SEI INVESTMENTS CO

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Strategic & Business Model Risks

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Market-Driven Risks. Our financial performance is heavily influenced by conditions in the capital markets and the value of assets we manage or administer. A significant portion of our revenues is earned as fees based on the market value of client assets. Declines in asset values, whether due to overall market downturns or poor performance of specific investment products, directly reduce our assets under management or administration and thereby our revenue and earnings. Similarly, adverse economic conditions or negative investor, consumer, and business sentiment can dampen demand for our products and services, leading to lower business activity and fee revenues. We also earn important fee income from programs that sweep client cash into interest-bearing deposit accounts at third-party banks. Changes in interest rates or significant client withdrawals from these sweep programs could decrease the fees we earn and negatively impact our profitability. Furthermore, periods of market volatility, geopolitical turmoil, illiquid markets, or other disruptions can make it difficult to value or liquidate certain investments. In extreme cases, we or our clients might be forced to sell assets at depressed prices or write down valuations, causing losses. In summary, sustained market declines or extreme market dislocations could materially erode our revenue, earnings, and overall firm value. In addition, prolonged market volatility may impact our ability to attract new assets or retain existing clients, which could adversely affect our financial performance. Finally, investor and client perception of the risks attendant to the business models of our various market units and our ability to successfully manage these risks, including those related to the potential disruptions from automation, artificial intelligence and machine learning, may significantly affect our value.

Current report

Client and Relationship Risks. Our business depends on maintaining strong relationships with clients across all segments, including investment management, technology outsourcing, and fiduciary services. We are exposed to risks that could lead to client attrition, unfavorable contract renewals, or termination of agreements, each of which could materially reduce our revenues and earnings.

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We may lose clients for a variety of reasons beyond poor investment performance. While investment performance relative to benchmarks and competitors remains a critical factor for retaining assets under management, clients may also leave due to pricing pressure, service disruptions, technology platform issues, or competitive innovations such as AI-driven solutions and tokenized products. Consolidation among financial institutions may reduce the number of potential clients or lead to rationalization of services we provide. Strategic shifts by clients, including decisions to internalize functions we currently perform, can also result in attrition. Because certain clients represent a significant portion of our assets under management or administration, the loss of one or more large clients could disproportionately impact our financial results.

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Client relationships are also affected by external factors such as market volatility, regulatory changes, and industry consolidation. In addition, our ability to retain and grow client relationships depends on our capacity to innovate and deliver new products and services that meet evolving client needs, including ESG solutions, AI-driven strategies, and tokenized investment products. Failure to anticipate and respond to these changes could impair our competitive position and lead to client attrition or unfavorable contract renegotiations.

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Fee Compression and Competitive Pricing Pressure. We face persistent pricing pressure across our industry. Investor demand for low-cost solutions, the rise of passive strategies, and competition from fintech and technology-driven firms have driven fee reductions. If we are unable to demonstrate value or match competitive pricing, our margins and profitability may decline.

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Product Development and Innovation Risks. We depend on continuous innovation and improvement of our products and services to drive growth and meet client needs, and failures in this area pose significant risk. If we are unable to develop and deliver new products or enhancements that address our clients’ needs, provide competitive value, and are ready in a timely manner, our business could suffer. For example, much of our technology development effort is devoted to our core platforms, such as the SEI Wealth Platform℠ and TRUST 3000®, and our other proprietary processing systems, and their ongoing evolution is critical to our value proposition. Delays, cost overruns, or performance problems in enhancing these mission-critical systems could impair our competitiveness or reputation. We are also mindful that new products or solutions we introduce might not function as expected or could experience errors and disruptions, which can lead to client dissatisfaction, remediation costs, legal liability, or damage to our reputation. Additionally, implementing certain product innovations (particularly those involving cloud-based solutions or other third-party technology changes) often requires obtaining consents or cooperation from clients and vendors. These external parties may withhold approval or demand onerous terms, which can slow down or even thwart our product development efforts, potentially making some initiatives impractical despite their strategic value.

