Ameriprise Financial Inc (AMP) — Q1 2022 Earnings Call Transcript

Thank you, Sylvia 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 would be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on slide two, 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. 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 first quarter 2022 earnings release, our 2021 Annual Report to shareholders and our 2021 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On slide three, you see our GAAP financial results at the top of the page for the first quarter. Below that, you'll see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim.

Good morning, and thanks for joining our first quarter call. I'll begin by sharing that Ameriprise delivered another good quarter and a solid start to the year. As you've seen, the economic environment remains strong, but the global equity markets are more volatile, both given the impacts of the Russian invasion of Ukraine and the higher inflation that we're experiencing here in the United States, as well as globally. In fact, the Bloomberg US aggregate experienced its largest single quarterly loss in over 40 years. In this climate, the Fed has finally begun to raise short-term rates, which is appropriate. They've been slow to take action and signaling that they'll have to get more aggressive. Before I discuss the quarter, I'd like to acknowledge the horrific situation in Ukraine. Ameriprise vehemently condemns the atrocities being committed by Russia and our thoughts are with the Ukrainian people and all who have been affected. Our focus has been on supporting humanitarian relief. I should note, we don't have staff or conduct business in Ukraine or Russia and our direct exposure is extremely limited. Let's move to the first quarter results. We're in a very good position to kick off the year, and we've been able to execute very well during this volatile time. Client activity remained very strong. We continue to generate good results. We're investing for growth and executing our plans and serving clients really well. And that resulted in good asset growth and strong financial performance. Total assets under management administration were up 17%. Revenues were up double-digits, earnings per share was up 10%, and ROE is terrific at 49.9%. All in, strong results in a challenging market environment. Let me now turn to Advice & Wealth Management. We delivered another strong quarter. With the volatility picking up, it's important for us to be engaged with our clients and advisors. They are leveraging the tools and solutions that we invested in over the last number of years that we told you about. We had strong activity in flows in the quarter and good client acquisition, particularly in our 500,000 plus market. I know that our advisors have been doing a level of reallocation and rebalancing that's appropriate in clients' portfolios. And in fact, we saw good flows coming in and cash balances have picked up, which is appropriate at this point. So let me give you some of the numbers. Total client assets were up 8% to $823 billion. Client inflows were strong, up 12% to $10.4 billion. Wrap net inflows of $8.7 billion were strong in a more volatile environment. And even though they are a bit lower than a year ago, clients are holding more cash. As you would imagine, transactional activity was impacted a bit, but it's only down 6%. As markets stabilize, we expect to see more cash going back to work. High cash balances present a significant revenue opportunity for us as we move through 2022 and beyond. In total, cash balances increased to nearly $46 billion of more than $5 billion from a year ago. And as the Fed continues to raise short-term rates, we expect to see a meaningful lift in earnings. With this backdrop, our advisor productivity growth reached another new high of 18%, which is terrific. With regard to recruiting, we continue to demonstrate the attractiveness of our adviser value proposition with another 80 experienced advisors joining us in the quarter. The pipeline continues to look good. And in our surveys of advisers who have joined us, over nine out of ten advisers have said they have better technology, financial planning capabilities and ability to acquire clients more easily than they did at their prior firms. One of the things I'm proud of is how we consistently work with our clients and our strong client satisfaction. It's great to see that Newsweek has named us one of America's most trusted companies. That complements our Investors' Business Daily number one trusted Wealth Management ranking. And earlier this year, we launched a new ad campaign, Advice Worth Talking About. That's telling our story even more broadly in the marketplace. We showcased that nine out of ten of our clients are likely to recommend Ameriprise to their family or friends. And a few weeks ago, we released our money and family research on generational wealth that underscores the significant need for holistic advice in the marketplace, which plays to our strength. Turning to the bank, total assets grew to $14.2 billion in the quarter, up more than $5 billion from a year ago. We continue to have good demand for our pledge loans with balances increasing nicely in the quarter. The bank presents a significant opportunity as a long-term growth driver