Ameriprise Financial Inc (AMP) — Q1 2015 Earnings Call Transcript

Thank you, and good morning. Welcome to Ameriprise Financial's first quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks we'll be happy to take your questions. During the call, you will hear reference to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events, operating plans, and performance. These forward-looking statements speak only as of today and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2014 annual report to shareholders, and our 2014 10-K report. We take no obligation to update publicly or revise these forward-looking statements. And with that I'll turn it over to Jim.

Good morning, and thank you for joining us for our first quarter earnings call. I'll begin by providing my perspective on the quarter and the progress we are making. Walter will follow me with a detailed review of the numbers. Overall, Ameriprise had another good quarter and was situated well. However, higher equity market volatility, unfavorable foreign exchange, and continued low interest rates did affect results, as did the long-term care reserves increase. That said, our capital position, ability to generate good free cash flow, and deploy capital all remained excellent. For the quarter, our operating earnings per share were up 7%. From a return on equity perspective, we continued to deliver. With a combination of solid business results and significant capital return, operating return on equity reached another high. Excluding AOCI, we ended the quarter with an operating return on equity of 23.1%, which is up 230 basis points in the past year. Assets under management and administration grew 4% to $815 billion from client net inflows and market appreciation, and that includes the negative impact of more than $17 billion from foreign exchange. We remain committed to effective capital management and maintaining our financial strength as we continue to invest in the business while delivering differentiated shareholder return. In the first quarter, we returned $459 million in share repurchases and dividends. And yesterday we announced a 16% increase to our regular quarterly dividend, and we consistently increased our dividend by double digits over the years. As we stated, we expect to continue to return strongly to shareholders and have targeted a 90% to 100% range of earnings annually. In Advice & Wealth Management, we are positioned well and are building on our strengths. We continue to generate good growth. Operating earnings were $210 million, up 16%. In the first quarter, we did experience a little more market volatility. Overall, we are serving more clients and bringing in more client assets with 8% growth in retail assets and an increase of 30% in fee-based advisory assets under management. For the quarter, advisory net inflows were $2.8 billion. Advisor productivity also grew again by double digits, 11% year-over-year to a record $505,000 per advisor on a trailing 12-month basis. In terms of advisor recruiting, we continue to attract strong candidates, and they are increasingly higher producers. During the quarter, another 77 experienced advisors joined Ameriprise. These advisors relate well to our strong branded advice value proposition and leadership. As we discussed with you, we are working to help advisors grow their practices. As you know, we share both less affluent and affluent clients. As we move forward, we are making a larger commitment to serve more affluent clients who want and need advice. We are confident in our ability to serve them. Based on the value that we provide, we believe that this will become an even larger percentage of our client base. We also want to provide comprehensive advice to more Americans. We know from our research that our confident retirement approach and advice value proposition resonate even more strongly with affluent consumers. Our brand and reputation appeal to these consumers, so this is a long-term effort to drive growth. In addition to the affluent market, we are also looking to serve more consumers who are still accumulating well in earnest close to retirement. In terms of investments for growth, advisors are benefiting from our online and paperless office capabilities that are both integrated and time-saving. They are using our digital and social media to create brand awareness for their practices, generate leads as well as deepen relationships with current clients. Overall, we are growing nicely in Advice & Wealth Management. Both client and advisor satisfaction remain strong and we are focused on helping advisors expand their client base and grow productivity. As we move to insurance and annuities, we are focused on driving advisor uptake of our solutions, while we maintain the differentiated strength of our risk profile. These are high-quality businesses that deliver important benefits to our clients at Ameriprise, especially as we expand our Confident Retirement approach to serve more consumers. Year-over-year operating earnings were down, but they were items from the current and previous quarter that Walter will discuss. In terms of the annuity business, variable annuity account balances were up slightly on market growth and $1.2 billion in new sales, down slightly from a year ago and consistent with the industry. That said, we have seen a pickup in sales of variable annuities without living benefits, reflecting good wholesaling activity and a positive reaction to educating clients and advisors about the advantages these products can provide. Sales of variable annuities without living benefits represent about a third of total variable annuity sales in the quarter, up from 25% a year ago. There is really no change in fixed annuities given the current rate environment. In protection, we continue to work with our advisors on the benefits of insurance for our clients. Life and health care sales were down a bit year-over-year, which we believe is also consistent with the industry. Our overall client retention in these solutions continues to be very