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Developing and launching new products and services in our industry typically demands significant time, resources, and ongoing support. There are substantial uncertainties in this process, including the need to establish new operational processes and controls, to anticipate shifting client preferences, to respond to new competitors or technologies, and to ensure compliance with evolving regulatory requirements. Many emerging investment offerings do not gain traction immediately, it can take several years for a new product to build the performance track record and client acceptance required to attract significant asset inflows. During this incubation period, we must invest in development, marketing, and support without assurance that the product will ultimately succeed. For instance, client demand has increasingly expanded into alternative investments (such as private equity, hedge funds, real estate, and infrastructure) as they seek diversification beyond traditional asset classes. Offering and supporting these alternative investment products presents unique challenges. Unlike traditional securities with well-established automated processes, alternative assets often lack widely adopted technological infrastructure for administration, leading to more manual processes and bespoke operational support. This increases our operational complexity and the risk of errors or inefficiencies. Moreover, as noted, new alternative products usually require a multi-year track record before they can attract substantial assets under management, which delays revenue and may strain resources. We have also pursued innovation in other newer areas of asset management, for example, developing tax optimization and tax‐harvesting programs, which likewise need time to prove their effectiveness and appeal to investors. If we fail to continue innovating successfully, fail to introduce new products and services that gain market acceptance, or fail to manage the complexities and risks associated with these innovations, our competitive position could deteriorate. In such a scenario, we could lose market share, and our revenue and earnings (particularly those tied to assets under management or administration) may decline. Even when our new offerings do perform as intended, they may not generate significant revenue or profit for some time, if ever. It’s possible that some new products will never achieve profitable scale, or that their operating margins are thinner than our historical averages. Should our development initiatives not meet client expectations, or if we cannot support new products in a cost-effective and compliant way, we could incur substantial costs, experience reputational harm, and ultimately suffer financial losses.

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Business Model Innovation and Expansion Risks. As part of our strategy, we may pursue new business models or distribution channels to drive growth, and these strategic shifts carry their own risks. For example, while we have explored and in some cases engage in direct-to-consumer (B2C) offerings, serving individual investors directly can increase operational and regulatory complexity: it entails handling a much larger number of client accounts and transactions, which raises the possibility of processing errors or fraud and generally drives higher servicing costs. Direct consumer engagement also heightens exposure to cybersecurity threats and data privacy concerns, since a breach or service disruption could impact a broad retail client base and attract greater scrutiny from regulators and the public. Participating in consumer markets may require substantial investments in marketing, support infrastructure, and compliance capabilities that differ from our institutional business, and we face established competitors in the retail financial services space.

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Market Consolidation and Competitive Disruption. The financial services industry is highly competitive and is being reshaped by consolidation and technological disruption, including the changes in the technology development and the delivery of services related to automation, artificial intelligence and machine learning. These dynamics continue to pressure our fees, challenge our market share, and could adversely affect our revenues and earnings. The investment management business has relatively low barriers to entry, and in recent years we have faced persistent pricing pressure. New competitors (including fintech startups and automated “robo-advisors”) have introduced lower-cost investment products and services, while investor preferences have shifted toward low-fee passive strategies. These trends have driven a general decline in fee levels across many market segments. We expect this price competition to continue; investors are demanding more value for less cost and established firms and new entrants alike are cutting fees or margins to win business. If we are forced to reduce the fees for our services or cannot match the pricing of competitors, our profit margins and earnings will likely suffer. Moreover, advances in technology are accelerating this trend. For example, some competitors are beginning to deploy artificial intelligence-driven pricing and portfolio management, which could enable them to optimize service pricing or investment performance in ways that attract clients. Firms that successfully leverage these innovations may gain a significant competitive advantage, making it harder for us to retain or grow our client base.

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Beyond pricing pressure, the competitive landscape is evolving with the entry of non‑traditional players, including fintech firms and large technology companies (“big tech”), into asset management and processing services. Many of these new entrants boast superior technological capabilities or well-known consumer brands, and in some cases, they operate under lighter regulatory constraints than diversified financial institutions like SEI. Additionally, advances in artificial intelligence have also made the development of technology solutions more attainable to a broader range of firms and potentially require less capital-intensive business models. These differences can give competitors a cost or agility advantage. A tech-driven rival with lower compliance costs or a disruptive business model can potentially offer services at a lower price point or deliver innovative client experiences that we might find difficult to match under our existing cost, regulatory and operating framework. If we fail to compete effectively against these emerging players, we could lose market share to firms that are not as burdened by regulation or that benefit from technology-based advantages.

