Q3 2021 Ameriprise Financial Inc Earnings Call
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 two you will see a discussion of forward looking statements specifically during the call you will hear references to various non-GAAP financial measures, which we believe provide insight into the company operations.
Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website.
Some statements that we make on this call may be forward, looking reflecting management's expectations about future events and overall operating plans and performance.
These forward looking statements speak only as of today's date and involve a number of risks and uncertainties 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 third quarter 2021 earnings release, our 2020 annual report to shareholders and our 2002.
10-K report.
No obligation to publicly update or revise these forward looking statements.
On slide three you see our GAAP financial results at the top of the page for the third quarter below that you will see our adjusted operating results followed by operating results, excluding unlocking which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful.
Trend analysis.
We completed our annual unlocking in the third quarter.
Many of the comments that management makes on the call today will focus on adjusted operating results and with that I'll turn it over to Jim.
Good morning, and thanks for joining us as you saw Ameriprise delivered another excellent quarter building on a strong year, we continue to perform extremely well.
The environment in the U S is largely positive as the economy continues to show solid growth equity markets remain strong and have recovered from a weaker September inflation has picked up given demand and there remains some headwinds due to the pandemic.
In Europe conditions continue to improve.
As you consider this backdrop, we are executing well and consistently generating important organic growth and shareholder value.
Our differentiated results reflect the strategic investments we've made in the business and a culture built on performance and a high level of care for our clients and team.
Our growth businesses are delivering strong client flows and nearly $14 billion of inflows in the wealth management and asset management businesses in the quarter.
So with these positive flows and markets assets under management and administration are up 21% to $1 two trillion dollars.
Turning to our financials.
Excellent results, we delivered in the quarter reflect the high level of performance we have generated this year <unk>.
Adjusted operating results for the quarter, excluding unlocking revenues came in strongly at three $5 billion up 17% fueled by continued organic growth in attractive markets earnings rose, 32% with earnings per share up 38%, reflecting strong business growth.
In capital management, and our ROE is exceptional at nearly 48% compared to 35, 5% a year ago, let's move to advice and wealth management, where we continue to deliver meaningful and consistent growth with the strategic investments. We've made over many years, coupled with our expertise in planning with delivering a <unk>.
<unk> referral advice experience clients are actively engaged with us they're turning to Ameriprise and our advisors for comprehensive advice and solutions and leveraging our extensive digital capabilities to track and achieve their goals our client experience as sophisticated personalized and supported by our.
Digital technology and backed by a strong reputation.
In fact investor's business daily recently named Ameriprise. The number one most trusted wealth manager. We've earned this impressive credential based on how consumers right ameriprise for how we serve them the quality of our products and services our commitment to ethical practices fair prices in protecting personal data.
To be number one in trust is high praise and we're honored.
This type of recognition and client satisfaction doesn't happen without an industry, leading advisor force. That's highly engaged our advisors are benefiting from our training coaching and suite of tools to build and deepen client relationships track prospects and run and grow their practices through our fully integrated platform.
This positive momentum and engagement, leading to robust client activity asset flows and client acquisition.
Our results reflect the traction on our organic growth that we've consistently demonstrated.
Total client inflows were up 64% to $10 billion continuing the positive trend we've seen over the past several quarters.
<unk> net inflows were excellent at $9 4 billion up 65%.
Transactional activity grew for another quarter up nearly 16% over last year with good volume across a range of product solutions advisor productivity reached another new high up 18% adjusted for interest rates to a record $766000 per advisor.
I would highlight that our advisors continue to be recognized across the industry, including in top national rankings from Barron's Forbes and working model.
We have long focused on driving productivity growth for advisors and were generating some of the highest growth rates in the industry.
At the same time, we complement this with targeted recruitment of experienced productive advisors, who are attracted to our brand and value proposition in the quarter recruiting picked up nicely and another 104 experienced advisors joined US we're getting a great response from our in person events and virtual recruiting activities and.
The quality of our recruits is very good.
Let's turn to the bank with total assets grew to nearly $11 billion in the quarter.
The trends we've been discussing with you remain consistent we continue to move additional deposits to the bank and we're seeing a growing demand for our recently introduced lending solutions, especially our pledged loan product that is getting good initial traction.
To wrap up advice and wealth management, our metrics and financials are very strong.
Pre tax income was $459 million or 43% and margin was strong at 22, 4% up 320 basis points, which compares very well in the industry now I'll turn to asset management, where we continue to build on our momentum and results.
Assets under management increased 17% to $583 billion.
Our outstanding research this quarter, our business and our ability to consistently generate excellent investment performance for clients.
That's across equity fixed income and asset allocation strategies with more than 85% of our funds above the medium on an asset weighted basis on a three five and 10 year basis.
