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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
   ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number 000-32191
T. ROWE PRICE GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-2264646
State of incorporation IRS Employer Identification No. 
100 East Pratt Street, Baltimore, Maryland 21202
Address, including zip code, of principal executive offices
(410345-2000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common stock, $.20 par value per shareTROWThe NASDAQ Stock Market LLC
(Title of class)(Ticker symbol)(Name of exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes      No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes      No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months.      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer (do not check if smaller reporting company)
Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).      Yes      No
The aggregate market value of the common equity (all voting) held by non-affiliates (excludes executive officers and directors) computed using $123.50 per share (the NASDAQ Official Closing Price on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter) was $27.8 billion.
The number of shares outstanding of the registrant's common stock as of the latest practicable date, February 8, 2021, is 227,946,081.
DOCUMENTS INCORPORATED BY REFERENCE: In Part III, the Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A.
Exhibit index begins on page 84.


Table of Contents                    
  
 PAGE
ITEM 1.
Business
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM.
Information about our Executive Officers
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.Form 10-K Summary

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PART I

Item 1.Business.

T. Rowe Price Group, Inc. is a financial services holding company that provides global investment management services through its subsidiaries to investors worldwide. We provide an array of U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T. Rowe Price products. The other
T. Rowe Price products include: open-ended investment products offered to investors outside the U.S. and products offered through variable annuity life insurance plans in the U.S. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery. We are focused on delivering global investment management excellence to help clients around the world achieve their long-term investment goals.

The late Thomas Rowe Price, Jr., founded our firm in 1937, and the common stock of T. Rowe Price Associates, Inc. was first offered to the public in 1986. The T. Rowe Price Group, Inc. corporate holding company structure was established in 2000.

Our core capabilities have enabled us to deliver excellent operating results since our initial public offering. We maintain a strong corporate culture that is focused on delivering strong long-term investment performance and world-class service to our clients. We distribute our broad array of active investment strategies through a diverse set of distribution channels and vehicles to meet the needs of our clients globally. Our ongoing financial strength and discipline has allowed us to take advantage of attractive growth opportunities and invest in key capabilities. Our investments have been focused on increasing our investment professional headcount globally, expanding our product offerings, expanding our global distribution footprint to strengthen our regional relationships and brand, and investing in new technology and the core infrastructure of the firm.

The industry in which we operate has been evolving quickly and a number of headwinds have arisen over the last few years, including passive investments taking market share from traditional active strategies; continued downward fee pressure; demand for new investment vehicles to meet client needs; capacity challenges with some of our mutual funds and portfolios and an ever-changing regulatory landscape.

Despite the headwinds, we believe there are significant opportunities that align to our core capabilities. As such, we have been responding with several multi-year initiatives that are designed to strengthen our long-term competitive position and to:

Maintain our position as a premier active asset manager, delivering durable value to clients.
Build T. Rowe Price into a more globally diversified asset manager.
Extend and leverage our retirement expertise globally while becoming an ever more integrated investment solutions provider.
Embed best practices for sustainability and environmental, social and corporate governance throughout the company.
Maintain strong processes and controls, which is increasingly important with growing business complexity and regulation.
Remain a destination of choice for top talent, with a culture of diversity, inclusivity, empowerment, accountability and collaboration.
Deliver attractive financial results and balance sheet strength for our stockholders over the long term.

Financial Overview / Assets Under Management

We derive the vast majority of our consolidated net revenues and net income from investment advisory services provided by our subsidiaries, primarily T. Rowe Price Associates and T. Rowe Price International Ltd. In November 2020, we announced our plan to establish T. Rowe Price Investment Management, a separate SEC-registered investment advisor, to support our continued focus on generating strong investment results for clients. T. Rowe Price Investment Management is anticipated to begin operations in the second half of 2022.

Our revenues depend largely on the total value and composition of our assets under management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.
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At December 31, 2020, we had $1,470.5 billion in assets under management, including $794.6 billion in U.S. mutual funds, $400.1 billion in subadvised funds and separately managed accounts, and $275.8 billion in collective investment trusts, and other T. Rowe Price products. Assets under management increased $263.7 billion from the end of 2019. This increase was driven by market appreciation and income, net of distributions not reinvested, of $256.9 billion and net cash inflows of $5.6 billion for 2020. In addition, we acquired client contracts from PNC Bank during 2020 that added $1.2 billion of stable value assets under management.

The following tables show our assets under management by vehicle, asset class, distribution channel, and account type:
(in billions)20202019
Assets under management by vehicle
U.S. mutual funds$794.6 $682.7 
Subadvised and separately managed accounts400.1 313.8 
T. Rowe Price collective investment trusts and other sponsored investment products:
  Collective investment trusts199.6 158.7 
  Stable value, variable annuity products, and exchange-traded funds28.0 21.4 
  SICAVs and other sponsored funds regulated outside the U.S.48.2 30.2 
Total T. Rowe Price collective investment trusts and other sponsored investment products275.8 210.3 
Total assets under management$1,470.5 $1,206.8 
Assets under management by asset class
Equity$895.8 $698.9 
Fixed income, including money market168.7 147.9 
Multi-Asset(1)
406.0 360.0 
Total assets under management$1,470.5 $1,206.8 
Assets under management by distribution channel
Global financial intermediaries(2)
$765.4 $623.0 
Global institutions(2)(3)
335.9 265.4 
Individual U.S. investors on a direct basis221.7 190.7 
U.S. retirement plan sponsors - full service recordkeeping147.5 127.7 
Total assets under management$1,470.5 $1,206.8 
Assets under management by account type
Defined contribution retirement assets:
Defined contribution - investment only$614.0 $510.6 
Defined contribution - full-service recordkeeping 136.0 121.0 
Total defined contribution retirement assets750.0 631.6 
Deferred annuity and direct retail retirement assets219.6 186.0 
Total defined contribution, deferred annuity, and direct retail retirement assets969.6 817.6 
Other500.9 389.2 
Total assets under management$1,470.5 $1,206.8 
(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income rows.
(2) Includes Americas, Europe, Middle East and Africa ("EMEA"), and Asia Pacific ("APAC").
(3) Includes T. Rowe Price investments in proprietary products, assets of the T. Rowe Price employee benefit plans, Private Asset Management accounts, and other.

In 2020, our target date retirement products experienced net cash outflows of $6.5 billion. The assets under management in our target date retirement products totaled $332.2 billion at December 31, 2020, or 22.6% of our managed assets at December 31, 2020, compared with 24.2% at the end of 2019.

Additional information concerning our assets under management, results of operations, and financial condition during the past three years is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, as well as our consolidated financial statements, which are included in Item 8 of this Form 10-K.
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INVESTMENT MANAGEMENT SERVICES.

Distribution Channels and Products

We distribute our products across three broad geographical regions: Americas, Europe, Middle East and Africa ("EMEA"), and Asia Pacific ("APAC"). We service clients in 51 countries around the world. Investors domiciled outside the U.S. represented over 9% of total assets under management at the end of 2020.

We accumulate our assets under management from a diversified client base across five primary distribution channels: Americas financial intermediaries, EMEA & APAC financial intermediaries, individual U.S. investors on a direct basis, U.S. retirement plan sponsors for which we provide recordkeeping services, and global institutional investors. The following table outlines the types of products within each distribution channel through which our assets under management are sourced as of December 31, 2020.
Americas financial intermediariesEMEA & APAC financial intermediariesIndividual U.S. investors on a direct basisU.S. retirement plan sponsors - full service recordkeepingGlobal institutions
U.S. Mutual Funds
SICAVs(1) / FCPs(2)
U.S. Mutual FundsU.S. Mutual FundsU.S. Mutual Funds
Collective Investment TrustsAustralian Unit Trusts ("AUTs")Separate AccountsCollective Investment TrustsCollective Investment Trusts
Subadvised Accounts
OEICs(3)
College Savings PlansSeparate Accounts
SICAVs(1) / FCPs(2)
Managed Accounts / Model DeliverySubadvised Accounts
Model Portfolios(4)
Separate / Subadvised Accounts
College Savings Plans
Japanese ITMs(5)
Active Exchange-Traded FundsCanadian Pooled Funds
Canadian Pooled FundsManaged Accounts / Model Delivery
Japanese ITMs(5)
Active Exchange-Traded FundsCayman Funds
(1)Société d'Investissement à Capital Variable (Luxembourg), (2)Fonds Commun de Placement (Luxembourg), (3)Open-Ended Investment Company (U.K.), (4)Provided through our ActivePlus Portfolios, (5)Japanese Investment Trust Management Funds

Investment Capabilities

We manage a broad range of investment strategies in equity, fixed income, and multi-asset across sectors, styles and regions. Our strategies are designed to meet the varied and changing needs and objectives of investors and are delivered across a range of vehicles. We also offer specialized advisory services, including management of stable value investment contracts, modeled multi-asset solutions, and a distribution management service for the disposition of equity securities our clients receive from third-party venture capital investment pools.

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The following tables set forth our broad investment capabilities as of December 31, 2020.

Equity
GrowthCoreValueConcentratedQuantitativeSustainable
U.S.:All-Cap, Large-Cap, Mid-Cap, Small-Cap, SectorsLarge-Cap, Mid-Cap, Small-CapLarge-Cap, Mid-Cap, Small-CapLarge-Cap (Growth & Value)Large-Cap (Value), Multi-Cap, Small-CapLarge-Cap (Growth & Value)
Global / International:All-Cap, Large-Cap, Small-Cap, Sectors, RegionalLarge-CapLarge-CapLarge-CapLarge-Cap (Growth & Value)All-Cap, Large-Cap

Fixed Income
Cash /
Stable Value
High Yield / Bank LoansEmerging MarketsCreditMulti-SectorGovernment / SecuritizedMunicipal
U.S.:Stable Value, Taxable, Tax-ExemptCredit Opportunities, Bank Loans, High YieldN/RInvestment Grade Corporate, Long DurationEnhanced Index, Short-Term, Core, Core Plus, Investment Grade Core, Total Return, Ultra Short-TermInflation Protection, Securitized/GNMA, TreasuryHigh Yield, Intermediate, Long-Term, Short/Intermediate
Global / International:N/REuro High Yield, High Income, High YieldCorporate, Hard Currency, Local CurrencyAsia Credit, Dynamic Credit, Dynamic Investment Grade Corporate, Investment Grade Corporate, Euro Investment Grade CorporateGlobal Multi-Sector, Aggregate, Global ex USGovernmentN/R
N/R - Not relevant

Multi-Asset
U.S. / Global / International:Target Date, Custom Target DateTarget AllocationGlobal AllocationGlobal IncomeManaged Volatility
Custom SolutionsReal AssetsRetirement IncomeAlternatives

We employ fundamental and quantitative security analysis in the performance of the investment advisory function through substantial internal equity and fixed income investment research capabilities. We perform original industry and company research using such sources as inspection of corporate activities, management interviews, company-published financials and other information, and field checks with suppliers and competitors in the same industry and particular business sector. Our dedicated, in-house research analysts consider tangible investment factors, such as financial information, valuation, and macroeconomics in tandem with intangible environmental, social, and corporate governance investment factors.

Our research staff operates primarily from offices located in the U.S. and U.K. with additional staff based in Australia, Hong Kong, Japan, Singapore, and Switzerland. We also use research provided by brokerage firms and security analysts in a supportive capacity and information received from private economists, political observers, commentators, government experts, and market analysts. Our securities selection process for some investment portfolios is based on quantitative analysis using computerized data modeling.

From time to time, we introduce new strategies, investment vehicles, and other products to complement and expand our investment offerings, respond to competitive developments in the financial marketplace, and meet the changing
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needs of our investment advisory clients. We will introduce a new investment strategy if we believe that we have the appropriate investment management expertise and that its objective will be useful to investors over a long period. In 2020, we introduced six new strategies and several new vehicles, like our active exchange-traded funds, and share classes of existing strategies.

