Q3 2023 SEI Investments Co Earnings Call

Participants

Alexander Whitelam; Director of IR; SEI Investments Company

Dennis J. McGonigle; Executive VP & CFO; SEI Investments Company

Jay Cipriano; Executive VP & Head of SEI’s Institutional business; SEI Investments Company

Paul Francis Klauder; Senior VP & MD of Institutional Group; SEI Investments Management Corporation

Philip N. McCabe; Executive VP & Head of SEI’s Investment Managers Business; SEI Investments Company

Ryan P. Hicke; CEO & Director; SEI Investments Company

Sanjay K. Sharma; Executive VP and Global Head of Private Banking & Wealth Management of SEI; SEI Investments Company

Crispin Elliot Love; Director & Senior Research Analyst; Piper Sandler & Co., Research Division

Michael C. Brown; MD; Keefe, Bruyette, & Woods, Inc., Research Division

Owen Lau; Associate; Oppenheimer & Co. Inc., Research Division

Ryan Michael Kenny; Equity Analyst; Morgan Stanley, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the SEI Third Quarter 2023 Earnings Call. (Operator Instructions) As a reminder, today's call is being recorded. I will now turn the call over to your host, Director, Investor Relations, Alex Whitelam. Please go ahead, sir.

Alexander Whitelam

Thank you, and welcome, everyone. We appreciate you for joining us today for our third quarter 2023 earnings call. On the call, we have Ryan Hicke, SEI's Chief Executive Officer; Dennis McGonigle, Chief Financial Officer; and leaders of our business segments: Wayne Withrow, Paul Klauder, Jay Cipriano, Phil McCabe, Sanjay Sharma and Sneha Shah.
Before we begin, I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at seic.com. This call is being webcast live, and a replay will be available on the Events and Webcast page of our website.
We would like to remind you that during today's presentation and in our responses to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements that appear in today's earnings press release and in our filings with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements. With that, I'll turn the call over to CEO, Ryan Hicke. Ryan?

