Ameriprise Financial Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
January 26, 2023

There are 13 speakers on the call.

Operator

Welcome to

Speaker 1

the Q4 2022 Ameriprise Financial Inc. Earnings Conference Call. My name is Dennis, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer As a reminder, this conference is being recorded.

Speaker 1

I will now turn the call over to Alicia Charity. Alicia,

Operator

you may begin.

Speaker 2

Thank you, operator, and good morning. Welcome to Ameriprise Financial's 4th 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, On Slide 2, you will see a discussion of forward looking statements.

Speaker 2

Specifically during the call, you will hear references to various non GAAP financial measures, which we believe provide insights into the company's operations. Reconciliation of the 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. 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 Q4 earnings release, our 2021 annual report to shareholders and our 2021 10 ks report.

Speaker 2

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 Q4. 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. Many of the comments that management makes on the call today will focus on adjusted operating And with that, I'll turn it over to Jim.

Speaker 3

Good morning, everyone, and thanks for joining our Q4 earnings call. As you saw in our release, Ameriprise delivered a strong Q4, completing an excellent year in 2022. We continue to navigate uncertainty and serve our clients exceptionally well. I'll give you an update on the business and then Walter will discuss our financials. Let me start with the market environment.

Speaker 3

Equity markets were down 19% year over year with the average equity markets down 3% sequentially. So far this year, we're starting to see markets rebound to some extent as inflation eases. However, inflation is still at a high level. The question is, will the Fed have to continue to raise rates a bit more or will they maintain higher rates for longer if inflation remains stickier? With that backdrop, Ameriprise continues to be in a strong position.

Speaker 3

Revenues were good at $3,600,000,000 only down 2% from a year ago relating to the impact of the equity and fixed income markets. Earnings up nicely with EPS up 13% for the quarter And 11% for the year, both are new records and ROE continued to be excellent among the best in the industry. Importantly, we're also managing expenses well with total expenses down 5% compared to a year ago. Assets under management and administration were down to $1,200,000,000,000 largely driven by the steep decline in equity markets, Lower fixed income markets and a difficult foreign currency translation and asset management. As in previous quarters, our combination of businesses Generates a consistent level of free cash flow and good returns across market cycles.

Speaker 3

We're able Consistently invest in the business which is strengthening our competitive position and our ability to deliver differentiated results. Now I'll talk more about our businesses. In Advice and Wealth Management, we continue to deliver very strong results and build on our leadership positions. We had good client flows in the quarter as clients remained engaged working closely with their advisors and benefiting from our comprehensive advice and solutions. Total client flows for the quarter were more than $12,000,000,000 which is very strong and in fact the 2nd highest quarter we had And just below our record Q4 last year.

Speaker 3

And I'll highlight that client flows were record for the year at nearly $43,000,000,000 With the investment climate this year, we've seen an even split into the mix of flows into advisory and non advisory accounts, which is appropriate in this environment. We're maintaining appropriate level of cash balances with good growth in our certificate business and the Ameriprise Bank, which is a key growth area for us. With regard to the bank, we've been consistently investing to expand our capabilities. The bank provides important flexibility in this interest rate environment And enables us to further engage and deepen our relationships with clients.

Operator

Our

Speaker 3

bank has grown more than 50% this year to nearly $19,000,000,000 We have good growth in our pledged loan business, and we're on track to launch more deposit and lending based products this year. Our certificate company has also grown to nearly $10,000,000,000 up $4,000,000,000 for the year. Clearly, 20 22 is a very challenging year for investors to navigate the market volatility. That's why our high level of engagement advice is so important. Clients highlight the positive experience they're having with Ameriprise and our advisors and that satisfaction leads to a strong level of trust Which we're being recognized for.

Speaker 3

And just recently, we ranked number 2 for trust in 2022 in Forrester's new Financial Services And that complements our Newsweek rating as one of America's most trusted companies last year. Let's look at advisor productivity, which also remains strong, up 4% to nearly 830,000 per advisors In a challenging market environment, one of the reasons our advisors are so productive is the level of support and tools we provide. We're making important investments including our branding, marketing and integrated technology. We're helping advisors engage clients really well and driving growth in their practices. And for the 4th consecutive year, Ameriprise was recognized by J.

Speaker 3

B. Power for providing outstanding customer service Turning to recruiting, we had another good quarter with 72 highly productive advisors joining the firm. Advisors are attracted to our value proposition and the strength and stability of the firm and the pipeline looks good. So overall, we are consistently investing in the business, including the bank, which is helping to drive organic growth and continually generate strong results. Advice and Wealth Management continue to drive the firm's results with earnings up 41% year over year.

