Q1 2022 Ameriprise Financial Inc Earnings Call
Okay.
These forward looking statements speak only as of today's date and <unk>.
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 first quarter.
2022 earnings release.
Our 2021 annual report to shareholders and our 2021 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 first quarter.
I love that you'll see our adjusted operating results.
Which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis.
Many of the comments that management makes on the call today will focus on adjusted operating results.
With that I'll turn it over to Jim.
Good morning, and thanks for joining our first quarter call.
Begin by sharing that Ameriprise delivered another good quarter and a solid start to the year.
You've seen the economic environment remains strong, but the global equity markets were more volatile.
The impacts of the rush innovation, Ukraine, and the higher inflation that we're experiencing here in the United States as well as globally.
Fact, Bloomberg U S aggregate experienced its largest single quarterly loss in over 40 years in.
In this climate the fed has finally begun to ratio of term rates, which is appropriate they have been slow to take action is signaling that they will have to get more aggressive.
Before I discuss the quarter I would like to acknowledge the horrific situation in Ukraine.
<unk> vehemently condemn the atrocities being committed by Russia, and our thoughts are with the Ukrainian people and all who have been affected.
Our focus has been on supporting humanitarian relief.
Should note, we don't have staff will conduct business in Ukraine, or Russia, and our direct exposure is extremely limited, let's move to the first quarter results.
We're in a very good position to kick off the year and we've been able to execute very well during this volatile time.
Client activity remains very strong we continue to generate good results, we're investing for growth and executing our plans and serving clients really well.
And that resulted in good asset growth and strong financial performance total assets under management and administration up 17% revenues were up double digits earnings per share was up 10% and ROE is terrific at 49, 9%.
All in strong results in a challenging market environment.
Let me now turn to advice <unk> wealth management, we delivered another strong quarter.
With the volatility picking up it's important for us to be engaged with our clients and advisors.
Leveraging the tools and solutions that we've invested in over the last number of years that we told you about we had strong activity and flows in the quarter and good client acquisition, particularly in a 500000 plus market I know that our advisors have been doing a level of reallocation of rebalancing that's appropriate in clients' portfolios in effect.
We saw good flows coming in and cash balances have picked up which is appropriate at this point.
So let me give you some of the numbers.
Total client assets were up 8% to $823 billion client inflows were strong up 12% to $10 4 billion.
Wrap net inflows of $8 7 billion and was strong in a more volatile environment and even though they are a bit lower than a year ago clients are holding more cash.
As you would imagine transactional activity was impacted a bit, but it's only down 6% as.
As market stabilized, we expect to see more cash going back to work.
High cash balances presents a significant revenue opportunity for us as we move through 2022 and beyond.
In total cash balances increased to nearly $46 billion up more than $5 billion from a year ago.
And as the fed continues to raise short term rates, we expect to see a meaningful lift in earnings.
With this backdrop, our advisor productivity growth reached another new high up 18%, which is terrific.
With regard to recruiting we continue to demonstrate the attractiveness of our advisor value proposition with another eight experienced advisors joining us in the quarter.
The pipeline continues to look good and then in our surveys of advisers, who have joined US over nine out of 10 advisors have said they have better technology financial planning capabilities and the ability to acquire clients more easily than they did at their prior firms.
One of the things I'm proud of is how we consistently work with our clients and our strong client satisfaction. It.
It's great to see that Newsweek has named US one of America's most trusted companies.
That complements our investor's business daily number one trusted wealth manager ranking.
And earlier this year, we launched a new AD campaign advice, we're talking about that's telling our story even more broadly in the marketplace. We showcase that nine out of 10 of our clients are likely to recommend ameriprise to their family or friends.
In a few weeks ago, we released our money and family research on generational wealth that underscores the significant need for holistic advice in the marketplace, which plays to our strength.
Turning to the bank total assets grew to $14 2 billion in the quarter up more than $5 billion from a year ago. We continue to have good demand for our pledge loans with balances increasing nicely in the quarter.
The bank presents a significant opportunity as a long term growth driver within wealth management and provides additional flexibility in this rising rate environment.
To wrap up advice and wealth management, our financials a good pre tax income was up 13% and we generated a strong margin above 21% up 80 basis points.
