Ameriprise Financial Inc (AMP) — Q4 2019 Earnings Call Transcript

Thank you, operator and good morning. Welcome to Ameriprise Financial's Fourth 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 2019 earnings release, our 2018 annual report to shareholders, and our 2018 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you will see our GAAP financial results at the top of the page for the fourth quarter. Below that you will see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. Additionally, we are providing an annual update to our long-term care disclosures as an appendix to the slides posted on our website today. And with that, I'll turn it over to Jim.

Good morning and thank you for joining us. Ameriprise delivered an excellent fourth quarter, completing a very good year. As many of you know, we held our investor day in November to give you an even deeper understanding of our go-to-market strategies and long-term growth plans. I want to thank everyone who attended. We enjoyed our conversation with you. Regarding our growth strategy, as we discussed, there are four key areas driving our momentum. First, we have a significant opportunity to build on our strong position and further grow as a wealth management leader with deep client relationships. Second, we are transforming our global asset management business to meet the important needs for active management. Third, we are managing well-developed insurance annuity books of business that generate significant consistent free cash flow, and finally, Ameriprise is delivering profitable growth, has a sound balance sheet, and is generating a high return for shareholders. On our call today, I'll discuss our results, the operating environment, and our progress executing the growth drivers we outlined at Investor Day. Turning to the markets, U.S. equities reached yet another record high and our average weighted equity index that reflects the mix of assets we managed finished up strongly for the year. As you know, the Fed interest rate cuts in 2019 are a headwind, and yesterday the Fed said that interest rates remain unchanged. As January comes to a close, equity markets remain strong, but with a pickup in volatility. We cannot predict the year or market cycles, but with deep client relationships, good cash flows, and a strong balance sheet, Ameriprise is built to manage these cycles and emerge stronger. Now let's discuss the quarter. On a consolidated level, fourth quarter results were quite good compared to a year ago. On an adjusted operating basis, we delivered revenue growth of 6% excluding auto and home revenue in the year-ago period. Solid EPS growth was up 11%, even after absorbing some additional expenses in corporate. A return on equity of 38.6% remained well above many peers, and with the sale of the auto and home business, we generated $161 million in net benefit on a full-year GAAP pre-tax basis. Our assets under management and administration reached a new high, up 18% to $973 billion. We also achieved new records in wealth management for retail client assets and advisor productivity that I'll discuss further. With that, let's now turn to our growth engine, Advice & Wealth Management. We delivered solid revenue and earnings growth in the fourth quarter, even with a significant decline in short-term interest rates. Margin in AWM was nearly 23% and continues to be among the best in wealth management. I'm pleased with how we're executing our priorities. We're growing our client base, serving more affluent investors, and deepening client relationships. It all starts with the large and compelling market that we're concentrating on. Responsible investors with $500,000 to $5 million in investable assets are looking for comprehensive advice and strong digital capabilities from an advisor they trust. Ameriprise is uniquely positioned to serve this market, and it's translating into terrific results. We had an excellent year in Advice & Wealth Management, including some nice fourth quarter highlights. Client assets were up 19%. Our fee-based advisory business continues to stand out with more than $4 billion of inflows into advisory in the quarter. This brings total wrap assets to $318 billion, a 26% increase. Importantly, we had strong client acquisition results in the quarter, particularly in our affluent target market, and we saw a good pickup in transactional activity as more clients engaged with us in financial planning relationships. In the quarter, advisor productivity increased 6% as advisors leveraged the extensive support we offer to help them grow. In recruiting, we had another good year. We continue to attract experienced advisors from across the industry. In addition, another 63 advisors joined us, marking one of the best quarters for recruiting large production practices. What's behind our continued success? The deep, long-lasting relationships we build with clients through goal-based advice and expertise enhance the client experience and deepen these relationships even further. We are also leveraging our recent investments to drive future growth. Here are some updates. We continue to increase uptake of our digitally enabled advice experience to even more clients. We completed the rollout of our custom advisory relationship program. We’ve finished the conversion of our new customer relationship management platform, and we're growing the Ameriprise bank. We brought more than $1 billion of cash sweep balances onto the balance sheet in the fourth quarter, bringing the full-year total to close to $4 billion, and we will continue to bring sweep deposits onto the balance sheet. This year, we will be adding additional capabilities