Speaker 3

Now let's turn to Retirement and Protection Solutions where earnings were up 25% in the quarter due to the improved rate environment and our ability to invest out. As part of our strategy, we focused on products that meet our risk tolerances. Overall, sales were down consistent with the industry. We're very much focused on variable annuities without living benefits, our structured products, our variable universal life and DI products Given our move away from fixed products, this business is very stable and delivers a very good cash flow and returns. I'd note that Riversauce was recently ranked as one of the most profitable life insurers.

Speaker 3

Now I'll cover asset management. 2022 was a tough year when navigating the volatility as we focused on our clients and execute our strategic priorities. Similar to the industry, our asset management business faced significant headwinds due to markets depreciating in the U. S. And globally, which pressured earnings.

Speaker 3

Equity markets were down 19%. With this, assets under management were down 23% The $584,000,000,000 driven by market declines as well as a negative FX impact. Overall flows in the quarter were $400,000,000 out that included $1,700,000,000 of legacy insurance partner outflows. In retail, Overall, we were in net outflows of $3,700,000,000 including reinvested dividends, which were driven by the weak market conditions that both pressured gross sales And increased redemptions. In addition, in the U.

Speaker 3

S, we believe there was a heightened level of tax loss selling in December. Turning to Global Institutional, we were in net inflows of $5,000,000,000 excluding legacy insurance partners with some nice wins in LDI strategies. With regard to investment performance, we continue to have solid 3, 5 10 year numbers. However, we have weakness in 1 year's numbers Given market volatility. In Asset Management, we are maintaining our expense discipline while continuing to invest in long term priorities.

Speaker 3

They include our investment research, alternatives responsible investment, globalizing our operations and BMO integration, which is on track. We have a strong lineup of products and capabilities, a clear focus on serving our clients, and as the environment improves, we will be well situated. Overall, Ameriprise is in a position of strength entering 2023 and we're very much focused on engaging our clients and continuing to execute well in this environment. And with the strength and diversification of our business, including the growth of the bank, We continue to be able to invest across the firm, while continuing to return capital to shareholders at a differentiated level. In the Q4 alone, we returned $610,000,000 to shareholders.

Speaker 3

I'll turn it over to Walter and then we'll take your questions.

Operator

Thank you, Jim. Results this quarter were very strong and we continue to demonstrate the strength of the Ameriprise value proposition. Adjusted EPS increased 13% to $6.94 in the quarter and increased 11% for the full year. Our diversified business mix supports good performance across market cycles, which was certainly demonstrated in the quarter. Fundamentals and Wealth Management, particularly in its cash businesses, were very strong.

Operator

In total, Wealth Management now represents 64% of adjusted operating earnings, up from 48% a year ago. Asset Management, like the industry, is facing substantial headwinds and earnings from this segment declined in the quarter. And the Retirement and Protection Solutions business continues to generate solid financial results and free cash flow. We remain focused on the aspects of the business that we can control. We are executing our priorities, Including investing for profitable business growth, expanding the bank and completing the integration of BMO, All while meeting and exceeding client needs and maintaining a disciplined approach to managing expenses.

Operator

In fact, Total expenses excluding BMO were flat for the year. Our balance sheet fundamentals and free cash flow generation remains strong. In the quarter, we returned $610,000,000 of capital to shareholders, totaling $2,400,000,000 for the full year, While continuing to grow the bank and certificate company, we have dedicated significant capital to grow these businesses. Let's turn to Slide 6. As you would expect in these markets, assets under management and administration ended the quarter At $1,200,000,000,000 down 17%.

Operator

This was driven by depreciating markets with equity and fixed markets Down 19% 12%, respectively. Additionally, asset management AUM levels We're impacted by the weakening of the pound and the euro, with 36% of asset management AUM outside the U. S. At the end of the year. Despite the lower AUMA levels, operating net revenues declined only 2% to 3,600,000,000 As a result of higher interest earnings and pre tax earnings reached a new high of 973,000,000 Reflecting the diversified revenue dynamics I discussed coupled with the excellent expense discipline.

Operator

Let's turn to Advice and Wealth Management on Slide 7. Wealth Management continues to deliver strong organic growth and business momentum, A reflection of our differentiated value proposition. With the challenging market backdrop, Klein's assets declined 12% $758,000,000,000 in 2022. However, we have sustained growth of 4% over the past 2 years. Total client net flows remain very strong at over $12,000,000,000 in the quarter and reached a record $43,000,000,000 for the full year.

Operator

While we continue to see a solid level of flows into wrap accounts, there has been a distinct pickup in flows Going to brokerage accounts and certificates as clients navigate the market backdrop. Revenue per advisor reached 827,000 On Slide 8, you can see Wealth Management profitability was exceptional, up 41% and reached a record margin of 30% As strong organic growth and higher interest earnings exceeded pressure from market depreciation and lower transactional activity. Adjusted operating expenses declined 5%, with distribution expenses down 10%, Reflecting lower transactional activity and lower client assets, G and A increased 11% in the quarter And for the full year, G and A grew 8%. Expense growth in the quarter was driven by continued investments in the bank And higher volume related activity from strong organic growth. Additionally, the prior year included unusually low expenses Relating to staff levels and T and A.