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At the same time, consolidation in the financial services industry is altering the competitive environment. Over the past several years, numerous firms in our space have merged, been acquired, or exited the business. As competitors combine, the survivors often emerge larger and with more resources, including broader product lines and more geographically diverse client bases. We could increasingly find ourselves up against a smaller number of much larger competitors with greater capital, scale, and range of services. These consolidated firms might be able to invest more heavily in technology, withstand fee reductions, or bundle a wider array of services, making competition more intense in the segments we serve. There is also the possibility of entirely new competitors arising from consolidation or realignment in adjacent industries (for example, a large technology or consulting firm acquiring capabilities to enter our markets). Heightened competition from any of these sources, whether traditional peers, fintech/big tech entrants, or enlarged consolidated institutions, puts pressure on the key factors by which we differentiate ourselves and could impair our growth.

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Finally, market consolidation among our own clients poses a strategic risk to our business. Many of SEI’s clients are financial institutions and investment managers themselves, and if they engage in mergers or acquisitions, the pool of potential clients can shrink. A merger of two firms that each use our services might result in one combined entity that requires fewer of our solutions (or has duplicate services that get rationalized). In some cases, a larger combined client may decide to internalize functions that we previously provided, using their greater scale to build in-house capabilities instead of outsourcing to SEI. Consequently, consolidation in the markets we serve could reduce the number of clients or the scope of services they outsource, which may limit our opportunities for revenue growth. We may face the dual challenge of winning business from a consolidating client base while also contending with ever-stronger competitors in the marketplace. If we cannot offset these consolidation effects by attracting new business, our future revenue and earnings growth could be negatively impacted.

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In sum, intensifying competition, whether through fee compression, technology development advantages, disruptive new entrants, or industry consolidation, is an ongoing reality of our industry. We must continue to adapt, invest in innovation, and demonstrate the value of our platforms and services to clients. If we fail to keep pace with these competitive and structural changes, our business and financial results could be adversely affected.

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Key Personnel and Human Capital Risks. Our success heavily depends on the leadership and expertise of our key people. Any loss of critical individuals, or broader challenges in managing our workforce, could disrupt our operations and impair our performance.

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We rely on a relatively small group of executive officers and senior managers whose industry knowledge, client relationships, and institutional experience are crucial to our business. Many of these leaders have long tenures at SEI and, importantly, most do not have fixed-term employment agreements with us. This means they could leave at any time. The unexpected departure of any of our top executives or other key personnel could deprive us of important expertise and leadership, potentially causing a material adverse effect on our operations and strategic direction. Any gap in leadership, or even a protracted transition period, might erode stakeholder confidence or hinder important initiatives.

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In addition to leadership retention, we face wider human capital challenges related to maintaining an effective workforce. As a company looking to manage expenses and remain efficient, we have undertaken headcount reduction initiatives (such as hiring freezes, targeted staff cuts, or voluntary separation programs) to create efficiencies and optimize our operating model. While such measures provide short-term benefit, they carry longer-term risks. Significant reductions in workforce can lead to the unintentional loss of institutional knowledge and high-performing employees, increased workload stress on remaining staff, and decreased morale across the organization. Service quality or innovation may suffer due to fewer personnel or lower employee engagement. Likewise, limiting investment in new talent or training could leave us ill-equipped to support or achieve our growth expectations, especially as our business evolves or more senior employees retire.

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Moreover, our ability to identify, attract, develop, and retain talented employees at all levels is crucial to our ongoing success. If we cannot hire and retain people with the necessary expertise, or if turnover in key roles rises, our client service, product development, and operational capabilities could be weakened. High turnover can also increase costs (due to recruitment and training) and impede our ability to pursue new opportunities or to maintain consistent relationships with clients and partners.

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Outsourcing and Offshoring Strategy Risks. We have undertaken a major internal offshoring initiative by establishing a Global Capability Center (GCC) in India to improve efficiency and access specialized talent. While this strategy offers potential benefits, it also introduces significant new risks to our operations and financial performance.

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Operating a captive center in India introduces an obligation to navigate different local laws and regulations, manage cultural and communication differences (including coordination across time zones), and ensure effective remote supervision, all of which can impede smooth collaboration and control. In addition, the GCC’s activities are exposed to external risks in the region, such as geopolitical uncertainties, shifts in local regulatory policy, or economic instability. Such factors could disrupt our business processes or unexpectedly increase operating costs. We also depend heavily on local infrastructure and technology systems at the GCC. These systems may be vulnerable to outages, cyber-security threats, natural disasters, or other disruptions beyond our direct control. Any significant interruption in our India center’s operations, for example, a prolonged network blackout, political unrest, or a security breach, could impair our ability to serve clients in a timely and reliable manner. This, in turn, might lead to reputational damage, client dissatisfaction, and financial losses.

