SEI Investments Company (SEIC) Earnings Call Transcript & Summary

All right. Welcome back. Hello, everyone. I'm Alex Kramm, senior research analyst at UBS covering the exchanges and business services companies. Excited to have a new addition here this year on stage, Sean Denham, EVP and CFO and Operating Officer of SEIC. Thanks for joining us this year.

Thanks for having me.

Look, why don't we just jump in. Since I just mentioned it's the first time for you guys to present at this conference, for everybody's benefit, why don't you actually just start by giving us a quick overview about the company?

Yes. At the highest level, we like to refer to ourselves as the connective tissue, like that, of the financial services industry. So really, what we do, we provide world-class administration platforms, world-class asset management platforms. And with the acquisition of Stratos, a large RIA greatly expanded our footprint in advice. We think about the 3 drivers of revenue in financial services: administration, asset management, and advice. So the acquisition of Stratos really rounds out all 3 of those a's for us.

Okay. Well, I'm sure we're going to jump in all of those items. So look, why don't we start with the IMS business. I think a lot of people, and I've only covered the company for less than a week now, but a lot of people view the IMS business as a crown jewel within the company, very steady double-digit growth over the last few years. So can you talk a little bit about the medium-term outlook here and really what's driving the underlying strength in that business?

Yes. I will say, Alex, your first report on us was spot on. The executive team, the Board thought really, you really hit us really well. So I really appreciate that. So IMS, I'm glad Phil McCabe, who leads our IMS business isn't here. His head gets swan when we call it the crown jewel of SEI, but it really has been over the last number of years. So we are really well positioned as a global fund administrator for the largest managers really in the world. Our client base really are the crown jewels, whether it's traditional or alternatives. We are a top 5 global fund admin. We're really well positioned. We have the best competitive position in our opinion, in the best part of the market, and that's really around alts. If you go back 5 or 6 years ago, I won't have the numbers exactly right, about 70% of our business was more on the traditional side, 30% on alts. That's really done an inverse in the last year or so, where about 70% is in the alts space, 30% traditional. But we are seeing the convergence of private and public markets. So classic alternative managers have really started to move into traditional space and vice versa traditionals are looking into the alts space. We think we've got a really good position with those managers. I think classically, we've been thought about operations for the fund, and we've really -- I think, position ourselves differently as a platform for the firm. We're seeing managers trying to do more with less. No one is really looking to add vendors. They're looking to consolidate vendors. When there's a new fund launch, especially with the largest of the large, we are that first phone call. So again, really well positioned. And so really excited where we are. We have an incredibly strong pipeline, as strong a pipeline as we've ever had in our 58-year history. Over the last couple of quarters, we've more than indicated some different moves in the market. You see a lot of now classic insourcers of fund administration or doing their own fund administration moving to an outsourced model. We're really excited. We haven't announced anything, no press releases, but we're excited in Q1 to really unpack some of those new potential wins that we have on the horizon. Being well positioned has really not just positioned IMS, but the company for really the success we've driven over the last couple of years.

I just want to come back to the last point because, yes, on the last earnings call, you did talk about some of these outsourcing deals really in the near term. And I know you haven't announced anything, although this is a [ regular SDE ] event, so you can say whatever you want. But can you go a little bit deeper, like why the confidence all of a sudden, are these deals that you actually already have signed and you're just trying to define the exact scope with those funds? Or what gives you that confidence that you're really going to have something to say here soon?

Well, we've been talking to these managers. These deals don't happen overnight. A decision to move from an insourcer to an outsourcer, these managers don't take lightly. There's a heavy lift in doing those transitions. So we're -- I'm not here to announce anything today. We would love to, but probably not. I know we're under [ SDE ], but not the right form. I think at the next earnings release, we'll be in a better position. Phil will be on the call to really talk about what those -- what the impact to our financials would look like. This is not necessarily completely revolutionizing our business, but they're meaningful. These are going to be impactful for the business, impactful wins. We're really excited to be partnering with these new managers.

