Ameriprise Financial Inc (AMP) — Q3 2021 Earnings Call Transcript

Thank you Sylvia, and good morning. Welcome to Ameriprise Financial’s third 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’d 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 operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials and on our website. 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 third quarter 2021 earnings release, our 2020 annual report to shareholders, and our 2020 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the third quarter. Below that, you’ll see our adjusted operating results followed by operating results excluding unlocking, 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. We completed our annual unlocking in the third quarter. Many of the comments that management makes on the call today will focus on adjusted operating results. With that, I’ll turn it over to Jim.

Good morning and thanks for joining us. As you saw, Ameriprise delivered another excellent quarter, building on a strong year. We continue to perform extremely well. The environment in the U.S. is largely positive as the economy continues to show solid growth. Equity markets remain strong and have recovered from a weaker September. Inflation has picked up due to demand, and there remain some headwinds due to the pandemic. In Europe, conditions continue to improve. As you can consider this backdrop, we’re executing well and consistently generating important organic growth and shareholder value. Our differentiated results reflect the strategic investments we’ve made in the business and a culture built on performance and a high level of care for our clients and team. Our growth businesses are delivering strong client flows with nearly $14 billion of inflows in the wealth management and asset management businesses in the quarter. With these positive flows and markets, assets under management and administration are up 21% to $1.2 trillion. Turning to our financials, the excellent results delivered in the quarter reflect the high level of performance we’ve generated this year. Adjusted operating results for the quarter excluding unlocking, revenues came in strongly at $3.5 billion, up 17% fueled by continued organic growth in attractive markets. Earnings rose 32% with earnings per share up 38%, reflecting strong business growth and capital management, and ROE is exceptional at nearly 48% compared to 35.5% a year ago. Let’s move to advice and wealth management, where we continue to deliver meaningful and consistent growth. With the strategic investments we’ve made over many years, coupled with our expertise in planning, we’re delivering a differentiated and referable advice experience. Clients are actively engaged with us. They’re turning to Ameriprise and our advisors for comprehensive advice and solutions, and they’re leveraging our extensive digital capabilities to track and achieve their goals. Our client experience is sophisticated, personalized, and supported by our integrated digital technology and backed by our strong reputation. In fact, Investors Business Daily recently named Ameriprise the number one most trusted wealth manager. We’ve earned this impressive credential based on how consumers rate Ameriprise for how we serve them, the quality of our products and services, our commitment to ethical practices, fair prices, and protecting personal data. To be number one in trust is high praise, and we’re honored. This type of recognition and client satisfaction doesn’t happen without an industry-leading advisor force that’s highly engaged. Our advisors are benefiting from our training, coaching, and suite of tools to build and deepen client relationships, track prospects, and run and grow their practices through our fully integrated platform. This positive momentum and engagement are leading to robust client activity, asset flows, and client acquisition. Our results reflect the traction on organic growth that we’ve consistently demonstrated. Total client inflows were up 64% to $10 billion, continuing the positive trends we’ve seen over the past several quarters. Net inflows were excellent at $9.4 billion, up 65%. Transactional activity grew for another quarter, up nearly 16% over last year with good volume across a range of product solutions. Advisor productivity reached another new high of 18% adjusted for interest rates, totaling a record $766,000 per advisor. I’d highlight that our advisors continue to be recognized across the industry, including in top national rankings from Barron’s, Forbes, and Working Mother. We have long focused on driving productivity growth for our advisors and we’re generating some of the highest growth rates in the industry. At the same time, we complement this with targeted recruiting of experienced productive advisors who are attracted to our brand and value proposition. In the quarter, recruiting picked up nicely and another 104 experienced advisors joined us. We’re receiving a great response from our in-person events and virtual recruiting activities, and importantly the quality of our recruits is very good. Let’s turn to the bank, where total assets grew to nearly $11 billion in the quarter. The trends we’ve been discussing with you remain consistent. We continue to move additional deposits to the bank and we’re seeing a growing demand for our recently introduced lending solutions, especially our pledged loan product that is getting good initial traction. To wrap up advice and wealth management, our metrics and financials are very strong. Pre-tax income was $459 million, up 43%, and margin was strong at 