Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2023

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

Revenue from Contracts with Customers

The following tables present revenue disaggregated by segment on an adjusted operating basis with a reconciliation of segment revenues to those reported on the Consolidated Statements of Operations:

	Three Months Ended June 30, 2023
	Advice & Wealth Management		Asset Management		Retirement & Protection Solutions		Corporate & Other		Total Segments		Non-operating Revenue		Total
	(in millions)
Management and financial advice fees:
Asset management fees:
Retail	$	—	$	490	$	—	$	—	$	490	$	—	$	490
Institutional	—		157		—		—		157		—		157
Advisory fees	1,154		—		—		—		1,154		—		1,154
Financial planning fees	104		—		—		—		104		—		104
Transaction and other fees	96		48		14		—		158		—		158
Total management and financial advice fees	1,354		695		14		—		2,063		—		2,063
Distribution fees:
Mutual funds	179		51		—		—		230		—		230
Insurance and annuity	222		39		82		—		343		—		343
Off-balance sheet brokerage cash	84		—		—		—		84		—		84
Other products	84		—		—		—		84		—		84
Total distribution fees	569		90		82		—		741		—		741
Other revenues	59		7		—		—		66		—		66
Total revenue from contracts with customers	1,982		792		96		—		2,870		—		2,870
Revenue from other sources (1)	492		16		762		151		1,421		53		1,474
Total segment gross revenues	2,474		808		858		151		4,291		53		4,344
Banking and deposit interest expense	(131)		—		—		(3)		(134)		—		(134)
Total segment net revenues	2,343		808		858		148		4,157		53		4,210
Elimination of intersegment revenues	(211)		(19)		(104)		3		(331)		(3)		(334)
Total net revenues	$	2,132	$	789	$	754	$	151	$	3,826	$	50	$	3,876

	Three Months Ended June 30, 2022
	Advice & Wealth Management		Asset Management		Retirement & Protection Solutions		Corporate & Other		Total Segments		Non-operating Revenue		Total
	(in millions)
Management and financial advice fees:
Asset management fees:
Retail	$	—	$	543	$	—	$	—	$	543	$	—	$	543
Institutional	—		173		—		—		173		—		173
Advisory fees	1,144		—		—		—		1,144		—		1,144
Financial planning fees	99		—		—		—		99		—		99
Transaction and other fees	97		54		15		—		166		—		166
Total management and financial advice fees	1,340		770		15		—		2,125		—		2,125
Distribution fees:
Mutual funds	186		58		—		—		244		—		244
Insurance and annuity	216		42		88		—		346		—		346
Off-balance sheet brokerage cash (2)	54		—		—		—		54		—		54
Other products	86		—		—		—		86		—		86
Total distribution fees	542		100		88		—		730		—		730
Other revenues	54		1		—		—		55		—		55
Total revenue from contracts with customers	1,936		871		103		—		2,910		—		2,910
Revenue from other sources (1)	123		10		657		119		909		9		918
Total segment gross revenues	2,059		881		760		119		3,819		9		3,828
Banking and deposit interest expense	(3)		—		—		—		(3)		—		(3)
Total segment net revenues	2,056		881		760		119		3,816		9		3,825
Elimination of intersegment revenues	(221)		(11)		(105)		—		(337)		(2)		(339)
Total net revenues	$	1,835	$	870	$	655	$	119	$	3,479	$	7	$	3,486

	Six Months Ended June 30, 2023
	Advice & Wealth Management		Asset Management		Retirement & Protection Solutions		Corporate & Other		Total Segments		Non-operating Revenue		Total
	(in millions)
Management and financial advice fees:
Asset management fees:
Retail	$	—	$	981	$	—	$	—	$	981	$	—	$	981
Institutional	—		309		—		—		309		—		309
Advisory fees	2,263		—		—		—		2,263		—		2,263
Financial planning fees	205		—		—		—		205		—		205
Transaction and other fees	185		96		28		—		309		—		309
Total management and financial advice fees	2,653		1,386		28		—		4,067		—		4,067
Distribution fees:
Mutual funds	354		103		—		—		457		—		457
Insurance and annuity	433		77		162		—		672		—		672
Off-balance sheet brokerage cash	210		—		—		—		210		—		210
Other products	165		—		—		—		165		—		165
Total distribution fees	1,162		180		162		—		1,504		—		1,504
Other revenues	117		12		—		—		129		—		129
Total revenue from contracts with customers	3,932		1,578		190		—		5,700		—		5,700
Revenue from other sources (1)	910		29		1,492		281		2,712		100		2,812
Total segment gross revenues	4,842		1,607		1,682		281		8,412		100		8,512
Banking and deposit interest expense	(234)		—		—		(7)		(241)		—		(241)
Total segment net revenues	4,608		1,607		1,682		274		8,171		100		8,271
Elimination of intersegment revenues	(412)		(36)		(206)		7		(647)		(6)		(653)
Total net revenues	$	4,196	$	1,571	$	1,476	$	281	$	7,524	$	94	$	7,618

