Canva | GeorgePeters from Getty Images Signature and 77DZIGN from Getty Images Signature Key Points 401(k) plans typically do not allow individual stocks. This limits the ability to beat market returns. Early withdrawal penalties apply before age 59.5. Exceptions exist if you leave your employer at 55 or later. Direct rollovers avoid penalties better than indirect rollovers when changing jobs. If you’re thinking about retiring or know someone who is, there are three quick questions causing many Am ...

Summary of State Street's Conference Call Company Overview - **Company**: State Street - **Industry**: Asset servicing and asset management - **Assets**: Approximately $52 trillion in assets under custody and administration, and $5.5 trillion in assets under management [1][1] Key Points and Arguments 2026 Strategic Priorities - **Financial Delivery**: Emphasis on meeting financial commitments and expectations [3][3] - **Balance Sheet Optimization**: Focus on improving efficiency and growing Net Interest Income (NII) over time [4][4] - **Expense Management**: Continued efforts to manage expenses and enhance productivity [5][5] - **Partnerships**: Collaborating with business leaders to drive strategic initiatives [5][5] Fee Revenue and Sales Momentum - **Investment Servicing Growth**: Anticipated fee growth of $350-$400 million, with a strong sales momentum [7][7] - **Backlog Quality**: Improvement in the backlog, particularly in back office and private markets, which are expected to drive future growth [11][11] Private Markets - **Growth Area**: Significant focus on private markets, with expectations of double-digit growth in fees for 2026 [13][13][14][14] - **Competitive Advantage**: State Street's global platform and capabilities provide a competitive edge in the fragmented private market space [13][13] Wealth Servicing - **Strategic Partnerships**: Recent partnerships with UC Investments and Apex Fintech Solutions to enhance wealth servicing capabilities [15][15][18][18] - **Market Opportunity**: Positioned to capture growth from the demographic shift and wealth transfer from Baby Boomers [16][16] Digital Assets - **Digital Asset Platform**: Launching a digital asset platform imminently, with plans to introduce tokenized products, starting with a tokenized money market fund [20][20][21][21] - **Future Opportunities**: Exploring the potential for custody of stablecoins and tokenization of traditional assets [22][22][24][24] Investment Management - **Growth Contributors**: Focus on ETFs, geographic expansion, and partnerships with alternative asset managers [28][28][30][30] - **Private Market Initiatives**: Launching new products in collaboration with Apollo and Bridgewater, and focusing on the secondary market with Coller [32][32][34][34] Financial Performance and Outlook - **Q4 Expectations**: Anticipated fee revenue to be at the upper end of the 8.5%-9% range, with NII expected to be flat to slightly up [36][36][38][38] - **Expense Management**: Projected expenses to approach 5%, with notable items around $275 million for the quarter [39][39][41][41] - **Capital Returns**: Expecting around 80% capital return in 2025, with a focus on dividends, organic growth, and strategic investments [57][57][59][59] Balance Sheet and NII Strategy - **Balance Sheet Optimization**: Focus on deploying capital into strong customer relationships and improving risk-adjusted returns [46][46][48][48] - **Funding Mix**: Evaluating the mix of deposits and wholesale funding to enhance NII [51][51][53][53] Conclusion - **Long-term Growth Outlook**: State Street is well-positioned for growth in various segments, including private markets, wealth servicing, and digital assets, with a strong focus on operational efficiency and strategic partnerships [63][63]

Financial Data and Key Metrics Changes - The company generated adjusted operating earnings per share of $2.46 in the second quarter, a 13% increase over the prior year [13] - Net income was impacted by investment losses and severance expenses, with $18 million incurred in severance expenses during the quarter [14] - The company added approximately $200 million of excess capital in the quarter, totaling approximately $400 million year to date [14][22] Business Line Data and Key Metrics Changes - Retirement segment generated $235 million of adjusted operating earnings in the quarter, representing a 1019% increase over the prior year [15][16] - Investment Management achieved adjusted operating earnings of $51 million for the quarter, a 2% increase year over year [18] - Employee Benefits reported adjusted operating earnings of $69 million in the quarter, up 15% over the prior year [20] Market Data and Key Metrics Changes - The company surpassed $1 trillion in total assets across retirement and investment management businesses, with nearly 10 million participant accounts in retirement [9] - Total defined contribution net inflows reached approximately $12 billion in the second quarter, bringing year-to-date net flows to over $40 billion [9][17] - Investment Management generated approximately $2 billion in net flows in the second quarter, contributing