22.4%, up 320 basis points, which compares very well in the industry. Now I’ll turn to asset management, where we continue to build on our momentum and results. Assets under management increased 17% to $583 billion. Our outstanding research is core to our business and our ability to consistently generate excellent investment performance for clients - that’s across equity, fixed income, and asset allocation strategies with more than 85% of our funds above the median on an asset-weighted basis on a three, five, and ten-year basis. In fact, compared to the broad group of U.S. peers we track, we perform at or near the top of the Lipper rankings for multiple time periods. Flows remain strong given our excellent investment performance, client experience, and continued support we provide advisors and our partner firms. We had net inflows of $3.9 billion in the quarter. This is an improvement of nearly $5.5 billion from a year ago. Global retail net inflows were $1.8 billion, driven by North America. While overall industry sales were a bit weaker in the quarter given the summer months, overall our flow traction is good. We continue to have good sales in equity strategies and, consistent with our plans, we’re gaining traction within fixed income, and that’s across multiple channels and structures. I’d note that we expanded our successful suite of strategic beta fixed income ETFs in the quarter with the launch of the Columbia short duration bond ETF. In EMEA, retail market conditions remain challenging, and while we experienced some net outflows, flows have improved from the second quarter. In terms of global institutional, excluding legacy insurance partners, net inflows were $3.5 billion. The team is working hard to generate wins across equity and fixed income strategies in each of our three regions; in fact, we’re seeing a number of current clients adding to their positions. Of course, we recognize there will be shifts in flows quarter to quarter, given the size of certain institutional mandates. Our client service and consultant relations teams have good traction and we’re making considerable progress expanding our consultant ratings, which positions us well for growth. As I look at the year thus far for institutional, we’re making good progress. That includes expanding our presence in APAC, where we announced the opening of our new Japan office, which complements our other locations in the region. Turning to our BMO EMEA acquisition, we look forward to closing the transaction shortly, pending final regulatory approval. I feel good about how we’re tracking. We’ll be able to provide more details after we close and when we release fourth quarter results in January. To wrap up asset management, we’re serving clients well while maintaining our attractive organic growth and profitability. Moving to retirement and protection solutions, our results continue to be strong. These are high-quality businesses that generate solid earnings and excellent free cash flow. We continue to focus on non-guaranteed retirement and asset accumulation protection products that deliver benefits for clients and our shareholders. Consistent with this strategy, the majority of our annuities sales in the quarter did not include living benefit guarantees. Sales increased 28% and have shifted to both our structured variable annuity product and our RAVA product without living benefits. On the insurance side, life and health insurance sales increased 77%, driven by our VUO product, which is appropriate given the current low rates. We have also seen good response to our DI products, reflecting our financial planning approach. To summarize, Ameriprise has built a differentiated book of business over many years that delivers superior financial results that are sustainable. It starts with providing clients with solutions that meet their long-term retirement needs, have appropriate benefits, and generate good risk-adjusted returns for the company. Now let me highlight why Ameriprise is clearly differentiated in financial services. In terms of our balance sheet, our capital management remains a real strength. Our advice and wealth management and asset management businesses are performing very well and generating excellent growth, margins, and returns. We compare quite favorably across the industry, and our retirement and protection business is valuable and high quality, generating good free cash flow and returns. It’s entirely focused on our channel and differentiated from anything else out there. Listen - we’re generating some of the strongest returns in the industry and have been for quite some time, and we’re able to do it with lower volatility. Importantly, we’ve returned capital to shareholders at very attractive levels; in fact, we consistently return nearly all of our operating earnings to shareholders annually. If you look at that over the last five years, we’ve reduced our average weighted diluted share count by 28%. This is all while we’re consistently investing in the business and maintaining a sizeable excess capital position that gives us flexibility. In closing, Ameriprise is positioned well. Our team is focused on key priorities to drive organic growth, and we’re delivering for our clients. In fact, I was just with our top advisors last week to recognize their achievements and discuss our growth priorities. It was terrific being together. As I think about all of Ameriprise, it’s great to have people back in the office more in person again as we focus on finishing the year strong. Now Walter will review the numbers in more detail, and then we’ll take your questions.

