SEIC 10-K & 10-Q changes, risk factors and insider trading

Our revenues and earnings are affected by changes in capital markets and significant changes in the value of financial instruments. A majority of our revenues are earned based on the value of assets invested in investment products that we manage or administer. A decrease in the value of these assets, whether due to general market movements or as a consequence of various products’ unique investment performance, would cause a decline in our assets under administration or management, and a corresponding decline in our revenue and earnings. And, in certain investment programs, a portion of our clients’ cash is swept into insured deposit accounts at third party banks on which we earn fees, which fees may be significant. A material change in interest rates or a significant number of clients opting out of these programs could affect our profitability. Significant fluctuations in securities prices may also influence an investor’s decision to invest in and maintain an investment in a mutual fund or other investment products. Declining or adverse economic conditions and adverse changes in investor, consumer and business sentiment generally result in reduced business activity, which may decrease the demand for our products and services. Geopolitical events, market volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value or monetize certain financial instruments, particularly during periods of market displacement. Subsequent valuations of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. Additionally, periods of extreme market dislocation may require us to monetize our assets or those of our clients at a significant loss. As a result, our revenues and earnings derived from assets under management or administration, or our profitability or value as a firm, could be adversely affected.

We are exposed to product development risk. We continually strive to increase revenues and meet our customers' needs by introducing new products and services as well as maintaining and improving our existing products and services. As a result, we are subject to product development risk, which may result in loss if we are unable to develop and deliver products to our target markets that address our clients' needs, that are developed on a timely basis, or that reflect an attractive value proposition. The implementation of many product innovation and development opportunities, particularly cloud-based solutions, requires us to obtain client consent and/or vendor consent, which may be withheld or be obtainable only if we incur a cost that is disproportionate to the revenue opportunity. We are also subject to the risk that new products and solutions we develop may not function as expected or may be prone to error or disruption, which may result in material losses or harm to our reputation and ability to market such solutions. The majority of our technology product development risk pertains to the evolution of the SEI Wealth PlatformSM, TRUST 3000®, our platform for the Investment Managers segment, and our other proprietary technology platforms.

The development and introduction of new products and services in the markets in which we operate requires continued innovative efforts on our part and may require significant time and resources as well as ongoing support and investment. Expansion of Business-to-Consumer products and services presents unique risks as it increases direct interaction with individual consumers, exposing us to heightened cybersecurity threats and data privacy concerns. Growth in Business-to-Consumer models may increase operational risk due to higher transaction volumes, potentially increasing operational costs and fraud risks.

Product development in the asset management arena has experienced significant growth in alternative investments, including private equity, hedge funds, real estate, and infrastructure. The growing focus on alternatives reflects increasing demand for diversification beyond traditional asset classes; however, new alternative products often require three or more years in the market to generate the track records necessary to attract significant asset inflows. In addition, alternatives present significant operational challenges for asset managers, primarily due to the lack of widely adopted and trusted technological solutions in this space. Unlike traditional investments, which benefit from well-established operational infrastructures and automated processes, alternative investments often require more manual intervention and bespoke operational support. Failure to effectively manage the risks associated with these new products could lead to reputational damage, regulatory scrutiny, and potential financial losses.

Product development in the asset management arena has had significant growth in newer areas where investment criteria and performance metrics have not yet been fully defined or developed, such as Tax Harvesting programs. New products often must be in the marketplace for three or more years in order to generate track records required to attract significant asset inflows. A failure to continue to innovate, to introduce successful new products and services, or to manage effectively the risks associated with such products and services, may impact our market share and may cause our revenues and earnings derived from assets under management and administration to decline.

We may not achieve significant revenue from new products or services for years, if at all. New products and services may not be profitable, and even if they are profitable, operating margins for some new products and services may not be as high as the margins we have experienced historically.