We typically provide seed capital for new investment products to enable the portfolio manager to begin building an investment performance history in advance of the portfolio receiving sustainable client assets. The length of time we hold our seed capital investment will vary for each new investment product as it is highly dependent on how long it takes to generate cash flows into the product from unrelated investors. We attempt to ensure that the new investment product has a sustainable level of assets from unrelated shareholders before we consider redemption of our seed capital investment in order to not negatively impact the new investment product's net asset value or its investment performance record. At December 31, 2020, we had seed capital investments in our products of $1.2 billion.

We may also close or limit new investments to new investors across T. Rowe Price investment products in order to maintain the integrity of the investment strategy and to protect the interests of its existing shareholders and investors. At present, the following strategies, which represent about 20% of total assets under management at December 31, 2020, are generally closed to new investors:
Strategy Year closed
U.S. Mid-Cap Growth2010
High Yield Bond2012
U.S. Small-Cap Growth2013
U.S. Small-Cap Core2013
Capital Appreciation2014
Emerging Markets Growth2018
International Small-Cap Growth2018

Investment Advisory Fees

We provide investment advisory services through our subsidiaries to the U.S. mutual funds; clients on a subadvised or separately managed account basis; collective investment trusts; and other T. Rowe Price products, including funds offered to investors outside the U.S. and portfolios offered through variable annuity life insurance plans in the U.S.

Nearly 64% of our investment advisory fees are earned from our U.S. mutual funds, while about 36% of our investment advisory fees are earned from our other investment portfolios. Ten of our 177 U.S. mutual funds - Blue Chip Growth, Growth Stock, Capital Appreciation, New Horizons, Mid-Cap Growth, Large-Cap Growth, Health Sciences, International Discovery, Equity Income, and Emerging Markets Stock - accounted for approximately 30% of our investment advisory revenues in 2020, and approximately 22% of our assets under management at December 31, 2020. Our largest client account relationship, apart from the U.S. mutual funds, is with a third-party financial intermediary that accounted for about 7% of our investment advisory revenues in 2020.

U.S. Mutual Funds

At December 31, 2020, assets under our management in the U.S. mutual funds aggregated $794.6 billion, an increase of 16.4% or $111.9 billion from the beginning of the year. Investment advisory services are provided to each U.S. mutual fund under individual investment management agreements that grant the fund the right to use the
T. Rowe Price name. The Boards of the respective funds, including a majority of directors who are not interested persons of the funds or of T. Rowe Price Group (as defined in the Investment Company Act of 1940), must approve the investment management agreements annually. Fund shareholders approve material changes to these investment management agreements. Each agreement automatically terminates in the event of its assignment (as defined in the Investment Company Act) and, generally, either party may terminate the agreement without penalty after a 60-day notice. The termination of one or more of these agreements could have a material adverse effect on our results of operations. Independent directors and trustees of the U.S. mutual funds regularly review our fee structures.

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The advisory fee paid monthly by each of the U.S. mutual funds is computed on a daily basis by multiplying a fund’s net assets by its effective fee rate. For the majority of the U.S. mutual funds, the fee rate is equal to the sum of a tiered group fee rate plus an individual fund rate. The tiered group rate is based on the combined net assets of nearly all of the U.S. mutual funds. If the combined net assets of these U.S. mutual funds exceed $845 billion, the weighted-average fee across pricing tiers is 28.1 basis points for the first $845 billion of net assets plus 26.0 basis points for net assets in excess of $845 billion. To the extent that the combined net assets of the funds included in the group rate calculation increase, the group charge component of a fund's advisory fee rate and the resulting advisory fee rate paid by each fund will decrease.

The individual fund rates are generally flat rates that are set based on the fund’s specific investment objective. Several funds, including the Blue Chip Growth, Equity Income, Growth Stock, and Mid-Cap Growth funds, have an effective tiered individual fund rate in which their base individual flat rate is reduced by about 15% on net assets in excess of $15 billion. The New Income and Value funds have their base individual flat rate reduced by about 15% on net assets in excess of $20 billion. The Capital Appreciation Fund has its base individual flat rate reduced by 10% on net assets in excess of $27.5 billion. The effective fee rates for each of the stock and bond funds on which we earned annual advisory fees of approximately $6.0 million or greater in 2020, varied from a low of 21 basis points for the Limited Duration Inflation Focused Bond Fund to a high of 104 basis points for the International Discovery fund.

The fee rate of several of the U.S. mutual funds, including the Target-Date and Index funds as well as specific funds offered solely to institutional investors, does not include a group fee component but rather an individual fund fee or an all-inclusive fee. An all-inclusive fee covers both the investment management fee and ordinary operating expenses incurred by the fund and, as a result, our management fee varies with the level of operating expenses a fund incurs. In the second quarter of 2020, the fee structure of the target date retirement funds changed that the investment advisory fee revenue is now earned at the target date retirement fund level rather than at the underlying mutual fund level. The Spectrum Funds series we offer have no separate investment advisory fee; rather, they bear the expenses of the funds in which they invest.

Each U.S. mutual fund typically bears all expenses associated with its operation and the issuance and redemption of its securities. In particular, each fund pays investment advisory fees; shareholder servicing fees and expenses; fund accounting fees and expenses; transfer and sub-transfer agent fees; custodian fees and expenses; legal and auditing fees; expenses of preparing, printing and mailing prospectuses and shareholder reports to existing shareholders; registration fees and expenses; proxy and annual meeting expenses; and independent trustee or director fees and expenses.

We usually provide that a newly organized fund’s expenses will not exceed a specified percentage of its net assets during an initial operating period. Generally, during the earlier portion of the period, we will waive advisory fees and absorb other fund expenses, such as those described above, in excess of these self-imposed limits. During the latter portion of the period, we may recover some or all of the waived fees and absorbed costs, but such recovery is not assured.

Additionally, we have contractual management fee waivers for certain U.S mutual funds, including nearly all money market funds, which could occur under certain specified circumstances. Unlike traditional expense limits for newly organized funds, these waivers will not be recovered by T. Rowe Price in the future. Further to these contractual fee waivers, due to the low interest rate environment in 2020, we voluntarily waived $20.4 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors. We expect to continue to waive fees in 2021, and we currently anticipate that the waivers for the first quarter of 2021 will be at or slightly above the level of waivers experienced in the fourth quarter of 2020. We also expect that the fee waivers for the first quarter of 2021 will represent a high-water mark for fee waivers issued.
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Subadvised funds, separate accounts, collective investment trusts, and other investment products

Our subadvised, separate accounts, collective investment trusts, and other investment products had assets under management of $675.9 billion at December 31, 2020, an increase of $151.8 billion from the beginning of the year. Other investment products include open-ended investment products offered to investors outside the U.S. and products offered through variable annuity life insurance plans in the U.S. We earn investment management fees from these clients based on, among other things, the specific investment services to be provided, and these investment management fees are computed using the value of assets under management at a contracted annual fee rate or the products' effective fee rate for those with a tiered-fee rate structure.

The value of assets under management billed is generally based on daily valuations, end of billing period valuations, or month-end average valuations. In 2020, approximately 78% of our advisory fees were recognized based on daily portfolio valuations, 15% were based on end of billing period valuations, and 7% were based on month-end averages.

Our standard subadvised client accounts normally pay a daily tiered rate and their agreement typically provides for termination with 60 days notice. For separately managed accounts, the fee is generally based on a period ending value and their agreements provide for termination at any time. Unearned fees paid in advance are refunded upon termination. We currently also earn performance-based investment advisory fees on certain separately managed accounts. These fees are currently immaterial to our total investment advisory fees and are only recognized when the performance condition has been met. This recognition criteria can lead to uneven recognition of performance-based revenue throughout the year.

Our U.S.collective investment trusts, sponsored by T. Rowe Price Trust Company and subscribed to by certain qualified U.S. retirement plans, normally pay an all-inclusive tiered rate investment management fee computed on a daily basis.

Our standard form of investment advisory agreement with other T. Rowe Price products that pay management fees on a daily basis normally provides for termination with 30 days notice. The following table details the services provided by certain of our subsidiaries based on our non-U.S. global investment products:
T. Rowe Price SubsidiaryProductsServices Provided
T. Rowe Price (Luxembourg) Management SàrlSICAVs / FCPsManagement company
T. Rowe Price AustraliaAUTsInvestment management
T. Rowe Price UKOEICsAuthorized corporate director
T. Rowe Price (Canada)Canadian Pooled FundsInvestment management
T. Rowe Price JapanJapanese ITMsInvestment management

Our subsidiaries T. Rowe Price Associates, T. Rowe Price International, T. Rowe Price Hong Kong, T. Rowe Price Singapore, T. Rowe Price Australia and T. Rowe Price Japan, may also provide subadvised investment management services to those global investment products listed in the table above.

We distribute the products listed in the table above outside the U.S. through distribution agents and other financial intermediaries. The fees we earn for distributing and marketing these products are part of our overall investment management fees for managing the product assets. We currently recognize any related distribution fees paid to these financial intermediaries in distribution and servicing costs.

ADMINISTRATIVE, DISTRIBUTION, AND SERVICING FEES.

Administrative Services

We also provide certain administrative services as ancillary services to our investment advisory clients. These administrative services are provided by several of our subsidiaries and include mutual fund transfer agent, accounting, distribution, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans investing in U.S. mutual funds; recordkeeping services for defined contribution retirement plans investing in mutual funds outside the T. Rowe Price complex; brokerage; trust services; and non-discretionary advisory services.
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T. Rowe Price Services provides the U.S. mutual funds transfer agency and shareholder services, including the staff, facilities, technology, and other equipment to respond to inquiries from fund shareholders. The U.S. mutual funds contract directly with BNY Mellon to provide mutual fund accounting services, including maintenance of financial records, preparation of financial statements and reports, daily valuation of portfolio securities, and computation of each mutual fund's daily net asset value per share.

T. Rowe Price Retirement Plan Services provides participant accounting and plan administration for defined contribution retirement plans that invest in the U.S. mutual funds, the T. Rowe Price collective investment trusts, and funds outside the T. Rowe Price complex. T. Rowe Price Retirement Plan Services also provides transfer agent services to the U.S. mutual funds. The pricing on these transfer agent services is based on basis points of the related assets under management. Plan sponsors and participants compensate us for some of the administrative services while the U.S. mutual funds and outside fund families compensate us for maintaining and administering the individual participant accounts for those plans that invest in the respective funds. As of December 31, 2020, we provided recordkeeping services for $239 billion in assets under administration, of which nearly $148 billion are assets we manage.

T. Rowe Price Trust Company also provides administrative trustee services. Through this entity, which is a Maryland-chartered limited service trust company, we serve as trustee for employer sponsored retirement plans and other retirement products. T. Rowe Price Trust Company may not accept deposits and cannot make personal or commercial loans. Our trust vehicles are not mutual funds. As such, trust requirements can result in lower compliance and administrative costs over other vehicles with a similar investment strategy. Our trust vehicles include investments in equity, fixed income and multi-asset assets.

We also provide discretionary and non-discretionary advisory planning services to individual investors through our subsidiary T. Rowe Price Advisory Services, Inc. These services are limited in scope, and advice recommendations consist solely of mutual funds advised by T. Rowe Price Associates or its affiliates that have been selected for inclusion in these services. These services include, but are not limited to, point-in-time financial planning, asset allocation advice, and discretionary advice through a solely digital experience.

Certain T. Rowe Price subsidiaries also provide non-discretionary advisory services to model delivered managed accounts. For these model delivered managed accounts, we provide the holdings and trades of the portfolio to the sponsor platforms to implement for their clients. The assets under advisement in these portfolios, predominantly in the United States, was $2.8 billion at December 31, 2020. The revenue earned on these services is recorded in administrative fees.

Distribution and Servicing

Our subsidiary, T. Rowe Price Investment Services ("TRPIS"), is the principal distributor of the U.S. mutual funds and contracts with third-party financial intermediaries who distribute these share classes. TRPIS enters into agreements with each intermediary under which each fund is responsible to pay the distribution and service fees directly to the applicable intermediaries. The Investor Class of all U.S. mutual funds can be purchased in the U.S. on a no-load basis, without a sales commission or 12b-1 fee. No-load mutual fund shares offer investors a low-cost and relatively easy method of directly investing in a variety of equity, fixed income, and multi-asset strategies. The I Class of certain U.S. mutual funds is designed to meet the needs of institutionally oriented clients who seek investment products with lower shareholder servicing costs and lower expense ratios. This share class limits ordinary operating expenses (other than interest; expenses related to borrowings, taxes, and brokerage; and any non-extraordinary expenses) to 5 basis points for a period of time and there are no external 12b-1 or administrative fee payments.