Yes. In line with that, you also talked about maybe some margin pressure in that business coming as you, I guess, get ready for those implementations. So can you size up that impact a little bit more? And then also, if these are basically investments ahead of implementation, how quickly do you kind of recoup that, make sure that you have a good return on those investments? Like how do you think about it?

Yes. Over the last few quarters, I have talked about near-term margin pressure, not -- it has not always come to fruition. In my role, I never want to get ahead of us. So I'd rather be conservative in nature than trying to get too far out over my skis or over our skis. So Q1, typically for us, there typically is some margin compression in Q1. Usually, we have raises. We had some -- we did have a riff in Q4. We had some severance. So some of that severance cost or reduction in headcount should offset some of the raises that we typically give on January 1. So we will continue to hire when -- and not just in IMS, but really across the businesses, including Private Banking. As we see new work coming online, we are a relatively large labor-intensive business. These new large mandates do require more manpower, although there are some interesting things that we're doing around automation. Maybe we can touch on that a little later. But some of the potential margin pressure, we do have certain investments that we're continuing to make. We've made investments over the last couple of years, specifically in IMS in order to continue to -- as we scale our revenue, we needed to scale some of our platforms to support that work. We do need to -- and we have -- we've been hiring up to get in front of some of the work that I just alluded to with some of these new fund managers coming on board and some new fund launches. So there is some upfront capital. In addition, we do have some technology investments, other investments we are making -- when I mentioned the technology platform, the upgrade that we had in the IMS business, some amortization will come online in Q1. So noncash but still some P&L expense for Q1. So we expect to see a little bit of margin pressure, but we're not talking about going from, I don't know where we ended Q4 in IMS around 39%, 40%, somewhere around 40%. We're not talking about dropping 200 basis points, but I do like to -- when the Street sees progressive quarter-over-quarter margin growth, just like to sometimes pump the brakes a little bit, so not to expect that continual march forward. So like I said, we are doing things in our IMS business, making investments around things like, for instance, NAV visualization, really, really important for our business. Fund administrators, if you're not aware, they will do shadow accounting. And so we'll strike NAVs. We'll do a lot of the administration work. Even though you're an outsourcer, there is a certain amount of work that's still done internally to compare NAVs, et cetera. Some of the technology that we're investing in may allow these managers to no longer have to do some of that shadowing. So really all good stuff, really to set us up for future success.

Sounds good. Thanks for unpacking that. Switching gears a little bit to the Private Banks business. It's been a decent performer over the last couple of years, actually improved a decent amount, right? So good to see that. But recently, one thing that stood out a little bit is that pickup in the nonrecurring professional sales events, I guess, you would call it. So can you talk a little bit more what's going on here? And are these, I guess, professional fees actually becoming a little bit more of a recurring thing because it seems to -- they seem to be getting bigger and more recurring to -- for lack of a better word. So -- and where do you really see this business being in the next couple of years? Like what kind of evolution are we going through here?