Let's turn to asset management now, we like others have experienced the market volatility and the risk of headwinds given the geopolitical environment.
It has affected us and the industry largely in retail.
But overall based on the strong progress we've been making over the last number of quarters, we saw good growth in assets up 24%.
Our long term investment performance continues to show good consistency with our three five and 10 year time periods and over 80% of our funds were above medium on an asset weighted basis.
Our one year performance did slip a bit based on the volatility out there in the rotation from growth to value given our quality growth positioning in certain equity funds, especially in Europe .
But our investment teams feel good about their positioning as they manage through a tough market environment.
Let's turn to flows where were out about $700 million in the first quarter, reflecting the pressure you've seen in the industry.
In retail we were at $1 9 billion in terms of U S. Retail gross sales slowed and we saw a pickup in redemptions similar to the industry. Our flow rate was slightly better in terms of active peers in equities and slightly worse in fixed income we haven't really played in a large way in the short.
Duration market or the leveraged loan area. However, we benefited from the remaining piece of the U S asset transfer that was part of our BMO transaction and which is largely included in our retail numbers this quarter.
In EMEA retail net outflows improved a bit in the UK.
However, they worsened in continental Europe , given the risk off environment.
Those flows have certainly slowed for the industry and we're seeing similar pressure yes.
Yes retail flows are a bit challenged but we have a strong lineup of funds and good engagement with distribution partners advisors and gatekeepers when the market start to stabilize we'll be in a good position.
Turning to global institutional excluding legacy insurance partners net inflows were $1 9 billion as investors look through the current volatility.
<unk> had some good wins, but there was some asset allocation calls as you would expect and we experienced some redemptions. We've added to a number of our rated strategies and similar to retail we're having good engagement with clients and prospects globally.
Our investment performance is key to this and it's being recognized we did well in recent barron's rankings and five Columbus strategies earned 2022 U S. Refinish Lipper Fund awards with four as repeat winners.
Good to BMO EMEA integration, we're on track.
The combined senior management team is in place and we have announced that we will rebrand the BMO global asset management EMEA business to Columbia Threadneedle investments in July .
So for asset management, we're focused on our clients executing our plans and generating good financials and returns for Ameriprise.
Pre tax operating earnings were up 25% and margins were above 40% and thats, what the full quarter of BMO in the numbers.
Moving to retirement and protection solutions, we're seeing good results I'll start with variable annuities.
Wanted to mention again that we discontinued products with living benefit riders at year end.
We had some sales in the pipeline that came in in January but that tapered off as we move through the quarter.
Given the environment, we had good sales in our rubber product without living benefits as well as our structured products.
Overall, our sales were down 27%, but that should be expected given the volatility in our move away from living benefit guarantees.
In protection, we continue to have strong sales in the quarter coming off a positive the year.
We're seeing good activity.
Our life sales were up 22%.
We've been focused on our <unk> and <unk> products, which are good margin and return business for us and appropriate for clients in this environment.
In terms of earnings were up 4% in line with our expectations financial results and free cash flow of good, particularly given the volatility in our move away from living benefits.
So overall for Ameriprise in terms of our capital positioning we feel really good about continuing to give back to shareholders at an attractive rate, we returned $562 million in the quarter, which is substantial.
And with that we raised our dividend up 11% or 18 increase since becoming a public company in 2005. So overall as I began our compensation I think ameriprise delivered another good quarter.
Even with this changing landscape I think we're situated very well our advice value proposition and high quality solutions are necessary in key in this environment and with that we feel very well positioned to satisfy our client objectives.
And looking over the past cycles, we have consistently performed well, especially during volatile periods.
I'm confident that this will continue based on our strategic investments are focused on execution and serving clients holistically and our balance sheet strength.
Now Walter will review the numbers in more detail and then we'll take your questions.
Thank you Jim.
Ameriprise delivered strong financial results across the firm, we've adjusted operating EPS up 10% to $5 98.
Despite significant market uncertainty in the quarter.
Our core wealth and asset management businesses delivered strong profitable growth, representing nearly 80% of Ameriprise as earnings in the quarter in the quarter. These businesses demonstrated the strength of the underlying business model.
Our ongoing execution of our growth strategies.