within Wealth Management and provides additional flexibility in this rising rate environment. To wrap up, Advice & Wealth Management, our financials are good. Pre-tax income was up 13%, and we generated a strong margin above 21%, up 80 basis points. Let's turn to Asset Management now. We, like others, have experienced the market volatility and the risk of headwinds given the geopolitical environment. It has affected us and the industry largely in retail. But overall, based on the strong progress we've been making over the last number of quarters, we saw good growth in assets up 24%. Our long-term investment performance continues to show good consistency with our three, five and ten year time periods, and over 80% of our funds were above median on an asset-weighted basis. Our one year performance did slip a bit based on the volatility out there and the rotation from growth to value given our quality growth positioning in certain equity funds, especially in Europe. But our investment teams feel good about their positioning as they manage through a tough market environment. Let's turn to flows, where we were out about $700 million in the first quarter, reflecting the pressure you've seen in the industry. In retail, we were at $1.9 billion. In terms of US retail, our gross sales slowed and we saw a pickup in redemptions similar to the industry. Our flow rate was slightly better in terms of active peers in equities and slightly worse in fixed income. We haven't really played in a large way in the short duration market or the leveraged loan area. However, we benefited from the remaining piece of the US asset transfer that was part of our BMO transaction and which is largely included in our retail numbers this quarter. In EMEA, retail net outflows improved a bit in the UK. However, they worsened in Continental Europe given the risk-off environment. Gross flows have certainly slowed for the industry and we're seeing similar pressure. Yes, retail flows are a bit challenged, but we have a strong lineup of funds and good engagement with distribution partners, advisers and gatekeepers. When the market starts to stabilize, we'll be in a good position. Turning to global institutional, excluding legacy insurance partners, net inflows were $1.9 billion as investors look through the current volatility. We had some good wins but there were some asset allocation calls as you expect, and we experienced some redemptions. We've added to a number of our rated strategies and similar to retail, we're having good engagement with clients and prospects globally. Our investment performance is key to this and it's being recognized. We did well in recent Barron's rankings, and five Columbus strategies earned 2022 US Refinitiv Lipper Fund Awards with four as repeat winners. With regard to BMO EMEA integration, we're on track. The combined senior management team is in place and we announced that we will rebrand the BMO Global Asset Management EMEA business to Columbia Threadneedle Investments in July. So, for Asset Management, we're focused on our clients, executing our plans and generating good financials and returns for Ameriprise. Pre-tax operating earnings were up 25% and margins were above 40%, and that's with the full quarter of BMO in the numbers. Moving to Retirement & Protection Solutions, we're seeing good results. I'll start with variable annuities. I want to mention again that we discontinued products with living benefit riders at year end. We had some sales in the pipeline that came in, in January, but that tapered off as we moved through the quarter. Given the environment, we had good sales in our RAVA product without living benefits as well as our structured products. Overall, our sales were down 27%, but that should be expected given the volatility and a move away from living benefit guarantees. In protection, we continue to have strong sales in the quarter coming off a positive year. We're seeing good activity. Our life sales were up 22%. We've been focused on our VUL and DI products, which are good-margin and return businesses for us and appropriate for clients in this environment. In terms of earnings, we are 4% in line with our expectations. Financial results and free cash flow were good, particularly given the volatility and our move away from living benefits. So overall, for Ameriprise, in terms of our capital positioning, we feel really good about continuing to give back to shareholders at an attractive rate. We returned $562 million in the quarter, which is substantial. And with that, we raised our dividend by 11%, our 18th increase since becoming a public company in 2005. So overall, as I began our conversation, I think Ameriprise delivered another good quarter. Even with this changing landscape, I believe we are situated very well. Our advice value proposition and high-quality solutions are necessary and key in this environment. And with that, we feel very well positioned to satisfy our client objectives. In looking over the past cycles, we have consistently performed well, especially during volatile periods. I'm confident that this will continue based on our strategic investments, our focus on execution and serving clients holistically in our balance sheet strength. Now, Walter will review the numbers in more detail, and then we'll take your questions.