If we fail to develop new or enhanced products or services at an acceptable cost or on a timely basis, or if our development strategies are not accepted by our clients, we may recognize significant financial losses. Further, if we fail to deliver products and services which are of sound economic value to our clients and our target markets, or are unable to support the product in a cost-effective and compliant manner, we may face reputational damage and incur significant financial losses.

We rely on third parties to provide products and services that may be difficult to replace or which could cause errors or failures in the services we provide. We rely on third parties we do not control to provide us with products and services, including software development, licensed software, software as a service, business process outsourcing services, cloud services, hosting, web hosting, and the Automated Clearing House (ACH) network, which transmit transaction data, process chargebacks and refunds, and perform clearing services in connection with our settlement activities. In the event these third parties fail to provide these services adequately or in a timely manner, including as a result of errors in their systems or events beyond their control, or refuse to provide these services on terms acceptable to us or at all, and we are not able to find and implement timely suitable alternatives, we may no longer be able to provide certain services to customers, which could expose us and our clients to information security, financial, compliance and reputational risks, among others, and have a material adverse effect on our results of operations and financial condition. In addition, if we are unable to renew our existing contracts or licenses with key vendors, technology providers or service providers, we might not be able to replace the related product, application or service at all or at the same cost, which would negatively impact our offerings and our results of operations.

Pricing pressure from increased competition and disruptive technology may affect our revenues and earnings. The investment management industry is highly competitive and has relatively low barriers to entry. In recent years, we have experienced, and continue to experience, pricing pressures from the introduction of new, lower-priced investment products and services and the growth of passive investing, as well as from competitor firms offering automated portfolio management and other services based on technological innovations. Companies that successfully implement artificial intelligence (AI)-driven pricing could gain a significant advantage in optimizing revenues and responding to market dynamics. These new investment products and technological innovations, available to both institutional and retail investors, have led to a general trend towards lower fees in some segments of the investment management industry. We believe price competition and pricing pressures in these and other areas will continue as investors continue to reduce the amounts they are willing to pay and financial services firms seek to obtain market share by reducing fees or margins.

The competitive landscape is rapidly evolving with the entry of fintech firms and big tech companies into asset management. Our ability to compete effectively against these new entrants, who may have superior technological capabilities, is crucial for maintaining market share. Furthermore, these financial technology companies and other non-traditional competitors may not be subject to banking regulation, or may be supervised by a national or state regulatory agency that does not have the same resources or regulatory priorities as those regulatory agencies that supervise more diversified financial services firms such as us, or the financial services regulatory framework in a particular jurisdiction may favor financial institutions that are based in that jurisdiction. These types of differences in capabilities and regulatory status may result in losing market share to competitors that have a lower cost of compliance due to being less regulated than we are or not subject to regulation, especially with respect to unregulated financial products.

Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have left businesses, been acquired by or merged into other firms, or have declared bankruptcy. Such changes could result in our remaining competitors gaining greater capital and other resources, such as the ability to offer a broader range of products and services and geographic diversity, or new competitors may emerge.

Our investment management platforms include investment management programs and back-office investment processing outsourcing services and are generally offered on a bundled basis. The breadth of our business solutions allows us to compete on a number of factors including:

•the performance of our investment products;

•the level of fees charged;

•the quality of our investment processing services;

•our reputation and position in the industry;

•our ability to adapt to disruptive technology developments or unforeseen market entrants; and

•our ability to address the complex and changing needs of our clients.

Increased competition on the basis of any of these factors could have an adverse impact on our competitive position resulting in a decrease in our revenues and earnings. Additionally, the trend toward direct access to automated, electronic markets will likely continue as additional markets move to more automated trading platforms. We have experienced and will likely continue to experience competitive pressures in these and other areas in the future.

