Q4 2021 Ameriprise Financial Inc Earnings Call
Can be found in our fourth quarter 2021 earnings release.
Our 2020 annual report to shareholders and our 2020 10-K report.
We make 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 fourth quarter.
Below that you will see our adjusted operating results.
Which management believes enhances the understanding of our business.
Let's see the underlying performance of our core operations and facilitates a more meaningful trend analysis.
Many of the comments that management makes on the call today will focus on adjusted operating results.
And with that I'll turn it over to Jim.
Good morning, and thank you for joining our fourth quarter call.
Hope, you're all doing well.
Their approach delivered another strong quarter complete an exceptional year in 2021, we continue to execute well and produced record results.
Fortunately, we helped our clients navigate the environment, while driving profitable organic growth advancing key strategic initiatives and reinforcing our strong position in the marketplace.
At the same time Ameriprise continued to generate excellent shareholder returns.
In terms of the environment with the economy, continuing its recovery U S equity markets finished the year strong in.
In Europe , the environment improve but continue to lag the U S. As we've seen higher inflation is pressuring the fed to move on raising short term rates, causing greater volatility in the equity markets.
Let's move to the highlights for the quarter.
Total assets under management and administration were up 29% over last year and reached a new high of one four trillion.
In the quarter, we added $136 billion or.
Position of BMO, Emea's asset management business and $40 billion in total client flows also a new record.
Turning to our fourth quarter adjusted operating results revenues were $3 7 billion up 18% fueled by strong organic growth I've mentioned and equity market appreciation.
Earnings Rose, 29% with earnings per share up, 36%, reflecting robust business growth and sound capital management.
And ROE, excluding OCI and unlocking was at a record 57% compared to 36, 1% a year ago.
Our fourth quarter results are consistent with the record results, we delivered for the full year.
Excluding unlocking revenues were $13 8 billion up 17%.
Earnings Rose, 29% to $2 7 billion.
<unk> earnings per share up 35% $22.75.
We continue to execute our strategy.
<unk> strongly in a higher multiple businesses, which now represent 80% of our 2021 adjusted operating earnings for the year.
While continuing to generate strong returns from our high quality retirement and protection solutions business.
Let's move to advice and wealth management, where we continue to generate strong momentum and growth it was a standout quarter.
Clients were active working closely with their advisors benefiting from our comprehensive advice and solutions and the strategic investments we've made over many years.
Engagement is high and a large number of our clients are utilizing our extensive digital capabilities to track and achieve their goals. This is leading to robust client activity asset flows and client acquisition.
For the quarter total client assets were up 17% to $858 billion client inflows were up 29% to a record $12 5 billion driven by strong client acquisition and deepening client relationships.
Wrap net inflows remained strong at $10 5 billion up 17% driving wrap assets under management to a record $465 billion.
<unk> cash balances grew to $43 $8 billion transactional activity group for another quarter up nearly 9% over last year with good volume across a range of product solutions.
Our advisors are highly engaged the training coaching a full suite of tools. We provide advisors is helping them build and deepen client relationships track prospects and run and grow their practices on a fully integrated platform. This is driving strong advisor productivity growth up 18% to nearly $800000.
<unk> advisor.
Regards to recruiting we added another 86 highly productive advisors in the quarter.
<unk> advisors grow their practices as a top priority along with continuing to recruit experienced productive advisors recently surveyed hundreds of advisors, who joined Ameriprise over the last few years.
90% said, they had better client facing technology financial capabilities are better able to serve and acquire clients at ameriprise than they did with their prior firms that's terrific and it's an example of why we feel so strongly about our value proposition and the ability to grow.
The strength of our value proposition is also reflected in the recognition. We're receiving that includes being named the number one most trusted wealth manager and clients consistently rating is four nine out of five in overall satisfaction.
In fact, we're showcasing this strength in our latest national advertising campaign that we launched this week called advice, we're talking about.
Distinct platform that conveys how we help clients feel so confident with their experience that theyre, referring ameriprise did a friends and family.
Turning to the bank.
Total assets grew to nearly $12 5 billion in the quarter up from $8 1 billion, a year ago, and we feel well positioned as we transition to a rising rate environment.
We continue to have strong demand from our lending solutions, especially our pledge loan products.
As we move through 2022, there's clearly an opportunity as interest rates rise, we would have a direct benefit in wealth management, where in addition to what we currently have at the bank, we have our cash sweep deposits and specific businesses that would benefit the wrap up AWS on metrics and financials are.
Excellent pre tax income was $472 million up 34% and margin was strong at 22, 3% up 250 basis points, which compares very well in the industry.
Now I'll turn to our asset management business, where we delivered a strong year with.
We stayed focus on meeting our clients' needs and drove the business forward, while completing a significant and complementary acquisition that added $136 billion and acquired assets significantly expanding our capabilities and reach.
Total asset management assets under management increased 38% to 754 billion also a new record.
As an active manager we start with our research which is excellent.
Foundational to our business as we focus on generating consistently strong investment performance for clients.
That's across equities fixed income and asset allocation strategies.
At year end, well over 80% of all funds were above the medium on an asset weighted basis over three five and 10 year time periods.
This is terrific performance and when we compare it to a broad group of U S. Peers, we track, we performed at or near the top of the Lipper ratings for multiple time periods.
Overall, we had net inflows of $27 5 billion.
We're able to earn a significant level of flows from Bmo's U S clients that elected to transfer their assets to us in both retail and institutional strategies.
This is a great example of the value we can realize from our strategic relationship with them.
Global retail net inflows with $13 6 billion, including.
Including reinvested dividends as well as strong flows from U S BMO clients.
In terms of fixed income our results were good and in line with the industry as we've made significant progress in increasing our market share.
In equities, our float rate declined a bit and is consistent with the industry average as to outperforming in recent quarters.
As you've seen has been more volatility given concerns about monetary policy and the pandemic.
In EMEA retail, we had inflows on the continent in the UK market conditions remain challenging and while we experienced some net outflows flows continue to improve over the past two quarters.
Looking ahead for global retail as we navigate this period of heightened volatility we have a strong lineup of high performing strategies across equities fixed income and asset allocation.
