Ameriprise Financial, Inc.

We learned that Ameriprise earns Hudson Wallet's top performer recognition in three important categories. Unbiased and puts my interest first, explains things in understandable terms, and understands me and shares my values. These are very important attributes to be known for, and they help set us apart as a leader in advice. However, we're not resting on our laurels. We're investing in our end-to-end client experience to take it to the next level of engagement and to help advisors grow productivity. Let me touch on a few of the key areas. First, we continue to invest in our digital capabilities, with digitally enabling our goal-based device capabilities to make it even easier for advisors to fully engage clients and deliver the value and service they're seeking. We've just begun to roll out this training in the field and are pleased with the initial results. I'm already receiving advisor updates and client stories and they're very positive. Many clients feel more engaged and confident and have shared that these are some of the best conversations they've had with their advisor and they're beginning to move more money and assets to Ameriprise. Second, we're implementing a new customer relationship management platform and we are on track to deliver it this year. We're further developing our investment advisory platform to provide a streamlined and customized experience for clients and advisors to help in the management of their investments. And fourth, we're investing to expand our banking solutions, and I'll share an update on our bank investment in a moment. Given these growth investments, you saw we had higher expenses in the quarter. While we're making these investments, we will continue to re-engineer and reduce expenses so that the incremental expense is very manageable. We are dedicated to delivering a comprehensive, best-in-class Ameriprise client experience more fully and to more consumers who seek it. As a leading wealth manager, we're building an even stronger position, and we feel very good about the significant opportunity before us. Now I'll move to our insurance, annuities, and asset management businesses. In INA, we're providing good value and generating free cash flow with strong books supported by excellent risk management. These solutions complement our third-party offerings and help address clients' retirement income protection needs, and they're part of a high-quality experience we're known for. With regard to the quarter, sales were slower in January, but they started to come back nicely and we're getting back to a more normal run rate. In asset management, it's clearly a tough environment, and there are real industry pressures for all active managers, which we're also feeling. However, our asset management business is part of our larger enterprise and supported by the strength of Ameriprise rather than a standalone active manager. We're investing in the business while making tradeoffs to manage expense levels. Our margin in asset management is competitive, but was clearly pressured in the quarter, and you're seeing this with others. In terms of assets under management, we ended the quarter with $459 billion, which was down from a year ago but up 7% sequentially. After a tougher fourth quarter last year, short-term equity investment performance improved in the United States in many of our strategies, and longer-term performance also remains quite good. In addition, short- and long-term taxable and tax-exempt fixed income performance continues to be strong. In EMEA, our short-term performance in U.K. equities weakened. However, European equities bounced back nicely, and long-term equity and fixed income track records continue to be good. Moving to our flow picture, though we remain in net outflows, the team is very focused on gaining traction and we have some improvement when compared to fourth quarter last year. Here are the key themes for the first quarter when compared to a year ago. Former parent outflows were better year over year. Global institutional outflows were higher due to clients' asset allocation calls, some performance challenges, and a slowdown in mandate fundings. However, recently, in the areas where we had some strategies underperforming, we saw improvement. In U.S. retail, we remain in net outflows but are beginning to benefit from our investments in data analytics and our segmentation strategy. We did improve in the broker-dealer and independent channel. We were positive in five of our top seven firms. Equity fund flows improved somewhat from the fourth quarter, though we still experienced outflows. and fixed income flows were essentially flat as we didn't get as much of a boost as the industry in ultra-short and short-duration products where we're not a big player in this tight margin asset class. In the UK and European retail, the ongoing uncertainty about Brexit and slower economic backdrop in Europe created flow challenges. With regard to Brexit in particular, the team has been supporting clients and taking actions to prepare the business. During the quarter, we completed a transfer of EU client assets from our OIC funds into Lux Stomacel CCAF products. While this pressured sales and increased expenses, it will be beneficial to gaining flows on the continent going forward. Quarter after quarter, we've been