Certain of the U.S. mutual funds also offer Advisor Class and R Class shares that are distributed to investors and defined contribution retirement plans, respectively. These share classes pay 12b-1 fees of 25 and 50 basis points, respectively, for distribution, administration, and personal services. In addition, those U.S. mutual funds offered to investors through variable annuity life insurance plans have a share class that pays a 12b-1 fee of 25 basis points.

We believe that our lower fund cost structure, distribution methods, and fund shareholder and administrative services help promote the stability of our fund assets under management through market cycles.

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We bear all advertising and promotion expenses associated with the distribution of our investment products. These costs are recognized when incurred and include advertising and direct mail communications to potential shareholders, as well as substantial staff and communications capabilities to respond to investor inquiries. Marketing and promotional efforts are focused in print media, television, and digital and social media. Advertising and promotion expenditures vary over time based on investor interest, market conditions, new and existing investment offerings, and the development and expansion of new marketing initiatives, including the enhancement of our digital capabilities.

REGULATION.

All aspects of our business are subject to extensive federal, state, and foreign laws and regulations. These laws and regulations are primarily intended to benefit or protect our clients and T. Rowe Price product shareholders. They generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict the conduct of our business in the event that we fail to comply with laws and regulations. Possible sanctions that may be imposed on us, in the event that we fail to comply, include the suspension of individual employees, limitations on engaging in certain business activities for specified periods of time, revocation of our investment adviser and other registrations, censures, and fines.

The following table shows the regulator to certain of our subsidiaries:
 
RegulatorT. Rowe Price Entity
Within the U.S.
Securities & Exchange Commission ("SEC") - T. Rowe Price Associates - T. Rowe Price Hong Kong
 - T. Rowe Price International - T. Rowe Price Japan
 - T. Rowe Price Australia - T. Rowe Price Singapore
 - T. Rowe Price (Canada) - T. Rowe Price Advisory Services
All entities above are registered as investment advisers under the Investment Advisers Act of 1940, which imposes substantive regulation around, among other things, fiduciary duties to clients, transactions with clients, effective compliance programs, conflicts of interest, advertising, recordkeeping, reporting, and disclosure requirements.
State of Maryland, Commissioner of Financial Regulation - T. Rowe Price Trust Company
Outside the U.S.
Financial Conduct Authority ("FCA") - T. Rowe Price International
 - T. Rowe Price UK
Securities and Futures Commission ("SFC") - T. Rowe Price Hong Kong
Monetary Authority of Singapore ("MAS") - T. Rowe Price Singapore
Several provincial securities commissions in Canada - T. Rowe Price (Canada)
Commission de Surveillance du Secteur Financier ("CSSF") - T. Rowe Price (Luxembourg) Management Sàrl
Australian Securities and Investments Commission - T. Rowe Price Australia
Japan Financial Services Agency - T. Rowe Price Japan
Swiss Financial Market Supervisory Authority
 - T. Rowe Price (Switzerland)

Serving the needs of retirement savers is an important focus of our business. As a result, such activities are subject to regulators such as the U.S. Department of Labor, and applicable laws and regulations including the Employee Retirement Income Security Act of 1974.

Registrations
- Our subsidiaries providing transfer agent services, T. Rowe Price Services and T. Rowe Price Retirement Plan Services, are registered under the Securities Exchange Act of 1934.
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- T. Rowe Price Investment Services is a registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") and the Securities Investor Protection Corporation. This subsidiary provides brokerage services primarily to complement the other services provided to shareholders of the U.S. mutual funds. Pershing, a third-party clearing broker and an affiliate of BNY Mellon, maintains our brokerage’s customer accounts and clears all transactions.

- T. Rowe Price Associates and certain subsidiaries are registered as commodity trading advisors and/or commodity pool operators with the Commodity Futures Trading Commission and are members of the National Futures Association.
 
Net Capital Requirements
Certain of our subsidiaries are subject to net capital requirements, including those of various federal, state, and international regulatory agencies. Each of our subsidiary's net capital, as defined, meets or exceeds all minimum requirements.
 
For further discussion of the potential impact of current or proposed legal or regulatory requirements, please see the Legal and Regulatory risk factors included in Item 1A of this Form 10-K.

COMPETITION.

As a member of the financial services industry, we are subject to substantial competition in all aspects of our business. A significant number of proprietary and other sponsors’ mutual funds are sold to the public by other investment management firms, broker-dealers, mutual fund companies, banks, and insurance companies. We compete with brokerage and investment banking firms, insurance companies, banks, mutual fund companies, hedge funds, and other financial institutions and funds in all aspects of our business and in every country in which we offer our advisory services. Some of these financial institutions have greater resources than we do. We compete with other providers of investment advisory services primarily based on the availability and objectives of the investment products offered, investment performance, fees and related expenses, and the scope and quality of investment advice and other client services.

In recent years, we have faced significant competition from passive oriented investment strategies. As a result, such products have taken market share from active managers. While we cannot predict how much market share these competitors will gain, we believe there will always be demand for good active management.

In order to maintain and enhance our competitive position, we may review acquisition and venture opportunities and, if appropriate, engage in discussions and negotiations that could lead to the acquisition of a new equity or other financial relationship.

HUMAN CAPITAL.

At T. Rowe Price, our people set us apart. We thrive because our company culture is based on collaboration and diversity. We believe that our culture of collaboration enables us to identify opportunities others might overlook. Our associates’ knowledge, insight, enthusiasm, and creativity are the reason our clients succeed and our firm excels. In order to attract and retain the highest quality talent, we develop key talent and succession plans, invest in Company diversity and inclusion initiatives, provide opportunities for our associates to learn and grow, provide strong, competitive, and regionally specific benefits and programs that promote the health and wellness of our associates, both personally and financially. Our diversity and inclusion initiatives have garnered recognitions, including Pensions & Investments 2020 Best Places to Work in Money Management and Best Places to work for LGBTQ Equality by the Human Rights Campaign Foundation. Although we have made progress in our workforce diversity representation, we seek to continuously improve in this area. Our goal is to increase our hiring and the retention and development of talent from groups that are underrepresented in asset management, this includes both minorities and women. Pursuant to this goal, each year we establish annual corporate Diversity and Inclusion goals to continue improving our hiring, development, advancement, and retention of diverse talent and our overall diversity representation. At the end of 2020, women comprised 44% of our associates globally. In addition, at the end of 2020, 29% of our U.S. associates were racial and ethnic minorities. Furthermore, we are committed to pay equity for employees doing similar work, regardless of gender, race or ethnicity, and we conduct pay equity analyses on a regular basis and adjust our associates pay accordingly.

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At December 31, 2020, we employed 7,678 associates, up 4.2% from the 7,365 associates employed at the end of 2019. We may add temporary and part-time personnel to our staff from time to time to meet periodic and special project demands, primarily for technology and mutual fund administrative services.

AVAILABLE INFORMATION.
Our Internet address is troweprice.com. We intend to use our website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. These disclosures will be included in the Investor Relations section of our website, troweprice.gcs-web.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, available free of charge in this section of our website as soon as reasonably practicable after they have been filed with the SEC. In addition, our website includes the following information:
our financial statement information from our periodic SEC filings in the form of XBRL data files that may be used to facilitate computer-assisted investor analysis;

corporate governance information including our governance guidelines, committee charters, senior officer code of ethics and conduct, and other governance-related policies;

other news and announcements that we may post from time to time that investors might find useful or interesting, including our monthly assets under management disclosure; and

opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.

Accordingly, investors should monitor this section of our website, in addition to following our press releases, SEC filings, and public webcasts, all of which will be referenced on the website. Unless otherwise expressly stated, the information found on our website is not part of this or any other report we file with, or furnish to, the SEC.
The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov.

Item 1A. Risk Factors.

An investment in our common stock involves various risks, including those mentioned below and those that are discussed from time to time in our periodic filings with the SEC. Investors should carefully consider these risks, along with the other information contained in this report, before making an investment decision regarding our common stock. There may be additional risks of which we are currently unaware, or which we currently consider immaterial. Any of these risks could have a material adverse effect on our financial condition, results of operations, and value of our common stock.

RISKS RELATING TO OUR BUSINESS AND THE FINANCIAL SERVICES INDUSTRY.

Our revenues are based on the market value and composition of the assets under our management, all of which are subject to fluctuation caused by factors outside of our control.

We derive our revenues primarily from investment advisory services provided by our subsidiaries to individual and institutional investors. Our investment advisory fees typically are calculated as a percentage of the market value of the assets under our management. As a result, our revenues are dependent on the value and composition of the assets under our management, all of which are subject to substantial fluctuation due to many factors, including:

Investment Performance. If the investment performance of our managed investment portfolios is less than that of our competitors or applicable third-party benchmarks, we could lose existing and potential clients and suffer a decrease in assets under management.
General Market Declines. We derive a significant portion of our revenues from advisory fees on managed investment portfolios. A downturn in stock or bond prices would cause the value of assets under our management to decrease, and may also cause investors to withdraw their investments, thereby further decreasing the level of assets under our management.
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Investor Mobility. Our investors generally may withdraw their funds at any time, without advance notice and with little to no significant penalty.
Capacity Constraints. Prolonged periods of strong relative investment performance and/or strong investor inflows has resulted in and may result in capacity constraints within certain strategies, which can lead to, among other things, the closure of those strategies to new investors.
Investing Trends. Changes in investing trends, particularly investor preference for passive or alternative investment products, and in retirement savings trends, may reduce interest in our products and may alter our mix of assets under management.
Interest Rate Changes. Investor interest in and the valuation of our fixed income and multi-asset investment portfolios are affected by changes in interest rates.
Geo-Political Exposure. Our managed investment portfolios may have significant investments in markets that are subject to risk of loss from political or diplomatic developments, government policies, civil unrest, currency fluctuations, illiquidity and capital controls, and changes in legislation related to ownership limitations.

A decrease in the value of assets under our management, or an adverse change in their composition, particularly in market segments where our assets are concentrated, could have a material adverse effect on our investment advisory fees and revenues. For any period in which revenues decline, net income and operating margins will likely decline by a greater proportion because certain expenses will be fixed over that finite period and may not decrease in proportion to the decrease in revenues.

A majority of our revenues are based on contracts with the U.S. mutual funds that are subject to termination without cause and on short notice.

We provide investment advisory, distribution, and other administrative services to the U.S. mutual funds under various agreements. Investment advisory services are provided to each T. Rowe Price mutual fund under individual investment management agreements. The Board of each T. Rowe Price mutual fund must annually approve the terms of the investment management and service agreements and can terminate the agreement upon 60-days' notice. If a T. Rowe Price mutual fund seeks to lower the fees that we receive or terminate its contract with us, we would experience a decline in fees earned from the U.S. mutual funds, which could have a material adverse effect on our revenues and net income.

We operate in an intensely competitive industry. Competitive pressures may result in a loss of clients and their assets or compel us to reduce the fees we charge to clients, thereby reducing our revenues and net income.

We are subject to competition in all aspects of our business from other financial institutions. Some of these financial institutions have greater resources than we do and may offer a broader range of financial products across more markets. Some competitors operate in a different regulatory environment than we do which may give them certain competitive advantages in the investment products and portfolio structures that they offer. We compete with other providers of investment advisory services primarily based on the availability and objectives of the investment products offered, investment performance, fees and related expenses, and the scope and quality of investment advice and other client services. Some institutions have proprietary products and distribution channels that make it more difficult for us to compete with them. Substantially all of our investment products are available without sales or redemption fees, which means that investors may be more willing to transfer assets to competing products.

The market environment in recent years has led investors to increasingly favor lower fee passive investment products. As a result, investment advisors that emphasize passive products have gained and may continue to gain market share from active managers like us. While we believe there will always be demand for strong performing active management, we cannot predict how much market share these competitors will gain.