<unk> of our U S investment strategies had over $1 billion in sales last year and Thats up from 4% just two years ago.
We will continue to execute our successful strategies and reinforce relationships with advisers and our partner firms that have driven strong results over multiple years.
Turning to global institutional excluding legacy insurance partners net inflows were $14 8 billion driven strongly by U S. BMO client transfers as well as mandate wins and top ups from existing clients.
In terms of our BMO EMEA acquisition I feel good about how we're tracking and the teams we have in place.
Executing the integration as a top priority and Im encouraged by our progress in these initial months together, we've seen that BMO is now in our numbers and Walter will take you through that further.
To wrap up asset management I feel good about the business. The progress we've made over recent years and our priorities to drive long term growth.
Moving to retirement and protection solutions, our results were strong with strong sales in the quarter.
Variable annuity sales were up 15% driven by our structured product and traditional rebate product without living benefits and protection sales were up 41% driven by our <unk> product with sales nearly doubled as it is an appropriate product in this low rate environment.
As you know we have been taking strategic actions within the annuity business and that continued in the quarter as we further narrowed our variable annuity offerings as.
As part of our focus on products without living benefits.
<unk> of January one we discontinued three of our four living benefit riders.
Three writers represented 98% of our living benefit sales for the past year.
And by the end of the second quarter of 2022, we will have stopped all new sales of our one remaining rider, which represents a very very small part of our business.
On the insurance side, we're making similar moves in the product line, where we discontinued two products in our U L lineup.
We've built differentiated re time protection solution businesses over many years that deliver superior financial results returns and steady free cash flow consistent with our other business lines.
Overall, ameriprise delivered a record year and we are positioned exceptionally well for 2020 to.
Listen across our business with driving terrific results. We ended the year with excellent organic growth, a strong balance sheet and significant excess capital position.
In Ameriprise continued to generate one of the highest ROE is in financial services above 50% and that's with our asset light and higher returning balance sheet businesses, and while maintaining a strong excess capital position.
So to close our team is focused on executing a successful strategy delivering for our clients and continuing to drive profitable growth.
Now Walter will review the numbers in more detail and then we'll take your questions.
Thank you Jim <unk>.
Ameriprise delivered strong financial results across all our businesses.
We reached new record levels of revenue pre tax adjusted operating earnings and return on equity in the quarter and for the year.
We delivered strong flows earnings growth and margin expansion in our core wealth and asset management businesses.
With wealth and asset management, now representing 81% of Ameriprise as earnings in the quarter.
This compares favorably to 75% of total earnings a year ago.
Our retirement and protection solution businesses continued to perform well as we further optimize our risk return profile.
We continue to generate robust free cash flow across all our businesses.
Our balance sheet fundamentals are excellent and.
And we returned nearly 90% of adjusted operating earnings to shareholders in the quarter and for the year consistent with our target.
We ended the year with a significant $2 billion in excess capital position.
Let's turn to slide six we.
We delivered on our profitable growth strategy, and our core wealth and asset management businesses.
In the quarter, our organic strategy was supplemented with the acquisition of Bmo's EMEA asset management business.
Which added $136 billion of <unk>.
In addition, we are in.
We're able to add a net $15 billion of flows and AUM in the quarter, primarily from Bmo's U S clients that elected to transfer additional retail and institutional assets to us.
Overall.
<unk> was up 29% to one <unk>.
Four trillion.
And wealth and asset management client flows reached 40 billion.
On a full year basis, our flows were up nearly 140%.
Presenting 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 $3 2 billion.
With pretax operating earnings of $802 million up 45%.
This drove a blended margin of 28, 3% up 420 basis points from a year ago.
Let's turn to the individual segment performance beginning with wealth management on slide eight.
Our strategy of providing best in class tools and technology to enable advisors to grow their practices has generated strong organic growth results.
In the quarter, we generated record client flows of $12 5 billion.
Including $10 5 billion into rap program.
Organic growth combined with strong markets led to client assets of 858 billion up 17%.
Advisor force continued to deliver exceptional productivity growth with revenue per advisor, reaching a new high of 796000 in the quarter of 20% from the prior year.
Turning to slide nine you can see that the results in the quarter, a continuation of our strong trends for the past two years.
<unk> increased and we continue to see excellent transactional activity levels from a differentiated client engagement.
Total client assets grew 33% to 858 billion over the past two years with client flows more than doubling over the same period.
And over the past two years advisor productivity was up 28%.
On page 10, you can see that our focus on profitable growth is showing up in excellent financial results in wealth management in fact revenue in earnings wealth management reached record levels.
Adjusted operating net revenues grew 19% over $2 1 billion fueled by robust client flows and 8% increase in transactional activities supplemented by strong markets wealth management pre tax adjusted operating earnings increased 34% to $472 million.
Ameriprise Bank is a growth driver in wealth management in total the bank has $12 5 billion of assets after moving an additional $4 billion of sweep cash onto our balance sheet in 2021.
Expenses remain well managed G&A expenses increased 2% as higher activity based expenses and performance based compensation were largely offset by expense discipline.
As we move into 2022, we will continue to manage expenses in light of the strong revenue environment.
Expect proportion will expense growth.
In the quarter, our pre tax adjusted operating margin was 22, 3% an excellent result, with an increase of 250 basis points from the prior year without a benefit from short interest rates.
Let's turn to asset management on Slide 11, we will continue to deliver excellent organic growth.
That was supplemented by the closing of the BMO acquisition in the quarter.
Assets under management were up 38%.
754 billion.
Including $136 billion of assets acquired from BMO.
Net flows were also strong at $27 5 billion in the quarter up from $7 billion a year ago.
Loans in this quarter included a net 15 billion of inflows AUM related to BMO.
This included $16 9 billion of inflows in the U S from a decision by the U.
U S clients to transfer to retail and institutional assets to us as well as $1 9 billion of outflows and EMEA about 40%, which was deal related breakage.
And margin in the quarter was quite strong up 46% up from just under 40% from last year.
On Slide 12, you can see the strong results.
<unk> of the trends over the past couple of years.
Assets under management grew 53%.
