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

Good morning, everyone. Thank you for joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North American Head of Diversified Financials at BofA. And I'm pleased to introduce Ameriprise's CFO, Walter Berman. Walter is CFO and has been with Ameriprise for more than 2 decades, following a distinguished 30-year career at the company's former parent, American Express. Walter, thank you for joining us in Miami.

You're welcome.

So Ameriprise operates 3 core businesses: A wealth management franchise with over $1.1 trillion in assets under advisory; a global asset management platform with more than $700 billion in AUM and a robust insurance business. We will begin with opening remarks from Walter. So Walter, the floor is yours.

Sure. So listen, we do operate 3 businesses but I think it's more important to think of us as an integrated business model that leverages the capability between us. And that is a distinction that I think does serve us well and has served us extremely well over the time cycle of us being a public company. As we've navigated various crises and our continued growth during those crises, it's attributed to really looking at the essence of each one of these businesses and how they leverage each other and how we're able to basically provide the capabilities to our customers in a way that is seamless and efficient and effective because we have these 3 businesses and how we have shaped them over that time cycle. So on that basis, I'll certainly take questions as it looks, I think our record does stand for itself. And now I guess we're here to talk about what that's history, what's going to happen going forward what's going to happen going forward.

So I remember you've been the best-performing financial stock in the S&P 500 since the spin. Is that still the case?

Yes. Yes, from that total point. Obviously, in the shorter window, we've had our ups and downs.

I think it was 2005, right?

But cumulatively, yes.

Okay. So we've entered the fourth year of the U.S. bull market. M&A IPOs are expected to accelerate. The Fed might cut interest rates a couple of times. So as you look ahead to 2026, how sensitive is your business to future rate decline? What actions have you taken across the business to reduce that exposure? And then is a bull market and the impact across 2 of your businesses really just a big offset to that?

Okay. So obviously, if you look at the equity markets, they've been up over the last several years, on average, 14%, 15%, 16% per year. There's certainly a lot of wind at your back. When we basically went back into banking after we debanked back in 2012, we built the bank to allow us to service our clients but also to have a steady capability of earnings that will create the stability of an asset wealth manager source of using the sweep accounts. What we've done in the recent years looking at the environment is invested out where our reliance on short-term earnings has been reduced to the lowest level possible and maintaining an asset liability matching capability that you would expect from us with the asset quality. So therefore, we're at the lowest level of exposure to short-term interest rates. We anticipate this year, there will probably be 3 Fed cuts. And certainly, we have about, at this stage in off-balance sheet short-term and short-term cash inside of the bank. approximately $7 billion, which is the low point. And looking at our activity, both from paydown and maturities and the growth that we will have with the bank, that should be offset that impact to a large extent. So we feel very comfortable. We've managed through the exposure profile. We have a duration of almost 3.8 years and the earnings -- the average earning rate is around 5% what we just invested in. So there will be a combination of offsets, and we feel like we do have this at an optimal level to navigate. On the [indiscernible] side, it's a spread business. We'll manage that spread to 120 basis points, and that will be just adjusting as we look at where our investments are. So that will go up and down. That will probably stay in the same $5 billion, $6 billion range depending on where interest rates go and how we adjust. And then on off-balance sheet sweep, that's where the impact is going to be, and we'll take some hit but it's at a marginal level.

So let's focus in on the wealth management business. Can you discuss the drivers of the profitability across both your core wealth management business but also the related cash held at the bank?