Thank you, Jim. Ameriprise delivered strong financial results across the firm with adjusted operating EPS up 10% to $5.98. Despite significant market uncertainty in the quarter, our core Wealth and Asset Management businesses delivered strong profitable growth representing nearly 80% of Ameriprise's earnings in the quarter. In the quarter, these businesses demonstrated the strength of the underlying business model and ongoing execution of our growth strategies. And our Retirement & Protection Solutions business continues to perform well with a differentiated risk profile. Our balance sheet fundamentals are excellent with significant excess capital of $1.9 billion. This allows Ameriprise to consistently return substantial capital to shareholders as we plan to return approximately 90% of adjusted operating earnings to shareholders in 2022. Let's turn to slide six, where you can see that we continue to generate strong growth in both earnings and profitability and our growth businesses of Wealth and Asset Management. Revenues in these businesses grew 13% to $3.1 billion with pre-tax operating earnings of $725 million, up 18%. This drove a blended margin of 26.6%, up 80 basis points from a year ago. Let's turn to the individual segment performance beginning with Wealth Management on slide seven. These strategies we have in place to support advisers and improve their productivity, using best-in-class tools and technology continue to generate strong organic results. Despite the challenging macro environment, we generated very strong client flows of $10.4 billion in the quarter. Client assets grew 8% to $823 billion and our advisor force continues to deliver exceptional productivity growth with revenue per advisor reaching $810,000 in the quarter, up 18% from the prior year. On slide eight, you can see that our business fundamentals are fueling continued strong financial results and wealth management. Adjusted operating net revenues grew 9% to $2 billion from robust client flows, which were supplemented by year-over-year market growth. However, transactional activity declined a bit given the uncertain market environment in the quarter. In the face of volatile markets, we saw cash balances increased to nearly $46 billion, which is counter to the typical seasonal pattern where cash balances generally dip in the first quarter. High cash balances should provide a substantial and immediate benefit based upon the Fed's anticipated increase in short rates for the remainder of 2022. Based upon the market's expectation of 350 basis point increase, followed by 225 basis point increases in the balance of the year, we would expect an additional benefit to pretax earnings exceeding $200 million in 2022. But that is subject to change if the Fed takes different actions. This would help offset the impact if markets pull back this year. In addition, this provides flexibility for us to optimize the benefit from rising rates across off-balance sheet brokerage cash, the bank and certificates. It will enable us to invest across duration where we see attractive opportunities and capital is not a constraining factor for us. In the first quarter, we brought $1.8 billion of brokerage suite balances onto the bank balance sheet that we put to work in three and four year duration strategies earning nearly 3%. In April, rate opportunities increased to the mid to high 3% range. Expenses remain well managed. G&A expense increased 5% from higher volume-based expenses and business growth over the past year. As we move through 2022, we will continue to manage expenses in light of the revenue environment. While equity markets remain volatile, at this point, we expect a significant tailwind from rising rates to offset market-related revenue pressure. Overall, Wealth Management profitability remained strong with pre-tax adjusted operating earnings of $440 million, up 13% from last year. Pre-tax operating margin expanded 80 basis points to 21.5%. Let's turn to Asset Management on slide nine, where we maintained strong profitability despite market conditions. Total assets under management increased 24% to $699 billion, reflecting net inflows and the acquisition of BMO EMEA. In the quarter, Asset Management net outflows were $0.7 billion, including $0.7 billion of outflows from legacy insurance partners. Underlying flows were flat as continued strength in institutional offset retail outflows as we, like the industry, saw pressures from global market volatility, a risk-off investor sentiment, and geopolitical strain in EMEA. Margins in the quarter were strong at 41.5% and in line with what we indicated in the fourth quarter given the full quarter BMO impacts in our results. On slide 10, you see Asset Management continued to deliver strong financial performance. Adjusted operating revenues increased 23% to $1 billion, reflecting the cumulative benefit of net inflows and business growth, strong performance fees, and market appreciation. The fee rate in the quarter was 47 basis points, excluding performance fees. This is consistent with guidance provided in the fourth quarter regarding the addition of BMO assets, which are largely institutional. Expenses remain well managed and in line with expectations given the revenue growth. G&A expenses were up 38% as a result of two items, the BMO acquisition and higher performance compensation. Pre-tax adjusted operating earnings were $285 million, up 25%, demonstrating the underlying strength of our business growth and performance fees. Let's turn to slide 11. Retirement & Protection Solutions include blocks of business with a differentiated risk profile. The business performed well with pre-tax adjusted operating earnings of $191 million, up slightly from a year ago, given market appreciation and lower distribution expense from lower sales. Our focus remains optimizing our risk profile and shifting our business mix to lower-risk offerings. Variable universal life product sales increased over 40%, which now represent a third of total insurance imports. Variable annuity sales declined 27%, reflecting the uncertain market environment as well as our decision to exit manufacturing products with living benefit riders. Account value of living benefit riders represent only 60% of the overall book, down another 280 basis points from last year. This mix in sales and account values for both Retirement & Protection products is expected to continue. Now let's move to the balance sheet on slide 12. Our balance sheet fundamentals remain excellent. We had holding company available liquidity of $1.6 billion and excess capital of $1.9 billion at the end of the quarter. A diversified high-quality AA rated investment portfolio remains well positioned and our VA hedge effectiveness was 94% in the quarter. These strong fundamentals allow us to deliver consistent and differentiated level of capital return to shareholders. Yesterday, we announced an 11% increase in our quarterly dividend. And as I mentioned, we remain on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022. With that, we'll take your questions.

