Q4 2019 Earnings Call
Welcome to our fourth quarter 2019 earnings call. My name is so operator for today's call.
At this time, all participant and I listen only mode.
We will conduct a question and answer session.
Turning to question answer session it'd be habit question. Please press Star then one I didn't touch telephone.
Please note that this company is being recorded.
I'll now turn the call I've told us the charity I wish they may be done.
Thank you operator, and good morning, welcome to Ameriprise financial fourth quarter earnings call on the call with me today, our Jim cracked yellow chairman and CEO and Walter Berman Chief Financial Officer. Following their remarks, we'd be happy to take your question.
Turning to our earnings presentation materials that are available on our website on slide two you will see a discussion of forward looking statements.
Typically during the call you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operation.
A reconciliation of non-GAAP numbers to their respective GAAP numbers can be done stays material.
Some statements that we make on this call may be forward looking.
Reflecting managements 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 uncertainty I.
A sample westar factors and risks that could cause actual results to be materially different from forward looking statements can be found in our fourth quarter 2019 earnings release, our 2018 annual report to shareholders. Our 2018 10-K report.
We make no obligation to publicly update or revise these forward looking statements.
On slide three you see our GAAP financial result at the top of the page, but the fourth quarter below that you see our adjusted operating results, which management believes enhances the understanding of our business by reflect any underlying performance of our core operations and facilitates a more meaningful trend analysis.
Many of the comments it management makes on the call today will focus on adjusted operating result.
Additionally, we are providing an annual update to our long term care disclosures as an appendix to the slides posted on our website today.
And with that I'll turn it over to Jim.
Good morning, and thanks for joining us Ameriprise delivered an excellent fourth quarter completing at very good year.
As many of you know we held our Investor day in November the give you an even deeper understanding of our go to market strategies and long term growth plans I want to thank everyone, who attended we enjoyed our conversation what you.
Regarding our growth strategy as we've discussed there are four key areas driving our momentum first we have a significant opportunity to build on our strong position to further grow as a wealth management leader with deep client relationships second we're transforming our global asset management business to meet the important needs for active management.
Third, we're managing well developed insurance and annuity books of business to generate significant consistent free cash flow and finally ameriprise is delivering profitable growth has a sound balance sheet and its generating a high return for shareholders.
On our call today I'll discuss our results the operating environment and our progress executing the growth drivers with outlined at Investor day.
Turning to the market's U.S. equities reach yet another record high and our average weighted equity index that reflects the mix of assets. We manage finished up strongly for the year.
As you know the fed interest rate cuts in 2019 are a headwind and yesterday the fed said.
That interest rates remain unchanged.
As January comes to a close equity markets remains strong, but would have pickup and volatility we cannot predict the year or market cycles, but with deep client relationships. Good cash flows finished strong balance sheet Ameriprise is built to manage these cycles that emerge stronger.
Now, let's discuss the quarter on a consolidated level fourth quarter results will quite good compared to a year ago on an adjusted operating basis, we delivered revenue growth of 6%, excluding auto and home revenue in the year ago period solid EPS growth up 11%, even after absorbing some additional.
<unk> expenses and corporate a return on equity of 38.6% ex A.O.L.C., I, and unlocking which remains well above many peers and with the sale of the auto and home business, we generated $161 million a net benefit on a full year GAAP pre tax basis.
Assets under management and administration reached a new high up 18% to $973 billion. We also achieved new record some wealth management for retail client assets, an advisor productivity that I'll discuss further.
With that let's now turn to our growth engine advice and wealth management.
We delivered solid revenue and earnings growth in the fourth quarter, even with significant decline in short term interest rates margin in ADW I'm was nearly 23% continues to be among the best in wealth management.
Im pleased with how we're executing our priorities were growing our client base, serving more fluid investors and deepening client relationships. It all starts with the large and compelling market that we're concentrating on.