including a mortgage program, pledge loans, and a savings deposit product. I also like to point out that outside of the bank, Ameriprise wealth management expenses will return to more normalized levels in 2020. We continue to receive important recognition in the industry. Ameriprise was recently certified by JD Power for providing an outstanding customer service experience. Our teams work hard to deliver industry-leading service, and this means a lot. I leave you with this takeaway: with our advice value proposition and the investments we've made, we have a great opportunity to continue to grow in the wealth management business. I'm energized by the opportunity we have in front of us. Now I will turn to our Insurance and Annuities (INA) businesses. These are strong books that provide earnings diversification and stability. We're focused on delivering insurance and annuity solutions that satisfy client needs while continuing to evolve our solution mix. In the quarter, we generated $185 million in adjusted operating earnings for the protection annuity businesses in line with our expectations, and we continue to generate strong free cash flow. In terms of annuity sales, total variable annuity cash sales were up when compared to a slower quarter last year. For the year, sales were in our typical range of about $4 billion. This month, we launched our structured solutions annuity product designed exclusively to meet the needs of Ameriprise clients. We expect this will help shift even more of our books away from products with guaranteed returns. Fixed annuity sales were down year-over-year in line with our plan. In protection, we focused on continuing to shift from Indexed Universal Life (IUL) to Variable Universal Life (VUL), where we had very strong growth in VUL sales compared to last year. Overall life insurance, of course, remained stable at $195 billion. As always, we focus on managing risks appropriately and ensuring we have the right product designs for our clients in the environment. We will also continue to evaluate further action regarding reinsuring the remaining fixed annuity block this year. Moving to asset management earnings, we saw strong performance, and flows continue to improve. We remain focused on serving client needs and pursuing long-term growth opportunities in key areas. Columbia Threadneedle ended the quarter with $494 billion in assets under management, up 15% on improving flows and positive market conditions, and the earnings contribution to Ameriprise remained strong. We're making good progress executing our strategy, and you can see that in our flow picture. We generated $3.3 billion in net inflows in the quarter, which was up $8 billion from last year. This is our third consecutive quarter of improved flows. Investment performance was excellent in 2019 across equities, fixed income, and asset allocation portfolios. On an asset-weighted basis for our Columbia funds, over 75% are above median for the 1, 3, and 5-year time frames. For Threadneedle funds, over 80% are beating their benchmarks for those same time periods. We're seeing improved results across strategies and regions, with global retail leading the way. In U.S. retail, we have been increasing our market share at six of our top eight broker-dealer partner firms, and gross sales in our key strategies are strong. Our equity flow rate in the quarter was strong. In fact, of the 17 active firms we’ve benchmarked, we were in the top five and one of the few that were net positive for the quarter, and in fixed income, we continue to see good flows and we feel that we can improve even further. We are seeing particular strength in our income franchise; for example, our dividend income, strategic income, and mortgage opportunity funds generated more than $2.2 billion in combined net inflows in the quarter. In EMEA retail, with BREXIT moving forward and reduced uncertainty in the UK, we have seen improvement. Net flows improved by $2 billion from last year. We're making good progress; in fact, we were in net inflows in nearly all of our key markets in Europe. Now that we have built out our product range, we are seeing improvements in global institutional net inflows, which improved by more than $2 billion compared to a net outflow of $1 billion. We are gaining traction in numerous areas that we discussed in November. It was another good quarter in asset management. We have a strong product lineup, excellent performance, and global reach, and we're focused on executing well to maintain our momentum. Now, let me turn to our final key area of focus: our capital strength, which is outstanding. Last quarter, I highlighted our strong excess capital position and the benefits of the successful sale of the auto and home business in terms of freeing up capital and focusing our efforts on our core businesses. Ultimately, we ended the year with $2.2 billion of excess capital. In the fourth quarter, as a continuation of our strong return of capital, we returned 125% of operating earnings through the pickup in the pace of our buyback. For the year, we reduced our overall share count by 8%. To summarize, it was an excellent quarter and year for Ameriprise. We're in a strong position. Later this year will mark our 15th anniversary as an independent publicly traded company. We're incredibly proud of what we've accomplished. Importantly, we're proud of how we are recognized for our client service, our records of outperformance, and how we consistently deliver for shareholders. We are poised and energized to build on our record of performance and growth. Now Walter will discuss the financials in detail and then we'll take your questions.