good, which helps enhance the long-term nature of the Ameriprise client and advisory relationship. In auto and home, we built a strong business with our affinity relationships and are pleased to have renewed the Costco contract. They are an important client, and we will continue to offer their customers excellent value. We are focused on improving overall auto and home returns through changes in pricing, underwriting, and claims management to get back to historical performance levels. We are taking the right steps to strengthen the business and believe we can properly grow and serve more clients as we move forward. With asset management, we are executing our strategy as we go to market more globally. Our assets under management for this business are just over $0.5 trillion, reflecting a significant headwind of more than $17 billion of foreign exchange that I mentioned earlier. Financially, we generated good operating earnings of $191 million in the quarter and have achieved adjusted net pretax operating margins of nearly 40%. In terms of where we are putting our time and attention, we are investing and aligning resources to leverage the strength of both Columbia and Threadneedle. As you saw, we introduced our new global brand, Columbia Threadneedle Investments a few weeks ago. The new brand represents the combined resources, capabilities, and reach of both firms. Moving to a global brand was a natural next step for the business as our teams have been working together for more than two years for the benefit of our clients. In third-party institutional, we have further aligned the resources to run it globally. Our current pipeline is quite strong as we continue to build on the traction we gained in 2014. We are looking for our institutional business to be a growing and larger part of our overall asset management business as we move forward. Though we had outflows in the quarter, they were mainly driven by funding delays caused by market volatility. We are expecting a number of large mandates to fund over the next few quarters. Part of our future growth will come from the solutions space. We continue investing in talent, product, and capabilities, and in building our large base of assets under management, and we see this as a good opportunity. During the quarter, we began to gain traction in our fairly new Columbia adaptive risk allocation fund. In regard to retail, we made a number of changes in U.S. intermediary distribution. We are beginning to see positive signs from our segmentation strategy and enhanced business intelligence efforts to improve wholesaler productivity. We are better aligning product, marketing, and sales support functions to gain share. We have seen some improvement; however, it’s been obscured by the elevated outflows in the Acorn Fund. Our investment team is taking steps to address the fund’s performance, but we expect continued outflow pressure here. In the UK and Europe, retail flows are beginning to improve with the outlook of Europe becoming more favorable with their larger program of quantitative easing. And in Asia, we are generating good performance in funds we launched last year. Now that we are nearing our one-year anniversary, we are starting to garner some interest. Our investment teams in the U.S. and internationally are generating strong equity and fixed-income investment performance across a broad range of products, both domestically and internationally. So in asset management, we are continuing our efforts to drive flows and align resources to leverage the strength of Columbia and Threadneedle. Overall, with regard to Ameriprise, we are generating good performance in our asset-light businesses and very strong cash flow. This gives us the ability to continue to invest in our business as well as return to shareholders through continuation of our buyback program as well as increases in our dividend. With our strong capital base, we also have the ability to continue to look for small acquisitions that can add to our strategy and complement the company. Before I close, I want to take a minute to comment on the DOL’s fiduciary rule proposal. Like many of the firms across the financial services industry serving the retirement market, we are carefully reviewing the proposal’s hundreds of pages to understand its objectives and potential implications. There are a number of steps that need to take place before any changes will be made, including the 75-day comment period and subsequent review by the administration. We won’t advocate for the importance of access to financial advice for all Americans and provide clients’ choice of products and services they use to reach their goals. Our high client satisfaction and long-term relationships stem from this comprehensive personal approach. In fact, Ameriprise already operates as a fiduciary under the SEC standard for advice when we are acting in an investment advisory capacity. We have established policies and procedures to support our clients and advisors, including extensive and appropriate disclosures, which puts us in a good position. We are at the starting point of the rule-making process and any final rule would impact many firms serving more than 100 million Americans saving for retirement. Therefore, we must take into account both the intended and the unintended consequences; the details do matter. We want to ensure that the creation of a new third standard would not be overly burdensome for clients and would work with the existing SEC and FINRA standards. We have dealt with regulatory changes before, and we will work with our trade associations and other stakeholders throughout this process to advocate for our clients with the goal of most appropriately satisfying the DOL’s objectives. In closing, as we execute our strategy for growth, I believe we can continue to navigate the markets, deliver a terrific experience for our clients and advisors while generating good returns for our shareholders. With that, I would like to hand things over to Walter for a detailed review of the numbers.