Responsible investors with $500000 to $5 million, an investable assets, they're looking for a comprehensive advice and strong digital capabilities from an advisor and affirm that they trust.
Ameriprise is uniquely positioned to serve this market and its translating into terrific results, we had an excellent year and advice and wealth management, including some nice fourth quarter highlights client assets were up 19%.
Fee based advisory business continues to stand out with more than $4 billion of inflows into advisory in the quarter. This brings total wrap assets of $318 billion, a 26% increase importantly, we had strong client acquisition results in the quarter, particularly in our fluid target market and.
We saw good pickup in transactional activity as more clients engaged with us and financial planning relationships and ended the quarter advisor productivity increased 6% as advisors leveraged the extensive support we offer the help them grow.
Jim recruiting we had another good year, we continue to attract experienced advisors from across the industry. In addition, another 63 advisors joined us and it's one of the best quarters for recruiting large production practices.
What's behind our continued success the deep long lasting relationships, we work diligently term with clients and we using our goal based device expertise and our hands client experience to deepen these relationships even further.
Also leveraging our recent investments to drive future growth here are some updates we continue to increase uptake of our digitally enabled device experienced even more clients.
Rollout of our custom advisory relationship program. We finished the conversion of our new customer relationship management platform and we're growing the Ameriprise bank, we brought more than $1 billion of cash sweep balances on the balance sheet in the fourth quarter, bringing our full year total to close to $4 billion.
And we will continue to bring sweep deposits on the balance sheet. This year, we will be adding additional capabilities, including a mortgage program pledged loans and a savings deposit product.
I also like to point out that outside of the bank Ameriprise wealth management expenses will come back to more normalized levels in 2020.
We also continue to receive important recognition in the industry Ameriprise was recently certified by J.D. power for providing an outstanding customer service experience. Our teams work hard to deliver industry, leading service. So this means a lot.
I'll leave you with this takeaway with our advice value proposition and the investments. We've made we have a great opportunity to continue to grow in the wealth management business I'm energized by the opportunity we have in front of us.
Now I will turn to our high in a businesses. These are strong books that provide earnings diversification and stability.
We're focused on delivering insurance in annuity solutions that satisfy client needs, while continuing to evolve our solution mix in the quarter, we generated $185 million, an adjusted operating earnings for the protection annuity businesses in line with our expectations and we continue to generate strong free cash flow.
In terms of annuity sales total variable annuity cash sales were up when compared to a slow quarter last year and for the year sales were in our typical range of about $4 billion. This month, we launched our structured solutions annuity product designed exclusively to meet the needs of Ameriprise clients.
We expect this will help shift even more of our books away from products will guarantees.
Fixed annuity sales were down year over year in line with our plan and protection, we focused on continuing to shift from well to view well, where we had a very strong growth and be UL sales compared to last year overall life insurance in force remained stable at $195 billion.
As always we'll focus on managing risk appropriately and ensuring we have the right product designs for our clients and the environment. We will also continue to evaluate further action regarding reinsuring the remaining fixed annuity block this year.
Moving to asset management earnings with strong inflows continued to improve we remain focused on serving client needs and pursuing long term growth opportunities in key areas.
Columbia Threadneedle ended the quarter with $494 billion and assets under management up 15% on improving flows and positive markets and the earnings contribution to Ameriprise remained good.
We're making good progress executing our strategy and you can see that an outflow picture, we generated $3.3 billion a net inflows in the quarter, which was up $8 billion from last year. This is our third consecutive quarter of improved flows investment performance was excellent in 2019 across equities.
Fixed income and asset allocation portfolios on an asset weighted basis for our Columbia funds over 75% are above median for one three and five year time frames for threadneedle funds over 80% of beating their benchmarks for those same time periods and we're seeing improved results.
Across strategies and regions with global retail leading the way.
And us retail we have been increasing our market share at six of our top eight broken deal a partner firms and gross sales in our key strategies are good.