In fact compared to the broad group of U S peers, we tracked.
We performed at or near the top of the Lipper rankings for multiple time periods.
Flows remained strong given our excellent investment performance client experience and continued support we provide advisors and our partner firms.
We had net inflows of $3 9 billion in the quarter. This is an improvement of nearly $5 5 billion from a year ago.
Global retail net inflows were one 8 billion driven by North America, while overall industry sales were a bit weaker in the quarter given the summer months overall, our flow traction is good we continue to have good sales and equity strategies and consistent with our plans with gain.
<unk> traction within fixed income.
And that's across multiple channels and structures.
Note that we expanded our successful suite of strategic beta fixed income Etfs in the quarter with the launch of the Columbia short duration bond ETF.
In EMEA retail market conditions remain challenging and while we experienced some net outflows flows have improved from the second quarter.
In terms of global institutional excluding legacy insurance partners net inflows were $3 5 billion.
The team is working hard to generate wins across equity and fixed income strategies in each of our three regions.
In fact, we've seen a number of current clients, adding to their positions of course, we recognize there'll be shifts and flows quarter to quarter given the size of certain institutional mandates our client service and consultant relations teams have good traction and we're making considerable progress expanding our consultant ratings, which position us well.
<unk> for growth.
As I look at the year, thus far for institutional we're making good progress that includes expanding our presence in APAC, where we announced the opening of our new Japan office that complements our other locations in the region.
Turning to our BMO EMEA.
Physician, we look forward to closing the transaction shortly pending final regulatory approval.
Feel good about how we're tracking will be able to provide more details after we close and when we release fourth quarter results in January.
To wrap up asset management, we are serving clients well, while maintaining our attractive organic growth and profitability.
Moving to retirement and protection solutions. So our results continue to be strong.
These are high quality businesses that generate solid earnings and excellent free cash flow. We continue to focus on non guaranteed retirement and asset accumulation protection products that deliver benefits for clients and our shareholders consistent with this strategy.
Majority of our annuity sales in the quarter did not include living benefit guarantees sales increased 28% and have shifted to both our structured variable annuity product in our rab of product without living benefits.
On the insurance side life, and health insurance sales increased 77% driven by our <unk> product appropriate given the current low rates. We are also seeing good response to our DIY products, reflecting our financial planning approach.
To summarize Ameriprise has built a differentiated book of business over many years that deliver superior financial results that are sustainable it starts with providing clients with solutions that meet their long term retirement needs have appropriate benefits and generate good risk adjusted returns for the company.
Now let me highlight why Ameriprise is clearly differentiated and financial services in terms of our balance sheet, our capital management remains a real strength.
Our advice and wealth management and asset management businesses are performing very well and generating excellent growth margins and returns we compare quite favorably across the industry.
In our retirement and protection business is valuable and high quality generating good free cash flow and returns it's entirely focused on channel and differentiated from anything else out there.
Listen we're generating some of the strongest returns in the industry and have been for quite some time and we're able to do it with lower volatility.
<unk>, we've returned capital to shareholders are very attractive levels. In fact, we consistently returned nearly all of our operating earnings to shareholders annually and if you look at that over the last five years, we reduced our average weighted diluted share count by 28%. This is all while we are consistently investing in the business.
<unk> and maintain a sizable excess capital position that gives us flexibility in closing ameriprise is positioned well.
Our team is focused on key priorities to drive organic growth and we're delivering for our clients. In fact I was just with our top advisors last week to recognize their achievements and discuss our growth priorities. It was terrific being together as I think about all of them are apprised, it's great to have people back in the office.
In person again, as we focus on finishing the year strong.
Now Walter will review the numbers in more detail and then we'll take your questions. Thank.
Thank you Jim.
Ameriprise delivered very strong financial results across the firm with adjusted operating EPS of 38% to $5 91, excluding unlocking and <unk>.
Fact, we reached new record levels for revenue pre tax adjusted operating earnings and return on equity in the quarter. We delivered strong flows earnings growth and margin expansion in our core wealth and asset management businesses.
Results in the quarter are a continuation of the excellent trends we've been seeing this year as we successfully execute our growth strategies.
This is driving our business mix shift will wealth and asset management, representing about 80% of earnings retirement and protection performed well and we remain focused on optimizing our risk return trade offs in this environment.
We generated robust free cash flow across all our businesses our balance sheet fundamentals are excellent with significant excess capital.
Behind this allows ameriprise to consistently return substantial capital to shareholders with 95% of adjusted operating earnings returned in the quarter, putting us on track to achieve our 90% target for the full year.
Let's turn to slide six.
We are focused on growth in our core wealth and asset management businesses and we hit some important milestones this quarter.
We're seeing excellent AUM growth up 21% to one two trillion on flows and markets.