Thank you, Jim. As Jim indicated, Ameriprise delivered another solid quarter of financial results in the face of a fairly volatile market environment. Let me provide some additional context. Equity market volatility was elevated at the start of the year. Interest rates also moved a lot during the quarter, with the 10-year treasury rate starting the year at 2.17%, falling to 1.64% at the end of January and settling at 1.92% at the end of the quarter, and the strength of the dollar did impact assets under management and earnings at Threadneedle. These environmental factors impacted revenue and earnings directly, as well as influenced activity levels with retail and institutional clients. With that context, let’s look at the results in the quarter. Operating net revenue was $2.9 billion, up 3% from last year. Operating EPS was $2.18 and included a few one-time items. We increased reserves on a long-term care block by $0.11 per share. Additionally, there were a variety of smaller items netting to a negative $0.02 per share that we detailed in the earnings release. Excluding these one-time items, operating EPS was $2.31, up 13% from last year. Operating return on equity reached a new record level of 23.1%, which is above our target range of 19% to 23%. Turning to slide four, you will see that our business mix shift continues to evolve. Advice & Wealth Management and Asset Management represents 64% of pretax operating earnings this quarter, and as we grow, we expect the mix shift will continue and should reach 70%. We continue to expand margins in Advice & Wealth Management, reaching 17.1% this quarter. Margins in the employee channel were over 10% in the quarter and were over 18% in the franchise channel. This demonstrates the strength of our model, the success of our strategies to grow this business and the opportunity we have to drive profitability even higher. Asset management margins were a solid 39.7% in the quarter on an adjusted basis, reflecting continued good expense discipline. Let’s turn to the segments on slide five, the Advice & Wealth Management business is performing quite well across key growth and activity metrics and delivered solid financial results, particularly given the market conditions. Revenue is up 7% to $1.2 billion with good client flows and market appreciation, partially offset by slower sales in a couple of product areas and the impact from volatile markets. We kept G&A expenses flat year-over-year. This resulted in earnings of $210 million, up 16% and a record margin of 17.1%, up 130 basis points from last year. It should be noted in a sequential basis, results were impacted by having two fewer fee days this quarter than the fourth quarter, which equates to approximately $6 million of PTI. Overall, the business continues to deliver consistent, good results, demonstrating the strength of our business model. Turning to asset management on slide six, operating net revenue was flat at $807 million as the benefit of market appreciation was offset by the impact of higher fee outflows from the Acorn fund and Threadneedle’s U.S. equity business, as well as a $15 million unfavorable impact from foreign exchange. Expenses were down 1% to $660 million, reflecting lower distribution expense and continued good G&A expense control, even with the additional relocation expense associated with the move to our new office space in London. This resulted in pretax operating earnings in the quarter of $191 million, up 4% from last year. Excluding the foreign exchange impact and the office relocation expense, pretax operating earnings would have been up 8%. It should be noted that on a sequential basis, results were impacted by having two fewer fee days this quarter than the fourth quarter, which equates to approximately $8 million of PTI in the segment. Turning to flows on the next slide, we had net outflows of $5.8 billion in the quarter. Retail net outflows were $3 billion, with outflows concentrated in a number of areas we have previously discussed, namely $2.3 billion in the Acorn fund and approximately $600 million from the former parent-affiliated distribution and a sub-advisor. Excluding these items, we are seeing some positive trends sequentially. Retail flows in the UK and Europe improved following a slow fourth quarter, and we also had a large flow into our Asia-Pacific fund. We are increasing awareness and beginning to see traction with our new Columbia Adaptive Risk Allocation Fund, and we are optimistic that momentum will continue and we continue to make progress to improve retail distribution in the United States. The institutional business had $2.8 billion of net outflows in the quarter. Let me provide some additional detail on the two reasons we saw a higher level of institutional outflows than in recent periods. First, we had approximately $1.8 billion of outflows from low-basis point insurance mandates in the UK. This includes a normal level of runoff outflows at $800 million. Additionally, it includes $950 million of outflows from mandates associated with asset reallocation to funds we do not offer. However, we expect to cover some of those assets later in the year into a higher-fee product, so the net impact of these flows should be neutral on a revenue basis for the year. Second, we had outflows in third-party mandates, mainly driven by a slowdown in the funding of new mandates. We expected several large mandates to fund in the quarter that will push back to the second quarter. Additionally, we have redemptions in both high yield and short duration at the beginning of the year that we would expect to get back in the later part of the year. Turning to annuities on slide eight; Annuities pretax operating earnings were $172 million, down 2% from last year. However, the prior year results include a significant benefit from clients moving to our managed volatility funds, and the mean reversion benefit was similar in both periods. Without these items, underlying annuities earnings were up 15%. Variable annuity pretax earnings grew 22% from a year ago to $132 million, without the benefit of clients moving to managed volatility funds and mean reversions in both periods, these were driven by higher account values. Fixed annuity pretax operating earnings decreased 10% to $28 million as account values declined. Lapse rates on LIBOR expectations following the re-pricing of our five-year guarantee block that are now coming out of the surrender charge period. Given the current interest environment, there are limited new sales, and as a result, this book is expected to gradually decline and earnings will decline. Let’s turn to the protection segment on slide nine. Protection pretax operating earnings were $51 million in the quarter, impacted by a $32 million claim reserves strengthening for long-term care. As we announced last quarter, we conducted a long-term care review of our claims reserve based on additional information received from Genworth, the firm that reinsures half of our long-term care book and administers all of our claims. As you know, this is a small closed block with no new sales since 2003. We have not seen adverse claims experience in the book and have been making appropriate premium increases since 2004. At the end of the quarter, we had $2.2 billion of statutory reserves, net of reinsurance with about $400 million in claims reserve and the remainder in the active life reserves. Based on the information provided by Genworth, management’s best estimate of a claims reserve resulted in a $32 million reserve increase. The most significant drivers were updates to the benefit utilization rates and claims termination rates, partially offset by a benefit from a higher discount rate. After reviewing the analysis we received from Genworth, we decided to engage a third party to validate their analysis. This review may result in a fine-tuning of our reserves, and we anticipate that it will be completed in the second quarter. Excluding the long-term care reserve increase, the life and health businesses performed in-line with expectations. We saw marginally higher claims than we have in recent quarters, though still within expected ranges. The auto and home business had a modest operating loss of $4 million in the quarter. We are booking reserves for the 2015 accident year at a level consistent with the 2014 accident year loss ratio assumption we changed in the last quarter. The business was also impacted by $12 million of cat losses, of which $4 million was related to the prior year. As we discussed last quarter, we are phasing in changes to our pricing, risk models, and modifications to underwriting, claims, and operations. We are seeing early signs of improvement, specifically a targeted slowdown in sales across all product lines. For the full year, we expect marginal profitability for auto and home with a more meaningful improvement to earnings in 2016. Let’s turn to the balance sheet on slide 11; our balance sheet remains strong with approximately $2.5 billion of excess capital, and our risk-based capital ratio is estimated to be 630%. We continue to return over 100% of operating earnings to shareholders with $459 million distributed through dividends and share repurchase in the quarter. We remain committed to continuing to raise our dividend and announced a 16% increase yesterday. This brings our dividend payout ratio to the high 20% range. With that, we will take your questions.

