Ladies and gentlemen, thank you for standing by. Welcome to the SEI Second Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time.
As a reminder, this conference is being recorded. I'd now like to turn the conference over to Chairman and CEO, Al West. Please go ahead.
Thank you, and welcome, everyone. All of our segment leaders are on the call as well as Dennis McGonigal, SEI's CFO and Kathy Eilig, SEI's Controller. I'll start by recapping the Q2 2019, then I'll turn it over to Dennis to cover LSV and the Investment and New Business segment. After that, each of the business segment leaders will comment on the results of their segments. Then finally, Kathy Heilig will provide you important company wide statistics.
As usual, we will field questions at the end of each report. So let me start with the Q2 2019. 2nd quarter earnings increased by 4% over a year ago. Diluted earnings per share for the Q2 of $0.82 represents a 9% increase from the $0.75 reported for the Q2 of 2018. We also reported a 1% increase in revenue from Q2 2018 to Q2 2019.
Also during the Q2 2019, our non cash asset balances under management increased by $3,400,000,000 At the same time, LSV assets under management increased by 400 $1,000,000 These increases in assets under management were primarily due to market appreciation. Now in addition, during the Q2 2019, we repurchased approximately 1,800,000 shares of SEI stock at an average price of $53.17 per share. That translates to 97 $1,000,000 of stock repurchases during the quarter. Finally, in the second quarter, as part of the investments we make to create growth, we capitalize approximately $9,300,000 of the SWP development and amortized approximately $11,800,000 of previously capitalized SWP and IMS development. 2nd quarter 2019 sales events, net of client losses, totaled approximately $12,700,000 and are expected to generate net annualized recurring revenues of approximately $10,800,000 Even though this quarterly I mean, even though this quarter's sales results are an improvement over last quarter's, we are still not satisfied with our 2nd quarter sales results.
We continue to experience slow contract negotiations in this tightly regulated environment, Plus, we face continued rollover of the institutional business away from U. S. Corporate DB plans. And finally, all our asset management businesses faced fee compression due to the popularity of passive investing. But there are bright spots.
One is that across the company, we have fully engaged sales teams and a lot of activity. 2, IMS sales continue to be strong. 3, the migration of advisors to SWP is now behind us. And finally, after the close of the quarter, we signed significant new SWP business. Our market unit heads will speak to the bright spots and their specific sales strategies.
Now this concludes my formal remarks. So I'll turn it over to Dennis to give you an update on LSV and the investment in our new business segment. I'll then turn it over to the other business segments, Ed. Dennis? Thanks, Al, and good afternoon, everyone.
I will cover the 2nd quarter results for the Investments in New Business segment and discuss the results of LSV Asset Management. During the Q2 2019, the Investments in New Business segment continued its focus on the ultrahighnetworthinvestor segment through our private wealth management group and additional research initiatives including the digital services and hosting opportunity we spoke about in the past and the modularization of larger technology platforms in the standalone components for the wealth management and investment processing space. During the quarter, the investments in new business segment incurred a loss of $3,700,000
incurred a loss of $3,700,000 which
compared to a loss of $3,100,000 during the Q2 of 2018. This increase in loss reflects the growth of our Private Wealth Management business more than offset by other areas of investment. Regarding LSV, our earnings from LSV represent 39% ownership interest during the Q2. LSV contributed $37,800,000 in income to SEI during the Q2 of 2019. This compares to a contribution of $41,100,000 in income during the Q2 of 2018.
Assets during the quarter were up approximately $400,000,000 LSV experienced net negative cash flow during the quarter of approximately $2,100,000,000 which was offset by market appreciation. Revenue at LSV was approximately $123,000,000 and performance fees were minimal. Our effective tax rate for the quarter was 22%. I'm happy to take any questions.
And we do have a question from the line of Robert Lee with KBW. Please go ahead.
Yes. Hi. Good afternoon. Hi, Dennis.
Hey, Rob.
Hi. Just a quick question on LSV. You mean the apples, is there any way of kind of characterizing it? Was it kind of maybe one large account? Or was it kind of a sense that it was just a lot of rebalancing?