Yes. So that's something we're incredibly excited about. So -- and just to back up a couple of years. So when Sanjay Sharma, who is our Chief Technology Officer, when Ryan Hicke became our CEO, literally the first thing Ryan did was move Sanjay from being our CTO to taking over private banking. And he's really done a truly amazing job. Looking back, our margins depending on the quarter were flat or not flat, but 0. So even in certain quarters, I think we had some negative margins. At that time, we gave a little bit of a runway to how to get margins back to historical margins. Part of that was looking at our total addressable market, understanding our client base, understanding what -- if we were to implement our asset management platform, SWP, that's what was being acquired. Typically, we were just selling the SWP platform with some operations services that would support that. What we did was is take a look at all the other services that our clients were buying that supported that. That may be looking at their total tech stack, what is the right course to sunset certain technologies as SWP comes on board, even ahead of the RFP process, doing an assessment of their tech stack, which obviously puts us in a really good position if we're bidding on some of that work. Tremendous amount of change management when these implementations happen and there's a change from one platform to another platform, there's tremendous change management professional services that they were buying from other third parties. So we took a look at that and said, well, we should be creating these services that surround our platform in some of these implementations. It's been really successful. And by the way, those margins are much higher than our classic. I think our margins right now in PB sit around 18%-ish. Historical margins were probably around 25%. Some of these professional services margins are more in that 40% range, so definitely accretive. I've now used the word professional services probably 25 times. We've been using -- but what we've been using the moniker, and we've been thoughtful about it over the last couple of years is we use this term nonrecurring services. That's not exactly true. We've historically used that, but we've received some feedback even as recently as the last quarter from some of the analysts and our investors to start unpacking what are some of those nonrecurring. Are they truly nonrecurring? When you think about a company like Accenture or even where I came from -- I used to work at Grant Thornton. I was a partner there, about 1/3 of Grant Thornton's business was advisory services. Every year, Grant Thornton had to resell 60% of that. And by the way, revenue grew every year. So Grant Thornton was -- or Accenture does replace that work with other work. It might not be the same exact SOW, but clients still buy from their vendors and SEI does as well. So I think going forward, you'll see us doing -- having a better terminology than nonrecurring, but those truly are professional services. Some of the questions that we get are in those nonrecurring sales, sales events, what's in there? So as I mentioned, there's other advisory services. Yes, there are some implementation fees. But in this past quarter, we had about $23 million in sales events related strictly to professional services. Less than half, probably about maybe 25%, 30% of that was implementation fees. And the rest was truly, truly these other advisory services that we really weren't serving and selling 2 years ago. And I think the opportunity there is that we haven't done a lot of that work in IMS. We see an opportunity in our IMS business to take a page out of Sanjay's book, what are some of those things that managers are buying. It might be services around data. We spent some money around technology to make sure we're supporting those needs. And there's various other services we've identified. And if you look at our total sales events for the past 12 months or for calendar year '25, fiscal '25, we had $150 million in sales events in '25. $50 million were these nonrecurring or professional services. Going back 2 or 3 years, the number was 0. So while the revenue portion compared to $2.3 billion, $2.4 billion in revenue is relatively small, the ramp-up of what portion we're selling compared to our total sales events is actually increasing, and those are really nice margins.

Okay. That's -- I guess we'll keep on watching that develop even further. I want to -- staying on the Private Banks business, I do want to come back to the truly recurring business because the sales in that business have been a little bit weaker or were a little bit weaker last year. So can you talk about the pipeline here? How confident are you in that sales picking up again in 2026? And anything we should be aware of on the retention side because, quite frankly, there's also been some cancellations.

Yes. Well, so we -- so sales events in PB were actually incredibly strong last year. But when we net them out, we had one loss, we did. So -- and there was facts and circumstances related to that one loss. So in Q3, part of our policy, we were informed that one of our clients that was on the platform had given us notification that they were potentially not renewing. There was a couple of caveats in there. And that was about, I think, $15 million or so, which net-net would pull it down. That was really -- that was the only loss we've had in Private Banking over the last couple of years, at least of any significance. Really, it broke Sanjay's heart, who was really disappointed about that as we all were. But the -- just to unpack that a little bit, these conversions take years. These aren't, a, we're giving -- we're putting you on notice part of our contract, we have to give you notice by a certain date. The notice was given. These could take -- some of these conversions can take 3 years, 4 years, 5 years. And when you look at the margins, you look at a $15 million negative sales events as we net. The P&L impact could be $1 million, $2 million in totality 5 years from now. So we want to -- we tried to put that in perspective. From a pipeline standpoint, our pipeline in PB IMS has literally in our history, has never been more robust and stronger. Again, we had a great win in Q4. That was not just -- that was not just professional services. That was another large mandate that we had won, and we will implement that over the next couple of years. But the pipeline in PB is as strong as it's ever been. As a reminder, about 3 years ago, when Sanjay -- 4 years ago when Sanjay took over, we were primarily focused on the largest institutions. And we -- about -- I think the number is around 12 now or so. 12 of the largest 20 U.S. institutions are on our platform. That was a big focus, where we've seen margin improvement, increase in sales events, increase in revenue and profitability has really come from the regional and the community bank space. And we weren't really focused on the community bank space. And why we're so excited about this. There's obviously many more banks, those decisions could be made more fluidly and quicker by the smaller banks compared to the behemoth. Those sometimes can take 3 or 4 years to make a decision if a conversion is going to take place. And it's been -- it served us incredibly well, including with professional services. So while, yes, we did have one announced loss, you have to put it into perspective of kind of in the magnitude of how successful that business has been.