Thank you, Jim. Ameriprise delivered another strong quarter of financial results and business metrics. We posted an adjusted operating EPS growth of 11% to $4.20. This was supported by strong 6% revenue growth, excluding the auto and home business that we sold in the quarter. The quality of earnings across our businesses was quite strong. However, within the corporate segment, there were a few timing-related expense items that I would like to explain. First, we incurred higher-than-normal impairments in our low-income housing portfolio, totaling $25 million. The portfolio continues to perform well, and we do not anticipate any impact on our expected tax benefits going forward. Second, as part of our re-engineering process and evaluation of our overall expense base going into 2020, we took an elevated level of severance charges in the quarter of $11 million. This action positions us well as we move into 2020. Finally, we had significant share price appreciation in the quarter, which required us to mark to market some of the previously issued share-based compensation awards. This was a $6 million absolute impact in the quarter but an $18 million variance year-over-year. Going forward, we expect our corporate segment losses to return to the $70 million range. On October 1, we closed the sale of auto and home to American Family. The transaction generated a net benefit of $161 million over the course of the year, but it's not recognized within our operating results. We returned 125% of earnings to shareholders in the quarter and 110% for the year based upon the sale of auto and home and changes in our risk profile. We entered 2020 with strong balance sheet fundamentals, with $2.2 billion in excess capital and a lower risk profile. Our long-term care business continues to perform well, which you can see in the appendix. In 2020, we will evaluate reducing leverage while remaining committed to returning capital at a pace of 100% plus. Let's turn to page 6. As I mentioned, adjusted operating net revenue was up 6% to $3 billion when excluding auto and home from the prior year period. Revenue growth was driven by Advice & Wealth Management and Asset Management. In Advice & Wealth Management, we had a substantial increase in wrap assets and improved transactional activity, driving an 8% increase in revenue. Asset management revenues grew 9% including strong performance fees. Annuities and protection revenue was essentially flat. In summary, we delivered strong EPS growth of 11% and a return on equity of nearly 39%. Turning to slide 7, you can see that our business mix continues to evolve, with Advice & Wealth Management generating over half of the company's earnings, up from 33% five years ago. This profitability improvement has been driven by fundamental organic growth and well-managed expenses while still investing for future growth. We've seen a consistent shift in our business mix over the past few years and expect this to continue as we focus substantial investments in areas of opportunity within the wealth management business. Advice & Wealth Management continues to perform well, of course leading to lagging indicators. As you can see on slide 8, Advice & Wealth Management adjusted operating net revenues grew 8%. Wrap assets were up 26% to $318 billion with net inflows of $4.4 billion in the quarter. Transactional activity also increased 5% year-over-year. We had a good quarter for experienced advisor recruiting, with 63 advisors joining us from other firms in the quarter, demonstrating much higher trailing 12-month productivity. Market levels improved nicely. Pre-tax adjusted operating earnings were up 5% or $19 million in the face of a $22 million headwind related to recent Fed rate cuts. A strong increase in revenue allowed us to continue to drive profitable growth despite short-term interest rates. G&A increased 6% excluding the bank, consistent with expectations. We are continuing to make substantial investments for growth and seeing elevated volume-related expenses given strong activity levels. Our expectation is that G&A growth excluding the bank will be in the range of 3% to 4%. Finally, our margin was solid at 22.6%, and we expect we can maintain it in this range. Let's turn to asset management on page 9. In the quarter, we saw a substantial $8 billion improvement with net inflows of $3.3 billion. Excluding former parent-related flows, net inflows were $4.2 billion benefiting from continued improvement in retail in North America and Europe, as well as from reinvested dividends. From a financial perspective, the business is demonstrating an improved trajectory. Asset management continues to generate substantial revenue and pre-tax adjusted operating earnings for Ameriprise. Pre-tax adjusted operating revenue was up 9% to $770 million, driven by strong performance fees and market appreciation with lower pressure from the cumulative impact of flows. Underlying expenses remain well managed. Within the quarter, expenses were impacted by elevated performance fees and year-end timing-related compensation adjustments, as well as a higher distribution expense associated with revenue growth. Margins in the quarter were 36%, remaining in our target range of 35% to 39%. Turning to page 10, results in annuities and protection are solid. Annuities continue to perform in line with expectations with very consistent profitability. We saw good improvement in variable annuity sales, up 9% in the quarter, though they are still down for the full year. We have launched a new structured variable annuity product in the first quarter that will further diversify our offering away from living benefits features, and our variable annuity net amount of risk still remains one of the lowest in the industry. Protection earnings were down slightly to $65 million. Claims remain in line with expectations. Now let's move to balance sheet on slide 11. We accelerated the pace of capital return to shareholders in 2019 with $2.4 billion returned via buybacks and dividends. This is a continuation of our long-standing track record of capital return. In fact, over the past 10 years, we have returned over $18 billion to shareholders and reduced our diluted share count by approximately 50%. We continue to generate substantial free cash flow, which along with excellent balance sheet fundamentals will support continued capital return. We entered 2020 from a position of strength with $2.2 billion of excess capital. We remain committed to returning capital to shareholders, assessing potential changes to our capital structure to best support our current business mix, and evaluating additional reinsurance opportunities. With that, we will take your questions.