Thank you, Jim. Ameriprise delivered very strong financial results across the firm with adjusted operating EPS of 38% to $5.91, excluding unlocking. In fact, we reached new record levels for revenue, pre-tax adjusted operating earnings, and return on equity in the quarter. We delivered strong flows, earnings growth, and margin expansion in our core wealth and asset management businesses. Results in the quarter are a continuation of the excellent trends we have been seeing this year as we successfully execute our growth strategies. This is driving our business mix shift, with both wealth and asset management representing about 80% of earnings. Retirement and protection performed well and we remain focused on optimizing our risk-return trade-offs in this environment. We generate robust free cash flow across all our businesses. Our balance sheet fundamentals are excellent with significant excess capital. Combined, this allows Ameriprise to consistently return substantial capital to shareholders with 95% of adjusted operating earnings returned in the quarter, putting us on track to achieve our 90% target for the full year. Let’s turn to Slide 6. We are focused on growth in our core wealth and asset management businesses, and we hit some important milestones this quarter. We are seeing excellent AUM growth, up 21% to $1.2 trillion from flows and markets. Flows in these businesses have improved substantially, up over 200% from a year ago and up nearly 140% on a year-to-date basis, representing the successful execution of our growth strategies in each of these businesses. Let’s turn to Slide 7, where you can see that we’re delivering profitable organic growth. Revenues in wealth and asset management grew 23% to nearly $3 billion, with pre-tax operating earnings of $744 million, up 44%. Importantly, earnings growth from wealth and asset management outpaced revenue growth, demonstrating the operating leverage of the business, and the blended margin for these two businesses expanded 370 basis points from last year, with wealth management up 320 basis points and asset management up 500 basis points, further illustrating our ability to deliver profitable growth. Turning to Slide 8, this chart clearly illustrates our success executing our growth and business mix shift strategy. Specifically, the wealth and asset management businesses are driving about 80% of the earnings over the past 12 months. This is coupled with a stable $700 million contribution from retirement and protection solutions. With that as an overview, let’s review the individual segment performance, beginning with wealth management on Slide 9. The strategies we have in place to support advisors and improve their productivity using integrated, industry-leading tools, technology, and training have resulted in increased flows and transactional activity. Total client assets were up over 25% to $811 billion over the past two years. Our advisor force continued to deliver exceptional productivity growth across market cycles. Revenue per advisor reached a new high of $766,000 in the quarter, up 24% over the past two years. Importantly, over the past two years, the annualized organic growth rate for wealth management flows improved to 6% compared to 4% in 2019. This is coming from advisors penetrating their existing client base and adding new clients, complemented by recruiting experienced advisors, and we are pleased that our strategies are translating into this level of organic growth. On Page 10, you can see that we are delivering growth as well as excellent financial results in wealth management; in fact, revenue and earnings for wealth management also reached record levels this quarter. Adjusted operating net revenues grew 23% to over $2 billion fueled by robust client flows, a 16% increase in transactional activities, and market appreciation. Wealth management pre-tax adjusted operating earnings increased 43% to $459 million. Ameriprise Bank is adding to the growth in wealth management primarily by allowing us to pick up incremental spread and cash sweep from deposits. In total, the bank has nearly $11 billion of assets after moving an additional $1.1 billion of sweep cash onto our balance sheet in the quarter. In the quarter, the average spread on the bank assets was 144 basis points compared to off-balance sheet cash earnings of 28 basis points. In addition, we are seeing good growth in banking products, including pledge lending that is gaining substantial traction with our advisor base since the product was launched in the fourth quarter of 2020. Expenses remain well managed. G&A expenses increased 1% as higher activity-based expenses and performance-based compensation were largely offset by expense discipline. In the quarter, our pre-tax adjusted operating margin was 22.4%, an increase of 320 basis points from the prior year and 100 basis points sequentially. Let’s turn to asset management on Slide 11, where significant success is also being realized. Over the past two years, assets under management increased 18%. We also saw a net flow shift from outflows in 2019 to a 5% organic growth rate this year. As Jim mentioned, we are seeing positive flows across both retail and institutional distribution channels, supported by excellent investment performance, and like the industry, we saw a bit of a slowdown during the summer months, though our relative position among our peers remains strong. The operating leverage in asset management is significant with margins for the trailing 12 months at 44.6%, up 830 basis points over the last two years. Turning to Page 12, you see these trends generated excellent financial performance in asset management. Adjusted operating revenues increased 24% to $915 million, a result of the cumulative benefit of net inflows, market appreciation, and performance fees. On a sequential basis, revenues grew 4%. Importantly, our fee rate remains strong and stable at 53 basis points. Expenses remain well managed and in line with expectations, given the revenue growth. G&A expenses were up 14% primarily from compensation expenses and other variable costs related to strong business performance, as well as foreign exchange translation. Pre-tax adjusted operating earnings grew 44% to $285 