Hi, thank you. I guess we could start on department of labor issue. Are there any specific buckets of revenues that you would be focused on as sort of more potentially at risk as a result of changes, and I guess do you expect there could be any impact on sales of either alternative products or things like mutual funds or other products that you manufacture through the advice and wealth management channel?

The department of labor, as you know, there are hundreds and hundreds of pages, and there are various areas, exemptions, etc. So we, as the industry, are sifting through that to fully understand what they are looking to accomplish and how you can continue to work with your clients against their needs. Explicitly within from what we have been able to glean so far, there are certain things excluded, like REITs that they wouldn’t allow in qualified accounts. In our business, REITs, for example, make up a very small percentage of what we do, and we have the ability, since we work more holistically with the client, to probably deal with it by offering it in the non-qualified section of their investment asset. So there are certain things like that that they are saying at the outset are precluded. Many other products like mutual funds have exemptions, as long as you have appropriate disclosures, as we are currently reading it. But it’s still too early to really tell, and I think us, and many other companies across all the industries in financial services that deal with retirement will be in some way affected by it. What we want, and I think many of the companies in the industry and the associations want, is that we are able to continue to work with clients as their needs are requiring and appropriately do so.

Okay, thanks, that’s helpful. And one follow-up question on long term care. I was just wondering why you chose to only look at assumptions and reserves for the disabled life reserve. I guess wouldn’t changing assumptions on the disabled life reserve also affect the active life reserve, which I think we have seen with other companies such as Genworth where there has been an impact of the changes in assumptions on both?

Okay, well, number one, the information on the claims reserve is supplied based on information supplied by Genworth. If you look at the active, there are many assumptions that go into it, including claims that we have been managing and evaluating over time and we also factor in terminations, price increases over the longer term. So we feel that the reserve is adequately looked at in light of the situation information we have gotten from Genworth. So we felt the only adjustment needed was in the claims reserve.

Got it, so you did contemplate the new data relative to the assumptions that you are making, and is that…?

That’s correct. We have been factoring in the actual claims and looking over the full life of it. We have been doing that, so there was no change in the active life reserve, but you did contemplate the new data.

Okay, thank you.

