Ameriprise Financial, Inc. (AMP) Earnings Call Transcript & Summary

So I'm Craig Siegenthaler from Bank of America. And it's my pleasure to introduce Jim Cracchiolo. Jim has been the Chairman and CEO of Ameriprise since September 2005, when the company went public via tax-free spin out, out of American Express. He first joined American Express in 1982 before holding several senior executive roles from 1998 until 2005. Jim, on behalf of all of us at Bank of America, thank you for joining us. For those of you who are new to Ameriprise, it's a large cap financial services firm that operates 3 scaled businesses, wealth management, which is about half the profits, Asset Management, its second largest business, and Asset and Wealth Management is something about 80% of the business today. And then the insurance business, which it has been limiting intentionally growth.

So let's start with the business mix shift, Jim. Can you walk us through your business mix shift strategy and how it drives growth across different market cycles?

So as Craig just mentioned, we started really as a manufacturer many years ago, the old IDS company. And over the years, we really created more of a distribution type firm in the wealth management. So when I took over, we actually had losses in the Wealth Management as a cost center to the manufacturing side, Asset Management and the insurance business. And now our largest growth engine is the wealth management business. So it's over 55% of the total of what the segment generates alone, but it generates over 85% of the revenue of the company based on other revenue we get from the manufacturing side of the company. In that regard, we have made a dramatic shift in the wealth management. We're one of the largest networks out there, over 10,000 advisers. Our core differentiation is advice and financial planning. And then with that, we try to look at holistically how we actually manage the clients' assets and handle all of their financial lifestyle needs. From that, we then manufacture as well. So the only products that we sell through third parties today globally is Columbia Threadneedle in the asset management space. And the RiverSource or what we call the retirement protection services, are just solutions that we built -- books over many, many years, decades for our clients. And so the future of the company will continue to be the tremendous growth in the wealth management side, complemented by asset management and the RiverSource of the protection product will be a smaller and smaller part of the total. With that, we feel like the combination of businesses pays a lot of dividends going through market cycles. So since we've been public, we actually, if you measure our financial shareholder return, our shareholder return across the S&P 500 was #1 since we spun off in 2005. With that, we have generated consistency in our growth of earnings and earnings per share with less volatility, higher growth -- the less volatility in the segments that we play with because of the combination of businesses that we have and the depth of relationship, we have with the clients. And so that's really the focus of the company to continue that. Of course, we would like to continue to grow the global asset manager as a complement to that, but that will be a complement rather than we're looking to that to be the only growth driver of the company.

So Jim, what strategic priorities are you focused on this year 2023?

So we're going to continue really our focus on the wealth management. We have continued to drive great productivity in that channel. Last year, we had record inflows of clients over $42 billion. We actually have very high productivity both from the adviser but also from the idea of how we look at the financial life of the client that we can generate multiple revenue streams. As a perfect example, we went back into the banking business just 2 years ago, but going on 3 years. And now the bank is paying very large dividends. We grew the bank to over $19 billion just over the last 2 years. And that's been a nice now complement to gain spread in this interest rate environment to complement the other activities in the wealth management space.

So moving on to the recruiting front. How does your value proposition resonate with advisers today? And why are you seeing them come to Ameriprise and what distinguishes Ameriprise from your competitors?

So what I would say there is we -- first of all, we're very targeted on who we want to bring on board. We want advisers that join us to have a good value proposition that can really gain from what they can do here at Ameriprise. They have more of a financial advice proposition, and we can bring more of the capabilities to bear to help them build that practice. But with that, we look for good client focus and good client satisfaction and an adviser to operate in a very appropriate fashion. Now once they do that, the complement of what we provide them, both from a leadership, a training, support, tools and capabilities, our integrated state-of-the-art technology, our digital websites and capabilities for social media. Those advisers have joined us. They actually -- through research, we go back to them, blind study. They don't know it's us coming to them. And they actually have said that 9 out of 10 of them say across the board, Ameriprise is a better, stronger value proposition than what the firm they left. And if you look at it on things like technology, it's almost 10 out of 10. So when you think about that holistically for a new adviser joining you on boarding and moving their practice and then to get rated that way, it really goes to our value proposition. And one of those is actually, how the company is perceived by the clientele. So we get rated either #1 or 2 in trust as serving clients with their best interest. And so that has been consistent over a good number of years. And that also adds to their own brand value.