million, and we delivered a 49% margin. Moving forward, we expect strong financial performance to continue and anticipate that margins will remain in the mid-40% range over the near term, driven by the continued flow momentum in equity markets at these levels. As Jim mentioned, we are on track to close the BMO EMEA transaction in the fourth quarter. This acquisition will add significant capabilities from a strategic perspective and drive improved business fundamentals going forward. Let’s turn to Slide 13. Retirement protection solutions continue to reflect excellent underlying business performance, a differentiated risk profile, and a continued generation of substantial free cash flow. Pre-tax adjusted operating earnings were $192 million, excluding unlocking, down from $206 million a year ago. Current year results reflect lower profitability from increased sales levels, whereas results in the prior year benefited from lower sales, as well as lower surrenders and withdrawals. In total, unlocking impacts in the quarter were immaterial, resulting from consistent client behavior and interest rates that were in line with prior year estimates. We saw a strong pick-up in sales of retirement and protection products in the quarter with a continued mix shift towards non-guaranteed retirement products. During the quarter, variable annuity sales increased 28% from last year with 72% of sales in products without living benefit guarantees. Account value with living benefits represents only 62% of the overall book now, down another 200 basis points in the past year. We had similar trends in protection with sales up 77%, driven by higher margin VUL sales. This mix in sales and account balance for both retirement protection products is expected to continue. Additionally, in the appendix of this presentation, we have provided our annual update on our long-term care business. You will observe that the business continues to perform in line with expectations from a claims perspective. The policy count continues to decline as the book ages, and we are garnering additional premium rate increases. Now approximately 90% of the book has extensive or substantial credible experience, and I will note that we did not incorporate recent improvements in mortality and morbidity related to COVID-19 into our long-term assumptions. Overall, our actual performance continues to be in line with expectations. Let’s turn to Slide 14. In the quarter, you have seen transactions announced in the insurance and annuity space. In light of these announcements, I felt it would be helpful to provide additional context as it relates to how we view our business. As Jim has indicated, we believe our I&A business is a highly valuable asset with a client solution driven capability that has generated sustainable and predictable financial results and free cash flow generation, coupled with a low-risk profile. The driver of this is our prudent approach in building all aspects of this business, resulting in a proven track record of superior value creation. The behavior of our clients has been consistent, reflecting the nature of the product sale as part of the financial sale. We have taken a conservative approach to product features, including guarantees and credit rates, as well as requiring asset allocation for living benefits. We have maintained consistent sales levels and industry market share over the last decade, avoiding the arms race seen from time to time in the industry, and our economic hedging program has performed well across market cycles with 97% effectiveness over the past five years. Finally, we have taken prudent and appropriate actions to manage the risk profile of the business. For example, we stopped sales of LTC in 2002 and have successfully implemented premium reactions and increased protection with our LTC reinsurance partner. We also sold our auto and home business, reinsured our fixed annuity businesses, and have reduced living benefit sales. This consistent and prudent approach has resulted in stable earnings with 24% margins and a pre-tax return on capital exceeding 50%, with consistent free cash flow generation. Our balance sheet fundamentals are strong with a high-quality investment portfolio and strong risk-based capital ratio. This performance is best-in-class in the industry over many years. We have demonstrated superior return on capital, dividends paid, and capital ratios, and our net amount at risk is substantially lower than peers. In summary, this is a very valuable business and we are well positioned. It is now only 20% of our earnings. We have demonstrated that the exposure profile is well managed, and we completed our annual unlocking with very minor updates. With that being said, we will continue to evaluate options from a position of strength to make the best decisions to drive all aspects of shareholder value creation. Now let’s move to the balance sheet, another area we have delivered strong results. Our balance sheet fundamentals and risk management capabilities are cornerstones of what we do. It starts with how we manage the business to generate substantial free cash flow in each of our segments. We had holding company available liquidity of $3.7 billion and excess capital of $2.7 billion at the end of the quarter. We prudently manage credit risk where we maintain an overall double-A-minus credit quality in our investment portfolio and have a highly effective hedge strategy. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders. As I mentioned, we returned 95% of earnings to shareholders in the quarter, and we are on track to hit our 90% target for the full year. We have executed our capital return consistently over the years. Our share count declined 28% over the past five years, even with issuing shares to fund the share-based compensation programs. Over the past year alone, the share count declined 5%. In summary, strong fundamentals across our businesses delivered substantial free cash flow. We manage the balance sheet conservatively, and we have substantial liquidity and capital flexibility. Combined, these attributes position us to continue delivering a differentiated level of capital returns to shareholders going forward. With that, we will take your questions.

