Ameriprise Financial, Inc.

Welcome to the fourth quarter 2018 earnings call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Alicia's chair Ernie. Alicia, you may begin.

Thank you, operator, and good morning. Welcome to Ameriprise Financial's fourth quarter earnings call. On the call with me today are Jim Cracciolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on slide two you will see a discussion of forward-looking statements. Specifically, during the call, you will hear reference to various non-GAAP financial measures. which we believe provide insight into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our fourth quarter 2018 earnings release, our 2017 annual report to shareholders, and our 2017 10K report. We make no obligation to update publicly or revise these forward-looking statements. On slide three, you'll see our GAAP financial results at the top of the page for the fourth quarter. As you are aware, the year-over-year comparison of results was impacted by the Tax Cuts and Job Act in the prior year, as well as mean reversion-related impacts and unlocking in both years. As such, we have provided our adjusted operating results, excluding these items. Management believes this 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 operating financial results adjusted for the Tax Act, unlocking, and mean reversion-related impacts. And with that, I'll turn it over to Jim.

Hello, and thanks for joining our earnings call. This morning, we'll discuss our fourth quarter results, and I'll update you on the business and our priorities in a much more dynamic operating environment. Clearly, markets were quite volatile in the quarter. particularly in December in the U.S., with significant declines across asset classes. And while they've come back a bit, we're managing the business in light of this uncertain backdrop. Overall for the year, we continued our track record of delivering excellent results for the company and generated good profitability and returns. And we also continue to invest for long-term value creation and business growth. In wealth management, we delivered strong Ameriprise client flows and advisor productivity. As we've demonstrated in prior cycles, a volatile environment reinforces the importance of the personal advice, investment perspective, and solutions that we offer. Our asset management business was more directly affected by the market decline and heightened volatility. That said, our impacts were in line with the industry in terms of asset declines and accelerated outflows. And in variable annuities, The market environment resulted in a non-cash impact that Walter will cover in more detail. Our assets under management and administration were down 8% to $823 billion, reflecting a 14% sequential market decline, which was mitigated by continued strength in Ameriprise client note inflows. In terms of adjusted operating results and excluding the items we highlighted, revenues remained steady at $3.2 billion. Earnings increased 12% to $544 million. Earnings per diluted share were up 21% to $3.80. Return on equity excluding AOCI and unlocking was a strong 37.8%. During the quarter and the year, we continue to invest in growth initiatives that will help sustain the business for the future. In addition to growth investments, based on our earnings and capital position and with our strong cash flow, we accelerated our share repurchases given the market decline and our discounted share price. For the year, we committed more than $2 billion to shareholders by increasing our dividend and repurchasing 11 million shares. This reduced our shares outstanding by 7% and represents a truly differentiated level of capital return. and we continue to maintain $1.5 billion in excess capital. We also continue to shift our earnings mix to less capital-intensive business lines, something we've done consistently over the years, and this generated significant free cash flow. Looking at the last four years, as we've grown our earnings, we've increased the percentage of contributions from advice and wealth management and asset management from 66% in 2015 to to 74% in 2018. Looking ahead, we see additional opportunity to take this number even further. With regard to our financial advisory business, Ameriprise client assets held strong at $539 billion, down just 4%, even with the volatility and steep market declines. A key growth platform for Ameriprise is our fee-based investment advisory wrap business. It's one of the largest and best-run in the industry at $251 billion at the end of the fourth quarter. Net inflows remain robust at $4.5 billion. This marks the seventh consecutive quarter where we've had wrapped net inflows above $4 billion. Sequentially, wrapped flows declined a bit as clients took a more defensive posture and moved more into cash. and we're earning competitive returns on our $28 billion of brokerage cash balances, which will up 6% an all-time high. As a diversified financial services firm, the combination of the breadth of our product suite and financial planning expertise helps us retain assets. We continue to bring in clients, and we're helping them rebalance their assets based on changing market dynamics. With good client flows, increased client activity, and traction from our investments, we continue to grow our advisor productivity nicely. On a trailing 12-month basis, it's up 9% to $620,000. This builds on many years of strong productivity gains, and we continue to earn high client and advisor satisfaction. Recruiting is an important complement to retaining our top people. Experienced, productive advisors are consistently attracted to Ameriprise because of our excellent support reputation, and track record of investing to help advisors grow. In the quarter, 93 advisors joined the firm, and for 2018 overall, we brought on 335 new experienced advisors. We're also investing to convert our National Trust Bank to a federal savings bank. Things are going well, and we expect to hear from regulators this quarter. With a clear focus on our clients and growth, Ameriprise and our VICE value proposition are directly