plan sponsors, plus we’re finding success in the foundation and endowment market, the defined contribution plan sponsor market as well as certain global market opportunities.

In summary, we’re investing in growing each one of our business lines as they transform their selves to meet their headwinds and capitalize on tailwinds in their marketplaces. While the road ahead is challenging, it’s also a pool [ph] of new large opportunities. This concludes my remarks.

So, I’ll now ask Dennis to give you an update on LSV and the Investments in New Business segment. I’ll turn it over to the other business segments later.

Dennis?.

Thanks, Al. Good afternoon, everyone. I’ll cover the fourth quarter results for the Investments in New Business segment, discuss the results of LSV asset management.

During the fourth quarter 2017, the Investments in New Business segment continued to focus principally on the ultra-high-net-worth investor segment through our private wealth management group and the operational development and testing of a web-based digital advice offering.

During the quarter, the Investments in New Business segment incurred a loss of $3.8 million compared to a loss of $3.3 million during the third quarter of 2017. Losses in this segment were $13.8 million for the full year 2017 versus $15 million for the full year 2016. There has been no martial change in this segment.

Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the fourth quarter. LSV contributed $43.3 million in income to SEI during the quarter. This compares to $39.3 million contribution for the third quarter of 2017. Total year contribution was $152.5 million compared to $126.1 million in 2016.

Assets grew was approximate $3.4 million for the quarter, LSV experienced slightly negative cash flow during the quarter, which was offset by market growth. Revenue with LSV was approximately $135.9 million of which approximately 6% was performance fee related.

During the quarter, similar to fourth quarter 2016, we had a signification revenue item of note. Generally, we do not have performance fees on our SEI-sponsored investment products. We do have a product used in our Institutional Investors segment’s comprehensive solution.

During the quarter, we realized revenue of $3.4 million related to a performance fee and a corresponding $1.7 million expense or sub-advisory fees. This was all recorded in the Institutional Investors segment. Paul will discuss this when we get to this segment.

In addition to this revenue item, we also had a few expense items of note during the quarter. As you’re aware, remaining life of the SEI Wealth Platform is approximately five years. We continually reassess the useful life of this asset. In early October, we successfully installed Regions Bank on the platform as a service solution.

In addition, we successfully advanced the technical and business validation of our software as a service offering that will launch with Wells Fargo Bank. Given this, we reassessed the remaining useful life of the platform, resulting in an adjustment to the useful for certain components for an additional five years.

This has a benefit of reducing amortization expense by approximately $3.8 million during the quarter, $2.9 million in the Private Banks segment and $900,000 in the Investment Advisors segment.

Regarding impact to the first quarter 2018, we expect total Company amortization expense to be approximately $10.9 million, reflecting both this change offset by the beginning of amortization expense related to technology assets deployed in the Investment Managers Services segment.

The second item of note for the fourth quarter of 2017 is related to stock option expense. As you know, our equity options that are issued as part of our overall compensation program vest when specific annual EPS targets adjusted for option expense are achieved.

Based on our EPS results for the full year, adjusted for option expense, we changed our assessment of when certain tranches will vest. This resulted in an increase in option expense for the Company in the fourth quarter compared to third quarter of approximately $9.7 million.

This increase was spread across our segments and corporate overhead as follows. Private Banking $2.8 million; Investment Advisors $1.4 million; Institutional Investors $1.5 million; Investment Managers segment $2.2 million; the Investments in New Business segment approximately $200,000; and corporate overhead $1.6 million.

We expect stock option expense under our current assumptions for 2018 to be approximately $21 million for the year. This compares to total 2017 expense of $36.4 million.

The third item related to expenses during the quarter incurred on Investment Managers Services unit which benefited from a $3.8 million adjustment to the contingent purchase price related to the acquisition of Archway. This was reflected in their total expenses for the quarter. Finally, our effective tax rate for the quarter was 19.9%.

On December 22nd, the President signed into law the Tax Cuts and Jobs Act.

This resulted in a net tax benefit of approximately $12.4 million from the remeasurement of deferred tax assets and liabilities as well as an estimate [ph] of the tax expense related to the repatriation of previously undistributed foreign earnings and expense relating to withholding in certain foreign jurisdictions.

In addition, our tax rate benefited from the accounting rule change related to stock option expense along with the expiration of certain statute of limitations on various federal items. We expect our 2018 tax rate before any impact from accounting for options to be in the 21.5% to 22% range. That concludes my remarks. I will now take any questions..

[Operator Instructions] Our first question today comes from the line of William Shutler representing William Blair. Please go ahead..

Hey, Dennis..

Hey, William..

Thanks. Changed my name.

So, let’s see, LSVs had modest negative flows, is that right?.

Yes..

Okay.

And any change in the pipeline there that you’re hearing about the institutional pipeline?.

No. That positive cash flow is from new clients and they got new money from existing clients, it really got rebalanced. It’s a main offset during the quarter..

Okay..

So, they are still certainly adding new clients and new business. .

And the operating loss of $3.8 million in the new business segment, is that a fair number to model going forward? It stepped up a little bit..

Probably a little lower, because we had the option expenses in there..

Okay. .

So, it will step down, probably get back closer to third quarter..

Got it. And then, in the press release, it says that your expenses related to maintenance and enhancements not eligible for capitalization have increased in Private Banks and Investment Advisors.

Could you just quantify the quarter-over-quarter change on expenses that that had in Private Banks and Advisors?.