Underlying flows improved $35 billion, excluding BMO over this time period.
The operating leverage in the asset management and the significant with margins from the trailing 12 months, a 46% up from 36% two years ago.
Additionally, you saw in our press release that we made some enhancements to our AUM disclosure.
Specifically, we've broadened our definition for alternative assets to better demonstrate our underlying business and the additional assets from BMO.
Alternatives are an important point and growing part of our business.
<unk> 40 billion of AUM across various strategies.
Turning to page 13, you see that these organic growth trends are generating excellent financial performance in asset management.
Adjusted operating revenues increased 33% to $1 1 billion.
The acquisition of Bmo's EMEA asset management business contributed about $60 million to our revenues for two months excluding.
Excluding BMO EMEA underlying revenue growth remains very strong at 25%.
Reflecting the cumulative benefit of net inflows over the past year.
Market appreciation and higher performance fees.
E rate in the quarter was 54 basis points, which benefited from higher performance fees, partially offset by the negative impact of two months of BMO EMEA in our results.
Excluding the impact from performance fees and <unk>.
Our fee rate was in line with our prior quarters at approximately 52 basis points.
Expenses remain well managed and in line with expectations given the revenue growth.
G&A expenses were up 12% excluding BMO as.
As well managed underlying expenses was elevated by performance fee compensation.
Pretax adjusted operating earnings was $330 million up $129 million from last year <unk>.
Including $22 million of higher performance fees, and a $4 million pre tax earnings contribution from BMO.
This demonstrates the underlying strength of our asset management business.
We delivered a 45, 7% margin in the quarter, which included BMO EMEA for two months of the quarter exclude.
Excluding BMO EMEA the margin in the quarter was 48, 6%.
<unk> had been in our results for a full quarter, we expect our overall adjusted margin to decline by approximately 3% to four percentage points.
With the BMO transaction closed in November and a couple of months with BMO under the Ameriprise umbrella.
The business fundamentals and financial performance are in line with our expectations.
This includes our expectations around accretion targets synergies and integration expenses, let's turn to page 14 retirement and protection solutions include blocks of business with a differentiated risk profile it generates substantial free cash flow.
The business is performing well with pre tax adjusted operating earnings of $183 million up slightly from a year ago.
As Jim said, we continue to focus on optimizing our risk profile and shifting our business mix to lower risk offerings.
We're accelerating that shift with our recent product announcements to exit VA living benefits Universal life with secondary guarantees and in our UL LTC combo product.
These announcement caused an uptick in living benefit sales at the end of December with.
With a total of 67% variable annuity sales without living benefits for the full quarter.
<unk> value with living benefits represents only 61% of the overall book now down another 240 basis points over the past year.
In 2022, we would expect less than 1% of our new sales.
The living benefit riders.
We had a similar trend in protection with sales driven by higher margin <unk> sales.
This mix in sales and account values for both retirement and protection products are expected to continue.
Now, let's move to the balance sheet on slide 15.
Our balance sheet fundamentals remain excellent.
Holding company available liquidity of $2 4 billion, an excess capital of $2 billion at the end of the quarter following the acquisition.
Our diversified high quality double a rated investment portfolio remains well positioned and our hedge program was 95% effective in 2021.
These strong fundamentals allow us to deliver a consistent and differentiated level of capital returned to shareholders.
As I mentioned, we returned nearly 90% of earnings to shareholders in 2021, consistent with our target.
Yesterday, we announced an additional $3 billion share repurchase authorization be used through March 31, 2024, and feel good about our ability to continue to return capital to shareholders.
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 Touchtone.
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And our first question comes from Sydney come out from Jefferies.
Hi, Thanks, good morning.
Tim I wanted to start on the U S retail flow picture.
As we think about the past couple of years, you've had a pretty good run sort of bucking industry trends in terms of inflows.
View whats happening in the fourth quarter here is a little bit of a bump in the road when you get back on track or is there anything that you need to do that but a more substantial.
I'm, assuming that you're talking about the asset management U S flows.
That's correct.
Yes, so what we saw in the fourth quarter was that we had actually some good flows in our fixed income consistent with the industry. So we're right in there with the industry average, which we've been able to gain share which is one of the things we want to do and we actually see.
Stronger opportunity there as we move forward based on the funds and the performance of the funds and some of the categories that we know are in demand.
That will be positive and equities there has been some rotation that occurred in the fourth quarter of value growth et cetera, a little more volatility a little sales slowed I think you saw that in the industry.
Our total sales were about industry average when we were above the previous quarters.
Quarters, we actually feel pretty good about the fund lineup the performance of the lineup, which is very strong and the number of funds that were selling now versus what we did in the past we had a little.
The reduction in some sales.
As we saw closed our dividend income fund we wanted to temporarily look at that as we got a lot of activity into it to digest it but we'll be reviewing that as we move forward and that has been a good sales driver for us So I actually believe with the lineup.
And what we will do there.
And the continuation that equities will be in demand I feel good about that as we move forward.
Okay that makes sense and then I guess one for Walter on.
Expenses I guess in.
In the past when we've had these periods of market volatility you've sort of stepped up your cost savings.
I was just wondering if that's in play at this point and then Relatedly. We're hearing from other companies about expense pressure from inflation as well as people coming back to the office can you give us your thoughts on those impacts in your outlook for G&A overall.
Sure. So obviously with the market dropping that a correlated reduction in expenses.
Third party compensation, so that's going to happen as it relates to developing we have strategies, we have not certainly that implementing we've had this event take place in <unk>.
19 to 20, you wanted to make sure we stay on track to get profitable growth in installed investment business. So we are engaging in this situation.
We feel.
Optical is.
Navigate we have.
Our strategies Bill address it.
It's a leverage business.
But about that as it relates to inflation, if you look at our expenses and.
Certainly there is deflation is.
Some of the wages, but it's totally manageable and thats been incorporated into our plan.
And do you have like an overall outlook for sort of G&A growth.
Premium growth, we felt was going to be again.
Our targeted range, excluding being more cost cassettes add on from that standpoint, we normally in.
No.
Mid low digits.
So again at this stage, we feel comfortable from that standpoint, and we're just evaluating where the market is going.