Our outsourcing strategy may affect our business operations and financial performance. We have recently implemented a new outsourcing strategy that leverages a Global Capability Center (GCC) in India. While this strategy aims to enhance operational efficiency and access a skilled talent pool, it also introduces new risks that could materially affect our business operations and financial performance. The establishment and management of a GCC in India involves complex operational, regulatory, and compliance challenges. We may face difficulties in navigating local laws, cultural differences, and communication barriers, which could impede effective collaboration and oversight. Additionally, the GCC's operations may be subject to geopolitical risks, changes in local regulations, or economic instability in India, potentially disrupting our business processes or increasing operational costs. Our GCC relies heavily on local infrastructure and technology systems, which may be vulnerable to cybersecurity threats, natural disasters, or other disruptions. Any significant interruption in the GCC's operations could adversely affect our ability to deliver services to clients, potentially resulting in reputational damage and financial losses. Furthermore, the transfer of certain business functions to the GCC may involve the handling of sensitive data, raising concerns about data privacy and security. Despite our efforts to implement robust security measures, we cannot guarantee that our GCC will be immune to data breaches or cyber-attacks, which could expose us to legal liabilities and regulatory scrutiny.

The success of our GCC strategy depends on our ability to attract and retain skilled talent in India. However, the competitive labor market for technology professionals in India may lead to increased attrition rates or higher compensation costs, potentially eroding the cost benefits of our outsourcing strategy. Moreover, any failure to effectively integrate the GCC's operations with our global processes or to manage the quality of services provided by the GCC could negatively impact our operational efficiency and client satisfaction. If we are unable to realize the anticipated benefits of our GCC strategy or if we face significant challenges in its implementation and management, it could have a material adverse effect on our business operations, financial condition, and results of operations.

Our earnings and cash flows are affected by the performance of LSV. We maintain a minority ownership interest in LSV which is a significant contributor to our earnings. We also receive partnership distribution payments from LSV on a quarterly basis which contribute to our operating cash flows. LSV is a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies. LSV is a value-oriented, contrarian money manager offering a deep-value investment alternative utilizing a proprietary equity investment model to identify securities generally considered to be out of favor by the market. Volatility in the capital markets or poor investment performance on the part of LSV, on a relative basis or an absolute basis, could result in a significant reduction in their assets under management and revenues and a reduction in performance fees. Consequently, LSV's contribution to our earnings through our minority ownership, as well as to our operating cash flows through LSV's partnership distribution payments, could be adversely affected.

Consolidation within our target markets may affect our business. Merger and acquisition activity within the markets we serve could reduce the number of existing and prospective clients or reduce the amount of revenue and earnings we receive from retained clients. Consolidation activities may also cause larger institutions to internalize some or all of our services. These factors may negatively impact our ability to generate future growth in revenues and earnings.

External factors affecting the fiduciary management market could adversely affect us. The utilization of defined benefit plans by employers in the United States, Canada and the United Kingdom has been steadily declining. A number of our clients have frozen or curtailed their defined benefit plans resulting in decreased revenues and earnings related to this market segment. We have also experienced increasing fee sensitivity and competition for certain fiduciary management services due to investor preferences toward lower-priced investment products including passive management approaches. The current growth strategies of our Institutional Investors segment include entering new global markets and placing greater emphasis on defined contribution and not-for-profit organizations fiduciary management sales opportunities. These strategies may not be successful in mitigating the impact of lower revenues and earnings caused by these external factors which could adversely affect our revenues and earnings.

We may experience software defects, development delays or installation difficulties, which would harm our business and reputation and expose us to potential liability. A significant portion of our revenue is dependent upon our ability to develop, implement, maintain and enhance sophisticated software and computer systems. We may encounter delays when developing new applications and services. Further, the software underlying our services may contain undetected errors, vulnerabilities or defects when first introduced or when new versions are released. We may also experience difficulties in installing, integrating or supporting our technology on systems or with other programs used by our clients. Likewise, our clients may make a determination to delay or cancel the integration of our new applications and services. Defects in our software, failure to adequately maintain and enhance our software products, errors or delays in the processing of electronic transactions or other difficulties could result in interruption of business operations, delay in market acceptance, additional development and remediation costs, diversion of technical and other resources, loss of clients or client data, negative publicity or exposure to liability claims. Although we attempt to limit our potential liability through disclaimers and limitation of liability provisions in our license and client agreements, we cannot be certain that these measures will successfully limit our liability.