And our retirement and protection solutions business continues to perform well with differentiated risk profile.
Our balance sheet fundamentals are excellent with significant excess capital of $1 9 billion.
This allows <unk> to consistently returned substantial capital to shareholders. Since we plan to return approximately 90% of adjusted operating earnings to shareholders in 2022.
Let's turn to slide six.
You can see that we continued to generate strong growth in both earnings and profitability.
Our growth businesses of wealth and asset management.
Revenues in these businesses grew 13% to $3 1 billion were pre tax operating earnings of $725 million up 18%.
This drove a blended margin of 26, 6%.
Up 80 basis points from a year ago.
Let's turn to the individual segment performance beginning with wealth management on slide seven.
These strategies, we have in place to support advisors and improve their productivity using best in class tools and technology continue to generate strong organic results.
Despite the challenging macro environment, we generated very strong client flows of $10 4 billion in the quarter.
Client assets grew 8% to 823 billion and our advisor force continuing to deliver exceptional productivity growth with revenue per advisor, reaching 810000 in the quarter up 18% from the prior year on.
On slide eight you can see that our business fundamentals are fueling continued strong financial results in wealth management.
Adjusted operating net revenues grew 9% to $2 billion from robust client flows.
Were supplemented by year over year market growth.
However.
Transactional activity declined a bit given the uncertain market environment in the quarter.
In the face of volatile markets, we saw cash balances increased to nearly 46 billion, which is counter to the typical seasonal pattern, where cash balances generally dip in the first quarter.
Cash balances should provide a substantial and immediate benefit based upon the fed's anticipated an increase in short rates for the remainder of 2022.
Based upon the market's expectation of 350 basis point increase followed by 225 basis point increases in the balance of the year, we would expect an additional benefit to pretax earnings exceeding $200 million in 2022.
But that is subject to change if the fed takes different actions.
To help offset the impact of market pullback for this year.
In addition, this provides flexibility for us to optimize the benefit from rising rates across off balance sheet brokerage cash.
Bank and certificates.
It will enable us to invest across duration, where we see attractive opportunities and capital is not a constraining factor for us.
In the first quarter, we brought $1 8 billion of brokerage sweep balances onto the bank balance sheet that we put to work in three and four year duration strategies, earning nearly 3%.
In April right opportunities increase to the mid to high 3% range.
<unk> remained well managed G&A expense increased 5% from higher volume based expenses and business growth over the past year.
As we move through 2022, we will continue to manage expenses in light of the revenue environment.
While equity markets remain volatile at this point, we expect a significant tailwind from rising rates to offset market related revenue pressure.
Overall wealth management profitability remained strong with pre tax adjusted operating earnings of $440 million up 13% from last year pre.
Pre tax operating margin expanded 80 basis points to 21, 5%.
Let's turn to asset management on slide nine.
We maintained strong profitability despite market conditions.
Assets under management increased 24% to 699 billion, reflecting net inflows and the acquisition of BMO EMEA.
In the quarter asset management net outflows were <unk> 7 billion.
Including $7 billion of outflows from legacy insurance partners.
Underlying flows were flat as continued strength in institutional offset retail outflows as we like the industry saw pressures from global market volatility a risk off investor sentiment and geopolitical screen in EMEA.
Margins in the quarter was strong at 41, 5% and in line with what we indicated in the fourth quarter, given the full quarter BMO impacts in our results.
On Slide 10, you see asset manager continued to delivered strong financial performance.
Adjusted operating revenues increased 23% to $1 billion, reflecting the cumulative benefit of net inflows and business growth strong performance fees and market appreciation.
The fee rate in the quarter was 47 basis points, excluding performance fees.
This is consistent with guidance provided in the fourth quarter regarding the addition of BMO assets, which are largely institutional.
Expenses remain well managed in line with expectations given the revenue growth.
<unk> expenses were up 38% as a result, two items, the BMO acquisition and higher performance compensation.
Pretax adjusted operating earnings were $285 million of 25%.
Demonstrating the underlying strength of our business growth and performance fees, let's.
Let's turn to slide 11 retirement and protection solutions include blocks of business with a differentiated risk profile the business performed well with pre tax adjusted operating earnings of $191 million up slightly from a year ago, given market depreciation and lower distribution expense from lower sales.