But this year not much out.
We anticipate we could get a benefit coming from the fed on interest rates, which would mitigate some of that.
Yeah for sure Okay. Thanks, guys.
Youre welcome.
Our next question comes from Alex <unk> from Goldman Sachs.
Good morning, This is actually Ryan Bailey on behalf of Alex.
I was wondering maybe if we could.
Second on the BMR flows in the quarter. So the U S clients electing to transfer assets and I think you said that was about $17 billion are there any more assets that you think could transfer.
And then perhaps the second question I think you said that there was some deal related breakage on the EMEA part of the business is there anything else that you are expecting.
So on BMO.
We do expect a few billion dollars more I think will come in in the first quarter.
Something along those lines.
On the breakage, and we started to see a bit of breakage in the fourth quarter as we said probably of the $1 9 billion out from BMO.
Can estimate is probably around 40% to 50% or so now.
Some of that was LDR et cetera. So we actually think that there will be I mean, we always have to plan for a level of breakage how's.
However, we saw that last year clients stayed in pretty well they really did a like the assumption that we did of the business and what we're doing in regards to putting in as part of our makeup.
So we're not really.
And in any way this wrapped in some of the investments areas et cetera that are important for that.
But we're trying to bring more capabilities to bear.
<unk> technology et cetera, et cetera that would also be helpful. And so we will experience I mean, it's an institutional business. So there may be up for review various things that they have to go through their processes. So we have assumed the level of breakage, but we will be reporting on that as we go through but that's all in the assumptions that wealth dementia.
<unk>.
As we look at the business and what it will generate.
Got it okay.
Okay.
Maybe just one on the impact.
Rates, particularly.
The wealth management pretax income or some of your peers have talked about sort of a 100 basis points of sensitivity.
Is there any color you can give us on how much pre tax income we could be thinking about and then also our.
Additional to that how you're thinking about moving incremental cash to the balance sheet.
In 2022.
What are you going to handle it.
Sure. Okay. So 400 basis point increase we will keep the majority of that as we look at but again, that's subject to doing competitor comparisons, but thats been the normal trend line.
As it relates to that.
That range you should think about as we publish that we have.
Actually off balance sheet right now is most effected as blades that is.
In the mid 20 range and then we also have our search which will be.
We will get benefits from it so that's the sort of math of it.
That we would get.
Got it okay. Thank you.
Our next question comes from Ryan Krueger from K B W.
Hi, good morning.
Talk about the expected timing of BMO related to synergies.
Synergy and although it is $85 million that you had originally targeted bill bill a good bit themselves going forward.
Okay. It's Walter the answer is yes. The assumption is still a good assumption about and you should assume in the range of about.
25%, which should occur in 'twenty, two and the balance.
Beyond that mostly in 'twenty three.
Thanks, and then I know, it's still early in the year, but given.
The increased volatility we've seen in the Brits few weeks of the year can you give any perspective on what you've seen from retail client activity.
What extent it may have been affected by that.
So so far for the first few weeks.
Retail activity has seem to hold up pretty well.
As always it depends on what our expectations as a go forward and what the disruption may be but.
There is still the opportunity for clients to.
Appropriate allocated in their portfolios to add funds with unnecessary et cetera. So we haven't seen a dramatic shifts there.
I would probably say again it depends on what they might be putting money into that may have adjusted a bit.
But.
This market pullback, maybe an opportunity for some people it depends on whether the projection out will be more of.
More disruptive.
Volatility versus one that.
People feel comfortable with but so far so good.
Thank you.
Our next question comes from Erik bass with Autonomous research.
Hi, Thank you.
Can you talk about the decision to stop selling the guaranteed VA and SQL policies does this materially change the amount of capital you're allocating to writing new business and also does it signal any change in your view on retaining the enforce block and should we think of the announcement of the potential precursor to a reinsurance deal similar to what you did with fixed annuities.
Yes.
Okay. So I'll handle part of that and I'll have Walter handle the capital side of it.
As we said we will continue to fine tune, our book to where we think.
Both the products that are appropriate for clients in this environment, but also appropriate for the company as far as the.
The risk return rewards and the economics overall and.
So we have continued to shift from living guarantees.
<unk> two are Rob a product that has no living guarantees in our structured product.
Those were actually the <unk> product was the core part of the business before guarantees came into favor and we feel that they are very appropriate for a certain segment of the clientele base, particularly in this environment and structure as a way for us to give people a little more of the.
Steady state that they are looking for in the variable side of the business. So we feel very good about that and the shift away. In fact, you saw our sales in total actually went up last year.
Other than down as we started to ship and we don't feel an issue.
We need to provide those guarantees and there are other providers on a shelf whether those guarantees.
And the same thing in the insurance side of the business. We have turned up the dial for variable universal life or a disability products as we get them focused a little more on the younger.
Part of the population.
These are products that again with the core of our business on a number of years ago.
That we're putting more emphasis on is we.
Actually.
Turn off the dial on some of the Universal life type products in this interest rate environment. So we feel very good about that the good products with the clients.
Company, good returns as well and ones, we think are appropriate for the environment and it does help us.
Risk any tail risk for the future.
So with that I'll, let walt to handle the capital I'll come back with the idea of how we're thinking about the books going forward.
So on capital, Yes, and obviously in this environment interface environment.
We'll certainly reduce but the real reduction will come as you are selling at west hub and benefits in stress situations. So it does certainly modulate that stress central situational.
But.
And we did stop sales.
Our sales.
So overall for the books.
Again, what we've tried to convey to you last quarter and some of the information we release as well as some of the details we provided in the past.
We actually have very good books of business are at risk is very low compared to what you've seen in the industry for various books in that.
Category as an example.
And so this just continues to.
Add to that differentiation per se as we managing and maintain these books now in the environment. We're looking there's been greater levels of activity.
<unk> been mainly as the stock just like we did in our fixed annuity reinsurance, namely moving assets for the general type of account that people want.
And VA is they've been deeply discounted book, so unique capital requirements that have been.
Sold recently.
Books are very well managed very low risk a very capital efficient very strong cash flow generators.
So we are having conversations were reviewing as the market evolves and there is more of an interest.