Risks Related to Our Technology

We are exposed to data and cyber security risks. Like other global financial service providers, we experience millions of cyber-attacks on our computer systems, software, networks and other technology assets on a daily basis. Cyber security and information risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and mobile telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors, in some circumstances as a means to promote political ends. In addition to the growing sophistication of certain parties, the commoditization of AI and cyber tools which are able to be weaponized by less sophisticated actors has led to an increase in the exploitation of technological vulnerabilities. Any of these parties may also attempt to fraudulently induce employees, customers, clients, vendors or other third parties or users of our systems to disclose sensitive information in order to gain access to our data or that of our employees or clients. Cyber security and information security risks may also derive from:

•human error,

•fraud, or malfeasance on the part of our employees or third parties,

•accidental technological failure, or

•our failure to introduce security patches provided by vendors in a timely manner.

In addition, third parties with whom we do business, their service providers, as well as other third parties with whom our customers do business, are sources of cyber security risk to us, particularly when their activities and systems are beyond our own security and control systems. A cyber-attack, information breach or loss, or technology failure of a third party could adversely affect our ability to effect transactions, service our clients, manage our exposure to risk, expand our businesses, or significantly harm our reputation. There is no guarantee that the strategies we have deployed that are designed to protect against threats and vulnerabilities will be effective or provide recoverability of our systems or our data or that of our clients given the techniques used in cyber-attacks are complex and frequently change.

A successful penetration or circumvention of the security of our systems or the systems of a vendor, governmental body or another market participant could cause serious negative consequences, including:

•significant disruption of our operations and those of our clients, customers and counterparties, including losing access to operational systems;

•misappropriation of our confidential information or that of our clients, counterparties, vendors, employees or regulators;

•damage to our technology infrastructure or systems and those of our clients, vendors and counterparties;

•inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions;

•violations by us of applicable privacy and other laws;

•financial loss to us or to our clients, vendors, counterparties or employees;

•loss of confidence in our cyber security measures;

•dissatisfaction among our clients or counterparties;

•significant exposure to litigation and regulatory fines, penalties or other sanctions; and

•harm to our reputation.

Any of the foregoing factors could expose us to liability for damages which may not be covered by insurance; but may result in the loss of customer business, damage to our reputation, regulatory scrutiny or civil litigation.

The failure to upgrade or maintain our technology infrastructure including our, computer systems, software and networks could also make us susceptible to breaches, unauthorized access and misuse. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cyber security risks. Furthermore, even if not directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financial system. As a result of the importance of communications and information systems to our business and our reliance on the services provided to us by third parties, we could also be adversely affected if attacks affecting our third-party service providers impair our ability to process transactions and communicate with clients and counterparties.

Given our extensive global operations, expansion through acquisitions, and the substantial volume of transactions we process daily, coupled with our vast network of clients, partners, vendors, and counterparties, we face an elevated risk of sophisticated and persistent cyber-attacks. The complexity of our systems and the evolving nature of cyber threats mean that a breach could potentially remain undetected for an extended period, potentially compromising sensitive data and disrupting critical operations. We expect that any investigation of a cyber-attack would be inherently unpredictable and that it would take time before the completion of any investigation and before there is availability of full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all or any of which would further increase the costs and consequences of a cyber-attack.

While many of our agreements with partners and third-party vendors include indemnification provisions, we may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses. In addition, although we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, such insurance coverage may be insufficient to cover all losses.

Certain regulatory requirements, while aimed at enhancing cybersecurity, significantly restrict our ability to allocate resources based solely on our own risk assessments. The mandatory nature of these requirements, coupled with the potential for severe penalties for non-compliance, forces us to divert resources that might otherwise be allocated to areas we deem higher risk or more critical to our specific business needs.

