Q2 2021 Ameriprise Financial Inc Earnings Call
Which management believes enhances the understanding of our business by reflecting the underlying performance of core operations and facilitates a more meaningful trend analysis.
Any of the comments that management makes on the call today will focus on adjusted operating results and with that I'll turn it over.
Yeah.
Hello, everyone and thanks for joining us. This morning as you saw in our release of Ameriprise had another strong quarter and I feel good about how we're performing at this point in the year the.
The environment in the U S continues to improve as the economy reopens more fully and equity markets remain strong.
To Jim shouldn't spikes in the virus of putting some pressure on Europe's recovery, but overall, there's a lots of be hopeful for us we look ahead.
As I consider this landscape, we're executing well across our businesses driving growth through our lower capital fee based businesses of freeing up capital to generate shareholder value.
We deliver.
<unk> delivered another quarter of excellent organic growth in wealth and asset management and strong productivity across our system.
This included strong client flows with more than $16 billion of inflows in wealth management and asset management in the quarter.
And we ended with assets under management and administration of <unk>.
We've sent to 1.2 trillion.
The new high.
With regard to recent strategic moves we completed the reverse of life fixed annuity reinsurance transaction. This further advances our mix shift to capital light businesses and frees up approximately $700 million of excess capital.
<unk> and our acquisition of Bmo's EMEA asset management business, which we announced in April is on track the close in the fourth quarter.
Let's turn to our adjusted operating results for the quarter momentum.
The momentum in the business continues with revenues coming in strongly at $3.4 billion of 22% fueled.
By organic growth in markets.
Earnings increased 34%, excluding the reversal of the NOL a year ago with earnings per share up 39%, reflecting strong business growth and capital return and ROE remains exceptionally strong at 37, 5%.
As always we.
We continue to manage the expenses well.
Let's move to advice and wealth management, where we're consistently generating good growth our strategic investments continue to be an important part of what we're doing people of coming to ameriprise for a high quality advice experience backed by leading edge technology.
Client satisfaction.
Faction remains high and clients are engaging with us personally and through our extensive digital capabilities.
Importantly, our advisers are embracing our training coaching and powerful suite of tools that are fully integrated with our CRM platform and we continue to add capabilities, including testing of new E.
Meeting tool that helps advisors prepare for client meetings of minutes, our ongoing investments in the technology ecosystem are helping advisors connect with more clients and prospects and run their practices more efficiently.
This high level of engagement is leading to really good client activity asset flows.
Client acquisition.
Total client inflows were up 54% to $9.5 billion and that continue the positive trend was seen over the past several quarters.
Consistent with strong client flows wrap net inflows with $10 billion, continuing a very strong run rate true.
Transaction.
<unk> and <unk> activity also grew nicely up nearly 30% over last year with good volume across a range of product solutions.
All of this momentum along with positive markets drove nice growth in advisor productivity up 14% adjusting for interest rates to a record of 730.
<unk> thousand per advisor.
On the recruiting front, we have 42 experienced advisors joined us in the quarter a bit below where we've been we're hearing that advisors have been focused on all of that comes with reopening and some held off on transitioning firms of delayed the start dates.
That said people are getting back to a.
A more normal rhythm with now Holstein in person meetings that complement of virtual recruiting and we feel good about our pipeline for the third quarter.
Turning to the bank total assets grew to $9.7 billion in the quarter. We continue to move additional deposits for the bank and we have adjusted our investment.
31 strategy to extend duration a bit.
We're also seeing of good pickup in demand for our lending solutions loan volumes of steadily increasing led by a pledge product, which represents a nice opportunity for future growth.
Wrapping up AWS on metrics and financials remained very strong.
Margin increased 380 basis points year over year and in the quarter of 21, 4% showing consistent expansion since the fed cut short term rates a year ago.
Moving to retirement and protection solutions results were good and we continue to advance our strategic initiatives.
<unk> regard to annuities, we had strong variable annuity sales with total sales up 88% from a year ago. This was driven by increased demand for both of our structured variable annuity product and our rab of product without living benefits. Together. This represented over 2 thirds of sales in the quarter the continuation.
Wishing of the shift that we're driving.
On the insurance side life, and health insurance sales of approximately doubled driven by our <unk> product, which is appropriate product for this rate environment.
Now, let's discuss asset management, where we continue to grow the business consistent with our plans.
Assets under management rose to $593 billion up 25% over last year from strong business results of positive markets.
Regarding the investment performance. The team continues to generate excellent performance for clients across equity fixed income and asset allocation strategies with more than 80% of funds above median.