Ryan P. Hicke

Thanks, Alex. Hello, everyone, and thank you for joining us. Despite a challenging market environment, we delivered solid results for the third quarter with quality top line and earnings growth. As I laid out at last year's Investor Day, we are surgically focused on the following areas: growing our sales results in segments and markets where we believe we can repeatably win. We are seeing that play out with investment managers, regional and community banks, U.K. private client investment managers and larger RIAs; adding talent and capital to enhance internal insight with outside perspective and launching more organic and acquired new businesses for future revenue generation and growth. We're focused on investing in automation, AI and alternatives to drive scale and service excellence and continuing to deliver long-term earnings growth, driven by revenue and enhanced with smart expense management.
We are proud of our momentum as we're executing our long-term growth strategy while managing our company for profitability. I'm excited about what we see ahead, knowing we are not satisfied or complacent, we will keep executing and innovating.
Turning to Q3 results. Revenues in the third quarter were $477 million, up 1% from a year ago. Net income for the quarter was $116 million, EPS was $0.87. Keep in mind that our third quarter results for 2022 were impacted by a onetime expense related to our voluntary separation program. Absent this expense, this year's third quarter EPS increased by $0.10 or 13% year-over-year on a comparable basis. Dennis will provide more details on our results.
In the quarter, we repurchased 1.4 million shares of SEI stock at an average price of $61.43 per share. That translates into $86 million of stock purchases. The sales success we've had throughout the year in our technology and operational outsourcing businesses continued in the third quarter. We remain focused on generating more higher-quality touch points with clients, building out our pipeline and broadening our client relationships through cross sales. We also launched our enterprise sales group this quarter to increase activity across larger wealth management firms. We believe these efforts are positioning us well to capitalize on future growth opportunities and increase sales.
Net sales events in the quarter totaled $14.5 million, $11.1 million of which were net recurring. This was a combination of technology and operational outsourcing sales of $22.3 million, offset by negative activity in our asset management businesses. With that, let me turn to our business lines.
Our Investment Managers business had another good quarter, delivering strong revenue and earnings growth. The team implemented and converted new clients and funds while managing expenses well and growth continues for this segment. Our constant focus on our strategic clients resulted in a number of cross-sell events and client re-contracts in the quarter. We are really excited to see that we are winning across alternatives, traditional and global segments.
In alternatives, our largest clients continue to expand in the private credit, private equity, real estate and infrastructure markets. During the quarter, we onboarded 2 firms through competitive takeaways and won a highly competitive new bid. Globally, we also continue to see strong flows from existing relationships, and we have expanded our sales leadership and client service functions on the ground to enhance our pipeline development.
In the traditional business, we are seeing a trend with our larger clients who are beginning to launch alternative funds. This provides significant opportunity for SEI. We are also seeing continued increased interest in our CIT platform.
Next, Private Banking drove another solid quarter, signing 3 deals and re-contracting 5 clients. The team also successfully delivered on their backlog, implementing 5 clients on the SEI Wealth Platform, representing more than $15 million in recurring revenue from the backlog.
During the quarter, we migrated more than 115,000 accounts and approximately $360 billion in assets, including a substantial book from U.S. Bank moving from TRUST 3000 to SWP and CIBC's conversion to SWP from competitive platforms. We also went live with our multicustody solution, which is generating broad interest with both our existing and prospective client base.
The Private Banking business continues to move forward by capitalizing on our expanding pipeline and prudently managing expenses. While we still have some previously announced events to absorb in coming quarters, we are confident in our margin growth strategy for the business that we have discussed on previous calls.
Moving to our Global Asset Management business. Investment advisers had net positive cash flows of approximately $612 million, primarily driven by our separately managed accounts, strategic partner solutions and open architecture, technology and custody that support adviser-driven investment flexibility. The team is executing on our growth plans for the business, and we are focused on driving more revenue growth to capitalize on the robust opportunity set that we see within the intermediary space. We've also continued to enhance our solutions for this business, including SEI Connect to provide a front office digital collaborative wealth management experience for advisers and their end clients. All new advisers benefit from the enhanced investor portal and we're seeing solid adoption across the entire client base.
We're also advancing our efforts to build out custody capabilities for alternative assets. Finally, we launched our liquid alternative strategy in our U.S. fund complex. We expect to see this fund -- we expect to sell this fund standalone for the time being and will include it in models offered to advisers early next year. All of this is another step in our initiative to offer models with private asset classes to intermediaries. We believe these enhanced solutions are poised to attract more advisers, especially in the RIA space, which we've highlighted as a particular area of growth for us in the future.
In the Institutional Investors segment, we experienced a more challenging environment but we're working to drive greater revenue and profitability for that business. Corporate defined benefit curtailments and annuitizations continue to be headwinds in the U.K. and the U.S. Given expectations that these headwinds will persist in 2024, we proactively took some steps during the quarter to strategically align our resources and position the business for long-term success. We remain focused on managing expenses appropriately, but also improving engagement with our clients and utilizing our enterprise-wide approach to meet our clients where they want to be met.
We are confident that our upcoming acquisition of an additional master trust structure in the U.K. will advance our competitive footing across all institutional segments in that market. As a market leader, we are committed to competing and winning across the institutional landscape.
Turning to our Investments in New Business segment. We continue to assess our market offerings and the best path forward to enhance growth. We are pleased with the progress and expect future success. And finally, our partnership with LSV remains strong. On the talent and culture front, we've made strategic investments throughout the year that continue to enhance SEI's brand awareness and drive employee engagement.
This concludes my prepared remarks. I will now turn it over to Dennis to discuss our financial results for the quarter. Dennis?