Our equity flow rate in the quarter was strong in fact of the 17 active firms. We benchmark we were in the top five am one of the few that where net positive for the quarter.
And in fixed income we continue to gone a good flows and we feel that we can improve even further we're seeing a particular strength in our income franchise. For example, our dividend income strategic income and mortgage opportunity funds generated more than $2.2 billion in combined net inflows in the quarter.
In EMEA retail with Brexit now moving forward and reduced uncertainty in the UK sentiment in Europe has improved net flows improved by more than $2 billion from last year, when making good progress in fact, we were a net inflows in nearly all of our key markets in Europe now that we have built out our sicad product range.
And in global institutional net inflows improved by more than $2 billion pet parent to a net outflow of $1 billion will gaining traction and number of areas that we talk to you about in November .
It was another good quarter in asset management, we have a strong product lineup excellent performance and global reach and we're focused on executing well to maintain our momentum.
Now, let me turn into a final key area of focus our capital strength, which is outstanding.
Last quarter I highlighted by strong excess capital position and the benefits of the successful sale of the auto and home business in terms of freeing up capital and focusing our efforts on our core businesses. Ultimately we ended the year at $2.2 billion of excess capital in the fourth quarter as a continuation of our strong return.
Of capital, we returned 125% of operating earnings through the pickup in the pace of our buyback and for the year, we reduced overall share count by 8% to summarize it was an excellent quarter in year four ameriprise. We're in a strong position later this year will mark our 15th anniversary as an independent.
And publicly traded company, we're incredibly proud of what we've accomplished importantly, we're proud of how a recognized for our client service our records of outperformance and how we consistently deliver for shareholders, we're poised and energized to build on our record of performance and growth.
Now Walter will discuss the financials and detailed and then we'll take your questions Walter.
Thank you Jim.
Reprise delivered another strong quarter financial results and business metrics, we've adjusted operating EPS up 11% to $4.20.
This was supported by strong 6% revenue growth.
Excluding the auto and home business that we sold in the quarter.
The quality of earnings across our businesses was quite strong however.
Within the corporate segment.
There were a few timing related expense items that I'd like to explain.
First.
We incurred higher than normal impairments and our low income housing portfolio totaling $25 million.
The portfolio continues to perform well and we do not anticipate any impact to our going forward expected tax benefits.
Second.
As part of our reengineering process and evaluation of our overall expense base going into 2020.
We took an elevated level of severance charges in the quarter of $11 million.
This action positions us well moving into 2020.
Finally.
We had significant share price appreciation in the quarter.
Which required us to mark to market some of the previously issued share based compensation awards.
This was a $6 million absolute impact in the quarter, but an $18 million variance year over year.
Going forward.
We expect our corporate segment losses to return to the $70 million range.
On October Onest, we closed the sale of auto and home to American family.
The transaction generated a net benefit of 161 million over the course of the year.
But is not recognized within our operating results.
We returned 125% of earnings to shareholders in the quarter and 110% for the year based upon the sale of auto home and the changes in our risk profile.
We entered 2020 with strong balance sheet fundamentals with $2.2 billion in excess capital and a lower risk profile.
With long term care continued to perform well, which you can see in the appendix.
In 2020.
We will evaluate reducing leverage while remaining committed to return capital at a pace of 100% plus.
Let's turn to page six.
As I mentioned.
Adjusted operating net revenue was up 6% to $3 billion after excluding auto and home from the prior year period.
Revenue growth was driven by advice wealth management and asset management.
And advice and wealth management.
We had a substantial increase in wrap assets and improved transactional activity driving an 8% increase in revenue.
And asset management revenues grew 9%, including strong performance fees.
Annuities and protection revenue was essentially flat.
In summary, we delivered strong EPS growth of 11% and return on equity of nearly 39%.
Turning to slide seven.
You can see that our business mix continues to evolve with advice and wealth management generating over half of the company's earnings up from 33% five years ago.