Operator

Cash balances in the quarter increased year over year and sequentially to 47,000,000,000 Which included $10,000,000,000 of certificate balances. Cash sweep balances have declined slightly, Bringing it closer to historic levels, however, certificates have grown 76% year over year as clients are laddering liquidity To garner higher yields, as a complement to our certificate offering, we are continuing to build out our savings and deposit products in the bank this year to meet the growing client appetite for yield. As a reminder, the majority of our ClientSweep cash balances are working cash accounts with the average account size being only $8,000 And constituting over 60% of our total cash balance and our crediting rates continue to remain competitive with continuous benchmarking against the industry. This has translated into higher interest earnings in the quarter. The gross fee yield in the quarter reached 3 73 basis points, Up 300 basis points from the prior year and over 100 basis points sequentially with bank and certificates driving most of it.

Operator

The bank ended the year with assets of $19,000,000,000 with additional capacity to grow further. This provides flexibility to capture the benefits of rising interest rates by investing in high quality, longer duration securities. These investments will create sustainable multiple year benefits regardless of interest rate changes over that period. New money purchases in the quarter were approximately 250 basis points above the spreads from off balance sheet cash. This has been supplemented with strong growth within our certificate company with assets growing to nearly $10,000,000,000 in the quarter And a gross fee yield of nearly 400 basis points.

Operator

As we move into 2023, We are on a trajectory to generate growth in interest earnings from the bank and garner incremental yield while continuing to maintain high credit quality. In the first half of the year, we are moving $3,000,000,000 onto the bank's balance sheet. We expect to transfer additional balances in the back half of twenty twenty three. And as we previously indicated, we will reinvest approximately $3,000,000,000 of maturities into higher yielding assets throughout the course of the year. Let's turn to Asset Management on Slide 9.

Operator

In 2022, the backdrop remained challenging for both us and the industry. AUM was $584,000,000,000 down 23%. This decrease was driven by double digit equity And fixed income market depreciation, as well as negative pound and euro foreign exchange impacts. Flows during the period remain challenged as global institutional net inflows during 2022 We're more than offset by ongoing retail pressure. As a reminder, 2021 net flows benefited from the 17,000,000,000 BMO U.

Operator

S. Asset transfer, which had limited impact in 2022. On Slide 10, you can see asset management financials reflect the continuation of the challenging market environment and reflect deleveraging that occurs in this business. Earnings were 146,000,000 A 56% decline as a result of market depreciation and net outflows. In addition, The prior year period included $35,000,000 in performance fees, while the current quarter only included 5,000,000 As well as $12,000,000 of unfavorable mark to market adjustments.

Operator

As a result, margin in the quarter declined to 29%. Importantly, we are focused on the areas we can control and on executing our strategic priorities. Expenses remain well managed. Total expenses were down 12% with G and A and other expenses down from continued expense disciplines, lower performance fee compensation and timing of mark to market expenses. As a reminder, results last year include a partial quarter of BMO related expenses.

Operator

As we move forward, we will continue to make market driven trade offs and discretionary spending and remain committed to managing expenses Very tightly based on the revenue environment. Let's turn to Slide 11. Retirement Protection Solutions earnings increased 25% With strong cash flow generation and a clearly differentiated risk profile, results in the quarter were driven by enhanced yield From repositioning of the investment portfolio, lower deferred acquisition cost amortization and lower sales levels, We remain well capitalized with an estimated RBC ratio of 5 45% at year end. Consistent with the industry, sales in the quarter declined as a result of the volatile market environment as well as the impact from our actions to discontinued sales of variable annuities with Whittem Benefits. Now only $43,000,000,000 of account value is in products with living benefit guarantees, a $14,000,000,000 decline from past year.

Operator

Protection sales remain concentrated in higher margin asset accumulation, BUL, which represents 1 third of total insurance in force assets. The increase in investment income was a direct result of the actions taken to reposition the investment portfolio. In the quarter, we repositioned $600,000,000 primarily into longer duration corporate bonds, while maintaining a high quality portfolio. These actions will generate higher investment income On Slide 12, our balance sheet fundamentals remain strong and our diversified AA rated investment portfolio is well positioned. During the quarter, new money purchases were AA plus rated At yields that were accretive to the overall portfolio.

Operator

Despite continued market volatility in the quarter, VA hedging effectiveness Remain very strong at 97% and excess capital and holding company liquidity remains strong. Our diversified business model generates significant This enables the company to deliver a consistent and differentiated level of capital return to shareholders, We'll continue to invest for growth. During the quarter, we repurchased 1,600,000 shares, Returning a total of $610,000,000 of capital to shareholders, bringing the total for the year to 2,400,000,000 Our capital return strategy over the past 5 years has reduced our share count by 28%. With that, we'll take your questions. Thank you.