Dennis J. McGonigle

Thanks, Ryan. As Ryan mentioned, EPS for the quarter was $0.87. This compares to $0.45 during the third quarter of 2022 and $0.89 for the second quarter of 2023. Revenue for the quarter was $477 million, compared to $471 million in 2022 and $489 million in the second quarter. Total expenses for the quarter were $368 million, which compares to $420 million last year and $376 million in the second quarter.
On the sales front, in our technology and investment processing businesses of Private Banking and Investment Managers, net sales events totaled $22.3 million and are expected to generate $19 million in recurring revenue. In our asset management-related businesses, net sales were approximately negative $7.6 million, primarily due to losses and repricing in our institutional business. Total net sales were $14.7 million, of which $11.4 million is recurring.
Private banking sales were $3.3 million, of which $2.1 million is recurring. This reflects 3 new SWP sales, a new client to SEI, a previously lost client deciding to stay with SEI and an added book of business due to a client acquisition. We re-contracted 5 clients during the quarter, representing $7 million in annual recurring revenue. The Private Banking segment's focus on the regional community banks along with the PCIM segment in the U.K. paying off.
During the quarter, we were active with client implementations and conversions, as Ryan mentioned. This includes a large book of business with CIBC, First Financial and a significant business migration for U.S. Bank on TRUST 3000 to SWP, helping solidify our SWP SaaS solution as market ready. The current backlog of sold but expected to be installed revenue in the next 18 months is $21.5 million. Asset Management revenues in Private Banking were up slightly from the second quarter. Expenses in the quarter were down from the second quarter of 2023, reflecting the efforts by Sanjay and the team to bring private banking back to higher levels of profitability.
On the Investment Managers front, net sales for the quarter were $19 million, $16.8 million of which is recurring. During the quarter, we re-contracted 5 clients totaling $9 million in annual recurring revenue. Revenue for the quarter was up compared to second quarter, reflecting the impact of client installs. Expenses were essentially flat. Our backlog of sold but expected to install in the next 18 months recurring revenue is $30.4 million.
For Investment Advisors, net cash flow onto our platform was a positive $612 million. We experienced increased flows into our newer strategic asset management solutions and platform-only programs and negative flows from our more mature mutual fund products. Our comprehensive offering is key to us moving the business forward. Revenues for the quarter were up from second quarter due to improved capital markets during the second quarter, offset by third quarter capital markets and the product mix of flows. Expenses were flat. We recruited 57 new advisers during the quarter, 8 of which are in the newer RIA channel.
In the Institutional Investors segment, net sales events for the quarter were negative $5.8 million, reflecting positive client signings offset by losses and repricing and client retention activities. Revenues for the quarter were down $4.7 million due to net client asset losses. Expenses were also down $5.5 million, reflecting general expense management and a onetime item in second quarter of $4.5 million.
In the Investments in New Business segment, revenues and expenses were up slightly compared to second quarter and will remain in this range. In addition to the segments, the company also incurred a $2.2 million expense item related to severance as a result of organizational changes principally in our institutional business. We made adjustments to the workforce to align our talent and resources to the opportunities in the segments we serve. While this will result in run rate savings, we expect to redeploy these savings by expanding our sales resources in growing institutional markets and increasing our distribution efforts around alternative assets. This expense is reflected in overhead on our press release.
LSV produced $29.9 million in profit during the quarter. This compares to $32.7 million during the second quarter. Revenues for LSV were $102.2 million compared to $108.8 million in the second quarter. Third quarter revenues included $9 million of performance fees. LSV recorded performance fees of $12.7 million during the second quarter. Performance fees are a reflection of continued positive relative performance.
One final item. As we mentioned in July, we entered into an agreement to acquire the National Pension Trust. The transaction is expected to close before year-end, subject to applicable regulatory approval. I point you to our 10-Q for more information. Our tax rate for the quarter was 22.5% and we expect a slight step down in tax rate in the fourth quarter.
That concludes my remarks. All of our unit heads are on the call, and we're happy to take any questions.