Morning Jim and Walter. Hope you’re both doing well. Wanted to start off with a question, and maybe a multi-part question, just on the bank growth strategy. Given continued strong growth at the bank, up roughly 70% year-on-year, as we look out over the next three to five years, what pace of growth should we be underwriting and where do you see the bank levels getting to on a more steady state basis, and just given the meaningful gap between you and peers in terms of loan penetration and the strong demand for a pledged loan product that you mentioned, what do you see as an achievable loan penetration rate or target over the long term?

Okay, so with the bank, as you noticed, we have certainly grown the underlying assets in the bank, and we will continue to do that. We have the capability of our overall cash strategy to switch from off-balance sheet to on-balance sheet and certainly manage our effective yield on that basis and give us alternatives, so we do see we have substantial room to grow as we take deposits - right now, they’re in the $11 billion range, to be increasing that by at least $2 billion to $3 billion as we move forward through the years and evaluate the situation. It gives us certainly yield pickup from that standpoint and gives us diversity. As it relates to the underlying assets, we are seeing tremendous success as we look at our pledged loan activity and margin loan activity, which of course is in the broker-dealer, and the momentum we are investing to build has taken place since December, when we launched the pledge loans, and has been very good, along with other products that Joe and his team are working on.

That’s great, and recognizing it’s a multi-year endeavor, just curious given some of your peers have loan penetration rates around 1% to 1.5% of AUM, do you view that as a credible long term target for Ameriprise as well?

Yes, we do.

Okay, great. Just for my follow-up on organic growth sustainability, it’s encouraging to see you maintain that 5% annualized organic growth rate. Also saw some improving trends in the employee channel as well as better momentum in AFIG, and was hoping you could speak to what’s driving that improved advisor adds, both in the employee channel as well as the financial institution channel, and just given those improving trends, how that informs your confidence level on the sustainability of that mid-single digit organic growth rate.

This is Jim. First and foremost, the organic growth rate that we’ve been getting, we feel very good about based on how we’re penetrating our own client base today, how we’re enhancing and deepening the relationships through our advice modules, and the support that we’re giving the advisors with our tools and capabilities that really help them engage the clients more fully. We feel like our investments there are paying off. Training and development are really starting to show their fruits. Regarding external recruitment, it has picked up again, which we did as we move from more of the virtual back to in-person. We’re seeing good advisors join us, good quality books, and we feel like we have a good opportunity as people better understand the type of capabilities that we offer, the brand support that we provide, as well as the recognition we’re receiving from a client perspective for trust in our brand, which is very important. We see that in both the advisor and employee channel as well as in the FIG channel. As you know, it took us a little while to integrate that into our platforms and capabilities, and now we’re actually adding new bank partners and adding advisors to those partners, which is taking shape nicely for us, and we think there’s a good path forward.

Very helpful color. Thank you both for taking my questions.

Good morning and thank you for taking my questions. My first question is on the G&A expenses in AUM and asset management. The overall expenses continue to surprise on the lower side, especially for AUM. The growth was less than 1% year-over-year and actually down quarter-over-quarter. I understand that the lack of travel and ability to return to the office was a factor, but organic growth activities were very strong, so it seems like the expense management continued to yield very good benefits. How should we think about the G&A expenses trending going forward? I think in the past, you talked about 3% to 4% growth rates, but why isn’t that too conservative?

The 3% to 4% is a good number from our standpoint. Certainly, we do believe we are managing expenses well and certainly making investments, but as you indicated, T&E expenses and other things have not exactly returned, but we do see that coming back into a more steady state, so the 3% to 4% would be a good number in my mind.

Got it. Then in terms of asset management, retail flows were very good in the U.S. but EMEA flows continue to be a little bit weak. You talked about seeing some improvement since the second quarter. Can you just talk about what you’re seeing in that market and what you can do to drive better flows, and then what do you expect the flows in EMEA will look like once the BMO acquisition is closed?

This is Jim. If we look at the wholesale flows in EMEA, they have actually been positive and maintaining a bit more positive over the course of the year. The U.K. was the area that, even though it has improved, was still in a bit of an outflow, but it did improve over the last two quarters. As you would imagine, the U.K. went through a bit more of a lockdown in the summer months, and they are still working through some of their issues regarding Brexit, just completing how that looks and how people should think about investing. But we actually see that with the economy starting to bounce back, and the pandemic becoming less impactful, we should start to see a bit more pick-up there, but that was the weak spot in EMEA. Overall, it did improve over the course of the year. Now on the institutional side, we’ve seen good inflows in EMEA and in certain mandates, as well as in the U.K. where we’ve secured a big mandate as well, so we see the institutional side being a little firmer in that regard versus the wholesale or intermediate at this point.

That’s great. Thank you for the answers.