Medium over the longer term timeframe on an asset weighted basis at quarter end, we had 110 for a 5 star Morningstar rated funds representing more than 70% of our funds.
This quarter, we had net inflows of $6.7 billion, an improvement of the $4.1 billion from a year ago.
Excluding legacy insurance partner outflows net inflows were $8.1 billion. These results build upon the favorable net flows we saw over the past several quarters.
Global retail net inflows of $4.2 billion driven by another quarter of strong results for North America.
Engage.
With clients and intermediaries remain excellent sale.
Sales and flows traction is broad based with 15 of our investment capabilities generating over $100 million of net inflows in the quarter.
And in EMEA retail sales have been weaker given the risk off environment as I said.
We are hopeful that EMEA flows will strengthen in the second half as the post pandemic reopening an economic recovery continue.
In terms of global institutional we saw a nice improvement with net inflows of $3.9 billion.
Ex legacy partner outflows wins across equity and fixed income.
Our strategies in both North America and EMEA.
<unk> good about our sales pipeline.
Turning to BMO as we've discussed with you the acquisition will add important capabilities and build on our reach in EMEA.
The business remains in positive flows and we continue to.
Net good feedback from clients and institutional consultants as I've mentioned, we're on track to close in the fourth quarter.
In terms of the balance sheet, our capital management is excellent the.
The business continues to generate substantial free cash flow and we're freeing up additional capital.
In fact, the approximately $700 million of our reinsurance deal largely pays for the BMO acquisition, giving us additional flexibility to return capital to shareholders at an attractive rate.
In summary, Ameriprise is in a terrific position, we're performing well and generating strong results.
Our team is serving more clients and deepening relationships with delivering excellent organic growth in both wealth and asset management and the BMO transaction will add an additional growth opportunity and we are accelerating our business mix shift with the reinsurance of the fixed annuity block.
I'd like to close by.
Talking about our team our people have been coming back to the office of few days of week. This summer and react low meeting it's been great to be together again in person, we're looking forward to being more fully back this for where conditions of safe to do so while maintaining the level of flexibility.
Now I'll turn it over to Walter and then take.
To your questions.
Thank you Jim Ameriprise delivered very strong financial results across the firm with adjusted operating EPS up 39% to $5.27.
We continued to demonstrate excellent metrics earnings growth and margin expansion in our core growth businesses of.
Of the bison wealth management and asset management.
Sales of our retirement and protection products were up significantly from last year, and we're focused in low risk and higher margin offerings.
We're already seeing a shift in our enforced block and expect this to continue going forward.
As Jim mentioned in.
The quarter, we continued to advance our strategic priorities to expand our growth businesses and reduce our risk profile.
We remain on track to close the acquisition of Bmo's EMEA asset management business in the fourth quarter.
Which will expand our core geographic and product capabilities in attractive and growing market segments additional.
Additionally, we entered into an agreement to reinsurer of approximately $8 billion of fixed annuities and closed on the <unk> source of life transaction in early July.
As noted we will free up approximately $700 million of capital and we will have a marginal projected impact on fixed annuity profitability.
In addition.
<unk> to the reinsurance transaction, we continue to effectively manage our risk profile through product mix shift to lower risk and higher margin retirement and protects the solution offerings.
Our diversified model, which generates robust free cash flow and strong balance sheet fundamentals.
We returned 92% of adjusted operating earnings to shareholders.
Holders in the quarter.
Joining us for our projected 90% target for the full year.
Let's turn to slide 6 in the quarter of Ameriprise adjusted operating net revenues grew 22%.
<unk> increased 35%, reflecting continued excellent business performance.
Revenue and earnings.
Our capital light businesses of the AWS and asset management drove nearly 80 per cent of the total excluding corporate and other.
Significant share from a year ago, even normalizing for the unusually high earnings and Rps last year.
We remain disciplined on expenses G&A.
<unk> and <unk> were well managed up 6% given the strong business growth in the quarter.
Overall, we delivered another excellent quarter that underscores the strength of the business model that continues to yield robust profitable growth.
Turning to slide 7 of <unk>.
The wealth management delivered another quarter of excellent.
Organic growth of total client assets up 28% to 807 billion.
Total client flows with $9.5 billion for the third consecutive quarter of total client flows at or above 9 billion demonstrating the sustainability of our organic growth.
Focus is not.
Only on growth for profitable growth in the quarter, our pre tax adjusted operating margin was 21, 4% an increase of 380 basis points from the prior year and an increase of 70 basis points sequentially. Despite continued low interest rates.
On page 8 financial results in advice and wealth management were very.