Closing these businesses have improved substantially up over 200% from a year ago and up nearly 140% on a year to date basis, representing the successful execution of our growth strategies in each of these businesses.
Let's turn to slide seven where you can see that we are delivering profitable organic growth.
Revenues in wealth and asset management grew 23% to nearly $3 billion with pre tax operating earnings of $744 million up 44%.
Important earnings growth from wealth and asset management outpaced revenue growth demonstrating the operating leverage of the business.
And the blended margin for these two businesses expanded 370 basis points from last year with wealth management up 320 basis points.
Asset management up 500 basis points.
Illustrating our ability to deliver profitable growth.
Turning to slide eight.
This chart clearly illustrates our success executing our growth and business mix shift strategy, specifically, the wealth and asset management businesses are driving about 80% of the earnings over the past 12 months. This is coupled with a stable 700 million contribution from retirement and protection solutions.
With that as an overview lets review the individual segment performance beginning with wealth management on slide nine the strategies, we have in place to support advisors and improve their productivity using integrated industry, leading tools technology and training has resulted in increased flows and transactional activity.
Total client assets were up over 25% to $811 billion over the past two years.
By supports continuing to deliver exceptional productivity growth across market cycles.
Revenue per advisor reached a new high of 766000 in the quarter of 24% over the past two years.
Importantly over the past two years.
The annualized organic growth rate for wealth management flows improved to 6% compared to 4% in 2019.
This is coming from our voices penetrating their existing client base and adding new clients complemented by recruiting experienced advisors and we are pleased that our strategies are translating to this level of organic growth.
On page 10, you can see that we are delivering growth as well as excellent financial results in wealth management.
<unk> revenue or earnings for wealth management also reached record levels this quarter.
Adjusted operating net revenues grew 23% to over 2 billion fueled by robust client flows a 16% increase in transactional activity and market appreciation.
Wealth management pre tax adjusted operating earnings increased 43% to $459 million.
Ameriprise bank is adding to the growth in wealth men, primarily by allowing us to pick up incremental spread cash.
In total the bank is nearly $11 billion of assets after moving an additional $1 1 billion of sweep cash onto our balance sheet in the quarter.
In the quarter the average spread on the bank assets was 144 basis points compared to off balance sheet cash earnings of 28 basis.
In addition, we are seeing good growth in banking products, including pledge lending. It has gained substantial traction with our advisor base since the product was launched in the fourth quarter of 2020.
Expenses remain well managed G&A expense increased 1% as higher activity based expenses and performance based compensation were largely offset by expense discipline in the quarter, our pre tax adjusted operating margin was 22, 4%.
An increase of 320 basis points from the prior year.
The 100 basis points sequentially.
Let's turn to asset management on slide 11, where significant success is also being realized.
Over the past two years as some under management increased 18%.
We also saw net flow shift from outflows in 2019% to 5% organic growth rate this year.
As Jim mentioned, we are seeing positive flows across both retail and institutional distribution channels supported by excellent investment performance.
And like the industry, we saw a bit of a slowdown during the summer months, though our relative position among our peers remained strong.
The operating leverage in asset management is significant with margins put a trailing 12 months of 44, 6% up 830 basis points over the past two years.
Turning to page 12, you see these trends generated excellent financial performance in asset management.
Adjusted operating revenues increased 24% to $915 million.
A result of the cumulative benefit of net inflows market depreciation and performance fees.
On a sequential basis revenues grew 4% importantly, our fee rate remained strong and stable at 53 basis points.
Expenses remain well managed in line with expectation given the revenue growth.
G&A expenses were up 14%, primarily from compensation expense and other variable costs related to strong business performance as well as foreign exchange translation.
Pretax adjusted operating earnings grew 44% to $285 million and we delivered a 49% margin moving forward. We expect strong financial performance to continue and anticipate that margins will remain in the mid 40% range over the near term driven by the continued flow momentum in equity markets at these.
Levels.
As Jim mentioned, we are on track to close the BMO EMEA a transaction in the fourth quarter.
This acquisition with significant capabilities from strategic perspective, and drive improved business fundamentals going forward.
Let's turn to page 13 retirement protection solutions continued to reflect excellent underlying business performance.
<unk> risk profile and a continued generation of substantial free cash flow.
Pretax adjusted operating earnings were $192 million, excluding a mark down.
Down from $206 million a year ago.
Current year results reflect lower profitability from increased sales levels, whereas results in the prior year benefited from lower sales as well as lower surrenders and withdrawals.
In total.
Unlocking impacts in the quarter were immaterial, resulting from consistent client behavior and interest rates that were in line with prior year estimates.
We saw a strong pickup in sales of retirement and protection products in the quarter with a continued mix shift towards non guaranteed retirement products.