We are exposed to risk of the disclosure and misuse of personal data. We store, transfer and process large amounts of personally identifiable information of our customers to deliver our products and services. It is possible our security controls over personal data, our training of employees on data security, our vendor due diligence and oversight processes, and other practices we follow may not prevent the improper disclosure or misuse of personal data that we or our vendors store and/or manage. Improper disclosure or misuse of personal data could harm our reputation, lead to legal exposure, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. Perceptions that the collection, use, and retention of personal information is not satisfactorily protected could inhibit sales of our products or services. Additional security measures we may take to address customer concerns may cause higher operating expenses or hinder growth of our products and services.

We are exposed to risk of outages, data losses, and disruptions of services. We maintain and process data for our clients that is critical to their business operations. The products and services used to process that data is increasingly complex, and maintaining, securing, and expanding this infrastructure is expensive. It requires that we maintain an Internet connectivity infrastructure and storage and compute capacity that is robust and reliable within competitive and regulatory constraints that continue to evolve. Inefficiencies or operational failures, including temporary or permanent loss of customer data, damaged software codes, delayed or inaccurate processing of transactions, insufficient Internet connectivity, or inadequate storage and compute capacity, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, regulatory actions, damage to our reputation, and loss of current and potential users, each of which may adversely impact our consolidated financial statements. The costs necessary to rectify these problems may be substantial and may adversely impact our business.

The trend toward direct access to automated, electronic markets and the move to more automated trading platforms has resulted in the use of increasingly complex technology that relies on the continued effectiveness of the programming code and integrity of the data to process the trades. We rely on the ability of our employees, our consultants, our internal systems and third-party systems to operate our different businesses and process a high volume of transactions. Unusually high trading volumes or site usage could cause our systems to operate at an unacceptably slow speed or even fail. Disruptions to, destruction of, instability of or other failure to effectively maintain our information technology systems or external technology that allows our clients and customers to use our products and services could harm our business and our reputation. There can be no assurance that our business contingency and security response plans fully mitigate all potential risks to us.

We are exposed to intellectual property risks. Our continued success also depends in part on our ability to protect our proprietary technology and solutions and to defend against infringement claims of others. We primarily rely upon trade secret law, software security measures, copyrights and confidentiality restrictions in contracts with employees, vendors and customers. Our industry is characterized by the existence of a large number of trade secrets, copyrights and the rapid issuance of patents, as well as frequent litigation based on allegations of infringement or other violations of intellectual property (IP) rights of others. A successful assertion by others of infringement claims or a failure to maintain the confidentiality and exclusivity of our intellectual property may have a material adverse effect on our business and financial results.

The success of our merger and acquisition (M&A) activity and strategy also depends on our ability to protect our proprietary technology and solutions, defend against infringement claims, and effectively manage intellectual property assets acquired through M&A activities. Failure to maintain the confidentiality and exclusivity of our intellectual property, or inadequate due diligence in M&A transactions may have a material adverse effect on our business and financial results. Additionally, the complexity of IP issues in M&A deals may impact our ability to close transactions or realize their full value.

We are dependent upon third-party service providers in our operations. In connection with our ongoing operations, we utilize the services of third-party suppliers, which we anticipate will continue and may increase in the future. These services include, for example, outsourced development, processing and support functions, and other professional services.

Third-party financial entities and technology systems upon which we rely are becoming more interdependent and complex. For example, in recent years, there has been significant consolidation among clearing agents, exchanges and clearing houses and increased interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses. This consolidation and interconnectivity increases the risk of operational failure, on both an individual and industry-wide basis, as disparate complex systems need to be integrated, often on an accelerated basis.