I'll focus remains optimizing our risk profile and shifting our business mix to lower risk offerings.
Railroad Universal life product sales increased over 40%.
Which now represent a third of total insurance in force.
Variable annuity sales declined 27%, reflecting the uncertain market environment as well as our decision to exit manufacturing products with living benefit riders.
Account value with living benefit riders represent only 60% of the overall book down another 280 basis points from last year.
This makes in sales and account values for both retirement and protection products is expected to continue.
Now, let's move to the balance sheet on slide 12.
Our balance sheet fundamentals remain excellent.
We had holding company available liquidity of $1 6 billion in excess capital of $1 9 billion at the end of the quarter.
A diversified high quality double a rated investment portfolio remains well positioned and our VA hedge effectiveness was 94% in the quarter.
These strong fundamentals allow us to deliver consistent and differentiated level of capital returned to shareholders.
Yesterday, we announced an 11% increase in our quarterly dividend and as I mentioned, we remain on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022.
With that we'll take your questions.
Yeah.
It's more an indication of what the fed has recently announced as it relates to the short end with the 350 increases they talked about it in the 225 and seeing the benefit.
In this in this year and you're right you would then get the calendar <unk>.
The impact as you go into 2020, we will also.
You're going to now.
Because in the quarter, we see a substantial increase in the <unk>.
And credit spreads in the spreads.
Could be long and so we will pick that up as we start shifting money from.
Our balance sheet to on balance sheet. So I think it's going to be a combination of both.
Hum will allow us to garner that additional.
Profitability.
Again these are estimates based on a lot of variables.
Sure.
Thanks for that and then.
My final question.
New product for you.
Might be on a different trajectory, but theres been some concerns about across the industry, what rising rates might do for demand for those products. So.
What are you hearing from your advisors as short term rates are likely to rise and how are those efforts to educate your advisors on the merits of the offering going.
So far we're seeing.
Continued demand for our pledge activity margin activity. So we have not seen any.
Negative impact and certainly we continued our prices are very knowledgeable about the tradeoff would be able to leverage and use that capability to invest in the market, but so far we have not seen we've seen good growth coming in from pledge and per module.
Great. Thanks for taking my questions.
Okay.
I'm, Eric <unk> with autonomous research.
Hi, Thank you given the weaker market performance year to date and the turn in asset flows do you believe sustaining and asset management margin in the low 40% range is still achievable.
Well, obviously it will.
Our ranges as we always talked about 35 39, and we said we were getting the benefit of the higher market appreciation. So you would imagine is if the markets where you have portrayed it continuing to go down it will go down but we.
Again, we have ways to go to still stay within our ranges that we talked about.
Got it. Thank you noted in the slides that the BMO acquisition is performing above expectations can you just provide some more color on that suit, whereas the performance has been better and has anything changed in terms of your expectations around earnings accretion.
So it's a multiple pronged.
Obviously, they have garnered some very good inflows in this environment.
As we talked about we've had institutional inflows coming in there have been very good.
<unk> and other areas.
We've also had the U S transfer came in so those have been very good the profitability has been totally on target and actually a little better.
We want our sir.
And as we look at the.
The elements of.
The performance fees that came in and that was certainly.
Strong profitability coming with private equity and property. So it is performing well and then as we're looking through integration.
We have our plan said and we're moving through that and certainly moving through our strategy to get our synergies. So we're feeling very comfortable about the acquisition at this stage.
Thank you and was this the last quarter you would expect the U S transfers to come in or are there any more that we should expect going forward. This is basically we believe.
Got it thank you.
Thank you. Our next question comes from Steven <unk> with Wolfe Research.
Hi, good morning.
So wanted to start off with a question just on the recruiting outlook. Some of your peers have indicated earlier in the quarter that recruiting has slowed pretty dramatically given some of the elevated volatility.
Early in January and February with a 5% organic growth net advisor adds you deliver in the quarter I mean, it will be more resilient than we were anticipating.
Hoping you could just speak to some of the factors.
That drove more resilient organic growth trends over the course of the quarter and maybe just your longer term data that youre confidant.
Sustaining 5% plus organic growth.