Yes. I don’t have that in front of me, but it’s really a reflection of the more [ph] code that’s put into production, the more code that needs to be maintained, and also with more clients, there is little more maintenance, specific client maintenance activity. I don’t really have a number in front of me to quantify it.

But it’s also a reflection of some of the development work we are doing; we are not capitalizing any longer. So, certain product enhancements, certain new feature -- we’re adding new features to kind of an existing asset, generally expense that through now rather than capitalize it. So, it’s kind of a myriad of let’s say little things..

Our next question comes from the line of Robert Lee with KBW. Please go ahead..

Thanks. Good afternoon. Hi, Dennis. Just, could you go back to when you were updating us on the change in expense going forward for -- I can’t talk -- amortization expense, sorry.

I think you mentioned it was 10.9 for next year, but that was excluding some new as you are going to saw expensing some other things, or was 10.9, like the total?.

That was a total..

That was a total? Okay..

Because we didn’t want to dissipate fourth quarter, because event thought that rate will continue, we’re adding a little bit more because of some of the things are going in the production in the Investment Managers Services segment..

And then, maybe this is a question for Steve, later. But, I am just kind of curious, the contingent -- the valuation adjustment in IMS kind of in your favor this quarter. I mean, you haven’t owned it that long.

So, is that something we are going to see kind of bouncing around 3 million, 4 million one way or another a quarter, or is there is some something specific that kind of made your contingent liability drop down reasonable amount in just one quarter?.

Rob, this is Steve. So, I would not expect that to bounce around. What that really was, as part of the acquisition, if you remember, we acquired them in July. I termed this kind of that we gave an opportunity and the acquisition earned up [ph] by setting some significant stretch goals and thus some of the goals are made, not all of them.

So, this is really a reduction of that potential of additional purchase price for them. But, I would not expect this to be an ongoing quarterly number..

Our next question comes from the line of Chris Donat with Sandler O’Neill. Please go ahead. .

Hey, Dennis. I wanted to ask a big picture question, if I could, on expenses, just because in the past couple of years there have been some elevated expenses related to onboarding large clients. And now that I think we’re mostly through that process and looking at 2017 expenses at about $1.1 billion.

Is that sort of the right starting point and adding in some inflation in growth to think about overall expenses in 2018 and then recognizing there some puts and takes on stock-based comps and things like that, amortization?.

Yes. I mean, it’s almost like equalizing third -- fourth quarter and kind going from there. I’m a little -- last you guys were able to pin me down on $1.1 billion. When I started getting complaints that we were like $1.108 billion, I’m hesitant to get lock down to another number.

But, I don’t know how exact that has to be, but we came in pretty close to that this year what we had projected when you back out Archway and really the impact of option expenses.

But, I think I wouldn’t necessarily start with the 1.1 as much as I would start with a fourth quarter adjusted, based on the amortization or stock option expense, back that out fourth quarter, add back a little bit for -- and maybe couple of items here or there. But, I think it’s pretty consistent with fourth quarter adjusted for option..

Okay.

But, thinking about it, whether fourth quarter 2017 -- we’re in sort of a normal territory here?.

We don’t have anything unusual on horizon here..

[Operator Instructions] And we will go the Glenn Greene’s line with Oppenheimer. .

Couple of questions. One, just directionally, could you help us think about the margin on the lost government business, the profit potential? It’s a big revenue number but not clear, [indiscernible] government contracts are lower margin. So, it’s a little unclear on that..

Yes. I’ll let Joe address that. He has comment in his script. I’ll let him speak to that..

Okay.

And then the tax reform benefits, the effective tax rate to call out for 2018, fairly consistent with what we were thinking but the discussion and we’ve heard it from a lot of companies is there are going to be incremental investments to offset some of that or is that largely just going to flow through to the bottom line?.

I’ve gotten asked this question a few times, since December.

I think, our -- I know our general answer is, if we had a good idea to investment in, we weren’t going to hold back based on some tax bill or some regulatory change or -- that’s always been our thinking that -- we think it’s a good idea for a long-term health of the Company to advance our success strategically, we’re going to do it.

So, I wouldn’t say we had anything kind of on the shelf we were holding back in anticipation of, in this case tax rate change..

And then, just one housekeeping thing.

If we adjust for all the -- I don’t know, sort of accounting items related to tax reform, the tax allowances and what not, what would have sort of been the normalized effective tax rate in the quarter?.

I can’t tell you that. I think it would have been around 27%, 28%. That really just backing out the repatriation offset by the deferred asset, deferred liability adjustment..

The question is queued up at this time..

Presentation:.

Thanks, Dennis. I am going to turn it over to Joe Ujobai to discuss our Private Banking segment.

Joe?.

Hey. Thank you, Al. I’ll start with the financial update on the fourth quarter and review full year 2017 for the Private Banking segment. Fourth quarter revenue of $127 million was up 7% or $8.5 million, largely due to SWP revenue growth including the successful conversion of Regions Bank.

For the year, revenue grew to $474 million, up 3.6%, largely due to SWP revenues and asset management growth. SWP revenue growth included the conversion of five clients worldwide and net assets under administration growth of approximately 20% across the SWP client base.

For the quarter, operating profit of $8.5 million was up almost $6 million from the third quarter. Profit for the full year was down due to increased SWP investment. As we discussed on the previous calls and at the meeting in November, increased investment has been triggered by sales and conversions to larger firms.

During the year, we delivered significant SWP capabilities, and I’d like to highlight five areas. We launched our front office solution anchored by our portfolio management tool integrated to product research, proposal generation, account open and user experience.