	Six Months Ended June 30, 2022
	Advice & Wealth Management		Asset Management		Retirement & Protection Solutions		Corporate & Other		Total Segments		Non-operating Revenue		Total
	(in millions)
Management and financial advice fees:
Asset management fees:
Retail	$	—	$	1,187	$	—	$	—	$	1,187	$	—	$	1,187
Institutional	—		368		—		—		368		—		368
Advisory fees	2,335		—		—		—		2,335		—		2,335
Financial planning fees	196		—		—		—		196		—		196
Transaction and other fees	189		109		31		—		329		—		329
Total management and financial advice fees	2,720		1,664		31		—		4,415		—		4,415
Distribution fees:
Mutual funds	390		123		—		—		513		—		513
Insurance and annuity	437		88		183		—		708		—		708
Off-balance sheet brokerage cash (2)	70		—		—		—		70		—		70
Other products	174		—		—		—		174		—		174
Total distribution fees	1,071		211		183		—		1,465		—		1,465
Other revenues	107		6		—		—		113		—		113
Total revenue from contracts with customers	3,898		1,881		214		—		5,993		—		5,993
Revenue from other sources (1)	205		17		1,314		235		1,771		46		1,817
Total segment gross revenues	4,103		1,898		1,528		235		7,764		46		7,810
Banking and deposit interest expense	(5)		—		—		—		(5)		—		(5)
Total segment net revenues	4,098		1,898		1,528		235		7,759		46		7,805
Elimination of intersegment revenues	(449)		(23)		(217)		—		(689)		(5)		(694)
Total net revenues	$	3,649	$	1,875	$	1,311	$	235	$	7,070	$	41	$	7,111

(1) Revenues not included in the scope of the revenue from contracts with customers standard. The amounts primarily consist of revenue associated with insurance and annuity products and investment income from financial instruments.

(2) Prior to the fourth quarter of 2022, Off-balance sheet brokerage cash was included in Other products. Prior periods have been updated to be comparative.

The following discussion describes the nature, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers on a consolidated basis.

Management and Financial Advice Fees

Asset Management Fees

The Company earns revenue for performing asset management services for retail and institutional clients. The revenue is earned based on a fixed or tiered rate applied, as a percentage, to assets under management. Assets under management vary with market fluctuations and client behavior. The asset management performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Asset management fees are accrued, invoiced and collected on a monthly or quarterly basis.

The Company’s asset management contracts for Open Ended Investment Companies (“OEICs”) in the United Kingdom (“U.K.”) and Société d'Investissement à Capital Variable (“SICAVs”) in Europe include performance obligations for asset management and fund distribution services. The amounts received for these services are reported as Management and financial advice fees. The revenue recognition pattern is the same for both performance obligations as the fund distribution services revenue is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment) and not recognized until assets under management are known.

The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property and other funds based on a percentage of account returns in excess of either a benchmark index or a contractually specified level. This revenue is variable and impacted primarily by the performance of the assets being managed compared to the benchmark index or contractually specified level. The revenue is not recognized until it is probable that a significant reversal will not occur. Performance-based management fees are invoiced on a quarterly or annual basis.

Advisory Fees

The Company earns revenue for performing investment advisory services for certain brokerage customer’s discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value

of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are billed on a monthly basis on the prior month end assets.

Financial Planning Fees

The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly) based on a contractual fixed rate applied, as a percentage, to the prior month end assets held in a client’s investment advisory account. The financial planning fee is based on the complexity of a client’s financial and life situation and his or her advisor’s experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual contract period.

For fixed fee arrangements, revenue is recognized when the financial plan is delivered. The Company accrues revenue for any amounts that have not been received at the time the financial plan is delivered.

For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company’s control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month end as the advisory account balance uncertainty is resolved.

Contract liabilities for financial planning fees, which are included in Other liabilities, were $155 million and $160 million as of June 30, 2023 and December 31, 2022, respectively.

The Company pays sales commissions to advisors when a new financial planning contract is obtained or when an existing contract is renewed. The sales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a customer and are initially capitalized. When the performance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in Other assets and were $125 million and $129 million as of June 30, 2023 and December 31, 2022, respectively.

Transaction and Other Fees

The Company earns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to assets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue is earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a quarterly or annual fixed fee for each account. Each of the customer support and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to brokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. Contract liabilities for custodial service fees, which are included in Other liabilities, were $26 million and nil as of June 30, 2023 and December 31, 2022, respectively.

The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.

Distribution Fees

Mutual Funds and Insurance and Annuity Products

The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). This ongoing revenue may be recognized for many years after the initial sale. The revenue will not be recognized until it is probable that a significant reversal will not occur.

The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company’s advisors or to support availability and distribution of their products on the Company’s platforms. These payments allow the outside parties to train and support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and

operational systems necessary to enable the Company’s client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies’ products on the Company’s sales platform (subject to the Company’s due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.

Off-Balance Sheet Brokerage Cash

The Company earns revenue for placing clients’ deposits in its brokerage sweep program with third-party banks. The amount received from the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.

Other Products

The Company earns revenue for selling unaffiliated alternative products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur.

The Company earns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that include the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted).

Other Revenues

The Company earns revenue from fees charged to franchise advisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees received from the advisors. The fees are primarily collected monthly as a reduction of commission payments.

Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested.

Contract Costs Asset

The Company has an asset of $29 million and $33 million as of June 30, 2023 and December 31, 2022, respectively, related to the transition of investment advisory services under an arrangement with BMO Financial Group for clients that elected to transfer U.S. retail and institutional assets to the Company.

Receivables

Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $493 million and $537 million as of June 30, 2023 and December 31, 2022, respectively.