A failure by a third-party product or service provider may impair our ability to provide contractual services to our clients on a timely basis, to process transactions for our clients accurately, or to meet our regulatory obligations. If a third-party service provider is unable to provide services, we may incur significant costs to either internalize some of these services, find a suitable alternative, or to compensate our clients for any losses that may be sustained as a consequence of the actions or inactions of our third-party services providers. In the event of a breakdown or improper operation of a direct or indirect third-party’s systems or processes, or improper or unauthorized action by third parties, including consultants and subcontractors, we could suffer financial loss, a disruption of our businesses, regulatory sanctions or damage to our reputation.

Revenues increased $205.4 million, or 11%, to $2.1 billion in 2024 compared to 2023. Net income increased $118.9 million, or 26%, to $581.2 million and diluted earnings per share increased to $4.41 per share in 2024 compared to $3.46 per share in 2023. We believe the following items were significant to our business results during 2024:

•Revenue from Assets under management, administration, and distribution fees increased in 2024 primarily from higher assets under administration due to cross sales to existing alternative investment clients of the Investment Managers segment as well as new sales within the segment. Average assets under administration increased $132.9 billion, or 15%, to $1.0 trillion during 2024, as compared to $880.3 billion during 2023.

•Revenue from the SEI Integrated Cash Program launched in December 2023 in the Investment Advisors segment was $51.5 million during 2024 as compared to $1.5 million in 2023, an increase of $50.0 million. Revenue from this program is included in Asset management, administration and distribution fees on the accompanying Consolidated Statement of Operations.

•Revenue from Asset management, administration and distribution fees also increased from market appreciation and positive cash flows into separately managed account programs and Strategist programs of the Investment Advisors segment. This was partially offset by negative cash flows from SEI fund programs and fee reductions in separately managed account programs. Revenue growth was also partially offset by client losses in the Institutional Investors segment. Average assets under management in equity and fixed income programs, excluding LSV, increased $10.9 billion, or 6%, to $179.5 billion in 2024 as compared to $168.6 billion during 2023.

•Revenue from Information processing and software servicing fees increased in 2024 primarily from new client conversions and growth from existing SEI Wealth PlatformSM (SWP) clients. A one-time early contractual buyout fee of $10.5 million recorded during the second quarter of 2023 from an investment processing client of the Private Banks segment acquired by an existing client partially offset the increase in revenues.

•Earnings from LSV increased to $135.7 million in 2024 as compared to $126.9 million in 2023 due to market appreciation and higher performance fees. Negative cash flows from existing clients and client losses partially offset the increase in earnings from LSV.

•Operating expenses increased from higher personnel costs due to business growth, primarily in the Investment Managers segment, and the impact of inflation on wages and services. Cost containment measures related to consulting and other vendor costs partially offset the increase in operating expenses in 2024.

•During the fourth quarter of 2024, we recognized additional personnel costs from a one-time increase in our incentive compensation awards to employees as a result of better than expected financial results.

•Stock-based compensation costs related to stock options increased during 2024 primarily from the acceleration of $11.2 million in expense from a change in estimate of the attainment of vesting targets for these awards due to strong earnings growth (See the caption "Stock-Based Compensation" later in this discussion for more information).

•Capitalized software development costs were $24.3 million in 2024, of which $13.7 million was for continued enhancements to SWP. Capitalized software development costs also include $10.6 million of software development costs in 2024 for a new platform for the Investment Managers segment.

•Amortization expense related to SWP was $27.5 million in 2024 as compared to $25.6 million in 2023.

•Interest and dividend income was $48.9 million in 2024 as compared to $41.0 million in 2023. The increase in interest and dividend income was due to an overall increase in interest rates and higher invested cash balances.

•In July 2024, SEI sold a condominium located in New York, New York and recognized a net pre-tax gain of $8.2 million after associated costs and expenses. The gain from the sale is included in Other income on the accompanying Consolidated Statement of Operations (See Note 19 to the Notes to Consolidated Financial Statements).

•In December 2024, SEI acquired LifeYield, LLC (LifeYield), a Boston-based, tax-smart technology firm for a cash consideration of $29.0 million (See Note 15 to the Notes to Consolidated Financial Statements).