Great, thanks, good morning. Just to follow on the DOL and the fiduciary standards, I guess in addition to the pay pressure and the proprietary product sales, some of it is concerned about higher compliance costs. Just hope you can discuss whether that’s also a factor.

Yes, again, as we said, first of all, I think relative to the industry, we are probably one of the best prepared to deal with fiduciary because we are very active fiduciaries in much of our client activities today under the SEC standard. I think what I have mentioned in my opening remarks was that this establishes a third standard, and so with a third standard, of course, you are going to have additional compliance, and figuring out how the third standard works perfectly with the first two standards. We are hoping that the regulators and the people overseeing this appropriately take that into account and figure out how the regulations wouldn’t be overly complex to deal with and that would be appropriate and operate in an appropriate fashion. So having said that, I think that’s yet to be determined, and I think that’s part of the work that needs to be done. But having said that, as with any regulatory change of this extent, there is going to be an increased level of compliance and increased costs to get those things implemented and executed. So I would definitely say that there will be increased compliance costs. On the other side, I would say, at least today, Ameriprise already operates with much of the compliance and supervision. We have the compliance resources already in place, but it will still increase levels, and so what you are doing now is a bit different and applies in a more special fashion to this particular activity.

Okay, thanks, that’s helpful. Second question, just on advisory, you talked about the fee days impacting results and guessing that’s purely an impact on revenues. Doesn’t impact margins, is that correct? Also, is it possible that whether it will impact client activity, and if so we should expect some catch-up of that business in the second quarter?

You are right, it doesn’t impact margin, but doesn’t impact PTI, and again we do believe there were too few days aligned with the activity we have seen in the industry, and we do believe that we are on track and should recover as again, markets and things of that nature.

So there was, to Walter’s point, of two fewer days that did impact the PTI that he gave you the numbers on. What I would say is the level of volatility, also the level of weather, it’s hard to break that out and clarify, but as you would imagine, January was also a hard weather month for many parts of the country. That would have impacted advisors as well as how they served the clients. So we don’t necessarily put that in; we just saw that activity did slow a bit in the first quarter, but we saw it come back stronger in February and March, but January was the slowest month.

Okay, that’s great. Thanks.

Good morning everybody and thanks for taking my question. I have a few questions first. Going back to the Department of Labor proposal, I think there has been speculation that it would also create maybe an increase in potential losses down the road and wanted to hear your thoughts on that and maybe how you can preempt some of that, realizing that these are still early days?

Yes, again, it’s hard to say exactly what it would derive in the end. As I said, it’s very important to know both the intended and the unintended consequences of anything of this substantial. Let’s remember there are 100 million Americans being served here by all types of companies, whether they be distributors or manufacturers, all types. And remember it covers everyone selling any product into a qualified account. So it’s not just relevant for someone who has a financial advisor; it could be direct players, product companies, etc. One of the things that we in the industry and many other participants in the associations are looking at is what those activities are and does it qualify. Yes, you can have additional disclosure; the question is it’s unclear if you have that disclosure, if you work and operate within the exemption rules, what that may result in. And of course, those are things that are undetermined at this point in time. But again, it’s like that with any regulatory change; we work through it, we figure out what those things are appropriate, and we ensure that we supervise against it. But we have to get clear on what that exactly is.

All right, then turning back to long term care, so I think you mentioned on the call that, in the script that against the assumption changes you also had an offset from an increase in the discount rate used, and of course I guess it’s a little counterintuitive, just given the rate environment today. I was wondering if you can give us a little more color on what led to that. But second, can you give us any sense of what was the proportion of the change? Was there any way to quantify that?

What we do is when we are reviewing, we realized that we were using a rate, a discount rate that was lower than our asset earning rate. That’s pretty much used in the industry, so we basically adjusted that to be aligned with the industry. Then on the proportions, you should figure it out on that basis; it’s about somewhere near around $15 million. The same thing was applicable to our general insurance because the accounting was treated the same way, and we took that one, that discount rate up. Obviously, it’s less than the long-term care due to the length of the duration of investment.

And can you give us any sense of how much of a change in the discount rate that was? Was it 25 basis points, 50?

It was approximately almost 200 basis points for the long-term care portion.

Hey, good morning everybody. My question on Advice and Wealth Management first is I recognized there were two fewer fee days and that had some impact on revenues, but I think you did also mention some softness. Can you give us a sense more of what kind of impact you feel like the softness, I assume that softness was really more on the insurance sales side but maybe I am wrong, because your overall fee rate did come down quite a bit quarter-over-quarter, even if I adjust for the number of days. So I just wanted to get a sense for that, and then relatedly, you are doing a terrific job managing G&A to be flat year-over-year, especially in light of investments and continued ongoing recruiting. I am just wondering if you think we should expect that G&A can remain flat as we look forward on a year-over-year basis or if we ought to expect some increase there?