As part of our continued efforts to attract and retain clients, we develop and launch new products and services, which may require expenditure of resources and may expose us to new regulatory or compliance requirements as well as increased risk of operational or client service errors.

In the event that we decide to reduce the fees we charge for investment advisory services in response to competitive pressures, which we have done selectively in the past, revenues and operating margins could be adversely impacted.
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Our operations are complex and a failure to properly execute operational processes could have an adverse effect on our reputation and decrease our revenues.

We provide global investment management and administrative services to our clients. In certain cases, we rely on third-party service providers for the execution and delivery of these services. There can be no assurance that these vendors will properly perform these processes or that there will not be interruptions in services from these third parties. Failure to properly execute or oversee these services could have an adverse impact on our business, financial results and reputation, and subject us to regulatory sanctions, fines, penalties, or litigation.

New investment strategies, investment vehicles, distribution channels, or other evolutions of our business may increase the risk that our existing systems may not be adequate to control the risks introduced by such changes. Significant business changes may require us to update our processes or technology and may increase risk to meeting our business objectives. In addition, our information systems and technology platforms might not be able to accommodate our continued growth, and the cost of maintaining such systems might increase from its current level. If any of these factors were to arise it could disrupt our operations, increase our expenses or result in financial exposure, regulatory inquiry or reputational damage.

The quantitative models we use may contain errors, which could result in financial losses or adversely impact product performance and client relationships.

We use various quantitative models to support investment decisions and investment processes, including those related to portfolio management, portfolio risk analysis, and client investment guidance. Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business and reputation.

Any damage to our reputation could harm our business and lead to a loss of revenues and net income.

We have spent many years developing our reputation for integrity, strong investment performance, and superior client service. Our brand is a valuable intangible asset, but it is vulnerable to a variety of threats that can be difficult or impossible to control, and costly or even impossible to remediate. Regulatory inquiries and rumors can tarnish or substantially damage our reputation, even if those inquiries are satisfactorily addressed. Actual or perceived failure to adequately address the environmental, social, and governance ("ESG") expectations of our various stakeholders could lead to a tarnished reputation and loss of customers. While we maintain policies, procedures, and controls to reduce the likelihood of unauthorized activities, we are subject to the risk that our associates or third parties acting on our behalf may circumvent controls or act in a manner inconsistent with our policies and procedures. Real or perceived conflicts between our clients’ interests and our own, as well as any fraudulent activity or other exposure of client assets or information, may impair our reputation and subject us to litigation or regulatory action. Any damage to our brand could impede our ability to attract and retain clients and key personnel, and reduce the amount of assets under our management, any of which could have a material adverse effect on our revenues and net income.

Our expenses are subject to significant fluctuations that could materially decrease net income.

Our operating results are dependent on the level of our expenses, which can vary significantly for many reasons, including:

expenses incurred in connection with our multi-year strategic plan to strengthen our long-term competitive position;
variations in the level of total compensation expense due to changes in, among other things, bonuses, stock-based awards, employee benefit costs due to regulatory or plan design changes, our employee count and mix, competitive factors, market performance, and inflation;
changes in the level of our advertising and promotion expenses, including the costs of expanding investment advisory services to investors outside of the U.S. and further penetrating U.S. distribution channels;
expenses and capital costs incurred to maintain and enhance our administrative and operating services infrastructure, such as technology assets, depreciation, amortization, and research and development;
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changes in the costs incurred for third-party vendors that perform certain administrative and operating services;
changes in expenses that are correlated to our assets under management, such as distribution and servicing fees;
a future impairment of investments that is recognized in our consolidated balance sheet;
a future impairment of goodwill that is recognized in our consolidated balance sheet;
unanticipated material fluctuations in foreign currency exchange rates applicable to the costs of our operations abroad;
unanticipated costs incurred to protect investor accounts and client goodwill;
future changes to legal and regulatory requirements and potential litigation; and
disruptions of third-party services such as communications, power, and mutual fund transfer agent, investment management, trading, and accounting systems.

Under our agreements with the U.S. mutual funds, we charge the funds certain administrative fees and related expenses based upon contracted terms. If we fail to accurately estimate our underlying expense levels or are required to incur expenses relating to the mutual funds that are not otherwise paid by the funds, our operating results will be adversely affected. While we are under no obligation to provide financial support to any T. Rowe Price investment products, any financial support provided would reduce capital available for other purposes and may have an adverse effect on revenues and net income.

Our hedging strategies utilized to mitigate risk may not be effective, which could impact our earnings.

We employ hedging strategies related to our supplemental savings plan in order to hedge the liability related thereto. In the event that our hedging strategies are not effective, the resulting impact may adversely affect our results of operations, cash flows or financial condition.

Amendments to tax laws may impact the marketability of the products and services we offer our clients or the financial position of the Company.

We are subject to income taxes as well as non-income-based taxes in both the United States and various foreign jurisdictions. We cannot predict future changes in the tax regulations to which we are subject, and these regulations could have a material impact on our liability or result in increased costs of our tax compliance efforts.
Additionally, changes in the status of tax deferred investment options, including retirement plans, tax-free municipal bonds, the capital gains and corporate dividend tax rates, and other individual and corporate tax rates could cause investors to view certain investment products less favorably and reduce investor demand for products and services we offer, which could have an adverse effect on our assets under management and revenues.
Examinations and audits by tax authorities could result in additional tax payments for prior periods.

Based on the global nature of our business, from time to time we are subject to tax audits in various jurisdictions. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. Tax authorities may disagree with certain positions we have taken and assess additional taxes (and, in certain cases, interest, fines, or penalties). We have a process to evaluate whether to record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional income taxes will be due. We adjust these liabilities in light of changing facts and circumstances. Due to the complexity of some of these uncertainties, however, the ultimate resolution may result in a payment that is materially different from our estimates.

We have contracted with third-party financial intermediaries that distribute our investment products and such relationships may not be available or profitable to us in the future.

These contracted third-party intermediaries generally offer their clients various investment products in addition to, and in competition with, our investment products, and have no contractual obligation to encourage investment in our products. It would be difficult for us to acquire or retain the management of those assets without the assistance of the intermediaries, and we cannot assure that we will be able to maintain an adequate number of investment
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product offerings and successful distribution relationships. In addition, some investors rely on third-party financial planners, registered investment advisers, and other consultants or financial professionals to advise them on the choice of investment adviser and investment product. These professionals and consultants can favor a competing investment product as better meeting their particular clients' needs. We cannot assure that our investment products will be among their recommended choices in the future. Further, their recommendations can change over time and we could lose their recommendation and their clients' assets under our management. Mergers, acquisitions, and other ownership or management changes could also adversely impact our relationships with these third-party intermediaries. The presence of any of the adverse conditions discussed above would reduce revenues and net income, possibly by material amounts.

Natural disasters and other unpredictable events could adversely affect our operations.

Armed conflicts, trade wars, tariffs or sanctions, terrorist attacks, cyberattacks, power failures, pandemics, climate change, increased severity of weather events, and natural disasters and other events outside of our control could adversely affect our revenues, expenses, and net income by:

decreasing investment valuations in, and returns on, the investment portfolios that we manage,
causing disruptions in national or global economies that decrease investor confidence and make investment products generally less attractive,
incapacitating or inflicting losses of lives among our employees,
interrupting our business operations or those of critical service providers,
triggering technology delays or failures, and
requiring substantial capital expenditures and operating expenses to remediate damage, replace our facilities, and restore our operations.

A significant portion of our business operations are concentrated in the Baltimore, Maryland region, Colorado Springs, Colorado, and in London, England. In addition, we maintain offices with associates in many other global locations, including Sydney, Australia; Hong Kong; Singapore; Tokyo, Japan; and Luxembourg. We have developed various backup systems and contingency plans, but we cannot be assured that those preparations will be adequate in all circumstances that could arise, or that material interruptions and disruptions will not occur. We also rely to varying degrees on outside vendors for service delivery in addition to technology and disaster contingency support, and we cannot be assured that these vendors will be able to perform in an adequate and timely manner. If we lose the availability of any associates, or, if we are unable to respond adequately to such an event in a timely manner, we may be unable to timely resume our business operations, which could lead to financial losses, a tarnished reputation and loss of clients that could result in a decrease in assets under management, lower revenues, and materially reduced net income.

Our business, financial condition, and results of operation may be adversely affected by the 2020 coronavirus outbreak.

Beginning in early 2020, global financial markets have been monitoring and reacting to the novel coronavirus pandemic. The spread of the coronavirus has created significant volatility, uncertainty and economic disruption to the global economy and may impact our business, financial condition and results of operations. While we have in place robust and well-established business continuity plans that address the potential impact to our associates and our facilities, and a comprehensive suite of technologies which enable our associates to work remotely and conduct business, no assurance can be given that the steps we have taken will continue to be effective or appropriate. Additionally we must effectively manage the ongoing risks of a remote workforce, ensure a safe working environment for associates working onsite in our offices, and adequately manage the post-pandemic transition from remote to onsite or a hybrid working environment. In the event that our associates become incapacitated by the coronavirus, our business operations may be impacted, which could lead to reputational and financial harm. Since our revenue is based on the market value and composition of the assets under our management, the ultimate impact on global financial markets and our clients’ decisions related to this event could adversely affect the Company’s revenue and operating results.


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Our investment income and asset levels may be negatively impacted by fluctuations in our investment portfolio.

Separately from the investments we manage for our clients, we currently have a substantial investment portfolio. All of these investments are subject to investment market risk, and our non-operating investment income could be adversely affected by the realization of losses upon the disposition of our investments or the recognition of significant impairments or unrealized losses on these investments. In addition, related investment income has fluctuated significantly over the years depending upon the performance of our corporate investments, including the impact of market conditions and interest rates, and the size of our corporate money market and longer-term mutual fund holdings. Fluctuations in other investment income are expected to occur in the future.

We may review and pursue strategic transactions in order to maintain or enhance our competitive position and these could pose risks.

From time to time, we consider strategic opportunities, including potential acquisitions, dispositions, consolidations, organizational restructurings, joint ventures or similar transactions, any of which may impact our business. We cannot be certain that we will be able to identify, consummate and successfully complete such transactions, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. These initiatives typically involve a number of risks and present financial, managerial and operational challenges to our ongoing business operations. In addition, acquisitions and related transactions involve risks, including unanticipated problems regarding integration of investor account and investment security recordkeeping, additional or new regulatory requirements, operating facilities and technologies, and new employees; adverse effects on our earnings in the event acquired intangible assets or goodwill become impaired; and the existence of liabilities or contingencies not disclosed to or otherwise known by us prior to closing a transaction.

We own a 23% investment in UTI Asset Management Company Ltd ("UTI"), an Indian asset management company, and we may consider non-controlling minority investments in other entities in the future. We may not realize future returns from such investments or any collaborative activities that may develop in the future.

We are exposed to risks arising from our international operations.

We operate in a number of jurisdictions outside of the United States. Our international operations require us to comply with the legal and regulatory requirements of various foreign jurisdictions and expose us to the political consequences of operating in foreign jurisdictions. Our foreign business operations are also subject to the following risks:

difficulty in managing, operating, and marketing our international operations;
fluctuations in currency exchange rates which may result in substantial negative effects on assets under our management, revenues, expenses, and assets in our U.S. dollar based financial statements; and
significant adverse changes in international legal and regulatory environments.

HUMAN CAPITAL RISKS.

Our success depends on our key personnel and our investment performance and financial results could be negatively affected by the loss of their services.

Our success depends on our highly skilled personnel, including our portfolio managers, investment analysts, sales and client relationship personnel, and corporate officers, many of whom have specialized expertise and extensive experience in our industry. Strong financial services professionals are in demand, and we face significant competition for highly qualified employees. Our U.S.-based associates do not have employment contracts, while our associates outside the U.S. have employment contracts where basic employment terms are confirmed in writing. Generally, our associates can terminate their employment with us at any time. We cannot assure that we will be able to attract or retain key personnel.