Operator

We will now begin the question and answer session.

Speaker 1

If you are using a speakerphone, you may need to pick

Operator

up the handset first before pressing the numbers.

Speaker 1

And your first question is from the line of Brennan Hawken with UBS. Please go ahead.

Speaker 4

Good morning. Thank you for taking my questions. You flagged the certificate growth in the wealth business, and that's certainly consistent with what we've seen at other wealth management firms. So would you expect that as long as rates Stay high, that that type of a shift and that type of growth should be sustainable. And how should we think about The corresponding impact of that mix shift on your deposit beta, saw that the deposit beta seemed to take a step up this quarter.

Speaker 4

And so should we continue to think that that will move higher?

Speaker 5

Yes, this

Operator

is Walter. So the answer is yes, you should with our CDs continue to see that sort of And certainly and you'll see in our bank, we are developing products within have them coming out in 2020, which will also enhance capabilities for Our advisors and their clients to certainly navigate this situation on interest rates and giving them choice. And from deposit beta standpoint looking on sweep, we are certainly we are up. We are certainly being competitive from that standpoint, but We are offering a wide choice and we see good significant opportunities as we move forward.

Speaker 4

Yes. That makes sense. And like I said, that's consistent with many of your competitors in the wealth space. So When we think about shifting gears a little bit, the follow-up and staying in wealth, strong overall net new asset trends, certainly have been encouraging 7% annualized growth in that business in what has been a challenging quarter for some competitors. As I understand it, it's not really recruiting driving the numbers, but rather advisors growing their practices and expanding wallet So what have you done to sustain and hopefully encourage that trend into the future?

Speaker 3

So, this is Jim. We are very much focused on continuing really around having the advisors engage with the client through this This market cycle and really providing the advice they need. Part of the journey really is how do you think about achieving your goals over time, Not just based on a quarter or the market situation in the current time. And so that engagement and the tools and capabilities that we've provided Help them do that, I think is paying really good dividends. And so as you saw last year, we had a record amount of client inflows for the full year And the Q4 was really strong at $12,000,000,000 It's actually the 2nd highest quarter we had.

Speaker 3

The highest was actually Q4 of last year. And that was only a $500,000,000 more. So we want to continue that journey around that advice value proposition and the engagement, and Helping the advisors really do that more consistently over time.

Speaker 4

Great. Thank you for taking my questions.

Speaker 1

Your next question is from the line of Steven Chubak with Wolfe Research. Please go ahead.

Speaker 6

Hey, good morning, Jim and Walter. This is Michael Nandanistakis on for Steven. I just wanted to start with one around AWM here. Certainly, the margin expansion in AWM was very impressive. You hit 30% roughly.

Speaker 6

Assuming the Fed pauses here, What do you view as a peak pretax margin in wealth inclusive of the ongoing suites you plan to make at the bank? Thanks.

Operator

Sure. So it's Walter. What we achieved in the Q4, we certainly see as Sustainable and as it relates to 2023 and certainly the cash side of it is contributing to that, but we're also having strong productivity and growth in our There is a shift and now going with us going to basically the bank Generating earnings, Inc. Certificates, Journey. So if the Fed does pause, we think we are well positioned with the sustainability of that profitability that is now basically It has a duration play that will take it over multiple years.

Operator

So we feel comfortable. Obviously, it will have some impact. We have to evaluate as it looks not just what the Fed's doing in the short end, What happens on the long end, but we feel we're in excellent position as we grow those two activities to ensure that sustainability and profitability.

Speaker 6

Got it. Thanks. So and for my follow-up, I just I want to shift gears maybe to Retirement and Protection here. You had noted that results in Retirement and Protection only captured a portion of the actions you had taken in the portfolio. How much incremental benefit should we expect next quarter?

Speaker 6

And what do you believe could be the new run rate for that business versus that 180,000,000

Operator

Yes. So we certainly Did the start of the investments and we weren't completed in the Q4. We still have some ways to get a little ways to go in Q1. But Yes. So we will see that probably what you're estimating the run rate that we talked about at 180, but it's probably with that improvement that's taking place With the yield, there's always areas going in and out, but I'm comfortable with as I've seen people being in the $200,000,000 range, but it's over a 1 year So I would say more like the $800,000,000 range for the year.

Speaker 6

Okay, got it. Thanks again for taking my questions.

Speaker 1

Your next question is from the line of Suneet Kamath with Jefferies. Please go ahead.

Speaker 7

Yes, thanks. So going back to Advice and Wealth Management again, when we think about on balance sheet Deposits versus certificates, I think both had similar gross fee yields, but how do the rates that you're paying on those compare? And as we think about those 2, are you fairly agnostic in terms of margin benefits to you between those two products or is one more favorable than the other?