This profitability improvement has been driven by fundamental organic growth and we'll manage expenses, while still investing for future growth.
We've seen a consistent shift in our business mix over the past few years and expect this to continue as we focus substantial investments in areas of opportunity within wealth management business.
Advice and wealth management continues to perform well across leading and lagging indicators.
As you can see on slide eight.
Advice and wealth management adjusted operating net revenues grew 8%.
Wrap assets were up 26% to 318 billion with net inflows of $4.4 billion into quarter.
Transactional activity also increased 5% year over year.
We had a good quarter for experience advisor recruiting with 63 advisors joining us from other firms in the quarter with much higher trailing 12 month productivity.
And market levels improved nicely.
Pre tax adjusted operating earnings were up 5% or $19 million in the face of a 22 million dollar headwind related to recent fed rate cuts.
A strong increase in revenue allowed us to continuing to drive profitable growth. Despite short term interest rates.
Gene a increased 6% excluding the bank.
Consistent with expectations.
We are continuing to make substantial investments for growth and seeing elevated volume related expenses given strong activity levels.
Our expectation is that GE unit growth, excluding the bank will be in the range of 3% to 4%.
Finally.
How module is solid at 22.6%.
We expect we can maintain it in this range.
Let's turn to asset management on page nine.
In the quarter, we saw a substantial 8 billion improvement with net inflows of $3.3 billion.
Excluding former parent related flows net inflows were 4.2 billion benefiting from continued improvement in retail in North America in Europe .
As well as from reinvested dividends.
From a financial perspective, the business is demonstrating an improved trajectory.
Asset management continues to generate substantial revenue on pre tax adjusted operating earnings for Ameriprise.
Pre tax adjusted operating revenue was up 9% to $770 million.
Driven by strong performance fees and market appreciation with lower pressure from the cumulative impact of flows.
Underlying expenses remain well manage within the quarter expenses were impacted by elevated performance fee and year end timing related compensation adjustments.
As well as a higher distribution expense associated with revenue growth.
Margins in the quarter were 36% remaining in our target range of 35% to 39%.
Turning to page 10 results in annuities and protection our solid.
Annuities continued to perform in line with expectations with very consistent profitability.
We saw good improvement and variable annuity sales up 9% in the quarter.
Though still down for the full year.
We have launched a new structured variable annuity product in the first quarter that will further diversify our offering away from living benefit features.
And our variable annuity net amount or risk still remains one of the Lois in the industry.
Protection earnings were down slightly to 65 million planes, we remain in line with expectations.
Now, let's move to balance sheet on slide 11.
We accelerated the pace of capital returned to shareholders in 2019, with 2.4 billion returned via buybacks and dividends.
This is a continuation of our longstanding track record of capital return.
In fact over the past 10 years, we have returned over $18 billion to shareholders and reduce our diluted share count by approximately 50%.
We continue to generate substantial free cash flow, which along with excellent balance sheet fundamentals will support continued capital return.
We entered 2020 from a position of strength with 2.2 billion of excess capital.
We remain committed to returning capital to shareholders assessing potential changes to our capital structure to best support our current business mix and evaluating additional reinsurance opportunities.
With that we will take your question.
Thank you we will now begin the question and answer session.
We have a question. Please press Star then one touchtone phone.
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And our first question comes from Andrew Please remember from credit Suisse.
Hey, good morning.
So I'm looking at the advisor count and here at 98 71.
Roughly flattish with with the last year's number.
Could you talk a little bit about your ability to grow that that count going into 2020 and.
And the productivity of those advisors I know revenue per advisor was up 6% year over year.
Lot of moving parts there so how do you how do you see that.
Evolving in 2020 as well.
Yes, so we think that.
The advisor count would probably pick up a bit as we go forward.
We actually netted out a number of advisors in the Ipi area and others as we read blaum them restructured that channel.
As well as in some of the central sites as we shifted things around.