Due to the global nature of our investment advisory business, our key personnel may have reasons to travel to regions susceptible to higher risk of civil unrest, organized crime or terrorism and we may be unable to ensure the safety of personnel traveling to these regions. We have near- and long-term succession planning processes,
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including programs to develop our future leaders, which are intended to address future talent needs and minimize the impact of losing key talent. However, in order to retain or replace our key personnel, we may be required to increase compensation, which would decrease net income. The loss of key personnel could damage our reputation and make it more difficult to retain and attract new employees and investors. Losses of assets from our client investors would decrease our revenues and net income, possibly materially.

LEGAL AND REGULATORY RISKS.

Compliance within a complex regulatory environment imposes significant financial and strategic costs on our business, and non-compliance could result in fines and penalties.

If we are unable to maintain compliance with applicable laws and regulations, we could be subject to criminal and civil liability, the suspension of our employees, fines, penalties, sanctions, injunctive relief, exclusion from certain markets, or temporary or permanent loss of licenses or registrations necessary to conduct our business. A regulatory proceeding, even if it does not result in a finding of wrongdoing or sanctions, could consume substantial expenditures of time and capital. Any regulatory investigation and any failure to maintain compliance with applicable laws and regulations could severely damage our reputation, adversely affect our ability to conduct business, and decrease revenue and net income and potentially result in complex litigation.

Legal and regulatory developments in the mutual fund and investment advisory industry could increase our regulatory burden, impose significant financial and strategic costs on our business, and cause a loss of, or impact the servicing of, our clients and fund shareholders.

Our regulatory environment is frequently altered by new regulations and by revisions to, and evolving interpretations of, existing regulations. New regulations present areas of uncertainty susceptible to alternative interpretations; regulators and prospective litigants may not agree with reasoned interpretations we adopt. Future changes could require us to modify or curtail our investment offerings and business operations or impact our expenses and profitability. Additionally, some regulations may not directly apply to our business but may impact the capital markets, service providers or have other indirect effects on our ability to provide services to our clients.

Potential impacts of current or proposed legal or regulatory requirements include, without limitation, the following:

As part of the debate in Washington, D.C. and in state legislatures, there has been increasing focus on the framework of the U.S. retirement system. We could experience adverse business impacts if legislative and regulatory changes limit retirement plans to certain products and services, or favor certain investment vehicles, that we do not offer, materially limit retirement savings opportunities or foster substantial outflows from retirement savings plans for non-retirement purposes.

There has been substantial regulatory and legislative activity at federal and state levels regarding standards of care for financial services firms, related to both retirement and taxable accounts. Actions taken by applicable regulatory or legislative bodies may impact our business activities and increase our costs.

The Federal Reserve Board has adopted final regulations related to non-bank Systemically Important Financial Institutions ("SIFIs"), and other jurisdictions are contemplating similar regulation. At this time, US regulators have not designated mutual funds or traditional asset managers as non-bank SIFIs. However, if any T. Rowe Price fund or T. Rowe Price affiliate was deemed a SIFI, increased regulatory oversight would apply to our business, which may include enhanced capital, liquidity, leverage, stress testing, resolution planning, and risk management requirements.

The Commodity Futures Trading Commission ("CFTC") has adopted rules that would limit the ability of T. Rowe Price investment products to use futures, swaps, and other derivatives. We have registered certain subsidiaries with the CFTC, subjecting us to additional regulatory requirements and costs, but also providing us additional flexibility to utilize such products. Nonetheless, there are still certain limitations on our investment products due to CFTC rules.

There has been increased global regulatory focus on the manner in which intermediaries are paid for distribution of mutual funds. Changes to long-standing market practices related to fees or enhanced disclosure requirements may negatively impact sales of mutual funds by intermediaries, especially if such requirements are not applied to other investment products.
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We remain subject to various state, federal and international laws and regulations related to data privacy and protection of data we maintain concerning our clients and employees. These requirements continue to evolve, most commonly in ways that increase the complexity and costs of compliance. For example, California enacted the California Consumer Privacy Act of 2018 (the "CCPA") effective in January 1, 2020, which, among other things, significantly increased compliance obligations and the potential penalties for non-compliance, and California voters in November 2020 approved a replacement of this law effective January 1, 2023 with a new law that expands various requirements.

After the 2008 financial crisis, global regulations on over-the-counter derivatives spearheaded by The Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States and European Market Infrastructure Regulation in the European Union ("EU") have imposed clearing, margin, trade reporting, electronic trading and recordkeeping requirements on market participants. Alongside their general stabilizing and risk-reducing effect on the markets, these requirements have introduced operational complexity and additional costs to derivatives portfolios.

The revised Markets in Financial Instruments Directive ("MiFID II Directive") and Regulation ("MiFIR") (together “MiFID II”) applied across the EU and member states of the European Economic Area beginning on January 3, 2018. Implementation of MiFID II has significantly impacted both the structure and operation of EU financial markets. Some of the main changes introduced under MiFID II include applying enhanced disclosure requirements, enhancing conduct of business and governance requirements, broadening the scope of pre and post trade transparency, increasing transaction reporting requirements, transforming the relationship between client commissions and research, and further regulation of trading venues. Compliance with MiFID II has increased operational complexity and increased our costs. For example, we began to pay for third-party investment research used by our UK-based investment manager, T. Rowe Price International Ltd, in 2018, and we now pay for all the research needs of our investment professionals globally. 

We cannot predict the nature of future changes to the legal and regulatory requirements applicable to our business, nor the extent of the impacts that will result from current or future proposals. However, any such changes are likely to increase the costs of compliance and the complexity of our operations. They may also result in changes to our product or service offerings. The changing regulatory landscape may also impact a number of our service providers and, to the extent such providers alter their services or increase their fees, it may impact our expenses or those of the products we offer.

We may become involved in legal and regulatory proceedings that may not be covered by insurance.

We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties and costs. From time to time, various claims against us arise in the ordinary course of business, including employment-related claims. There also has been an increase in litigation and in regulatory investigations in the financial services industry in recent years, including client claims, class action suits, and government actions alleging substantial monetary damages and penalties.

We carry insurance in amounts and under terms that we believe are appropriate. We cannot be assured that our insurance will cover every liability and loss to which we may be exposed, or that our insurance policies will continue to be available at acceptable terms and fees. Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or co-insurance liabilities, or pay higher premiums, which would increase our expenses and reduce our net income.

Net capital requirements may impede the business operations of our subsidiaries.

Certain of our subsidiaries are subject to net capital requirements imposed by various federal, state, and foreign authorities. Each of our subsidiaries’ net capital meets or exceeds all current minimum requirements; however, a significant change in the required net capital, an operating loss, or an extraordinary charge against net capital could adversely affect the ability of our subsidiaries to expand or maintain their operations if we were unable to make additional investments in them.

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United Kingdom exit from European Union.

We have a significant locally authorized and regulated presence in the United Kingdom (“UK”) to support our global investment management business. We have realigned our European Union ("EU") and UK operations in response to the UK exit (“Brexit”) from the EU; however, we cannot predict the ultimate impact of Brexit on our operations or our business. We remain committed to our clients, associates and business expansion across the region.
TECHNOLOGY RISKS.

We require significant quantities and types of technology to operate our business and would be adversely affected if we fail to maintain adequate infrastructure to conduct or expand our operations or if our technology became inoperative or obsolete.

We depend on significant quantities of technology and, in many cases, highly specialized or proprietary or third-party licensed technology to support our business functions, including among others:

securities analysis,
securities trading,
portfolio management,
client service,
accounting and internal financial reporting processes and controls,
data security and integrity, and
regulatory compliance and reporting.

All of our technology systems, including those provided by vendors, are vulnerable to disability or failures due to cyberattacks, natural disasters, power failures, acts of war or terrorism, sabotage, and other causes. A suspension or termination of vendor-provided software licenses or related support, upgrades, and maintenance could cause system delays or interruption. Although we have robust business and disaster recovery plans, if our technology systems, including those provided by vendors, were to fail and we were unable to recover in a timely way, we would be unable to fulfill critical business functions, which could lead to a loss of clients and could harm our reputation. A technological breakdown or disruption in services from a vendor could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to disciplinary action and liability to our clients.

In addition, our continued success depends on our ability to effectively integrate operations across many systems and/or countries, and to adopt new or adapt existing technologies to meet client, industry, and regulatory demands. We might be required to make significant capital expenditures to maintain competitive infrastructure. If we are unable to upgrade our infrastructure in a timely fashion, we might lose clients and fail to maintain regulatory compliance, which could affect our results of operations and severely damage our reputation.

A cyberattack or a failure to implement effective information and cybersecurity policies, procedures and capabilities could disrupt operations and cause financial losses.

We are dependent on the effectiveness of the information and cybersecurity policies, procedures and capabilities we maintain to protect our systems and data. An externally caused information security incident, such as a cyberattack, a phishing scam, virus, ransomware attack, denial-of-service attack, or an attack launched from within the Company could materially interrupt business operations or cause disclosure or modification of confidential client or competitive information. In addition, our third-party vendors and other intermediaries with which we conduct business and transmit data could be subject to a successful cyberattack or other information security event, and we cannot ensure that such third parties have all appropriate controls in place to protect the confidentiality of information in the custody of those third parties.

There have been increasing numbers of publicized cybersecurity incidents in recent years impacting other financial services firms as well as firms in other industries. Our use of third-party vendors and cloud technologies could heighten this risk. Should the technology operations on which we rely be compromised, we may have to make significant investments to upgrade, repair or replace our technology infrastructure or third-party vendors and may not be able to make such investments on a timely basis. Although we maintain insurance coverage that we believe
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is reasonable, prudent and adequate for the purpose of our business, it may be insufficient to protect us against all losses and costs stemming from breaches of security, cyberattacks and other types of unlawful activity, or any resulting disruptions from such events.

We could be subject to losses if we fail to properly safeguard and maintain confidential information.

As part of our normal operations, we maintain and transmit confidential information about our clients, associates and other parties, as well as, proprietary information relating to our business operations. We maintain a system of internal controls designed to provide reasonable assurance that both inadvertent errors and fraudulent activity, including misappropriation of assets, fraudulent financial reporting, and unauthorized access to sensitive or confidential data, is either prevented or detected in a timely manner. We also leverage cloud-based solutions for the transmission and storage of this information. Our systems, or those of third-party service providers we may use to maintain and transmit such information, could be victimized by unauthorized users or corrupted by computer viruses or other malicious software code. Additionally, authorized persons could inadvertently or intentionally release or alter confidential or proprietary information. Such disclosure could, among other things:

seriously damage our reputation,
allow competitors access to our proprietary business information,
subject us to liability for a failure to safeguard data of clients, associates, and other parties,
result in the termination of contracts by our existing clients,
subject us to regulatory action and potential litigation, and
require significant capital and operating expenditures to investigate and remediate the breach.

Furthermore, if any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to confidential data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.

We are subject to numerous laws and regulations designed to protect this information, such as U.S. federal and state laws and foreign regulations governing the protection of personal or confidential data. In addition to the EU’s General Data Protection Regulation, other governmental authorities throughout the U.S. and around the world are considering or enacting similar types of legislative and regulatory proposals concerning data protection. For example, the CCPA came into effect on January 1, 2020. The CCPA requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and allows consumers to opt out of any sales of their data to third parties and provides a new cause of action for data breaches. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination and security of data. Each of these privacy, security, and data protection laws and regulations could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct.

Item 1B. Unresolved Staff Comments.

None.

Item 2.Properties.

Our corporate headquarters occupies 472,000 square feet of space under lease at 100 East Pratt Street in Baltimore, Maryland. In December 2020, we announced that we are moving our headquarters in 2024 to a complex to be built with approximately 470,000 square feet of space under lease in Baltimore, Maryland. In 2024, we will vacate the space at 100 East Pratt Street.

We have offices in 16 countries around the world, including the U.S.

Our operating and servicing activities are largely conducted at owned facilities in campus settings comprising 1.1 million square feet on two parcels of land in close proximity to Baltimore in Owings Mills, Maryland, and about
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290,000 square feet in Colorado Springs, Colorado. We also maintain a nearly 60,000 square foot technology support facility in Hagerstown, Maryland, and own a 72-acre parcel of land in Pasco County, Florida.