Pretax adjusted operating earnings of $423 million up 56% of.
Adjusted operating net revenues grew 29% to 2 billion fueled by robust client flows and of 29% increase in transactional activity. In addition to strong market appreciation.
On a sequential.
Strong as revenue increased nicely to 5%.
Ameriprise Bank continues to grow at a solid pace, reaching nearly $10 billion in the quarter of FDA, adding $700 million of sweep cash to the balance sheet expenses.
<unk> remained well managed and we continue to exhibit strong expense discipline.
G&A expense increased to 3 per.
Reflecting increased activity and the timing of the performance based compensation expense.
Going forward, we remain committed to managing expenses and margin in a disciplined manner.
Turning to page 9 asset management delivered another strong quarter driven by excellent investment performance.
And sustained.
The inflows, resulting in outstanding financial results net.
Net inflows were $8.1 billion, excluding legacy insurance partners.
Which is the continuation of an improved solid flow trend.
Adjusted operating revenues increased 32% to $879 million.
The result of the cumulative.
Of net inflows and market appreciation.
On a sequential basis revenues were up 6%.
Our fee rate remained strong at 52 basis points, reflecting the strong momentum we are seeing across the board with strength in both equity and fixed income strategies.
The expenses.
We remain well managed and in line with the expectation given the revenue environment.
G&A expenses grew 12% primarily from the timing of compensation expense related to strong business performance as well as foreign exchange translation and higher volume related expenses.
As with AWS going.
We will manage the expenses tightly.
Pretax adjusted operating earnings grew 79% and we delivered a 45% 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 current robust.
The equity markets.
Let's turn to page 10 of retirement and protection solutions continued to perform in line with expectations in this environment.
Pretax adjusted operating earnings were $182 million.
Sales in the quarter were up significantly off of low base in the prior year driven by the pandemic.
Sales were above pre COVID-19 levels, resulting in an increase in distribution expense in the quarter. Additionally.
Additionally earnings in the prior year were positively impacted by the lower surrenders and withdrawals relating to the pandemic environment.
Importantly, we continued to reduce our risk profile.
The growing sales of retirement products without living benefits.
Retirement sales increased 88% during the quarter with.
With 2 thirds of the sales and products without living benefits.
This is shifting of the overall book and now only 62% of the our block has living benefit riders down over 200 basis points.
While better growth.
And protection sales nearly doubled as we continue to see a meaningful increase in higher margin of <unk>.
A significant decline in <unk>.
This mix shift in both of retirement of protection products are expected to continue going forward.
Now, let's move to the balance sheet on the last.
From a year of.
Our balance sheet fundamentals remain extremely strong.
<unk> of our liquidity position of $3 billion.
At the parent company and substantial excess capital of $2 billion.
Which does not include the capital release from the recently announced fixed annuity transaction.
Adjusted operating return.
On the equity in the quarter remained strong at 37, 5%.
We returned $585 million to shareholders in the quarter through dividends and buybacks.
And we are on track with our commitment to return 90% of adjusted operating earnings to shareholders for the year.
With that we'll take your questions.
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Bob.
Our first question comes from Brennan Hawken from UBS.
Hi, good morning, Thanks for taking my questions.
So just a quick 1 on insurance here.
Now that you've got the fixed annuity sale announced.
What are your plans for the rest of the insurance business.
It seems as though there's a decent amount of demand.
Particularly from certain alternative asset managers to run our let's say our insurance business.
How should we think about the potential for you to capitalize on that demand and offer up.
Hum.
Further.
Touched on the opportunity.
To monetize some of these insurance assets.
So this is Jim.
As you as we said you know our first focus was really to execute the remaining part of our fixed annuity book, which we think we were successful in doing that that was just completed in July.
For the beginning of July and so we're continuing to look at other opportunities that may make sense for us both strategically as well as tactically.
For certain parts of our business.
And we're doing that more holistically to evaluate what that does from.
A client perspective.
Of what it does from a companywide perspective regarding.
Our capital situation, our risk profile and also what the appetite is in the marketplace. So to your point, where we're constantly looking at that as we now completed the fixed annuity transaction.
We.
We'll see what opportunities may arise in the future.
Okay, all right thanks for that and then.
Shifting gears another strong quarter in AWS.
The organic growth there really quite good building on the success in <unk>. So.
You know to me this really.
Underscores that the Ameriprise really as a wealth management firm at its core have you considered it.
Adjusting some of the AWS reporting or maybe.
Providing a some enhanced reporting that would.