Question and Answer Session

Operator

(Operator Instructions) We'll go to the first line, Owen Lau, Oppenheimer.

Owen Lau

I think you highlighted the strength of Investment Managers a little bit but can you please dig a little bit deeper because it grew nicely year-over-year, margin has been expanding. I'm just wondering if you can talk more about the drive of the strength, the healthiness of those firms and traditional asset managers. And is there any pocket that you are targeting or seeing growth in your end market?

Ryan P. Hicke

Yes, that's a great question. I hope you're doing well. I'll take the first half and then I'll turn it over to Phil to maybe provide some more color. So if you think about the overall market opportunity we have today and why I think we continue to drive growth. One is we are really focused on premium levels of service to our client base. And that has really paid dividends for us as clients are launching new funds. We are winning the lion's share of those funds, and we stay very, very focused on the level of quality of service to those clients.
We've continued to deploy more talent and capital in the technology space to enhance our offering there. I think Phil can talk a little bit on your point about future growth. Inside the U.S., I think there's just a continued trend and appetite for outsourcing. That positions us well as firms really think about where they should be deploying their capital for growth. They see more of that really in product creation, wealth generation and distribution and are really looking to SEI as a strategic partner for technology and operational delivery. And we're really starting to increase our footprint, as I mentioned, in global.
But Phil, do you want to provide a little bit more color either on certain spots or areas. We're really enthusiastic about not just the existing pipeline, but the future runway in this business.

Philip N. McCabe

Thanks, Ryan. Owen, this is Phil McCabe. Just real quick. The margins came in a little higher this time at 36.2%. If you look year-to-date, they averaged about 35%, which is right about where we said we would be over the course of the year or so. So I expect that number to continue for a little while. And I think we spent a lot of time managing expenses. At the same time, we're investing in the future.
On the sales front, $19 million in net sales. If you look at that year-over-year for 3 quarters, we're up about 16%. We have a net number of $61.5 million so far. And as Ryan said, the pipeline is strong, and we're out in the market, we're all over our clients and we're getting a lot of traction globally, a lot of traction in the U.S. We talked about private credit and real estate and infrastructure before but I think we're in a really, really good spot for the future. I think the runway is fairly long for what we see out there, and I think we're in a really good spot.

Ryan P. Hicke

And the only other thing I would say, Owen, which we touched on a little bit on the call early, but there's a big intersection right now, growth between kind of the private asset market and the intermediary space. And as Phil mentioned, I think a lot of the traditional investment managers are also looking at how they can create and distribute some alternative products, and that's a good spot for us as well to really give them the infrastructure to get those things up and running and out in the market quickly.

Philip N. McCabe

To add to that. Right now, the percentage of alternatives within our traditional market is really, really small, but we have a major campaign going on now to try to push those products by way of interval funds and auction funds into that market. So I think we have a lot of traction, and we expect to see some good results in the future.

Owen Lau

Got it. That's super helpful. And then on the press release, you mentioned, I think some of the revenue growth was driven by new products and additional services. Could you please maybe highlight some of these new products? Are you taking shares from competitors? But any more color would be helpful on these new products.

Philip N. McCabe

Yes. From a competition perspective, we have 2 or 3 competitors that are out there, but I don't really think that we are -- our clients are fairly large and sophisticated, and they're not buying based upon getting a better deal or margin. So we are getting pretty much almost all of the new funds that are launched with our clients that are out there. And from a prospect perspective, when we're in a deal, we're usually in the final 1 or 2, and we've been doing fairly well closing those books of business. So we have 3 new clients on the alternative side so far this year -- I mean, this quarter. And in particular, there's one that -- we don't really name names, was the sort of deal of the year so far. So we're in a good position. When we're out in the market our clients are referencing us very happily, and they're glad to do it and we're in a good spot.
So I think we're winning on a number of different fronts. I'm not sure I can pinpoint it to 1 particular competitor but I think we're where we need to be right now.