Just trying to see if there's any kind of underlying color if it was a little bit more of a one off or something else underneath.
Yes, it's more the negative flows are really attributed to existing clients, moving some assets out, not really lost clients. And they did have about $800,000,000 of new sales in the quarter. So while they're net negative, they're still able to produce or establish new client relationships. The value is in a tough spot right now.
Great. Thank you.
You're welcome.
We also have a question from the line of Chris Shutler with William Blair. Please go ahead.
Hey, Dennis. Quick question on currency actually. So the dollar, I think, strengthened a bit versus the pound recently. Could you just remind us the sensitivity to revenue and expenses in the segments?
Sure. So I mean, each of the segments leads have had that impact in our business. We could incorporate that in their comments. Kind of across the company, I'll just make that comment first. The net impact kind of Q1 to Q2 is pretty neutral.
We have a slightly negative impact on revenue and a slightly positive impact on expense. When you compare it to Q2 of last year, it's a little bit more significant impact on revenue, but also similarly a little more significant impact on expense. So again, the net to the company is pretty modest, slightly negative, less than $500,000 So across the total company, it's fairly mute. The business lines that it affects a little bit more would be like a Paul's business, Q2 to Q2 comparatives, his revenue numbers by a little bit under $1,000,000 impacted as expense numbers positively impacted by about $400,000 So I'd say that has a little bit more of the larger impact on a net basis. Steve's business in banking similarly is revenue is impacted by a negative kind of year over year about $1,500,000 and expenses positive by little over $1,000,000 So it does have a negative P and L impact to his business year over year.
But across the company, we it's almost like we have this natural hedge against given the different currencies we operate in.
All right. Thank you.
You're welcome.
At this time, there's no further questions in the queue.
Thank you. I am now going to turn it over to Steve Meyer to discuss our Private Banking segment. Steve?
Thank you, Al. Good afternoon, everyone. For the Q2 of 2019, revenues for the segment totaled $116,100,000 which is down 4.2% as compared to our revenue in the Q2 of 2018. This year over year revenue decrease was due primarily to some of the client losses previously announced along with decreased revenue in our asset management business. Our quarterly profit for the segment of $8,300,000 increased $2,000,000 as compared to the Q2 of 2018.
This increase was mainly driven by our continued expense management. Our 2nd quarter profit is up $1,000,000 as compared to our profit in the Q1. In turning to sales activity, during the Q2, we signed $5,400,000 in gross processing recurring sales events and approximately a negative $2,700,000 in net sales events. Additionally, we had $500,000 in one time events. These events included the following: SWP conversion of an existing Trust 3,000 client.
An existing Trust 3,000 client has signed to move to SWP and are scheduled to migrate their existing book of business plus a new book of business currently on competitors platform to the SEI Wealth Platform in the first half of twenty twenty. Schroeder's Personal Wealth. As reported in the UK press in November of 2018, SEI will power the new joint venture Schroeder Personal Wealth forged between Lloyds Banking Group and Schroeder's through our existing relationship with Fusion Wealth, which was recently extended until 2025 we reported in our Q4 earnings call. This event highlights a portion of the New Ventures assets scheduled to start to migrate to our platform over the next 12 months. We expect there to be additional growth events here.
We've mentioned to you before the delays we encountered due to the long and complicated contract processes we have to go through in this market. This quarter was no different. I'm happy to report that after the second quarter was over, but prior to our call today, we signed 2 new deals which represent a total of $16,500,000 in net annualized revenue. The first deal was with a long time client, law firm, Dorsey and Whitney, who is scheduled to migrate their existing book of business to the platform in the middle of 2020. The second deal we were pleased to announce was CIBC U.
S. Private Wealth Management. CIBC or Canadian Imperial Bank of Commerce is a leading North American financial institution. Its U. S.
Private Wealth Management business offers investment management, wealth strategies and legacy planning solutions. This agreement is significant to SEI for a couple of reasons. Under a new relationship with SEI, CIBC can leverage the SEI Wealth Platform and benefit from the integration of SEI's unique array of comprehensive operating platforms that will address its complex business needs and support its hybrid custody model as it grows in the U. S. SEI's solution can support CIBC with a comprehensive set of front office wealth management capabilities and end client experiences coupled with core processing support for both internal and external custody relationships.