Hey, good morning guys. Thanks for the question. I want to go back to the discussion around the retirement business. Obviously, you guys provided more details and tried to showcase the quality of the business. Should we read that as reaffirmation of your commitment to the business, or the fact that it’s actually a great business and might belong better with somebody else? As a threshold for us to think about, you highlight plus-30% ROE over three years in that business. How should we think of that as a metric for us to think about, like what you’d need to see to part with that business?

Alex, it’s an excellent question, and we figured that by giving you more information, someone would read something into it different than someone else, so let me clarify that. We’ve seen the transactions, as Walter said, coming out to market, and people starting to realize that our book is a bit better than what they’ve seen out there, and very clearly we think it is significantly better. In that regard, the business is less than 20% of our total today. It is very well managed. It generates very strong returns and cash flows. The first thing I would convey to you as an investor and as an analyst is that it does not detract from our business. It provides a level of diversity, it actually gives us strong cash flows that we use for buybacks as a complement to free cash flows we generate in the other businesses, so it doesn’t in any way have a draw on capital, and it has been very steady and consistent with excellent returns on the overall capital that’s deployed there. One thing we would bring to highlight is as we hold the business, it should not be a discount or an overhang on us, is the first thing. The second thing we would clearly state, just like we’ve sold the auto and home, we’re reinsured part of the book, we’ve diverted our sales from activities that don’t give us really good strong returns. We’re very open to continue to explore strategic opportunities with the book, either reinsurance of aspects or even the sale of certain businesses or total, but as long as it makes sense from a strategic perspective, supports our clients, and we can generate reasonable value for that. We think it’s a good operating business, it’s really a great client-oriented business, and it has great distribution capabilities as part of our solution set, so it might be a great opportunity strategically for us to evaluate. But we wanted to be clear that this is not a discounted book that we must get rid of for whatever reason, because it doesn’t detract from us. In fact, it shouldn’t be a discount to the business today as we hold it, but if someone was or we evaluated strategically, it made sense, I would tell you it’s a valued business that should be priced accordingly.

Got it, all right, loud and clear. Thanks for that. My follow-up is around the asset management business. We saw that Columbia’s dividend income fund, I think had a soft close in the third quarter. This has been a really big contributor to the overall organic growth within asset management. Can you just spend maybe a minute on what the soft close really means in this context, if you were to go back over the last 12 months and say, hey, if the product was closed back then, any kind of way to frame how much of a flow headwind this could create, but also in the same context, maybe spend a minute on how the business may have been diversified a little bit more, so to what extent should we really worry about this product soft closing?

Yes, I would not worry about it. We’ve been in a soft close over the course of the year, and what that really means is we still take additions to accounts that are already there, retail and institutional, which still allows for good flow; it’s just that we don’t go out and sell to new clients to add new mandates to it. Since we have a really good book with the amount of incremental flows that come in from that book anyway, it continuously remains nice and accretive. On the other side, to the point that you raised, we have been able to really diversify our mix, and over the course of the year, we have more than 10 different disciplines that are adding over a billion dollars of flows each, so we feel good about the diversification and what may still be in income products if that’s where people are interested, versus our fixed income business that’s also growing nicely with different types of investments there, as well as some of the other equity products that have also been gaining traction. We feel like our line-up is pretty diversified now, and each product we offer actually has excellent performance.

Thank you very much.

Hi, good morning. Thanks for taking my questions. Really encouraging and great to see the good fundamentals in AUM and the tick up there in FA headcount this year. I guess it seemed like from your comments that you think the growth is sustainable, so just would like to confirm that that’s your view; but also, could you maybe give some additional perspective on your approach to recruiting? Where do you think you might stand versus your primary competitors in the marketplace in terms of the competitiveness of packages, and is there maybe a willingness to step up if you guys are conservative, maybe approach the market a bit more so you could drive a bit more of that headcount growth?

Yes, so we feel very good about the continuation of our ability to obtain good flows in the business and have good client activity and relationships, both on the client side as well as in the advisor uptake of our capabilities. The same thing goes for recruiting - I think we really do have a strong value proposition to offer advisors. The biggest thing that we try to do is educate advisors versus what people are selling out there regarding what we offer more completely and comprehensively, and we think it is very differentiated. It really helps an advisor improve their productivity and drive a strong practice. So that’s what we focus on. Now, part of that involves the package, financials for someone to transition, etc. We think that we offer competitive packages there. We don’t become overly aggressive like some that will sort of buy the business per se. We look at the economics of that and want to make sure that it is reasonable and appropriate through cycles. But we feel that the offering is competitive, and when you add that to the totality of what we provide and the support, we think it’s excellent value. That’s our approach in the marketplace, and we feel good about that.

