Ameriprise Financial Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2021

There are 11 speakers on the call.

Operator

Welcome to the 3rd Quarter 2021 Earnings Conference Call. My name is Sylvia and I'll be the operator for today's call.

Speaker 1

At this time, all participants

Operator

are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Speaker 1

Thank you, Sylvia, and good morning. Welcome to Ameriprise Financial's First Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our website.

Speaker 1

On Slide 2, you will see a discussion of forward looking statements. Specifically, during the call, you will hear references to various non GAAP financial measures, which we believe provide insight into the company operations. Reconciliation of non GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website. Some statements that we make on this call may be forward looking, reflecting management's expectations about future events and overall operating plans and performance. These forward looking statements speak only as of today's date and involve a number of risks and uncertainties.

Speaker 1

A sample list of factors and risks That could cause actual results to be materially different from forward looking statements can be found in our Q3 2021 earnings release, our 2020 annual report to shareholders and our 2020 10 ks report. We make no obligation to publicly update or revise these forward looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the Q3. Below that, you'll see our adjusted operating results, followed by operating results excluding unlocking, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. We completed our annual unlocking in the 3rd quarter.

Speaker 1

Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim.

Speaker 2

Good morning and thanks for joining us. As you saw, Ameriprise delivered another excellent quarter building on a strong year. We continue to perform extremely well. The environment in the U. S.

Speaker 2

Is largely positive as the economy continues to show solid growth. Equity markets remain strong and have Covered from a weaker September. Inflation has picked up given demand and there remains some headwinds due to pandemic. In Europe, conditions continued to improve. As you consider this backdrop, we're executing well and consistently generating Important organic growth and shareholder value.

Speaker 2

Our differentiated results reflect the strategic investments we've made in the business And a culture built on performance and a high level of care for our clients and team. Our growth businesses are delivering strong client flows And nearly $14,000,000,000 of inflows in the Wealth Management and Asset Management businesses in the quarter. So with these positive flows and markets, assets under management and administration are up 21% to $1,200,000,000,000 Turning to our financials. The excellent results we delivered in the quarter reflect the high level of performance we've generated this year. Adjusted operating results for the quarter, excluding unlocking, revenues came in strongly At $3,500,000,000 up 17% fueled by continued organic growth in attractive markets, Earnings rose 32% with earnings per share up 38%, reflecting strong business growth in Capital Management.

Speaker 2

And ROE is exceptional at nearly 48% compared to 35.5% a year ago. Let's move to Advice and Wealth management where we continue to deliver meaningful and consistent growth. With the strategic investments we've made over many years, Coupled with our expertise in planning, we're delivering a differentiated and referable advice experience. Clients are actively engaged with us. They're turning to Ameriprise and our advisors for comprehensive advice and solutions, and they're leveraging our extensive digital capabilities to track and achieve their goals.

Speaker 2

Our client experience is sophisticated, personalized and supported by our integrated digital technology and backed by our strong reputation. In fact, Investors Business Daily recently named Ameriprise the number one most trusted wealth manager. We've earned this impressive credential based on how consumers rate Ameriprise for how we serve them, the quality of our products and services, Our commitment to ethical practices, fair prices and protecting personal data to be number 1 in trust is high praise and we're honored. This type of recognition and client satisfaction doesn't happen without an industry leading advisor force that's highly engaged. Our advisors are benefiting from our training, coaching and suite of tools to build and deepen client relationships, track prospects and run and grow their practices through our fully integrated platform.

Speaker 2

This positive momentum and engagement are leading to robust client activity, Asset flows and client acquisition. Our results reflect the traction in organic growth that we've consistently demonstrated. Total client inflows were up 64 percent to $10,000,000,000 continuing the positive trend we've seen over the past several quarters. RAV net inflows were excellent at $9,400,000,000 up 65%. Transactional activity grew For another quarter, up nearly 16% over last year with good volume across a range of product solutions.

Speaker 2

Adviser productivity reached another new high up 18% adjusted for interest rates to a record $766,000 per advisor. I'd highlight that our advisors continue to be recognized across the industry, including in top national rankings from Barron's, Forbes and Working Mother. We have long focused on driving productivity growth for advisors and we're generating some of the highest growth rates in the industry. At the same time, we complement this with targeted recruiting of experienced productive advisors who are attracted to our brand and value proposition. In the quarter, recruiting picked up nicely and another 104 experienced advisors joined us.