Strategically in the quality of book that we have and what it will generate for the future for earnings and cash flow for a provider or even from a sales perspective.
So we will continue to monitor the market have discussions where appropriate.
And it might be if there's a strategic or value creation opportunity, both economic and from a shareholder and appropriate.
The buyer as well as for us and our clients.
We're very open to entertain that but I would say that we continue to have very differentiated books very strong cash flow. Our at risk is very low compared to anyone out there and could easily be managed even in a volatile environment based on our excess capital position or even the call that there might be.
Possibly on the capital, which wouldn't be that significant yet.
So we feel really good about it.
Thank you I appreciate all the detail there and then if I could ask one follow up just on the asset management margins. This is the right way to think about it kind of a low to mid 40% margin for the business ex BMO is kind of the baseline entering 2022, and then factoring on a kind of a three to four point.
Drag from BMO, initially and that that would get smaller over time as the expense synergies come through.
Yes, I think thats, a pretty good way of looking at.
Thank you.
Our next question comes from Brennan Hawken from UBS.
Good morning, Thanks for taking my question.
Wanted to start with a follow up on a lot of that great color that you just gave on.
Where you are in the process of selling river source.
So.
You spoke to the differentiated risk profile and that's becoming appreciated in the market I guess.
Is your experience so far that.
The bids you received you spoke to receiving bids from both financial buyers as well as strategic on the October call. So do those bids.
Align with your view.
The lower risk profile.
Are they in line with your expectation and when you consider and have dialogue with private equity or financial buyers is there interest in <unk>.
Idea that there could be a distribution.
Arrangement.
To allow for their products to be sold into your wealth distribution channel and could that be.
An attractive component.
For for that cohort.
Yes.
Bill, let me start but that.
Walter really responds so I don't know if you mentioned in October we didn't really put the books out for bid or received bids on them for the current things.
We did was finalized in the transaction for the fixed annuity in the summertime.
What we are doing is exploring that having those conversations.
And see whether the type of books and the type of economic returns, we generate would be of interest to various players out there and.
And we are exploring that but more importantly, we look at that from all aspects as we've mentioned both strategically economically.
And from a client perspective.
I do feel like if someone really is looking for a high quality something that they can build upon something they want to be in the business for longer term.
There would be some good opportunities. This is probably one of the best book show up or find out there are probably one of the best type of clients. If you want to continue to sell to them for the type of products. So I think as this market that are crystallized as there will be some good opportunities and we will look at it strategically to see if <unk>.
Two equals five.
So thats the way we are preceding Walter do you want to say anything on that.
Yes.
Jim has indicated certainly people recognize the quality of the book.
Standpoint.
Given.
And from our standpoint, yes people do look at distribution side feels to some of them from that standpoint, so it's a whole.
Our book to re variables.
Variables that have gone into discussions.
Got it thanks for that and then when we think about cash in the bank so that saw a nice.
Increase in a bit of an acceleration from the prior pace this quarter.
And clearly what we've seen in the rate market is an increase in the hawkishness in the outlook and the forward curve. So.
With the acceleration in transfers of deposits over to the bank.
Due to the improving environment do you have an ability to accelerate the pace.
Ahead of the $3 billion to $5 billion pace per annum that you've previously indicated and we're to reinvestment rates stand within the bank at this point.
Sure. So we certainly have the ability and we certainly have a plan to increase the.
Yeah.
Transfer trauma or balance sheet to on balance sheet and with the current environment and looking at this.
And especially with the anticipated fed increases.
Investment by <unk>.
Quality investments the way, we do an echo.
100%, so thats an opportunity, but you also now have the situation of course youll measure it even though we have the capacity we will be getting lift coming in on the on our balance sheet. So but yes. The answer is.
We have capacity.
Picking up of yield curve, but now you also get the variable of Kathy higher earnings coming from the off balance sheet funds side. So it's going to be an interesting evaluation point, but certainly.
It is positive for us on all aspects.
Alright, thanks for the color.
But.
Our next question comes from John Barnidge from Piper Sandler.
Thank you very much.
I had a question on advisor recruitment really strong at 2% up year over year could you one talk about maybe average trailing revenue per new advisors versus existing and then back to your comment about.
Better financial technology being attractive can you talk about what you have versus where they are coming.
So.
From a.
Adoption level the quality of our recruits are pretty consistent now with the averages that we've given you.
So we have a mix of those advisers, but we also as part of that mix $5 million plus produces teams a very large coming over but on average across the entire recruitment spectrum that would probably put it in the the average of our production levels are right now which is good.
I would also say that the the survey we did of all the recruits we brought onboard come.
Come from a combination of warehouses and independence.
And it was very strong and there's a long detailed list of the questions asked about technology capabilities tools.
Branding marketing and client acquisition deepening all that stuff and very clearly it was 90% or so in some areas 90 plus percent, 95% of how well we were able to vote for them give them.
Abilities to grow the use of the technology the technology itself et cetera. So we feel really good and it was from a wide range of people joining us.
Very good firms as well as independent firms.
Thank you for that my follow up question.
In the deck is activity based expense likely to increase.
From.
More people going out, but you also call out expense discipline can you maybe talk a little bit about how certain prior expenses may not be returning at the same time that you do have activity based increase thank you.
Yes, So we continued and I'll, let walt to get to the actual expense rates, but we continued even last year and the year before et cetera.
Thus strongly in the business.
With the technology with the capabilities with data analytics et cetera.
With robotics.
With AI, so we've been doing a number of things across the firm we expanded our products.
And so we really feel good about what we've been doing yes, we have a level of investments that we will continue to do moving forward.
You have to always sort of keep up and involve enhanced with digital capabilities of cyber security things like that but we feel very capable of managing that maybe the level of investment. We do this year might be a little less than we did last year as an example.
That will offset some of the expense that we do see some inflation of wages.
But we think that will be very well able to manage that expense against the revenue growth that we have.
And we will modulate if we feel like the markets have come down a bit if there is some compression that way.
We will look to manage the expense base in a similar fashion, we're doing a lot now around what will the workforce continue to evolve to be what's hybrid what's not.
