Ameriprise Financial Inc (AMP) — Q1 2019 Earnings Call Transcript

Thank you, operator, 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. Turning to our earnings presentation materials that are available on our website, on slide 2, you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company’s operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials. Some statements that we make on this call may be forward-looking, reflecting management’s expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today’s date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our fourth quarter 2018 earnings release, our 2018 Annual Report to Shareholders, and our 2018 10-K report. We make no obligation to update publicly or revise these forward-looking statements. On Slide 3, you’ll see our GAAP financial results at the top of the page for the first quarter. As you are aware we changed our definition of adjusted operating results beginning in the first quarter, which now excludes certain related impacts. Management believes this 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 operating financial results. Additionally, we announced in April that we have signed a definitive agreement with American Family Insurance to sell our Auto and Home operations. This transaction is expected to occur later this year; however, effective immediately, we have moved our Auto and Home business out of the retention segment into our corporate and other segment. All prior periods have been restated for both of these changes. And with that, I’ll turn it over to Jim.

Thank you, Alicia, and good morning, everyone. As I believe many of you are aware, we had an active and successful quarter. We took some critical steps to focus on our core business strategies, further optimize our capital, reduce our risk profile, and increase capital flexibility. And I will come back to this in more detail. But first, I'll take you through our quarterly results. In terms of the operating environment, clearly the impact of the market dislocation from the fourth quarter carried over to the beginning of 2019. The decline in consumer sentiment, combined with lower markets, affected client activity in the U.S. and Europe, and this impacted our average assets and associated fees in the first quarter. So how did this translate to our financial performance? It was quite solid. In terms of our adjusted operating results, revenues were flat. Normalizing for taxes and a one-time payment a year ago, EPS was up 8%. Return on equity excluding AOCI was up 790 basis points from a year ago to more than 36%. Assets under management and administration were steady compared to the year ago, even though our average weighted equity index was down 3%. Let's talk about wealth management, which is the growth driver of Ameriprise and continues to be a great story for us. We did well in the quarter and delivered 11% growth in earnings in AWM, with margin increasing to 22.5%. Even though the quarter got off to a tougher start, client flows were strong. Total client assets increased another 6% year-over-year, with more than $4 billion of net inflows moving into wraps. This is an important growth platform for us and one of the largest in the industry. Client acquisition, overall fees, and client activity were muted to start the year, but gradually improved during the quarter and are coming back to more normalized run rates. Even with the lag, advisor productivity remains strong, up 6%. Regarding recruiting, we had a terrific recruiting quarter, both in quantity and quality, with the average productivity of recruits reaching a new high. Our pipeline for the second quarter also looks good; experienced advisors are attracted to our client advice value proposition and appreciate the investments we're making and what this means for our future growth potential at Ameriprise. Our AWM segment now generates half of the earnings of the company and contributes even more to the total firm. The investments we're making in the way we work with clients also results in excellent client satisfaction. We earned 4.9 out of five stars consistently since we rolled out our online survey, and that's translating into top industry recognition for us. Last week, complementing our other recognition, we learned that Ameriprise earned Hudson Wallace top performer recognition in three important categories; unbiased and puts my interests first; explains things in understandable terms; and understands me and shares my values. These are very important attributes to be known for, and they help set us apart as a leader in advice. However, we're not resting on our laurels. We are investing in our end-to-end client experience to take it to the next level of engagement and to help advisors grow productivity. Let me touch on a few key areas. First, we continue to invest in our digital capabilities, digitally enabling our gold-based advice capabilities to make it even easier for advisors to fully engage clients and deliver the value and service they are seeking. We've just begun to roll out this training in the field and are pleased with the initial results. Already, we are receiving advisor updates and client stories, and they're very positive. Many clients feel more engaged and confident and have shared that these are some of the best conversations they've had with their advisors, beginning to move more money and assets to Ameriprise. Second, we are implementing a new customer relationship management platform, and we are on track to deliver it this year. Third, we are further developing our investment advisory platform to provide a streamlined and customized experience for clients and advisors to help in the management of their investments. And fourth, we're investing to expand our banking solutions, and I will share an update on our bank investment in a moment. Given these growth investments, you saw we had higher expenses in the quarter; while we're making these investments, we will continue to reengineer and reduce expenses so that the incremental expenses are very manageable. We're dedicated to delivering a comprehensive, best-in-class Ameriprise client experience. More consumers will seek it. As a leading wealth manager, we're building an even stronger position, and we feel very good about the significant opportunity before us. Now I'll move to our insurance, annuities, and asset management businesses. In INA, we are providing good value and generating free cash flow with strong books supported by accident risk management. These solutions complement our third-party offerings and help address clients' retirement income protection needs, and