Hey, good morning. So I'm looking at the advisor count and you're at 9,871. It's roughly flat with last year's number. Could you talk a little bit about your ability to grow that count going into 2020 and the productivity of those advisers? I know revenue per advisor was up 6% year-over-year. A lot of moving parts there. So how do you see that evolving in 2020 as well?

Yes, we think that the advisor count would probably pick up a bit as we go forward. We actually netted out a number of advisers in the IPI area and others as we reformed and restructured that channel, as well as in some of the central sites as we shifted things around. But we actually feel good about the recruitment. We're actually focused a bit more on higher productivity. So, the average productivity of the people who are leaving us are still much lower. So we focused mainly on the growth of that productivity and the type of people we are bringing in, but I think the advisory count should probably pick up a bit more like we were doing more at the beginning part of the year, and I feel good about the type of productivity we're bringing in at the recruitment end and the ramping up of the people who are here.

Got it. And staying on Advice & Wealth, fee rates were around 108 basis points by our calculation in the quarter, and that's kind of versus the recent 109 to 111 basis points range over the last two years or so. Is that a function of moving upmarket and why is that? And where do you see the fees kind of shaking out in 2020 and ‘21?

Yes. I think it's part of the idea of us continuing to bring in more clients at a little higher levels where the rates get a bit lower as the asset levels we are managing are a bit higher. It’s actually a good positive thing for us. Our net inflow of client activity is pretty strong, continues to be good and consistent, and we are bringing in more affluent clients, likely embarking on something this year to focus a bit more on the higher net worth channels. So I think that’s favorable for us.

Got it. And one last quick one. 110% payout ratio in 2019, $2.2 billion of excess capital. Could you get that ratio even higher in 2020?

We could but the answer is, I think as Jim said at the investor day, we are targeting, at this phase, 100% plus, but we are certainly monitoring and evaluating, Andrew, as we do. We certainly have the generation capacity and we will be evaluating that as we move forward.

Good morning and thank you for taking our questions. A question related to the G&A expenses. I think Jim in his prepared remarks, you talked about expenses should normalize in 2020. I think specifically in W&M, G&A expenses excluding the bank would be kind of 3% to 5% growth. But I guess when you look at the overall enterprise, how should we think about the expenses in general, and also how much banking-related expenses do you anticipate for A&WM?