Sure. Okay. So if you look -- you have to look at what are really our objective set is, and we operate under a stewardship model, and that applies to the wealth management business, the asset management business and the RPS business. And that is basically, first and foremost, is meeting clients' needs and expectations profitably, then doing that in the most efficient and effective way from a risk and operating standpoint and then having the talent of the people to be able to drive that on a horizontal across, and that's what creates shareholder value from our standpoint on a sustainable basis. So what we've had, the bank side of this is clearly an extension. It was an important element for us to serve our wealth management clients and do that in the same way we manage the business with the underlying strength and providing liability and asset products to basically serve our clients and build that. So right now, the bank has reached a point of almost $23 billion in assets. Its earnings profile, like I said, is quite good. It has a duration that's over 3.6 years, good investment characteristics and certainly meeting our liability and it's an important element as we expand the AWM profit capabilities and client capabilities. So we'll be offering basically checking accounts, HELOCs, we'll be expanding our pledged loans. All those elements are built in to provide the stability of deepening our relationship with our clients, providing the earnings. As it relates to the model within our AWM, it is built on a basis of providing a branded capability across to our advisers that really allow them to serve their clients in a personal way, looking at solution sets over multiple cycles. It is not just investment advice. It is about managing solutions that allow their clients to meet the needs, and that's what we're committed to. And that's why the products that we offer, both banking, insurance and others and asset management is a critical integral part to that success story. And that's what distinguishes us.

So Walter, in the wealth management business, how do you think about your competitive offering and what attracts advisers to your business versus peers?

Okay. So the first thing I think distinguishes is the value proposition we believe in the capability we provide. We provide advisers the ability to grow and to expand, to expand their capability to invest in their business and either help them through attracting clients by referrals building their infrastructure capability by our resources that we have in the field and the investments we make to allow them to grow and offering an integrated tool capability to allow them to service their clients in a very effective and personal way with frequent contacts as a CFO of those clients. That's what distinguishes us. And I think the stability of our operations and our effectiveness is a hallmark. You then get into the situation that is what we provide. And then you look from that standpoint, the value that's created. In this current environment with the pressures that you see as it relates to offers being made to advisers and that has been increasing. That has put some pressure on us because the advisers look at, yes, we're providing value. They're willing to pay a premium for that. But now they're looking at offers coming from other IBDs or coming from basically PE firms and they're questioning that. So that is basically -- we've relooked at our situation as it relates to recruitment and looked at the situation relating to basically retention. And we are basically changing our approaches as what we're willing to provide advisers to be competitive. And that's put some pressure on that standpoint. But we have the margin to absorb it, and we will continue to reengineer and adjust to ensure we're able to do that. So it's a matter of that value got out of sync because of basically offers that I would say are interesting from a standpoint of affordability and sustainability. But the reality is from ours, we make -- we earn in both core and in cash, and we will -- we are now adjusting our value proposition to retain and to basically attract new advisers. But again, the right of advisers is that really do want to demonstrate the value that we -- use the value we create to grow and create their terminal value and service their clients in a way that aligns with our objective set.

Walter, net new assets is a key focus from the investment community. Last quarter, you added 91 advisers, I think 336 in 2025. How should we think about the forward trajectory of advisers going forward?

Sure. So it's -- advisers are one of your key components, attracting advisers is a key component to net new assets. And obviously, from that standpoint, we have a very active program. And certainly, 91 was a demonstration that program is succeeding. You should anticipate that we are totally committed to that and certainly recognizing the change in value propositions that are out there in Transcom, we will compete, and we are committed to growth. We're committed to growth for both from the standpoint of attracting advisers and their clients, retaining and also organic growth. And that's one of the things that we excel in. If you look at our track record on adviser growth, organic, it is the highest in the industry from that standpoint. And so that combination gets you to your net new assets to allow that to grow. We are totally committed. The target range is this 4%, that basically -- and that is on average, over time, focus on it. And certainly, in '26, we are aiming for it, but you are going to see bumps in the road because it is influenced by attrition, it is influenced by recruitment but we are totally committed to continue to grow and grow at levels that will drive the sustainability of our value proposition and margin.

On the guidance front, G&A expenses is another focus. How should we think about the growth of G&A expenses over time? What's the flexibility there in terms of if we head into a choppy market versus a strong bull market? And then when you think about the bottom line, how much of that can dribble down and drive operating leverage over time?