Dennis J. McGonigle

The new product comment is -- and Phil's team has done such a great job of building really strong relationships with our clients and the -- particularly the clients that continue to grow and expand and when they tend to come to market with a new product, we kind of be in the room when they're designing the new product. So that's really what the reference is to new products. It's our clients launching new products into the market and then leaning on us to be there and support them.

Philip N. McCabe

That's a great point. Thank you.

Owen Lau

Got it. If I can add one more quick one, which is on the cost side. I noticed that there's an increase in personnel costs and investments. I think you mentioned related to compliance infrastructure to meet new regulatory requirements. Could you please talk about what these new requirements are? And are they recurring expense or it's more like onetime expense?

Dennis J. McGonigle

No. On the personnel side, we're looking at kind of second quarter to third quarter. Remember that -- we talked about this on the last call, I believe that midyear is when we -- for the bulk of our workforce, we go through salary adjustments and we make compensation changes that typically go on year in, year out. So you saw some cost growth in personnel as a function of that.
And then on the compliance regulatory front, we operate in many different regulatory jurisdictions. So in some of the -- in all the jurisdictions we operate in are highly regulated with continued change in not only the regulations that exist in addition to those regulations, but the scrutiny under which firms that operate are put by the regulators themselves, and that just has increased the workload relative to all of our jurisdictional operations. When you layer on top of that, the fact that we expanded into a new jurisdiction in Luxembourg, we've had to add some capabilities and talent there. And then when you wrap it all up with the combination of who we hire and who are kind of in full-time roles and then the use of outside professionals to help guide us as we sort through some of the regulatory changes that have occurred, that drives us some of our costs.
Finally, in certain jurisdictions, we've been able to operate at a different type of leverage with using talent in certain jurisdictions to support the requirements in other jurisdictions. Well, what's happened is almost every jurisdiction now requires that talent to be local, and that's also added to our personnel requirements and cost increases. It's the regulatory employment program, I call it.

Operator

And we'll go over to the line of Ryan Kenny of Morgan Stanley.

Ryan Michael Kenny

A couple of questions. First, you mentioned migrating a large chunk of the private banks booked to SWP this quarter. Any update on where that leaves TRUST 3000? And should we expect any change in strategy on how long you plan to keep that asset up and running or how you plan to manage the TRUST 3000 system?

Ryan P. Hicke

Yes, I'll take that first and then kick to Sanjay. Ryan, hope you're doing well. So right now, that does not change our kind of strategic plan because we have clients that are happy on TRUST 3000. What I would say is 2 things. One, we're probably more proactively engaged right now with those clients trying to understand what that time line looks like, what those operating models would be and what books of business they will be bringing over to SWP. So Sanjay and his team have done a terrific job there kind of really increasing the engagement.
But the other more important thing with the U.S. Bank conversion, and I think Dennis had this in his script, is to have that size of an organization operating with the Software-as-a-Service model really opens up a different level of conversation in the market for Sanjay and the team around either existing or prospective SEI clients that don't want to outsource the back office that are looking for technology-as-a-service. So this is a really important proof statement and they are really happy where they are right now with this conversion, with a successful weekend, it's a big book of business. And it's one that the market's been watching. Sanjay, don't know what you would add to this.

Sanjay K. Sharma

I would echo the same as well. Ryan, in terms of strategy for TRUST 3000 and as Ryan mentioned that we would stay aligned with our client strategy. So you can look at the overall TRUST 3000 business in 2 different segments, our larger clients who are in software-as-a-service model. They're closely watching how we are implementing U.S. Bank, and that is going very successfully.
And the second segment, you can look at the clients we are running in an outsourced operations model. And that's where we are actively engaging with our clients. And as and when they are coming up for renewal, we are working with them to move them to SWP but it's not a forced march.