These events are not included in our sales events reported for this quarter, but will be included with our Q3 sales events. We are pleased with the addition of these new clients and the momentum we are gaining in new business activity within the segment. And turning to an update on our Trust 3,000 business. In the Q2, we successfully converted 2 Trust 3,000 clients to the SEI Wealth Platform. Legacy Trust, a client since 2004 and BBVA Compass, a client since 1996.
BBVA had previously provided notice to SEI that they were going to go to a competitor, but changed their mind and never deconverted. They decided to stay and ultimately migrated to SWP during the quarter. Both conversions went very well and demonstrate our ability to increasingly scale our implementation strategy as well as prove our value proposition against increasingly aggressive competition. We also re contracted 3 trust clients with contract terms of 3 years or greater. During the quarter, we did receive notice from a trust client who we had planned to move to SWP, but will be leaving our trust platform in 2020.
Also we received notice from 2 clients, 1 in the U. S. On Trust 3000 and 1 in the UK on SWP who have been acquired and their businesses will be moving to their respective acquirers' current platform by early 2020. The impact of these client losses are in the net sales events reported for this quarter. As an update on the wealth platform backlog, our total signed but not installed backlog for SWP is approximately $35,000,000 in net new recurring revenue or $51,500,000 if you include the 2 most recent signings after the quarter.
Our asset management distribution business mirrored the global marketplace in which investors remain cautious. While total assets under management ended the period at $22,600,000,000 representing increases quarter over quarter year over year, we did see negative cash flows of $147,000,000 We continue to build a strong global pipeline in our AMD business. As we look to the rest of the year, there are a couple of important focus areas for us to note. 1st, momentum. We are very encouraged on our sales this quarter and the momentum we are seeing in the market and our pipeline as well as the success we are having with implementations of clients on the SWP.
Sustainable growth is our focus and I believe we have the foundation for this. While the sales processes are still taking longer than we would like in our market, we are seeing strong and maintained activity. 2nd, managing headwinds. At the risk of sounding like a broken record, we still have several headwinds facing us, primarily the impact of lost business that we have previously discussed that will be coming off our platforms in the remainder of the year. While we will continue to manage our expenses judiciously as we continue to forge through our growth initiatives, these headwinds will have an impact to both our top and bottom line growth in the near term.
We continue to push forward to building a foundation for sustainable and accelerating growth. And lastly, our continuation of our 2019 strategic themes. As I mentioned to you before, these strategic themes are 1, growing our business globally 2, monetizing our investment in SWP 3, implementing our backlog of sold yet to be installed clients and 4, expanding our markets and solutions to provide further growth. We believe that the results of this quarter reflect all of these themes and we look to continue this progress. That concludes my prepared remarks and I'll now turn it over for any questions you may have.
1st, we go to the line of Robert Lee with KBW. Please go ahead.
Hey, Steve. How are you? Good morning. Good morning. Good morning.
Good afternoon. Good morning, Rob. Good. Thanks. There's a lot of stuff kind of went through quickly.
So first one is kind of really a numbers thing. Was it $5,400,000 of gross sales, but $7,200,000 of kind of losses, so kind of the gross losses? I just want to make sure I had those numbers.
Yes, that's about right. I think it's actually if you look at it, that would be 8.2, isn't it?
Yes. I'll take another look. Yes.
That's 8.1. 8.1.
8.1 I'm sorry, 8.1 total loss? Yes. Okay.
All
right. All right, great. And then just kind of curious, obviously, the expense controls in place, but should we expect that the pickup in post quarter pickup in sales activity? I mean, if you could refresh memory when it is you pay sales commissions? Is it on installation or kind of the signing of the contract?
I'm just trying to
Well, it's broken up and there's a portion of it paid upon signing of contract and then some held. But I think generally what you're looking for is kind of an outlook on expense. And what I'd say is that we're going to continue to manage expenses. I feel that we're doing a very good job maybe reallocating the expense we have right now to the priorities. But as we start to grow this and as I start to push on that sustainable and accelerating growth, we're not afraid to invest or up the expense in light of driving that growth.