So be a little bit more in line with the wealth management competitors in the marketplace and allow for a little bit more clean comparison on some of these metrics you know distribution revenue, including some components that are of yield oriented.
Compensation being part of distribution.
Would the expenses some of these metrics that are probably really more tied to the insurance legacy of the firm the don't make for the easiest comparisons to the wealth management firms and so just just curious whether or not that's something you've looked at or was something you'd consider.
Yes, so I think to the first half.
Comment.
<unk> made.
The 80% of our total business right now is really in the asset light asset management wealth management segments with the wealth management really even driving the components of whatever is remaining in our retirement business, which is actually of high returning.
Subset of the company, but.
If you take that to your point.
We have been moving more in that direction of.
Disclosing more of that type of segment the results for our wealth and asset management, I know Alicia and team working with our finance people are looking at all of those things and just like we introduce some of those additional.
But it's as you would imagine we have to go back and make sure that all the data and everything is consistent quarter to quarter, how we look at it to track it et cetera. So we're doing that now and we'll come out with some other things as we move forward, but we want to make sure that we're just doing that in a way that is consistent with both.
The industry, but also that we're able to report it appropriately.
Great Thanks for that color.
Yeah.
Our next question comes from Alex Paul Kim from Goldman Sachs.
Okay.
Great. Good morning, guys. Thanks for taking the question.
So first wanted to start with maybe a.
Metro of a bit of a deeper update on BMO EMEA of asset management.
Acquisitions of Jim heard you guys, saying that the flow of positive which is great and the transaction is expected to close in the fourth quarter.
But now that you've had maybe a little bit of more time kind of working through the the the the transaction maybe an update on sort of run rate revenues and pre.
Pre tax margins in that business and how you think these margins eventually you're going to look like once you're fully integrated with Columbia Threadneedle.
So Alex as you would imagine a little different than the U S acquisition.
Being in the international marketplace in Europe.
We do not have.
Have as much access to underlying information.
As you would have normally thought and sort of weighted.
Already in a deal and contract because of privacy and all of the limitations. There. So it's sort of gives us a little bit of a delay and what we're able to really.
Really look at it in a much more detailed the equation to look at the.
The expenses the details of that the various aspects on the.
The line the absolutes.
So really then come up with what we would consider combination of run rates and in synergies and other things so.
So we're just going to have to wait a bit.
It's not unusual but it's 1 that where we know that that's what was.
As you know required at this point in time, so we will definitely provide that to you as we continue to gain information for that so we're not holding.
It's just more of that we don't really have it at the level that we would feel comfortable disclosing something that could change.
Gotcha, Alright, we'll stay tuned for that.
We don't feel good about it it's just more of that.
Something that we can be accurately reporting on.
I hear you.
Second question.
Or maybe just your view on G&A outlook at a firm wide level I know there are moving pieces between Wm in asset management, but as you think about G&A holistically for Ameriprise.
Off of kind of 800 Twentyish million dollar run rate in the second quarter, how should we think of that for the rest of the year and maybe.
Even into 2022, given there is some evidence of inflationary pressures building, an asset management compensation and things like that.
Okay.
The first let me sort of I think you know.
We look at the results for the second quarter, we're managing expenses in a pretty disciplined way and certainly are correlated to our revenue growth, we do expect going.
Going forward that we all kind of continuing to have good strong revenue growth. So therefore, the expenses will correlate to that and but we will manage it in December.
And the discipline way.
The thing that I would say at this stage of Alex is that you know.
We are seeing we are.
We're gonna start.
Start spending in development and the other thing so, but it's going to be measured and certainly.
We do not see inflationary pressures yet certainly our compensation is up as we've talked about because of the performance characteristics of this year versus last year, but from our standpoint, the underlying expenses are being well managed and will continue to.
For the spend money assets prudent, but you could expect that theyre going to be disciplined approach to it but we don't see the in place for them right now just the normal increases that you would see with top performance that we're having.
Great. Thanks, if I could just sneak 1 more in in the a little bit in the weeds, but I was curious about the point, Jim you made around pledge loans.
In the bank of.
Can you guys give us a balance of those loans in the second quarter versus what it was in the first quarter of sort of the yield. The you guys are earning there and the outlook for future growth definitely definitely seems like 1 of the ways to girl.
All of the banks NII in the bit of a unique way.
I don't have the.
In front of me Walter I don't have the number of it is growing and right now the way we operate with a with.
The third party partner is we basically do the share then your underwriting of sort of a sense of the growth potential there is very good.
Hum just don't have the number at hand at the stage and Alex since we just more fully.
The launch this across the system in the fourth quarter of last year, we rolled it out.