Good morning. Thanks for taking my question. Walter, you indicated $200 million pre-tax earnings benefit from higher rates in Wealth Management. Is that your expectation versus the 1Q run rate or would that be versus where I think we were on the January call when the forward curve was less hawkish? And that’s 2022 impact, right, so given the timing of the hikes, we would see greater impact in 2023, is that fair?

Yeah. It really is more an indication of what the Fed has recently announced as it relates to the short end with the 350 increases they talked about in the 225 and seeing the benefit in this year. And you're right. You would then get the calendarization full impact as you get into 2023. We also benefited as we're seeing it now because in the quarter, we see substantial increase in the spreads for the long end. So, we will pick that up as we start shifting money from off-balance sheet to on-balance sheet. So I think it's going to be a combination of both will allow us to garner that additional profitability. But again, these are estimates based on a lot of variables.

Sure. Thanks for that. And then, my second question is quite on new product for you and might be on a different trajectory. But there have been some concerns across the industry about what rising rates might do for demand for those products. So, what are you hearing from your advisors as short-term rates are likely to rise? And how are those efforts to educate your advisors on the merits of the offering going?

Yeah. So far, we're seeing a continued demand for our pledge activity, margin activity, so we have not seen any negative impact. And certainly, our advisors are very knowledgeable about the trade-off of the BM total average and used that capability to invest in the market. But so far, we have not seen. We've seen good growth coming in from pledge and from margin.

Great. Thanks for taking my questions.

Hi. Thank you. Given the weaker market performance year-to-date and the turn in asset flows, do you believe sustaining an asset management margin in the low 40% range is still achievable?

Well, obviously, it will affect our range is, as we have always talked about, 35% to 39%, and we said we were getting the benefit of the higher market appreciation. So you would imagine if the markets where you trade continue to go down, it will go down. Again, we have ways to go to still stay within our ranges that we talked about.

Got it. And I think you noted in the slides that the BMO acquisition is performing above expectations. Can you just provide some more color on this? Where has the performance been better? And has anything changed in terms of your expectations around earnings accretion?