•Effective tax rates were 22.2% during 2024 and 22.3% during 2023 (See the caption "Income Taxes" later in this discussion for more information).

•SEI repurchased 6.8 million shares of its common stock at an average price of $74.92 per share for a total cost of $512.5 million and paid $120.3 million in cash dividends to shareholders during 2024.

Significant Items Impacting Our Financial Results in 2023

•Revenue from Information processing and software servicing fees decreased primarily from one-time early termination fees of $88.0 million from a significant client of the Private Banks segment recorded during the first quarter 2022. A one-time early contractual buyout fee of $10.5 million recorded during the second quarter 2023 from an investment processing client of the Private Banks segment acquired by an existing client partially offset the decline in revenues. Revenue from Information processing and software servicing fees was positively impacted by new client conversions and growth from existing SWP clients during 2023.

•Revenue from Asset management, administration and distribution fees was unfavorably impacted by lower assets under management in equity and fixed income programs from negative cash flows from SEI fund programs and declining average basis points earned on assets in the Investment Advisors segment and client losses in the Institutional Investors segment. The unfavorable impact was partially offset by market appreciation and positive cash flows into separately managed account programs of the Investment Advisors segment. Average assets under management in equity and fixed income programs, excluding LSV, decreased $6.5 billion, or 4%, to $168.6 billion during 2023 as compared to $175.1 billion during 2022.

•Earnings from LSV increased by $6.3 million, or 5%, in 2023 due to market appreciation and higher performance fees. Negative cash flows from existing clients and client losses partially offset the increase in earnings from LSV.

•The decline in operating expenses was primarily due to total costs of $54.8 million related to the Voluntary Separation Program (VSP) recognized during the third quarter 2022. These one-time costs are primarily included in Compensation, benefits and other personnel costs on the accompanying Consolidated Statement of Operations and are reported in corporate overhead expenses. Decreased non-capitalized consulting costs also contributed to the decline in operating expenses during 2023.

•Operational expenses unrelated to the VSP increased in 2023 due to higher personnel costs from business growth, primarily in the Investment Managers segment, competitive labor markets, and investments in compliance infrastructure to meet new regulatory requirements. The increased personnel costs were primarily related to salary and incentive compensation costs.

•Capitalized software development costs were $34.0 million in 2023, of which $18.2 million was for continued enhancements to SWP. Capitalized software development costs also include $15.8 million of software development costs for a new platform for the Investment Managers segment.

•Management decided to abandon certain functionality within the platform for the Investment Managers segment due to a change in development strategy and wrote off $5.3 million of previously capitalized software development costs during the fourth quarter 2023. The expense associated with the write off is included in Facilities, supplies and other costs on the accompanying Consolidated Statement of Operations.

•The effective tax rate during 2023 was 22.3% as compared to 22.0% during 2022. The increase in the effective rate was primarily due to reduced tax benefits related to stock option exercises.

•On November 20, 2023, our wholly-owned operating subsidiary in the United Kingdom closed the acquisition of XPS Pensions (Nexus) Limited, principal employer and scheme funder of the National Pensions Trust. We paid a cash consideration of $43.9 million, net for the acquisition and recorded a contingent consideration of $3.9 million that may be earned by the seller over the two years after the closing, subject to the achievement of certain post-closing performance measurements (See Note 16 to the Notes to Consolidated Financial Statements).

•On December 20, 2023, we acquired Altigo, a cloud-based technology platform that provides inventory, e-subscription, and reporting capabilities for alternative investments, for a cash consideration of $12.5 million (See Note 16 to the Notes to Consolidated Financial Statements).