We lease all our offices outside the U.S. with London and Hong Kong being our largest, as well as our business operations recovery site and innovation center in Maryland, our technology development center in New York City, and offices in San Francisco, Washington D.C. and Philadelphia.

Information concerning our anticipated capital expenditures in 2021 and our future minimum rental payments under noncancellable operating leases at December 31, 2020, is set forth in the capital resources and liquidity and contractual obligations discussions in Item 7 of this Form 10-K.

Item 3.Legal Proceedings.

For information about our legal proceedings, please see our Commitments and Contingencies footnote to our audited consolidated financial statements in Item 8. of this Form 10-K.

Item 4.Mine Safety Disclosures.

Not applicable.

Item. Information about our Executive Officers.

The following information includes the names, ages, and positions of our executive officers as of February 11, 2021. There are no arrangements or understandings pursuant to which any person serves as an officer. The first ten individuals are members of our management committee.

William J. Stromberg (60), Chief Executive Officer since 2016 and Chairman of the Board of Directors since 2019. Mr. Stromberg was previously the President from 2016 to 2021, Head of Equity from 2010 to 2015 and a Vice President from 1990 to 2015.

Céline S. Dufétel (40), Chief Operating Officer since 2021, Chief Financial Officer and Treasurer since 2018 and a Vice President since 2017. Prior to joining the firm in 2017, Ms. Dufétel was managing director and global head of marketing, product management, and client service at Neuberger Berman, and prior to that, she was a partner and head of the North American Asset Management practice with McKinsey & Company.

Robert C.T. Higginbotham (53), Head of Global Distribution since 2019, Head of Global Investment Management Services from 2018 to 2019, Head of Global Investment Services from 2012 to 2018, and a Vice President since 2012.

Stephon A. Jackson (58), Head of T. Rowe Price Investment Management since 2020, Associate Head of U.S Equity since 2020, and a Vice President since 2007.

Andrew C. McCormick (60), Head of Fixed Income since 2019, Head of U.S. Taxable Bond from 2013 to 2018, and a Vice President since 2008.

David Oestreicher (53), General Counsel since 2020, Corporate Secretary since 2012, and a Vice President since 2001. From 2009 through 2020, Mr. Oestreicher was the Chief Legal Counsel.

Sebastien Page (44), Head of Global Multi-Asset and a Vice President since 2015. From 2010 through 2015, Mr. Page was an executive vice president at PIMCO, where he led a team focused on research and development of multi-asset solutions.

Robert W. Sharps (49), President since 2021, Head of Investments since 2018, Group Chief Investment Officer since 2017, Co-Head of Global Equity from 2017 to 2018, Lead Portfolio Manager, Institutional U.S. Large-Cap Equity Growth Strategy from 2001 to 2016, and a Vice President from 2001 to 2021.

Justin Thomson (53), Head of International Equity since 2021, and a Vice President since 2001.

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Eric L. Veiel (49), Co-Head of Global Equity since 2018, Head of U.S. Equity from 2016 to 2018, Director of Equity Research North America from 2014 to 2015, and a Vice President since 2006.

Jessica M. Hiebler (45), Principal Accounting Officer since 2010 and a Vice President since 2009.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock ($.20 par value per share) trades on the NASDAQ Global Select Market under the symbol TROW. Dividends per share during the past two years were:
1st
quarter
2nd
quarter
3rd
quarter
4th
quarter
2020$.90 $.90 $.90 $.90 
2019$.76 $.76 $.76 $.76 

Our common stockholders have approved all of our equity-based compensation plans. These plans provide for the following issuances of shares of our common stock at December 31, 2020:
Employee and non-employee director plansEmployee stock purchase planTotal
Exercise of outstanding options4,329,056 — 4,329,056 
Settlement of outstanding restricted stock units6,443,411 — 6,443,411 
Future issuances11,085,553 1,602,666 12,688,219 
Total21,858,020 1,602,666 23,460,686 

The outstanding options included in the table above have a weighted-average exercise price of $72.52. Under the terms of the 2020 Long-Term Incentive Plan, approved by stockholders in May 2020, and the 2012 Long-Term Incentive Plan, the number of shares provided and available for future issuance will increase as we repurchase common stock in the future with the proceeds from stock option exercises. No shares have been issued under our Employee Stock Purchase Plan since its inception; all shares have been purchased in the open market.

The following table presents repurchase activity during the fourth quarter of 2020.
MonthTotal number of
shares purchased
Average price
paid per share
Total number of
shares purchased as
part of publicly
announced program
Maximum number of
shares that may yet
be purchased under
the program
October56,706 $144.31 300 21,612,258 
November10,934 $140.14 — 21,612,258 
December188,090 $148.11 144,947 21,467,311 
Total255,730 $147.33 145,247 

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorizations, outstanding shares surrendered to the company to pay the exercise price in connection with swap exercises of employee stock options and shares withheld to cover the minimum tax withholding obligation associated with the vesting of restricted stock awards. Of the total number of shares purchased during the fourth quarter of 2020, 110,483 were related to shares surrendered in connection with employee stock option exercises and none were related to shares withheld to cover tax withholdings associated with the vesting of restricted stock awards.


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The following table details the changes in and status of the Board of Directors’ outstanding publicly announced board authorizations.
Authorization dates12/31/2019Additional shares authorizedTotal Number of
Shares Purchased
Maximum Number of Shares that May Yet Be Purchased at 12/31/2020
April 20187,375,047 — (7,375,047)— 
February 201910,000,000 — (3,532,689)6,467,311 
March 2020— 15,000,000 — 15,000,000 
17,375,047 15,000,000 (10,907,736)21,467,311 

We have 7,649 stockholders of record and approximately 360,000 beneficial stockholder accounts held by brokers, banks, and other intermediaries holding our common stock. Common stock owned outright by our associates and directors, combined with outstanding vested stock options and unvested restricted stock awards, total approximately 8% of our outstanding stock and outstanding vested stock options at December 31, 2020.

Item 6.Selected Financial Data.
 
20202019201820172016
(in millions, except per-share data)
Net revenues(1)
$6,207 $5,618 $5,373 $4,855 $4,285 
Net operating income$2,746 $2,387 $2,361 $2,109 $1,733 
Net income $2,523 $2,249 $1,769 $1,581 $1,254 
Net income (loss) attributable to redeemable non-controlling interests$151 $118 $(69)$83 $39 
Net income attributable to T. Rowe Price Group$2,373 $2,131 $1,838 $1,498 $1,215 
Adjusted net income attributable to
T. Rowe Price Group
(2)
$2,277 $1,976 $1,807 $1,361 $1,149 
Per common share information
Basic earnings$10.08 $8.82 $7.41 $6.07 $4.85 
Diluted earnings$9.98 $8.70 $7.27 $5.97 $4.75 
Adjusted diluted earnings(2)
$9.58 $8.07 $7.15 $5.43 $4.49 
Cash dividends declared$3.60 $3.04 $2.80 $2.28 $2.16 
Weighted-average common shares outstanding228.8 235.4 242.2 241.2 245.5 
Weighted-average common shares outstanding assuming dilution231.2 238.6 246.9 245.1 250.3 
December 31,
20202019201820172016
Balance sheet data (in millions)
Total assets$10,659 $9,330 $7,689 $7,535 $6,226 
Redeemable non-controlling interests$1,562 $1,121 $740 $993 $687 
Stockholders’ equity$7,707 $7,102 $6,124 $5,824 $5,009 
Assets under management (in billions)
$1,470.5 $1,206.8 $962.3 $991.1 $810.8 
(1) Net revenues for 2018 and 2017 have been adjusted to reflect the adoption of new revenue accounting guidance on January 1, 2018. We adopted the guidance using the retrospective method, which required adjustments to be reflected as of January 1, 2016. Accordingly, net revenues for 2016 have not been adjusted.
(2) These items represent non-GAAP financial measures that have been established in order to increase transparency for the purpose of evaluating our core business, for comparing current results with prior period results, and to enable more appropriate comparison with industry peers. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for the definitions of these measures and the related reconciliation from U.S. GAAP.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T. Rowe Price products. The other T. Rowe Price products include: open-ended investment products offered to investors outside the U.S. and products offered through variable annuity life insurance plans in the U.S. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations. Additionally, approximately 30% of our operating expenses are impacted by changes in assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.

The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows. However, over the long term we expect well-executed active management to play an important role for investors. In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings; and, most importantly, we provide our clients with strong investment management expertise and service.

MARKET TRENDS.

U.S. stocks produced strong returns in 2020. Shares fell sharply during the first quarter in response to the global spreading of the coronavirus and severe economic weakness following lockdown measures. Starting in late March, equities rose sharply—and continued climbing throughout the year—in response to massive fiscal and monetary stimulus measures by governments and central banks around the world, as well as some economic re-opening efforts. Toward the end of the year, investor sentiment was lifted further by reduced political uncertainty following former Vice President Joe Biden’s victory over incumbent President Donald Trump in the November election. Also, investors were encouraged by the beginning of the distribution of some coronavirus vaccines that demonstrated very high efficacy rates in drug trials.

Stocks in developed non-U.S. equity markets produced positive returns in U.S. dollar terms but generally lagged U.S. shares. Local returns to U.S. investors were lifted by a weaker dollar against major non-U.S. currencies. In Asia, most major markets rose; Japanese shares advanced about 15%. In Europe, most markets also rose, but shares in the UK declined more than 10% due to uncertainty for most of the year about the UK’s post-Brexit trade relationship with the European Union.

Emerging markets stocks outperformed developed non-U.S. markets. Asia outperformed other emerging regions, thanks to market strength in South Korea, Taiwan, and China. In emerging Europe, Turkish and Russian shares declined moderately in U.S. dollar terms amid weak currencies versus the greenback. Latin American shares were mostly weaker, with regional heavyweight Brazil falling 19% in U.S. dollar terms as the real plunged more than 22% over the last year.



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Returns of several major equity market indexes for 2020 are as follows:
S&P 500 Index18.4%
NASDAQ Composite Index(1)
43.6%
Russell 2000 Index20.0%
MSCI EAFE (Europe, Australasia, and Far East) Index8.3%
MSCI Emerging Markets Index18.7%
(1) Returns exclude dividends

Global bonds produced mostly positive returns, as central banks slashed short-term interest rates and sovereign bond yields in many countries fell sharply. In the U.S. investment-grade market, corporate bonds did best, as investors sought attractive yields in a low interest rate environment. Treasury securities also did well as yields dropped across the yield curve. The 10-year U.S. Treasury note yield decreased from 1.92% to 0.93% over the last year. Asset- and mortgage-backed securities produced relatively mild gains. High yield corporate bonds and tax-free municipal bonds rose but trailed the broad taxable investment-grade bond market.

Bonds in developed non-U.S. markets produced strong gains in U.S. dollar terms, helped by dollar weakness against the euro and, to a lesser extent, the Japanese yen and the British pound. Bonds in developing markets generally appreciated in U.S. dollar terms, though local currency weakness in some countries, especially Brazil, Turkey, and Russia, reduced local returns to U.S. investors.

Returns of several major bond market indexes for 2020 are as follows:
Bloomberg Barclays U.S. Aggregate Bond Index7.5%
JPMorgan Global High Yield Index    5.4%
Bloomberg Barclays Municipal Bond Index5.2%
Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index10.1%
JPMorgan Emerging Markets Bond Index Plus7.1%


ASSETS UNDER MANAGEMENT.

Assets under management ended 2020 at $1,470.5 billion, an increase of $263.7 billion from the end of 2019. This increase was driven by market appreciation and income, net of distributions not reinvested, of $256.9 billion and net cash inflows of $5.6 billion for 2020. In addition, we acquired client contracts from PNC Bank in September 2020 that added $1.2 billion of stable value assets under management. Clients transferred $13.7 billion in net assets from the U.S. mutual funds to primarily collective investment trusts and other investment products, of which $8.6 billion transferred into the retirement date trusts.