Operator

Are you saying certificates on bank or just yes, okay. Clearly, the bank has a higher margin Then the certificates, and that's where certainly we're concentrating on our growth, but we are getting very strong results and we have very good margins in the CD Business. And so the answer is, we feel we have the capacity to grow those 2 and NAND is going to Larger and larger percentage of the profitability that's being generated. Certainly, we will be generating good earnings in the sweep activity, but the real growth Potential is coming in primary bank and we will get lift in CDs, but the margin is better In the bank versus the CDs because of different investment strategies and liquidity strategies.

Speaker 7

Yes. And is there a way to dimension that margin differential?

Operator

No, I don't have it really, but I'm just telling you it is better at the bank and

Speaker 3

We can take a look

Operator

at that and see if we can give more insight onto that.

Speaker 7

Yes, makes sense. And then I guess you talked about an $800,000,000 investment in both the bank and the Tifigates business over the course of the year. Is that something that you expect will continue into next year or any way to think about the level of capital investment that you expect for 2023.

Operator

Yes. So the short answer is yes. We will be continuing it. It's obviously a matter of equity and cash that goes in. And it is considering and we have the capacity to do that and it's really from our standpoint It is giving us very good returns.

Speaker 7

Got it. And then maybe if I can sneak one more in. On The long term care business, it looks like you're taking advantage of extending portfolio duration there as well. Should we read into that as the Sign that maybe a risk transfer solution is less likely, or is that reading into it too much?

Operator

Yes, possibly listen for the longest time we've kept short duration because where the 3rd year was and now we're taking advantage and both in And LTC and with the protection, so we are lengthening our duration, but it's we're running the business and from that standpoint and you can see we're garnering Good profitability, both on the claims side as we demonstrated in the Q4 and certainly now with the investment capabilities that it's providing us. So, no, if something comes along, it's great. We'll take a look. But right now, we're managing it and we're taking advantage of the opportunity this year.

Speaker 7

Okay. Thanks, Walter. Thanks, Walter.

Speaker 1

Your next question is from the line of Eric Bass with Autonomous Research. Please go ahead.

Speaker 5

Hi. Thank you. In Investment Management, I think you mentioned about $12,000,000 of negative one time items. But even adjusting for these, I think the margin was at the low end of your target range. So how are you thinking about margins for 2023?

Speaker 5

And should we be expecting some improvement Given the AUM rebound that you saw in Q4 and then the emergence of BMO synergies over the course of the year?

Operator

It's an interesting situation at this stage because of the dislocation is taking course, especially as you look at the equity markets, you look at Fixed income, depreciation and foreign exchange. So but there's a lot of actions that we're taking and managing through, but it's the margins are, From that standpoint, it's deleveraging, just like the industry is. But I would say that at this point, as we look at it, It's heavily dependent on certainly things we don't control, but we are for the things we do control, like you mentioned, BMO synergies and other things of that nature, we are on track. So we feel comfortable from that standpoint. So I think it's just a lot of variables now, but we are certainly cognizant that the margins that breached through, But that's related to a lot of market activity that we are now managing?

Speaker 3

We see, Sam, listen, again, we don't know if it will hold or not, but you've seen some pickup on The international market front, as far as appreciation occurred as well as, the improvement in the pound, etcetera. So we think that's A little of the headwinds have relieved a bit. That will be helpful. And we're not changing our range as we move forward.

Speaker 5

Got it. Thank you. And then maybe moving to Capital Management. I think for the full year, you returned about 85 Percent of earnings to shareholders in the 4th quarter, the percentage was a little bit lower. So should we still think about 90% being the Target or has this come down at all given the capital being allocated to the bank and or the uncertain macro outlook?

Operator

Okay. You got it.

Speaker 3

So, as we look at We've been one of the highest returning companies out there in capital, and even last year was very strong. So as we look Forward, we have flexibility. But as Walter said, we're continuing to grow the bank, which is going to require Some additional capital, but the returns are strong as well as our certificate company, which are all good uses of capital. In the past years, we had freed up capital. We used some of that to purchase the BMO, as well as now growing the bank tremendously.

Speaker 3

So we think that we're going to generate continuing good free cash that we will return to shareholders, but as far as the percentage and rate will depend on how we utilize that both for our core investments in the business, as we said, as well as return to shareholders. So it is coming down from where it was because of those other growth opportunities, but we'll So be a strong returner. So I'd leave it at that at this point in time.

Speaker 5

Got it. Makes sense. Thank you.

Speaker 1

Your next question is from the line of Tom Gallagher with Evercore ISI. Please go ahead.