Given some of the stronger recruitment trends that we saw.
Okay. So I think you had sort of two parts in there one is around the recruiting and then around I guess the organic growth just from a flows.
So.
Yes, we at the beginning of the quarter. It was always a little to start off the year based on what we've seen is some of the volatility that occurred in January and then.
We were able to really pick that up as we got through the quarter and we had good 80, good quality people come join us our pipeline still looks pretty good as we continue to move forward I mean, theres been a greater level of volatility as you saw in the month of April .
But I think that we're having good conversations with people they understand the value of what we can provide them in the type of support that we provide for people who have joined us.
Got it.
Organic flow activity in general as you would imagine when you have a pickup of volatility.
A little more unknown.
You have a little bit holding on cash not going necessarily to work or the idea that people want to put a lot more money in the market and if it is going to sort of fall the next day.
But our overall client activity has held up the engagement is good.
I just think the volatility will always caused a little bit of a slowing and how people are thinking about it I'm not sure how youre thinking about it whether you're putting a lot of money to work right. Now if you have a little bit more of the unknown.
But I do believe that since the engagement is strong the conversations are good.
And the client.
Relationships are good.
Actually gaining more client relationships that those flows will be there over time, whether there's a little slowdown because of this period of the unknown.
As usual occurrence so we feel good.
Our asset stay with US I think people are seeking the advice that we provide and it's just more of what happens in a particular month or quarter or.
Weak.
I think you see that.
<unk> is something that we can sustain.
That's great color and just for my follow up on the.
Brokerage cash sweeps into the bag.
Hum.
Hoping you could just help frame what level of sweeps, we should be modeling over the course of the year as you continue to scale the bank.
Given that high 3% reinvestment yield assumption you had alluded to earlier.
And as we think about just the pace of fed tightening.
What expectation should we be underwriting just for both deposit beta.
Cash sorting or yield seeking behavior as we get deeper into tightening cycle based on your historical experience.
Alright, so from a bank standpoint.
You move from.
Our balance sheet on balance sheet about $1 8 billion.
We are evaluating we have.
Ranger you can get into $4 billion to $5 billion that we think will be helpful.
Lickable here that we would start evaluating that tradeoff because the bank is giving us that opportunity to balance to pick up our yield.
From that standpoint, and so that is something that.
You should expect that we will be targeting to do in 2022.
You indicated the yields are up and certainly those yields are low risk profiles as we've continued to manage that so it would give us a good balance between the increase in short term and picking up the spread.
With low risk.
Low duration, because we will stay in.
Two five to three and a half range on the duration and Thats, our sweet spot, that's working very well for us.
And with regards to this data and yield seeking behavior with the expectation for the level of cash balances as we get deeper into the tightening cycle yes.
If youre looking from our standpoint with the off balance sheet cash and.
The stability of that is quite good. It is again, it's more working capital and certainly it's built up over the.
Years, but this is something we feel very comfortable with it.
The amount that I mentioned that we can shift to that gives us more than enough liquidity buffer to manage that.
Great. Thanks, so much for taking my question quite well.
The next question is from Andrew <unk> with credit Suisse.
Okay.
Hey, good morning.
Following up on that bank question.
Walter you just mentioned.
To $5 billion trade off and as Im looking at these these bank assets or deposits.
Going from <unk>.
<unk> 8 billion last year to 13, two this year and as you mentioned, except one 8 billion in the quarter alone.
$4 billion to $5 billion trade off is that are you, indicating that there's a good possibility over the course of the year you could add another $4 billion to $5 billion. Yes. So if you or I will take your number of $13 billion 5 billion and you can go to the upper range of the $18 billion.
That's great.
And.
In terms of recruiting you were touching on that a bit earlier too.
Jim.
It is a tight labor market so could you touch on.
What youre seeing in terms of bringing in new new advisors to Novo is that a big initiative at this stage in the game.
And.
Just just given this environment.
Is there a comfort in and gaining advisers from other firms.
So we have <unk>.
<unk> to recruit in novice advisers as well as.
Assistance, and even our franchisee channel and help develop them as part of the franchisee systems as well.
And as we do with the employee side.
We will continue that we havent made that.