Ryan Michael Kenny

And then just as a follow-up, definitely appreciate the efforts to get the private banking margins towards higher profitability. It looks like you've started to make some progress there with margins moving from low single digits to -- it looks like now high single digits. Is that the right range going forward? And as you put together all the piece parts of the SWP migration and expense management, is there any update on what margin level you'd be happy with in that business?

Ryan P. Hicke

So I think, Ryan, this is one we've been really consistent. The team continues to execute on a plan to continue to grow those margins and to do that incrementally quarter-over-quarter, either through a combination of revenue installation and revenue increase through sales and continued expense management. So I mean, we are really focused on that. We don't plan to deviate from that plan and to continue to grow those margins moving forward. That's the probably the first thing I said in the first call, 18 months ago, and the team has done an excellent job. As I mentioned on the call, we have some losses that were announced over the last couple of years. We've had to absorb and Sanjay and his team has done a terrific job through new sales, increased revenue to continue to smooth that trajectory and drive those margins higher. We're not deviating from the previous stance that, that business is going to get back to historical margins over the next few years.

Dennis J. McGonigle

And Ryan, just to close the loop, one of those losses that we had talked about for probably close to a year has still not matriculated at all. And I think on the last call, we talked about potentially by the end of third quarter. And now we're in the kind of range of sometime in the fourth quarter, but they're still -- they haven't left us. So we'll see how that plays out. But that's one of the things that the private banking business will have to absorb when it happens.
The good news is nothing happened yet, and that's always a positive. The other comment that Sanjay didn't make, but he can give color if you're interested. We just finished 2 days or 3 days with a large group of our both TRUST 3000 and SWP clients here on campus. And we can only think that getting them in the room together and hearing the stories and the positive stories about being on SWP, both technologically and operationally will just help encourage more TRUST 3000 clients like the one that made the decision to convert in the third quarter make that decision. So it's really successful 2.5 days of sessions with our broad banking client base.

Operator

And we'll go over to Crispin Love, Piper Sandler.

Crispin Elliot Love

First, are you able to give a little more color on the client losses in the quarter in the Investment Advisors and Institutional Investor segments. Any key reasons there? Anything out of the ordinary or anything that you can provide or would call out there?

Dennis J. McGonigle

So on the Institutional Investor side, I'll give you a quick comment and then turn it over to Jay Cipriano to speak to that business segment. And then on the Investment Advisor segment, I'll let Paul comment on that. The Institutional Investors segment, as Ryan spoke, it's still in that -- the corporate DB space, it's plan closures or annuitizations that occur and then also, we're being more aggressive in the market with retention. We know everybody in the industry across the board, there's no hide from it, is under fee pressure. The competitive landscape is arguably led by fees versus with many competitors and that kind of sets the table. And Jay and his team and with Paul have been -- Paul hasn't gone anywhere so the institutional business is still on his left shoulder helping Jay. He's been trying to keep our clients addressing their economic requirements, but at the same time, making smart long-term relationship decisions. I don't know, Jay, you want to -- since it's early days, you want to...

Jay Cipriano

Thank you, Dennis. Well, it's certainly not a new phenomenon that the primary objective of these pension plan sponsors is ultimately to obtain full funding. What is relatively new though is the past few years, you've had a historic bull market and now you have a run on rising rate environment, which means there's a greater opportunity for plans to annuitize. We believe around 30% of firms in the industry right now are exploring a risk transfer strategy. So that's removing the liability and risk from the pension via either the purchase of a group annuity or offering a lump sum window. We're aware of these market realities, and some of the recent organizational changes that we've made are going to better position us to aggressively compete in OCIO growth markets going forward.
The OCIO market, in general, is growing, and we've seen more and more large plans exploring like the virtues of outsourcing Chief Investment Officer. So SEI standing is a market leader in that space, our seamless integration of technology, operational and investment expertise, I think, are going to enable us to win moving forward.