We launched our new end client experience including web and mobile apps enabling flexibility for both our clients and end users. We made substantial progress in extending SWP from a business processing as a service model to a software as a service model for Wells Fargo and other very large clients and prospects.

In UK, we delivered significant tools to support new regulatory requirements known as MiFID II. In addition to the substantial development efforts, we continue to invest in infrastructure such as system performance, quality assurance, and data security.

All of these investments expand SWP’s target market of very large prospects and enhance the scalability of our home processing operations. Now, on to client contracting and new business sales. TRUST 3000 re-contracting. In the fourth quarter, we re-contracted six TRUST 3000 clients, securing $26.7 million in annualized revenue.

For the full year, we secured 27 TRUST 3000 relationships, representing over $77 million in recurring revenues at an average term of 3.5 years. Our goal with TRUST 3000 re-contracting is to protect our current revenue and maintain strong relationships until these clients are ready to convert to SWP.

Unfortunately, during the fourth quarter, we realized some TRUST 3000 losses. Late in the quarter, we were advised by our only federal government that they would not be renewing their TRUST 3000 contract which ends later this year.

The client, the Department of the Interior uses a narrow set of trust accounting functionality to process beneficial income through individual accountholders. We expect the DoI which represents approximately $17.8 million in annual revenue to be converted [ph] later this year.

Although the loss of this client was disappointing, they did not represent a strategic target market for the SEI Wealth Platform and this does not impact SWP market momentum. The fourth quarter also included approximately $4 million of additional TRUST 3000 negative sales in that. This revenue loss represents three lost clients.

Client losses were driven by a variety of factors and client situations. Excluding the Department of Interior, net sales events for the quarter were $4.4 million of which negative $2.4 million is recurring due to the TRUST 3000 losses and positive $6.8 million was in professional services.

For the year, net sales events were $34.9 million of which $10.5 million is recurring and $24.4 million is professional services.

Although there were no new name SWP sales events during the quarter, we are progressing several sales and contracting conversations with a good balance of prospect types, including current TRUST 3000 clients, additional books of business at current SWP clients, as well as new names.

While the pipeline remains strong, internal prospect approvals and the contract negotiation and signing process remains complex and elongated. For the year, we sold nine SWP clients with total recurring sales events of $11.5 million, bringing total SWP clients to 41 worldwide.

Our total signed but not installed backlog for SWP is approximately $30 million in net new recurring revenue encompassing seven uninstalled claims. We expect to install approximately $10 million this year and the remaining to install later.

Our asset management and distribution business showed strong growth in the fourth quarter, with positive net cash flows of $737 million of new assets, bringing us to approximately $1.8 billion for the year. The new flows were representative of key distributors in Asia, Europe and in the U.S.

In conclusion, as we told you in November, we are focused on the following, capitalizing on our momentum to grow the backlog by contracting events and progressing the rest of the prospects through the sales process; installing that backlog and improving profitability of the Banking segment to return the unit to historical profit margins.

I’d be happy to answer any questions at this point..

[Operator instructions] And we’ll go to Tom McCrohan’s line with Mizuho. Please go ahead..

Have you noticed any change in tone from your bank prospects, given that the operating environment for banks has improved somewhat?.

I’ve been on the road the last couple of weeks, and the banks are -- most of the banks are all very enthusiastic about the tax cut and they are all obviously very publicly talking about things like raising teller, salaries, and they believe that some of that tax cut will come and help them with capital expenditures.

So, I would say that there is certainly some optimism inside of banks around more money to invest in their future, and that would be technology. We’ll see how that progresses in the coming year. But in general, we see from the spending standpoint, some opportunity there. But certainly from a regulatory standpoint, things are slower than we would like.

And certainly many of our prospects are as frustrated by the timing and the process as we are, but we are diligently working with them to get some of these opportunities signed and converted..

So, that kind of ties into your comment about sales cycles being complex.

Can you give us some more insight into what’s going on, on the regulatory side, is that the last kind of hurdle to get these deals signed?.

I think, the sales process is long and complex but the opportunity is big.

So, as we talked about on previously calls and certainly in November, we’re talking to firms about consolidating their wealth management businesses on a single infrastructure and we built SWP to be that infrastructure, but not just counting but certainly other books of business.

Those are big opportunities across multiple businesses with inside of a firm. There are often many decision makers in that process that may include decisions or approval by boards of directors, regulators, compliance people. So, that process is certainly more complex and elongated than ever.

We’re working closely with those firms to build business cases. I think we’ve evolved our agreement to recognize the changing market environment, we’ve evolved our services by adding more -- or more services around disaster recovery, data security.

So, I think, I’m proud of how we’ve evolved solution to meet these changing needs of the market but it still takes a long-time, but we’ve got great conversations and we’re looking forward to a strong year..

One last question, I’ll jump off. So, you had to go through similar process for regulatory approval with Regions and Wells Fargo and some of the other banks.

But, did anything change between when you went to the process with those banks and what’s happening today?.

It’s actually getting tougher. I mean, the big news, we’ve got good clients, we’ve got a good client install base and those two important lead clients in their segments have been terrific with us when it comes to references around the process.

But these are big opportunities and these are big changes inside of the firms, and the process is long and complex. The good news is we have a terrific solution, and we’re working closely with the people in our prospects to get these deals done..

We will go to Chris Donat’s line with Sandler O’Neill. Please go ahead. .

Good afternoon, Joe.

Since I’m fixated on expenses, just with the Department of Interior contract, are there any expenses that we should expect to go away as the $17.8 million of revenue goes away later this year?.