It's starting to really percolate, so what I would probably say is that we're in very early innings, but I think based on.
The appetite.
Well as where that fits in and I think it'll be a nice growth.
The area for us, but I would probably say, it's still in the early stages, but 1 that's growing nicely and hopefully will be to some larger balances over the time.
Got it okay. Thanks, guys.
Our next question comes from Erik bass from Autonomous research.
Oh.
Starting with the AWS and can you talk a bit more about the client trends and the outlook for transactional activity and where you're seeing the most of the wrap flows coming from.
So I think the what we saw is the consistent of pickup after the last years, you know sort of low period, particularly.
The only on longer term contracts. So as you saw I mean, our our sales of retirement and protection solutions activity really picked up strongly.
Whether it's maybe R V O L product or it's a structured or even our rab of product, which has no living benefits.
And.
So I think now as you look at the market environment and you look at the ability for advisers to feel more comfortable.
Actually executing those type of transactions in the environment and with the clients even the combination of remote and in person that has picked up nicely now.
For.
And sort of transaction activity, we see good activity, there as well and we had a pickup generally built in there and wrap all true. These periods. So the wrap business is really coming from both new client inflows as well as new clients that were adding.
And we had good client acquisition also during the period and the flows also was strong. So I think it's a combination of those factors.
I don't think there's 1 in particular.
I think the environment, particularly with low interest rates now that people were looking for how do they get more return.
For others quickly.
Rap program, we do do balanced portfolios and you know the.
Diversify of pretty well so that there's a level of what we would call not just over reliance on the equity markets, but not in the same time, just looking for yield from our fixed income and so I think it's a combination.
We will hold back because I don't know if that answers your question, but as you saw it continued from the latter part of last year all true the first half of this year.
Got it yeah, I guess I was thinking about just the sustainability of the organic growth rate. So do you think theres still some dry powder from existing clients 2 to drive flows into wrap.
Or is it transitioning Moore.
Coming into the platform Yeah, I would say, it's not just the transition I mean, as we said if you look at even though we have strong sales of our annuities, it's still down a few hundred million dollars of net flows because we're not really putting out there the variable with the guarantees et cetera, but.
Of those we had a nice pick up on those that didn't have it but having said that I feel the there is a continuation in the ramp.
And that continuation will come not just from a mix shift per se I don't think that's where the large part is we are maintaining very large cash balances still and we are flows in are also very good.
<unk>.
Thank you and you mentioned the impact of low interest rates just a quick 1 there what are you doing to mitigate the impact of low rates on the bank and certificate products and then on the other hand, if we do start to see higher interest rates has anything changed versus the last tightening cycle in terms of your sensitivity the upside.
No in fact, I think we sort of hit we feel like we hit a low point I mean, if you're looking at what is the disgust of whether inflations. There on the out of there of what the fed may do or not do.
It looks like there's more of the potential for it to go back with rates going up all of that Walter speak to a little bit of the actual.
Rates of what we're doing with the bank to complement the so obviously the bank is very optimistic now because obviously if you look at the sweep account rates the 27 basis points.
And we're now new money has been placed at 140 of putting an emphasis on more duration than credit. So we see all of the seizing upon the opportunity to be prudent.
Actual not the extent young credit, but certainly investing out and picking up that spread and you should anticipate there will be more of a sweep money to play on balance sheet.
Got it thank you.
Okay.
Our next question comes from John Barnidge from Piper Sandler.
In the back.
Thank you very much.
With long term care experience in the second quarter.
Would you say thats back to completely normalized levels or do.
Do you think it comes down more I know in March it was about 5 million and the earnings on the <unk> 21 call.
It's Walter.
Sure So listen 1 month, 2 months of they'll make a trend, but yes. The numbers that we're seeing certainly returning to the pre COVID-19 situation.
Okay, Great and then my follow up how should we be thinking about timing and efforts to reduce any stranded costs left with the fixed annuity transaction.
Well, okay as part of our program, we're certainly always evaluating reengineering and.
The strength of course, but again is manageable from the fixed annuities based upon.
The expenses that had an the allocation of elements that we feel comfortable that we'll be able to neutralize that as we do a reengineering of evaluate.
Within the RMP Rps.
Product and also of course, the Perm, So we will be able to neutralize the majority of it.
Thank you.
Yeah.
Our next question comes from Humphrey Lee from Dowling and partners.
Good morning, and thank you for taking my questions.
Just 2 for.
All of the on AWS activities.
Given the the strong rep flows and transactional or did it a few of these like as you think about it how much of that would you attribute that to of pent up demand losses last year versus the productivity gains from the actions you've taken and how do we think about how of that going forward.