Crispin Elliot Love

I appreciate all the color there. And then there's definitely been plenty of volatility recently, especially with rates and fixed income. Can you just talk a little bit about how that's impacted you in the Institutional Investors segment or any others. At times like this, does it drive the end clients and potential clients to be more inwardly focused, which can dampen activity over the near term or elongate discussions or taking it actually spur new conversations with current clients and new potential ones?

Dennis J. McGonigle

You mean in the context of the calculation of their future liability streams and their funded status?

Crispin Elliot Love

Yes. Yes, exactly.

Dennis J. McGonigle

Jay, do you want to?

Jay Cipriano

Yes. I think part of that goes into the fact that many of them are exploring the opportunity now in that rising rate environment to purchase group annuity or offer a lump sum. I think overall, though, when you look at this marketplace, I think this is a market that really creates specialization. So whether it's health care, higher education, corporate DB union plans, I think our prospects really demand expertise and our advice and service around this. So any time there's a change like that happen in the marketplace, I believe it does open the opportunity for us to sit down and have those advice conversations about how the market realities are affecting their goals and objectives and the allocation that we've put out there. We see those opportunities not only as the ability to strengthen our relationship, but also to potentially move them into other products that are better for them and better for us long term.

Paul Francis Klauder

Yes. I would just add on the adviser side. We haven't seen really a big position of cash, we've seen a little bit of spike in cash balances. That's kind of normal when you see this level of volatility, but there has been kind of no movement around, away from the strategic portfolio, someone has some excess cash, they might be holding it in a money market fund. We offer very competitive yields there. On our flows, we've had very strong growth on the AUA side, the custody platform. Very strong growth on the SMA, the ETF, the strategist program and we've seen a little bit of continued outflow of the SEI higher fee funds. And we knew that.
So that's part of our business strategy is to kind of sell through that in this environment. We just also had a conference of 270 advisers a few weeks ago, unbelievable commentary and receptivity, especially around our applications and our investor portal, our dashboards and our mobile app that we rolled out. So we are getting really, really good feedback. And we think that, that puts us in a well position for growth as we move forward into the fourth quarter.

Operator

And we'll go over to Mike Brown with KBW.

Michael C. Brown

I wanted to start with just maybe a follow-up comment on the margin. It looks like year-to-date, you're running just below 23%, and that's just kind of below your historical mid- to high 20% range. So I know that you guys really focus on R&D spending and you're kind of managing for the longer term here. But if I have to think about an environment that could get even more challenging from here, like where does your margin really kind of bottom out? And what are the levers at your disposal here to protect the margin. And of course, I appreciate that there was some rightsizing actions in the quarter, so you're not standing by idly, but just trying to think through what's at your disposal if things stay or get worse from here.