Sure. I think that might be close to Glenn’s question around margins. So, first of all, we expect to have that client at least through the third quarter of next year. So, we wouldn’t see an expense takedown for some time. That client may stick around longer. Again, we’re not sure of the exact conversion date; conversions take some time.

But actually, this is really a part of a longer and a bigger strategy we have around the ultimate takedown of the TRUST 3000 infrastructure. Not only we have loss natural attrition, some TRUST 3000 but our goal really is to move all of our clients from TRUST 3000 on to the SEI Wealth Platform.

So, we have a very important project over time to take down TRUST 3000 expenses. We will factor this client into that process; it probably changes the timing around some stuff.

So, it’s not easy to predict exact takedown of those expenses but we factor this into that process and we will look to take out as much expense as possible, so that we can continue to focus on with our real goal around margin which is incremental profit improvement with the segment, getting us back to historical margin with the segment..

[Operator Instructions] We’ll go to William Shutler’s line with William Blair..

So, maybe on the Department of the Interior leaving, anything more you can give us on the conversations? It sounds like this may be surprised you a bit, is that fair? And presumably they are going with a competitor..

Well -- so, first of all, this is a government -- federal government procurement process. So, there isn’t a whole lot of information that I have. And if I had it, I would share with you. But I don’t have a whole about that I can share. And yes, I would say, it is a surprise. They have been a client of ours for almost 20 years.

They have been a good client of ours. We’ve worked very closely with them. We got involved with them about 20 years ago where the history of this there was a lawsuit against the federal government for native Americans around trust that has been established. We worked with them to build a custom solution using trust, the of TRUST 3000.

We’ve had a solid relationship with them. We, as you know, pride ourselves very much on excellent client service. Over those 20 years, there have been a handful of times where we were required by federal law to rebid on the contracts. There was a natural rebid that occurred this year. We went back. We made a formal proposal.

We believed that we were in good position. There was some change in the staff at the organization that occurred, I think sort of the natural change that federal government changed with the new administration.

We knew that there was some change occurring and potentially we found out certainly post the announcement that we are -- the notification that we hadn’t received. We didn’t win the bid. We had heard about some organizational change inside of the organization. I think things happened more quickly than we would have expected. So, it was a surprise for us.

Clearly, we’re incredibly disappointed. We don’t think that it went to one of our natural well-known competitors. We do think that there has -- there may be some new organization occurring there. Again, we submitted a bid, we were informed in a very formal process that we weren’t successful.

We pushed to meet with them in person which we did into December. We were given a very tight response to our questions. But of course, as we would in any deconversion, we will act very professionally, we will support that deconversion and we will support them as long as we need to. We are disappointed. We stand by to help them for as long as possible.

And hopefully we’ll understand longer term what may have been the deficiency in our bid. But we’ve been a great provider of services and we will support them as long as we can..

Okay. And then, just on the other TRUST 3000 loss, it sounds like a variety of reasons, you don’t have to go through each one.

But as I think about the remainder of 2018, is there some way for you to quantify kind of the amount of business that still needs to be re-contracted or help us think about kind of what’s been secured versus what’s at risk?.

So, there is always the natural attrition. And again, as I said in my comments, I don’t see any trends that are worrisome for me. There’s lots of different situations. There have been some acquisitions that we have been on the wrong side of.

So, I am hoping that our luck changes on the acquisition side, because historically we’ve been generally pretty good on the acquisition side. But those acquisitions had been the other way.

I’ve talked a couple of times on the calls where there have been some smaller firms that don’t really have a very strategic plan going forward on trust or in wealth management that have gone to low cost providers.

We had quirky one earlier this year where midsized firm has decided to go more to a point to point versus an integrated solution, which was really unlike everybody else we are talking with. In 2018, we have a smaller book coming up for recontract. We have already recontracted in the month of January about a third of that book.

But, again, there is always some natural attrition, but we are talking to a lot of our clients about big contracts or more importantly about SWP. And the good news is though even with attrition, our revenue continues to grow. So, we have been able to sell through that attrition and we will continue to do that.

And the ultimate goal is to get as many of these important clients to SWP..

Okay. And just one more Joe on the expenses, as you think about modeling the next couple of years.

Ex -- the one-timers in the quarter, is the Q4 number a decent jumping off point? And then, should we think about I think that the prior commentary around once Wells -- the software development work for Wells is more or less complete late this year that we will start to see a more meaningful decline in the absolute dollars of total expenses in your business?.

As we talk about on all these calls, managing expenses is just slightly shy of my desire to sell a lot. And so, when I think development really did peak in 2017.

Dennis talked a little bit about the adjustment to amortization that helps us a bit from an expense standpoint; it helps us in 2018, although as we do continue to build, probably capitalize a little bit less because it’s really more a bid of finishing up things that we probably wouldn’t capitalize. So, I will see development as an expense bucket.

That will start to come down this year and certainly next year as we finish up Wells. There certainly are things that we want to build, there is certainly things that we want to track more efficiency around. We will probably see some other buckets of expense pop up like conversions, hopefully sales, comps will pop up and expense.

But again, our goal is to continue to show incremental improvement in profit and get this unit back to the historical margins. So, you have obviously my commitment to manage it as tightly as possible but to grow the top line while we keep our eye on that expense line..

Great, thank you..

Thanks. .

And next, we’ll go to line of Robert Lee with KBW. Please go ahead, sir..

Thanks. Good afternoon, Joe.