Speaker 8

Good morning. Walter, just coming with a follow-up on retirement and protection, the $800,000,000 or so run rate For 2023, does that contemplate any LDTI accounting impacts? If it doesn't, can you give us some indication up or Whether that will have a negative or positive impact. And if $800,000,000 is the right number, why was there 29,000,000 of over earning this quarter. Was it all back or maybe if you could quantify that?

Operator

No. So there's That does not contemplate LDTI. We're still evaluating that and from that standpoint, so it does not. And we'll obviously Settle on the approach that we're going to take before the quarter. As it relates to the why it's lower, again, we're on a part of that Profitability improvement was lower sales.

Operator

And so we're looking at activities as it relates to that. And so that gives a positive PTI in that situation. Plus there was So, anomalies, as you basically look at with the changes and the huge change in equity markets and other things that took place, it gave a lift on SOP. So from that standpoint, I'm just saying we're comfortable with the that what you guys are indicating in that $800,000,000 range for the year And we'll continue that and we're getting that lift. There's no question about it

Speaker 8

for the investments that we repositioned. And Walter, does the 800,000,000 contemplate a little bit of extra spread that you would expect to still get or is that more of a 4Q static look at it?

Operator

No, it's the continuation of the volume of it. But actually at this stage, since that point, certainly since we're still investing, The spread has come down in from that, but we still feel very confident in the ability to generate what I just said on the $800,000,000 for the year. Okay.

Speaker 8

And then my follow-up is, how should we think about the fees and margins of the wrap versus the brokerage flows In AWM, I think your wrap has a little over 100 basis points of fees. The non wrap is more commission based. Just curious, how do you compare the economics of the 2, particularly now if we're going to see stronger flows into brokerage? I just want to understand how that's going to impact your overall margins?

Speaker 3

Yes. So Eric, I think as we Tom, as we look at the business, okay, we've had a bit Slower flows into wrap, but still good flows. But you also had the depreciation, of the markets, which impact the wrap Overall fees for the firm. And so, I don't feel that that's a permanent. As I said, we also had some transaction volume being down on the commission side.

Speaker 3

So I would probably say if markets settle Depending on what happens with market, you may see some appreciation of that, which really was a negative, in the last few quarters. And regarding the brokerage activities, we will hopefully see some pickup in the commission side based on Getting back into some of the contracts that people have again been more conservative investing in right now. So I can't really like Pieced together exactly what that shift is, but I would probably say there's a bunch of dynamics occurring over the last few quarters in that regard.

Speaker 8

Okay. Thanks.

Speaker 1

Your next question is from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Speaker 9

Hi. This is Mark McLaughlin filling in for Craig. I had a question within AWM. I was curious if you were seeing any incremental demand from 3rd party bank suites for deposits and what that environment looked like? And then kind of following up on that too, I believe your contracts were historically priced on kind of floating with a Fred, is there any possibility of extending the duration on those contracts, which would let you capture higher yield, but also offer some more visibility into Cash flow while also taking pressure off of your bank?

Operator

Okay. So let me answer that. The answer is Back about a couple of months ago, there was certainly you couldn't give deposits away. Clearly, at this basis, there is more demand, but we are evaluating what is really From our standpoint, what is the appropriate balance for off balance sheet cash and bringing it back on balance sheet. So we have a Very good relationship.

Operator

We've been doing this for multiple years through promontory not promontory, but through and so our relationship with banks and we do have A combination and laddering of long and short. So, there we are assessing it, but it's a good situation from our standpoint, both from the demand from Coming on the sweep and our capacity to bring more back on to balance sheet and the fact we are still attracting good balances in.

Speaker 9

Great. Thank you. And just for a quick follow-up and kind of switching gears a little bit. We really like your program, it's a great cash management solution for clients with competitive rates. I was curious, looking at historical allocations from past cycles, Is there anything different

Speaker 7

this cycle that

Speaker 9

you would say that would affect allocations that we should be taking into consideration?

Operator

Into the C. D. For? Sure. Yes.

Operator

Listen, we are very cognizant in trying to give our clients the capabilities there. So that trend has been going And been evaluating as the Fed makes it shifts and other things and alternatives. So you're seeing that. And yes, we will continue to do that. But the important thing is we're also building that capability very shortly into the bank, which also gives a different set of alternatives for them to really look at their laddering, as I mentioned.

Operator

So yes, you're just adjusting and certainly having the product capability and the capability to grow the EBIT off balance sheet, on balance sheet And on balance sheet in the bank and in service.

Speaker 10

Great. Thank you so much.

Speaker 1

Your next question is from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Speaker 11

Hey, all. This is Luke on behalf of Alex. So keeping on topic of the bank, you had a few $1,000,000,000 of securities maturing In 2023, what kind of incremental reinvestment spread are you looking at picking up here relative to what's rolling off?