Dennis J. McGonigle

Sure. So just -- I guess what I can use is, first use some historical reference. The last time we've been through that type of a difficult market cycle. And during that market cycle, our highest margin business at that time was probably close between the Advisor business and Institutional business. The Advisor business -- this is without SEI taking any drastic measures in terms of headcount or cost reductions, but really running the business as is. That business, the margin has bottomed out. It went from about high 40s to high 20s.
The Institutional business went from similarly high 40s and bottomed out around maybe high 30s, 40% margin. So the asset management, more direct asset management businesses, the margins held up really well, obviously compressed, but we spoke to our operating model, our business model and our capabilities there. On the banking side and on the IMS side, which are more operational businesses, the pricing is a little bit less impacted. We do get some variability because of markets, it's hard to run away from those types of extreme markets. But in IMS, for example, the mix of business is very diverse. So it's not as directly correlated to market activity. So there, there was some margin compression, but it wasn't a severe plus with breakpoint pricing, the first assets you would lose in down markets or the lower-priced assets relative to most client contracts. So there's a little bit of buffer in that.
And banking, similar, we have revenue streams that are not tied to assets or more account-based or transaction or activity-based. In times of market stress, those things tend to honestly do account numbers, but activity goes up. So there's some protection there. But I will say on the banking side, we did take some margin hit, but it was principally because we use it as an opportunity to re-contract with clients, extend relationships, help them deal with the financial distress they were under. So it gave them some temporary relief with the trade-off of a more longer-term partnership like relationships.
So with all that said, we do have some costs that are variable. So we -- some adviser expense, that's a direct expense on our P&L, that certainly would contract variable part of compensation. We did make some decisions to adjust that, but we were one of the few financial services firms in that period, and I'm not making any future commitments here. But one of the few financial services firms in that period that actually paid incentive compensation through that cycle that wasn't that 100% of our normal, but it was fairly healthy other than the executive team. The executive team made a decision that we would not take that variable comp as part of our -- in that period.
So -- and then we did use it like most things, probably the first time you ever clean out your attic is when you're moving. So we used it as an opportunity to actually clean up some things that needed to be cleaned up anyway and should have been cleaned up kind of a normal course of business, but that gave us, I'd say, a little bit higher incentive to act on it and we did get some cost takeout from that. But we also invested money in client-facing activities and we leaned into our clients a little bit more on the client service side. We did not slow down our R&D initiatives. And we certainly put them under more scrutiny, but we actually spent more in capital, in R&D during that '08, '09 period, than we had spent kind of the '06,'07 period.
So we really felt that we have a really strong financial foundation. We have very effective business models and that we're very scrutinizing around making sure we don't sacrifice the long term and what we're really all about, which is long-term strategic growth and value just because of some short-term pressures. And I would say we would probably operate in a very similar fashion.

Michael C. Brown

Okay. Great. Thanks for all the historical perspective there, Dennis. And then maybe just kind of quickly lining up some of your sales and pipeline commentary, it just looks like some of those metrics are just down quarter-over-quarter. And so I know that's just one data point at one point in time. And you certainly talked about a number of key investments and you sound upbeat about a lot of your initiatives here. So I guess if we just take a step back, can you just help me synthesize those 2 trends? And what that ultimately can mean for some of the more near-term trends, including activity into year-end here?

Ryan P. Hicke

So I think, Mike -- it's Ryan. I mean, if you look at Q3, Q3 was a little bit down relative to Q2 in sales. But Q1 and Q2 were really good sales quarters for us. Q3 was really impacted on the asset management side. We had another really solid quarter, and we expect that to continue. If you look at the pipeline from Q4, Q1 of next year, Phil mentioned and Sanjay mentioned and even Paul and Jay responded. So we feel really good about where we are on a pipeline perspective.
Q3, sometimes you get a little bit of like the summer and things drag on, things push into Q4 but really, I think Q3 was predominantly impacted by what we've just talked about and what Jay went through. But Phil already mentioned, we had $19 million quarter. Sanjay is very consistently putting positive results on the board, so we expect that to continue. So I also think one of the things that's really hard to predict but one of the leading indicators for us that we're more focused on now than anywhere in the past is really that client activity. So as Dennis said I was going to answer (inaudible). There's 92 clients in there across 53 banks. Paul -- St. Paul and Arizona with Wayne a few weeks ago, there are 275. Like we are all over the place right now with our clients in the market, the new enterprise sales team is going to help. So I get it. We understand the rules of the game. We understand the scoreboard. We're doing the right things.

Operator

At this time, no further questions in queue, back over to CEO, Ryan Hicke. Please go ahead.

Ryan P. Hicke

Thank you. As I mentioned, our momentum continued through the third quarter, and we made good progress on our strategic initiatives. We're doing the right things. We're focused on the right areas. I'm personally getting more focused with Wayne and the team on the Investment Management and Asset Management side. We're very excited about what we see in the future there. We're enhancing our market presence through increased engagement with our clients. We're expanding our reach across markets globally. We need to relentlessly challenge ourselves to improve our execution and drive growth. But we're going to build upon the foundation we have in place to drive that growth. Thank you for joining today's call.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining. You may now disconnect. Have a good day.