Okay. And maybe one last question. Thanks for
Rob, just one thing on the sales to remind you with the new rules, sales comp remember from an accounting standpoint is deferred. So remember that with those new rules, it's deferred now according, I think, to the life of the
Life of our client, Estimate that.
Okay, great. Thanks for the reminder. I'm just kind of curious, so I mean I'm sure with CIBC and the other transaction with the law firm, I'm guessing that's probably been works for a while. But
is it possible anyway that you kind of
look at that and say, gee, attribute the signing of those or the timing of it to anything, any of that maybe the changes you feel like you implemented kind of early on to kind of help push them through the pipeline faster than maybe they've been moving like kind of accelerated things or?
No, Rob, I think we have a very dedicated and strong group of individuals who have been working for a very long time. And the way I would classify this is, while certainly we've changed some things that I think have helped overall the business, I think this is finally them getting really the credit they're due on the hard work they put in over the past couple of years. So the CIBC was a long process. All these tend to be longer process, but I think we're finding ways to look at things a little differently and change and make some slight changes. But I think momentum gets momentum.
And I think the one thing we're looking is we see strong momentum in our pipeline. We're working very aggressively on those deals that we see that can move quickly or quicker, not quickly and we're pushing on them.
Great. Thank you for taking my question.
Sure. My pleasure, Rob.
We also have a question from the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hey, good afternoon, Steve. Good afternoon, Chris. How are you?
Doing fine. How about you?
Very good.
So just on the two signings after the quarter closed, 2 related questions. One is kind of following up on Rob. How long were these negotiations going sort of from start to closing and pick whatever metric you want for start or whatever point you want to use? And then implementation, how far out will implementation be for CIBC? It sounds like it's big.
I'm thinking it's complicated. Is it quarters away, years away, decades away? Just a little color.
So Chris, two things. I really don't want to pinpoint only to pinpoint to the clients how long the exact process took. What I'd say is it was kind of the normal we see in this. The contract process in particular I think took the elongated cycle that we have been seeing and talking about for a while. As far as implementation, I believe, Dorsey, I announced that I said in the script and I know we went through a lot.
We're looking for them to convert in SWP in 2020. CIBC as you can appreciate it's a new client, it is a large client and we're working through project plans now. So I wouldn't want to really put a date on it.
Okay, understood. Thank you.
Sure.
Next question will come from Glenn Greene with Oppenheimer. Please go ahead.
Thanks. Hey Steve, good afternoon.
Hi Glenn.
So a couple of quick questions. The first, can you just remind us where we are on realizing the previously announced client losses?
Explain that, Glenn.
How much has been absorbed in the P and L? How much revenue has already hit? How much revenue has come out already from the previously announced losses?
So I'd say the losses we've had that we've announced and I don't have an exact figure in front of me, Glenn, but I'm going to say anywhere between a quarter of that loss and 40% of what we kind of estimated or announced from a client standpoint, we still have more to go.
Okay. And then the you had 3 client losses in quarter, if I heard right, and 2 were due to mergers. Yes. What about the one that did leave or is going to leave in 2020, the Trust 3,000 client? Any did they give you any reason why they're leaving?
We don't really want to talk individually about clients. What I'd say Glenn, this is as you know and have gotten to know, this is a complex business and development and technology cycles can take a little bit of a timeframe or a longer timeframe. And sometimes that timeframe doesn't match up with the client's needs or what they're looking at. And I'd say this one fell in that bucket.
Okay. And then finally CIBC, congratulations.
Thank you. So that's just the U. S. Part.
Yes. Does that mean potentially, obviously potentially, but Canada down the road?
What I'd say is it means the U. S. Part now and we're very happy with that. But as you know we're always looking for ways to grow with our clients.
Okay, thanks. Congrats again.
Thank you.
At this time, there's no further questions in the queue.
Thank you, Steve. Our next segment today is Investment Managers and Steve Meyer will also address this segment. Steve?