Speaker 2

We're getting a great response from our in person events Virtual recruiting activities and importantly, the quality of our recruits is very good. Let's turn to the bank where total assets Grew to nearly $11,000,000,000 in the quarter. The trends we've been discussing with you remain consistent. We continue to move additional deposits to the bank and we're seeing a growing demand for our recently introduced lending solutions, especially our pledged loan product that is getting good initial traction. To wrap up, Advice and Wealth Management, Our metrics and financials are very strong.

Speaker 2

Pretax income was $459,000,000 up 43% And margin was strong at 22.4%, up 3 20 basis points, which compares very well in the industry. Now I'll turn to asset management where we continue to build on our momentum and results. Assets under management increased percent to $583,000,000,000 Our outstanding research is core to our business and our ability to consistently generate excellent investment That's across equity, fixed income and asset allocation strategies with more than 85 Compared to the broad group of U. S. Peers we track, we perform at or near the top of the Lipper rankings for multiple time periods.

Speaker 2

Flows remain strong given our excellent investment performance, client experience and continued support we provide advisors and our partner firms. We had net inflows of $3,900,000,000 in the quarter. This is an improvement of nearly $5,500,000,000 from a year ago. Global retail net inflows were $1,800,000,000 driven by North America. While overall industry sales We're a bit weaker in the quarter given the summer months.

Speaker 2

Overall, our flow traction is good. We continue to have good sales and equity strategies. And consistent with our plans, we're gaining traction within fixed income, and that's across multiple channels and structures. I'd note that we expanded our successful suite of strategic beta fixed income ETFs in the quarter with the launch of the Columbia Short Duration Bond ETF. In EMEA Retail, market conditions remain challenging, and while we experienced some net outflows, flows have improved from the 2nd quarter.

Speaker 2

In terms of Global Institutional, excluding Legacy Insurance Partners, net inflows were $3,500,000,000 The team is working hard to generate wins across equity and fixed income strategies in each of our 3 regions. In fact, we're seeing a number of current clients adding to their positions. Of course, we recognize there will be shifts and flows Quarter to quarter given the size of certain institutional mandates. Our client service and consultant relation teams have good traction And we're making considerable progress expanding our consultant ratings, which position us well for growth. As I look at the year thus far for Institutional, we're making good progress.

Speaker 2

That includes expanding our presence in APAC where we announced The opening of our new Japan office that complements our other locations in the region. Turning to our BMO EMEA Acquisition. We look forward to closing the transaction shortly, pending final regulatory approval. I feel good about how we're tracking. We'll be able to provide more details after we close and when we release Q4 results in January.

Speaker 2

To wrap up asset management, we're serving clients well while maintaining our attractive organic growth and profitability. Moving to Retirement and Protection Solutions. Our results continue to be strong. These are high quality businesses that generate solid earnings Excellent free cash flow. We continue to focus on non guaranteed retirement and asset accumulation protection products That deliver benefits for clients and our shareholders.

Speaker 2

Consistent with this strategy, the majority of our annuity sales in the Quarter did not include living benefit guarantees. Sales increased 28% and have shifted to both our structured variable annuity product and our RAVA Product without living benefits. On the insurance side, life and health insurance sales increased 77% driven by our VUL product, Appropriate given the current low rates. We've also seen good response to our DI products reflecting our financial planning approach. To summarize, Ameriprise has built a differentiated book of business over many years that deliver superior financial results that are sustainable.

Speaker 2

It starts with providing clients with solutions that meet their long term retirement needs, have appropriate benefits And generate good risk adjusted returns for the company. Now let me highlight why Ameriprise is clearly differentiated in Financial Services. In terms of our balance sheet, our capital management remains a real strength. Our Advice and Wealth Management and Asset Management businesses are performing very well and generating excellent growth, margins and returns. We compare quite favorably across the industry.

Speaker 2

And our Retirement and Protection business is valuable and high quality, generating good free cash flow and returns. It's entirely focused on our channel and differentiated from anything else out there. Listen, we're generating some of the strongest returns in the industry and have been quite some time and we're able to do it with lower volatility. Importantly, we've returned capital to shareholders at very attractive levels. In fact, we consistently return nearly all of our operating earnings to shareholders annually.

Speaker 2

And if you look at that, over the last 5 years, we reduced our average weighted diluted share count by 28%. This is all while we're consistently investing in the business And maintain a sizable excess capital position that gives us flexibility. In closing, Ameriprise is positioned well. Our team is focused on key priorities to drive organic growth and we're delivering for our clients. In fact, I was just with our top advisers last week To recognize their achievements and discuss our growth priorities.

Speaker 2

It was terrific being together. As I think about all of them at Enterprise, it's great to have People back in the office more in person again as we focus on finishing the year strong. Now, Walter will review the numbers in more detail and then we'll take your questions.