No, fair enough. And you explained it well. I just -- we look at the numbers and the numbers don't sometimes tell the full story, right? So moving on then, though, to a business which I think you will agree with me, you still have some more work to do.

We do.

And that's asset management, which has been softish, in particular, when you take out the really favorable markets that we've had over the last few years. So new management in that business. So maybe just give us an update what they're doing there. And then maybe more importantly, any proof points you're seeing that some of the new initiatives are actually working?

Yes. So that is a business that Ryan and I and the rest of the executive team, I would argue, is really the most exciting and the hugest opportunity for us. So IMS is a machine. You used the word crown jewel. We hear that a lot. We agree with that statement. We believe IMS is going to continue to run and have a great trajectory. Sanjay took over PB a couple of years -- 4 years ago, negative margins, as I mentioned, flat sales events, almost negative depending on the quarter. And I think that turnaround has been evident. The third of our verticals and when we say asset management, we use that as a catch-all for our investment advisers business and our Institutional business. Not unlike some of our legacy businesses that needed some turnaround, that business definitely needed a turnaround. We brought in new leadership led by Michael Lane. Michael is former BlackRock. One of our key tenets on Investor Day back in September, 1 of the, I think, 5 was the reimagination of asset management. It can be a really catchy term to use, but it truly is we have reimagined asset management. And there's been early successes. I think in Q1 or Q2, we announced like a $200 million positive inflows, which seems like nothing. But when you had $5 billion of negative flows the year before, it actually is somewhat significant. So we have seen momentum. There are a number of things that Michael has instituted. He's brought in new talent. He brought in Bob Hum, who essentially leads our -- is our Chief Product Officer, if you will, for asset management. We've launched and are launching a number of new ETFs. I think the number is around 7 or 8 for '26. There's a lot of opportunity there. If you know our business, we do a lot around model portfolios. The majority of those -- the product inside those model portfolios are not SEI products. There's a little bit, but not much. I think there's an opportunity for -- especially for some of our ETF products to be infused into those model portfolios. In '25 we won under Michael's leadership in kind of new direction before I give that little nugget. There was a tremendous amount of work that needed to be done. There had to be kind of reconfidence blown into the sales team, the leadership team of the Choate Hall that we refer to as asset management. What Michael has done and one of the main thing he did is said, hey, we're -- the majority -- or some of our strategy was really retention in the smallest parts of the market, retaining some of our smaller advisers. We still serve them very well, but we also knew that we needed to move upmarket. Michael has done that very well. A proof point of that is just in 2025, we won 2 of our biggest ever asset management engagements in the history of SEI. And to be honest, we never even would have pursued that in prior years. It wouldn't have even been on our radar. So that's really exciting. We had $1.4 billion in total ETF flows in 2025, far outweighing any other historical point for our ETF flows. So there are nuggets that we are seeing in little buds here and there, especially with some of the leadership changes that he's made there. We're going to continue to expand our ETF lineup. So yes, so that's kind of why we're pumped, and that's where we see some of the runway coming from.

Excellent. And since we were just talking about the asset management business, maybe a good time to also go back to the Stratos acquisition, which you mentioned at the first question. So look, you just closed it a couple of months ago. So the question really is any early learnings? Anything you're more excited about? And then, of course, maybe just lay out or remind us about the strategy here because it's a little bit of a departure from what the company was doing before.