During the quarter the variable annuity sales increased 28% from last year with 72% of sales and products without living benefit guarantees.
Account value with living benefits represent only 62% of the overall book now.
Down another 200 basis points in the past year.
We had similar trends and protection with sales up 77% driven by higher margin the UL sales.
This mix in sales and account those were both retirement protection products are expected to continue.
Additionally, in the appendix of this presentation, we have provided our annual update on long term care business.
You will observe that as the business continues to perform in line with expectations from a claims perspective. The policy count continues to decline as the book Ages.
And we are garnering additional premium rate increases.
Now approximately 90% of the book is extensive with substantial credible experience.
And I will note that we did not incorporate recent improvements in mortality and morbidity.
Weighted to COVID-19 into our long term assumptions overall, our actual performance continues to be in line with expectation.
Let's turn to slide 14 in.
In the quarter, you had seen transactions announced in insurance and annuity space.
In light of these announcements.
So it will be helpful to provide additional context as it relates to how we view our business.
As Jim has indicated we believe our EMEA business is a highly valuable asset.
Client solution driven capability that is generate sustainable and predictable financial results and free cash flow generation, coupled with a low risk profile.
The driver of this is a prudent approach in building all aspects of this business, resulting in a proven track record of superior value creation.
The behavior of our clients has been consistent reflecting the nature of the product sale as part of our financial plan.
We have taken a conservative approach to product features including guarantees in crediting rates as well as requiring asset allocation for living benefits.
We've maintained consistent sales level and industry market share over the last decade, avoiding the arms race seen from time to time in the industry.
And our economic hedging program has performed well across market cycles with 97% effectiveness over the past five years.
Finally, we have taken prudent and appropriate actions to manage the risk profile of the business. For example, we stopped sales of LTC in 2002.
And have successfully implemented premium rate actions and increased protection with our LTC reinsurance partner.
We also sold our auto and home business reinsured off fixed annuity businesses and have reduced living benefit sales.
This consistent and prudent approach has resulted in a stable earnings with 24% margins and a pre tax return on capital exceeding 50% with consistent free cash flow generation.
Our balance sheet fundamentals are strong with a high quality investment portfolio and strong risk based capital ratio.
This performance is best in class in the industry over many years.
We have demonstrated superior return on capital dividends paid and capital ratios.
And our net amount at risk is substantially lower than peers.
In summary.
This is a very valuable business and we are well positioned.
It is now only 20% of earnings we have demonstrated that the exposure profile is well managed and we completed our annual unlocking with very minor updates.
With that being said we.
We will continue to evaluate options from a position of strength.
To make the best decisions to drive all aspects of shareholder value creation.
Now, let's move to the balance sheet. Another area, we have delivered strong results.
Our balance sheet fundamentals and risk management capabilities are cornerstones of what we do is starts with how we manage the business to generate substantial free cash flow in each of our segments. We had holding company available liquidity of $3 7 billion, an excess capital of $2 7 billion at the end of the quarter.
We prudently manage credit risks, where we maintain an overall double a minus credit quality in our investment portfolio and have a highly effective hedge strategy.
These strong fundamentals allow us to deliver a consistent and differentiated level of capital returned to shareholders.
As I mentioned, we returned 95% of earnings to shareholders in the quarter and we are on track to hit our 90% target for the full year, we have executed our capital return consistently over the years.
Our share count declined 28% over the past five years, even with issuing shares to fund the share based compensation programs over the past year alone for share count declined 5%.
In summary, strong fundamentals across our businesses deliver substantial free cash flow, we manage the balance sheet conservatively and we have substantial liquidity and capital flexibility combined these attributes position us to continue delivering a differentiated level of capital returned to shareholders going forward with that.
We will take your questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your touch compounds.
We wish to be removed from the queue. Please press the pound or the husky.
Hey, Brittany Speakerphone, you may need to pick up the handset first before pressing the numbers.
Once again I'd be happy question. Please press star, one and you touched compound.
And your first question comes from Steven <unk> from Wolfe Research.
Good morning, Joan Walter.
Hope you're both doing well.
I wanted to start off with a question and maybe a multi part question just on the bank growth strategy.
Given continued strong growth at the bank up roughly 70% year on year as we look out over the next three to five years, what pace of growth should we be underwriting where do you see the bank level is getting to on a more steady state basis, and just given the meaningful gap between you and peers in terms of loan penetration and the strong demand.
And for a pledge loan product that you mentioned, where do you see as an achievable loan penetration rate our target over the long term.
Okay, So with the bank as you notice.
We have certainly grown.
The underlying assets.
In the bank, we will continue to do that we have the capability of our overall cash drivers to switch from foundry to on balance sheet and certainly manage our effective.
Yield on that basis and give us alternatives. So we do see we have substantial room to grow.