Sure. One of the hallmarks of us is really, if you look over our track record, we have certainly been committed to investing in the business and basically having the ability to invest by reengineering our processes, not just by cutting costs but reengineering how we operate in a more effective way, not just within the individual business but across the businesses as we leverage. So as you look at operating expense, you have to keep in mind of what we are investing in the business to afford. Clearly, in the wealth management business, we continue to invest heavily as it relates to both our adviser proposition, our technology. And I believe we have some of the strongest technology use of tools, integrated tools into servicing our clients and adviser. So that is a backdrop. So we will, on that basis, continue to invest in AWM, the broker side of the activity to grow. And that would probably stay in the ranges that you've seen, which is about the mid, say, 5% range of growth. It's the combination of effective management of expense and investing. On the asset management side, as you looked at it, we took a look at the revenue situation that all active managers were experiencing. We adjusted our operating base, and we've done that substantially to manage our margin but also reinvest back on how we service our clients and what products we offer. And that -- while we're certainly seen reduced expenses in -- excluding performance fees in the asset management, that will continue at probably a slow pace. But -- and then finally, in RPS, that's been maintaining the course and the corporate staff groups have been a major contributor to the reduction in expense. So you should look at expense management, yes, and managing our expenses overall to stay within that say, 2% -- 0% to 2% growth range but it's what we're doing and investing in the businesses while we're managing the expenses and it's where it's coming across as process change, not cost reduction, and that's by using strategic and structural reengineering to do that. So we'll continue to invest in the business, continue to manage our expenses well, manage our margin and then return to shareholders.

So Walter, we've just entered year 4 of the bull market. Normally in longer bull markets, competition picks up for financial advisers. We've also had some private equity money entered the space. There's been some ISJ departures across the industry. How would you characterize the competitive landscape right now?

It's aggressive. It continues to be aggressive. I think what has fueled it is clearly the -- what is being earned on the cash side of the business, which now -- is now settling back towards a probable 3 reductions, probably even heading under that 3% element, which I believe is where you're going to start seeing people start reassessing their ability to fund their growth because the question is funding profitable growth. So it has been aggressive. I would say the IBDs certainly continue to be aggressive, but in a more measured way, but there's certainly aggressive nature on Transcom. And on the PE firms, yes, they are coming in. They offer a different value proposition, and there's trade-offs in it because family, the servicing levels that basically a PE firm believes and where they're taking the adviser and their clients is a different value, and we've had discussions with advisers as it relates to the pluses and minuses. And I think we do quite well. But we have certainly raised the bar, as I indicated, to compete, but compete effectively for the advisers that we want to retain and also the advisers that we want to attract. So I would say it's going to continue, certainly on the PE side and probably abate a little as we get into the situation of really affordability because, again, we earn good margins, 20% margins in our core business, and we certainly earn on the cash side of it. That's not necessarily the situation with others that we compete against, and that will then have an impact, and I think it will settle down. But interest and earnings on the cash side has certainly fueled it. The PE firms have different objectives set as they're looking to see take a business that they feel they can basically integrate and then commercialize and that attracts some advisers but not necessarily all the advisers because they -- it's a different model.

So if I look across your FAs, I see an employee channel, an independent channel, sort of a bank channel. Given what you know about the organic growth trends and sort of pricing, how do you expect that mix to trend over the next 3 to 5 years?

Okay. Clearly, we have an excellent franchise channel that grows. And certainly, we feel very comfortable with that. And it's higher competition but we have the margin to compete there. The employee channel, the same thing. It's been a little tighter now as the wirehouses have certainly become more aggressive in retaining advisers. So therefore -- but we are still growing there. And then on -- you're right, we have now certainly entered the bank channel. We certainly announced our recent win with Huntington, and that certainly will fuel. It's very large, and it's really, I think, a testament to how we operate and the differentiation that we bring in to help a bank grow their client base in the wealth space. There's another channel that we have, which is our remote channel. And that is basically teams that basically do direct business with clients. in different geo ZIP codes. And it's a team driven. We've had this for multiple years. We are certainly investing in that on 2 basis to grow it and also to give our advisers -- as succession planning as they're looking, they -- one of the big advantages we have is our advisers certainly generate higher terminal value when they sell to each other because the commonality and the continuity within the network allows easier transfer of clients, service capabilities. And we are certainly offering that if they want to basically have different succession planning, if they want sell their practices, we will certainly enter into buying them either partial or full purchasing, giving us leverage as we own the client and therefore, we can invest differently, leverage than we have or grow. So it's that supports. Those are the channels will grow. And I think we are expecting good growth coming out of the bank channel and the remote and continued strong growth in the 2 core.