Yes, so I think of the combination. So again, we know the market conditions are favorable and we know the equity markets are strong and that always lends itself to a consumer appetite for some of the speak about being comfortable investing.
Part of it is not.
The market, but sort of the economy reopening and the feeling that.
Theres not going to be a big shoe to drop so to speak in the near term.
I would also say that part of it is definitely the capabilities, we put in place and the engagement we have with our advisors.
We've done.
Done a lot over the last few years just the idea is like we wanted a few firms that were able to like fully operate virtually with all of our capabilities with not losing the beat with our advisers our engagement with the clients our digital activities with the clients and the advisors is very strong the keep on adding capabilities.
It is there.
We are integrating everything in.
An ecosystem that works together and not just putting the tools on our platform and saying Hey, we've got the service and look upgraded us and usually when we talk to you about it it's not something like we just like thought of or just introduced or just.
Added it's something that we really have tested out we've proven we've actually rolled it out and.
It really works well and so I would just say that has it of a lot to our advisors, having this type of engagement with the clients and also.
The way they are able.
To transact with the firm.
And the information that we're providing so so I think it's a combination of that all of that I mean, I can't sit here and tell you how much we got from each what I can tell you is the feedback from our advisors are very positive about what we have enabled for them and how thats. The operating as they are working true things.
Including some of the.
The capabilities, we've added on the whole advice modules and what that does in client flows. So that's why we feel good about our system.
And we feel like when we do discuss these things with you.
Not vaporware, it's not something that we just like <unk>.
Produced and we're making a big marketing play on it it's something that we feel really comfortable that has been executed.
So it sounds like if market conditions continue to be favorable or at least stable.
At least for the near term.
But the core income.
Activities level should be.
Alicia.
Sustainable in the near term as of the right range to think about it yes.
Yes.
I can't sit here and tell you there is anything that we see has changed that from what we're seeing I mean as I mentioned to you at year end and then the first quarter I mean, I don't have a perfect crystal ball and if the market fell out of the economic.
Situation changed the Covid jumped back up in some fashion that closed parts of the economy. We may see some effect, but I think as we're just chugging along right now we don't see anything materially changing that outlook.
So you know.
Again as I said in the first quarter of.
The ball, but we feel we feel good about the continuation of what we have.
Got it.
My second question is related to asset management.
The margin clearly was very favorable this quarter for.
But at the same time, adding the PMO block will likely lowered the hole for awhile.
Margin for the segment given the business mix.
But if the market conditions remain stable any reason why the margin at Columbia, Threadneedle would not remain the low to mid forty's per cent range going forward.
No.
I'd say this.
We actually feel like if Europe improves a bit.
No, Chris and I'll flows turnaround their margins will be a bit higher I mean outside of foreign exchange and et cetera, We think that would be of possibly even if you saw the even where there is a level of margin compression or institutional flows are a little low fee base, we've been able to maintain of 52 basis points over the course of the year.
That spread because we are winning some sort of mandates and getting good flows in certain of our products that have the fees.
I think Europe, the UK would actually be favorable if that started the turnaround to add to that.
<unk> is not a negative at all I mean, that's all you're doing as you weighted in like 100.
Some of them billions of dollars of assets that have an institutional base, mainly and with that they have a lower fee, but we think the revenue contribution will be positive in the flow situation, we could make positive as well and so really it's all youre doing is youre doing the.
The Mac.
But if you said you know.
You're at the forties now and that will stay and then you just add the institutional Adam.
It will come to whatever the number comes to and we'll provide that for you as soon as we get a more fine tuned break out of it.
But I would say there is nothing.
And so we sit here to tell you what changed in that regard at this point.
Okay.
It sounds like for Columbia Threadneedle.
More of kind of operating leverage that you can get.
You will turnaround okay got it.
Our next question comes from Andrew Quail demand.
That all the way.
Hey, good morning.
Maybe just quickly follow up on the last.
The last question about the advice and wealth.
So $9 billion plus in wrap flows for the 3 quarters of what else.
Youre sitting at 39 billion in cash.
Credit the worst of that actually the sort of more than double.
Couple of the numbers.
2 years ago before the pandemic.
I just want to make sure.
This is the new normal.
Yeah.
[laughter] well.
I think Andrew it's of excellent question and I think.
Youre right I mean, we're sitting here, sometimes and we compare it to a little of the level of activity that we saw just the prior quarters or a year I think if you do go back to 19 are low.
A lot of activity or of productivity.
Our margins on that productivity and.