they are part of a high-quality experience we are known for. With regards to the quarter, sales were slower in January, but they started to come back nicely, and we're getting back to a more normal run rate. Asset management commits are clearly in a tough environment, and there are real industry pressures for all active managers, which we are also feeling. However, our asset management business is part of our larger enterprise and supported by the strength of Ameriprise, rather than a standalone active manager. We're investing in the business; we're making trade-offs to manage expense levels. Our margin in asset management is competitive, but was clearly pressured in the quarter, and you are seeing this with others. In terms of assets under management, we ended the quarter with $459 billion, which was down from a year ago but up 7% sequentially. After a tougher fourth quarter last year, short-term equity investment performance improved in the United States in many of our strategies. Longer-term performance also remains quite good. In addition, short and long-term taxable and fixed-income performance continues to be strong. In EMEA, our short-term performance in U.K. equities weakened; however, European equities bounced back. Lastly, long-term equity and fixed-income track records continue to be good. Moving to our flow picture, there remained a net outflow, and the team is very focused on gaining traction and we have seen some improvement compared to the fourth quarter last year. Here are the key themes of the first quarter when compared to a year ago. Home apparent outflows were better year-over-year. Global institutional outflows were higher due to clients' asset allocation calls and some performance challenges, and a slowdown in mandate fundings. However, recently in the areas where we had some strategies underperforming, we saw improvement. In U.S. retail, we remain in net outflows, but are beginning to benefit from investments in data analytics and our segmentation strategy. We did improve in the broker-dealer independent channel. We were positive in five of our top seven fronts. Equity fund flows improved somewhat from the fourth quarter, but we still experience outflows. Fixed-income flows were essentially flat, as we didn't get as much of a boost as the industry in ultra-short and short-duration products where we are not a big player in this tight-margin asset class. In the U.K. and European retail, the ongoing uncertainty about Brexit and a slower economic backdrop in Europe created flow challenges. With regard to Brexit, the team has been supporting clients and taking actions to prepare the business. During the quarter, we completed a transfer of EU client assets from our OEIC funds into Lux-domiciled CCAP products. While this pressures sales and increases expenses, it will be beneficial to getting close on the continent going forward. Quarter after quarter, we've been very proactive in expense management, while we invest for the long-term including in our data capabilities, operating platform solutions, and expanding in Europe. As I said at the beginning of the year, we recognize the ongoing challenges we and the industry face, and we'll continue to make the changes necessary to compete. Now, when I opened, I indicated some additional strategic actions we're taking to drive future growth and value creation. First, as many of you have acknowledged, Ameriprise has a strong record of returning capital at a differentiated level, and we are adding to it again. In the quarter, Ameriprise returned $482 million through share repurchases and dividends, which is consistent with what we've been returning. We also announced a new $2.5 billion share repurchase authorization, and yesterday we declared another increase to our quarterly dividend, another 8%, which will bring our capital return even higher. In fact, this is our 12th increase over the past 10 years, something we are very proud of. Second, as many of you know, we've always focused on enhancing our capital flexibility and risk profile, and that was punctuated at quarter-end with the culmination of our strategic review of Ameriprise Auto and Home and the decision to sell the business. We have four priorities as we executed the deal; to continue to deliver outstanding service to policyholders; find the right firm to help Auto and Home grow; provide the potential for a great future for our team there; and earn an appropriate return. I am very confident that we found the right partner in American Family Insurance. They plan to grow and expand on what we have built. We are pleased with this outcome, and as we do in all transactions, we will work to ensure a seamless transition over the next few quarters. The sale of Auto and Home will generate $950 million of net proceeds when we close the deal later this year. Third, in addition to the Auto and Home sale, we announced our first fixed annuity reinsurance transaction. We have reinsured our 20% of our block, which freed up about $200 million in capital for us. Importantly, it positions us to explore additional transactions for the approximately $1 billion of capital that backs our remaining block. Fourth, last week we gained final approval from the Fed to convert our national trust bank into a federal savings bank, allowing us to further expand our product suite. We plan to launch the bank in the latter part of the quarter. This is a long-term growth opportunity for Ameriprise, and I feel good about the future contributions it will bring. As you can tell, we made significant progress in the quarter executing some important strategic actions. We are freeing up capital, further enhancing our risk profile and capital flexibility. I know you may have questions about our plans to deploy the additional capital that we are freeing, which will grow to about $2 billion when the Auto and Home sale closes later this year. On that front, you can expect us to continue to build on our long-standing record of managing our capital just as well as we have for many years. We'll evaluate a number of alternatives such as investing in our bank, looking at other opportunities to add to our wealth management business, continue to look at adding capabilities for asset management, and further de-risking our longtail businesses. Finally, we will look to further increase our return of capital to shareholders. In that regard, we plan to increase our share repurchase rate in 2019. As you can see, we're in a very strong position. We are serving client needs, building on our advice value proposition while generating strong returns. Now I'll turn things over to Walter.