So if I look at client assets divided by a number of advisers, the average adviser at a wire, I think, is a lot bigger on average than Ameriprise average advisers. Push back me think I'm wrong. But how do you attract that? Like where -- what type of advisers do you go after at the wires? Or you mean kind of banks broadly?

Clearly at the wires, it's larger. At the independent broker dealer, no. And we are focused more -- certainly, as we talked to affluent and we started this 100,000 plus. That has now moved to the 500,000, 1 million plus. And we have certainly demonstrated our traction of advisers and their client base being in that upper range. And so it's not just the number of clients -- number of advisers you bring, it's the quality of the advisers we're bringing, and we're tracking it much higher. And I think that really pertains to what we offer. and the ability for them to grow, and we are becoming more competitive in our -- basically narrowing that gap of value that is in place. So I think we are certainly attracting the right advisers with the right client base that really does want to take advantage of what we offer. And that has resulted in us attracting higher value basically advisers and client bases.

Great. Let's talk about client cash sweep for a moment. Starting with money market funds actually. So do you see a meaningful amount of money market fund money in motion potential, especially as the Fed keeps cutting rates? And if that does go out, where do you see that money flowing into?

Okay. So right now, if we look at the cash that we control and taking a sweep account and looking at that, that's probably at the level -- operating level that you need 2% to 3% in that range to operate the account. And that's been a hallmark of we've always -- we've been exposed to sorting, but minimal because we've always basically -- the advisers have ensured that their clients did not keep idle cash sitting where it's not earning, okay? So that's been -- we've also, during this period, attracted almost $45 billion of money market -- third-party money market and basically CDs into our network. That we earn 5 basis points on. That will be redeployed as we see it, depending on the environment, and that gives us an opportunity. But as far as the operating cash that we see in sweep, that's at a pretty low level at this stage. And I would say it's at the appropriate level for transaction accounts. So we don't see much risk going on there. And we do see big opportunity as money gets deployed from the third-party money markets and CDs. That will be an upside for us.

So what is your philosophy on pricing in the cash sweep business?

Listen, we weekly run competitive screens. We are probably slower to react on reducing the credit rate to clients but it is based on competition compares, and we take this very seriously to make sure it's a balanced situation. It is at a low level now for everybody. But we -- it is done strictly on benchmarking, and it's done under regulated and has a complete process attached to it where it's not just a subjective change. And we are probably the last to make the change. We're slower to make reductions.

So you announced Signature Wealth in May of 2025.

Yes.

Trying to solve. And I believe this is going to connect both components of the Wealth Management and the Asset Management business.

Yes. So what it was meant -- listen, the wirehouses had this, we've had a version of it. And what we invested is basically combining all our capability to be able to service the client more efficiently by offering a more seamless investment strategy, SMA, all those components brought together to allow us to manage that with the advisers more effectively and efficiently rather than be in sleeves. It is now available as across the border, similar to what the wirehouses do, having that capability of having one-stop shopping to allow them to look at what they can manage their clients' money more effectively, which gives them the ability to be more efficient and effective rather than managing money in sleeves. This capability gives them a lot more flexibility and efficiency. It also allows us to certainly service the client better. But for the longest time, we've been an important part of our wrap product has been discretionary. And CTI has not been able to -- we -- our asset managers have not been able to participate in that because it basically is affiliated. This is now a different adviser structure so they can participate. And the CTI business has a reasonable share in the nondiscretionary element. This will now get them to have a greater -- that same share in proportion and network, but the product capability and understanding the clients within our adviser network is good. So they will have this additional opportunity. So you're getting efficiency for the adviser from that standpoint, the effectiveness of offering to your clients a better capability, more seamless capability. We just launched 38 new SMAs in that, and you get the operating efficiencies and CTI can participate. So it's a win-win for us. And we're getting really strong adoption of it and a substantial amount of new money coming in. So we feel very good about it.