No, it's Walter. You should expect the G&A to stand in that range. Certainly, we will gauge it depending on the environment, but certainly we have a focus on providing to our clients, and we are very focused on maintaining the G&A, so that's a reasonable range. It could be 1% or 2%, but we are very conscious of the G&A management. And on the slowdown, it is in insurance and it is in other parts like non-traded REITs. But it is something that we believe, in the latter part, we will see a pickup, and we do believe the volatility, like I said, was industry-aligned, and we anticipate that we will see improvement going forward.

And then Walter, just a quick follow-up on that G&A in terms of it remaining flat. Can we think about that as flat on a dollar basis with the first quarter results or flat year-over-year?

I would tend to say, I would look more at a total year basis; quarterly you get your seasonality coming through.

All right, that's helpful. And then just second question on the asset management side, margins are really solid at around 40% adjusted, without a significant change in the outlook for flows though, can we really expect that margin can get a whole lot better from here?

I think the margin is that rate which again we're talking about a pretty high rate, in the high 30s, almost 40%. Yes, we are feeling the impact like we talked about the U.S. equity that’s flowing out from the UK and the Acorn, so there is some pressure, but I think the margin will stay in that range.

And you mentioned a drag on EPS from FX; I just didn't catch the number in your prepared remarks, if you can just follow up with that?

No, I didn't give it, but it's $4 million or $5 million.

Wonderful, hey, good morning everyone. So a couple of questions, I guess starting with Advice & Wealth Management business. It’s really just kind of a follow-up on the last point. When we look at the distribution line, clearly there is a lot of kind of market-based assets or revenue sources in there. So I was hoping you can kind of help us isolate the decline quarter-over-quarter that came predominantly from the transactional part of the business, kind of the pure commission stuff and sounded like it’s non-traded REITs, maybe some annuities. But I was wondering if you could help us isolate that and back on the outlook. I was getting down 10% or 11% quarter-over-quarter; I was just wondering if you could provide more color there?

Sure. It was in the variable annuities and the non-traded REITs with the non-traded REITs. We believe it’s timing because there are new regulations out about disclosure, which we are working through with our advisors, which we believe in the back half of the year we will pick up on that.

And I guess given the increased scrutiny on non-traded REIT products in general and I appreciate it’s still obviously very early in the Department of Labor conversation, but I guess what gives you confidence that the financial advisory industry just doesn’t start pulling back from that product ahead of time, given potential risks down the road?

Okay, if you look at our track record in non-traded REITs is only the diligence we put through it and the returns it’s giving to our clients. The non-traded REITs are an important part of retirement; they have liquidity elements which certainly fit our time aspect to it, and they give a return characteristic that's quite good. Again, we have to study it. There are, as Jim said, different elements we can put in, but it’s an important product and it's worked very well for our clients.

But Alex, to the point referenced, I think again it's another product, a type of alternative product, etc., that should only be a small part of anyone's portfolio. That's the way we utilize it with our clients, and it just complements some of the income streams that they are looking for. So again, I mean it's only a few percent for us in our total activities, and you know, if that was to change, I don't think it would be that material to us, and we would look for other products that would satisfy those similar objectives.

Yeah, no, I agree with that point, just kind of curious from an industry perspective how financial advisors could react to this ahead of kind of finalized regulation. Staying, I guess, with AWM segment and the department of labor, I was wondering if you guys could help us with a couple of numbers. A; it would be helpful, I think, to better understand what percentage of your revenues as a whole in AWM comes from a relationship that’s pretty fiduciary standard. I know you said it’s a bulk of it, but I was wondering if you had a number.

I would say that we have a strong part of it, probably majority, a little over majority of where we do operate in a fiduciary standard. With the assets that we have, I mean, we mentioned that there are 180 some odd billion of assets under management; those are all within a fiduciary. We also provide financial planning and advice complement to that against the entire client’s portfolio activities. I think it’s a reasonable portion of what we do already today, and it’s a growing portion, as our advisors continue to look more holistically at how they help their clients satisfy their objectives. So again, I think we are well-situated for any continuing, and we were very supportive with the SEC move to one larger fiduciary standard that would be more appropriate in how firms like ours and others should operate.