What level of travel needs to come back versus not we know that working digitally and through video does us.
Help into various sections and reduces some of the TNT activities in the travel, but we also feel that is necessarily face to face meetings and support and.
Group activities. So some of that yes, we will come back in but we think we will be able to modulate, okay and have a reasonable expense picture.
Thank you very much.
Our next question comes from Steven <unk> from Wolfe Research.
Hi, good morning.
So I wanted to start off just with a.
I'll follow up related to the question or line of questioning around River source. I know you guys had talked about the quality of the book I was hoping you could speak to.
With the improving rate backdrop, how that could impact or inform the perceived attractiveness of the asset and is there any change in demand or interest from the sponsor community just given the improved rate backdrop or how that's informing some of the conversations.
Yes, so it's Walter.
Yes. The answer is yes, certainly from the standpoint.
Long term care and looking.
Basically our on book did.
That would certainly increase the attractiveness.
Point as people got mature.
You're right the base and then the potential of the basin.
Certainly its audit People's thinking.
Okay and just for my follow up I wanted to dig a little bit deeper into your equity market sensitivity you provide that great disclosure, reflecting the impact of a 10% market correction.
No. It's a relatively static analysis, but I was hoping you could speak to some of the natural hedges in the business that could mitigate some of those pressures. Both in terms of increased retail engagement to that you alluded to a bit earlier.
More importantly, the increased allocation to cash as investors look to derisk their portfolio.
Obviously, it listen diesel leverage businesses and certainly if you look at asset by asset management.
Equity box will have an increase.
Impact.
This year, I think because what's causing the feds and certainly the potential increase in interest rates that will certainly.
It gives us.
When there are back on free accounts and on search and certainly on yield curve. So that is.
Aspect that would be beneficial within it but.
Okay.
It's the area.
And that we will see.
And then of course are our ability to adjust.
<unk> expenses as Jefferson.
Previously done.
But as far as yes people shifting into <unk>.
Sweep or into cash and if the fed increases the rates that will certainly.
Great color Walter Thanks, so much for taking my questions.
Youre welcome. Thank you.
Our next question comes from Tom Gallagher from Evercore.
Good morning, just first question on the economics of the BMO U S assets that almost $17 billion that you had transferred and I guess you have a couple of billion more you think might come in <unk>.
The I just want to make sure I understand how the economics works here.
I believe you get close to 30 basis points on the assets how much of that fee are you sharing with BMO.
And what is the alternative for these clients.
Meaning like why are they moving.
Their money to Ameriprise at this point that the ownership of the U S asset management business change hands are a little bit of an explanation for whats going on behind the scenes there. Thanks.
So.
What it is is really these are both retail and institutional accounts.
And the clients themselves have made that choice to move over to.
CCI.
And the retail areas there were some mutual funds adopted the mutual fund board makes that decision as well.
So clients had a choice.
There were other assets.
Activities that did not move to Oliver.
Or that we didn't feel appropriate to move over but we feel for the ones that we had very good lineup.
Very good investment capabilities as well as assuming some of theirs.
That would be great for the clients and good for us.
And as far as the revenues type of arrangement Walter I'll, let you handle that.
So obviously.
Simply you are right on the 30 basis points in that approximate range that and there is a revenue.
But it's but it's economically.
<unk> for us and we.
We feel comfortable with certainly.
That can kind of of that.
Good real intrinsic certainly signed on to be with us.
As Tim said.
Utilities that we've got.
Yes, and that was mainly driven by an offset so I'm gonna cost for what they had to do in there.
Current business activities to wind that down et cetera. So we feel it was appropriate for both parties.
Okay. Okay, Thanks, and as the revenue share 50, 50 are you keeping the majority of the fee.
I think it's reasonable.
Certainly.
Standby I don't want to get into the terms of but it is certainly thank you.
But arm's length transaction.
Okay, and then just a follow up on on the whole process for.
I guess, what youre doing with the life and retirement business.
I guess based on what I've heard you describe it sounds like this is a pretty comprehensive process and by that I'm, just assuming it's probably going to take the full year of 2022 for this whole thing to play out is that is that fair from a timing and process standpoint.
So what I would say there is that first of all we are.
Listen to you as analysts investors et cetera, I spoke to my board, we're doing a thorough analysis in regard to evaluating our business, what we love about the business and what we tried to explain to you as the analysts and investors.
That this is a very good business built over many decades very solid books of business very consistent books of business, mostly all to my clients, who actually take these solutions against their planning activities for their retirement et cetera, and so we are very comfortable with the <unk>.
We're very comfortable with the risk profile, we're very comfortable with the economic returns I mean, when you generate a 15% Roe.
And you have this balance sheet business and a strong excess capital you can see how those returns are quite good and don't negatively impact the business.
Speaker 1: this capital, you can see how those returns are quite good and don't negatively impact the business.
Speaker 1: And with that, the free cash flow we use to buy back stock, which helps us just like to generate the free cash flow from the other asset light businesses that go along with that.
And with that the free cash flow used to buy back stock, which helps us just like the generate the free cash flow from the other asset light businesses that go along with that so it's not a where some others had to get rid of this business. They needed capital they had a long tail risk that they needed to get out of.
Speaker 1: So it's not a where some others had to get rid of this business. They needed capital. They had a long tail risk that they needed to get out of.
Speaker 1: To invest in their other businesses. That's not our issue. So what we're looking at is.
To invest in their other businesses, that's not our issue. So what we're looking at is to say.
Speaker 1: This is what we have if that can add and someone can do better with it. We manage, you know, we invest it short if they can have other opportunities with their capital structure with their investment structure. That's appropriate.
This is what we have if that can add and someone can do better with it we manage.
The chart, if they can have opportunities with their capital structure with their investment structure that is appropriate.
Speaker 1: If in a certain sense that they're interested in growing the business or want those capabilities or that. This would add a quality dimension to what they're doing and the values there. We're very open to explore that.
If in a certain sense that they are interested in growing the business or want those capabilities or that this would add a quality dimension to what theyre doing and the values there with very open to explore that.
Speaker 1: In things like long-term care even you know we haven't invested out in that book There's a lot of opportunities for someone coming in to do something like that if they want to do other types of investments they could make.