Thank you, Jim. Ameriprise achieved another solid quarter of financial results while proactively executing several strategies that will optimize our capital and risk profile, positioning the company to drive continued shareholder value creation. On a normalized basis, EPS grew 8%, and I will go into the details on the next page. Financial results were led by Advice Wealth Management, which delivered 11% earnings growth and continued strong metric trends in the face of market headwinds and volatility as we entered the year. Our other businesses are generating good, stable financial results that were in line with our expectations. Let me take you through the details beginning on slide 6. In total, adjusted operating EPS was $3.75, up 2%, which understates the underlying financial performance in the quarter. To understand the underlying results, you must consider both our previously disclosed one-time vendor settlement last year as well as the tax rate. The tax rate in the quarter was 17.3%, higher than last year and above our expectations of 16% for the full year, primarily due to share-based accounting changes and timing. Normalizing for these items, EPS was up 8%, which better reflects growth in the quarter. Revenue growth reflected continued strong net inflows offset by lower average markets, asset management outflows, and slower transactional activity early in the quarter. Expenses continued to be well managed across the firm with G&A up only 2%. We are continuing to make important growth investments in Advice & Wealth Management while executing on our expense reengineering objectives across the business. We returned over 90% of earnings to shareholders through buybacks and dividends, a continuation of our track record of differentiated returns. Lastly, we have increased excess capital to $1.8 billion while achieving a 36% return on equity, up 790 basis points. We have seen strong growth trends in Advice & Wealth Management, which you can see on Slide 7. Total client assets were up 6% year-over-year, demonstrating a nice recovery after the pullback in the fourth quarter, and continued strong $4.3 billion of inflows into rep accounts. Brokerage cash balances up $25.3 billion are consistent with last year. On a sequential basis, we saw balances come down in line with historic patterns. We are benefiting from short rates getting back to more normal historic levels, and we are on 212 basis points, up from 132 basis points a year ago. Based on recent Fed announcements, we do not anticipate additional rate increases this year, and remain committed to being competitive in our client rates. Finally, advisor productivity also continues to improve, reaching $628,000 on a trailing 12-month basis in the face of market and activity headwinds. We continue to see strong productivity gains and are seeing good payback from our investments as well as from the strength of the experienced advisor recruits that we've been bringing in. The 90 experienced advisors we brought in the first quarter have record productivity, which will support continued productivity growth over time. Let's turn to financials on slide 8. Advice & Wealth Management is continuing to deliver consistent strong financial performance over time. I thought it would be helpful to provide a detailed description of revenue this quarter because there are a number of dynamics at play. First, management and financial advice fees grew 4%. Unlike previous quarters, with good ramp inflows have been supplemented by market depreciation. This quarter, the benefit from good inflows was partially offset by the impact of lower average markets. So the growth rate lagged a bit. However, as we exited the quarter, markets have recovered up 13% point-to-point and ramp flows improved in February and March after a slower January. And as a result, we expect improved growth in management fees as we move through 2019. Next, distribution fees were up only marginally. We had meaningful benefits from the spread earned on broker suite balances. However, market sentiment following the fourth quarter disruption resulted in lower client activity levels early in the quarter. This improved throughout the quarter, and April activity levels have returned to good historic levels. So again, we would expect improved growth in distribution fees in 2019. Lastly, net investment income is up 43% from both the higher certificate asset earning rate and higher balances. Overall, both markets and activity levels have recovered well, and this should lead to more robust revenue growth going forward. General and administrative expenses were up 6% for the quarter, but we believe they continue to be well managed. As Jim discussed, we are making substantial investments for future growth in this business, and the level and timing of those expenses was more heavily weighted in the beginning of the year. We remain committed to effective expense discipline, and we will continue to execute on our reengineering initiatives that will benefit the remainder of the year. Finally, pretax operating earnings were up 11% and margins were strong at 22.5%. Let's turn to Asset Management on page nine, where financial performance was clearly impacted by substantial headwinds, including average equity markets down 3% and unfavorable foreign exchange translation. Additionally, the cumulative impact of net flows hurt results, as did a previously disclosed prior year one-time item. This resulted in a decline in revenues of 11% and a decline of PTI of 25%. G&A expenses were down 4%, demonstrating our continued commitment to expense discipline. However, a significant portion of our expense base is fixed, so it will be difficult to adjust quickly to this challenging revenue environment. Margins in the quarter decreased to 34%, and given the challenging revenue environment, we do expect margins to remain pressured. Let's turn to annuities and protection on slide 10. In the quarter, variable annuities earnings were $150 million, up 5% from last year. Variable annuities continue to be in outflows though at a slower pace than last year. Variable annuities sales slowed similar to the overall slowdown we saw in client activity. It should be noted that our net amount at risk declined to 0.8% of our account value with living benefits and 0.2% of account value with death benefits from improvement in markets. Fixed annuity pretax adjusted operating earnings declined $3 million, reflecting the continued impact of lapses in interest rates. The previously announced reinsurance transaction had a small impact on fixed annuity results, but it is earnings neutral across the firm for the year. Importantly, the transactions generate $200 million of excess capital and establish the platform for future reinsurance transactions. The remaining block of fixed annuities is backed by about $1 billion of capital. In Life and Health, earnings were within expectations of $74 million, up 14% from last year. Claims remain within expected ranges, though favorable relative to the prior year period. Let's move to the balance sheet on slide 11. Our balance sheet fundamentals remain strong. Our excess capital increased to $1.8 billion, which benefited from the fixed annuity reinsurance transaction and incremental debt from our recent issuance. Our hedge program has been quite effective, with weighted manage hedged effectiveness at 97% in the quarter. The investment portfolio has high credit quality and is well diversified, and free cash flow generation remains excellent. We returned nearly $500 million of capital to shareholders through dividends and share repurchase in the quarter. We recently announced a new share repurchase authorization and an 8% dividend increase. Continued capital return will be supported by both our free cash flow as well as the execution of capital optimization strategies. Let's turn to slide 12. As Jim discussed, we have announced a variety of proactive actions this year to optimize our capital structure and risk profile. Over the past several years, we have spoken with you about the initiatives underway to improve the underlying performance of our Auto and Home business and we saw the intended results. We completed a strategic review which resulted in our decision to sell the business. When this transaction closes later this year, cash proceeds will be $950 million, a majority of which will be added to our excess capital position. As I mentioned, the reinsurance of a portion of our fixed annuity block freed up substantial capital without an earnings impact to the firm. The framework is now in place to execute additional reinsurance transactions as appropriate. We issued $500 million of senior notes, part of which is being used to pre-fund an upcoming maturity and reposition our debt ladder. In aggregate, these actions will enable us to increase the level of capital that we will return to shareholders this year by accelerating our share repurchase. We plan to return approximately 110% of adjusted operating earnings to shareholders through buybacks and dividends. We will fund the anticipated bank capital requirement. We're completing our review of our capital structure and evaluating potential uses of excess capital. In summary, Ameriprise is well situated to drive continued growth in advice and wealth management and continues to generate substantial shareholder value. With that, we will take your questions.