Take deposits right now they are in the $11 billion range to be in confusion, increasing that by at least $2 billion to $3 billion as we move forward into the years and evaluate the situation.
It gives us certainly yield pickup from that standpoint, and gives us diversity as relates to the.
Underlying assets, we are seeing a tremendous success.
Look at our our pledge loan activity and margin loan activity, which of course is in the broker deal, but in <unk>. We are investing to build that and we will see significant potential penetration capability with that as the uplift has taken place since December when we launched a pledge loans.
It has been very good and certainly the other products that Joe and his team are working on.
That's right and recognizing it's a multi year endeavor just curious given some of your peers have loan penetration rates around one to one 5% of <unk>.
Do you view that as a credible long term target for Ameriprise is well, yes, we do.
Okay, Great and then just for my follow up on organic growth sustainability, certainly encouraging to see you should maintain that 5% annualized organic growth rate.
We also saw some improving trends in the employee channel as well as better momentum in APAC and was hoping you could speak to what's driving that improved advisor adds both in the employee channel as well as the financial institution channel and just given those improving trends how that informs your confidence level on the sustainability of that mid single digit organic growth rate.
So this is Jim.
So first and foremost the organic growth rate that we've been getting we feel very good about based on how we're penetrating our own client base today, how we are enhancing and deepening the relationships through our advice modules.
And the support that we're giving the advisors with our tools and capabilities that really helped them engaged clients more fully so we feel like what we've made as good investments their training and development is really starting to show its fruits.
In regard to the external recruitment that has picked up again, which we did as we move from more of the virtual back to in person. We're seeing good advisors join us good quality books, and we feel like we.
We have a good opportunity as people better understand the type of capabilities that we offer the brand support that we provide as well as the recognition that we're getting there from a client perspective for trust in regard to our brand.
And Thats very important.
We see that both in the advisory employee channel the franchisee, but as well in the Fig channel. We as you know we took us a little while to integrate that into our platforms and capabilities and now we're actually adding new bank partners and adding advisors to those partners.
So thats actually taking shape kind of nicely for us and we think theres a good path forward on that.
Very helpful color. Thank you both for taking my questions.
Our next question comes from Humphrey Lee from Dowling <unk> partners.
Good morning, and thank you for taking my questions. My first question is on the G&A expenses in AWS and in asset management.
Overall expenses continue to surprise on the lower side, especially for AWS.
<unk>.
A 1% year over year, and actually down quarter over quarter.
I understand that the lack of travel and the delay in returning to the office was a factor, but like organic growth activities were very strong. So it seems like the expense management continued to yield very good benefits just how should we think about the G&A expenses will trend going forward.
Why do I think in the past you talked about 3% to 4% growth rates, but why isn't that too conservative.
The 3% to four is a good number from our standpoint certainly is.
We do believe we are managing expenses, well and certainly making investments, but as you indicated certainly <unk> expenses and other things have not exactly return, but we do see that.
Certainly coming back into more steady state, but the three or four would be a good number in my mind.
Got it.
And then in terms of asset management. So retail flows were very good in the U S. But EMEA flows continue to be a little bit weak you talked about seeing some improvement since the second quarter can you just talk about what you're seeing in that market and what can you do to drive better flows and then what do you expect when the flow to EMEA.
Looks like 150 ml acquisition is closed.
So this is Jim.
We look at the wholesale flows in EMEA.
We're positive.
<unk> been maintaining a bit more positive over the course of the year. The UK was the area that even though it has improved there. So it was still in a bit of an outflow. It did improved over the last two quarters and as you would imagine the U K and went through a bit more of a lockdown in the summer months. There is still working through some of that.
Issues regarding Brexit et cetera, just completing how that looks and how people should think about investing but we actually see that with the economy starting to bounce back a pandemic starting to.
Get a bit less impactful that we should start to see a bit more pickup there, but that was the weak spot in EMEA.
But overall it did improve over the course of the year to now on the institutional side, we've seen good inflows in EMEA.
And in certain of the mandates as well as in the UK, we've gotten a big mandates there as well.
So we see the institutional being a little firm in that regard versus the wholesaler intermediate at this point.
That's great. Thank you for all the answers.
Our next question comes from Alex <unk> from Goldman Sachs.
Hey, good morning, guys. Thanks for the question.
I wanted to go back to the discussion around.
The retirement business, obviously, you guys kind of provided in more details and try to kind of showcase the quality of the business should we read that as sort of reaffirmation of your commitment to the business.
Or the fact that look it's actually a great business in the minds of along better with somebody else.
And as a threshold for us to think about you highlight plus 30% ROE over three years in that business how.
How should we I guess think of that as a sort of a metric for us to think about like.
Would you need to see to part with that business.
