10-Q: SEI Investments Reports Strong Q3 Earnings, Strategic Growth

SEI Investments Company reported an 8% increase in total revenues and a 6% rise in net income for the third quarter, driven by asset growth and strategic divestitures.

Summary

• Total revenues for the three months ended September 30, 2025, increased by 8% to $578.5 million, up from $537.4 million in the prior year period.
• Net income attributable to SEI Investments Company rose 6% to $164.2 million, or $1.30 diluted earnings per common share, compared to $154.9 million, or $1.19 diluted EPS, in the same quarter last year.
• For the nine months ended September 30, 2025, total revenues grew 8% to $1.69 billion, and net income attributable to SEI increased 28% to $542.8 million, or $4.25 diluted EPS.
• The company completed the sale of its Family Office Services business on June 30, 2025, generating a net gain of $94.4 million, or $0.58 diluted EPS.
• Average assets under administration increased by $131.6 billion, or 13%, to $1.1 trillion during the first nine months of 2025.
• SEI entered into a definitive agreement on July 17, 2025, to acquire 57.5% of Stratos Wealth Holdings for approximately $527 million in cash, with options to acquire the remaining equity.
• The Board of Directors authorized an additional $650 million for the common stock repurchase program on October 20, 2025, bringing the total remaining authorization to approximately $773.2 million.
• A new five-year $500 million credit facility was established on August 18, 2025, replacing a previous $325 million facility and expiring in August 2030.
• The effective income tax rate decreased to 21.9% for the three months and 22.3% for the nine months ended September 30, 2025, primarily due to higher tax benefits from stock option exercises and a decline in state effective tax rates.

Sentiment

Score: 8

Explanation: The filing indicates strong financial performance with significant revenue and net income growth, boosted by a strategic divestiture. Key operational metrics like assets under administration also show healthy expansion. Strategic acquisitions and increased share buyback authorization signal confidence and commitment to shareholder value. While there are some headwinds like decreased LSV earnings and lower interest income, the overall picture is positive.

Positives

• Total revenues increased by 8% for both the three and nine months ended September 30, 2025.
• Net income attributable to SEI Investments Company increased by 6% for the three months and 28% for the nine months ended September 30, 2025.
• Diluted earnings per common share grew 9% to $1.30 for the quarter and 32% to $4.25 for the nine-month period.
• A significant net gain of $94.4 million was realized from the divestiture of the Family Office Services business.
• Average assets under administration increased by 13% to $1.1 trillion in the first nine months of 2025, driven by cross-sales and new clients in the Investment Managers segment.
• Fees from the SEI Integrated Cash Program more than doubled, increasing to $62.3 million in the first nine months of 2025 from $30.4 million in the prior year.
• Information processing and software servicing fees increased due to new SEI Wealth Platform (SWP) client conversions and growth from existing clients.
• The company entered into a strategic agreement to acquire 57.5% of Stratos Wealth Holdings, signaling future growth initiatives.
• A new $500 million credit facility provides enhanced liquidity and financial flexibility.
• The Board approved an additional $650 million for the common stock repurchase program, demonstrating commitment to shareholder returns.
• Effective tax rates decreased, contributing positively to net income.

Negatives

• Interest income, net of interest expense, decreased by 25% for the three months and 17% for the nine months ended September 30, 2025, due to an overall decline in interest rates and lower invested cash balances.
• Equity in earnings from LSV Asset Management decreased by 13% for the three months and 8% for the nine months, primarily due to lower assets under management from negative cash flows and client losses.
• The Investments in New Businesses segment experienced a 48% decrease in revenues for the three months and a 7% decrease for the nine months, largely due to the divestiture of the Family Office Services business.
• The Institutional Investors segment saw a 2% decrease in revenues for the nine months, primarily from fee reductions and client losses.
• Investment management fees from SEI fund programs decreased due to a shift into separately managed accounts and other investment products, along with fee reductions.
• The company determined that performance measurements for the XPS Pensions (Nexus) Limited contingent consideration would not be met, resulting in a $2.587 million write-off of the obligation.