Hi, thanks, good morning. My first question was on capital management. I appreciate the guidance for 2019. It looks like after that you still have a fairly substantial amount of excess capital. So I guess as we move past 2019 into 2020, would you anticipate still being in a position to continue returning similar levels of capital in 2020 as well? Or are you contemplating other potential uses for the excess capital outside of share repurchases?

Well, as I just said, we will be looking at another level of opportunities. So number one is yes, we still think we can strongly return capital and will to shareholders. We will also look at opportunities to further grow and invest in our wealth management business. Maybe there are some add-on capabilities that might be nice to continue to grow there, that we'll be looking at, as well as we've said, looking at continuing to improve our overall capital structure. Therefore, that in itself we think will create some additional shareholder value that we will either return or, from a perspective, invest for growth.

Thanks. And then just a quick one on the tax rate of 16% for this year, is there anything unusual about that? Or is that a decent level to assume over the intermediate term as well?

No, it's actually, it's totally in line with really the earnings that we will have and with the tax rate and the items that we normally have as basically adjustments through it. It's totally in line with last year and this year.

Okay. Thank you.

Great. Good morning, everybody. Hey guys, I was wondering if you could comment on the pace and the process of the build-down of the bank from here. So clearly you got the approval assuming you can move some deposits fairly quickly. So maybe walk us through what that will require in terms of both expenses and initial capital utilization and kind of how you expect the bank growth to start ramping up from here.

Okay, this is Walter. Let me start by saying that once we have approval, we will aim to operationalize the bank before the end of the quarter. We will transfer about $2 billion to $2.5 billion worth of sweep accounts that will be invested, which will be our primary focus. The next step will be the transfer of our credit card operations, followed by a series of other products we plan to develop. Our focus will be on these initiatives. As we look ahead for the year, we expect the bank to contribute positively to our earnings. We will begin incurring operating expenses now, which will increase throughout the year, but we anticipate a positive contribution to our earnings.

Got it. I guess on that point, when we look at the G&A growth and expenses for AWM, it sounded like it's a little bit heavier on the investment side at the beginning of the year, so maybe just give us an update on what you guys expect G&A costs to be and advice and wealth for the year kind of on a year-over-year growth perspective as again contemplating the bank and what that will take?