So it's an excellent question.
We think that by giving you more information someone would read something into it different than some on the ELD. So let me try to clarify that.
And what we tried to do there we've seen the transactions as Walter said come out to market and people starting to realize that our book is a bit better than what they are seeing out there.
And very clearly we think it is significantly better in that regard.
The business is less than 20% of our total today.
It is very well managed it generates very strong returns and cash flows.
So the first thing I would convey to you as an investor.
And as an analyst is that it does not detract from our business. It provides that level of diversity. It actually gives us strong cash flows that we use for buyback as a complement to our free cash flows we generate in the other businesses. So it doesn't in any way have a draw on capital.
And that it's been very steady and consistent with excellent returns on the overall capital Thats deployed there. So one thing we would bring to highlight is as we hold the business it should not be a discount or an overhang on us as the first thing. The second thing we would clearly say just like we have sold the order.
In home, we reinsured part of the book, we've diverted our sales from activities that don't give us really good strong returns. We're very open to continue to explore strategic opportunities with the book either reinsurance of aspects or even the sale of certain of the businesses, our total but as long as it makes sense.
From a strategic perspective supports our clients and we can generate reasonable value for that.
We think it's a good operating business, it's really a great client oriented business that really has great distribution capabilities as part of our solution set so it might be a great opportunity strategically for us to evaluate but we wanted to be clear that this is not a discounted book that we.
Must get rid of whatever reason because it doesn't detract from us and in fact that shouldn't be a discount to the business today as we hold it but if someone was we evaluated strategically it made sense I would tell you it's a valued business that should be.
<unk> price.
Got it alright, loud and clear thanks for that.
My follow up is around the asset management business.
We saw that Columbia is dividend combined I think had a soft close in the third quarter.
This has been a real big contributor to the overall organic growth within asset management.
Can you just spend maybe a minute on what the soft close really means in this context.
Sort of if you were to go back over the last 12 months and say Hey, if the product was close back down any kind of way to frame how much of a flow headwind. This could create but also in the same context, maybe spend a minute on how the business may have been diversified a little bit more so to what extent should we really worry about this product shelf closing.
Yes, I would not worry about it we've been in sort of a soft close over the course of the year and what that really means is we still take additions to accounts that are already their retail and institutional which is still a good flow. It's just that we don't go out and sell to new clients to add new mandates to it and since we have a really good.
But with the amount of incremental flows that come in from that book anyway. It's still continues to be nice accretive on the other side to the point that you raised we have been able to really diversify our mix and so over the course of the year again, we have more than 10 different disciplines that are adding.
Over $1 billion of flows to so we feel really good about the diversification and what may still be an income products, if that's where.
People are interested versus as well our fixed income business is growing nicely with us.
Different types of investments there.
As well as some of the other equity products have also been gaining traction. So we feel like our lineup is pretty diversified now.
Each of what we're selling actually has excellent performance.
Thanks very much.
Our next question comes from Brennan Hawken from UBS.
Okay.
Good morning, Thanks for taking my questions.
Really encouraging and great to see the good fundamentals in AWS.
And the tick up there.
Head count this year.
I guess it seems like from your comments that you think the growth is sustainable so just would like to confirm that that's if that's your view, but also.
Could you maybe give some additional perspective on your approach to recruiting.
Where do you think you might stand versus.
Your primary competitors in the marketplace as far as competitiveness of packages is concerned it is.
Is there maybe a willingness to step up if you guys are conservative maybe maybe approached the market a bit more so you could drive a bit more of that about head count growth. Thanks, yes. So.
We feel very good about the continuation our ability to continue to get good flows in the business and have good client activity and relationships both on the client as well as with the adviser.
Uptake of our capabilities.
And the same thing with recruiting I think we really do have.
A really strong value proposition to offer advises the biggest thing that we try to do is educate advisers versus what people are selling out there of what we offer more completely and comprehensively.
And we think it is very differentiated and we think that it really helps in adviser really.
Improve their productivity and drive a really good strong practice.
And so that's really what we focus on now part of that is the package financial for someone to transition et cetera, We think that we offer competitive packages there.
Don't get overly aggressive less some that will sort of by the business per se. We look at the economics of that and want to make sure that it is reasonable and appropriate through cycle.
But we feel that the offering is competitive and when you add that to the totality of what we provide and the support we think it's excellent value. So that's the way we look to compete in the marketplace and we feel good about that.
Excellent. Thank you for that and then following up on <unk>.
Stevens questions around the growth in the bank.
Curious.
Clearly we the bank.
So a nice uptick in yields here this quarter and Thats really probably before you even saw some benefit from rates.
Given how it happened late in the quarter.
And so clearly in an attractive economic proposition.