to nearly $10 billion year-to-date [10][19] Company Strategy and Development Direction - The company is focused on driving strong organic growth in retirement and investment management, successfully integrating OneAmerica, and improving margins in employee benefits [25] - A partnership with Blue Owl Capital aims to expand access to private market investments, enhancing retirement offerings [11][46] - The company plans to resume share repurchases targeting $200 million in the second half of the year [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth opportunities ahead, emphasizing a disciplined approach to margin improvement over growth [13][34] - The company is focused on executing near-term priorities while generating consistent strong free cash flows [24] - Management acknowledged uncertainties in the healthcare industry but remains committed to prudent actions regarding reserves and pricing [31][59] Other Important Information - The company has returned over $40 million of capital to shareholders via common stock dividends [22] - The integration of OneAmerica is on track, with a target of $75 million in operating earnings for the year [11] - The company is enhancing its lead management capabilities in employee benefits to strengthen its competitive position [12] Q&A Session Summary Question: Insights on Stop Loss business and future expectations - Management indicated that stop loss remains a high priority, with a focus on prudent actions across reserves, pricing, and risk selection [30] - The targeted loss ratio for the January 2024 cohort was reduced from 93% to 91% based on claims experience [30] Question: Capital return expectations and OneAmerica impact - Management confirmed plans for $200 million in share repurchases in the second half of the year, while addressing the capital needs related to OneAmerica [36] Question: Blue Owl partnership and its implications - The partnership is expected to expand access to private investments and enhance product offerings for retirement plan participants [46][47] Question: Medical stop loss and risk selection - Management acknowledged the uncertainty in the healthcare landscape but remains focused on disciplined pricing and risk selection [59][61] Question: Voluntary benefits business and premium decline - Management noted that while voluntary premiums are declining, the overall strategy is to bundle solutions to drive member engagement and retention [71][72]

Financial Data and Key Metrics Changes - The adjusted diluted earnings per share for Q2 2025 was $2.24, consistent with Q1 2025's $2.23 and slightly down from Q2 2024's $2.26 [15] - The company reported $14.9 billion in net outflows, similar to the previous quarter, primarily driven by U.S. equities [15][16] - Adjusted net revenue for Q2 2025 was $1.76 billion, flat compared to Q2 2024 and down marginally from Q1 2025 [20] - Adjusted operating expenses for Q2 2025 were slightly over $1.1 billion, up 1% from Q1 2025 and up 3.7% from Q2 2024 [20][21] Business Line Data and Key Metrics Changes - Positive net flows were observed across fixed income, multi-asset, and alternatives, with $2.5 billion in net flows into ETFs [16][11] - The target date suite surpassed $520 billion in assets under management, maintaining top quartile performance over three, five, and ten-year periods [11][12] - Fixed income performance remained strong, with a majority of funds beating peer group medians across all time horizons [10] Market Data and Key Metrics Changes - The company experienced a challenging quarter due to equity market volatility, with average equity AUM down 5% and overall average AUM down 2% from Q1 2025 [19] - The ETF franchise reached $16.2 billion in AUM as of June 30, with 11 ETFs scaling over $500 million [12] - The retirement solutions segment saw inflows of $1.7 billion in the second quarter, marking the sixth consecutive quarter of positive net flows in fixed income [49] Company Strategy and Development Direction - The company is focused on reducing expense growth while investing in capabilities and client reach, aiming for efficiency to fund future investments [6][21] - There is a strong emphasis on enhancing retirement solutions and exploring the integration of private assets into defined contribution plans [27][29] - The company is expanding its ETF product line and private market alternatives, with plans to launch additional diversified equity ETFs [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged short-term headwinds but expressed confidence in the company's positioning to capitalize on future opportunities [6] - The company is optimistic about the potential for private investments in defined contribution plans, pending regulatory clarity [29] - Management expects outflows to continue in the second half of the year but anticipates lower levels than the first half [49] Other Important Information - The company has implemented a multi-year plan to align expense growth with anticipated revenue growth, targeting low single-digit growth in non-market driven expenses [21] - The balance sheet remains strong with $3.8 billion in cash and discretionary