Okay. So it's on multiple fronts. Obviously, they have garnered some very good inflows in this environment. As we talked about, we've had institutional inflows coming in, which would have been very good in LDI and other areas, and we've also had the US transfer come in, which has been very strong. The profitability has been totally on target actually a little better than we anticipated. As we look at the elements of the performance fees that came in, that was certainly strong profitability coming from private equity and property. So, it is performing well. And then as we're looking through integration, we have our plans set, and we're moving through that and certainly working through our strategy to get our synergies. So we're feeling very comfortable about the acquisition at this stage.

Thank you. And was this the last quarter you'd expect the US transfers to come in? Or are there anymore that we should expect going forward?

This is basically it. We believe.

Hi. Good morning. So, I wanted to start off with a question just on the recruiting outlook. Some of your peers had indicated earlier in the quarter a pretty dramatic impact given some of the elevated volatility, particularly in January and February. But the 5% organic growth and the net advisor adds you delivered in the quarter, admittedly were more resilient than we were anticipating. I was hoping you could just speak to some of the factors that drove more resilient organic growth trends over the course of the quarter? And maybe just your thoughts on a longer-term basis, you're confident in sustaining 5% plus organic growth, given some of the strong recruitment trends that we saw.

Okay. So I think you had sort of two parts in that. One is around the recruiting and then around the organic growth just from flows. At the beginning of the quarter, it was always a little difficult to start the year based on what we've seen as some of the volatility that occurred in January. And then we were able to really pick that up as we got through the quarter, and we had 80 good quality people come join us. Our pipeline still looks pretty good as we continue to move forward. I mean there's been a greater level of volatility as you saw in the month of April. But I think that we're having good conversations with people. They understand the value of what we can provide them and the type of support that we provide for people who have joined us. Regarding the organic flow activity, in general, as you would imagine, when you have a pickup of volatility, and you have a little more unknown, you have a little bit holding on cash, not necessarily going to work or the idea that people want to put a lot more money in the market if it's going to sort of fall the next day. But our overall client activity has held up, the engagement is good. I just think the volatility will always cause a little bit of a slowdown in how people are thinking about it. I'm not sure how you're thinking about it, whether you're putting a lot of money to work right now if you have a little bit more of the unknown. But I do believe that since the engagement is strong, the conversations are good and the client relationships are good, and we're actually gaining more client relationships that those flows will be there over time, whether there's a little slowdown because of this period of the unknown is the usual occurrence. So we feel good. Our assets stay with us. I think people are seeking the advice that we provide. And it's just more of what happens in a particular month or quarter or week. But I think you see that, that we can sustain.

That's great color. And just for my follow-up on the brokerage cash we extend to the bank. Was hoping you could just help frame what level of we should be modeling over the course of the year as you continue to scale the bank, given that high 3% reinvestment yield assumption you had alluded to earlier. And as we think about just the pace of Fed tightening, what expectation should we be underwriting just for both deposit betas and cash sorting or yield-seeking behavior as we get deeper into the tightening cycle based on your historical experience?

All right. So from a bank standpoint, we've already moved from our balance sheet on balance sheet, about $1.8 billion. We are evaluating. We have a range where we can get into $4 billion to $5 billion that we think would be applicable here that we would start evaluating that trade because the giving us that opportunity to balance - to pick up our yield from that standpoint. And so that is something that you should expect that we will be targeting to do in 2022. As you indicated, the yields are up and certainly those yields have low-risk profiles as we've continued to manage that. So it would give us a good balance between the increase in short-term and picking up the spread with low-risk and low duration, because we will stay in the 2.5% to 3.5% range on the duration. And that's the sweet spot that's working out very well for us.

And with regards to this data and yield-seeking behavior or with the expectation for the level of cash balances as we get deeper into the tightening cycle.

Yeah. If you're looking from our standpoint with the off-balance sheet cash and the stability of that, it is quite good. It is, again, more working capital and certainly, it's built up over the years, but this is something we feel very comfortable with the amount that I mentioned that we can shift that gives us more than enough liquidity about to manage that.

Great. Thanks so much for taking my questions.