It is. Yes. And I'll repeat, right, there's 3 -- in our opinion, there's 3 drivers. There's 3 a's in financial services: administration, asset management, and advice. There's -- if you look at administration and asset management, there are pricing pressures. Somehow, the advisers have done an amazing job of maintaining the advice lack of pricing pressure. So if in 10 years ago, advice was 80 to 100 basis points, advice today is 80 to 100 basis points, where you'll see mutual funds have had pressure. The cost of those have resulted in moving from active to passive, even ETFs have gone down, even fees around custody have been pressured down and in some cases, have gone away. So we felt we needed to be closer to the advice space. And so we looked at a lot of different opportunities. And Stratos was and is an incredible RIA platform, incredible leadership. Jeff Concepcion is the President and CEO of Stratos. First time we met him fit really well into our culture, his vision, his acquisition strategy, the way he looks at deals, his reputation in the market, a lot of inbounds come into Stratos. And so it just really was a natural fit for us. One of the questions on the day we announced, we got on the phone with some analysts and investors and people wanted to understand the rationale. To your point, it's not something we necessarily dove deep into. Although when Ryan took over 4 years ago, probably 2 to 3 years ago, in his M&A conversation, there was 2 areas that he had discussed. One was doing something with the U.S. RIA, now known as Stratos. So we delivered on that. And then two was, do we need to do something around European fund administration? Do we need to buy something there in order to kind of scale quicker the EMEA admin area. So getting back to Stratos, so it should never have been a surprise. We had been giving indications every single quarter that we think we need to be closer to the advice base. The question we received the day of the deal was, hey, help me understand what those -- classic question, where are the synergies coming from? We paused there a little bit. We didn't really want to dive too deeply into where we thought the synergies could come from. As we sit here 60 days later, we're seeing early indications from advisers that they want to know more about SEI and the opportunities that we can provide, whether that's investment products, whether it's our custody platform, whatever it may be. We also talked about when the acquisition happened, we got a question whether we would force march any of their advisers onto our platform. The answer to that is no, it's still no. We want to be able to earn that business and not force any advisers into doing anything that they choose not to at any of their businesses. So early days have been really successful. We've had an adviser conference down here actually in Marco Island, I think, in maybe December, somewhere around there. Really successful. The feedback was incredible. The advisers there were really excited about the transaction, learning more about us. And it's not just custody platform, it's really all of our products. So we're moving from a sales -- a relatively mild sales force, for instance, in our Institutional business around OCIO or co-CIO opportunities. Now we have a sales force of RIA advisers across the country that have said, hey, I have certain connections in certain companies that look like your client base. Can we help with an introduction? And by the way, what does that look like for me? And so we've already had early conversations for even our Institutional business that we would not have had otherwise. So I don't think the synergies are necessarily from a cost takeout. Actually, I know they're not. It's more about, right, just classic, what is 1 plus 1 equal 3 and how do we make that happen? So early days, Q4's numbers had 1 month of revenue as part of the deal in early January, there were some put calls part of the deal. And so we did consummate the rest of the anticipated transaction outside of NSC, which is the Mexico entity that has not been completed yet. So anyway, early days has been really, really positive. We'll have more to share after Q1.

Okay. Sounds great. And then let me maybe move on to some more company-wide questions. The first topic here, AI.

I haven't had that question yet.

This is day 2 of the conference, and I can tell you, AI has been a frequent topic. So look, your business in some areas seems fairly labor-intensive. So naturally, I would think AI can probably help there. So anything you're already doing? What's on the road map? And then on the same topic, what about the other side of the coin? I mean some of the companies in my coverage over the last month, over the last week. And again, today, are getting caught up in this AI narrative in terms of disruption. So again, maybe you can talk about this, maybe you've even been caught up in that as well. So what are -- where are you seeing risks? Are there risks? And why do you not -- how can you fight back, I guess, is the question?