Just curious, did all of these 6 million plus of professional services come through in the quarter? And without maybe reading too much into it, with some of that kind of clients in the pipeline as has happened in the past, hiring you to kind of do some front end legwork?.

So, about 60% of the 6 million was realized as revenue in the quarter, the rest will be realized in subsequent quarters. And most of it is associated with clients already in the backlog. But, there is a bit of it that our clients that are in the pipeline, and we’re doing some work for them that we’re able to charge for in statements of work.

So, again, it’s clients that are probably fairly progressed in the pipeline. And we believe that the work we’re doing as part of profits and getting contracts finalized, has a value and we’re able to charge professional services fees for that work. .

Okay, great. And just as a follow-up, I mean, obviously, bringing on entirely new -- new clients to SWP is the bigger opportunity. But you’ve talked about and guys talked about bringing on additional books of business with existing clients as being kind of incremental opportunity.

And do you think you now have 40ish clients on SWP, some of them particularly in UK have been there for a while. Can you maybe talk a little bit about kind of how the process of getting existing clients to move over exist -- new books, I’m assuming that should be a much shorter process.

But, has that proven to be the case or if someone doesn’t do that what’s kind of generally the pushback or reason that they wouldn’t move more over?.

So, it’s a little different U.S. to UK. So, in UK, a lot of our clients have made acquisitions. So, we’re focused that they did acquisitions. Sometimes they want to incorporate those acquisitions quickly and they may not have done a system conversion.

So, in the UK, we’ve gone back to some of those clients said [indiscernible] acquisition, rub those firms off your book that help you now, put those all into a single infrastructure, which would be SWP.

And so, the relationship management team and to some extent sales people are there and they’ve got some big clients there where there are still books of business there is big opportunities for us. In the U.S., -- so that’s the UK story. In the U.S.

it’s really identifying in those cases non-principal income or non-trust carrying opportunities that may be on brokerage platform but not really be true self-directed, client directed brokerage but are really generally some sort of managed accounts.

And so, we’re really going into those firms and teaching that the platform is really robust, modern managed account program. And certainly with some of the front end stuff that I talked about earlier that we built this year and now we’ve installed that Regions Bank.

We’re getting some traction that [indiscernible] top of the -- we feel will be very attractive in the non-trust base. And that is growing quickly as some of the midsized, larger banks. So, we’re in there talking about that.

In some cases, it does mean changing some of the underlying regulatory oversight and some of the infrastructure that they’ve sold these accounts under, but there is definitely reception in these management firms, single infrastructure. And we are getting traction, but that is [indiscernible] Trust 3000 or a competitive trust system on the SWP.

But there are big, big opportunities for us. And I think that’s really important to our growth at SWP..

And next, we will go to -- well, actually, they took themselves out of queue. There are no other questions queued up at this time..

Presentation:.

Our next segment is Investment Advisors and Wayne Withrow will cover this segment.

Wayne?.

Thank you, Al. In 2017, we continued to grow our revenue and profits while simultaneously making big strides in the migration of our business to one supported by the SEI Wealth Platform. Fourth quarter revenues totaled over $98 million. These revenues were $11.3 million better than the fourth quarter of last year.

This increase was driven by positive net cash flow and market appreciation offset in part by fee reductions in some of our investment products.

Expenses were up in the fourth quarter versus last year’s fourth quarter due to increased personnel expense associated with our wealth platform migration and an increase in development expense net of capitalization.

Increased direct costs and personnel costs caused by our asset growth, and the impact of the increase in stock option expense, discussed by Dennis, were also significant contributors to the increase.

When compared to the third quarter, stock option expense, migration expenses and SWP development expenses were the major factors behind the expense increase. Our profits grew 6.2% from last year’s fourth quarter but lagged our revenue growth rate. This was caused by two primary factors.

First, the large increase in stock option expense; and second, a distinction to use the opportunity presented by our strong revenue growth to increase our investment in the SEI Wealth Platform development and our migration to the platform. Assets under management were $64.3 billion at December 31st, an increase of $8.7 billion from December 31, 2016.

The increase is driven by both net positive cash flow and market appreciation. During the fourth quarter, we had $650 million in net positive cash flow. During the quarter, we recruited 149 new advisors, bringing our total for the year to 517. Our pipeline of new advisors remains strong. For 2018, we will concentrate on three main areas.

First, we are focused on the rollout of SEI Wealth Platform. In 2017, we converted 1,200 clients and over $12 billion in assets. We now have over half of our AUM migrate onto the platform and should have all of our largest clients on the platform by the end of this year. One final migration at the end of March 2019 should complete the migration.

We are on track for these goals. Second, as step two to the migration, we will be increasing our focus on having advisors adopt the new functionality in the SEI Wealth Platform, especially its straight through processing capabilities. Third, we will continue to evolve our investment offering in response to industry trends.

As an example, throughout the year, we have lower fees in some of our mutual funds, our SMA program and our ETF Strategies program. As a further example, we have just incorporated a large cap passive [ph] fund as an option in our models. Now, advisors who want active management in most asset classes but prefer passive for U.S.

large cap activity could still select an SEI program. This is part of our ongoing response to the growing popularity of passive investments which started with our introduction of ETF Strategies portfolios in 2013. This program has been very successful for us, and recently Morningstar ranked us as the 8th largest ETF strategist in the United States.

In summary, 2017 reflected our continuing financial growth and solid progress in our migration the SEI Wealth Platform. Our goal in 2018 is to accelerate both of these items. We remain confident in the long-term opportunity in front of us. I welcome any questions you may have..

