Contract revenue

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Contract revenue

Contract revenueFee 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
	Sept. 30, 2020								June 30, 2020								Sept. 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	$	1,143	$	25	$	(13)	$	1,155	$	1,147	$	25	$	(15)	$	1,157	$	1,106	$	20	$	(5)	$	1,121
Clearing services fees	397		—		—		397		431		—		—		431		419		—		—		419
Issuer services fees	296		—		—		296		277		—		—		277		324		—		—		324
Treasury services fees	153		1		(2)		152		144		—		1		145		140		—		—		140
Total investment services fees	1,989		26		(15)		2,000		1,999		25		(14)		2,010		1,989		20		(5)		2,004
Investment management and performance fees	4		838		(3)		839		4		792		(5)		791		4		829		(4)		829
Financing-related fees	13		1		1		15		23		1		—		24		14		—		—		14
Distribution and servicing	(2)		31		—		29		(7)		34		—		27		(12)		45		—		33
Investment and other income	57		(33)		(2)		22		62		(41)		3		24		72		(50)		—		22
Total fee revenue - contract revenue	2,061		863		(19)		2,905		2,081		811		(16)		2,876		2,067		844		(9)		2,902
Fee and other revenue - not in scope of Accounting Standards Codification (“ASC”) 606 (b)(c)	185		8		39		232		258		27		54		339		229		(6)		3		226
Total fee and other revenue (loss)	$	2,246	$	871	$	20	$	3,137	$	2,339	$	838	$	38	$	3,215	$	2,296	$	838	$	(6)	$	3,128

(a)    Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate. See Note 19 for additional information related to the reclassifications.

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

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

IS - Investment Services business segment.

IWM - Investment and Wealth Management business segment.

Disaggregation of contract revenue by business segment	Year-to-date
	Sept. 30, 2020								Sept. 30, 2019 (a)
(in millions)	IS		IWM		Other		Total		IS		IWM		Other		Total
Fee revenue - contract revenue:
Investment services fees:
Asset servicing fees	$	3,417	$	73	$	(39)	$	3,451	$	3,282	$	60	$	(19)	$	3,323
Clearing services fees	1,298		—		—		1,298		1,228		—		(1)		1,227
Issuer services fees	836		—		—		836		866		—		—		866
Treasury services fees	446		1		(1)		446		412		1		—		413
Total investment services fees	5,997		74		(40)		6,031		5,788		61		(20)		5,829
Investment management and performance fees	13		2,492		(12)		2,493		12		2,503		(12)		2,503
Financing-related fees	64		2		1		67		47		—		1		48
Distribution and servicing	(21)		108		—		87		(39)		134		—		95
Investment and other income	191		(124)		1		68		210		(147)		—		63
Total fee revenue - contract revenue	6,244		2,552		(50)		8,746		6,018		2,551		(31)		8,538
Fee and other revenue - not in scope of ASC 606 (b)(c)	777		3		138		918		672		10		74		756
Total fee and other revenue	$	7,021	$	2,555	$	88	$	9,664	$	6,690	$	2,561	$	43	$	9,294

(a)    Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate. See Note 19 for additional information related to the reclassifications.

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

(c)    The Investment and Wealth Management business segment includes income from consolidated investment management funds, net of noncontrolling interests, of $39 million in the first nine months of 2020 and $22 million in the first nine months of 2019.

IS - Investment Services business segment.

IWM - Investment and Wealth Management business segment.

Contract balances

Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.5 billion at Sept. 30, 2020 and $2.4 billion at 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 $57 million at Sept. 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 $187 million at Sept. 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 third quarter of 2020 relating to contract liabilities as of June 30, 2020 was $65 million. Revenue recognized in the first nine months of 2020 relating to contract liabilities as of Dec. 31, 2019 was $95 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 $77 million at Sept. 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 $6 million in the third quarter of 2020, $7 million in the third quarter of 2019, $5 million in the second quarter of 2020, $16 million in the first nine months of 2020 and $17 million in the first nine 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 $12 million at Sept. 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 professional, legal and other purchased services and other expenses on the consolidated income statement and totaled $1 million in the third quarter of 2020 and third quarter of 2019, $2 million in the second quarter of 2020 and $4 million in the first nine months of 2020 and first nine months of 2019. There were no impairments recorded on capitalized contract costs in the first nine 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.