Speaker 3

Thank you, Jim. Ameriprise delivered very strong financial results across the firm with adjusted operating EPS of 38% to $5.91 excluding unlocking. In fact, we reached new record levels for revenue, pre tax adjusted operating earnings And return on equity in the quarter. We delivered strong flows, earnings growth and margin expansion in our core Wealth and Asset Management businesses. Results in the quarter are a continuation of the excellent trends we have been seeing this year as we successfully execute our growth strategies.

Speaker 3

This is driving our business mix shift, both wealth and asset management representing about 80% of earnings. Retirement and protection performed well and we remain focused on optimizing our risk return trade offs in this environment. We generate robust free cash flow across all our businesses. Our balance sheet fundamentals are excellent with significant excess capital. Combined, this allows Ameriprise to consistently return substantial capital to shareholders With 95% of adjusted operating earnings returned in the quarter, putting us on track to achieve our 90% target for the full year.

Speaker 3

Let's turn to Slide 6. We are focused on growth in our core Wealth and Asset Management businesses and we hit some important milestones this quarter. We are seeing excellent AUM growth, up 21 percent to $1,200,000,000,000 from flows and markets. Clothes in these businesses have improved substantially, up over 200% from a year ago and up nearly 140% on a year to date basis, Representing the successful execution of our growth strategies in each of these businesses. Let's turn to Slide 7, where you can see that we are delivering Profitable organic growth.

Speaker 3

Revenues in Wealth and Asset Management grew 23% to nearly $3,000,000,000 with pre tax operating earnings $744,000,000 up 44%. Importantly, earnings growth from Wealth and Asset Management outpaced revenue growth, Demonstrating the operating leverage of the business and the blended margin for these two businesses expanded 3 70 basis points from last year With Wealth Management up 3 20 basis points and Asset Management up 500 basis points, further illustrating our ability to deliver profitable growth. Turning to Slide 8. This chart clearly illustrates our success executing our growth and business mix shift strategy. Specifically, the Wealth and Asset Management businesses are driving about 80% of the earnings over the past 12 months.

Speaker 3

This is coupled with a stable $700,000,000 contribution from Retirement and Protective Solutions. With that as an overview, Let's review the individual segment performance beginning with Wealth Management on Slide 9. The strategies we have in place to support advisors and improve their productivity Using integrated industry leading tools, technology and training has resulted in increased flows and transactional activity. Total client assets were up over 25% to $811,000,000,000 over the past 2 years. Our advisor force continued to deliver exceptional productivity growth across market cycles.

Speaker 3

Revenue per advisor reached a new high of 766,000 in the quarter, up 24% over the past 2 years. Importantly, over the past 2 years, The annualized organic growth rate for wealth management flows improved to 6% compared to 4% in 2019. This is coming from advisors penetrating their existing client base and adding new clients, complemented by recruiting experienced advisors. And we are pleased that our strategies are translating to this level of organic growth. On Page 10, You can see that we are delivering growth as well as excellent financial results in Wealth Management.

Speaker 3

In fact, revenue and earnings for Wealth Management also reached record levels this quarter. Adjusted operating net revenues grew 23% to over $2,000,000,000 fueled by robust client flows, A 16% increase in transactional activities and market appreciation. Wealth Management pretax adjusted operating earnings increased 43% to $459,000,000 Ameriprise Bank is adding to the growth in Wealth Management, primarily by allowing us to pick up incremental spread and cash Sweep deposits. In total, the bank has nearly $11,000,000,000 of assets after moving an additional $1,100,000,000 of sweep cash Onto our balance sheet in the quarter. In the quarter, the average spread on the bank assets was 144 basis points compared to off balance sheet cash earnings of 28 basis points.

Speaker 3

In addition, we are seeing good growth in banking products, including pledge lending that has Gained substantial traction with our Aviza base since the product was launched in the Q4 of 2020. Expenses remain well managed. G and A expense increased 1% as higher activity based expenses and performance based compensation were largely offset by expense discipline. In the quarter, our pretax adjusted operating margin was 22.4%, an increase of 3 20 basis points from the prior year And 100 basis points sequentially. Let's turn to Asset Management on Slide 11, where significant success is also being realized.

Speaker 3

Over the past 2 years, asset under management increased 18%. We also saw a net flow shift from outflows in 2019 to a 5% organic growth rate this year. As Jim mentioned, we are seeing positive flows across both retail and institutional distribution channels Supported by excellent investment performance and like the industry, we saw a bit of a slowdown during the summer months, though our relative position among our peers remains strong. The operating leverage in asset management is Significant margins for the trailing 12 months, up 44.6%, up 8 30 basis points over the last 2 years. Turning to Page 12, you see these trends generated excellent financial performance and asset management.