But we actually feel good about the Recruitments, we're actually focus a bit more on higher productivity.
And so the average productivity of the people who are leaving us still much lower so we focus mainly on the growth of that productivity and the type of people, we're bringing in but I think the advisor count should probably a pick up a bit more likely we're doing more at the beginning part of the year.
And.
I feel good about the type of productivity with bringing in in the recruitment then.
And the ramping up the people who are here.
Got it and staying on advice and wealth.
Fee rates.
There are around anywhere around 108 basis points by our calculation in the quarter and that's kind of versus the recent 109 to 111 basis point range over the last two years or so and.
And so I don't know is that a function of moving up market.
Why is that and where do you see the fees kind of.
Shaking out in 2020 and 21.
Yes, So I think it's part of the idea of US continuing now to bring in more clients that a little higher levels of where then you know the rates get a bit lower as the asset levels of managing our a bit higher.
And so thats actually it's a good positive thing for us I mean, our net inflow of client activity is pretty strong continues to be good and consistent.
And we are bringing in more clients and the more affluent and we're probably going to embark on something this year to even focus a bit more even on the higher network channels. So I think that that's a favorable for us.
Got it one last quick 110 payout ratio, 110% in 2019.
$2.2 billion of excess capital.
Could you get that ratio even higher in 2020.
We could but.
But if there is I think as Jim said at the Investor Day, we're targeting at this stage Andre simplest.
But we are certainly monitored and evaluate Andrew as we do and have and but certainly we have the generation capacity and we are we'll be evaluating that as we move forward.
Thanks alive.
Our next question comes from Humphrey Lee Gallium partners.
Good money and thanks for taking my questions.
A question with the acuity DNA expenses in Jim in his prepared remarks, you talked about extra et cetera should normalize in 2020 and then thank you specifically in a and.
The general expenses, excluding the bank with the kind of 3% to 5% growth, but I guess when we look at the overall enterprise how should we think about the expenses in general and then also how much of a banking related expenses.
Page fall.
End of UN.
Okay. So.
As we indicated yes, I think what you said very WMD expense range after.
Normalizing for the bank is it will be in the near 3% to 5% range as it relates to amp. It is lower than that and normally will be in the range of 2% that range. So we anticipate that will continue as we look but as we evaluated but thats is what is reasonably good access.
Dictation.
Okay, so, including the bank holiday and the overall amp.
In a expenses will be 2% range.
And with what you're suggesting the bank will be above that because we normalize for it.
At the AAMC level, it's about 200 basis points, if you add for the bank. So I can.
Although this has got its obviously a little less for amp, because the and size of the expense base within neutralizing pillow gives a little less impact but that is basically.
From that standpoint to normalize them.
Okay got it.
And then again in your prepared remarks, you talked about the fixed annuity block.
It doesn't look like the than lower interest rate right now Thats, how you think about the block in terms of potential transaction. This at a fair statement and then also can you remind us how much that's Sri capital that you have right now backing that business.
Yes, so listen the interest rates do effective, but we do believe there as.
We are evaluating that there is potential viability and certainly pursuing.
Of fixed annuity reinsurance and we're in discussions we evaluate that.
Just as a general range is probably run an area of 750 $800 million that we can free up.
Okay, great. Thank you.
Our following question comes from past Lee from RBC capital markets markets.
Hi, Thanks for taking my question, just one within the asset management business.
A follow up on the prepared remarks, you touched upon seeing improving investor sentiment within the UK AMEA region.
Due to Brexit clarity.
I'm wondering whether you would expect to see further improvement in net fund flows this year due to increasing clarity and perhaps you could just tell us which products investment products you can see potentially gaining.
On this and improving sentiment thanks.
So I think you're more explicitly asking about.
UK in Europe , our EMEA business, Yes, we saw a nice improvement bounced back occurring in the fourth quarter.
Moving from some negative in the first month that a quarter to actually inflows in the second and third month of the quarter.