Operator

Okay. So yes, we have about $3,000,000,000 maturing during the year. So right now, we are thinking in the range that will be 200 to 300 basis points that will pick up from it. I don't have the exact, but I'll have Alisher and Stephanie get back. But we will pick up reasonably good spread from what's maturing versus what we can invest out.

Speaker 11

Got you. Helpful. That's awesome. Thank you. And then switching gears to firm wide, do you have any thoughts on how you're thinking about firm YG and A growth in 2023 off of the $3,600,000,000 $3,700,000,000 base, if this is the right base to think about?

Operator

Yes. Listen, we manage and I think we've always demonstrated we manage our we're very disciplined in managing our expenses to ensure that we are investing for growth at the same time And analyzing the margin capabilities as it relates to. So we will remain disciplined as we go And we look at shifting and where that is from that standpoint and getting the efficiencies that we are constantly evaluating. So I would say that the ranges you've seen is the ranges that we believe will certainly be sustainable, but it's situationally driven As we manage our expenses very tightly.

Speaker 11

Great. Thank you.

Speaker 1

Your next question is from the line of Jeff Schmitt with William Blair. Please go ahead.

Speaker 11

Hi, good morning. In Wealth Management, just thinking about cash sorting, and I guess you may be capturing some of that if that's Being shifted into the certificates business, but do you have a sense on how much is sort of shifted maybe in the sort of 3rd party mutual fund or some other investments?

Speaker 3

Yes. So over the course of the year as you would imagine and Clint started last year, You would have a higher level of cash from clients as they move things to the sideline etcetera that put it fully back in the market or even in fixed income. And so went into money markets, went into broken CDs, went into other short duration products, Just like we have the cash here going into some of our certificates, the amount of cash we're holding pretty much transactional is pretty at the consistent levels. It's not where that has built up tremendously. We just had more Client flows coming in and that just as a percentage.

Speaker 3

And then we got a piece of that into our own certificate program as an example. And now when we actually We launched some of the preferred savings and deferred deposit programs within the bank. We'll start to capture even a bit more hopefully of that. But new cash has come in, and that has raised our levels overall, but there's been sorting all through this Going into those other instruments as well as our advisors look at what that balance is, what's positional versus transactional. So that's why we feel like those levels are pretty consistent because things have already sorted as through the year.

Speaker 11

Okay. Is that lower than some peers maybe just because of the client mix? I mean, is there a greater concentration maybe For the lower account value that would

Speaker 3

Well, in our case, as I said, I think if you look at certificates, which is actually investing out a bit, And you just look at the amount in our cash sweep products, etcetera, you're actually less than 5%. And so that's consistent with our history based on the level that clients keep for both emergency and transactional activity. So I asked that's why I said, I think money has already been in all these different positional areas to garner a level Of the interest that the clients want with the advisors. So I actually feel comfortable. Now some of that I think will go back When they feel comfortable putting more back into RAP and investment programs as well or longer duration products in the fixed income market.

Speaker 3

Okay.

Speaker 11

And then just one on the bank portfolio, I think that's mainly invested in MBS Securities. But What percentage of that book is in fixed rate investments?

Operator

The majority is in fixed, but it's and like I said, it's in structured. Majority is construction high AA rated and certainly at the highest levels of the security ladder.

Speaker 11

Okay. Thank you.

Speaker 1

Your next question is from the line of John Barnidge with Piper Sandler. Please go

Operator

ahead. Good morning.

Speaker 11

Thank you very much for the opportunity. My question was on long term care. I know 3rd party claims administration Accelerated the pace of terminations. Is that anticipated to persist? And how should we think of run rate within that now?

Operator

Sure. So yes, in the quarter, we had a combination of basically, as you indicated, A strong continued claims performance, along with basically the effects of our benefit programs and basically our premium increases. And, but there was this one time catch up because a vendor did get behind, but that was not the major that was about half of it, but we are seeing good trends And it's typical to forecast, but we think we have all the foundational elements in there. It's been within our expectations for multiple years. And so we are feeling that comfortable where it is and we do again get the continued benefits of the programs that we have in place To basically contain and manage that effectively.

Speaker 3

And we've been able to now start investing out, which has gone into higher Spread

Operator

for the portfolio, which is good.

Speaker 11

That's very helpful. Thank you. And then my follow-up question, there's been lots of G and A restrain across But is there an optionality for asset management expense reductions given the lower AUM? There were some other reductions that asset managers announced this morning.

Speaker 3

Yes. So as you saw in our Asset Management business, we have brought expenses down And we will continue to really manage expenses tightly there. Now we are making good investments in certain

Operator

areas. We see opportunity like in some of our real estate

Speaker 3

and other areas. And like in some of our real estate and other areas and responsible investing, but we have tightened the reins a bit based on the appreciation of the markets, and we feel that that is necessarily inappropriate. Now on the other side, I like the advice in wealth as we Build up more capabilities in the bank, we're making some investments. But overall for the company, we've managed expenses quite tightly, not just Current year, but over the years, and it's actually favorable. Now we're going to have merit increases, other things, etcetera, but we're going to look at areas of opportunity to If necessary, based on the market conditions, but asset management is one of those areas that we will be a bit more disciplined in.