Hey, good morning. Just following up on that bank question, Walter, you just mentioned a $4 billion to $5 billion trade-off, and as I'm looking at these bank assets or deposits going from $8 billion last year to $13.2 billion this year. And as you mentioned, it's up just $1.8 billion in the quarter alone. And you said the $4 billion to $5 billion trade-off. Are you indicating that there's a good possibility over the course of the year, you could add another $4 billion to $5 billion?

Yeah. So, if you're taking your number, $13 billion, with a $4 billion to $5 billion, you can go to the upper range of $18 billion.

That's great. And in terms of recruiting, you were touching on that a bit earlier too, Jim. And it is a tight labor market. So could you touch on what you're seeing in terms of bringing in new advisors de novo? Is that a big initiative at this stage in the game? And just given this environment, is there comfort in gaining advisors from other firms?

We have continued to recruit office advisors, assistants, and franchisees, helping to develop them within our franchise systems just as we do with our employees, and we will keep this going. While it hasn’t been a major focus of our efforts, it nicely complements our activities, and we are seeing some strong talent join us as a result. Regarding the experience aspect, our value proposition remains robust. As I mentioned earlier, the advisors who have joined us are very satisfied with what we offer, significantly more so than what they experienced at their previous firms, whether wire houses or independent firms. We are sharing this story in the marketplace. It’s not just about compensation; it's about the opportunity for individuals to establish themselves here, grow, and build a productive practice with a quality focus. We are not just aiming to increase our numbers; we are selectively bringing in individuals who want to manage a successful franchise or be high-performing employees within our system, with all the support we can provide. We feel optimistic about this approach.

So amidst all this economic noise, you can likely continue to grow that channel?

Yes, yes.

Thank you very much. There's been some thought that energy issues in Europe may increase demand and interest in ESG investing. I know BMO had a large ESG product portfolio. Can you maybe talk about how demand for that product has been versus others broadly and maybe specifically in Europe? Thank you.

Yeah. So part of the BMO acquisition was actually heading to our capabilities in responsible investing. And their portfolios are doing well. They are garnering good flows where it's been a little softer in other areas in Europe. And very clearly, it's one of the areas that we're working on to leverage more holistically across our international franchise, but even so in the United States. And so, we feel good that that's part of what we confer the leverage in the environment that we're continuing to move into as demand also picks up in that area. I think energy is one part of that, but there is - the ESG part of it, and that's an important part of overall responsible investing.

Okay, great. And then my follow-up question. Given the market volatility, can you maybe talk about asset management timeline for unfunded to funded, how that's fitting versus maybe three to six months ago? Thank you.

Yeah. So on the institutional side of the business, as you would imagine, there is always a little bit of a trying to recognize what's happening in the market and how funds need to be reallocated or even where you have won something. It sometimes takes a little longer just based on the market conditions to fund. I haven't necessarily seen a further extension in that regard. Things have been funding. I wouldn't say they quickened at all, but I wouldn't say they've extended themselves. I think there's always certain portfolios as you have a backup in the fixed income market or you have some reallocation in some parts of the equity segments. But I think it's been running consistently for where it was over the last six months.

Thank you.

Good morning. The drop in insurance and annuity distribution fees, it sounds like some level of that is going to be sustained at a lower level, given you're exiting the guaranteed VA product sales. Any color you can give there on what percentage of the move there of the downward move you think might remain depressed versus potentially getting some recovery on the other pieces?

I can't really give you a percentage, but certainly exiting the living benefits, we'll certainly eliminate that aspect of, but we are seeing strength in the SDA product. So I can't really give you the exact proportionality on them.

Yeah. And Tom, I think in the first quarter, I think you'll see across the industry a bit more slowing in annuity activity because of the volatility. So part of that is part of it. And then part of it was the guarantees versus the pickup in the non-guarantee activity. But we feel very comfortable with that, and we think it's the right trade-off for us as we continue to move forward. But we also - there will be some expense savings as well from not booking some of the new business. So overall, we feel very good about that move and the total balance of what we think that we can continue to garner there.