The amount of flow activity has definitely increased we do feel we're more productive we do feel that we're starting to hit on sort of the right channels for that growth.
But you know I mean, if I can the defined the 9 of $10 billion is there something from some pent up yes, there's something probably.
In there, but to your point, our cash balances are up as well so it's not as though we lowered the amount that's sitting in cash and just moved it into wrap so I think youre right in what you're concur.
Concluding.
I was just trying to sort of talk about it more from a year over year basis.
Okay.
And maybe just following a little bit up on.
Many of his question.
These M&A blocks.
Are pretty active out there maybe you could I could take it from a different angle are you getting a lot of incoming calls and.
With those calls maybe.
<unk>, even a consideration that going forward, you would manufacture and ultimately reinsure.
The product as you are moving forward on new business.
Andrew It's Walter as Jim indicated certainly we are get inbound inbounds, we're evaluating both from a tactical and strategic standpoint.
Maybe I would say there is clearly of interest and certainly from what we're looking at the best shareholder indications 2 of taking into consideration of all aspects, including P/e multiple and certainly the recognizing the quality of the book, but we are certainly.
Yes.
We're certainly getting inbounds.
So maybe just glass.
Lastly.
So the.
Round trip of.
Excess capital will be around 2 billion of after the PMO.
In the fixed annuity block gets completed.
Any sense, when you're doing a great payout ratio of about 90%.
Any sense.
Sense of the possibility that you might ramp that up a bit in the back half of the year and next year.
I think Andrew at this point, we want to execute the BMO transaction. We just completed the fixed annuity as we've said for you even before we did those things.
Target of nice return, which we're doing.
And we're consistent with that so you can keep that as sort of our base right now, but I think it will depend on market conditions and a sense of what opportunity arises in that regard and.
It gives us also flexibility so I don't want to commit to anything at this point, we want to complete the BMO transaction as we go through.
And see how the environment is but I would just say, it's a real positive to half of the hand.
Okay. Thank you.
Our next question comes from Tom Gallagher from Evercore.
Yeah.
Good morning.
Yeah.
For the first question just on <unk>.
Walter how we should think about corporate.
Following the closing of the F a deal.
The.
Are we going to see an amortization of the negative seed flowing through corporate and can you give some.
Indication for what the earnings impact is going to be going forward.
Sure.
So yes.
We haven't finalized exactly but it's a reasonable.
Positioning to put it in corporate and yes, there will be amortization of the negative seed, but let me put this in context as we evaluated.
Certainly the FAA book.
And its projected going forward.
Does this transaction is going to be of positive from a P&L standpoint, certainly you would see as you project it will be higher than what you're seeing right now but.
All of the projections are it will be certainly P&L positive to us as we go forward in that.
Not even taking into consideration the use of proceeds as it relates to the period of capital. So it's okay.
Risks and P&L wise as you look over the term of this and certainly the freed up capital aspects of it it was certainly very positive.
Yes.
Time, it would be.
The positive to what we would be experienced if we maintain the fixed annuity book and the losses from that.
On a relative I mean on an absolute sense it will still be.
Some negative.
In each quarter, and but Walter the size of the negative per quarter.
Youre going to see Okay. Right now you saw it in this quarter, we had $6 million of losses. So as you look out 2 of it in 'twenty, 2 it's going to get pretty close to when the amortization and the other aspects of it will equal pretty much for probably $10 million of quarter something in that range. Okay. Andrew I'd come does that make sense for you.
That does yes, yes, and Thats and Walter.
Presume that's noncash.
That's exactly right because it <unk>.
Just the amortization right and that's not the that does not include like the use of capital. If we were to use it for buyback or out of things so to offset that but what I would say is if we held it you would.
Had a higher numbers, but this was a very reasonable and appropriate way and it also freed up the amount of capital upfront rather than just overtime.
That makes sense.
And as Jim.
Just to.
To come back to the question of potential risk transfer.
So the fixed annuity deals done.
Everything you guys have said about.
You're getting inbound calls and you're evaluating things if we think about we'll call. It the most likely path of outcomes here.
Would it be something similar.
Similar to the FAA, where you might you might do a slice of your remaining risk.
Whether that's life insurance variable annuities and long term care.
Or would you be open to doing something far for a more strategic like a full divestiture of river source life.
And how.
Know how closely you have really looked at it yet, but when you think about the drag on your valuation and your multiple today from from those businesses compared to bid asks spreads in the market do you have any any sort of sense for whether you think it could be of meaningful positive in.
When you have something bigger would make sense or do you think it's more kind of be more bite sized transactions.