Speaker 3

Adjusted operating revenues increased 24 percent to $915,000,000 a result of the cumulative benefit of net inflows, market appreciation And performance fees. On a sequential basis, revenues grew 4%. Importantly, our fee rate remains strong and stable at 53 basis points. Expenses remain well managed and in line with expectations given the revenue growth. G and A expenses were up 14%, Primary from compensation expense and other variable costs related to strong business performance as well as foreign exchange translation.

Speaker 3

Pre tax adjusted operating earnings grew 44 percent to $285,000,000 and we delivered a 49% margin. Moving forward, we expect strong financial performance to continue and anticipate that margins will remain in the mid-forty percent range over the near term, driven by the continued flow momentum and equity markets at these levels. As Jim mentioned, we are on track to close the BMO EMEA transaction in the 4th quarter. This acquisition will add significant capabilities from a strategic perspective And drive improved business fundamentals going forward. Let's turn to Page 13.

Speaker 3

Retirement Protection Solutions continue to reflect Excellent underlying business performance, differentiated risk profile and a continued generation of substantial free cash flow. Pre tax adjusted operating earnings were $192,000,000 excluding unlocking, down from $206,000,000 a year ago. Current year results reflect lower profitability from increased sales levels, whereas results in the prior year benefited from lower sales as well as lower surrenders and withdrawals. In total, unlocking impacts in the quarter were immaterial resulting from consistent client behavior And interest rates that were in line with prior year estimates. We saw a strong pickup in sales of retirement and protection products in the quarter With a continued mix shift towards non guaranteed retirement products.

Speaker 3

During the quarter, the variable annuity sales increased 28% from last year, With 72% of sales and products without living benefit guarantees, account value with living benefits represent only 62% Of the overall book now, down another 200 basis points in the past year. We had similar trends in protection with sales up 77% driven by higher margin DUL sales. This mix in sales and account values for both retirement protection products are expected to continue. Additionally, in the appendix of this presentation, we have provided our annual update on long term care business. You will observe that the business continues to perform in line with expectations from a claims perspective.

Speaker 3

The policy count continues to decline as the book ages And we are garnering additional premium rate increases. Now approximately 90% of the book has extensive or substantial credible experience. And I will note that we did not incorporate recent improvements in mortality and morbidity related to COVID-nineteen into our long term assumptions. Overall, our actual performance continues to be in line with expectations. Let's turn to Slide 14.

Speaker 3

In the quarter, you have seen transactions announced in insurance and annuity space. In light of these announcements, I felt it would be helpful to provide additional context as it relates to how we view our business. As Jim has indicated, we believe our I and A business It's a highly valuable asset with a client solution driven capability that has generated sustainable and predictable financial results And free cash flow generation coupled with a low risk profile. The driver of this is our prudent approach in building all aspects of this business, resulting in a proven track record of superior value creation. The behavior of our clients has been consistent, Reflecting the nature of the product sale as part of the financial plan.

Speaker 3

We have taken a conservative approach Product features, including guarantees and crediting rates as well as requiring asset allocation for living benefits. We have maintained consistent sales level and industry market share over the last decade, avoiding the arms race seen from time to time in the industry. And our economic hedging program has performed well across market cycles with 97% effectiveness over the past 5 years. Finally, we have taken prudent and appropriate actions to manage the risk profile of the business. For example, we stopped Sales of LTC in 2002 and have successfully implemented premium rate actions and increased protection with our LTC reinsurance We also sold our order in home business, reinsured our fixed annuity businesses and have reduced living benefit sales.

Speaker 3

This consistent and prudent approach has resulted in stable earnings with 24% margins and a pre tax return on capital exceeding 50% With consistent free cash flow generation, our balance sheet fundamentals are strong with a high quality investment portfolio And strong risk based capital ratio. This performance is best in class in the industry over many years. We have demonstrated superior return on capital, Dividends paid and capital ratios and our net amount at risk is substantially lower than peers. In summary, This is a very valuable business and we are well positioned. It is now only 20% of our earnings.

Speaker 3

We have demonstrated that the exposure profile is well managed And we completed our annual unlocking with very minor updates. With that being said, we will continue to evaluate options from a position us to make the best decisions to drive all aspects of shareholder value creation. Now let's move to the balance sheet, Another area we have delivered strong results. Our balance sheet fundamentals and risk management capability Our cornerstones of what we do. It starts with how we manage the business to generate substantial free cash flow in each of our segments.