Investment Processing and Software Servicing Fees

Investment processing and software servicing fees in our Private Banks segment primarily include application and business-process-outsourcing services, professional fees and transaction-based services. Application and business-process-outsourcing services revenues are based upon the type and number of investor accounts serviced or as a percentage of the market value of the clients’ asset processed on our platforms. Professional services revenues are earned from contracted, project-oriented services. Transaction-based revenues are primarily earned from fees earned on securities trades executed on behalf of our clients. During the fourth quarter of 2024, approximately 47% of our investment processing and software servicing fees are earned as a percentage of the market value of clients’ asset processed, primarily from SWP and our solution clients.

Investment Management Platforms

Our investment management platforms include investment management programs and back-office investment processing outsourcing services and are generally offered on a bundled basis. Although we believe the breadth of our business solutions offer a competitive advantage, factors such as the underperformance of investment products that we manage relative to our competitors or to benchmarks and client preferences for lower cost investment products offered through an unbundled model have resulted in cash outflows and a loss of management fees primarily impacting the Investment Advisors segment.

Sensitivity of our revenues and earnings to capital market fluctuations

The majority of our revenues are based on the value of assets invested in investment products that we manage or administer which are affected by changes in the capital markets and the portfolio strategy of our clients or their customers. The continuation of favorable capital market returns during 2024 had a positive impact on our asset-based fees thereby contributing to growth in our base revenues. Macroeconomic factors such as the reacceleration of inflationary pressures, higher long term interest rates, continued monetary stimulus measures from central banks, and geopolitical tensions, among others, could have significant influence on capital markets in 2025 and beyond. Any prolonged future downturns in general capital market conditions could have adverse effects on our revenues and earnings derived from assets under management and administration.

SEI Integrated Cash Program

In December 2023, we launched the SEI Integrated Cash program, an enhanced cash sweep program offered through SPTC's custody services utilizing an SEI-sponsored money market mutual fund for investment-related cash allocations and FDIC-insured deposit accounts through a network of independent banks. Under the terms of the program, SPTC will earn interest income based on the portion of its client’s cash balances held in the FDIC-insured accounts. This program generated revenue of $51.5 million for the Investment Advisors segment in 2024. A decline in market interest rates or an increase in alternative cash management options selected by clients could significantly reduce the earnings derived from this program. The assets related to the SEI Integrated Cash program are included in Platform-only assets-deposit program of the Investment Advisors segment on the accompanying Ending Assets Balances and Average Assets Balances schedules.

External factors affecting the fiduciary management market

The utilization of defined benefit plans by employers in the United States, Canada and the United Kingdom has been steadily declining. A number of our clients of the Institutional Investors segment have frozen or curtailed their defined benefit plans resulting in decreased revenues and earnings. The current growth strategies of our Institutional Investors segment include entering new global markets and placing greater emphasis on defined contribution and not-for-profit organizations fiduciary management sales opportunities. These strategies may not be successful in mitigating the impact of lower revenues resulting from defined benefit client losses.

Business Growth

Implementing new clients and making strategic investments that drive future revenue growth involves financial, managerial, and operational challenges. We may incur significant expenses to position our technology and operational infrastructure in connection with onboarding new clients and developing new products and services to enter new or adjacent markets. Our overall profitability would be negatively affected if strategic investments and expenses associated with such growth are not matched or exceeded on a timely basis by the revenues that are derived from such investment or growth.

•The increase in personnel costs was primarily due to business growth, primarily in the Investment Managers segment.

•The increase in amortization expense was primarily due to intangible assets related to the Stratos acquisition.

•Effective tax rates were 23.4% during the first quarter 2026 and 22.8% during the first quarter 2025.

(E) Client assets under administration related to the Family Office Services business divested on June 30, 2025.

The increase in the effective tax rate for the three months ended March 31, 2026 was primarily due to non-deductible executive compensation. Under Section 162(m) of the Internal Revenue Code, the our federal income tax deduction for compensation paid to certain covered employees is limited. Compensation expense that exceeds this limitation is not deductible for income tax purposes but is recognized as expense for financial reporting purposes. As a result, we incurred a permanent difference during the three months ended March 31, 2026, which increased the effective tax rate.