How do you think about the possibility to perhaps even accelerate the deposit growth in the bank and when we think about this ultimately as a strategic driver of better economics and in AWS.
How do you think about where the banquet breakdown as far as.
Proportion or mix of the deposits I mean, I would think it should be the majority.
Right.
How are you guys thinking about it over these next few years. So I would say, we actually re entered the banking business because we felt consistent what you said that it was a good strategic opportunity for us to complement.
Our business in the marketplace.
Clearly, we have some experience going back on that and we actually grew the business nicely at that point in time.
And as you recollect the bank is kind of new right. Now. So we're just sort of ramping up we're putting the products to market et cetera, and we think that we have a good growth trajectory of moving more deposits over.
We think that the.
The margins in that business could be really good I mean, it's been a compressed spread market right now thats starting to open up a bit as we get down the road, which I think will be favorable for us to continue to do the ship.
And we are launching more of the lending products in the bank.
And some more deposit gathering products in the bank as well for for our retail clients now with that it will continue to take time to develop those books, but we see really good traction in the ones we've launched already.
We'll be bringing more.
Lending activities back on balance sheet over time for mortgages and home equities and other things like that so.
So we do have our plans going out and I think it will be a great complement to the business.
Sure, but I mean.
Is there any idea or aspiration of indication around proportional size of the bank versus the other options. For example, if I'm a movement of off balance sheet. The balance sheet that will become the majority of where the deposits go so that exactly to your point yes.
As far as the lending penetration again, as we increase the number of different products, we put out there for what we're going to penetrate that's what we're working on now, but we feel like we can get some good penetration based on some of our past experience of what we worked with partners.
Sounds great. Thanks, so much for the color.
Our next question comes from John Barnidge from Piper Sandler.
Yeah.
Can you talk maybe about some of the flow synergies for the BMO EMEA asset management transaction in the backdrop.
<unk> flows for Columbia, Threadneedle, maybe the opportunity in the U S that the transaction provides yes.
Yes so.
We're hopefully be able to close this in short order over the next few weeks are just waiting for one more regulatory approval.
And once we have that on the books, we can start to give you more information on it.
As you would imagine with privacy and other things in the European market. That's been one that we can't really get into an even though some of the some of the line but.
From the actual sales activity that they have been garnering over the last number of quarters. Even though this transaction was done has been very positive and favorable so they've been a nice inflows there.
And that bodes well for us to assume the business.
And.
So we think that that can continue we liked a lot of the capabilities that we're already thinking about how we would integrate that in and carry some of those capabilities not just of course.
Our European business, but actually into the U S.
And from a U S perspective, we think that.
Number of their U S assets are going to transfer over to US we've been working it's a client by client approval and activities, but that looks very favorable and we'll be able to give you more information as we get closer to the end of the year.
Great. Thanks.
Our next question comes from Andrew <unk> from Credit Suisse.
Hey, good morning.
Just staying on.
The BMO EMEA transaction.
I think it's a 700 million plus lay out its capital.
Yeah.
Do you have an appetite to do any more transactions.
Where might that be.
So we.
We absolutely want to focus right now in the international market of closing and integrating in the BMO transaction. We have good plans to do that and leverage that capability of working with the people. There. We have we think that they add good complementary investment processes and people.
And capabilities and that's the first order of business.
Having said that.
As we have said we have flat capital flexibility if something else comes along that will be complementary that fits we would definitely look to explore it having said that we're not out in search of something to do right now.
But you never know what opportunities may arise, but if we're looking at.
The European part of that equation, we're really focused on that integration.
I see.
And if something were to come your way any particular areas of note that you would strongly consider well again.
We're continuing to do is look at what could be complementary in either distribution or product capability.
Some of the maybe alternative space solutions, but again, we feel like we got a pretty good makeup.
And while BMO actually provides as a complement to the areas that we wanted to further invest in.
And so that's why again it would have to be really opportunistic rather than that we're in the hunt for something that we need right now.
Got it and then just.
And maybe I missed this in the EMEA conversations but.
And you talked about.
Those exceeding your expectations, which is quite promising.
But at some point that it would have to be some breakage could you give us a sense of how much breakage, we might expect over the next year or two.
BMO EMEA operations.
As you would imagine anytime we go into transaction a deal not knowing we always factor in a level of breakage et cetera.
And still feel very good about the arrangement that we've made.
And adding it to our equation.
Having said that we feel like from what we know today.
That looks less negative and more positive than what we always initially assumed but again it's early stages.
But I think what's important is that this will be complementary to us, we're not integrating and consolidating investment processes and people.
We're adding them, we're keeping everything in tow as it is to really support clients. The way they've been supported add those processes and investment professionals to our capability.
And we also feel like we can add some further support to what they have done in EMEA to complement their business that will be very helpful to decline. So we feel very positive at this stage as we get further into the plus we'll always give you provide you that color.