Speaker 3

We had holding company available liquidity of $3,700,000,000 and excess capital of $2,700,000,000

Speaker 4

at the

Speaker 3

end of the quarter. We prudently manage credit risk where we maintain an overall AA- credit quality in our investment portfolio and have a highly effective hedge strategy. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders. As I mentioned, we returned 95% of earnings to shareholders in the quarter and we are on track to hit our 90% target for the full year. We have executed our capital return consistently over the years.

Speaker 3

Our share count declined 28% over the past 5 years, Even with issuing shares to fund share based compensation programs, over the past year alone, the share count declined 5%. In summary, strong fundamentals across our businesses deliver substantial free cash flow. We manage the balance sheet conservatively And we have substantial liquidity and capital flexibility. Combined, these attributes position us to continue delivering A differentiated level of capital return to shareholders going forward. With that, we will take your questions.

Operator

Thank you. We will now begin the question and answer session. And the first question comes from Steven Chubak from Wolfe Research.

Speaker 5

Good morning, Jim and Walter. Hope you're both doing well. Wanted to start off with a question and maybe a multipart question just on the bank growth strategy. Given continued strong growth at the bank of roughly 70 And year on year. As we look out over the next 3 to 5 years, what pace of growth should we be underwriting?

Speaker 5

Where do you See the bank level is getting to on a more steady state basis. And just given the meaningful gap between you and peers in terms of loan penetration And the strong demand for a pledged loan product that you mentioned, what do you see as an achievable loan penetration rate or target over the long term?

Speaker 3

Okay. So with the bank, as you noticed, and we have certainly grown the underlying assets in the bank, We will continue to do that. We have the capability of our overall cash strategy to switch from all foundry to on balance sheet and certainly manage our effective Yield on that basis and give us alternatives. So we do see we have a substantial room to grow as we Take the deposits right now, they're in the $11,000,000,000 range to be increasing that by at least $2,000,000,000 to $3,000,000,000 as we move forward into the years and evaluate the situation. It gives us certainly yield pickup from that standpoint and gives us diversity.

Speaker 3

As it relates to the underlying assets, we are seeing tremendous success as we Look at our off ledge loan activity and margin loan activity, which of course is in the broker deal, but and the other activities we are investing to build that and we will see Significant penetration capability with that as the uplift has taken place since December when we launched the pledge loans It's been very good and certainly the other products that Joe and his team are working on.

Speaker 5

That's great. I'm recognizing it's a multiyear endeavor. Just curious given some of your peers have loan penetration rates around 1% to 1.5% of AUM, do you view that as a credible long term target for Ameriprise as well?

Speaker 6

Yes, we do.

Speaker 5

Okay, great. And just for my follow-up on organic growth sustainability, Certainly encouraging to see you maintain that 5% annualized organic growth rate. Also saw some improving trends in the employee channel as well as I was hoping you could speak to what's driving that improved advisor adds both in the employee channel as well as the financial institution channel. And just given those improving trends, how that informs your confidence level on the sustainability of that mid single digit organic growth rate?

Speaker 2

So this is Jim. We so first and foremost, the organic growth rate that we've been getting, we feel very good about Based on how we're penetrating our own client base today, how we're enhancing and deepening the relationships through our advice modules And the support that we're giving the advisors with our tools and capabilities that really helped them engage the clients more fully. So we feel like what we've made is good investments there. Training and development is really starting to show its fruits. In regard to the external recruitment that has picked up again, which we did as we moved from the virtual back to in person, We're seeing good advisors join us, good quality books, and we feel like we have a good opportunity as People better understand the type of capabilities that we offer, the brand support that we provide, as well as The recognition that we're getting there from a client perspective for trust in regard to our brand, and that's very important.

Speaker 2

We see that both in the advisory employee channel, the franchisee, but as well in the FIG channel. We as you know, it took us a little while to integrate that in platforms and capabilities and now we're actually adding new bank partners and adding advisors to those partners. And so that's actually taking shape kind of nicely for us, and we think there's a good path forward on that.

Speaker 5

Very helpful color. Thank you both for taking my questions.

Operator

Our next question comes from Humphrey Lee from Dolly and Partners.

Speaker 7

Good morning and thank you for taking my questions. My first question is on the G and A expenses in AWM and Asset Management. The overall expenses continue to surprise on the lower side, especially for AWM. The growth was less than 1% year over year and actually down quarter over quarter. I understand that the lack of travel and the delay in returning to the office was a factor, but organic growth activities were very strong.

Speaker 7

So it seems like The expense management continued to yield very good benefits. Just how should we think about the G and A expenses trend going forward? Why the I think in the past you talked about 3% to 4% growth rates, but why isn't that too conservative?