Thanks Al. And turning to Investment Managers for the Q2 of 2019, revenues for the segment totaled $109,200,000 which was $11,600,000 or 11.9 percent higher as compared to our revenue in the Q2 of 2018. This year over year revenue increase was due primarily to net new client fundings and existing client expansion. Our quarterly profit for the segment of $40,800,000 was $6,600,000 or 19.2 percent higher as compared to the Q2 of 2018. Higher profits were primarily driven by an increase in revenue, offset by a smaller increase in personnel and systems expense.
We continue to manage expenses judiciously. 3rd party
asset balances at the end of the
Q2 of 2019 were $607,100,000,000 or 3.6% higher as compared to the asset balances at the end of the Q1 of 2019. This was due to an increase in assets due to net new client fundings of $10,000,000,000 as well as market appreciation of $11,100,000,000 And turning to market activity, during the Q2 of 2019, we had a very strong sales quarter with net new business events totaling $12,000,000 in recurring revenues as well as re contracts of $23,800,000 in recurring revenues. Most importantly, these sales were diverse and spanned our entire business include both new name business and expansion of wallet share with current clients. These events include the following highlights. In our alternative market unit in the second quarter we signed a significant $1,000,000,000 credit start up in a highly competitive process.
Additionally, we added another client to our growing private equity real estate book of business. In our traditional marketing unit, we won a large middle office services mandate with an existing client further expanding our wallet share with that client. In Europe, we continue to win new private equity and private credit mandates from both existing and new clients, particularly related to funds domiciled in Ireland and Luxembourg. Finally, SEI Artsway had new sales events in both the single family office and multifamily office market segments. We continue to invest in our platforms and see significant growth opportunities in numerous areas including the private equity and real estate segments, the single and multifamily office arena, collective investment trust and ETF servicing as well as considerable demand for our front office investor platform which is a real differentiator for us and our middle office solutions.
Our pipeline remains very strong and I'm optimistic of our continued momentum. That concludes my prepared remarks and I'll now turn it over for any questions you may have.
At this time, we do have a question from the line of Robert Lee with KBW. Please go ahead.
Hey, Steve, I thought you got away. Hey, Rob. $38,400,000 Okay. Thank you. $38,400,000 backlog end of the quarter.
At this time, there's no further questions in the queue.
Thank you, Steve. Our next segment today is Investment Advisors and Wayne Withrow will cover this segment. Wayne?
Thanks, Al. In the
Q2 of 2019, we focused on rebuilding the momentum we lost throughout our migration onto the SEI Wealth Platform. With the migration complete, we also redirected resources toward value added technology development, client technology adoption and sales activities. 2nd quarter revenues totaled almost $100,000,000 which is essentially flat from the Q2 of last year. These results were positively impacted by market appreciation and a shift of liquidity products into equities. Factors which detracted from these results were net negative cash flow and a slight decrease in our average basis points earned on assets.
Expenses were down $2,500,000 from the Q2 of last year and $2,000,000 from the Q1. 2nd quarter results include about $1,000,000 in one time savings. Also included in these results are increased direct costs tied to our asset growth and savings in the technology area tied to the completion of the migration and implementation of the cost savings measures we began in the Q1. Our profits increased $2,700,000 from last year's 2nd quarter due to cost savings. Assets under management were $67,200,000,000 at June 30, an increase of $1,900,000,000 from June 30, 2018.
During the Q1, our net cash flow was a negative $201,000,000 While our flows during the quarter were still negative, they are trending in a positive direction. We recruited 81 new advisors during the quarter and our pipeline of new advisors remains active. In summary, during the Q2, we posted good profit results and while cash flow is not where I would like it to be, the quarter saw a pickup in our momentum. We are focused on reaping the benefits of the SEI Wealth Platform now that we are fully migrated. I now welcome any questions you have.
First, we go to the line of Robert Lee with KBW. Please go ahead.
Yes. Hi, Wayne. How are you?
Good, Rob.