Thanks.
Our next question comes from Ryan Krueger from K B W.
Hi, good morning.
Given the 747% RBC ratio at reverse or is it right now following the fixed annuity deal do you plan to take.
Than normal dividends up to the holding company this year and work that back down to a more typical level.
Detroit enthusiasts, obviously with the transaction on the fixed news that created that situation. So we will be adjusting them.
Thanks, and then just one follow up on.
River source.
I guess in that.
Recent quarters, you've talked about receiving inbound interest in river sourced from third parties can you just given us a little bit of an update on that in particular I guess are you.
Receiving interest from strategic buyers or just financial buyers.
It's been the multiple of it.
They are continuing certainly as it relates to as you've seen the activity in the quarter. So it's on both sides of it.
Great. Thank you.
Our next question comes from Kenneth Lee from RBC capital markets.
Hi, good morning, Thanks for taking my question.
Just one on the asset management side or the operating margins were very strong to start wondering was it simply case of operating leverage or were there any other particular drivers that you would call out thanks.
The operating leverage.
Operating leverage in the margins have been quite strong and then certainly again, we've targeted 35 to 39, it's been running in the mid 40 is that it certainly.
A factor of market situations, which we expect will continue.
If the markets.
Yes.
Great.
And just one follow up if I may I'm wondering if we could just delve a little bit more into the organic growth improvements youre seeing with sandy advice and wealth management side wondering if you could just outline what you think what are the main contributors in that increase in growth rate over the past two years and do you think that we could.
You'll see similar rates going forward. Thanks, Yes, I think.
We feel very good about that.
Growth rates in the continuation and we feel a lot don't get me wrong. The markets are good but we feel a lot has to do because you've seen a nice uplift from where we were based upon the integrated technology and the solution.
The advice modules, we've been putting into the market that really help the advisors engaged a larger part of their client base.
And deepen appropriately.
We also have added a lot of capabilities for them and our CRM systems et cetera to reach out to even more prospects.
And move up market more.
So we're seeing a combination of things that are adding to that total flow picture.
But what's really important is the level of client and advisor engagement on things and so we think that that has given us that that level of uplift.
Great very helpful. Thanks again.
Yeah.
Our next question comes from Tom Gallagher from Evercore ISI.
Good morning, just a follow up on potential risk transfer.
No.
From what we're seeing and hearing it looks like pretty attractive pricing.
What's the majority of your business, which would be variable annuities and life insurance.
But but less so we hear the market for long term care transactions.
Is pretty challenged and obviously you haven't had a deal on that market for quite some time is one option for you retaining long term care.
Selling the rest of your business and if so would that be a tough deal to structure is that doable.
There's a lot of options come in as we talk about as Youre correct LTC is certainly.
Evolving at a slow pace than the others, but the good thing about it is the strength of what we believe is our position with that business.
So, yes, we could structure something of that nature, but right now I don't want to get into speculation of it but the good thing about it is it's performing the way we thought it would and we feel comfortable with it.
Thanks, Thanks for that Walter and then just just a follow up.
One I kind of agree with everything you have on your slide in terms of the.
The I will say the positive attributes of your business relative to some of the other businesses that have been sold.
The most unique aspect is your distribution and I think that generally better margins and lower risk.
Is there do you think if something does evolve here that you would get paid something in addition for for that distribution.
And if so is there any is there any way to think about that.
Tom again Youre right on point I mean, we actually have one of the best channels, if you want to sell.
A longer term solution.
And the capability there is there.
For someone that really wants to continue to be in the business and a good way.
And based on the type of offering our clients look for reasonable appropriate benefits.
Reasonable appropriate pricing.
And consistency of delivery. So yes, it would be probably if someone's in this business is probably one of the best channels for them to access.
Okay. Thanks, Jim.
Our next.
Comes from Erik bass from Autonomous research.
Hi, Thank you just one more follow up on the Rps and then getting to slide you highlight the very strong cash flow from this block, which has been over 100% of GAAP earnings and that's a lot higher than peers.
Wondering what's allowing you to generate this level of cash flow and is this a sustainable level moving forward. If you hold sales and flow was roughly stable.
It is and certainly we feel as you look at we've been maintaining our RBC ratio is certainly the quality of the book and the cash flows within them. So we feel very comfortable with the capital requirements and looking at from a SaaS standpoint or that this is a sustainable proposition. Obviously, there's been an outage late so other aspects of its auto and home and other things of that nature, but.
On a regular stayed steady state basis, yes, it's in the range.
Got it so do you think of it as sort of a 100% free cash flow conversion ex kind of the reinsurance deals that you've done in the past in a range yet.
Got it thank you.
We have no further questions at this time.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
Okay.