investments, and the company returned over $395 million to shareholders in 2025 [22][23] Q&A Session Summary Question: Update on the 401(k) business and potential for private markets - Management emphasized a client-first approach and the potential for integrating private assets into retirement solutions, with ongoing evaluations of product design and commercial viability [27][29] Question: Insights on expense initiatives and technology advancements - Management discussed a multi-year plan focused on efficiency and leveraging technology, including AI, to drive productivity and cost savings [35][36] Question: Analysis of retirement channel flows and fee rates - Management noted that the majority of flows in defined contribution have shifted towards target date funds, with less churn in retirement accounts compared to standalone strategies [50][51] Question: Impact of model delivery on AUM and growth pipeline - Management explained the decision to include model delivery assets in AUM, highlighting the growth potential and the importance of delivering value to clients [79][81] Question: Opportunities in blockchain and tokenization - Management expressed interest in digital asset investing and the potential for active management to play a role as the regulatory landscape evolves [75][76]

Financial Data and Key Metrics Changes - The adjusted diluted earnings per share for Q2 2025 was $2.24, consistent with Q1 2025's $2.23 and slightly down from Q2 2024's $2.26 [15] - The company reported $14.9 billion in net outflows, similar to the previous quarter, primarily driven by U.S. equities [15][16] - Adjusted net revenue for Q2 2025 was $1.76 billion, flat compared to Q2 2024 and down marginally from Q1 2025 [19] - Adjusted operating expenses for Q2 2025 were just over $1.1 billion, up 1% from Q1 2025 and up 3.7% from Q2 2024 [20] Business Line Data and Key Metrics Changes - Positive net flows were observed across fixed income, multi-asset, and alternatives, with $2.5 billion in net flows into ETFs [16][11] - The target date suite surpassed $520 billion in assets under management, maintaining top quartile performance over three, five, and ten-year periods [11] - Fixed income performance remained strong, with a majority of funds beating peer group medians across all time horizons [9] Market Data and Key Metrics Changes - The company experienced a challenging quarter due to equity market volatility, with average equity AUM down 5% and overall average AUM down 2% from Q1 2025 [18] - The ETF franchise reached $16.2 billion in AUM as of June 30, 2025, with significant inflows in the first half of the year [12] Company Strategy and Development Direction - The company is focused on reducing expense growth while investing in capabilities and client reach, aiming for efficiency to fund future investments [6][21] - There is a strong emphasis on expanding the ETF business and enhancing retirement solutions, with plans to integrate private assets into defined contribution plans [28][31] - The company is evaluating its global real estate footprint to optimize space usage and control occupancy expenses [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged short-term headwinds but expressed confidence in the company's positioning to capitalize on future opportunities [6] - The outlook for the second half of the year suggests lower outflows compared to the first half, with expectations of continued growth in retirement solutions and fixed income [49] Other Important Information - The company returned over $395 million to shareholders in 2025, including $286 million for dividends and $109 million in share buybacks [22] - The company is actively exploring partnerships and acquisitions to enhance capabilities and reach new clients, particularly in the retirement space [86][89] Q&A Session Summary Question: Update on the 401(k) business and potential for private markets - Management emphasized a client-first approach and the potential for integrating private assets into retirement solutions, awaiting regulatory clarity [28][30] Question: Insights on expense initiatives and technology advancements - Management discussed a multi-year plan to drive efficiencies and the potential of AI to enhance productivity and investment solutions [35][39] Question: Analysis of equity outflows and retirement channel performance - Management noted elevated outflows in equity but highlighted strong inflows in retirement date funds and fixed income, indicating progress beneath the surface [48][50] Question: Impact of growing ETF pipeline and potential cannibalization - Management indicated that growth in ETFs is a mix of new investors and some cannibalization from legacy funds, with a focus on reaching new clients [65][70] Question: Opportunities in blockchain and tokenization - Management expressed interest in digital asset investing and the potential for active management to play a role as regulatory clarity improves [72][76] Question: Model delivery and its impact on AUM - Management explained the decision to include model delivery in AUM, highlighting its growth and the importance of delivering value to clients [77][81]