[Operator instructions] And we go to Robert Lee’s line with KBW. Please go ahead sir. .

I have a question on the competitive landscape. I know there are some other -- obviously you have a lot of competitors out there, but I see some competitors, I mean, I guess, there is firms like Jemstep or someone located near you, I guess AdvisorEngine who talk about having kind of solutions for advisors and offering model portfolios and what not.

Could you maybe give us a sense on how you view organizations like that as competitors or not and kind of maybe how the competitive landscape may be shifting and kind of where -- where kind of SWP sits versus kind of some of those solutions?.

Yes. I think the sort of firms that you have mentioned, one major difference for us, we are completely integrated front to back solution built around SWP. So, as you think about it, you can talk about the technology providers, and SWP certainly builds for us. But we also have our own custody platforms.

So, they are built on for example a Schwab or Fidelity but we have the integrated. We have our investor management program built on our own internal investment management. So, we are at single point of accountability and end-to-end solution and I think that’s what makes us different from most other competitors..

[Operator instruction] We’ll go to Glenn Greene with Oppenheimer. Your line is open, sir..

Yes.

Just could you talk a little bit about the pricing pressure, yield pressure that you talked about earlier in the year and you highlighted a little bit in your prepared comments, maybe just of give an update on the environment? Has it changed at all, or how has that contrasted for the last couple of quarters?.

I think the environment is about same. We constantly reassess the pricing of our products and we sort of manage fee reductions in response to the market and maintaining profitability of the unit in sort of a disciplined manner. So, I would say, it is not greater, but not less either..

Okay. And then….

But, I think the real point here though is, we’ve reduced price from certain product lines periodically throughout 2017. And they are most reflected in the financial results. So, it’s not like I would look at 2018 and say that there is some wrong….

Okay. And then, maybe just on the flows, it was nice to see the flows reaccelerated for the 600 or so level.

Could you just sort of parse that a little bit, how much from existing advisors versus new advisors or any other dynamics on the flows, which you may be aware of?.

I think, we saw a little -- the flows definitely were better; in the fourth quarter, they were about 50% higher than the third quarter. And I think a lot of that improvement was driven by an increase from the investing advisors over the prior quarters..

There are no other questions queued up..

Presentation:.

Our next segment is the Institutional Investors segment, and I will turn it over to Paul Klauder to report on this segment..

Thanks, Al. Good afternoon, everyone. I’m going to discuss the financial results for the fourth quarter of 2017 as well as the entire year. Fourth quarter 2017 revenues of $87 million were 2% lower than fourth quarter 2016 revenues, due to an $8.9 million reduction of the performance based fee for specialty investment products.

Market depreciation and net clients funding positively impacted revenue. Full year revenues of $322 million increased 3% compared to 2016. Operating profits for the fourth quarter 2017 were $42.8 million, 4% lower than the fourth quarter 2016 operating profits.

The decrease in the performance base fee reduced our operating profits by $4.5 million; without this one-time item, operating profit would have increased $2.8 million or 7% Q4 2017 versus Q4 2016. 2017 full year profits were $160.8 million, operating margins for full year 2017 were 50%.

Net fundings for the quarter were negative $200 million, gross fundings were strong at $1.8 billion but client losses totaled $2 billion. The client loss number was predominantly due to one large North American corporate relationship that got acquired by a larger organization.

Quarter end asset balances of $94 billion reflect $15 billion increase versus fourth quarter 2016. This is due to market appreciation, positive year to date client fundings and $4.8 billion in advised externally managed assets included in the asset base in 2017.

New clients signings were strong for the quarter at $1.9 billion and the unfunded client backlog at quarter-end was $500 million. These new clients included penetration across our growth markets of endowments and foundations, UK Fiduciary Management, U.S. defined contribution, U.S. Union or say, large U.S. corporate defined benefit plan.

Total new client signings for 2017 were $5.8 billion. Our focus in 2018 will be continue to diversify new business growth out of U.S. defined benefit and into and endowments and foundations, defined contribution, health care, non-U.S. DB fiduciary management, government and unions and entering new global markets. Thank you very much.

And I will welcome any question that you might have..

[Operator Instructions] Nobody is queuing up at this time..

Presentation:.

Our final segment today is Investment Managers. Now, I’m going to turn it over to Steve Meyer to discuss this segment.

Steve?.

Thanks, Al. Good afternoon, everyone. For the fourth quarter of 2017 revenues for the segment totaled $94.3, million which was $16.5 million or 21.1% higher as compared to our revenue in the fourth quarter of 2016.

This increase in revenue was primarily due to new client funding and market appreciation during this time period, as well as the addition of the revenue from our acquisition of Archway, which represented $5.2 million of the above number.

For the full year 2017, our revenue was $349.4 million which was $55.1 million or 18.7% higher than the full year 2016. Our fourth quarter profit for the segment of $33.6 million was $6 million or 21.7% higher than the fourth quarter of 2016.

Our full year 2017 profit for the segment of $122.9 million was approximately $19.7 million or 19% higher than our annual profit of 2016 and that included approximately $2.5 million of profit from the partial year of Archway.

Third party asset balances at the end of the fourth quarter of 2017 were $495.4 billion, approximately $46.7 billion or 10.4% higher as compared to asset balances at the end of the fourth quarter 2016. The increase in assets was primarily due to net new client fundings of $20.8 billion combined with market appreciation of $25.9 billion.