As we indicated, there are a substantial level and timing of investments in the first quarter as we look towards the year. We're in a range probably in the 4% range on excluding the bank as I mentioned, but the bank will be accretive. And also let me just say if I got to answer the one part of your question, we're putting initially $200 million into the bank as capitalization.

Got it, great color.

We are effectively managing our expenses, particularly in Advice and Wealth, and plan to continue doing so. In fact, we anticipate reducing some expenses in the upcoming quarters. At the same time, we are making significant investments in onboarding skilled recruits. As is typical, there are initial expenses associated with this, but we have a strong recruitment pipeline. We are also investing in our advisors to enhance their productivity, and we believe these expenses will yield positive returns in terms of client assets, productivity, and fee revenue. I encourage viewing this not as an increase in general and administrative costs, but rather as growth investments. Relative to reducing other expenses, the additional costs mentioned by Walter, which are about 4% excluding the bank, should be considered in this context. Without the bank's influence, expenses would remain relatively flat, and any incremental costs related to the bank will be balanced out by the revenues as we scale up operations, starting mid-year and improving next year.

Great, and also if I could just sneak in one more. When you guys talk about the opportunities to deploy the excess capital, which obviously is going to go by the end of the year and it sounds like there's going to be opportunities to further rationalize the 680 portfolio, which again will probably drive some incremental product relief. Where does the rationalization long-dated risk, whether it's long-term care or maybe even some of the ABA businesses on your priority list? Is that sort of part of the framework for the near term? Or is that something that will likely happen kind of over time?

Okay, it's Walter. Let me take a shot at that. Obviously, we feel very comfortable with the exposure profile that you mentioned in those areas, but we are continuing to evaluate options as they come up. If they do, we will then certainly assess if it's in the best interest to shareholders to deploy it that way.

Got it. Fair enough. Thanks very much.

Thanks. First, a comment just on the optimization that's clearly good to see. You guys posted the leverage that you have. But on that point, are there things that you're looking at in terms of further optimization beyond the fixed annuity business?

The answer is yes. Thank you, Suneet. We are very thoughtful, but we are always looking out in planning. We evaluate the business in a way that says what will be good for us to continue to grow in the areas of opportunity. What can we leverage appropriately, but also what will generate a good return in cash flow and manage a really good business on behalf of our clients. So yes, we have and I've mentioned a range of them just before, but that's clearly some of the things that will be talking about with my board as we go through our planning process, but more importantly, that we are focused on even here in the near term.

Okay. Now, shifting to Asset Management, you mentioned that industry pressures are affecting margins and presenting challenges. If we assume that these pressures will continue in the near future, should we start considering a more strategic approach for that business? This could involve either scaling up or finding another strategy to cut costs, given that these challenges seem to be persistent.

Right. So we approached this twofold very clearly as you know. We look to continue to make changes in the business of areas that we can really garner some good activity inflows and fees. That does mean that we adjust and have to prune certain areas, which we've been doing. But very clearly, we're making some of the core changes and core focus on areas of opportunity. I think this market has been a bit more pressured; the volatility has been high, Brexit and other things have been unfortunate impacting many companies doing business there. But that's the first and very clear focus we have right now. At the same time, we are thinking out and looking out strategically. The industry is changing. There continues to be a combination or level of consolidation out there. There may be some good opportunities with some of the assets, some of the knowledge we have of what we've been able to do in the past to meet up and look at other capabilities with other firms that are having the same challenges. So it's one of the things. I think, we're very open to. But we're very clearly focused on what the client needs, what's good for overall for our people, the culture we have as well as the shareholders. But as you know, Suneet, just like we’re very thoughtful and have been, we'll continue to look and explore opportunities.

Okay. And then just lastly on the recruiting in AWM. I think both Jim and Walter referenced the productivity being higher for the new recruits. So if we think about the base at that $628,000 revenue per advisor. Can you give us a sense of where the new recruits are coming in? I know it's higher, but just any quantification of that?

Yeah. So I would say the average recruits we're bringing in now probably come out on average to roughly where we are in the numbers that we're mentioning. What we're finding is we're starting to really get now more and more larger teams. And so it's been gradually continuing to move up. Of course, there's always a transfer in the periods of them bringing over their book, etc. But how I would say is we have a very good class of people coming in, and we feel like we're actually hitting stride right now in really how Ameriprise can really appeal to people in the industry. People who really can continue to grow their productivity. So we feel very good about it.

Great. Thanks. First question is just on Asset Management margins. You had been targeting in the mid to high 30s, this quarter gets below that range. Given your comments that you expect the environment to remain challenging, what should we expect for the margins going forward? Any guidance there would be helpful.

Yes, as we look ahead, with the market improving by the end of the quarter and our reengineering efforts in place, I believe we can return to the range we discussed earlier over the remainder of the year. However, it will come with its challenges. We have implemented the reengineering components, and the market conditions should enhance as we move past the quarter.

