Walter S. Berman
Executive Vice President and Chief Financial Officer at Ameriprise Financial
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, pretax 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 continuation of the excellent trends we have been seeing this year as we successfully execute our growth strategies. This is driving our business mix shift with 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 generated 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.
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 of 21% to $1.2 trillion from flows and markets. Flows 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. Revenues in Wealth and Asset Management grew 23% to nearly $3 billion with pretax operating earnings of $744 million, up 44%. Importantly, earnings growth from wealth and asset management outpaced revenue growth, demonstrating the operating leverage of the business and the blended margins for these 2 businesses expanded 370 basis points from last year, with wealth management up 320 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. This is coupled with a stable $700 million contribution from Retirement and Protection Solutions.
With that as an overview, let's review the individual segment performance beginning 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 billion over the past 2 years. Our advisor force continued to deliver exceptional productivity growth across market cycles. 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, in fact revenue and earnings for Wealth Management also reached record levels this quarter. Adjusted operating net revenues grew 23% to over $2 billion fueled by robust client flows, a 16% increase in transactional activities and market appreciation. Wealth management pretax adjusted operating earnings increased 43% to $459 million. Ameriprise Bank is adding to the growth in wealth management primarily by allowing us to pick up incremental spread cash deposits. In total, the bank has nearly $11 billion of assets after moving in an additional $1.1 billion 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. In addition, we are seeing good growth in banking products including pledge lending that has gained substantial traction with our advisor base since the product was launched in the 4th quarter of 2020. Expenses remain well managed, G&A expense increased 1% as higher activity based expenses and performance-based compensation are largely offset by expense discipline. In the quarter, our pre-tax adjusted operating margin was 22.4%, an increase of 320 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. 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 remain strong. The operating leverage in asset management is significant with margins put a trailing 12 months of 44.6%, up 830 basis points over the past 2 years.
Turning to Page 12, you see these trends generated excellent financial performance in Asset Management. Adjusted operating revenues increased 24% to $915 million, 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 remained strong and stable at 53 basis points, expenses remain well managed in line with expectation giving to revenue growth. G&A expenses were up 14% primarily from compensation expense and other variable costs related to strong business performance as well as foreign exchange translation. Pre-tax adjusted operating earnings grew 44% to $285 million and we delivered a 49% margin. Moving forward, we expect strong financial performance to continue and anticipate that margins will remain in the mid 40% 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. Retirement Protection Solutions continued to reflect excellent on the line business performance, differentiated risk profile and a continued generation of substantial free cash flow. Pre-tax adjusted operating earnings were $192 million excluding unlocking down from $206 million a year ago. Current year results reflect lower profitability from increased sale 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. 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% percent of the overall book now down another 200 basis points in the past year. We have similar trends in protection with sales up 77% driven by higher margin VUL 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, 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-19 into our long-term assumptions. Overall, our actual performance continues to be in line with expectations.
Let's turn to slide 14. In the quarter, you have seen transactions announced in insurance and annuity space. In light of these announcement, I thought 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&A business is 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. We have taken a conservative approach to 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% effect in this 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 partner. We also sold our Auto & Home Business, reinsured our fixed annuity businesses and have reduced living benefit sales. This consistent and prudent approach has resulted in a stable earnings with 24% percent 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, 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 of strength 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 are cornerstones of what we do. It starts with how we manage the business to generate substantial free cash flow in each of our segments. We had holding company available liquidity of $3.7 billion, an excess capital of 2.7 billion at the end of the quarter. We prudently manage credit risk where we maintain an overall AA minus 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. 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 delivered 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.