And we see that continuing.
Europe was actually positive for us good UK was still coming back, but was still a little bit weaker, but we feel like that will start to change in remedy now that they want gone through the elections at the end of the year. So we're we're pleasingly optimistic that there would be with a little less uncertainty.
I mean, thats still uncertainty to extent of what is that trade agreement then things at the end of the year, but.
Of the people in London, a feeling better.
And feel like the business can come back there and the appetite would increase.
And we have a good lineup I mean, we have excellent performance on our funds all UK equity type products are really good we've gained even in a negative year flows there.
And we now have a full line of products in the Sicad range in Europe .
And that bodes well for us as there is a pick up and we're seeing that pickup and things like European equities. Some various things like that so so with we're positive on that to be an improvement this year.
Great and just one one follow up if I may.
Looking at B, former parent company related outflows.
Looking back over the past years, so net outflows related to that have been declining just wondering whether we would expect a similar kind of trajectory going forward or.
Just wanted to get your thought there. Thanks.
So I think we've seen some improvement in the domestic part of that on the outflow from our relationship here.
Zurich activity has been pretty consistent once in awhile they'll have a pension that closes and there is some lumpiness, but it's pretty much been running like what we've seen from quarter to quarter just based on the drawdown of these closed books and assets, but as I said the assets that remain there through a combination of.
Appreciation and even some difference in some of the products that we replace that have a bit higher fee revenue gets offset even though that flow negative in that that book is there.
So, but I would probably say I.
It's been running that way consistently for a while so I don't see much changed there from a low but the revenue has been pretty stable.
Very helpful. Thank you very much.
Our following question come from John Barnidge from Piper Sandler.
Thanks.
Deposit volume in Fourq, you 19 for VA phase was the highest since Two Q1 8.
I thought it was somewhat surprising given the decline rates during the year in associated repricing activity can you talk about your positioning in the distribution environment. There. Thank you.
Yes, we did see a bit more of a pickup I mean, a year ago. This quarter. It was a slower period for us.
But we saw a bit more activity towards the end of the year, we actually just in the end of this month.
We just launched our structured annuity product and we actually think that would picked up some traction as well in the current year and shift some of the business fund the guaranteed product I mean, we still sell a reasonable portion of new cities without living benefits as well, which is good so.
So.
We're not looking for substantial growth, but we're looking for probably a bit more growth, but they also a shift to now some of the structured.
Product as well, which is good for us so we want to keep that book growing almost stable with slight growth which is good.
And the mix improving so that's what we'll probably Sam right now.
Great and my follow up does Brexit clarity change your view around M&A for asset management as I believe fee rate for retail is a bit higher in EMEA than in the U.S.
Well, we want to continue to grow in EMEA in Europe to the point you referenced based on fee rates and.
Well the use of active as well.
So we keep our eye out for opportunities, but we actually feel like some of the investments we're making the expansion of resources that were putting on the continent gives us some opportunity for further growth there as well.
Thanks for the answer.
Our following question comes from Tom Gallagher from Evercore.
Good morning, I'm just.
Question on the ADW when growth just looking at page 13 of the supplement it looks like total client AUM.
Versus the wrap accounts is growing a bit slower just curious.
Are you seeing outflows in the non wrap business.
And overall, how is that impacting your growth in that business and just overall economics.
We are well looking at the client flows thats still pretty very good. So as they are in excess of the 4 billion I don't know exactly but with the ins and outs theres, some ins and outs, but us a shift between.
The non wrapped to wrap has slowed a lot I mean, it's sorta leveled out I can't tell you know like from period to period might be slight.
But the net of the effect of what those flows are our gross client net client inflows in total us. So it's within that realm, I would probably say you know with the fourth quarter with just.
The markets being where they were.
Probably thanks activity was slowed a little more for investment purposes.
I'll just because people were waiting for the next shoe to drop but I think it's been pretty stable.
So Jim just.