Okay. And then second on the annuities, good to see the Global Atlantic transaction. Any reason you couldn't free up the remaining capital supporting the remainder of the blocks this year? Or is it something different with respect to the nature of what's remaining relative to what you reinsured last quarter?

No, we essentially reinsured the third-party channel account value. We assessed the situation and have the operational capability to move forward. We are evaluating the environment and its various factors. As mentioned, we will continue on this path.

Thanks. I know you mentioned the framework is in place for future insurance transactions for fixed annuities, but would you consider risk transfer for the variable annuity block at all?

As Jim said, we will evaluate and certainly look at what is in the best interest of the shareholders. Again, those have different nuances attached to it; but the answer is we will evaluate for sure.

Okay and then my follow-up now that we have the first year of tax returns post-reform in the books, can you talk about how you saw activity change from 1Q to 2018 to 1Q 2019 and maybe what you're seeing so far this quarter? From products that demand generally sees a boost from refunds?

No, I think when you examine client activity, we haven't observed a significant change. There has been a slight increase in investments in tax-exempt options, particularly among retail and corporate clients.

No, I think it's Walter. When we look at our activity level, we've noticed that because people are not receiving refunds, that may be what you're referring to.

Yes.

Yes. So what we started seeing in January, as we said, is that activity levels were lower, and then in February and March, they really came back up. We are not seeing that impact at all from people getting lower tax refunds or anticipation of lower tax refunds. That does not manifest itself yet if at all.

Okay. Thank you.

Good morning. A couple of real quick ones. Just a clarification on slide 12. When you say return capital at 110% of earnings and to fund the bank in 2019. I guess I just wanted to clarify; is the bank part of that 110% or is the 110% isolated to just buybacks and common dividends?

Just buybacks and common dividends.

All right, that's helpful. Thank you. And then just a follow-up on the tax rate I guess your original outlook for 2019; Walter was 17% to 19%, and now we're looking at 16%. So, my question is how should we be thinking about that tax rate beyond 2019? I understand your earnings mix will continue to shift. I'm just wondering if we should be thinking about more about that 17% to 19% range beyond 2019 or is there a reason why we stay below that range on a go-forward basis?

John, I believe it's incorrect to say we provided guidance for 2019. This is the first time we are actually addressing it. I'll verify that. However, the 16% aligns perfectly with our previous statements and is consistent with what we reported for 2018. As you mentioned, it may vary due to mixed earnings and other factors, particularly since we had a margin of 21%. Overall, I think this range is quite manageable.

Okay. That’s helpful. Could you provide an update on long-term care? Have you had any formal discussions or due diligence with any parties regarding a potential risk transfer? Or is that still something that hasn’t occurred in a formal manner? Additionally, with the Genworth nationwide deal now extended for the ninth time, and still lacking the necessary regulatory approvals, have you had any conversations with Genworth about detailing the protections in place for your reinsurance agreement with them?

We are always available for discussions about the possibility of entering into a reinsurance arrangement. Currently, we haven't identified any specific opportunities, but we remain open-minded regarding our exposure in relation to our business portfolio. So far, nothing has emerged that warrants serious consideration. As Jim mentioned, we will continue to explore options, which is part of our approach. We feel neutral about this situation. We often highlight that we have an agreement in place that provides us with protection, and we are very confident in that protection, regardless of whether any sales materialize.

And I appreciate that, Walter. You have the detail, right? I think investors, particularly if the Genworth Oceanwide deal does not gain approvals or is disapproved, may need to know whether those details will be available externally to give them the same level of confidence that you have internally.

Right, so this is Jim. Let me take a minute to explain why we do not believe that insolvency, if it were to ever occur, would lead to billions in exposure for us. As we disclosed in 2016, RiverSource made significant enhancements to its reinsurance credit protections with Glick, aimed at safeguarding RiverSource from any deterioration in Glick’s financial status. Due to confidentiality obligations, we cannot share specific details about these credit protections, but we want to clarify why we think our net counterparty credit exposure to Glick is quite different from the gross exposure and remains within our risk tolerance. A few points to consider: Glick is based in Delaware, meaning any insolvency proceedings would take place there under Delaware law. The state has a strong tradition of upholding commercial and financial matters and the contracts that experienced individuals enter into, particularly concerning corporate law trusts in insurance. Similar credit protections to those we have with Glick have been validated during insolvency proceedings in Delaware and have received deference from authorities. This is also true in other parts of the United States. We believe these protections would still be honored, even in the unlikely case that Glick faces insolvency proceedings in Delaware. While we acknowledge that no credit protections are completely foolproof, the appropriate way to view our counterparty credit exposure to Glick is not as the total gross liability that Glick reinsures, but rather our net exposure after factoring in our credit protections, which would represent a much smaller amount if it were to arise.