Walter, I want to come back to the Huntington Bank relationship. I think you just announced it on February 4. So congrats on that $20 billion of assets, 260 financial advisers. What do you think is differentiated about your financial institution group business that allows you to win this? Because I assume it's a competitive process.

It's interesting because we also, at the same time, certainly, Comerica has been certainly acquired by Fifth Third. What has allowed us is to demonstrate -- I'd say through Comerica actually was an interesting party in helping convince Huntington the value we brought to expanding and deepening the relationship and how we do that and how effective we are as a wealth manager. And it's our commitment to grow and penetrate the client base and make sense for their objective set financially and for deepening a relationship that was there. So that was -- and listen, I think we have a better mousetrap, and I think we demonstrated it. And now we'll see what happens. That will come on board. I don't think we set the date yet, but that's certainly working through that to come on in 2026. And then we'll just have to see what's going to happen with Fifth Third.

Okay. Well, on that point, so you partnered with Comerica back in 2023. I think it added $15 billion of assets. Maybe it's larger now. And I guess now with Fifth Third acquiring them, there are several scenarios here, which we don't know it will happen. But I don't know, maybe just an update on the situation and maybe run through kind of the likely path of this. I think there is a scenario where you're able to convince Fifth Third, this is a great solution and maybe win more business with us?

Yes, we'd like to hope so. We certainly met with them and certainly with Comerica's management to demonstrate the value creation that we have but they do have their own model. And certainly, we understand they'll have to evaluate what is in the best interest, what they think is in the best interest from their client base and their current operation. As you imagine, when you enter arrangements like this, your contractual arrangements contemplate all sorts of situations. So if it turns out, we'll be disappointed, certainly if they decide to take the course and bring in inside. But we have the right protections to ensure that the investment we've made in that business and certainly, the upfront money that we've given will be returned, and we would be compensated for the investment we made in the earnings that we are losing. So that's standard contractual arrangements. Hopefully, we don't need that but we do have protections.

So let's flip it into the Asset Management business. How much of your Asset Management AUM is derived from the wealth manager? And is the wealth manager a key advantage that your asset management business has that other third parties don't have?

Yes. So listen, CTI asset manager in the U.S. it's about somewhere in 15%, 17% of the activity levels. It's earned. It's a level playing field. There's no advantage given versus any other asset manager in there. They understand their network. It's an important part of it. Yes, it does provide capabilities because they certainly have an in-house capability that they get awareness and certainly, people recognize it, and they certainly earn it because they participate in working with the advisers very specifically, and they certainly have created products that work for them. So what is Jim has actually pushed them even further to recognize the importance of the AWM. It's always been important to reemphasize it. So that is going on right now, and that gives them a leg in. They've already launched multiple active ETF products. They have interval funds, other products they're working with us to develop. So that, I think, is -- and I just mentioned the Signature Wealth, obviously, that will open up the capability on discretionary. So it is an important part of that element. And I think they earn it but they have the opportunity to have basically an affiliated distribution capability that they earn and have that opportunity. So yes, it's a big opportunity for them.

So let's talk net flows. Is there a pathway to positive net flows at the asset management business?