Quick question. I mean, just talking about the competitive environment a little bit, I mean, as Al mentioned upfront, as we all know kind of about the pressure on fees and competition from low cost alternatives. And understanding that you made some adjustments, I forget exactly when it was maybe a year or so ago. But are you when you look at your kind of product pricing and maybe what kind of feedback you get from advisors, existing perspective, I mean, is there any sense that you've changed in some of your programs, whether it's incremental fee changes or maybe even changing up some of the products to include more passive products? I know you have the ETF product, but just kind of curious kind of how you're reacting steps you're taking to react to the pricing environment?
Right. So I guess what I'd say is, if you look at it, we're experiencing strong growth in our ETF product line, which is purely passive product. And we are a little bit less on that and that's reflected in the results. A little bit so I guess near the end of the Q1, we made a change in our models and we introduced a passive large cap U. S.
Equity fund in the models as an option for advisors that don't want sort of that space to be active. So again, that is a little more a little lower fee and it's passive U. S. Large cap. So we're now actively marketing that too.
So I think that's 2 big changes I'd point out.
Okay. Great. And then maybe as a follow-up, just now that you've I'm
assuming
I'm assuming that includes kind of then selling the broader platform to capture a broader array of advisor assets. So you maybe it's early stages, but are you seeing any early signs that your conversations with the types of advisors you're talking to or filling in starting to fill in your pipeline or maybe larger or more diverse than some of your historic advisors?
Yes, I would say
that the advisors are looking at us for a broader solution than perhaps they looked at before. I know that we've necessarily moved very much upstream yet, although I would expect that. And we are seeing some flows of non FCI assets onto the platform as a result of advisors looking for a broader solution.
Okay. And I'm just curious, going I mean, I'm sure the hope is that those non SCI assets accelerate, but just kind of just from a reporting perspective, would those be excluded from your net cash flows as you disclose them quarter to quarter?
All the assets we disclosed are flows into SEI managed product. We have not yet disclosed SEI administered product. Great. Okay. Thank you.
And at this time, we have no further questions in the queue.
Thank you, Aime. Our final segment today is the Institutional Investors segment. Paul Clodder will report on this segment. Paul? Thanks, Al.
Good afternoon, everyone. I'm going to discuss the financial results for the Q2 of 2019. 2nd quarter revenues of 81 point $1,000,000 decreased 3% compared to the Q2 of 2018. 2nd quarter operating profit of $41,700,000 decreased 2% compared to the Q2 of 2018. Operating margins for the quarter was 51.5%.
Both revenues and operating profits for the quarter were impacted by negative client fundings and currency impact versus the Q2 of 2018. Quarter end asset balances of $88,200,000,000 reflect a $2,700,000,000 decrease compared to the Q2 of 2018. This decrease is driven primarily by negative client fundings. Net sales were a positive $1,200,000,000 for the quarter. Gross sales were $1,500,000,000 and client losses were about $300,000,000 The unfunded new client backlog at quarter end was $1,200,000,000 and we would expect the majority of this to fund in the Q3.
The new client signings were diversified across new clients and endowments and foundations and UK fiduciary management including a large new name. We believe our new business focus on longer term asset pools across all global markets is beginning to pay dividends for the business and our sales pipeline is strong. We do continue to stay focused on all client situations, especially those in a rebid process or in M and A activity. Thank you very much, and I'm happy to entertain any questions that you may have.
First question comes from the line of Robert Lee. Please go ahead.
Great. Hi, good afternoon, Paul.
Hi, Robert.
Good first thing simply, could you repeat what the unfunded pipeline was? Was it 1,500,000,000
dollars So gross sales were $1,500,000,000 losses were $300,000,000 for the quarter. The unfunded new client backlog that is going to be funded is $1,200,000,000 and we expect that all to occur in the 3rd quarter. Does that answer your question, Robert?
He removed himself from queue.
Okay. No problem.
And there are no other participants queued up.
Thank you, Paul. I would now like Kathy Heilig to give you a few company wide statistics. Kathy?
Thanks, Dale. Good afternoon, everyone. I have some additional corporate information regarding this quarter. 2nd quarter 2019 cash flow from operations was $157,700,000 or 1 point $2 per share. Year to date cash flow from operations is $217,600,000 or $1.40 per share.