Yes. So the value of software is not declining. The barrier to creating the software is that barrier is becoming less and less of a barrier. So yes, we do have, obviously, technology part of our platforms. But just to put it in context, so let's take SWP, for instance. We believe we built a relatively large moat. From an overall revenue standpoint, we have 2. We wish we had more, but we have 2 SaaS clients that are really only using the platform where we sell our service in the majority of our revenue, specifically in Private Banking, for instance, is really a full suite of services. So it's not just software sales for software sales. We're providing front, middle and back-office services to our client base. That is a -- there is a labor component to that. There is a tremendous amount of regulatory issues around, obviously, as you know, from the banking space, and we are as well. So I don't think the barrier -- I don't think the entry from software and technology, specifically in some of the things that we do are going to be really in the front of the line versus maybe the back of the line of where people may think about it. From an overall revenue standpoint, it's -- we actually spend more on technology than we actually pay -- that we actually receive from a revenue standpoint just from a SaaS standpoint. So we actually see this as an opportunity for us. We spend a tremendous amount of third -- with third-party vendors from a technology standpoint. So we're actually hoping the use of AI with some of our current vendors and are there new entrants coming in. Our technology spend is expensive. And every year, year-over-year, it's actually a very expensive proposition with increasing pricing. We see this as a really interesting opportunity in order from an expense and cost standpoint to actually help the business. You asked the question, so what are we specifically doing? So over the last few years, we have a ventures group. Sneha Shah leads that. She's outstanding. The group is outstanding. We have been making investments in AI. Classic SEI, we try to -- we always historically try to build everything ourselves. This is not an area where you can build yourself, so you need to be partnering. We made an investment in TIFIN a number of years ago. That is not our solution. But getting closer in a front row seats to some of these AI platforms like TIFIN has really helped us tremendously. We've made investments around Data Cloud. That is part of our professional services. There are AI components inside our Data Cloud offering in professional services to PB. We announced an investment in of Avantos, so part of our ventures group, which is an AI-native organization, which is helping in form and we're embedding that into some of our platforms. So there is a lot of things that we're doing. Our legacy platform before SWP was actually built on COBOL in the '70s. And so no one has come by and tried to disrupt COBOL for the last 50 years. And so we believe the moat is there, but we're not also ignorant to the point that it can't happen. There are a lot of barriers to entry, specifically around regulatory environments. So we're keeping a close eye on it. But there's a number of other things from an AI standpoint that we are doing. We haven't announced it publicly yet. So I'm not going to necessarily do it today. But we -- even yesterday at 9:00 a.m. in our offices, we signed an SOW, a couple of weeks ago around automation for the organization. We are, as I mentioned, very labor-intensive. We have a tremendous amount of manual processes. So bringing in a well-known global third party to partner with us of thinking about how we can use automation and specifically AI on top of that automation, I think, is going to continue to help with margin improvement and really just kind of get our workforce leaner, so we can continue to make those other investments in things, not just AI, but all things investments, which would include AI. I know.

It's a lot.

It is a lot. It's a big question.

No, it's -- there's a lot going on, and it changes every day. Look, shifting gears again, one of the things I should have probably asked or talked about or asked about earlier is that SEIC over the last few years has been this company in transition, a lot of management coming in, including yourself. I want to talk about margins in a minute, but maybe before that, just -- can you just talk about how the company has changed? What this meant from a go-to-market strategy perspective, what it means financially, obviously? And to what degree do you think it's changed the perception of your company -- from clients?