Following up on that would you say overall flows into the complex from a total client assets or would be close to the 4 billion Mark.
It's probably it's not the floor, but in that range embedded in the fourth quarter.
Okay. That's that's helpful and then the.
How should we think about total capital return I mean, I know Youve returned.
More more than the 90% certainly last year, you're sitting on substantial excess.
As we stand today.
How are you thinking about utilization of the access are you thinking more.
Strategic M&A or are there opportunities out there.
And then maybe doing more buybacks if nothing if you don't find anything like where were you leaning now more toward with deployment of that excess, particularly after the PNC.
Capital Frida significant amount up.
So as you saw we did pick up the buyback as we said Malta just mention that we're probably looking to continue usually say 90 to 100 was saying probably 100 plus at this point in time.
Not knowing the world than anything.
Cetera, but if things presents good opportunities for additional we do that but we constantly monitor the cash flow continues to be quite good and strong.
As well to also said, we're probably looking to reinsure some more as we go through the year.
So I think buyback is still would be probably the main return mechanism of we will look.
Presenting to the board about a dividend increase again this year was consistent with all the years that we've done that.
And we always look at.
Some M&A strategically to fit in but that depends on opportunities that may come along and not but we have enough all capital flexibility that should not affect our buyback trajectory.
Okay. Thanks.
Our following question comes from Suneet Kamath from Citi.
Thanks. Good morning, just wanted to start with the aim to Leila margin.
So with the fed is on hold now.
Is the impact of the what they did last year in terms of rate cut sort of fully baked in to the 22.6 margin.
Yes, yes, basically it is so small deviation, but based status.
And then at Investor Day, Banana I want to nitpick here, but you talked about at 20% plus margin in Wm.
This call you're saying you can maintain at 22.6 is there sort of a change in how you're thinking about that margin relative to what you tolls at Investor day.
No not at all.
And then the last one I had is on bank I.
I think we have a good sense of what the expenses are but can you give us a sense of what the bank revenues are and how you expect that to progress as we move through 2020.
Yes.
As we indicated we had a small profit in 2019, and we do expect with launches of different products and adding more of transfers we money over the revenues will grow. Obviously this is a challenging market for investments, but on that basis, we do see the revenues growing and us increasing our prop.
Stability in 2000.
Yeah.
You have a sense of the revenue base, though right now from the bank.
All.
Right.
[music].
Let me I.
I don't I don't want to guess as so no let us get back to I don't get into.
Thanks Walter.
Our following question comes from Erik bass from Autonomous research.
Hi, Thank you Alan couple of follow ups on advice and wealth sort of along the same linus needs questions. I guess first would you expect to cash yields to be pretty stable going forward. If the fed remains on hold are there any competitive dynamics that could create some noise there.
No I don't believe that we see any obviously, we're closely monitoring and measuring a but no. We don't see any of this system.
Got it and then Morgan Stanley recently provided a target of getting its wealth management business margins to the 20% to 30% range over the next two years and I realize there are differences between its business in years, but do you see getting to kind of mid 20% margin is something that may be achievable over the intermediate term is the bank reaches scale.
Gail and if you continue to improve advisor productivity levels.
Yes, I would say this I mean, one other things very clearly as you have sort of compressed rates out there with the fed recently did versus some of the banks that might have been started previously where.
Based on their investments and other things like the wire houses with their banking entities in the use of that split I would actually say, if you get a bit better and some of the yield curve or some pickup a little better on the some of the longer rates not substantially I think you can see with what we're shifting into the bank.
With the development going through the bank.
That that could be adding to margins if even if the fed maintained rates right now so to speak depending on what happens in the logic climate, but.
We're ramping up the bank in a period when those things are pretty compressed.
But we feel good about it because we gives us the opportunity if things normalize a little better again.
Got it. Thank you and is there a correlation between productivity in margin or.
Yes, just productivity just help drive revenues, but kind of your payout stay the same and it's sort of margin neutral.