aligned with the significant wealth management opportunity in the U.S. Consumer research affirms that the mass affluent and affluent want to work in a personal, advice-based relationship with a trusted advisor. In fact, trust remains the most important aspect of working with a financial advisor. Ameriprise is both a longstanding leader in advice, and we rank number one in trust across the investment industry by Tempkin. We're very focused on advice and delivering what our clients and consumers want. Across the firm, we're making additional investments to continue to deliver an excellent client experience and help advisors grow productivity. This includes enhancing our digital and financial planning capabilities, as well as upgrading to an advanced CRM system later this year to enable our advisors to work in an even more goal-based and integrated way with their clients. As we discussed last quarter, We've been testing these enhanced capabilities in the field and are pleased with the initial results. Advisors have reported clients are more engaged and confident when advisors are having goal-based conversations and using these new capabilities. So we feel there's a compelling opportunity to expand this across the entire client base. In addition, we continue to invest in the Ameriprise brand, which is strong in the marketplace with awareness there at our highest levels. We introduced the next chapter of our Be Brilliant platform earlier this month with new ads that highlight the personalized, differentiated experience we deliver to clients to help them achieve their goals. Overall, in advice and wealth management, we're generating excellent results, double-digit earnings growth, and strong margins above 23% in the quarter. With regard to protection annuities, the books are performing well in this rate environment. Sales over the course of the year held up with some slowing in the fourth quarter. Variable annuity sales were up 6% to $4.5 billion for the year, right in line with the consistent $4 to $5 billion sales range we have seen historically. We continue to generate an appropriate level of sales and returns in these businesses. Let's move to asset management. The fourth quarter was a tough market environment with substantial industry-wide outflows. across asset classes, styles, and geographies, as you've seen with other asset managers who have already reported. In the U.S., it was the most difficult quarter for long-term mutual fund flows in the industry, dating back to 2007. Investors moved to de-risk given significant market declines in December, year-end tax selling, and higher volatility. And in Europe, key indices were down sharply in October, spiking higher outflows across Europe. How did that affect us in the fourth quarter? Like others, we felt that pressure in assets and the management declines, which included net outflows of $4.7 billion with reinvested dividends. In the U.S., our rate of mutual fund outflows was in line with the industry. And in Europe, we suffered a level of outflows consistent with our peers. In past market disruptions, European investors tend to react quickly to market dynamics, whether that's positively or negatively. So far in January, with improved markets, we're seeing better mutual fund flow rates in the U.S. and Europe, and we hope that will continue. From a revenue standpoint in the quarter, the decline reflected the drop in assets under management, as well as the unwinding of a couple of our CLOs and higher performance fees last year. To gain flows, we're working to deliver relevant quality solutions and service to our retail and institutional clients and consistent competitive investment performance. Our one-year investment performance was impacted by an unusual but not unheard of price dislocation that took place in the fourth quarter. In the few occasions where this has previously occurred, those securities with positive ratings from our proprietary research subsequently performed well, on average, which is what we're already seeing for January. This impacted our three-year numbers as well, but we expect they'll improve in 2019 after dropping off a similar underperformance in our U.S. portfolios that occurred in the first quarter of 2016. We'll also sharply focus on maintaining our excellent expense discipline and will continue to be thoughtful moving forward given the current climate. and the quarter expenses and asset management went down nicely. We also had to absorb additional Brexit-related costs through the transfer of EU client assets from our OIC funds into lux domiciled CCAF products, which we are in the process of completing. As we look forward, we'll focus on gaining traction where we see growth opportunities. This includes our efforts to enhance and further introduce our data-driven distribution work in the U.S., that will help drive improvement in gross sales and market share at many of our top intermediary firms. We're building on our strength in the UK and continue to expand in Europe with a focus on Germany, Italy, and Spain now that we've established a more comprehensive CCAF lineup of funds. And we want to continue to grow Columbia Threadneedle brand awareness and consideration. Given the scope of our capabilities, we see opportunity to capture market share in our core markets. Overall, in asset management, it was a tough quarter. For the industry and for us, we're managing headwinds as part of Ameriprise and competing for share in a very competitive marketplace. In closing, we delivered a good quarter in a volatile market environment, completing what was a good year for Ameriprise. We have a consistent record of delivering long-term value, investing for growth, and returning capital to shareholders at attractive levels. We continue to transform the business and focus on areas of opportunity that will generate a strong return with wealth management driving our growth. At the same time, we'll focus on continuing to tightly control expenses in 2019. As we look at the year ahead, I'm confident in our ability to serve clients well and navigate a very fluid environment. Walter?