Contract revenue

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Contract revenue

Contract revenue

Fee revenue in Investment Services and Investment and Wealth Management is primarily variable, based on levels of assets under custody and/or administration, assets under management and the level of client-driven transactions, as specified in fee schedules. See Note 10 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for information on the nature of our services and revenue recognition. See Note 24 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for additional information on our principal businesses, Investment

Services and Investment and Wealth Management, and the primary services provided.

Disaggregation of contract revenue

Contract revenue is included in fee revenue on the consolidated income statement. The following table presents fee revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment. Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting.

Disaggregation of contract revenue by business segment
	Quarter ended
	June 30, 2020											March 31, 2020											June 30, 2019 (a)
(in millions)	IS			IWM			Other			Total		IS			IWM			Other			Total		IS			IWM			Other			Total
Fee revenue - contract revenue:
Investment services fees:
Asset servicing fees	$	1,147		$	25		$	(15	)	$	1,157	$	1,127		$	23		$	(11	)	$	1,139	$	1,095		$	20		$	(6	)	$	1,109
Clearing services fees	431			—			—			431		470			—			—			470		411			—			(1		)	410
Issuer services fees	277			—			—			277		263			—			—			263		291			—			—			291
Treasury services fees	144			—			1			145		149			—			—			149		140			1			—			141
Total investment services fees	1,999			25			(14		)	2,010		2,009			23			(11		)	2,021		1,937			21			(7		)	1,951
Investment management and performance fees	4			792			(5		)	791		5			862			(4		)	863		4			833			(4		)	833
Financing-related fees	23			1			—			24		28			—			—			28		16			—			1			17
Distribution and servicing	(7		)	34			—			27		(12		)	43			—			31		(13		)	44			—			31
Investment and other income	62			(41		)	3			24		72			(50		)	—			22		69			(48		)	—			21
Total fee revenue - contract revenue	2,081			811			(16		)	2,876		2,102			878			(15		)	2,965		2,013			850			(10		)	2,853
Fee and other revenue - not in scope of Accounting Standards Codification (“ASC”) 606 (b)(c)	258			27			54			339		334			(32		)	45			347		220			4			41			265
Total fee and other revenue	$	2,339		$	838		$	38		$	3,215	$	2,436		$	846		$	30		$	3,312	$	2,233		$	854		$	31		$	3,118

(a) Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate.

(b) Primarily includes foreign exchange and other trading revenue, investment and other income (loss), financing-related fees, asset servicing fees, net securities gains (losses), all of which are accounted for using other accounting guidance.

(c) The Investment and Wealth Management business includes income (loss) from consolidated investment management funds, net of noncontrolling interests, of $39 million in the second quarter of 2020, $(20) million in the first quarter of 2020 and $6 million in the second quarter of 2019.

IS - Investment Services segment.

IWM - Investment and Wealth Management segment.

Disaggregation of contract revenue by business segment	Year-to-date
	June 30, 2020											June 30, 2019 (a)
(in millions)	IS			IWM			Other			Total		IS			IWM			Other			Total
Fee revenue - contract revenue:
Investment services fees:
Asset servicing fees	$	2,274		$	48		$	(26	)	$	2,296	$	2,176		$	40		$	(14	)	$	2,202
Clearing services fees	901			—			—			901		809			—			(1		)	808
Issuer services fees	540			—			—			540		542			—			—			542
Treasury services fees	293			—			1			294		272			1			—			273
Total investment services fees	4,008			48			(25		)	4,031		3,799			41			(15		)	3,825
Investment management and performance fees	9			1,654			(9		)	1,654		8			1,674			(8		)	1,674
Financing-related fees	51			1			—			52		33			—			1			34
Distribution and servicing	(19		)	77			—			58		(27		)	89			—			62
Investment and other income	134			(91		)	3			46		138			(97		)	—			41
Total fee revenue - contract revenue	4,183			1,689			(31		)	5,841		3,951			1,707			(22		)	5,636
Fee and other revenue - not in scope of ASC 606 (b)(c)	592			(5		)	99			686		443			16			71			530
Total fee and other revenue	$	4,775		$	1,684		$	68		$	6,527	$	4,394		$	1,723		$	49		$	6,166

(a) Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate.

(b) Primarily includes foreign exchange and other trading revenue, investment and other income (loss), financing-related fees, asset servicing fees, net securities gains (losses), all of which are accounted for using other accounting guidance.

(c) The Investment and Wealth Management business includes income from consolidated investment management funds, net of noncontrolling interests, of $19 million in the first six months of 2020 and $22 million in the first six months of 2019.

IS - Investment Services segment.

IWM - Investment and Wealth Management segment.

Contract balances

Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.4 billion at both June 30, 2020 and Dec. 31, 2019.

Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time and were $69 million at June 30, 2020 and $32 million at Dec. 31, 2019. Accrued revenues recorded as contract assets are usually billed on an annual basis.

Both receivables from customers and contract assets are included in other assets on the consolidated balance sheet.

Contract liabilities represent payments received in advance of providing services under certain contracts and were $195 million at June 30, 2020 and $168 million at Dec. 31, 2019. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the second quarter of 2020 relating to contract liabilities as of March 31, 2020 was $58 million. Revenue recognized in the first six months of 2020 relating to contract liabilities as of Dec. 31, 2019 was $78 million.

Changes in contract assets and liabilities primarily relate to either party’s performance under the contracts.

Contract costs

Incremental costs for obtaining contracts that are deemed recoverable are capitalized as contract costs. Such costs result from the payment of sales incentives, primarily in the Wealth Management business, and totaled $80 million at June 30, 2020 and $86 million at Dec. 31, 2019. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate and typically average nine years. The amortization of capitalized sales incentives, which is primarily included in staff expense on the consolidated income statement, totaled $5 million in the second quarter of 2020, second quarter of 2019 and first quarter of 2020 and $10 million in both the first six months of 2020 and first six months of 2019.

Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent set-up costs, which include any direct cost incurred at the inception of a contract which enables the fulfillment of the performance obligation, and totaled

$14 million at June 30, 2020 and $16 million at Dec. 31, 2019. These capitalized costs are amortized on a straight-line basis over the expected contract period, which generally ranges from seven to nine years. The amortization is included in other expense on the consolidated income statement and totaled $2 million in the second quarter of 2020 and second quarter of 2019, $1 million in the first quarter of 2020 and $3 million in the first six months of 2020 and first six months of 2019. There were no impairments recorded on capitalized contract costs in the first six months of 2020.

Unsatisfied performance obligations

We do not have any unsatisfied performance obligations other than those that are subject to a practical expedient election under ASC 606, Revenue From Contracts With Customers. The practical expedient election applies to (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.