Okay. So, I think as we indicated, yes, I think what you said for AWM, the expense range around normalizing for the bank should be in the 3% to 5% range. As relates to AMP, it’s lower than that and it normally would be in the range of 2%. We anticipate that will continue as we look. That is a reasonably good expectation.

Okay. So, including the bank or AMP, overall, and G&A expenses would be in the 2% range. Is that kind of what you're suggesting?

No, the bank will be above that because we normalize; at the AWM level, it’s about 200 basis points if you add for the bank. So, I can clarify this, you know. Again, it’s obviously a little less for AMP because the AMP size of the expense base will be neutralizing forward; gives a little less impact.

Okay.

But that is basically from that standpoint and normalized numbers.

Okay, got it. And then, in your prepared remarks, you talked about the fixed annuity block. It doesn’t look like the lower interest rates right now affect how you think about the block in terms of potential transactions. Is that a fair statement, and then also can you remind us how much pressure you kind of flow that you have right now backing that business?

Yes. So, listen, the interest rates do affect it but we do believe there is, and we're evaluating that there is potential liability, and certainly pursuing a fixed annuity reinsurance. We are in discussions. We’ve evaluated that. This is a general range; it’s probably around an area of $750 million to $800 million that we might be able to free up.

Hi, thanks for taking my question. Just one within the asset management business, a follow-up on the prepared remarks you touched upon seeing improving investor sentiment within the U.K. EMEA region due to Brexit clarity. I'm wondering whether you would expect to see further improvement in that fund flows this year due to the increasing clarity, and perhaps you could just tell us which investment products you could see potentially gaining from this improving sentiment. Thanks.

I think you're more explicitly asking about U.K. and Europe, our EMEA business. Yes, we saw a nice bounce back occurring in the fourth quarter, moving from some negative in the first month of the quarter to actually inflows in the second and third month of the quarter. We see that continuing. Europe was actually positive for us; good, U.K. was still coming back but was still a bit weaker. We feel like that will start to change now that they have gone through the elections at the end of the year. We’re pleasantly optimistic that there will be a little less uncertainty. I mean there’s still uncertainty to the extent of what is that trade agreement and things at the end of the year. But the people in London are feeling better and feel that the business can come back there and the appetite will increase. We have a good lineup; I mean we have excellent performance in our funds. U.K. equity-type products are doing well; we gained even in a negative year. Flows there and we now have a full aligned product in the CKF range in Europe. That bodes well for us as there’s a pickup, and we're seeing that pickup in things like European equities and various other products. So, we’re positive on that to see an improvement this year.

Great. And just one follow-up if I may. Looking at the former parent company-related outflows, looking back over the past years, that outflow is related, and that has been declining. Just wondering whether we would expect a similar kind of trajectory going forward or I just want to get your thoughts there. Thanks.

Yes. So, I think we've seen some improvement in the domestic part of that and the outflow from our relationship. The Zurich activity has been pretty consistent; once in a while they'll have a pension that closes and then some lumpiness, but it’s been running pretty much like what we've seen from quarter-to-quarter just based on the drawdown of these closed books and assets. But as I said, the assets that remain there through the combination of appreciation and even some differences in some of the products that we replaced that have a bit higher fee. The revenue offsets even though that flow is negative and that book is there. So, I would probably say it’s been running that way consistently for a while, so I don’t see much change there from a flow. But the revenue’s been pretty stable.

Thanks. Deposit volumes in 4Q 2019 for variable annuities were the highest since 2Q 2018. I thought it was somewhat surprising given the client and rates during the year and associated repricing activity. Can you talk about your positioning in the distribution environment there? Thank you.