Got it, understood. And then switching gears to asset management business for a minute, two questions there, I guess. One on the numbers side, I was wondering if you could size the mandates that are yet to be funded in the second quarter. Sorry if I missed that, but it sounded like you had some slippage there? And then second question there just broadly, when, Jim, your comments earlier about your business potentially shifting more towards institutional, just given the successes as you guys are having in Institutional Columbia and continued struggles on the retail front, so as that business continues to evolve and move towards institutional, how would the margins in that segment be impacted over time?

Let me address the first question. What we observed, while not unusual, was that several institutions we expected to fund in the first quarter, based on our predictions from the fourth quarter, delayed their funding due to the volatility experienced in the first quarter. As interest rates fluctuated, these institutions chose to postpone their decisions, not indicating any changes to their plans but rather a shift in timing. We anticipated more funding to arrive in the first quarter, which we believe will materialize over the next few quarters since no one has altered their intentions; the delay is purely about timing. We remain optimistic; our pipeline is robust and our win rates are strong. No significant changes have occurred in our institutional operations compared to the prior year, except for timing. Regarding growth, we currently have a substantial institutional business, and while we aim to grow in retail as well, we see numerous opportunities ahead. Our global platform, enhanced through partnerships like Columbia and Threadneedle, is expanding our activities not just in the U.S. and Europe, but also towards sovereigns in the Middle East and Asia. We believe that as we introduce new solutions, this could become an increasingly significant segment of our business. Additionally, if we can further grow the institutional business, there are good margins associated with achieving scale in various product mandates. We do not anticipate a decline in our margins; in fact, we believe it would complement our existing framework and leverage our current infrastructure and investment teams.

Sure, great, thanks so much.

Thanks. Good morning. I had a follow-up on the institutional flows. You mentioned the pipeline's very strong; there were some delays in funding. I guess you had $800 million of third-party institutional outflows in the quarter. Based on what you’re seeing now, would you expect those third-party flows to be positive in institutional for the balance of the year?

Yes, I think as we look at the third party flows, yes, we would expect that, and I think Walter mentioned of the institutional outflows we experienced $1.8 billion. One was almost $1 billion from Liverpool, Victoria, which is one of the large insurance mandates that we have. That was just a few basis points, and it was appropriate for them as they did their reallocation from it. But they already gave us a nod to some other product that we already have that they will be funding over the next few quarters at a much higher fee rate, which would more than offset that loss. Zurich is a typical activity again basis points. So what we are looking at is for the third-party business to be an inflow this year consistent with what we are seeing as a trend line from last year, and that's what we are still calling for at this point.

Okay. That's helpful. Thanks. And then shifting to recruiting, it was pretty strong in the quarter. Can you just give an update on how the recruiting environment is these days and also what has been the mix of recruits into the employee versus franchise channel in, I guess, in recent quarters?

So recruiting continues to be very good for us. As we said, we added 77 new people. They were very good productivity in both channels. We are seeing higher levels of productivity from the people that we're recruiting and the pipeline continues to look good for us. We are getting, probably of the mix, I think a bit more has gone now into the employee platform, and we continue to do probably a relative basis, based on the production we're bringing in. I would say it's probably 50-50, but we are getting very strong production increases and very good ones into the employee channel.

Okay, great. Thank you.

Thanks very much, and good morning to everyone. I am still trying to clarify why it is that you are already under a fiduciary standard. From my question, I mean this as a general statement, meaning there are going to be exceptions. FINRA regulated registered reps are regulated by FINRA, and they are broker-dealers; in this case, Ameriprise is a broker-dealer, and that they are generally not subject to a fiduciary standard, but rather there’s an ability standard. So how does it come to pass that you are already under a fiduciary standard?

So you are correct in how we are regulated by FINRA, on the registered rep business that we do as part of the broker-dealer and commission-based activities. But as an investment advisor, we are managing clients' money under an ADV with the SEC. We are an investment advisor, and therefore we have to and we are governed under the fiduciary rule to operate in the best interest of our clients rather than a suitability rule.

And just so that you can, I have one more question after this, of an unrelated nature. But just to build on your answer, when you say 'we,' do you mean Ameriprise or its advisors? And in particular, do you happen to know whether an advisor can be at once a registered rep and a registered investment advisor, or must the advisor choose?

Okay, so our advisors operate under our investment advisory charter with the SEC. They can work under both standards because of how we set up our compliance and based on the activities that they currently do. We supervise them appropriately, and we ensure that for each one they operate with the correct supervision and compliance and meet those standards.

Okay. Separately, just a quick one on Threadneedle, I think you said a couple of times in the course of the call that in contrast to Columbia, which enjoyed progress in the quarter, there was a little bit of, I guess you said a setback at Threadneedle in the United States. What is different about Threadneedle’s operations here that would produce a different outcome for it than what we are seeing out of Columbia?