Returning to market activity. During the fourth quarter of 2017, we had a strong sales quarter. Net new business sales events totaled $15.8 million in annualized revenue.

These sales were comprised of new named business, as well as an expansion of existing business with current clients across all of our segments and included multiple business wins in our alternative market including new named competitive wins in our hedge and private equity segments as well as the addition of several middle office and back office outsourcing agendas with existing private equity clients.

We also had several family office wins with Archway. And on the traditional business side, we signed clients in every product class we offer including the competitive win and launch of a significant collective investment trust from a Connecticut-based manager and several large ETF mandates from existing clients.

And finally, we had key expansion of two key relationships in our global market.

Our total net new business sales events for the year were approximately $40.2 million which was our second largest sales year-to-date and very similar to our total events in 2016 of $40.5 million and continues to validate the market acceptance and strength of our strategy and solutions.

From a strategic perspective, in 2017, we accomplished many of our key goals that we discussed with you at the end of 2016, primarily, the execution of our sales momentum and opportunity, implementation of new business and our backlog in 2017, expansion of our market segments further into private equity and family offices, and finally, the investment and growth of our solutions including global regulatory and compliance, middle office and front office services.

As we drive forward into 2018, our focus will be on continued execution of our strategy and expansion of our platforms.

Our key goals will be centered on, one, continued execution of our sales momentum within our current markets; two, continued growth and expansion of our family office platform that we acquired this year; three, expansion of our platform in the front office focused services in support for our clients and investors; and four, expansion of our global regulatory compliance business and our data and analytics platform.

We will continue to invest in our solutions and platforms to help us drive sustainable growth. We are optimistic that the opportunity is available to us. That concludes my prepared remarks. And I will now turn it over to any questions you may have..

[Operator Instructions] And we will go to Robert Lee’s line with KBW. Please go ahead..

Just curious, could you update us on kind of what your kind of backlog is of kind of one but not yet kind of converted businesses?.

Rob you would disappoint me if you did not ask that question. So, our backlog at the end of Q4 was $39.3 million of sold deals, not implemented..

And just with that, do you have any kind of sense of what you would expect to roll on over the next 12 months or so?.

Well, we have talked in the past, when we have backlog, especially these fields have gotten larger, it’d take anywhere from 14 to 16 months. I think, we are seeing that shorten a little bit.

So, I think our hope would be that 39.3 backlog, we would start to fund at various times during this year over the next 12 to 14 months, I think is kind of the range we are looking at right now..

Okay, great. And you highlighted a bunch of areas for 2018 that you are focused on. And thinking about your margins that’s held up pretty well, kind of the 34 or 35ish kind of range.

Could you maybe talk about, with all the initiatives you have and good new business wins maybe that is a good thing that pressures comp a little bit but, how you are thinking about kind of margin progression from here and particularly even a broader question for Dennis and the firm that was -- following up to an early one.

Just kind of how you think about lower tax rate, maybe using as an opportunity to spend some and accelerate kind of market position?.

So, I’d love to hand that whole thing over to Dennis, but what I’ll do is I’ll answer from my standpoint and let Dennis answer. So, here is I look at it. I really have not changed my view on this.

We continue to invest and I think Dennis said it that we are not scared to invest really at anytime at the market or what the markets are doing or for any type of tax change. We will continually invest in our business when it’s made sense and what we see the right thing to do.

I think the growth we have had in our business has really come from some of the investments we have made, and we have been out front of those investments and building things for the emerging needs of our clients. We will continue to do that. I know you guys don’t like this, but I do not look to manage the margins quarter-to-quarter.

I think that would be a mistake. I think our business is still a strong business in the mid-30s. However, if we see the right opportunity to continue investment and increase investment that might drop back in short-term to medium term, we would do that.

But, I think right now, we are comfortable with the investment spend, you might see some areas this year that we look to increase spend to get things done a little quicker, but I think it will be relatively similar to what you’ve seen over the past few years..

And Mr. Shutler, if you want to give me your correct first name, I’ll get that..

It’s Chris. .

I just want to fix that on the list. Chris Shutler with William Blair..

Hey William, how you are doing?.

Hey, Steve.

The net client funding, did you say it was 2.6 in the quarter?.

Net fundings, I didn’t give, I basically gave I think the fundings year-over-year with assets. So, client fundings for $20.8 billion Q4 over Q4. .

Can you just give us for the quarter what it was?.

Yes. I don’t have the exact Q4, but I can get that for you, Chris..

Okay. I can go back and look. And then, the assets under administration number, it looked like it was only up slightly sequentially.

So, given the market backdrop, just what happened now, were there some client losses in the quarter?.

Well, there was a number of things. Obviously, we had some growth in some of our clients; there was a little bit of mismatch between our revenue growth and asset growth. There was some growth in our kind of the account base businesses which obviously are going to be reflected in assets.

We also had several clients, one in our global business and a couple in our alternative business that had some significant drops redemption-wise in their business.

And we did have two clients that we lost during the quarter on our traditional side, and they are really normal run of the course reasons, but one was the change in strategy and they decided to go with an internal solution versus outsource; and the other went to a lower cost competitor.

And what I would say, those two clients, they were in our traditional side but they were lower fee, lower profit clients but we’re really just going to compete with the prices they were looking at and it was probably better strategically that they went the way they did and the business moved on..

Okay. And then, the last one, Steve, just on the Archway. Just give us an update versus the initial financials that you guys have laid out, I guess over the summer.

How they performed in 2017? And I think in Q3 10.Q, it looked like they were maybe trailing a little bit versus what you had expected, so how did it end up and how are you feeling about that business?.