Excellent, thank you for that. Then following up on some of Steven’s questions around the growth in the bank, curious - you know, clearly the bank saw a nice uptick in yields here this quarter, and that’s really probably before you even saw some benefit from rates given how it happened late in the quarter, so clearly an attractive economic proposition. How do you think about the possibility to perhaps accelerate the deposit growth in the bank, and when we think about this ultimately as a strategic driver of better economics in AUM, how do you think about where the bank would break down as far as proportion or mix of the deposits? I would think it should be the majority, but how are you thinking about it over these next few years?

I would say we actually re-entered the banking business because we felt, consistent with what you said, that it was a good strategic opportunity for us to complement our business in the marketplace. Clearly, we have some experience going back on that, and we grew the business nicely at that point in time. As you recollect, the bank is kind of new right now, so we’re just ramping up. We’re putting the products to market, etc., and we think that we have good growth trajectory moving more deposits over. We believe the margins in that business could be really good. It’s been a compressed spread market right now that’s starting to open up a bit as we get down the road, which I think will be favorable for us. We’re launching more lending products in the bank, and adding more deposit-gathering products in the bank as well for our retail clients. Having said that, it will take time to develop those books, but we see really good traction in what we’ve already launched. We’ll be bringing more lending activities back on the balance sheet over time for mortgages and home equities and other things like that, so we do have our plans going out and I think it will be a great complement to the business.

Sure, but is there any idea or aspiration or indication around proportional size of the bank versus other options for deposits?

Well, I think from a movement of off-balance sheet to balance sheet, that will become the majority of where the deposits go, so exactly to your point, yes. As far as the lending penetration goes, again as we’ve increased the number of different products we put out there that we’re going to penetrate, that’s what we’re working on now, but we feel we can achieve good penetration based on our past experience with what we work on with partners.

Sounds great. Thanks so much for the color.

Can you talk maybe about some of the flow synergies for the BMO EMEA asset management transaction and the backdrop of strong flows for Columbia Threadneedle, maybe the opportunity in the U.S. that the transaction provides?

Yes, we’ll hopefully be able to close this in short order over the next few weeks. We’re just waiting for one more regulatory approval. Once we have that on the books, we can start to give you more information on it. As you would imagine, with privacy and other things in the European market, that it’s been one that we can’t really get into or even know some of the lines, but from the actual sales activity that they’ve been garnering over the last number of quarters, even though this transaction was done, has been very positive and favorable, so they’ve had nice inflows, and that bodes well for us to assume the business. We think that can continue. We like a lot of their capabilities that we’re already thinking about how we would integrate them not just across our European business but actually into the U.S. From a U.S. perspective, we think that a number of their U.S. assets are going to transfer over to us. We’ve been working - it’s a client-by-client approval in activities, but that looks very favorable, and we’ll be able to provide more information as we get closer to the end of the year.

Great, thanks.

Hey, good morning. Maybe just staying on the BMO EMEA transaction, I think it’s a $700 million-plus layout of capital. Do you have an appetite to do any more transactions, and where might that be?

We absolutely want to focus right now on the international market of closing and integrating in the BMO transaction. We have good plans to do that and leverage that capability, working with the people there. We think they add good complementary investment processes, people, and capabilities, and that’s our first order of business. Having said that, as we have said, we have capital flexibility if something else comes along that would be complementary and fit, we would definitely look to explore it. That being said, we’re not out searching for something to do right now, but you never know when opportunities may arise. But if we’re looking at the European part of that equation, we’re really focused on that integration.

I see, and if something were to come your way, any particular areas of note that you would strongly consider?

Again, what we’re continuing to do is look at what could be complementary in either distribution or product capability. Some of this may be alternative space or solutions, but again we feel like we’ve got a pretty good make-up, and what BMO actually provides is a complement to the areas that we wanted to further invest in, so that’s why, again, it would have to be really opportunistic rather than we’re in need of something right now.

Got it. Maybe I missed this in the EMEA conversations, but you talked about flows exceeding your expectations, which is quite promising, but at some point, there would have to be some breakage. Could you give us a sense of how much breakage we might expect over the next year or two in the BMO EMEA operations?