Yes. We did see a bit more of a pickup. A year ago, this quarter it was a slower period for us. But we saw a bit more activity towards the end of the year. At the end of this month, we just launched our structured annuity product, and we actually think that would pick up some traction as well in the current year and shift some of the business from the guaranteed product. We still sell a reasonable portion of annuities without living benefits as well which is good. So, we're not looking for substantial growth but we're looking for probably a bit more growth along with some of the structured products which is good for us. We want to keep that book growing or stable with slight growth which is good. The mix is improving, so that's what we're probably seeing right now.

Oh, great. And my follow-up: does Brexit clarity change your view around M&A for asset management as I believe the fee rate for retail is a bit higher in EMEA than in the U.S.?

No. We want to continue to grow in EMEA and Europe. To the point you referenced based on fee rates and the use of actives as well. We keep our eye out for opportunities, but we actually feel like some of the investments we're making in the expansion of resources on the continent give us some opportunity for further growth there.

Good morning. Just a question on the AWM growth; just looking at page 13 of the supplement, it looks like total client AUM versus the wrap accounts is growing a bit slower. Just curious if you are using outflows in the non-wrap business, and overall how is that impacting your growth in that business and just overall economics?

Well, looking at the client flows, that's still pretty good; they're in excess of the $4 billion. I don’t know exactly with the ins and outs, there are some ins and outs. But a shift between the non-wrap to wrap has slowed a lot. I mean, it’s sort of leveled out. I can't tell you now; from period to period there might be slight. But the net effect of what those flows are gross client net client inflows in total. It's within that realm I would probably say with the fourth quarter, given the market being where they were, I think activity was a little slow for investment purposes because people were waiting for the next shoe to drop, but I think it’s been pretty stable.

So, Jim, just following up on that: Would you say overall flows into the complex from total client assets would be close to the $4 billion mark?

It's not the $4 billion, but in that range in the fourth quarter.

Okay, that’s helpful. And then how should we think about total capital return? I mean I know you returned more than 90%. Certainly, last year, you're sitting on substantial excess as we stand today. How are you thinking about the utilization of the excess? Are you thinking more strategic M&A? Are there opportunities out there? And then maybe doing more buybacks if you don’t find anything? Where are you leaning now more toward with deployment of that excess, particularly after the P&C capital free significant amount?

Yes. As you saw, we did pick up the buyback. As we said, Walter just mentioned that we're probably looking to continue; usually saying 90% to 100%, we're seeing probably a 100% plus at this point in time, not knowing the world, and the et cetera. If opportunities present themselves, we will pursue them. But we constantly monitor; the cash flow continues to be quite good and strong. As Walter also said, we're probably looking to reinsure some more as we go through the year. I think the buyback will still be the main return mechanism. We will look to present to the board about a dividend increase again this year, consistent with all the years that we have done that. We always look for some M&A strategically to fit in, but that depends on opportunities that may come along and not, but we have enough capital flexibility that should not affect our buyback trajectory.

Thanks, good morning. Just wanted to start with the A&WM margin. So, if the Fed is on hold now, is the impact of what they did last year in terms of rate cuts sort of fully baked into the 22.6 margin?

Yes, basically it is; could be small deviation but basically it is.

And then at Investor Day, I mean I don’t want to nitpick here, but you talked about a 20% plus margin in A&WM. Now on this call you're saying you could maintain a 22.6%. Is there sort of a change in how you're thinking about that margin relative to what you said at Investor Day?

No, not at all.

Okay. And then, the last one I had is on the bank. I think we have a good sense of what the expenses are, but can you give us a sense of what the bank revenues are and how you expect that to progress as we move through 2020?

Yes. As we indicated, we had a small profit in 2019 and we do expect with the launches of different products and adding more transversely, revenue will grow. Obviously, this is a challenging market for investments. But on that base, we do see that revenue is growing, and it's increasing our profitability in 2020.

Do you have a sense of the revenue base there right now from the bank?

Let me. I don’t want to guess, so I will get back to you.

Hi, thank you. A couple of follow-ups on advising wealth sort of along the same lines as Suneet's questions. I guess first would you expect cash yields to be pretty stable going forward if the Fed remains on hold, are there any competitive dynamics that could create some noise there?