So, I’d say, directionally, I think they are in line with what we expected. I think to my previous comment, we obviously had some stretch goals out there. I think acquisition midyear obviously put a little bit of headwinds for a number of reasons, but they still grew.

They grew top line this year, a little over 17%, they grew their margins by about 15%. And I think that we’ll exceed that going forward this year. I think directionally this is inline and met our expectation.

We would love to see them be a little bit higher than where they were, but I think there is good reasons why that did not happen and like I said I think directionally they’re in where we want them to be. .

[Operator Instructions] Nobody else is in the queue at this time. .

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

Kathy?.

Thanks, Al. Good afternoon, everyone. I had some additional corporate information regarding this quarter. Fourth quarter cash flow from operations was $143.5 million or $0.88 per share. And year-to-date December cash flow from operations $459.9 million or $2.82 per share.

Our free cash flow for the fourth quarter was $125.9 million and our free cash flow for the whole -- the entire year was $375.6 million. Our capital expenditures excluding capitalized software were $5.2 million in the fourth quarter, or a total for the year of $25.5 million. We’re going to do some facilitate expansion next year.

So, we’re projecting our 2018 capital expenditures again excluding the capitalized software to be about $40 million.

We did note the tax rate in our earnings release as well as in conversation with Dennis and it is due to the Tax Cut and Job Act but it’s also due to the adoption of the new accounting standards that we adopted earlier this year, which allows us to report the tax benefit of stock option exercises in our calculation of income tax spend.

That accounting standard will continue into next year. And as a result, our effective tax rate will most likely fluctuate quarter-to-quarter.

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

And 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 through 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] And we will go to Chris Shutler with William Blair. Please go ahead..

Hey, Dennis, just one more. As we think about the expenses for 2018, just I know you’re not going to give a specific number. But I know there’s a lot of noise in the numbers.

So, if we were to back out stock comp and amortization, all the other kind of onetimeish things that are changing year-over-year and assume sort of just normal or consistent sales here.

Are we talking more like low single digit expense growth, mid single, upper single, just trying to get a ballpark sense of what you think is reasonable?.

So, you want to know what the x is in the x times y equals z? I guess the way I’d point, if you take fourth quarter and normalize it for the one-time -- I’d call one time, it’s really the -- we gave you a number for amortization for first quarter 2018 which will carry through the year and probably adjust a little bit as the year goes on, the option expenses for the year compared to fourth quarter.

If you take those two things and kind of net them out, I would say that we’re kind of in the mid single-digit percentage increases year-over-year. There is nothing unusual that we expect to happen this year expense-wise. We expect to continue to do the things we’ve always done. We certainly are in a competitive environment for talent.

We want to -- we will make sure that we keep and attract talent we need to grow our business. So, as you can see, in the market, there’s probably little more pressure on competition as a result of that. We’re in [indiscernible] market, technology, talent in particular as well as financial services investment talent is competitive market for that.

And there’s really no I’d say big investment project we have and that we’re planning on 2018, that -- would change that number much..

Okay, thank you..

That’s where I would be comfortable with..

Okay..

Now, if anything changed during the course of the year, obviously we will call it out..

Thank you..

I thought you [indiscernible] the Eagles are going to win on Sunday because we’re all waiting for that question. .

We’ll go to Robert Lee with KBW..

Great and thanks for taking my follow-up. Just a real quick tax question which I am sure is fun.

What was outside of the changes related to tax reform? I’m just kind of curious what the actual tax benefit, the kind of stock options related to tax benefit was in the quarter, just trying to kind of normalize at least the tax rate for the quarter in a way?.

The option expense change, the accounting change helped us by about 4 percentage points on the tax rate in the quarter..

Great, thanks so much. Thanks guys. .

That’s why Kathy talked about -- the rate I gave you that’s 21.5% to 22% range. So, it’s not included any benefit -- from that accounting rule because frankly that accounting rule is unpredictable, because it’s driven by option exercises which could change.

They could go up or they could go down, and therefore the rate would change much, could go the other way. You could add -- you could increase your rate....

And actually maybe as a one follow-up. I mean, you guys obviously -- you still use a lot of options and what not. But, lot of firms out there have kind of been migrating more towards restricted stock over the years.

To me, this kind of maybe philosophy wise, why you kind of prefer going the options route versus more stock, restricted stock?.

I’ll answer that. This is Al. As last time we looked at this when we calculated it, we felt that we could grow our earnings faster than 12%. Options make a lot of difference, and that changes. And right now, I think it will be lower than that because the interest rates are much lower. So, we can run that again. But, we feel that’s number one.

It’s less expensive of way to put capital in the hands of your employees. And the second is [indiscernible] and we have a bunch of people that are more entrepreneurial and they appreciate the options and the upside on the options better than the certainty of the stock options they get.

Does that answer your question, Rob?.

Your line is back up, Mr. Lee..

I got it. Thank you for taking my question, it does answer it. .

Yes. Rob, there is nothing in our equity plan that precludes us from doing other things. We added that a couple of years ago. So, if we were to think that -- if our philosophy change on that, we have the flexibility to do so.

Any questions?.

Not at this time, sir. .

Okay. So, ladies and gentlemen, I am encouraged by the direction each of our business line is taking and the progress they are making. And I believe the investments we are making will help us benefit from all the changes taking place in our industry. So, that concludes our presentation. Have a great evening. And thank you for attending our call.

And most importantly, go Eagles..

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