I appreciate that response. Thanks, Jim.

Great. Thank you. Most of my questions have been answered, so just maybe some follow-ups on previous. The de-risking of long tail business is, clearly, Jim when you mentioned that was the LTC. It sounds to me that there is no sense of urgency to enter into any arrangement. Is that the right read?

No. What I would say and my read just based on what I've – and Walter said is this: We feel good about what we have for our own business and what we manage, just like we have in place for our reinsurance. We feel that we take appropriate reserves. We look at the experience. We constantly evaluate. We have again taking rates; we have got approval for rates that are going into effect. We are adjusting even some of the alternatives that clients have as they move forward. So with that, don't get me wrong, there can always be some exposure in the future, right? We know things will change, the world evolves. There could be changes in some clients, but our book is very aged. Our people have been there for a long time. We have very strong claim experience. And so as we continue to make these things, remember this is a book that we closed in 2002. The age is much higher than average, and our experience levels are very strong. The knowledge of what we have. So we're not saying that there couldn't be some exposures going forward, but on a relative basis based on the strength of our position, our cash flows, our capital, and what necessarily even could change in the near future, next few years, that's five years, 10 years, this is immaterial to our ability to handle it. But I know, people are putting this undue sort of risk out there as an umbrella on us, but it's not going to have an effect that people think in any stretch of the imagination. Even if you said, hypothetically a few hundred million dollars, we can easily take that against our excess capital position would not even beat that point. So the point of reference is, if there is a reasonable transaction, even if it's at a discount with a good party, and I think people are getting more sophisticated in understanding the differences, I think the transaction could occur. Okay? One of the big variables is interest rates. The long-term rates have come down a little more. If they went back to where they were, it'll be more appetizing. So let me be very clear. We're not opposed to anything like that. We're evaluating, and you saw we just started the reinsurance. We told you it would take a little time for us to get where we wanted in the Auto and Home. Listen, I think we’re credible for what we say and what we’ll do. We'll make very informed decisions, and we’ll evaluate to continue to invest and grow the business. What I would take away from this today is that we’re really excited about the opportunities we have in Ameriprise and the Wealth Management business and a generation of cash across the company. Even with our Asset Management and INA business, INA is a really good solid book. And if there are opportunities for someone to get certain based on the structures they have, but keep the real good benefits and the growth, we are really growing the opportunity with our clients and working on good products. We are open to it. The same thing with long-term care. But we're going to manage it really well. We're going to make sure that we get appropriate returns and cover our risks. To the extent that there are those little blips that pop up, we're well easily able to cover them. So that's the way I would think about it, but no, we're not opposed to any transaction on LTC, and we think that people are getting more sophisticated in understanding the differences, and maybe there'll be a potential for us in the near future. We're looking at it. So people are starting to call, and we are starting to talk.

It's unfortunate because there are many strong businesses and trends to discuss, so spending so much time on this topic doesn't seem very productive. However, it appears you won't take any actions that could jeopardize your balance sheet, considering your views on the LTC block and its stability. Moving on to a couple of points, regarding the crediting rate on your sweep fees and Advice & Wealth Management, I noticed it increased by 7 basis points in March. As we look towards the second quarter, are the yields currently stable? Walter, you mentioned the need to stay competitive. Is there a reason to consider raising crediting rates further?

No, what you saw is we're constantly evaluating our competitive positioning, and we believe we are competitive now. We will constantly review, but I don’t see anything that would be changing going forward. But if it does, we will adjust it.

Got it. And then just lastly on the tax rate, it says in the press release the 16% range. I think that means for the year. So can we assume that given that you had 17.3% in the first quarter that it might trend a little bit under 16% for the balance of the three quarters?

Yes.

Got it. Thanks so much.

Hi. Thank you. How are you thinking about the best options for growing the Advice & Wealth business going forward? Are there meaningful organic investments of capital that could accelerate growth? Or to pursue M&A, what type of transactions would be of interest?

So what I mentioned before that we are taking the opportunity to make really good investments and enhancing all of our digital capabilities, our advice capabilities, our client engagement systems. We feel good about that. We are actually picking up our pace in recruitment out in the industry as well. I feel good about that, and it gives us opportunities. I do believe there may be some opportunities for us, as I mentioned, in the use of capital to look at some good potential additional add-ons to our wealth management business from an M&A perspective. It's a bit early for me to get into that right now, but some things that we're going to spend a bit more time exploring. We think that may be a good use of our capital moving forward.

Got it. On that note, it will be similar to some of transactions you have done recently, where sort of keen lift-outs or acquisitions where small, independent firms? Or could it be something bigger than that as well?