Well, as you would imagine, anytime we enter into a transaction or deal, we factor in a level of breakage, etc., and still feel very good about the arrangement that we’ve made and adding it to our equation. That being said, we feel like from what we know today, that looks less negative and more positive than what we always initially assume. However, it’s early stages. What’s important is that this will be complementary to us. We’re not integrating and consolidating investment processes and people; we’re adding them, we’re keeping them in place to really support clients the way they’ve been supported, and adding those processes and investment professionals to our capability. We feel very positive at this stage, and as we get further into it, we’ll always provide you that color.

Got it, thanks.

Hi, good morning. Given the 747% RBC ratio at reverse levels right now following the fixed annuity deal, do you plan to take higher than normal dividends up to the holding company this year and work that back down to a more typical level?

The short answer is yes, obviously with the transaction on the fixed annuities that created that situation, so we will be adjusting that.

Thanks. Then just one follow-up on RiverSource. In recent quarters, you’ve talked about receiving inbound interest in RiverSource from third parties. Can you just give a little bit of an update on that, and in particular, are you receiving interest from strategic buyers or just financial buyers?

It’s been the multiple of it, and there is continuing interest certainly. As it relates to the activity in the quarter, it’s on both sides of it.

Great, thank you.

Hi, good morning. Thanks for taking my question. Just one on the asset management side. The operating margins were very strong. I’m wondering if this was simply a case of operating leverage or if there were any particular drivers you’d call out?

No, the operating leverage and the margin have been quite strong, and certainly, we’ve targeted 35% to 39%; it’s been running in the mid-40s, which is certainly a factor of the market situation, and we expect that will continue if the markets remain stable.

Got you, great. Just one follow-up, if I may. Wondering if we could just delve a little bit more into the organic growth improvement you’re seeing within the advice and wealth management side. I’m curious if you could just outline what you think were the main contributors to that increase in growth rate over the past two years, and do you think we could still see similar rate improvement going forward?

Yes, I think we feel very good about that, the growth rates and continuation. We feel a lot - don’t get me wrong, the markets are good, but we feel a lot has to do with the integrated technology and the solutions and the advice modules we’ve been putting to market, which really help the advisors engage a larger part of their client base and deepen appropriately. We’ve also added many capabilities for them in our CRM systems to reach out to even more prospects and move upmarket. We’re seeing a combination of factors that are adding to that total flow picture, but the important part is the level of client and advisor engagement, and we think that has given us that level of uplift.

Great, very helpful. Thanks again.

Good morning. Just a follow-up on potential risk transfer. From what we’re seeing and hearing, it looks like pretty attractive pricing on what’s the majority of your business, which would be variable annuities and life insurance but less so. You know, we hear the market for long-term care transactions is pretty challenged, and obviously, you haven’t had a deal on that market for quite some time. Is one option for you to retain long-term care and sell the rest of your business, and if so, would that be a tough deal to structure or is that doable?

There are a lot of options coming in, as we talked about. You’re correct - LTC is certainly evolving at a slower pace than the others, but the good thing about it is the strength of what we believe is our position with that business, so yes, we could structure something of that nature, but right now, I don’t want to get into speculation. But the good thing about it is it's performing the way we thought it would, and we feel comfortable with it.

Thanks for that, Walter. Then just a follow-up, the one - I kind of agree with everything you have on your slide in terms of the, we’ll say, the positive attributes of your business relative to some of the other businesses that have been sold. Probably the most unique aspect is your distribution, and I think the generally better margins and lower risk. Do you think if something does evolve here you would get paid something in addition for that distribution, and if so, is there any way to think about that?

Tom, again you’re right on point - I mean, we actually have one of the best channels if you want to sell a longer-term solution, and the capability there is there for someone who really wants to continue to be in the business in a good way. Based on the type of offering, our clients look for reasonable and appropriate benefits, reasonable and appropriate pricing, and consistency of delivery, so yes, it would be a strong asset for someone, if they’re in this business, to utilize our channel.

Okay, thanks Jim.

Hi, thank you. Just one more follow-up on RPS. I think in the slide, you highlight the very strong cash flow from this block, which has been over 100% of GAAP earnings, so a lot higher than peers. I was just wondering what’s allowing you to generate this level of cash flow, and is this a sustainable level moving forward if you hold sales and flows roughly stable?

It is, and certainly we feel as you look at where we’ve been maintaining our RBC ratio, it is certainly the quality of the book and the cash flows within them, so we feel very confident with the capital requirements from a statistical standpoint; this is a sustainable proposition. Obviously, there have been ins and outs related to other aspects, such as auto and home and everything of that nature, but on a regular steady-state basis, yes, it’s in range.

Got it, so you think of it as sort of 100% free cash flow conversion ex-the reinsurance deals that you’ve done in the past?

In a range, yes.