No, I don’t believe that we see any. Obviously, we're constantly monitoring and measuring, but no, we don't see any of this at this time.

Got it. And then, Morgan Stanley recently provided a target of getting its wealth management business margins to the 28% to 30% range over the next two years. And I realize there are differences between its business and yours. But do you see getting to kind of a mid-20% margin as something achievable over the intermediate term as the bank reaches scale and if you continue to improve advisor productivity levels?

Yes, I would say, listen. One of the things very clearly is you have sort of compressed rates out there with what the Fed recently did versus some of the banks that might have been started previously based on their investments and other things like the warehouses with their banking entities. But I would actually say if we get a bit better in some of the yield curves or some pick up a little better on some of the longer rates—not substantially. I think you can see with what we're shifting into the bank with the development going through the bank. That could be adding to margins even if the Fed maintains rates right now, so to speak, depending on what happens in the larger climate. But we're ramping up the bank in a period when those things are pretty compressed. But we feel good about it because we have the opportunity for things to normalize a little better again.

Got it.

But I would say we feel good about that.

Sure. And thank you for the comments.

Hey guys, thanks for taking a couple of questions here. I have a few; one on AWM mostly. So, I guess first, is it possible for you to give us a sense of how much in net interest income you expect to generate at the bank in 2020 and sort of what that contemplates? In other words, are there more deposits you kind of move from sweep or whatever you move that’s enough to put into loans or other things you guys doing at the bank?

I guess, let me start by saying that since we launched the bank mid-year, we'll experience some calibration effects that we need to manage as we see an increase in that regard. We will be increasing flows into the banks, as I mentioned earlier this week. However, as Jim pointed out, market rates are quite favorable, and we are definitely focusing on launching our book, placing greater emphasis on our privileged loan program, and actively engaging in a deposit program.

Okay. But no rough sense of the revenue dollars do you expect to get out of the bank this year?

No, not exactly, it’s new to FL. We’d have to; we’re not forecasting but certainly there will be an increase and again we're assuming an increase in profitability, but I don’t have the exact correlation.

And Alex, we are forming as we have started to ramp up the bank, the shift in the sweep looking at the current environment regarding both the lending and investment strategy, the rollout of some of the products this year. We’ll be forming that, and as that gets more informed, we will be chatting with you and informing you as well. So it’s just that the early stages of that. But all the groundwork, all the foundational elements even the initial shift in the launch of the credit card, the initial sweeps, et cetera, have taken place. So, we're right on track to our plans, but the second level of that will be forming as we going through this year.

Got it, thanks. And then, in terms of the asset growth, so at a high level, everything you guys are talking about sounds great in terms of recruiting, higher productivity, et cetera. When we look at the wrap flows this year, they've decelerated versus last year despite what feels like it’s been a very robust environment for the industry as well as some of your peers. So, what's been driving the decline in wrap accounts this year? What do you think is a reasonable EBIT dollar amount organic growth you expect to get out of that over the next 12 to 24 months? And then, when you look I guess at the fee rate on wrap accounts, that's also been coming down for the last couple of years. So, can you help us reconcile all those three maybe? Thanks.

Yes, we don’t really see that what you're saying per se. I know the wrap account in previous years were a bit higher. But remember that was part of an industry shift, we were part of that moving with the deal well and activities and accelerating some of that transfer. From an organic level, as I said, the $4.4 billion is still pretty nicely organic growth. We feel like our fee rates are pretty good. As you've said, as we continue to move up market, some of the fees will be lower naturally based upon pricing. But I don’t see you know it could move slightly from what we said but I don’t see a slowdown per se. Our client activity is good. Importantly, it’s not just a wrap business per se; we try to do more comprehensive business. But I feel that that's not necessarily a slowdown. I see things go period-to-period but I think over the longer term we feel pretty good about it and we think that that will continue. Our wrap balances were up 26% year-over-year. So, I’m not sure a lot in the industry. There may be some further shift for some people where they were behind on it and accelerating that. We've always had a good strong wrap business.

Got it, great. Thank you very much.