And extended large part of our activities, but it's a nice complement to our activities.
And we're seeing some good people join us that way.
And on the experience side, we continue to I think have a very strong value proposition as I mentioned in more of a in my opening remarks.
We've gone out to the advisers, who have joined us and they are highly satisfied and what we've been able to provide much better than what they've got at their previous firms either warehouses or independents.
So that story, we're telling that in the marketplace. We're not just it's not just about what the payment as it's about what someone can establish themselves here and actually grow and have a very strong productive practice with a quality type of profile.
And so again, we're not looking to just add large numbers were at or rolling up.
People based on even have low productivity, we're looking for quality people that.
Really want to manage a really good franchise or be upon our highly productive employee as part of our system with all the support that we can provide them.
And so we feel good about that.
So amidst all this economic noise you can likely.
Continue to grow that channel, yes, yes.
Awesome. Thanks.
Our next question from John Barnidge with Piper Sandler.
Thank you very much.
Theres been some thought that energy issues in Europe may increase demand and interest in ESG investing.
BMO had a large DSG product portfolio can.
Can you maybe talk about how demand for that product.
<unk> versus others broadly and maybe specifically in Europe . Thank you, yes. So.
Part of the BMO acquisition was.
Actually.
Adding to our capabilities in responsible investing and.
Their portfolios are doing well they are gone and good flows there where it's been a little softer than other areas in Europe .
And very clearly it's one of the areas that we're working on to leverage more holistically across our international franchise, but even so in the United States.
And so we feel good that that's part of what we can further leverage in the environment that we're continuing to move into as demand also picks up in that area.
I think energy is one part of that but there is the easiest DS and the <unk> part of it and that's an important part of overall responsible investing.
Okay, Great and then my follow up question.
Given the market volatility can you maybe talk about that.
Management.
Timeline for unfunded to funded.
That bidding versus maybe three to six months ago. Thank you, yes. So on the institutional side of the business as you would imagine there is always a little bit of a trying to recognize what's happened in the market and how funds need to be reallocated or even where you have one something.
Sometimes it takes a little longer just based on the market conditions to fund.
Haven't necessarily seen.
A further extension.
In that regard things have been funding.
I wouldn't say there.
Quickened at all but I wouldn't say they have extended themselves I think there's always certain portfolios. As you you have a backup in the fixed income market or you have some reallocation and some parts of the equity segments, but I think it's been running.
Consistently but where it was over the last six months.
Thank you.
The next question is from Tom Gallagher with Evercore.
Good morning.
<unk>.
The drop in insurance and annuity distribution fees.
It sounds like some level of that is going to be sustained at a lower level given you're exiting the guaranteed VA product sales any any color you can give there on.
What what percentage of the move there of the downward move you think might might remain depressed versus potentially.
Potentially getting some recovery on the other pieces.
I can't really give you a percentage, but certainly.
Exiting the living benefits.
Eliminate that aspect of it but we are seeing strength in the SBA products. So I can't really give you the exact proportion of Alexander.
Yeah and.
Tom I think on the first quarter, I think youll see across the industry a bit more slowing.
In annuity activity because of our ability. So part of that is part of it and then part of it was the guarantees versus the pick up in the non guarantee activity.
But we feel very comfortable with that.
And we think it's the right trade off for US as we continue to move forward.
We also there will be some expense savings as well from a booking some of the new business. So overall, we feel very good.
That move and the total balance of what we think that we can continue to garner there.
Got you any any color you can give on.
Just overall outlook for flows between institutional and retail on the on the asset management side.
Not not to overreact, but there was.
Definitely a pretty sharp drop in one year performance. If you look at the statistics there.
Which I would imagine probably won't won't have a big near term impact, but but any any color between.
The two pieces of the business in terms of where you think flows youre going it should we expect overall then to remain depressed here for a while.
So the one year performance is so we know it's more of what had occurred more quickly it doesn't really affect the flow situation.
In that regard I think the flows and you can see it in across the industry youre going to have a low pickup of redemptions as people say, hey, maybe I need to get out and particularly if you look at fixed income.
It's been a major pull out on some sectors of the fixed income market, including Muni is et cetera.
You also had.