Well the productivity over the years have definitely I mean, you can see our margins have gone up Trinity pretty tremendously.
We do you still have sort of an independent and employee base. The employee margins have increased nicely our independence are quite good.
And so we have added to margin based upon the productivity increase and the business growth and I don't see that changing substantially.
I think what we're just managing is you know you had a spurts and markets and other things. So we're just averaging that out right now.
As well to set our expense growth should come down a bit outside of the bank back to more normalized levels. So.
We feel good about maintaining and improving that margin over time, but again things are with the environment you can't always predict that and what the impact may be in the short term.
Certainly thank you for the comments.
And the last question comes from Alex will be from Goldman Sachs.
Hey, guys. Thanks for taking a couple of questions here.
I have a few on where you are mostly so I guess first.
Theres a possible for your for you to give us a sense how much in net interest income you expect to generate at the bank and 2020 and sort of what that contemplates in other words are there more deposits you got to move from sweep or whatever you moved up enough to kind of just put it into our loans or other things you guys given at the bank. That's my first question.
I guess, let me first since we started the bank of mid year, obviously, we'll get to Calendarization effect, so that will get in energy and long and increase on that basis, we will be increasing.
Certainly as I indicated this week flows into the bank, so that will but again as Jim is in this.
Market.
The rates are okay, we constructed and we are certainly looking at.
Okay, launching and having a more emphasis on our privilege loan program and certainly our and getting into a deposit program.
Okay, but no no rough sense over in terms of the revenue dollar. So you expect to get out of the bank the share.
No not exactly that again as need if we'd have to but we're not forecasting but certainly there will be an increase and and again, we're assuming an increase in profitability, but I don't have the exact correlation.
Now.
Well I mean, you know as we've started to ramp up the bank the shift in the sweep looking at the current environment regarding both a lending and investment strategy. The rollout of some of the products. This year, we will be forming that and as that gets more informed we will be chatting with you and informing.
New as well.
So we're just at the early stages of that but all the ground work all the foundational elements even the initial shift in the launch of the credit caused the initial sweeps.
Et cetera have taken place. So we're right on track to our plans, but the second level of that will be forming as we go into this year.
Got it thanks, and then in terms of the asset growth. So at a high level or we can you guys talking about sounds great in terms of recruiting higher productivity et cetera.
And we'll look at the wrap close this year or they have decelerated versus last year. Despite the fact that what feels like has been a very robust environment for the industry as well as some of your peers. So what's been driving a decline and wrap accounts this year.
What do you think is a reasonable EBIT dollar amount organic growth you expect to get out of that over the next kind of 12 to 24 months and then.
When you look I guess at the fee rate on wrap accounts. That's also been coming down for the last couple of years, so kind of help us reconcile all those three maybe thanks.
We don't really see that what your same per se I know the wrap account in previous year or two were a bit higher but remember that was part of it industry shift we were part of that moving with the Deo Ellen activities and accelerating some of that transfer.
But from an organic level as I said, a 4.4 billion is still pretty nicely organically growth.
And we see that continuing of we feel like a fee rates are pretty good as you said as we continue to move up market. Some of the fees will be lower naturally based upon pricing.
But no I don't see it could move slightly from what we said, but I don't see a slowed down per se.
Client activity is good.
But we do a lot more business unwrap.
And so.
Importantly, it's not just of wrap business per se, we try to do more comprehensive business.
But I feel that.
That's not in that's necessarily IC slowing I see things go period to period, but I think over the longer term, we feel pretty good about it and we think that that will continue and you know our wrap balances are up 26% year over year. So I'm not show were out of line in anything in the industry and it may be some further shift.
With some people where they will behind on it.
An accelerating at but we've always had a good strong wrap business.
Great. Thanks very much.
We have no further questions. Thank you, ladies and gentlemen.
Piece that does conclude today's conference you may now disconnect.
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