And things like long term care event, we haven't invested out in that book there is a lot of opportunities for someone coming in to do something like that if they wanted to do or the types of investments that could make.
Speaker 1: So that's what we're exploring. Yes, it will take probably awhile, but you know, I think the market is continuing to evolve. There's a lot of money out there and there's some strategic players that might be interested. So we're having conversations with very open to that dialogue and we'll explore it. If something is there, we will proceed. If it's not, we feel very comfortable maintaining the book.
So that's what we're exploring yes, it will take probably a while but.
The market is continuing to evolve there is a lot of money out there and there's some strategic players that might be interested so we're having conversations with very open to that dialog and will explore if something is there. We will proceed if it's not we feel very comfortable maintaining the box.
Speaker 2: That's that's very, very helpful, Jim. I just one final follow up, if I could. The I guess the perception in the market that I hear right now is that.
That's that's very very helpful. Jim just one final follow up if I could the I guess the perception in the market that I hear right now is that lower quality variable annuity books have generally gotten pretty good bids like better prices than most investors were expecting we have not.
Speaker 2: Lower quality variable annuity books have generally gotten pretty good bids, like better prices than most investors were expecting.
Speaker 2: We have not yet tested the market with higher quality books. Yours would certainly fit that bill. It's much better quality, I think, on most measures than a lot of the other ones out there. And so the concern is that there may not be the same level of attractiveness of bids on the higher quality books. But I guess you'll be the test case of that. Do you have any.
Yet tested the market with higher quality books yours would certainly fit that bill it's much better quality I think on most measures than a lot of the other ones out there.
And so.
The concern is that there may not be the same level of attractiveness of bids on the higher quality book, but I guess youll be the test case of that do you have any.
Speaker 2: sense for whether, at least even very initial price discussions you've had.
Hence for weather at least even very initial price discussions you've had.
Speaker 2: would appreciate the quality of your book and give you, we'll say proper value for that, or is it just too early to tell?
Would appreciate the quality of your book and give you.
We'll say proper.
Value value for that or is it just too early to tell.
Speaker 1: So you're 100% right in your sort of look at the idea of what's been sold out there or what's been
So you're 100% right in Europe .
Look at the idea of what's been sold out there or what's been.
Speaker 1: done so far, and we would definitely be on the quality end of any spectrum. Now, having said that, what I would say is I think there is an interest as people think about long-term flows and where they want to put money to work over many years and having that quality as well.
Done so far and we will.
Would definitely be on the.
The quality and the any spectrum now having said that what I would say is I think there is an interest as people think about long term flows and where they want to put money to work over many years.
And having that quality as well, but it's a little different it's not deepen the money discount that it's not just the general account theres variable accounts et cetera, but I actually believe that as people start to evolve their thinking are appropriate or strategic players have more of an appetite again.
Speaker 1: But it's a little different. It's not deep in the money, discounted. It's not just the general account. There's variable accounts, et cetera. But I actually believe that as people start to evolve their thinking or appropriate or strategic players have more of an appetite.
Speaker 1: Again, I do believe there might be some good opportunities that could be a win-win.
I do believe there might be some good opportunities that could be a win win.
Speaker 1: But yeah, I think those things are forming. That's why we're having conversations as the marketplace evolves and as people get a better understanding of how to differentiate.
But yes, I think those things are forming and Thats why we are having conversations as the marketplace evolves and as people get a better understanding of how to differentiate.
Speaker 1: So, that's what I would say, but that's a positive. That's not a negative. And as I said, I think you looking at our returns, our cash flow, et cetera, that's more of we will make the right decision for shareholders. If that comes along tomorrow or the next day, we'll see. But I feel good about it.
<unk>.
That's what I would say, but that's a positive that's not a negative.
And as I said.
I think you are looking at our returns our cash flow et cetera.
That's more of we will make the right decision for shareholders.
If that comes along tomorrow or the next day, we'll see.
But I feel good about it.
Great. Thanks, a lot.
Speaker 3: Our next question comes from Andrew Cleggerman from Credit Suisse. Hey, thank you.
Our next question comes from Anthony Klarman from Credit Suisse.
Hey, Thank you glad I made it in.
Question.
Speaker 4: Question around advice and wealth management where RAP net flows for another record $10.5 billion, four quarters in a row above $9 billion, and yet just two years ago before the pandemic, I think most investors would have been happy seeing somewhere in the $4 to $5 billion.
Question around advice and wealth management, where.
Wrap net flows were another record and in a half billion four quarters in a row of $9 billion and yet just two years ago before the pandemic I think most investors would have been happy seeing somewhere in the $4 billion to $5 billion range. So the question is what's what's kind of.
Speaker 4: So the question is, what's kind of changed here and is this the new normal?
Changed here and.
Is this the new normal.
Speaker 1: So, Andrew, as we would probably say, we do feel like
So.
Andrew.
We probably say, we do feel like we.
Speaker 1: We are and have been able to generate more flows through our client base and our advisor. Our advisor productivity is picked up. Our capabilities are, we feel very good and very strong, even as I've mentioned from advisors that we recruit in.
We are and have been able to generate more flows through our client base and our advisor our advisor productivity has picked up our capabilities are we feel very good and very strong even as I've mentioned.
Rises that we recruit in.
Speaker 1: We've enabled them to really get more clients appropriately, move up market.
<unk> been able them to really get more clients appropriately move upmarket.
Speaker 1: actually to deepen those relationships quite well.
Actually to deepen those relationships quite well.
Speaker 1: with the technology and the capabilities and the relationship management tools we've been giving them. We're actually adding to that as we go forward with the use of AI and capabilities of looking at further opportunities, segments of their book that they can even focus on even more appropriately.
With the technology and the capabilities and the relationship management.
Pools, we've been giving them.
Adding to that as we go forward with the use of AI in capabilities I was looking at further opportunities segments of the book that can even.
Our focus on even more appropriately so.
Speaker 1: Uh, so we feel good that we have been helping them pick up a level of that activity and that has translated to the flows that you're seeing a client acquisition was up strongly this year, including.