A bit slowing of people investing in let's say growth stops at this point in time based upon how they've pulled back. So I think that should be expected I think as you see more people reporting youre going to see that I think you can see that in the sense data what I did say is that our level of flows is consistent with the industry we were 1%.
Better in equities as we were looking at the U S and were 1% worse than.
In fixed income and I mentioned the difference in the segment. So I actually I don't think we had a major fall off compared to the industry I think the industry has fallen off as well.
The other point, though and this is active we're talking about active now the other thing I would say is on the performance side. There are three things that occur number one in Europe . There is a segment that calls growth and value.
And.
It's all meshed together, we have a little more of a growth quality bias versus more of a value and so when you look at the European and U bench market, we had a little more on the performance there because we are a little more growth oriented our institution or retail clients understand that a little more.
But on the benchmarking it just shows that your performance goes down then in the U S. We have one big fund, which is in the 50. It is not way below it just jobs then I will go back into a few basis points.
And thats caused a little of the U S in equities and in fixed income you could imagine with the pullback of the bond market.
You had a little more dislocation there and a few basis points is what tips the thing.
But we feel very good about the quality of those portfolios and therefore, we feel like that will bounce back as well. So we don't feel like there is a major change and again.
When you look at a quarter within a one year versus three five and 10 years of having really strong performance I don't think that has an effect and I think.
And institutional clients understand a little more of what's underlying the portfolio.
And so I think that is also very important.
That's helpful color, Jim if I could just slip in one last question just on risk transfer interest rates have gone way up.
Which presumably would help the pricing on potential risk transfer of life annuity long term care any any update you can give on.
Either.
Broader.
Potential evaluation of that and also as it relates to interest rates, whether you think that would be a step in the right direction. As you think about doing something down the road and also maybe a little bit on timing. If this is a several quarter out likely development. Thanks.
Let me take a Shaun Lynn you may begin.
Clearly the interest rate environment improves.
You look at long term care and other aspects of that.
<unk>.
As it relates to risk transfer there is clearly in our opinion more.
<unk>.
The interest in these sort of products and youre seeing that and so yes. Those two aspects combined to certainly have a higher profile for people people looking at.
Books of that nature, but these are long complicated transactions.
Again.
You've seen it with many of the things that have been announced how long would it take himself.
When you put a timeframe on them.
Like I said, we're starting off in a very good position, we have great products and we're just.
People expressing interest.
<unk> evaluate from that standpoint, so it's but the environment is certainly beneficial at this stage.
Okay. Thanks.
As a reminder, if you have a question. Please press Star then one.
We have our next question from Alex <unk> with Goldman Sachs.
Hey, guys. Good morning, Thanks for the question.
I was hoping to dig into a little more into the.
The AWS.
Brokerage cash and sort of the dynamics there are likely to see here with higher interest rates. So the topic of sort of cash sorting and the ability to retain customer cash is definitely top of mind for investors.
You guys are kind of bouncing around pretty close to historical lows in terms of percentage of client assets as cash as you think forward and presumably there will be some search for yield as better kind of higher yielding options become available to investors. How are you thinking about the ability to retain this cash is there a way to frame kind of the absolute <unk>.
<unk> side in terms of percentage of client assets.
Could remain within the <unk> channel, whether it's the bank or the brokerage sweep just trying to get a sense for kind of holistic cash balances.
Alex I think what I would say is over the years, our total asset levels have gone up and so to your point on <unk>.
Cash levels have risen in consistency with that I think what I would say if I, even look at over the course of the year or for the first quarter et cetera.
We're up a few billion dollars as we sort of.
Usually what you have is a little more of a drawdown in the first quarter as more money goes back into work from the end of the year and stuff.
And what we've seen is a little more of a pickup so I would probably say to the effect if people will put some more money back into the bond market or whatever or keep a little less cash on the hold but I don't see it materially going down because we didn't really increase it as far as positional cash that much.
In that sense I think to your point its main maintained as a percentage of our total assets. Our advisors have been very good about the rebalancing of portfolios in keeping that money.
Active.
But I would say, yes, it's gone up a few billion dollars from where I would probably normally think it would be at this juncture, but I don't see it falling dramatically from there because to Walter's point its position all its transactional it's keeping some emergency cash levels that we think is important from a client perspective, perhaps.