Speaker 3

The 3% to 4% is a good number from our standpoint. Certainly, we do believe we are managing expenses well and certainly making investments. But as you indicated, certainly, T and E expenses and other things have not exactly returned, but we do see that certainly coming back into more steady state. But the 3% and 4% would be a good number in my mind.

Speaker 7

Got it. And then In terms of asset management, so retail flows were very good and you talked about seeing some improvement since the Q2. Can you just talk about what you're seeing in that market And then what do you expect when the flows in EMEA will

Speaker 2

look like once Jim, if we look at the Wholesale flows in EMEA, they've actually were positive and been maintaining a bit more positive over the course of the year. So it was still a bit of an outflow. It did improve over the last two quarters. And as you would imagine, the U. K.

Speaker 2

Went through a bit more of a lockdown in the We see that with the economy starting to bounce back, the pandemic starting to It gets a bit less impactful that we should start to see a bit more pickup there, but that was the weak spot. We've seen good inflows And EMEA, and in certain of the mandates, as well as, in the U. K, we've gotten a big mandate there as well. So

Speaker 5

we Hi, good morning, guys. Thanks for the question. I want to go back to the discussion around the retirement business. Obviously, you guys kind of provide you highlight plus 30% ROE over 3 years in that business. How should we, I guess, think of that as a sort of a metric for us to think about like what you need to see to part with that business?

Speaker 2

We figured that by giving you more information, someone would read something into it different than someone else. So let me try to clarify that And what we try to do really, we think it is significantly better. In that regard, The business is less than 20% of our total today. It is very well managed back from our business. It provides a level of diversity.

Speaker 2

It actually gives us strong cash flows that we use for buyback as a complement to a free cash flows we Generating the other businesses, so it doesn't in overall capital that's deployed there. So one thing we would bring to highlight is as we hold the business, It should not be a discount or an overhang on us is the first thing. The second question is, we're very open to continue to explore opportunities with the book either reinsurance of aspects or even the sale of certain of the businesses or total. But As long as it makes sense from a strategic reasonable value for that. We think it's a good operating business.

Speaker 2

It's really a great Client oriented business that really has great distribution capabilities as part of our solution set, a counted book that we must get rid of for whatever reason because it doesn't detract from us. And in That shouldn't be a discount to the business today as we hold any of a valued price.

Speaker 5

Got it. All right. Loud and clear. Thanks for that. My follow-up is around the Asset Management business.

Speaker 5

We saw that organic growth within Asset Management. Can you just spend maybe a minute on what the soft close really means in this context, Sort of if you were to go back over the last 12 months, maybe spend a minute on how the business may have been diversified a little bit more. So to what extent should we really worry about this product, self closing?

Speaker 2

Yes. I would not worry about it. We've been in sort of a it's still a good flow. It's just that we don't go out and sell to new clients to add new mandates to it. And since we have a really good book with the amount of incremental And so over the course of the year again, we have more than 10 different that may still be in income products, if that's where People are interested versus as well our fixed income business is growing nicely with different types of investments there.

Speaker 2

And each of what we're selling actually has excellent performance.

Speaker 5

Thanks very much.

Operator

Our next question comes from Brennan.

Speaker 8

And great to see The good fundamentals in AWM and the tick up there in FA headcount this year. I guess it seems like from your comments, could you maybe give some additional perspective on your approach to recruiting? Where do you think you might stand versus your primary competitors in the marketplace? I have a bit more of that about headcount growth. Thanks.

Speaker 2

Yes. So We feel very good about the continuation, our ability to continue to get good flows in the business and have good client acts. And the same thing with recruiting. I think we really do have a really strong Value proposition to offer advisors, the biggest thing that we try to get is very differentiated. We think that it really helps an advisor Really improve their productivity and drive a really good strong practice.

Speaker 2

And so that's really there. We don't get overly aggressive like some that will sort of buy the business per se. We look at the economics of that and want to make sure that it is reasonable and appropriate

Speaker 8

And then Following up on some of Stephen's questions around the growth in the bank yields here this quarter and that's really probably before you even saw Some benefit from rates, given how it happened late in the quarter. And so clearly an attractive economic proposition. When we think about this ultimately as a strategic driver of better economics in AWM, how do you think about Where the bank would break down as far as

Speaker 2

We actually reentered the banking business because we felt consistent with what you said that it was a good Strategic opportunity for us to complement our business in the marketplace, grew the business nicely at that point in time. And as you recollect, the bank is kind of new right now. So we're just sort of ramping up. We're putting the products to market, etcetera, moving more deposits over. We think that the margins in that business It would be really good.