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The following table details changes in our assets under management by vehicle during the last three years:
(in billions)U.S. mutual fundsSubadvised and separate accountsCollective investment trusts and other investment productsTotal
Assets under management at December 31, 2017$606.3 $255.2 $129.6 $991.1 
Net cash flows before client transfers4.4 (.2)9.0 13.2 
Client transfers(1)
(20.5)2.8 17.7 — 
Net cash flows after client transfers(16.1)2.6 26.7 13.2 
Net market depreciation, net of income(22.7)(7.8)(8.4)(38.9)
Distributions not reinvested(3.0)— (.1)(3.1)
Change during the period(41.8)(5.2)18.2 (28.8)
Assets under management at December 31, 2018564.5 250.0 147.8 962.3 
Net cash flows before client transfers7.6 (.3)5.9 13.2 
Client transfers(1)
(23.2)1.1 22.1 — 
Net cash flows after client transfers(15.6).8 28.0 13.2 
Net market appreciation and income135.6 63.0 34.5 233.1 
Distributions not reinvested(1.8)— — (1.8)
Change during the period118.2 63.8 62.5 244.5 
Assets under management at December 31, 2019682.7 313.8 210.3 1,206.8 
Net cash flows before client transfers(11.5)8.0 9.1 5.6 
Client transfers(1)
(13.7)2.0 11.7 — 
Net cash flows after client transfers(25.2)10.0 20.8 5.6 
Net market appreciation and income140.0 76.3 43.7 260.0 
Distributions not reinvested(2.9)— (.2)(3.1)
Acquired AUM— — 1.2 1.2 
Change during the period111.9 86.3 65.5 263.7 
Assets under management at December 31, 2020$794.6 $400.1 $275.8 $1,470.5 
(1) In all three years, the majority of the client transfers were from the T. Rowe Price U.S. mutual funds to the T. Rowe Price collective investment trusts, which are included in collective investment trusts and other investment products.


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The following table details changes in our assets under management by asset class during the last three years:
(in billions)EquityFixed income, including money market
Multi-asset(1)
Total
Assets under management at December 31, 2017$564.1 $134.4 $292.6 $991.1 
Net cash flows(1.4)2.9 11.7 13.2 
Net market depreciation, net of income(2)
(22.8)(1.2)(18.0)(42.0)
Change during the period(24.2)1.7 (6.3)(28.8)
Assets under management at December 31, 2018539.9 136.1 286.3 962.3 
Net cash flows(.2)3.5 9.9 13.2 
Net market appreciation and income(2)
159.2 8.3 63.8 231.3 
Change during the period159.0 11.8 73.7 244.5 
Assets under management at December 31, 2019698.9 147.9 360.0 1,206.8 
Net cash flows— 14.1 (8.5)5.6 
Net market appreciation and income(2)
196.9 5.5 54.5 256.9 
Acquired AUM— 1.2 — 1.2 
Change during the period196.9 20.8 46.0 263.7 
Assets under management at December 31, 2020$895.8 $168.7 $406.0 $1,470.5 
(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.
(2) Reported net of distributions not reinvested.

Investment advisory clients outside the U.S. account for 9.3% of our assets under management at December 31, 2020 and 6.9% at December 31, 2019.

Our net cash flows in 2020 reflect net positive flows due to inflows into fixed income and international equity. These inflows were partially offset by cash outflows in domestic equity and our multi-asset franchise resulting from macro-economic headwinds, including the CARES Act, and ongoing pressure from passive. In terms of equity products, the cash inflows from international equity offset the cash outflows from domestic equity products. From a geography perspective, EMEA and APAC regions performed well with positive net flows predominantly in equity in both regions. Net cash flows for 2019, and 2018 were driven by diversified inflows across distribution channels and geographies, the strength of our multi-asset franchise, and positive flows into fixed income and international equity.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management. Assets under management in our target date retirement products as well as net cash inflows/(outflows), by vehicle, are as follows:
Assets under managementNet cash inflows/(outflows) for year ended
(in billions)12/31/2012/31/1912/31/1812/31/2012/31/1912/31/18
U.S. mutual funds$176.1 $164.8 $144.8 $(12.7)$(10.8)$(14.1)
Collective investment trusts145.4 119.2 79.7 5.4 19.5 21.4 
Separately managed accounts10.7 8.4 5.9 .8 1.1 4.7 
$332.2 $292.4 $230.4 $(6.5)$9.8 $12.0 

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S. mutual funds, collective investment trusts and funds outside of the firm's complex. As of December 31, 2020, our assets under administration were $239 billion, of which nearly $148 billion are assets we manage. In recent years, we began offering non-discretionary advisory services through model delivery, which are managed accounts where portfolio holdings and trades in the portfolio are provided to sponsor platforms to implement for their clients. We record the revenue earned on these services in administrative fees. The assets under advisement in
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these portfolios, predominantly in the United States, is $2.8 billion at December 31, 2020.


INVESTMENT PERFORMANCE.

Strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success. Beginning in the third quarter of 2020, we expanded our performance disclosures to include specific assets classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks. The following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2020. Past performance is no guarantee of future results.

% of U.S. mutual funds that outperformed Morningstar median1,2
1 year3 years5 years10 years
Equity65%71%66%85%
Fixed Income54%55%58%57%
Multi-Asset94%94%85%90%
All Funds70%72%69%77%
% of U.S. mutual funds that outperformed passive peer median1,3
1 year3 years5 years10 years
Equity52%67%64%68%
Fixed Income72%59%54%47%
Multi-Asset91%82%70%86%
All Funds69%69%63%67%
% of composites that outperformed benchmarks4
1 year3 years5 years10 years
Equity60%65%70%77%
Fixed Income66%56%67%68%
All Composites62%62%68%74%

AUM Weighted Performance
% of U.S. mutual funds AUM that outperformed Morningstar median1,2
1 year3 years5 years10 years
Equity76%79%84%92%
Fixed Income43%51%57%59%
Multi-Asset100%97%96%97%
All Funds79%81%85%90%
% of U.S. mutual funds AUM that outperformed passive peer median1,3
1 year3 years5 years10 years
Equity39%81%77%73%
Fixed Income58%50%37%43%
Multi-Asset95%96%95%96%
All Funds54%83%79%77%
% of composites AUM that outperformed benchmarks4
1 year3 years5 years10 years
Equity70%71%73%73%
Fixed Income53%47%49%72%
All Composites67%67%69%73%
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As of December 31, 2020, 73 of 123 (59.3%) of our rated U.S. mutual funds (across primary share classes) received an overall rating of 4 or 5 stars. By comparison, 32.5% of Morningstar's fund population is given a rate of 4 or 5 stars(5). In addition, 84%(5) of AUM in our rated U.S. mutual funds (across primary share classes) ended 2020 with an overall rating of 4 or 5 stars.
(1) Source: © 2020 Morningstar, Inc. All rights reserved. The information contained herein: 1) is proprietary to Morningstar and/or its content providers; 2) may not be copied or distributed; and 3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
(2) Source: Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the Morningstar category median. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total Fund AUM included for this analysis includes $493B for 1 year, $493B for 3 years, $493B for 5 years, and $484B for 10 years.
(3) Passive Peer Median was created by T. Rowe Price using data from Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, funds with fewer than three peers, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. This analysis compares T. Rowe Price active funds to the applicable universe of passive/index open-end funds and ETFs of peer firms. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the passive peer universe. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $475B for 1 year, $473B for 3 years, $432B for 5 years, and $411B for 10 years.
(4)Composite net returns are calculated using the highest applicable separate account fee schedule. Excludes money market composites. All composites compared to official GIPS composite primary benchmark. The top chart reflects the percentage of T. Rowe Price composites with 1 year, 3 year, 5 year, and 10 year track record that are outperforming their benchmarks. The bottom chart reflects the percentage of T. Rowe Price composite AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $1,355B for 1 year, $1,353B for 3 years, $1,328B for 5 years, and $1,290B for 10 years
(5) The Morningstar Rating™ for funds is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Morningstar gives its best ratings of 5 or 4 stars to the top 32.5% of all funds (of the 32.5%, 10% get 5 stars and 22.5% get 4 stars). The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with a fund’s 3, 5, and 10 year (if applicable) Morningstar Rating™ metrics.


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RESULTS OF OPERATIONS.

The following table and discussion set forth information regarding our consolidated financial results for 2020, 2019 and 2018 on a U.S. GAAP basis as well as a non-GAAP basis. The non-GAAP basis adjusts for the impact of our consolidated T. Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains.
2020 compared with 20192019 compared with 2018
(in millions, except per-share data)202020192018$ Change% Change$ Change% Change
U.S. GAAP basis
Investment advisory fees$5,693.1 $5,112.5 $4,850.6 $580.6 11.4 %$261.9 5.4 %
Net revenues$6,206.7 $5,617.9 $5,372.6 $588.8 10.5 %$245.3 4.6 %
Operating expenses$3,461.0 $3,230.9 $3,011.2 $230.1 7.1 %$219.7 7.3 %
Net operating income$2,745.7 $2,387.0 $2,361.4 $358.7 15.0 %$25.6 1.1 %
Non-operating income(1)
$496.5 $540.3 $23.2 $(43.8)n/m$517.1 n/m
Net income attributable to
T. Rowe Price Group
$2,372.7 $2,131.3 $1,837.5 $241.4 11.3 %$293.8 16.0 %
Diluted earnings per common share$9.98 $8.70 $7.27 $1.28 14.7 %$1.43 19.7 %
Weighted average common shares outstanding assuming dilution231.2 238.6 246.9 (7.4)(3.1)%(8.3)(3.4)%
Adjusted non-GAAP basis(2)
Operating expenses$3,342.7 $3,149.8 $3,025.5 $192.9 6.1 %$124.3 4.1 %
Net income attributable to
T. Rowe Price Group
$2,276.8 $1,975.6 $1,807.4 $301.2 15.2 %$168.2 9.3 %
Diluted earnings per common share$9.58 $8.07 $7.15 $1.51 18.7 %$.92 12.9 %
Assets under management (in billions)
Average assets under management$1,247.9 $1,109.3 $1,036.5 $138.6 12.5 %$72.8 7.0 %
Ending assets under management$1,470.5 $1,206.8 $962.3 $263.7 21.9 %$244.5 25.4 %
(1) The percentage change in non-operating income is not meaningful (n/m).
(2) See the reconciliation to the comparable U.S. GAAP measures at the end of the Results of Operations section of this Management's Discussion and Analysis.

Results Overview - 2020 as compared to 2019

Investment advisory revenues. Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows. As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner. Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Investment advisory revenues earned in 2020 increased 11.4% over the comparable 2019 period as average assets under our management increased $138.6 billion, or 12.5%, to $1,247.9 billion. In 2020, we voluntarily waived $20.4 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors. At December 31, 2020, combined net assets of the investment portfolios in which we waived fees in 2020 were $23.9 billion. We expect to continue to waive fees in 2021, and we currently anticipate that the waivers for the first quarter of 2021 will be at or slightly
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above the level of waivers experienced in the fourth quarter of 2020. We also expect that the fee waivers for the first quarter of 2021 will represent a high-water mark for fee waivers issued.

The average annualized fee rate earned on our assets under management was 45.6 basis points in 2020, compared with 46.1 basis points earned in 2019. Our effective fee rate has declined largely due to client transfers within the complex to lower fee vehicles or share classes over the last year and the money market fee waivers. These declines were partially offset by performance-based fees earned in 2020.

Operating expenses. Operating expenses were $3,461.0 million in 2020, an increase of 7.1% over the comparable 2019 period. The increase in operating expenses was primarily due to a $38.6 million increase in expense related to the supplemental savings plan from higher market returns, higher compensation expenses and our continued strategic investments.