Yes. When I joined 2 years ago, my anniversary is coming up here next month. And I guess when Ryan took over almost 4 years ago now, I think SEI had lost its mojo a bit. We were viewed more as a sleepy company. People weren't seeing us show up in the market like we are today, definitely like we were 10 years prior to a number of years ago. So I think under Ryan's leadership, bringing in kind of new ideas, new strategies, identifying all the broken windows, and we had a bunch of them. We had a lot of broken windows that we had to fix, including some of the ones we already spoke about. But I think -- and very trendy to say, but moving from a product organization to an enterprise solution, which we can -- which we have demonstrated and we talked about in Private Banking. Companies, clients, firm want to do more with less. They're not looking to add vendors, they're looking to consolidate vendors. And I think we've done a really, really good job of being that thought leader along with whether it's a large national bank, whether it is some of the largest fund managers in the world of moving from simply providing one administrative service to being a platform for the organization, we've been really successful. And it's honestly just the way we show up and think about the business differently. The old SEI of making excuses of why we're losing as opposed to where the opportunities lie, that has really been under Ryan's leadership, and he's changed that mindset. So I do think infusing outside-in talent, that's not to pat myself on the back. We have a lot of great outside new leaders, including Michael Lane, has just helped us rethink. If you've ever been to on-campus in Oaks, we have a beautiful campus in Oaks, Pennsylvania. It's huge. It's like a college campus. There is a [ PEP ] and everyone's step now. People are excited to be showing up where I think we -- maybe we lost that for a number of years. So it's really nothing more than how we're showing up, and I think the results are showing that.

Okay. Two more things to go through. Let's see if we can make it happen. I'm looking at the time. But I promise I will get to the margins. Nice level of improvement there, but it does seem like if I look at the number and where you were in the past, there's more to go. So maybe just quickly, what are you focused on in particular? How quickly do you think you can drive change? And then, of course, how do you balance that with investing as we talked about earlier?

Yes. So all right. So let's unpack this a little bit, and I know we have 3 minutes here. I mean I think last year, in '25, I think margins improved about 140 basis points, somewhere around there. So we're really proud of that. As you mentioned, we do have more room to go. And I made the comment at Investor Day that we're looking to improve year-over-year basis points by 25 to 50 basis points per year, which one of our analysts said that seems low. I'm not saying it's low or not, but I would say I try to be a little more conservative in some of the financials we give out. But we're doing a lot. And I mentioned the automation project. We talk a lot at the executive committee and at the Board level. As we scale revenue, if we have to scale heads, we failed. And so the automation project, how we're leveraging and laying in AI over top of it all is a big portion of where we're going to drive margin appreciation. So -- and as I walk around SEI, I just feel there's $1 million here, there's $1 million under you turn over every chair. There's just tons of opportunities where we are very manual intensive and the opportunity to get automated more and be able to scale is something we really haven't spent a lot of time focused on. So I think that's where it's going to be a portion where it comes from. And then just on -- and then anything from an asset management. If we can get investment product, asset management moving, some of those margins compared to our expenses, right, they can scale very, very quickly. So we are excited where the margins can move to.

Okay. Excellent. All right. With 1.5 minutes left, I obviously need to go into capital allocation. We did already talk about a few things there as well. But more recently, you've been active buyer of your stock, $600 million last year. You did the Stratos acquisition. So a, how do we think about buybacks going forward? And then, of course, where do you think the business could be complemented through M&A? And very quickly, how does leverage fit in? Because, quite frankly, you used a lot of cash for Stratos, but you had previously said you would also maybe tap the debt market. You didn't. I don't know why you didn't. So maybe talk about that for a second.

So we historically have been very conservative with our leverage. We historically have used that as a -- prior to me joining SEI. I think we use that as a badge of honor, and I think that the investor community would say maybe that's not the smartest strategy. So at Investor Day, we did talk about moving from a negative onetime to maybe getting to 0 to maybe 1 time in the future. We're not going to be doing acquisitions for acquisition's sake. We did state and we stand by this. We're looking to return 90% to 100% of free cash flow back to our shareholders. We are not afraid of debt. We -- I think you can expect when we're making future investments, I don't think that's necessarily in the terms of M&A. There may be some tuck-ins with the Stratos to continue to support that, as Jeff and others, and we want to continue to bring on new advisers. So I think there's an opportunity that's where we're going to leverage some of the debt. But I wouldn't expect us to go from negative onetime to onetime overnight.

And any particular areas in terms of M&A that you're spending time on?

Yes. When we -- I think it's going to be in the short term, it's going to be more to support the Stratos acquisition as opposed to anything else.

Okay. Very good. All right. Why don't we stop here. Thank you very much for all the insights and hope to have you back here in a year.

Yes. I appreciate it. Thank you. Thanks.