Great. So let's move on to your current client cash and interest rate opportunity. So can you talk about your overall cash strategy, how it fits into your overall product offering with clients? And how this strategy is allowing you to benefit from higher interest rates?

Yes. So as we all know, clients keep a certain level of cash. You might keep a certain level in your own brokerage account, you might keep it in your own bank account for savings and checking. And so that has always been the case. There's a certain level of cash maintained, but in addition to that, you're in a market cycle that people have moved a bit more out of the market, whether they have not invested as much in the fixed income space. And so cash levels have increased a bit. So in our firm, we offer a wide selection of products to cash, some that we have on balance sheet, some off balance sheet, some to other providers that with money markets as well as brokered CDs. And so over the years, cash has grown, particularly in the last 2 years, and we have already had a level of sorting there. Now for the cash that stays with us, it's gone into 2 areas: one is into our suite, and then we do that both our balance sheet, but also now in the bank. And the other has been in our certificate business. So it's almost like you would consider a brokered CD. We have a certificate company. It's actually the oldest certificate company, only 1 left in the United States. And so we grew that. It's about $10 billion now, and there's about $19 billion in the bank. What we're going to do this year is we're going to put a wide range of deposit gathering products in the bank from a savings to a preferred account to even other CDs and types of products that we think we can garner more cash that our clients may be holding out of the banking institutions, but also if they want to go out on the position of cash curve that will have more product offerings for them to utilize rather than take it off balance sheet into a brokered CD.

So sticking with product offerings. Do you have any additional plans to grow the bank and particularly around your lending and kind of core banking products?

The answer is yes. So one of the products we launched 2.5 years ago is our pledge loan business. You might be familiar at the wire houses. That's a big business for them in complement to the margin business. And so we launched that business. It's growing nicely. We see a large opportunity for that to continue to grow. We're also going to be -- we tested out and we used to do mortgages and home equity loans before we de-bank. We're going to bring that back on the balance sheet. And so that will be launched later this year. And then we'll come up with some other lending products, lines of credits and other things that we could both do for advisers as well as for their clients.

Got it. And then on the product offering side, just one more here. Where do you see opportunities to expand your distribution and product offerings outside of the bank? Because we just focus on the bank for the last 2 questions.

Yes. So we -- so if you're looking at product offerings to our wealth management, we have now a much larger selection overall of alternative-type products, private credit, private equity, hedge funds or other alternatives non-traded REITs, et cetera, et cetera. So we're building out that, and we're actually putting it into a technology platform that will make it very easy for our advisers to both open those type of accounts and manage those accounts. And with that, very clearly, it's part of our strategy as we move further up market. So our sweet spot has been the $500,000 to the $5 million category and we will be this year really putting a bit of focus on the higher network segment that we will add to the base.

The tech platform that's linking alts to your clients, is that built internally? Or is that something using externally?

No, it's actually -- the front end of that is coming internal, and then we're looking into the various systems from the providers.

Okay. Let's move on to your capital return priorities. What is your capital return strategy today? And how should we think about how much stock Ameriprise plans to buy back each year especially in light of growth of the bank and the certificate company, which is consuming capital?

So I think if you followed us over the years that we've been public, we have a consistent buyback dividend policy that we've deployed. And so over the 17 years or so that we've been public, we have been one of the highest returners out there and that continues to be part of our philosophy. We have an ongoing perspective that we will increase our dividend nicely every year, which we have. And in addition to that, buyback has always been a nice complement. And the reason for that is we, as a firm, have generated a very good free cash flow. Some of it we freed up from as we reduce our footprint in the insurance and protection business. Some of it has been based on growth and efficiency of our earnings and how we've actually done that across our asset-light businesses. And so with that, we've been always in the neighborhood of anywhere from 80% to 110%, 120% return on capital. And so what we see going forward right now based on a combination of the environment, the mix of businesses, the growth of the bank and certificate company, we probably have targeted and we've been targeting around 90%. So right now, we're between the 80% and 90% and how we're thinking about the world. And that still gives us good flexibility on the capital side if we wanted to acquire. It gives us -- we have good ability to leverage that market if we needed to and at the same time, return very nicely in this environment to shareholders.