Got it and then in terms of the different buckets.
I was hoping to dig into the banks, we've channel a little bit more you guys have obviously been moving more cash into the your own bank as deposits, but you remain a pretty significant player in that market and the bank sweep kind of brokers sweet market.
The demand from other banks has been pretty weak obviously over the last year plus are you starting to see any improvement in sort of brokerage demand from other banks as liquidity potentially becomes diminish.
Diminishes a bit over the next few quarters are you starting to see any discussion on pricing.
It feels like right now, it's kind of stat funds flattish now spread on top of that can we start getting some of that pricing dynamic improve over the next year or so no. It's Walter haven't seen much change in demand characteristics as we're into or through an <unk>.
We've seen a little.
Basically discussions on price, but.
Not much.
Great. Thanks, so much.
Yes.
We have our next question from Denise come off with Jefferies.
Thanks, Good morning.
I just wanted to start on capital return you are talking about the 90% of operating earnings.
But given the excess capital position remains very strong it seems like the RBC ratio is quite strong as well.
And given the pullback in the stock just wondering how youre thinking about.
Buybacks and could we exceed the 90% as we think about the balance of the year.
I would tell us the names and is an area of target that we talk about and each quarter, we evaluate what we want.
We will do but right now I would say, 90% is a good barometer, but we certainly have the capacity but as.
I think we are not changing the barometer right now, 90% with us evaluate options as we look through it.
Simeon I think it's also based on what happens in the environment in the market, but we have flexibility we've deployed that flexibility at the right times, where we feel it made sense.
But I think on the other side toward this point, where we're giving you a little bit of a targeted range that we feel at this juncture up and down we will still make sense, but there is opportunity for us to deploy if necessary all we want to based on opportunities.
Got it and then I guess on on performance fees, they've been strong I guess the past two quarters and I think you had mentioned some of that is related to BMO, but do you have any.
He kind of line of sight on what you would expect from performance fees sort of in the balance of the year.
Or is this kind of all in at this point I think one of the things I would say and then Walter can complement so first of all we've added the BMO business, which is an institutional business and it does have with some of its alternatives and real estate et cetera.
So if someone said well you have the same performance fees you had two years ago. The answer is no. We should have larger number of performance fees may be not as a percentage over the total asset base.
But more in total dollars because there is more product that have performance fees on them.
So, but thats lumpy.
And it's also based upon when things get.
Accrued or when it gets liquidated et cetera, So Walter I don't no I think that's exactly the point.
Have a solid base, where we do generate performance and certainly generates earnings we.
We can't predict what they are certainly as you look at property or you look at private equity.
But in these environments and it gets even more difficult to do that but it's a solid solid business for us.
We just can't give you the predictability of it.
And certainly we're happy with out of it.
Yes.
Got it and then maybe just last one.
Just on the environment I think in the past when we've gone through these periods of market weakness you guys have Paul the contingent.
Engines, the expense lever pretty aggressively it doesn't sound like you're doing that this cycle and I'm. Just curious is the difference here the upside that you expect from the bank kind of that $200 million that you talked about is that kind of what keeps you a little bit more comfortable on the expense side versus what you guys have done in the past.
Well, what I would say so need is this.
Yes.
One is yes, there is always the upside you mentioned there. The other thing I would probably say is we have not if you looked at us even over the last few years when the market has been really good we have not grown our expense base.
Mostly have much higher rate.
Some other companies have and might have to really deal with that I think we haven't even looked at Columbia threadneedle outside of the increase in expenses because BMO has added their expenses were relatively flat in the quarter year over year.
Same thing were up only a few percent in advice and wealth with all that growth of that business and the investments. We have made so I would say that we will turn the.
The spigot so to speak if we feel like things are weakening.
But I would also say that we still have good activity and therefore, we want to make sure we handle that well.
And support the business well, so I think you've got us looking at what that balances, but we haven't been overly high on the expense growth, but if we feel like things have really tower activity has gone down and then yes. It would.
And those expenses.
Got it okay. Thank you.
Our last question ladies.
Ladies and gentlemen, thank you for participating. This concludes today's conference you may now disconnect speakers. Please standby for your debrief.