2nd quarter 2019 free cash flow was $137,600,000 and year to date free cash flow is $180,200,000 2nd quarter capital expenditures excluding capitalized software was $10,900,000 which does include expansion of our campus and the year to date capital expenditures were excluding capitalized software were $18,200,000 and that includes about $10,000,000 for facility expansion. We project because we are expanding our facility that capital expenditures will be approximately another $22,000,000 As noted in this release, the 2nd quarter tax rate was 22% and our effective tax rate could fluctuate as a result of the timing of tax benefit relating to stock option exercises. We also would 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. In some cases, you can identify forward looking statements by terminologies such as may, will, expect, believe and continue or appear. Our forward looking statements include our expectations as to revenue that we believe will be generated by sales events that occurred during the quarter, the benefits we will derive from our investments, our ability to manage our expenses and scale our offerings, the strength of our pipelines and growth opportunities and our ability to execute on and the success of our strategic objectives.
You should not place undue reliance on our forward looking statements as they are based on the current beliefs and expectations of our management and subject to significant risks and uncertainties, many of which are beyond our control or subject to change. Although we believe the assumptions upon which we base our forward looking statements are reasonable, they could be inaccurate. Some of the risk and important factors that could cause actual results to differ from those described in our forward looking statements can be found in the Risk Factors section of our annual report on Form 10 ks for the year ended December 31, 2018, that we filed with the Securities and Exchange Commission. And now please feel free to ask any other questions you may have.
And our first question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hi. I had one clarifying question for Dennis. Just wanted to double check with the compensation line on a consolidated basis. Just that there was no severance this quarter unlike the prior two quarters and a counter related question, Dennis, if you wouldn't mind re saying what the expense recognition is on sales compensation. I'm not sure I caught that.
It was part of Steve's discussion earlier.
Sure. So there was minimal severance in the 2nd quarter compared to Q1 particularly. And then on sales compensation, under the new accounting rules that came into play last year, as it relates to some of our business lines and it's principally in banking and a little bit in investment manager services as well. When you have these longer tailed contracts where delivery of services over time rather than more immediate, You tend you're required to defer the recognition of that sales compensation expense
and then recognize it over the life
of the client, the estimated life of the client. So that's that was the answer to Rob Lee's question about sales comp relative to Q3 expenses.
Okay, got it. Thanks very much, Dennis.
You're welcome.
And next we'll go to
the line of Robert Lee representing KBW. Your line is open. Great. Thanks for taking my follow-up. And actually this is one for Steve on SWP and really in the UK.
Could you just update us on kind of what new business flows are like there? And I guess particularly interested in any kind of color as it relates to impacts you're seeing around Brexit concerns. I mean, certainly when you look at at least in the asset management business there, it's kind of suffering through outflows. But what are your kind of clients experiencing with their client portfolios or maybe just rebalancing to more conservative investments?
Yes. Well, I think as
I said in my write up, I think from an investor standpoint that we're seeing at least on the asset management side, investors remain cautious and I think that's something we're seeing across the board. Specifically to the U. K, if you're asking me about kind of our processing clients and processing prospects, our investment processing, we continue to see momentum there and activity in our pipeline. I think the announcement of the which we talked about the Schroder's Personal Wealth is a great piece of business that is certainly that's something that we're looking that's going to drive growth. And I see a good bit of momentum in our activity there in our pipeline.
We have added to the sales force there and we're hopeful that that will start to drive more results out of the UK.
K.
There are no other participants queued up at this time.
Thank you. So ladies and gentlemen, while sales results were below expectations in the Q2, Q3 is off to a good start. We remain encouraged by our pipelines and the progress we're making. We believe that the investments we're making in our products and organization will help us benefit from all the changes taking place in our industry. Now before you go, please note that we're holding an investor conference on November 12th 13th at SDI's Oaks headquarters.
Dinner will be served on 12th followed by the conference on 13th. Please save the date. Thanks for attending this afternoon and have a great day.
Ladies and gentlemen, that will conclude our conference for today. Thank you for your participation and for using AT and T teleconference. You