The answer is yes. It's a long journey. We've made progress, and we're making progress on multiple fronts, certainly looking at our legacy capability like all of our active managers looking at how we're improving. And it starts with good performance. We have great performance in equity. We've had less great performance in the fixed. That has been really related to basically a positioning we took back several years ago on duration, we were wrong. That's working its way through. And our capabilities on credit and there is quite good. We're also looking at launching new product capability to meet our solution set, both for our retail and institutional investors. And we have certainly launched and seeded a substantial amount of new product, which is taking hold as it relates to that. So -- and I just mentioned the growth within the AWM capability. So yes, I think we do see a path. What we've done in the interim is manage our expense base to ensure. And again, this is not expense cutting. This is true process reengineering, structural and strategic to be more effective in serving our clients and do that in a more efficient way, and that's allowed us to maintain our margin. And I would say, yes, it gives us the opportunity then to adjust what we control as we're building up our capability to get into positive flows. But it's a longer journey like other active managers are experiencing. But we do see some light at the end of the tunnel but it's going to be -- it's going to take time.

So when you did the tax-free spin out of American Express, I think 2005, the insurance business was a much bigger piece of the pie. It's a lot smaller now. How does that insurance business fit into the strategic vision of the entire business, which is mostly now driven by Wealth and Asset Management.

Okay. Back in that day, insurance was 80% of the activity profitability. The real value, again, was the adviser network, and that's what Jim and the team realized looking at it, it is now about somewhere in the 15% in that range. It is an important contributor because it basically it provides solution set capabilities to our clients. And they understand the client, they understand the planning model. They develop the products, they wholesale it, they do it well, and they help the advisers service their clients across the spectrum of offering solution set. That said, we are constantly evaluating manufacturing versus distribution. Over the years, we have adjusted the risk profile of this company to really allow it to basically coexist appropriately from a shareholder perspective with managing the risk return. We certainly have made -- we've gotten rid of auto and home. We certainly reinsured risk transfer, the fixed annuity business as we grew the bank. But we've done that in a way where we ensure that our clients are protected and we don't really have the exposure going forward. So we didn't take the lowest -- highest offer. We took the most appropriate offer to maintain the quality of that servicing. We've also discontinued our basically products of living benefits that we offered on VA. So we've managed the entire risk profile. So we've gone to the point of accepting is this in the best interest of doing it? It is because it provides unique capabilities to our clients and it really allows us to harvest that. At the same time, we have entertained risk transfer programs. We've looked at things. It really, at this stage, looking at the quality of the book, what it does, it's an important part to continue. Would we have ever gone out and bought an insurance company now or buy it? The answer is no. But having it and really having the quality there, it is in the best interest of our shareholders to continue it because of the client and the risk return profile and the stability of the cash flows that it provides.

Great. At this point, I just want to look at the audience and see if anyone has a question. So please raise your hand if there's any questions. We have one in the second row.

I don't think you're on.

You have a strong balance sheet, we think with about $2 billion in excess capital. How do you rank capital uses in 2026 with buybacks, dividends, organic growth investments and M&A? And what would cause you to change that ranking?

Okay. So yes, the answer is yes, we have -- it's not a strong excess capital position but we have a strong liquidity position. In -- let me try and get the essence question. In 2025, we returned to shareholders through dividends and buyback 88%. looking at -- and we assess our model is really what drives our calculations on excess is looking over multiple years, multiple scenarios and the business model and what outside stress, outside changes we do and then we assess our ability to buy back shares each quarter and look at that in dividend. You can look -- so we feel comfortable in this environment, and we constantly evaluate this every quarter when we make our decisions as it relates to that -- it's good to think that this year, we see today, and I'll talk about that in a minute, to target somewhere between 85%, 90% return with the events of recent days yesterday and today, we will opportunistically be buying back more aggressively because it's really -- for us, it's a good buying opportunity. But we are, for the time being, certainly sticking with the 85% to 90%. And if we have to, we will go up and we have the capacity to do that. Again, we're constantly investing in the business. So this is not sacrificing in any manner, shape or form, the ability to invest and improve our capability. This is excess capital and cash. And that is something, again, and we look at the fundamentals and we manage it but we will -- you should assume we'll be buying back more at these levels.

Great. I think with that, we can wrap it up. But Walter, on behalf of all of us at Bank of America, thank you very much for joining us.

Thank you.