Speaker 4

Thank you.

Speaker 1

Your next question is from the line of Andrew Kligerman with Credit Suisse. Please go ahead.

Speaker 10

Hey, good morning, Tim and Walter. Question about the advisors. You added 72 this quarter, good, but a little light of where you were. I'm kind of curious as to your pipeline and How you see that playing out in terms of adding new experienced advisors?

Speaker 3

Yes. So, we did add, it was a little less than the previous quarter, etcetera, but there's always timing with year end and activities that As you would imagine with market conditions, the volatility there would advise us. But, I would say the advisors we added actually had very So actually from a production perspective, the amount in total was higher in what we brought in. And the pipeline looks very good. So I think as you see some of the advisors being added, they're really coming over because we do have a really great Integrated technology platform, we give a lot of great support.

Speaker 3

The types of they even are coming because they trust the firm and the quality of the firm. And they really think that that's really a benefit for them for their practices. So, we feel very good about what the opportunity to continue there.

Speaker 10

Got it. And then just thinking about the insurance subs, RPS. Equity in terms of dividending capital to the parent company, the equity markets Sort of a headwind, but then you're doing this tremendous repositioning on the investment portfolio. Could you talk a little bit about Expectations for dividend capital up to the parent company in 2023.

Operator

Sure. So it's Walter. We have certainly as we look at it and I mentioned as it relates to the earnings that Certainly, as we get literally $20,000,000 in 'twenty three. We will manage and keep our obviously a ratio. And so we feel very good about the dividend capability coming out of RPS.

Operator

But the thing with the change And certainly in our growth going on in AWM, the bank, the stability of that, we also have opportunity and that increase in The flows of dividends to this parent from AWM and still get dividends coming out because even though they're under For Asset Management, they still are dividend a reasonable amount. So our cash flow coming out of the various segments, including RPS It's really we are feeling very good about its capabilities in 2023 as a source of funding for us at the parent.

Speaker 10

Awesome. Can I sneak one last one? Just on M and A, last quarter, you seem to that you were going to kind of maintain the status quo in terms of divesting of blocks. Any change in that?

Speaker 3

So as we looked at the environment, etcetera, in the market, let me put it this way. I mean, you probably saw A thing that was reported out even this week, Riversource has it's like the 2nd highest and it was only off by a few basis points, 2nd highest return out there of any insurer, a large insurer.

Speaker 1

Wow.

Speaker 3

And so I think you got to look at it in As Walter just said, the free cash flow, how we de risk the business, how even what we have on the balance sheet with guarantees is coming down. The products we're selling are lower risk, appropriate for the client. We have a lot of other alternatives on the shelf for the client. So we feel like this is a good hand that we have. And now that the spreads have gone back up, we're able to invest So listen, there may be some opportunities that come along, and we will continue we'll look at them as they do.

Speaker 3

But this is a comfortable hand to have as a complement, particularly with depreciating markets.

Speaker 4

Awesome. Thanks.

Speaker 1

Today's final question will come from the line of Ryan Krueger with KBW. Please go ahead.

Speaker 12

Hi, thanks. Good morning. I think we've often seen some level of seasonality with cash balances within AWM To come down some sequentially from the Q4 to the Q1. Is that something you would expect to occur in this year?

Operator

Absolutely. Yes, I think we do expect and we will probably experience the same seasonality and that's been part of our overall planning. So it's we don't see any change.

Speaker 12

Okay, got it. And then just, I know there was a question on overall G and A expenses, perhaps AWM is a little bit you have maybe more insight into the outlook there given The backdrop from an earnings standpoint, can you give any sense of your expectation for growth in AWM G and A expenses in 2023?

Operator

I think again, we'll go back to is geared towards making sure we get the payback on that with discipline as we focus. And so We'll manage it relative to the revenue and the growth opportunities we see, but we will be very disciplined in it. And I think it will be in ranges that you've seen in the past. Again, it's situational.

Speaker 3

Yes. I mean, AWM this year, remember, we had a bounce back in Meetings and other travel and T and E again coming back from a pandemic sort of thing where we cut all those things out As well as we made good investments in the growth of the bank and bringing in advisors, etcetera. So Yes, you're going to have merit in other things that are there, but I think on a balanced basis, our expenses will be managed pretty well. And we don't see that accelerating in any way. But as Walter said, whatever we're making investments, we'll get good returns on.

Speaker 3

But

Speaker 1

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

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Earnings Conference Call
Ameriprise Financial Q4 2022
00:00 / 00:00