Risks

• Changes in capital markets and significant fluctuations in the value of financial instruments could affect revenues and earnings.
• Product development risk, including software defects, development delays, or installation difficulties, could harm business and reputation.
• Risk of failure by third-party service providers could disrupt operations.
• Increased competition, disruptive technology, and poor investment performance may lead to pricing pressure.
• The implementation of the outsourcing strategy leveraging a Global Capability Center carries execution risks.
• The performance of LSV Asset Management, in which the company holds a significant interest, directly affects earnings and cash flows.
• Consolidation within target markets could impact client relationships and market share.
• External factors affecting the fiduciary management market may influence business growth.
• Data and cyber security risks, including disclosure and misuse of personal data, and outages/disruptions of services, pose significant threats.
• Failing to keep pace with significant new technologies could lead to competitive disadvantages.
• Poor investment performance of investment products or a client preference for lower-fee products could reduce revenues.
• Investment advisory contracts may be terminated or not renewed on favorable terms.
• Extensive governmental regulation and the ability to meet competing/conflicting regulatory requirements across different jurisdictions pose compliance challenges.
• Fiduciary or other legal liability for client losses from investment management operations could result in significant costs.
• The results of commercial disputes, litigation, and regulatory examinations and investigations, such as the Rubicon Actions and the FCA review of SIEL, could have adverse financial and reputational impacts.
• The ability to capture the expected value from acquisitions, divestitures, joint ventures, minority investments, or strategic alliances is uncertain.
• Increased costs and regulatory risks are associated with business growth.
• Operational risks related to the processing of investment transactions could lead to errors or disruptions.
• Disruptions of operations of other participants in the global financial system could affect the company's business.
• The ability to hire and retain qualified employees, and the competence and integrity of employees and third parties, are critical to operations.
• Changes in, or interpretation of, accounting principles or tax rules and regulations could impact financial reporting.
• Fluctuations in foreign currency exchange rates and interest rates may affect financial results.
• Financial and non-financial covenants in credit facilities may restrict liquidity needs.
• Unforeseen or catastrophic events, including pandemics, extreme weather, natural disasters, geopolitical unrest, and climate change concerns, could disrupt business.

Future Outlook

The company anticipates that its available funds and cash flow from operations will be sufficient to meet operational cash needs, expected M&A activity, and fund the stock repurchase program for at least the next 12 months and the foreseeable future. Professional fees related to the Stratos acquisition are expected to continue into the fourth quarter 2025. The company expects to recognize approximately $11.8 million in stock-based compensation expense during the remainder of 2025. Remediation actions for SIEL's governance and control environment are expected to strengthen the business and position it for sustainable future growth.

Management Comments

• The sale of the Family Office Services business was completed on June 30, 2025, resulting in a net gain of $94.4 million, or $0.58 diluted earnings per share recorded in the second quarter 2025.
• Revenue from Assets under management, administration, and distribution fees increased in the first nine months of 2025 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.
• Fees from the SEI Integrated Cash Program of the Investment Advisors segment increased to $62.3 million during the first nine months of 2025 as compared to $30.4 million during the first nine months of 2024 due to the expansion of the program in late 2024.
• Revenue from Information processing and software servicing fees increased in the first nine months of 2025 primarily from new client conversions and growth from existing SEI Wealth Platform (SWP) clients.
• The increase in personnel costs was primarily due to business growth, primarily in the Investment Managers segment.
• Operating expenses increased primarily from higher costs for consulting and outsourced vendor costs supporting operations in the Investment Managers and Private Banks segments.
• SIEL is fully committed to addressing the concerns raised by the FCA. The actions SIEL is taking to remediate the issues identified in the Skilled Person Report will not only strengthen its business but also help maintain its focus on achieving positive customer outcomes, positioning SIEL for sustainable future growth.

Industry Context

SEI Investments operates in a complex and evolving financial services industry, characterized by increased regulatory oversight and the need for continuous technological innovation. The company's focus on outsourced investment management, processing, and wealth management platforms aligns with broader industry trends towards specialized service providers and technology-enabled solutions. The acquisition of Stratos Wealth Holdings reflects a strategy to expand support for financial advisors, a growing segment. The divestiture of the Family Office Services business indicates a strategic streamlining of operations. The ongoing regulatory scrutiny, particularly from the FCA, highlights the heightened compliance demands faced by global financial institutions.