Eric, it’s Walter. I think maybe let me clarify it; when I said U.S., it is U.S. Equity. They manage a fund that was called U.S. Equity Fund that the PMs for the U.S. Equity Fund that they sell overseas.

And what happened? Was there a change? It was implied that there was a change in the…?

Last year the team left, and we have been building back teams, hence we had redemptions which we talked about.

What Walter has mentioned is last year we had those assets. A part of that team left, and therefore we suffered a level of redemptions in the first few quarters of last year. That has completely slowed. We have part of that PM build back for persons who were there in part of the team, and we have added more resources. So that’s working well now. What Walter was talking about is the year-over-year effects on the redemptions that occurred a year ago.

Thanks, good morning. I wanted to go back to the DOL one more time, if I could. Just based on your reading of the proposals, is there anything in there that suggests distribution of proprietary product, whether its mutual funds or annuities or even life insurance through your channel could be at risk?

We are currently reviewing the 700 pages, and from our initial analysis, there are exemptions similar to other product sales, including those with revenue sharing, which can qualify for these exemptions. We believe it is critical to clarify this as part of our commitment to meet the standards set by both FINRA and the SEC. Our product sales operate similarly to all other products on the platform. For instance, our mutual funds compensation aligns with industry standards; there are no distinct incentives or different fee structures in the loads we charge. Therefore, we are confident that the Columbia product, for example, can continue to be marketed alongside our annuities. The only inquiry regarding annuities is whether they may be featured in both non-qualified and qualified accounts. We believe that when considering living benefits and guarantees, which are vital for clients seeking reliable future income, these could potentially be permitted under the appropriate exemptions. We have no concerns about our proprietary offerings differing from other products sold on our platforms. Keep in mind that even though Ameriprise has a large advisor network, whether direct or through various platforms, all available products share similar characteristics. Some are proprietary, some are integrated, but all must adhere to comparable standards. We are confident in our practices as we fully disclose all necessary information, and there is no discrepancy in our marketing or sales approaches.

Okay, just following up on the annuity point. You have been highlighting your shift in terms of new sales away from living benefit products. It seems to me if we are moving towards an environment where the benefits of the annuities come into greater focus, do you anticipate a reversal of that, where going forward, more of your sales will actually come from living benefit products?

Well, I would say, again, we have a nice mix that we would like, to your point and very, very clearly, we would like to grow the portion that’s non-living benefit, and we think there is very good value for that, including with the benefits from a tax perspective for a client and also the type of product in there to generate income that’s tax beneficial. We would probably again just gear more of that as we do today to the non-qualified portion of the clients’ accounts. One of the things that I think we continue to look at is we don’t just serve qualified separate from non-qualified. We look at holistically how we help a client achieve their retirement and income level that they need, of the allocation of their various assets that are tax-preferred versus not; those are all real values clients get from working with advisors. It’s like if you remove an advisor; it’s like removing any of the professionals you may work with; you could treat yourself for medicine or a doctor or even your tax attorney or lawyer, but it's not advisable. Part of helping clients is not just that they can get a product that is low cost; the issue is how do you use that product, when do you put it in, when do you maintain it. The biggest issues with loss of assets is the individual behavior around managing those assets. They get frightened at the wrong time, they invest at the wrong time. They don't look at it, and they react probably in a more objective fashion because there’s still a lot of behavioral emotion involved. So we think, again, we understand what the DOL is looking to achieve. We hope and just want that to be in the best interest of clients. We just want to make sure that clients can be served to the best of their ability.

Yes. That's helpful. And maybe last numbers question, just bigger picture. You've talked about your progress towards the 70% earnings contribution from asset management and advice and wealth management. Just wondering if we kind of look forward a little bit longer. Ultimately, where do you see the mix in terms of segments kind of settling out?

I think what Walter mentioned is a very fair thing. It's again, we look out for the next periods or two and we are saying we'll get from the 64% to 70%. I actually believe that overtime again, as we continue to grow these businesses that we are investing in, it will be much higher than 70% overtime, not because the insurance and annuities aren’t good businesses but again, they are only a part of the solution set that we market as part of our client base. Asset management we're looking to grow more fully, external to our own channel as well as in our channel. So there is a growth beyond that if we are successful. And then the advice and wealth management business, as an example, we look at holistically managing more client assets with more advisors and so it's just natural that it will be a part of that solution set but it's not going to be the majority of that solution set.

Right. So maybe 80-20 is the…?

Yeah, yeah, I think that would be reasonable to assume as we look out.

Terrific. Thank you very much.