So we feel good that we have been helping them pick up a level of that activity and that has translated to the flows that youre seeing a client acquisition was up strongly this year, including in the segment that we really wanted to grow which is the $505 million category was starting to work on moving even further up mark.
Speaker 1: in the segment that we really wanted to grow, which is the 500 to 5 million category, we're starting to work on moving even further up market to higher net worth.
The higher net worth.
Speaker 1: We're also focused on some of the younger generation as we bring in through the remote and digital capabilities that we've been investing in
We're also focused on some of the younger generation as we bring in through the remote and digital capabilities that we've been investing in.
Speaker 1: We're also, as we develop the product solutions or integrated RAP programs and how they can move money and do it across multiple types of their portfolios for a client and how we're looking at that. And we're developing a new retirement solution for the long term for them to optimize returns for the clients and longevity income.
We're also as we develop the product solutions are integrated wrap programs and how they can move money and do it across multiple types of their portfolios for our clients and how we're looking at that and we are developing a new retirement solution for the long term for them to optimize returns for their clients.
Irons and longevity income so.
Speaker 1: So, I feel really good about what we've been able to do is help advisors grow and the flow picture that that will result in. Of course, as I said last year, markets always help a little bit when there's a positive environment, so that's part of the base. So, I can't tell you regarding volatility and other things whether that will slow down a little bit, but I think the base of activity.
I feel really good about what we've been able to do is help advisors grow and the flow picture that that will result, then of course as I said last year markets always help a little bit when there is a positive environment. So thats part of the base. So I can't tell you regarding volatility in other things whether that will slow down a little bit, but I think the base.
Of activity.
Speaker 1: is much stronger than it was two years ago and three years ago because of what we've been doing.
Is much stronger than it was two years ago three years ago because of what we've been doing.
Speaker 4: And I think that helps somewhat with my second question, but, you know, I've looked at your advisor count. I was just checking my model, and I look in 2016, and the advisor count was down 1, and then 17, it was up 2, it was flat in 18, down 1 in 19, up 1 in 20, and then this year it's up 2%. In a business, Jim, that...
Got it and I think that helps somewhat with my second question.
I looked at your advisor Count I was just checking my model and I look in 2016 <unk> 17. It was up to was flat <unk> down $1 19 up one in.
In 'twenty and then this year, it's up 2%.
In our business Tim that.
Speaker 4: you know, advisors in general appear to be in secular decline. Do you think you could kind of at least grow, continue to grow in the low single digits or, or, or is it going to be very tough? And, and, and the answer to the prior question was great. And you mentioned that 90% that were very happy with the technology. What about the other 10%? Uh, why were they not that happy?
Advisors in general appear to be in secular decline.
Thank you could at least grow continue to grow in the low single digits or is it going to be.
Tough and the answer to the prior question was great and you mentioned that 90% that were very happy with the technology what about the other 10%.
Why were they not that happy.
Speaker 1: Well, it wasn't that they weren't that happy. What we had asked them is across all these dimensions. So that's why I said there were a number of things that were above the 90%.
Well it wasn't that they weren't that happy what we have asked them is across all of these dimensions. So thats why I said there are a number of things that were above the 90%.
Speaker 1: And above all the things we asked them, whether we gave them and the capabilities, the support, the brand, et cetera, helped them grow better, work with clients better, help them, you know, get better client satisfaction, all those things, grow their businesses. And so, that's like unbelievable. So, that's nine times out of ten. Now, there might be certain things in certain firms, but certain of those activities might have been good or the technology for that capability might have been good or, you know, or a solution set that they provided. So, it's not like we're going to be best in everything, but when you get nine out of ten of, of course, a whole bunch of dimensions, I would say we were very pleased.
And above all the things we asked them, whether we gave them and the capabilities to support the brand et cetera.
<unk> grow better work with clients better help them.
Get better client satisfaction all of those things grow their businesses and so that's like unbelievable. So that's nine times out of 10 there.
There might be certain things in certain firms, but certain of those activities might've been good or the technology for that capability might have been good.
Or.
Solution set that they provided so it's not like we're going to be best in everything, but when you got nine out of 10 are across a whole bunch of dimensions.
I'd say, we were very pleased.
Speaker 1: And I think that you'll find, I don't know if you'll find that with other firms recruiting people in. So I, you know, I'll be.
And I think that Youll find I don't know if youll find that with other firms recruiting people in so <unk>.
Ill be interested what I would tell you is.
Speaker 1: What I would tell you is, you know, as we look at the business, we do feel good about our ability to continue that along those lines. Now, as far as the number of people.
As we look at the business.
We do feel good about our ability to continue that along those lines now as far as the number of people. There are people out there that have been buying up networks and growing and advisors and it doesn't matter what their productivity levels. It doesn't matter what they how they want to do business et cetera.
Speaker 1: There are people out there that have been buying up networks and.
Speaker 1: rolling in advisors, and it doesn't matter what their productivity levels, it doesn't matter what they how they want to do business, etc.
Speaker 1: Uh, we don't really want to play that game. We feel if we can bring in good quality people if we could help them grow Their productivity and if I can grow to productivity across 10 000 advisors
We don't really want to play that game, we feel if we can bring in good quality people. If we could help them grow their productivity and if I can grow to productivity across 10000 advisors and I can replenish that and grow it 123%.
Speaker 1: and I can replenish that and grow it 1, 2, 3 percent, I'll do really well and I'll continue to give a very strong client value proposition. My client satisfaction is 4.9 out of 5.
I'll do really well and I'll continue to give a very strong client value proposition.
My client satisfaction is four nine out of five.
Speaker 1: I mean, that to me makes it a branded value proposition is adding value to clients, adding productivity to advisors. And I got a really good branded company that I think is valued more than, you know, just an independent or someone on a process or a network and giving them technology support. So that's really what we focused on.
I mean that to me makes it a branded value proposition is adding value to clients, adding productivity to advisors.
And I got a really good branded company that I think is valued more than just an independent or someone on a processor or a network and giving them technology support.
So that's really what we're focused on.
Very helpful. Thanks.
Speaker 3: This is all the time we have for questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.
This is all the time, we have for questions. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating.
Yes.