Speaker 2

I mean it's been a compressed spread market right now that's starting to open up a bit, including products in the bank And some more deposit gathering products in the bank as well for our retail clients. Now With that, it will continue to take time to develop on balance sheet over time for mortgages and home equities and other things like that. So we do have our plans going out, and I think it will be a great complement to the business.

Speaker 5

So the other options

Speaker 2

for the business? I think from A movement of off balance sheet to balance sheet that will become the majority of where the deposits go. So that Exactly to your point. Yes, increase the number of different products we put out there for what we're going to penetrate. That's what we're working on now.

Speaker 2

But we feel like we can get some good penetration based on some of our past experience and what we worked with partners on.

Operator

Our next question comes from John Barnidge from Piper Sandler.

Speaker 7

Can you talk maybe about

Speaker 2

Yes. So we're hopefully be able to close this In short order, over the next few weeks, we're just waiting for one more regulatory approval. And once we have that on the books, We can start to give you more information on it. As you would imagine, with privacy and other things in the European market, that's It's been one that we can't really get into or even know some of the line. But from the Sales activity that they've been garnering over the last number of quarters, even though this transaction was done, has been very positive and favorable.

Speaker 2

So they've been in nice inflows there, and that bodes well for us to assume the business. And So we think that that can continue. We like a lot of their capabilities that we're already thinking about how we would integrate that in and carry Some of those capabilities, not just across our European business, but actually into the U. S. And from a U.

Speaker 2

S. Perspective, we think that a number of their U. S. Assets are going to transfer over to us. We've been working at a client by client approval and activities, but that looks very favorable and we'll be able to give you more information as we get closer to the end of the year.

Speaker 8

Great. Thanks.

Operator

Our next question comes from Andrew Kligerman from Credit Suisse.

Speaker 4

Hey, good morning. Just staying on the BMO EMEA transaction, I think it's a $700,000,000 plus layout of capital. Do you have an appetite to do any more transactions? And where might that be?

Speaker 2

So, we actually want to focus right now in the international market of Closing and integrating in the BMO transaction. We have good plans to do that and leverage that capability of working with the people there. We think that they add good complementary investment processes and people and capabilities and that's our first order of business. Having said that, as we have said, we have flat capital flexibility. If something else comes along that would be complementary, that fits, We would definitely look to explore it.

Speaker 2

Having said that, we're not out in search of something to do right now. But you never know when opportunities may arise. But if we're looking at the European part of that equation, we're really focused on that integration.

Speaker 4

I see. And if something were to come your way, any particular areas of note that you would strongly consider?

Speaker 2

Well, again, what we're continuing to do is look at what could be complementary in either Distribution or product capability, some of the maybe alternative space or solutions. But again, we feel like we got a pretty good makeup, and what BMO actually provides is a Compliment to the areas that we wanted to further invest in. And so that's why, again, it would have to be really Opportunistic rather than that we're in the hunt for something that we need right now.

Speaker 4

Got it. And then just and maybe I missed this in the EMEA conversations, but and you talked about flows exceeding your expectations, But at some point, there would have to be some breakage. Could you give us a sense of How much breakage we might expect over the next year or 2 in the BMO EMEA operations?

Speaker 2

Well, as you would imagine, any time we go into a transaction, a deal not knowing, we always Factor in a level of breakage, etcetera, and still feel very good about the arrangement that we've made And adding it to our equation. Having said that, we feel like from what we know today, That looks less negative and more positive than what we always initially assume. But again, it's early stages. But I think what's important is that this will be complementary to us. We're not integrating and consolidating investment processes and people.

Speaker 2

We're adding them. We're keeping everything in tow as it is to really support clients the way they've been supported, add those processes and investment Professionals to our capability, and we also feel like we can add some further support to what they've done in EMEA to complement their business that will be very helpful for their clients. So, we feel very Positive at this stage. As we get further into, Douglas will always give you that provide you that color.

Speaker 4

Got it. Thanks.

Operator

Our next question comes from Ryan Krueger from KBW.

Speaker 9

Hi, good morning. Given the 7 47 percent RBC ratio at Riversource that right now following the fixed annuity deal, do you Plan to take higher than normal dividends up to the holding company this year and work that back down to a more typical level?

Speaker 3

Yes. The short answer is yes. Obviously, with the transaction on the fixed annuities that created that situation, so we will be adjusting it.

Speaker 9

Thanks. And then just one follow-up on Riversource. I guess in recent quarters, you've talked about Inbound interest in Riversource from 3rd parties, can you just give a little bit of an update on that? And in particular, I guess, are you receiving interest from strategic buyers or just financial buyers?

