Contract revenue

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Contract revenue

Contract revenueFee and other 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 2020 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 2020 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 and other revenue on the consolidated income statement. The following table presents fee and other revenue, disaggregated by type, related to contracts with customers for each business segment. Business segment data has been determined on an internal management basis of accounting, rather than GAAP, which is used for consolidated financial reporting.

Disaggregation of contract revenue by business segment
	Quarter ended
	Sept. 30, 2021								June 30, 2021								Sept. 30, 2020
(in millions)	IS		IWM		Other		Total		IS		IWM		Other		Total		IS		IWM		Other		Total
Fee and other revenue – contract revenue:
Investment services fees:
Asset servicing fees	$	1,199	$	25	$	(17)	$	1,207	$	1,175	$	24	$	(16)	$	1,183	$	1,143	$	25	$	(13)	$	1,155
Clearing services fees	423		—		—		423		435		—		—		435		397		—		—		397
Issuer services fees	280		—		—		280		281		—		—		281		296		—		—		296
Treasury services fees	168		1		—		169		164		—		(1)		163		153		1		(2)		152
Total investment services fees	2,070		26		(17)		2,079		2,055		24		(17)		2,062		1,989		26		(15)		2,000
Investment management and performance fees	5		901		(6)		900		4		870		(4)		870		4		838		(3)		839
Financing-related fees	16		—		—		16		16		—		—		16		13		1		1		15
Distribution and servicing	(1)		28		1		28		—		28		(1)		27		(2)		31		—		29
Investment and other income	38		(10)		—		28		32		(7)		—		25		57		(33)		(2)		22
Total fee and other revenue – contract revenue	2,128		945		(22)		3,051		2,107		915		(22)		3,000		2,061		863		(19)		2,905
Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b)	250		40		57		347		229		37		44		310		185		8		39		232
Total fee and other revenue	$	2,378	$	985	$	35	$	3,398	$	2,336	$	952	$	22	$	3,310	$	2,246	$	871	$	20	$	3,137

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

(b)    The revenue in the Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $(4) million in the third quarter of 2021, $5 million in the second quarter of 2021 and $7 million in the third quarter of 2020.

IS – Investment Services business segment.

IWM – Investment and Wealth Management business segment.

Disaggregation of contract revenue by business segment
	Year-to-date
	Sept. 30, 2021								Sept. 30, 2020
(in millions)	IS		IWM		Other		Total		IS		IWM		Other		Total
Fee and other revenue – contract revenue:
Investment services fees:
Asset servicing fees	$	3,549	$	74	$	(51)	$	3,572	$	3,417	$	73	$	(39)	$	3,451
Clearing services fees	1,313		—		—		1,313		1,298		—		—		1,298
Issuer services fees	806		—		—		806		836		—		—		836
Treasury services fees	491		1		—		492		446		1		(1)		446
Total investment services fees	6,159		75		(51)		6,183		5,997		74		(40)		6,031
Investment management and performance fees	13		2,654		(15)		2,652		13		2,492		(12)		2,493
Financing-related fees	52		—		—		52		64		2		1		67
Distribution and servicing	—		84		—		84		(21)		108		—		87
Investment and other income	106		(28)		—		78		191		(124)		1		68
Total fee and other revenue – contract revenue	6,330		2,785		(66)		9,049		6,244		2,552		(50)		8,746
Fee and other revenue – not in scope of ASC 606 (a)(b)	729		95		96		920		777		3		138		918
Total fee and other revenue	$	7,059	$	2,880	$	30	$	9,969	$	7,021	$	2,555	$	88	$	9,664

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

(b)    The revenue in the Investment and Wealth Management business segment is net of income attributable to noncontrolling interests related to consolidated investment management funds of $6 million in the first nine months of 2021 and $4 million in the first nine months of 2020.

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, 2021 and $2.4 billion at Dec. 31, 2020.

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 $108 million at Sept. 30, 2021 and $32 million at Dec. 31, 2020. 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 $185 million at Sept. 30, 2021 and $167 million at Dec. 31, 2020. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the third quarter of 2021 relating to contract liabilities as of June 30, 2021 was $68 million. Revenue recognized in the first nine months of 2021 relating to contract liabilities as of Dec. 31, 2020 was $101 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 $62 million at Sept. 30, 2021 and $73 million at Dec. 31, 2020. 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 third quarter of 2021, $6 million in the third quarter of 2020, $5 million in the second quarter of 2021, $15 million in the first nine months of 2021 and $16 million in the first nine months of 2020.

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 $19 million at Sept. 30, 2021 and $15 million at Dec. 31, 2020. 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 less than $1 million in the third quarter of 2021, $1 million in the third quarter of 2020, less than $1 million in the second quarter of 2021, $1 million in the first nine months of 2021 and $4 million 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.