So Tom.
That's an excellent question.
And what I would say is that we're evaluating a lot of different aspects. So as an example, if something optimizes us for.
Places, we will look at that of something strategic.
The only makes sense from what we're doing for our system or a client et cetera. It makes sense, we'll evaluate it so it's not as though we're just being myopic at this point, we're looking at a more holistic.
We will look at what that.
For <unk> for shareholders as well as what it is from our client value proposition, but when I say that.
Look at it so just think about it.
For that 20% that's remaining again outside of the LTC, which we manage and it's not going to be an earnings for us.
The rest.
The agenda that we have right now generates very good return now there are subsets like low interest rates for the <unk> book is not as.
Lucrative as the <unk> and other things like that but even our annuity book has a very good return as well risk even the guarantee portion and well managed.
No.
Of this there are assets that are favorable for us to evaluate something different and we also take into account the pea we will evaluate it.
If there are subsets that like we did with the fixed annuity that sort of Optimizes. The book right now is the other things unfold.
We'll look at that as well so I can't sit here and give you a perfect.
Again, we view of the Crystal ball, but we are open and thinking about what makes sense, but we look at all aspects of that not just the financial aspect in the short term.
That's that's good color I appreciate the Jim Thank you.
Our next question comes from Simeon come out from Citi.
Yeah. Thanks, good morning.
I wanted to go back to AWS for a second.
Jim You had mentioned that you brought in I think 42 experienced advisors, which is about half of what you guys.
Normally do and I know you said there is some focus on reopening et cetera, but can.
Can you talk about the competitive environment for advisors.
And do you think you could get back to that kind of 80 ish plus advisor recruiting per quarter kind of in the near term.
So I think listen as we went through the quarter.
We didn't expect it to slow down as much but for a combination.
And again, we can't put a fine point on it but in speaking to our people et cetera. It wasn't that there wasn't a strong interest in that we're having good conversations, but it's sort of where like some people who live there I wanted to delay it some people didn't want to sort of like the reopening and what im looking out of the market share.
What are they are et cetera, so right now of pipeline looks really good and we feel like we will get back to those numbers and that's really and maybe even a little more favorable.
But I would probably say it was just the way. It came now is there a competitive market absolutely there is a competitive market and we're being disciplined.
Disciplined as well because we don't want to just if it's not right for US we don't jump at it just like we want it right for the advisor recruiting in that we can help them be successful, but I would probably say the second quarter.
Attributed to competitive frame.
2 of the confluence of factors.
And that's really what I'm getting from my people, so as I said I'm not.
Coming up with that myself, but really what I got his feedback as I went through the system.
Okay that makes sense and then just 2 quick production questions for.
In asset management on the North American retail business can.
You give a sense of where the growth is coming from in terms of channels. How much of it is AWS versus the third party intermediaries and then all of a follow up for AWS.
Yes, so we have strong flows across the system in the U S and retail as well.
We had some nice flows in institutional and the retail it's actually across the combination of those channels, we've actually picked up share in most of the intermediary.
In AWS, it's just they're getting there similar share just that our growth is strong.
And so.
Of getting a piece of that action.
So they're no different than the third parties as far as what we're seeing in the pickup but it's across and also I think we did mention that it's not just 1 or 2 disciplines. We have a range of products that are actually getting and I think if you looked.
The industry outside of passive there was a bit more of a slowdown like in the equity sales.
In the active our equities held up pretty well, so even though there was a little bit of a slowing in certain aspects.
It was still quite good.
So we feel good about the retail and the consistent.
<unk> of it.
The variety of products that we're putting in the market I think where we had a little more softness was really in Europe. We have positives in Europe UK was weak of previously.
And now Europe slowed down a little just because of what happened in the environment, but we are hoping that will bounce back.
Okay that makes sense and then the last 1 I had on production I think this might of been asked before and I didn't hear the answer and I apologize. If you said it and I missed it but in terms of the wrap flows can you give a sense of of how much of that is coming from sort of the.
The newer advisors, maybe that you added over the past couple of years versus the sort of what I would.
Installed base of folks that have been around for a while.
We're seeing.
So on the new advisers, we can see the consistency of the ramp up of ramp up has actually improved a bit and we're actually on a relative basis for the industry are quite good.
The higher end of that but I would probably see the flow.
Colin really coming from the combination of factors, but the the legacy advisors.
The advisors are really generating good flows organic flows.
Okay, great. Thanks, so much.
Yeah.
We have no further questions at this time.
Ladies and gentlemen, this concludes today's.
Conference. Thank you for participating you may now disconnect.