Got you. Any color you can give on just the overall outlook for flows between institutional and retail on the asset management side, not to overreact, but there was definitely a pretty sharp drop in one-year performance. If you look at the statistics there, which I would imagine probably won't have a big near-term impact. But any color between the two pieces of the business in terms of where you think flows are going? Should we expect overall then to remain depressed here for a while?

The one-year performance has been more about recent trends, which haven’t significantly impacted our flow situation. It's evident across the industry that we may see some increase in redemptions as investors reconsider their positions, especially in fixed income, where there's been a notable withdrawal from certain sectors, including municipal bonds. Additionally, there has been a slowdown in investments in growth stocks due to their recent pullback. This trend is to be expected, and as more reports come in, it will become clearer, as reflected in the SIMS data. Our flow levels are in line with industry trends; we outperformed in equities by 1% but underperformed in fixed income by the same margin. This divergence aligns with industry patterns. Regarding performance, there are three points to note: Firstly, in Europe, we have a blend of growth and value strategies, and we lean more towards growth, leading to slight underperformance compared to our benchmark. Our institutional and retail clients are generally aware of this. Secondly, one of our significant US funds, while not performing poorly, has dropped slightly, affecting our US equities. Lastly, the bond market's pullback has caused some dislocation in fixed income, with minor fluctuations impacting results. However, we maintain confidence in the quality of our portfolios and believe they will recover. We don’t see any major shifts, and when evaluating a single quarter against longer-term performance, the impact is minimal. Institutional clients, in particular, have a better grasp of the underlying portfolio dynamics, which is crucial.

That's helpful color, Jim. If I could just slip in one last question. Just on risk transfer, interest rates have gone way up, which presumably would help the pricing on potential risk transfer of life annuity, long-term care. Any update you can give on either the broader potential evaluation of that and also as it relates to interest rates, whether you think that would be a step in the right direction as you think about doing something down the road? And also maybe a little bit on timing, if this is several quarters out likely development? Thanks.

Yeah. So let me take a shot maybe a clearly, the interest rate environment improves as you look at long-term care and other aspects of that. And as it relates to risk transfer, there's clearly, in our opinion, a more active interest in these sort of products, and you're seeing that. So yeah, those two aspects combined to certainly have a higher profile for people looking at books of that nature. These are long, complicated transactions. Again, you've seen it with many of the things that have been now how long they have taken. So I'm going to put a time frame on them. Like I said, we're starting off in a very good position. We have great products, and we just - with people expressing interest, we basically evaluate from that standpoint. So, it's - but the environment is certainly beneficial at this stage.

Okay. Thanks.

Hey, guys. Good morning. Thanks for the question. I was hoping to dig into a little more into the AWM brokerage cash and sort of the dynamics that are likely to see here with higher interest rates. So, the topic of sort of cash sorting and the ability to retain customer cash is definitely top of mind for investors. You guys are kind of bouncing around pretty close to historical lows in terms of percentage of client assets as cash. As you think forward and presumably, there will be some surge for yield as better kind of higher-yielding options become available to investors. How are you thinking about the ability to retain this cash? Is there a way to frame kind of the absolute downside in terms of percentage of client assets that could remain within the AMP channel, whether it's the bank or the broker suite? Just trying to get a sense for kind of holistic cash balances.

So Alex, I think what I would say is over the years, our total asset levels have gone up. And so to your point, our cash levels have risen in consistency with that. I think what I would say, if I even look at over the course of the year or from the first quarter, et cetera, we're up a few billion dollars as we sort of usually what you have is a little more of a drawdown in the first quarter as more money goes back into work from the end of the year and stuff. And what we've seen is a little more of a pickup. So, I would probably say to the effect if people will put some more money back into the bond market or whatever or keep a little less cash on hold. But I don’t see it materially going down because we didn’t really increase it as far as positional cash that much in that sense. I think to your point, it’s maintained as a percentage of total assets. Our advisors have been very good about the rebalancing of portfolios and keeping that money active. But I would say, yeah, it's gone up a few billion dollars from where I would probably normally think it would be at this juncture. But I don't see it falling dramatically from there because to Walter's point, it's positional, it's transactional. It's keeping some emergency cash levels that we think are important from a client perspective to have.