Corporate Governance

Legal Proceedings

• Lawsuits (Rubicon Actions) remain pending against SEI Private Trust Company (SPTC) in the Court of Common Pleas of Montgomery County, Pennsylvania, related to alleged fraudulent activity by Rubicon Wealth Management's founder, Scott Mason. SPTC estimates potential losses not to exceed approximately $15 million.
• SEI Investments (Europe) Limited (SIEL) is undergoing a two-stage supervisory review by the UK Financial Conduct Authority (FCA) regarding its governance arrangements and control environment. The first stage report made recommendations for improvements, leading SIEL to voluntarily accept a Voluntary Requirement (VREQ) restricting certain new business activities without FCA consent.

Related Party Transactions

• The company has an investment in LSV Asset Management (LSV), an unconsolidated affiliate, with a partnership interest of approximately 38.5%. Equity in earnings from LSV was $31.9 million for the three months and $94.3 million for the nine months ended September 30, 2025.
• The company made a seed capital investment of $50 million in the LSV Global Equity Market Neutral Fund, LP (LSV GEMNF), a variable interest entity where LSV serves as the general partner and investment manager. The LSV GEMNF is consolidated into SEI's financial statements.
• The company considers investment instruments purchased with an original maturity of three months or less, including $191.9 million at September 30, 2025, invested in SEI-sponsored open-ended money market investment products, to be cash equivalents.

Stakeholder Impact

• **Shareholders**: Positive impact due to increased diluted EPS, a significant gain from divestiture, and an expanded common stock repurchase program, indicating strong shareholder returns. The declared cash dividend of $0.49 per share also benefits shareholders.
• **Employees**: Increased personnel costs reflect business growth, and stock-based compensation plans continue to be a part of employee incentives. The slight reduction in LSV ownership for SEI was due to LSV providing an interest to select key employees.
• **Customers**: New client conversions and growth from existing clients, particularly in the Investment Managers and Private Banks segments, indicate continued service adoption. The expansion of the SEI Integrated Cash Program and enhancements to the SEI Wealth Platform benefit clients. However, some client losses in the Institutional Investors segment and LSV Asset Management were noted.
• **Regulators**: The company is subject to ongoing regulatory examinations and investigations, including the FCA's supervisory review of SIEL and the VREQ, which impacts SIEL's ability to onboard new clients or launch new products without prior consent. This signifies a heightened focus on compliance and governance.
• **Acquisition Targets (Stratos Wealth Holdings)**: The agreement to acquire a majority stake in Stratos Wealth Holdings indicates a strategic expansion, potentially benefiting Stratos's financial advisors and business models by integrating with SEI's capabilities.
• **Divested Business (Family Office Services)**: The sale of this business to Aquiline Capital Partners LP resulted in a significant gain for SEI, allowing for strategic focus and capital redeployment.

Next Steps

• The acquisition of Stratos Wealth Holdings is expected to close in two stages, with the U.S.-based business first, followed by the Mexico-based NSC business, subject to regulatory approval and closing conditions.
• Professional fees and consulting costs related to the Stratos acquisition are expected to continue into the fourth quarter 2025.
• SIEL's remediation actions to address the FCA's recommendations will be reviewed by the Skilled Person as part of the second stage of their engagement.
• The company expects to recognize approximately $11.8 million in stock-based compensation expense during the remainder of 2025.
• The company will continue to evaluate the impact of new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-01, ASU 2025-03, ASU 2025-06) on its consolidated financial statements and disclosures.

Key Dates

Recommendation

The filing demonstrates strong financial performance with significant year-over-year growth in revenues, net income, and diluted EPS. The strategic divestiture of the Family Office Services business generated a substantial one-time gain, while the planned acquisition of Stratos Wealth Holdings signals a clear growth strategy and expansion into supporting financial advisors. The company's commitment to shareholder returns is evident through the increased common stock repurchase authorization and consistent dividend payments. Despite some headwinds in LSV earnings and interest income, the overall operational strength, asset growth, and strategic initiatives position SEI for continued positive performance. The new credit facility provides ample liquidity for future endeavors. These factors collectively suggest a positive outlook for the stock.

Keywords

Financial Technology, Asset Management, Wealth Management, Investment Processing, SEC Filing, 10-Q, Financial Services, Stratos Wealth Holdings, Acquisition, Divestiture, Share Repurchase, Earnings, Assets Under Management, Regulatory Compliance, SEI Wealth Platform, LSV Asset Management