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The success of our GCC strategy also hinges on human capital factors principally, our ability to attract and retain skilled employees in India. The technology and financial services labor market in India is competitive, and demand for experienced professionals may outpace supply. As a result, we risk facing staff attrition or upward pressure on wages, which could erode the cost advantages we sought through offshoring. If turnover at the GCC is higher than expected, we could lose critical knowledge and see productivity decline, while having to incur higher recruitment and training costs. Additionally, we must effectively integrate GCC’s operations with our global processes and maintain the same quality and compliance standards as in our other locations. Managing a geographically distant team requires considerable effort in knowledge transfer, process alignment, and quality control. Any failure to synchronize the India center’s activities with our broader operations or drop in the quality of services provided by the GCC, could undermine our overall efficiency and client service levels. Significant problems with the GCC could have a material adverse effect on our business operations, financial condition, and results of operations.

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M&A Execution and Integration Risks. Our ability to derive value from mergers, acquisitions, and strategic partnerships is uncertain, especially when integrating large or cross-border transactions. If we cannot smoothly combine acquired businesses into our operations, we may fail to realize expected benefits, and our financial results could suffer.

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We have pursued acquisitions, divestitures, joint ventures, and alliances as part of our growth strategy, and each such deal carries significant risks and uncertainties. Combining or separating business units is inherently complex: we must merge or carve out accounting and data systems, align management controls, and integrate relationships with clients, counterparties, and vendors. Large acquisitions can strain our resources and attention, particularly if they involve geographically dispersed operations or partial ownership structures. In some cases, we acquire less than 100% of a company or enter joint ventures, which means we rely on systems and personnel we don’t fully control and must cooperate with outside partners. Any conflicts or disagreements with joint venture or minority partners can further complicate decision making and undermine the intended benefits of the deal. There is also no guarantee that transactions will yield the synergies or strategic objectives anticipated. If we fail to integrate an acquired business effectively, or if a divestiture or restructuring proves more costly or complicated than expected, our operations and financial condition could be materially and adversely affected.

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The risks are amplified for acquisitions that expand our geographic footprint or involve cross-border operations. Integrating a business in a new geography requires managing teams, systems, and facilities that are geographically separated, and it demands blending different corporate cultures and business practices. We must also ensure compliance with foreign laws and regulatory requirements, which may be quite different from those in our home market. Cross-border deals introduce currency exchange risk (e.g., if the local currency fluctuates against the U.S. dollar) and can expose us to differences in how intellectual property rights are enforced, local market consumer preferences, and other nuances of operating in a new region. Moreover, general economic or political conditions in the new territory can impact the success of the acquisition – for instance, if a country’s economy weakens or its regulatory climate shifts, the business we bought there might underperform expectations. All these factors can make it harder to achieve the growth or efficiency goals that motivated the transaction in the first place.

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In 2025, we agreed to acquire a 57.5% majority stake in Stratos Wealth Holdings, a U.S.-based wealth management firm, for approximately $544.0 million. Stratos operates an extensive network of over 350 financial advisors and has an affiliate in Mexico that we have the opportunity to acquire and one which we expect to close in 2026, subject to satisfactory due diligence and regulatory approval. We formed SEI-Eclipse Holding Company, LLC (SEI-Eclipse) as the holding company for this partnership. The transaction involves significant integration risks, including consolidating financial statements, and aligning technology platforms, compliance processes, and service models, as well as managing cultural differences and retaining key talent. Cross-border complexities related to the Mexico affiliate that we may also acquire add regulatory and operational challenges. Failure to integrate effectively, consolidate financial statements in a timely and accurate manner, secure regulatory approvals, or retain advisors could delay or reduce financial benefits or anticipated synergies. Stratos continues to operate under its existing brand, with its executive management team having control over the exercise of certain minority interest and governance rights, which may limit our ability to fully control integration.

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More broadly, acquisitions carry inherent risks, including unforeseen liabilities, technology gaps, and resource diversion. If integration costs exceed expectations or synergies do not materialize, our business, financial condition, and results of operations could be adversely affected.

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Operational Risks

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Third-Party Service Provider Dependencies. We rely on third-party suppliers for essential functions, including software development, processing, support, licensed software, software-as-a-service platforms, business process outsourcing, cloud hosting, and the Automated Clearing House (ACH) network. This reliance is expected to continue and may increase over time.