Speaker 3

It's been the multiple of it, And they are continuing certainly as it relates to as you've seen the activity in the quarter. So it's on both sides of it.

Speaker 9

Great. Thank you.

Operator

Our next question comes from Kenneth Lee from RBC Capital Markets.

Speaker 6

Hi, good morning. Thanks for taking my question. Just one on the asset management side. The operating margins were very strong. Just wondering, was it simply a case of operating leverage?

Speaker 6

Or were there any other particular drivers that you'd call out? Thanks.

Speaker 9

Now, the

Speaker 3

operating leverage and the margins have been quite strong. And then certainly, again, we've Targeted 35% to 39%. It's been running in the mid-40s. That is certainly a factor of the market situations, which we expect will continue If the market's shifting levels.

Speaker 9

Got you. Great.

Speaker 6

And just one follow-up, if I may. Wondering if we could just delve a little bit more in To the organic growth improvements you're seeing within the Advice and Wealth Management side, wondering if you could just outline what you think were the main contributors And that increase in growth rate over the past 2 years? And do you think that we could still see similar rates going forward? Thanks.

Speaker 2

Yes. I think we feel very good about that, the growth rates and the continuation. And we feel a lot, Don't get me wrong, the markets are good, but we feel a lot has to do because you've seen a nice uplift from where we were Based upon the integrated technology and the solution and the advice modules we've been put It's a market that really helped the advisors engage a larger part of their client base and deepen appropriately. We also have added a lot of capabilities for them in our CRM systems, etcetera, to reach out to even more prospects And move up market more. And so we're seeing a combination of things that are adding to that total flow picture.

Speaker 2

But what's really important is the level of client and advisory engagement on things. And So, we think that, that has given us that level of uplift.

Speaker 6

Great. Very helpful. Thanks again.

Operator

Our next question comes from Tom Gallagher from Evercore ISI.

Speaker 10

Good morning. Just a follow-up on potential risk transfer. So From what we're seeing and hearing, it looks like pretty attractive pricing on what's the majority of your business, which would be variable annuities And life insurance, but less so, we hear the market for long term care transactions It's pretty challenged and obviously you haven't had a deal in that market for quite some time. Is one option for you retaining Long term care and selling the rest of your business? And if so, would that be a tough deal to structure?

Speaker 10

Or is that doable?

Speaker 3

Well, listen, there's a lot of options coming in as we talk about it. You're correct. LTC is certainly evolving at a slower pace than the others. But the good thing about it is the strength of what we believe is our position with that business. So Yes, we could structure something of that nature, but right now, I don't want to get into speculation of it, but the good thing about it is, it's performing the way we thought it would and we feel comfortable with it.

Speaker 10

Thanks for that, Walter. And then just a follow-up. The one I

Speaker 8

kind of agree with everything

Speaker 10

you have on your slide in terms of the, let's say, the positive attributes of your business

Speaker 7

relative to some of

Speaker 8

the other businesses that have

Speaker 10

been sold. Probably the most To some of the other businesses that have been sold, probably the most unique aspect is your distribution and I think that generally better margins Is there do you think if something does evolve here that you would get paid something in addition For that distribution, and if so, is there any way to think about that?

Speaker 2

Tom, again, you're right on Point, I mean, we actually have one of the best channels if you want to sell a longer term solution. And the capability there is there for someone that really wants to continue To be in the business in a good way, and based on the type of offering, our clients look for reasonable appropriate benefits, Reasonable corporate pricing and consistency of delivery. So, yes, it would be probably if someone's in this business, it's probably one of the best

Operator

Our next question comes from Eric Bass from Autonomous Research.

Speaker 8

Hi, thank you. Just one more follow-up on RPS. I think in the slide you highlight the very Strong cash flow from this block, which has been over 100 percent of GAAP earnings, and it's a lot higher than peers. So just wondering what's allowing you to generate this level of cash And is this a sustainable level moving forward if you

Speaker 10

hold sales and flow is roughly stable?

Speaker 3

Yes, it is. And certainly, we feel as you look at We've been maintaining our RBC ratio. It is certainly the quality of the book and the cash flows within them. So we feel very confident with the capital requirements Looking at it from a staff standpoint, I know that this is a sustainable proposition. Obviously, there's been ins and outs as it relates to other aspects as Auto and Home and other things of that nature, but on a regular steady state basis, yes, it's in the range.

Speaker 10

Got it. So you think of it

Speaker 8

as sort of 100 percent free cash flow conversion ex kind of the reinsurance deals that you've done in the past?

Speaker 3

In a range, yes.

Speaker 8

Got it. Thank you.

Operator

We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Ameriprise Financial Q3 2021
00:00 / 00:00