So you mentioned acquisitions in there, which could move things around a little bit. But how should we think about your M&A objectives and how likely is it that you would buy something over the next few years? And if you did, what would you be looking to buy?

So we are just right now sort of digesting our acquisition in Europe, which was the BMO European asset management company. And so we are now in the full-scale integration of that activity. And so right now, that's what we're working on internationally. Domestically, we haven't acquired in a while and we feel like we have a good makeup. So I don't see anything right today that we're out there looking to acquire. Opportunities come along, depending on market conditions. And if they came along that -- for something that would nice -- ideally fit, we would have an interest. But having said that, we have enough scale globally. BMO actually added some great capabilities to us on the institutional space and some of the alternative space that we're focused on growing and bringing and carrying some of those capabilities here in the United States and more integrating our ability to offer to their client base. So we feel good about where we're focused right now in this environment. But again, we have flexibility. Sometimes opportunities arise, sometimes they're not, we're not necessarily out looking to acquire, per se, but maybe some other types of things that come along that fit complementary that we would be interested in.

Jim, there's all these small cap banks, community banks out there. They have some advisers that work for them. They're running pretty inefficiently and you have an effort where you can kind of come in, take over that business and sort of white label inside the firm. Smaller effort for you guys but picking up some momentum. Can you update us on that business?

Yes. So we bought a smaller firm a number of years ago. And what we wanted to do is put that capability on our platform, leveraging our technology, our financial planning activities, how advisers operate digital capabilities or websites, et cetera. And so, we're now at a time and a frame that we're now bringing banks on board, and we're starting to bring in even larger institutions onto that platform. So we feel good about that as being another opportunity for us to both add advisers as well as to partner with local community banks and help them with their wealth management business.

Jim, thank you for that. Last question here, and then we can take some questions from the audience. But I wanted to get an update on the reinvestment opportunity. As assets are repricing, especially in the wealth management business, rates are much higher than they were a couple of years ago. How should we think about that trajectory and increasing the profitability of your client cash?

So what I would say is if you look at us today, we're able to continue to move our sweep activities to the bank. We're not at where some other institutions that have their banking business at that level. We're probably around more like 50% or so. So we could easily get that to 60% and 70% or more. We also know that part of the portfolio we invested in a year or 2 or 3 years ago is rolling off. And so we can then reinvest that at much higher spreads based on where the interest rate market is today. And in addition to that, as I said, I feel like there is an opportunity to grow the deposit base over time, in which case that could add to the amount that we have in the institution. So I feel good about where we are from a cash perspective and what that spread business will be as a complement. As you remember, our margins were over 20% with 0 interest rates. And we didn't really have the bank at that point rather than just a sweep. So to me, we have an opportunity to continue to drive productivity and ensure that we have strong margins, where margins today are probably one of the best out there.

Great. So at this time, let's take a moment and see if there's any questions in the audience. So please raise your hand, and we will get you a mic. We have one up here in the front.

From all your different adviser channels, where are you seeing the most strength with the current market backdrop? And where are you guys kind of focusing on with recruitment efforts?

So we have been attracting advisers both to our employee and our franchisee channel. And we're attracting advisers from a combination of, it could be the lawyers, it could be other regionals as well as independents. We're actually bringing back people from the independent space and RIAs because they want our value proposition and the support. So we feel good about that. And there's a nice complement going into both channels. We also see, as you mentioned, the opportunity to bring in advisers from the banking channel and community banks to put them on our platform and work with those banks. And we also have a bit of a direct channel. We call it our centralized sites that we're building out that we think we can go to market with those as well as a complement to our local adviser branches. So it's a combination of where we're seeing it. We also do bring in new recruits that we train and help build both for their own books as well as us complement the teams as assistant advisers.

Great. So one last chance, raise your hand if you have a question. So with that, I think we're out of questions. So Jim, just on behalf of everyone here at Bank of America and Merrill Lynch, just want to thank you for your time. Thank you for coming.

Thank you.