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The financial entities and technology systems we depend on have become increasingly interconnected and complex. Consolidation among clearing agents, exchanges, and clearing houses, combined with heightened interconnectivity among financial institutions and central agents, has amplified the risk of operational failure at both individual and industry-wide levels. Accelerated integration timelines further elevate these risks.

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A failure by a third-party provider could impair our ability to deliver contractual services, process transactions accurately, or meet regulatory obligations. If a provider is unable or unwilling to perform adequately, we may incur significant costs to internalize services, implement alternatives, or compensate clients for resulting losses. Breakdowns in third-party systems or unauthorized actions by consultants and subcontractors could lead to financial loss, business disruption, regulatory sanctions, or reputational harm. We also depend on critical market infrastructure, such as clearing and settlement systems like the Depository Trust Company (DTC). Disruptions in these systems could hinder our ability to execute transactions, meet client obligations, and maintain liquidity, creating systemic risks that could materially affect operations.

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Additionally, we rely on investment sub-advisers to manage significant portions of assets within our programs. Failures in oversight or misconduct by these firms, including regulatory noncompliance or fraud, could result in financial loss, sanctions, or reputational damage. Transitioning assets between sub-advisers or insourcing these functions may also present operational challenges.

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Further, we depend on third-party pricing services to value securities in our investment products. Inaccurate valuations, particularly for securities without readily available market prices, could adversely affect revenues and earnings from assets under management.

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Finally, many investment advisors distributing our products are affiliated with independent broker-dealers or networks that require approval of our offerings. Failure to obtain or maintain these approvals could negatively impact our ability to market and distribute investment products.

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Process Errors (Fund Accounting, Investment Operations, Pricing Services). Our operations involve complex processes that require accuracy and judgment, particularly in fund accounting, investment operations, and pricing services. These activities include manual trade placement and other transaction processing steps, which carry inherent risk of human error. Mistakes in trade execution or manual processing could result in financial losses, regulatory issues, and reputational harm.

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Operational Resilience (Business Continuity and Disaster Recovery). Our ability to deliver products and services depends on the uninterrupted functioning of our systems and those of other participants in the global financial system. These operations are highly interconnected, and many transactions involving our products rely on multiple parties to move funds and exchange information. A disruption, whether due to operational failure, cyberattack, or other causes, at any point in this chain could impair our ability to process transactions, obtain or provide information, and deliver services. A significant disruption could result in reputational damage, client loss, revenue decline, and additional costs, all of which could materially affect our business, results of operations, and financial condition.

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We employ a comprehensive risk and control framework, including financial, credit, operational, compliance, and legal reporting systems, internal controls, and management review processes. However, these strategies and models cannot anticipate every economic or operational outcome. As our business evolves and markets change, our risk management processes may not fully adapt. Many of our methods rely on historical data and management judgment, which may not predict future exposures.

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Additionally, reliance on models introduces risks of design flaws, inaccurate inputs, or unauthorized access that could lead to unapproved changes. Recent market dislocations underscore the limitations of historical data in managing risk. Consequently, we may incur losses despite our risk mitigation efforts.

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While we maintain business continuity, disaster recovery, and security response plans, these measures may not fully mitigate all risks. Our operations could be adversely affected by disruptions to infrastructure supporting our business and communities where we operate, primarily the Philadelphia metropolitan area, London, and Dublin. Potential disruptions include physical site access issues, cyber incidents, terrorist activities, pandemics, natural disasters, severe weather, electrical outages, environmental hazards, and failures of critical systems or third-party services.

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Although we employ backup systems for data, these may be unavailable or incomplete following a disruption, and recovery could be costly or unsuccessful, adversely impacting our business.

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Rapid Growth and Capacity Constraints. Growth of our business may increase costs and regulatory risks. Expanding platforms, integrating acquisitions, and partnering with other firms present financial, managerial, and operational challenges. Significant expenses may arise from these initiatives, and profitability could suffer if revenues do not offset associated costs.

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

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

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

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

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

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

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

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

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

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

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

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

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•the level of fees charged;

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•the quality of our investment processing services;

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•our reputation and position in the industry;

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

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

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

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

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

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

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

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

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Risks Related to Our Technology

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

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•human error,

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

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•accidental technological failure, or

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

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

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

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

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

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

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

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•violations by us of applicable privacy and other laws;

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

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•loss of confidence in our cyber security measures;

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•dissatisfaction among our clients or counterparties;

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