I believe it could be both. There are various opportunities in the wealth management sector that we are currently considering. I don't want to elaborate too much at this time, but I want to emphasize that this is a vital area for us. We have a deep understanding of it and believe we can make significant contributions. Therefore, it is something we plan to focus on more intently.

Got it. And lastly, big picture, it sounds like your focus is really to continue to shift the enterprise more towards a distribution company and away from product manufacturing? Would this just be organically growing AWM at a faster rate? Or could you also see exiting more of your manufacturing businesses?

Well, what I would say is this; as you just saw based on our mix and growth, our distribution business AWM is over 50% now of our earnings. We still have very good businesses; our INA business, however, are solutions to the clients and they are very complementary. So, the real good cash flow, we get the solid nature of the books, is because the part of where my client assets go for products that we manufacture in addition to what we distribute externally. I think that's how I think of it. Same thing with the Asset Management business, Columbia manages a good reasonable amount of assets both for our retail clients, and also as part of our books for our INA business, and it's very complementary. If you go back many, many years, we started as a manufacturer with distribution as a cost center. When I came in, I converted the distribution to the profit center, and I wanted to round out my solutions group. I exited third-party in the INA because of what was happening in the industry. In the Asset Management, I figured I would complement that by buying some companies to give me more of that third-party distribution as a compliment. I think we have accomplished that to a good regard. And having said that, I still value the solutions part of what we do here. But as I would probably say, the growth driver of the coming right now based on industry pressures, etc., is in our distribution channel. But we will continue to be a quality provider in the other areas, and they will generate some good returns for us.

Hi. Thank you. Good morning. Quick question on management fees in wealth management up 4% in the quarter but looking at that as a percentage of assets or average rep assets. I mean it was down a fair amount to 1.32%. Can you maybe speak to that and give us a sense of where you see that going over the next year or two?

Well, I think in the first quarter just as we saw in the fourth quarter, you had depreciated assets from the level of where you started in December. And so outflows have been consistently strong fourth quarter, first quarter, and they are even getting back to even higher levels as we exited the first quarter. But I think when you look at the fee level you had equity markets down significantly at the end of the year, just making its way back through the quarter. When you run a very large portfolio like that with a reasonable portion being in equity, or a portion of that 50% to 60%, that's where you're going to get that fee compression. But to Walter's point, what he explained would be as we are exiting this quarter with the markets back up, you should probably see it come back to the full level of the type of fee that we had. The good inflows over the course of the entire last year will complement that as we move forward.

Good morning. Thank you for taking my question. Just a question related to rep flows at AWM. So you've talked about, January was a little bit weaker, muted start and picked back up in February and March. I guess, how much was the impact was January was to the quarter? And do you feel if the kind of going forward to see more normal activities, do you feel like you could go back to roughly $5 million range of quarter in terms of rep net flows?

In January, there was a significant decline, but by March, it had returned to historical levels. We're observing a pattern that gives us confidence as we notice client activities picking up again. We're optimistic about this trend, and it seems to be continuing in April to some extent.

Okay. So basically fourth quarter and first quarter was an anomaly then we should kind of looking back to be at the rest of the quarters in recent history?

Yeah, that's what certainly the pattern is saying. Especially as you start with January down and just progressed its way right back up in March, and we're seeing that continuing.

Got it. And then in Asset Management, you mentioned that the EMEA flows were weaker, but then you have some of the distribution build-out that should hopefully improve the flows activities a little bit better towards the balance of the year. Can you talk about the build-out of the distribution in Continental Europe, and then your expectation for how these channels would be the coming quarters?

Yeah, so this is Jim. What I would say is first of all in the first quarter, we completed our transfer of our OEIC assets into CCAP sort out of Luxembourg range that we established last year. So even part of the expense that we have, and the P&L was based on completing that shifting the assets, offsetting some of the expense for our clients, etc. Now, when we've done that, we now have a range of good products, and we are adding resources in some of the markets like Italy and Spain and Germany, ramping up with some manpower distribution, marketing to start to sell more formally in Europe. We also sold, but we almost sold out of the resource that we have in distributing OEICs, and we don't have necessarily all the resources fully on the ground. So we are ramping that up. Now, I would just say activity in Europe and Brexit, if you look at the number of European firms out of the U.K. in Asset Management, you'll find that the activity is pretty weak, and redemptions were there. But if that starts to get back as people start to see clarity around Brexit or the idea that the European economy is not slowing, I think you'll see a rebound in that activity and then, with what we're doing to expand in Europe, hopefully that will give us a greater level of upside down the road. I don't think that's going to happen immediately because of the situation across Europe and the U.K. right now, but it’s one of the areas where we have always gone in good flows, we have a good product, and one where we do believe that there is a benefit as that starts to settle down on the continent and in the U.K.

Appreciate the color. Thank you.