Got it. And then in terms of the different buckets, I was hoping to dig into the banks we've channel a little bit more. You guys have obviously been moving more cash into your own bank as deposits. But you remain a pretty significant player in that market and the bank sweep kind of broker suite market. The demand from other banks has been pretty weak, obviously, for the last year or plus. Are you starting to see any improvement in sort of brokerage demand from other banks as liquidity potentially becomes diminished a bit over the next few quarters? Are you starting to see any discussion on pricing? It feels like right now, it's kind of Fed funds flattish, no spread on top of that. Could we start to think some of that pricing dynamic improve over the next year or so?

It's Walter. I haven't seen much change in the demand characteristics. It's working its way through and we've seen a little basically discussions on price, but not much.

Great. Thanks so much.

Thanks. Good morning. Just wanted to start on capital return, you're talking about the 90% of operating earnings. But given the excess capital position remains very strong, it seems like the RBC ratio is quite strong as well, and given the pullback in the stock. Just wondering how you're thinking about buybacks? And could we exceed the 90% as we think about the balance of the year?

I would say that 90% is a target we discuss, and we evaluate our options each quarter. Right now, I believe 90% is a solid benchmark. We definitely have the capacity, but we are not altering the benchmark at this time; we will just assess options as we move forward.

Yeah, Suneet, I think it's also based on what happens in the environment in the market, but we have flexibility. We've deployed that flexibility at the right times where we feel it made sense. But I think on the other side of to Walter's point, we've given you a little bit of a targeted range that we feel at this juncture up and down will still make sense. But there is opportunity for us to deploy if necessary or we want to, based on opportunities.

Got it. And then I guess on performance fees, they've been strong, I guess, the past two quarters, and I think you had mentioned some of that is related to BMO, but do you have any kind of line of sight on what you'd expect from performance fees sort of in the balance of the year? Or is this kind of all-in at this point?

I think one of the things I would say, and Walter could complement. So first of all, we've added the BMO business, which is an institutional business, and it does have some of its alternatives and real estate, et cetera. So if someone said, well, you have the same performance fees you had two years ago, the answer is no, we should have a larger number of performance fees, maybe not as a percentage of the total asset base. But more in total dollars because there's more products that have performance fees on them. But that's lumpy. And it's also based upon when things get accrued or when it gets liquidated, et cetera. So Walter, I don't...

No, I think it's exactly the point. We have a solid base where we do generate performance fees. And certainly, it generates earnings. We can't predict what they are certainly as you look at property or you look at private equity. And in these environments, it gets even a little more difficult to do that. But it's a solid business for us. And we just can't give you the predictability of it. But certainly, we're happy we have it.

Yeah. Got it. And then maybe just last one, just on the environment. I think in the past, when we've gone through these periods of market weakness, you guys have pulled the contingency expense lever pretty aggressively. It doesn't sound like you're doing that this cycle. And I'm just curious, is the difference here the upside that you expect from the bank, kind of that $200 million that you talked about, is that kind of what keeps you a little bit more comfortable on the expense side versus what you guys have done in the past?

What I would say, Suneet, is that while there is always potential for upside, we have not significantly increased our expense base even during the last few years of strong market performance. Some companies may have faced challenges due to higher expense growth, but that's not the case for us. For instance, Columbia Threadneedle saw relatively flat expenses year-over-year, except for the addition of BMO. Similarly, our expenses in Advice & Wealth have only risen a few percent despite the growth in that business and our investments. We’re prepared to tighten expenses if we find that market activity continues to decline, but overall, we haven’t experienced high expense growth so far. If the situation worsens, we will definitely look to reduce those expenses.

Got it. Okay, thank you.