On a non-GAAP basis, our operating expenses in 2020 increased 6.1% to $3,342.7 million compared with 2019. Our non-GAAP operating expenses do not include the impact of our supplemental savings plan and our consolidated T. Rowe Price investment products. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

In 2021 and beyond, we expect to advance our strategic priorities to maintain our position as a global and diversified asset manager, a global partner for retirement investors and a provider of integrated investment solutions; to embed environmental, social and governance principles across the firm; to maintain effective processes and controls while becoming an adaptive and agile firm; and to become a destination of choice for top talent with a diverse workforce and inclusive culture. We have increased our 2021 non-GAAP operating expense growth range to 8%-12%, from the 6%-9% provided in October 2020, as sharp market returns in the fourth quarter of 2020 and current AUM levels increased our expectations for AUM-driven expenses. We could elect to adjust our expense growth should unforeseen circumstances arise, including significant market movements.

Operating margin. Our operating margin in 2020 was 44.2%, compared with 42.5% in 2019. The increase in our operating margin in 2020 compared with 2019 is primarily driven by higher net revenues, partially offset by higher compensation-related expenses.

Diluted earnings per share. Diluted earnings per share was $9.98 in 2020 as compared to $8.70 in 2019. The 14.7% increase in diluted earnings per share in 2020 compared to 2019 was primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. These drivers of the increase were partially offset by lower net investment gains recognized in 2020 than in 2019.

On a non-GAAP basis, diluted earnings per share was $9.58 in 2020 as compared to $8.07 for 2019. The increase in adjusted diluted earnings per share was primarily due to higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. The impact of these drivers were partially offset by lower net investment gains recognized in 2020 than in 2019. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Results Overview - 2019 as compared to 2018

Investment advisory revenues. In 2019, investment advisory revenues increased 5.4% over the comparable 2018 period as average assets under our management increased $72.8 billion, or 7.0%, to $1,109.3 billion.

The average annualized fee rate earned on our assets under management was 46.1 basis points in 2019, compared with 46.8 basis points earned in 2018. Our effective fee rate declined in part due to client transfers within the complex to lower fee vehicles or share classes and, to a lesser extent, fee reductions we made to certain mutual funds and other products since 2018. Further contributing to our lower effective fee rate in 2019 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter of 2019.

Operating expenses. For 2019, operating expenses were $3,230.9 million as compared with $3,011.2 million in the 2018 period. The increase in operating expenses was primarily due to our continued strategic investments and higher bonus and stock-based compensation, which were driven by our 2019 operating results. The 2018 period also includes the non-recurring $15.2 million reduction in operating expenses related to the conclusion of the Dell appraisal rights matter.
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In 2019, our non-GAAP operating expenses increased 4.1% to $3,149.8 million compared with 2018. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Operating margin. Our operating margin in 2019 was 42.5%, compared with 44.0% in 2018. The decrease in our operating margin in 2019 compared to 2018 was driven by the higher percentage growth in operating expenses related to our supplemental savings plan as compared with the percentage growth in net revenues during 2019.

Diluted earnings per share. Diluted earnings per share was $8.70 in 2019 as compared with $7.27 in 2018. The 19.7% increase in diluted earnings per share in 2019 compared to 2018 was primarily driven by higher non-operating income, the benefit realized from increased share buybacks, which lowered the weighted-average shares outstanding, and a lower effective tax rate.

On a non-GAAP basis, diluted earnings per share were $8.07 in 2019 as compared with $7.15 in 2018. The 12.9% increase in non-GAAP diluted earnings per share in 2019 compared to 2018 was primarily driven by higher operating income, higher investment income earned on our cash and discretionary investment portfolio, and lower weighted-average shares outstanding. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Net revenues
2020 compared with 20192019 compared with 2018
(in millions)202020192018$ Change% Change$ Change% Change
Investment advisory fees
U.S. mutual funds$3,639.9 $3,452.5 $3,375.0 $187.4 5.4 %$77.5 2.3 %
Subadvised funds, separate accounts, collective investment trusts, and other investment products2,053.2 1,660.0 1,475.6 393.2 23.7 %184.4 12.5 %
5,693.1 5,112.5 4,850.6 580.6 11.4 %261.9 5.4 %
Administrative, distribution, and servicing fees
Administrative fees402.3 385.4 384.0 16.9 4.4 %1.4 0.4 %
Distribution and servicing fees111.3 120.0 138.0 (8.7)(7.3)%(18.0)(13.0)%
513.6 505.4 522.0 8.2 1.6 %(16.6)(3.2)%
Net revenues$6,206.7 $5,617.9 $5,372.6 $588.8 10.5 %$245.3 4.6 %

Investment advisory fees. The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2020, 2019 and 2018 are presented below.
2020 compared with 20192019 compared with 2018
Increase in average assets under managementIncrease in investment advisory feesIncrease in average assets under managementIncrease in investment advisory fees
U.S. mutual funds7.4 %5.4 %3.0 %2.3 %
Subadvised funds, separate accounts, collective investment trusts, and other investment products19.5 %23.7 %13.1 %12.5 %
Total investment advisory fees12.5 %11.4 %7.0 %5.4 %

In general, strong market returns in 2020 shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures. Additionally, we have reduced the management fees of certain products over the last few years.

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In 2020, the relationship between U.S. mutual funds' average assets under management and investment advisory fee growth was impacted by the money market fees waivers and client transfers within the complex to lower fee vehicles or share classes.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, 2020 inflows into our international products, which have a higher fee rate relative to other products, and performance-based fees earned on certain separate accounts drove investment advisory revenues to outpace the increase in average assets under management. These investment advisory revenues include distribution-related services we provide to the international products and then contract with third-party intermediaries to distribute these products. The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

In 2019, equity markets outperformed fixed income markets resulting in a shift of the U.S. mutual fund average asset mix to higher fee equity products over 2018. Strong market returns in 2019 and U.S. mutual fund to trust transfers have primarily increased average assets under management for our subadvised funds, separate accounts, collective investment trusts, and other products. However, lower incremental fee rates on higher average assets and growth in lower fee share classes resulted in slower revenue growth in 2019 over 2018.

Administrative, distribution, and servicing fees. Administrative, distribution, and servicing fees in 2020 were $513.6 million, an increase of $8.2 million from 2019. The higher expense was primarily due to increased transfer agent servicing activities provided to our U.S. mutual funds. This increase was partially offset by lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S. mutual funds, as compared to 2019, as well as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes. The decrease in 12b-1 revenue is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense.

For 2019, administrative, distribution, and servicing fees were $505.4 million, a decrease of $16.6 million from the comparable 2018 period. The decrease was primarily attributable to lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S. mutual funds as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes.

Net revenues are presented after the elimination of $9.9 million for 2020, $6.8 million for 2019, and $6.2 million for 2018, earned from our consolidated T. Rowe Price investment products. The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses.

Operating expenses
2020 compared with 20192019 compared with 2018
(in millions)202020192018$ Change% Change$ Change% Change
Compensation and related costs$2,182.4 $1,969.2 $1,808.6 $213.2 10.8 %$160.6 8.9 %
Distribution and servicing costs278.5 262.5 281.2 16.0 6.1 %(18.7)(6.7)%
Advertising and promotion83.7 96.8 99.6 (13.1)(13.5)%(2.8)(2.8)%
Product-related costs155.5 153.2 157.1 2.3 1.5 %(3.9)(2.5)%
Technology, occupancy, and facility costs444.8 427.3 383.9 17.5 4.1 %43.4 11.3 %
General, administrative, and other316.1 321.9 296.0 (5.8)(1.8)%25.9 8.8 %
Nonrecurring net recoveries related to Dell appraisal rights matter(1)
— — (15.2)— n/m15.2 n/m
Total operating expenses$3,461.0 $3,230.9 $3,011.2 $230.1 7.1 %$219.7 7.3 %
(1) The percentage change in nonrecurring net recoveries related to Dell appraisal rights matter is not meaningful (n/m).

Compensation and related costs. Compensation and related costs increased $213.2 million, or 10.8%, for 2020 as compared with 2019. The increase in compensation and related costs was primarily due to an $83.0 million increase in salaries, benefits and related employee costs, as our average staff size increased 5.8% from prior year and we made modest increases to base salaries at the beginning of the year. Strong 2020 operating results led to a $65.5 million increase in our annual variable compensation, primarily bonus compensation, and higher stock-based
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compensation expense. These increases in compensation and related costs were partially offset by $30.4 million in higher labor capitalization related to internally developed software in 2020. The $38.6 million in higher expense related to our supplemental savings plan from strong market returns is partially offset by the non-operating gains on the investments used to economically hedge the related liability.

For 2019, compensation and related costs increased $160.6 million, or 8.9%, as compared with 2018. Nearly half of the increase in compensation and related costs is attributable to $78.8 million in higher expense related to our supplemental savings plan given the strong equity market returns experienced in 2019 compared with the sharp equity market declines in late 2018. The higher expense related to the supplemental savings plan is partially offset by the non-operating gains earned on the investments used to economically hedge the related liability. We also experienced increases in base salaries, benefits, and related employee costs of $66.0 million, as our average staff size grew 3.1% in 2019 and we modestly increased base salaries at the beginning of 2019. Our 2019 operating results led to a $28.8 million increase in annual variable compensation, primarily bonus compensation, as well as a $9.5 million increase in non-cash stock-based compensation expense. These increases in compensation and related costs were offset in part by the absence of the one-time $9.0 million bonus paid to certain associates in the second quarter of 2018 and $10.0 million in higher labor capitalization related to internally developed software in 2019.

Distribution and servicing costs. Distribution and servicing costs were $278.5 million for 2020, an increase of $16.0 million, or 6.1%, compared to 2019. The increase was primarily driven by higher distribution costs as a result of continued inflows into our international products, including our Japanese ITMs and SICAVs. These higher distribution costs were partially offset by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs were $262.5 million for 2019, a decrease of $18.7 million, or 6.7%, compared with 2018. The decrease was primarily driven by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S. mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense. Both of these costs are offset entirely by the revenue we earn and report in net revenues: 12B-1 revenue recognized in administrative, distribution, and servicing fees for the U.S. mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion. Advertising and promotion costs were $83.7 million for 2020, a decrease of $13.1 million, or 13.5%, compared with 2019. The decrease was primarily driven by lower media costs and fewer conference and promotional events in 2020 as a result of cancellations arising from the coronavirus pandemic in 2020.

For 2019, advertising and promotion costs were $96.8 million, a decrease of $2.8 million, or 2.8%, compared with 2018. The decrease in advertising and promotion costs for 2019 from 2018 is primarily driven by the absence in 2019 of the creation and launch of a media advertising campaign in 2018.

Product-related costs. Product-related costs were $155.5 million for 2020, an increase of $2.3 million, or 1.5%, compared with 2019. The increase is primarily due to higher expenses related to servicing retirement plan products, partially offset by lower costs incurred to provide administrative services to the U.S. mutual funds.

Product-related costs were $153.2 million for 2019, a decrease of $3.9 million, or 2.5%, compared with 2018. The decrease is primarily due to lower costs incurred to provide administrative services to the U.S. mutual funds, partially offset by higher operating costs of our collective investment trusts as client transfers have increased the number of trusts and their average net assets over the last year.

Technology, occupancy, and facility costs. Technology, occupancy, and facility costs were $444.8 million for 2020, $427.3 million for 2019, and $383.9 million for 2018. The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including related depreciation and hosted solution licenses, as well as office expansion costs. The 2019 year included certain non-recurring office facility costs.

General, administrative, and other costs. General, administrative, and other costs were $316.1 million for 2020, $321.9 million for 2019, and $296.0 million for 2018. Higher third-party investment research costs, professional fees,
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and other administrative related costs in 2020 were more than offset by lower travel-related expenses.

For 2019, the increase in general, administrative, and other costs from 2018 was a result of continued investment in our strategic initiatives, higher third-party investment research costs, and other growing operational and regulatory demands on the business.

Non-operating income

Net non-operating investment income decreased $43.8 million in 2020 compared with 2019 and increased $517.1 million in 2019 compared with 2018. Net non-operating investment activity for the years ended December 31, 2020, 2019 and 2018 comprised the following:
2020 compared with 20192019 compared with 2018
(in millions)202020192018$ Change$ Change
Net gains (losses) from non-consolidated T. Rowe Price investment products
Cash and discretionary investments
Dividend income$25.2 $67.6 $48.8 $(42.4)$18.8 
Market related gains (losses) and equity in earnings (losses)67.5