very proactive in expense management while we invest for the long term, including in our data capabilities, operating platform solutions, and expanding in Europe. As I said at the beginning of the year, We recognize the ongoing challenges we in the industry face and will continue to make the changes necessary to compete. Now, when I opened, I indicated some additional strategic actions we're taking to drive future growth and value creation. First, as many of you have acknowledged, Ameriprise has a strong record of returning capital at a differentiated level and we're adding to it again. In the quarter, Ameriprise returned $482 million to share repurchases and dividends, which is consistent with what we've been returning. We also announced a new $2.5 billion share repurchase authorization. And yesterday, we declared another increase to our quarterly dividend, another 8%, which will bring our capital return even higher. In fact, This is our 12th increase over the past 10 years, something we're very proud of. Second, as many of you know, we've always focused on enhancing our capital flexibility and risk profile, and that was punctuated at quarter end with the culmination of our strategic review of Ameriprise Auto and Home and decision to sell the business. We had four priorities as we executed the deal. Continue to deliver outstanding service to policyholders. Find the right firm to help Auto and Home grow. Provide the potential for a great future for our team there and earn an appropriate return. I'm very confident that we found the right partner in American Family Insurance. They plan to grow and expand on what we've built. We're pleased with this outcome and as we do in all transactions, we will work to ensure a seamless transition over the next few quarters. The sale of auto and home will generate $950 million of net proceeds when we close the deal later this year. Third, in addition to the auto and home sale, we announced our first fixed annuity reinsurance transaction. We've reinsured about 20% of our block which freed up about $200 million in capital for us. Importantly, it positions us to explore additional transactions for the approximately $1 billion of capital that backs our remaining block. Fourth, last week we gained final approval from the Fed to convert our National Trust Bank into a federal savings bank, allowing us to further expand our product suite. We plan to launch the bank in the latter part of the quarter. This is a long-term growth opportunity for Ameriprise, and I feel good about the future contributions it will bring. As you can tell, we made significant progress in the quarter, executing some important strategic actions. We're freeing up capital, further enhancing our risk profile and capital flexibility. I know you may have questions about our plans to deploy the additional capital that we're freeing up that will grow to above $2 billion when auto and home sale closes later this year. On that front, you can expect us to continue to build on our long-standing record of managing our capital just as well as we have for many years. We'll evaluate a number of alternatives, such as investing in our bank, looking at other opportunities to add to our wealth management business. We'll continue to look at adding capabilities for asset management and further de-risking our long-tailed businesses. Finally, we will look to further increase our return of capital to shareholders. In that regard, we plan to increase our share repurchase rate in 2019. As you can see, we're in a very strong position. We're serving client needs, building on our advice value proposition while generating strong returns. Now, I'll turn things over to Walter.

Thank you, Jim. Ameriprise achieved another solid quarter of financial results while proactively executing several strategies that will optimize our capital and risk profile, positioning the company to drive continued shareholder value creation. On a normalized basis, EPS grew 8%, and I will go into the details on the next page. Financial results were led by advice wealth management, which delivered 11% earnings growth and continued strong metric trends in the face of market headwinds and volatility as we entered the year. Our other businesses are generating good, stable financial results that were in line with our expectations. Let me take you through the details beginning on slide six. In total, adjusted operating EPS was $3,075, up 2%, which understates the underlying financial performance in the quarter. To understand the underlying results, you must consider both a previously disclosed one-time vendor settlement last year, as well as the tax rate. The tax rate in the quarter was 17.3%, higher than last year, and above our expectations of 16% for the full year, primarily due to share-based accounting changes and timing. Normalizing for these items, APS was up 8% and better reflects growth in the quarter. Revenue growth reflected continuous strong RAP net inflows offset by lower average markets, asset management outflows, and slower transactional activity early in the quarter. Expenses continue to be well managed across the firm, with G&A up only 2%. We are continuing to make important growth investments in advice and wealth management while executing on our expense reengineering objectives across the business. and we returned over 90% of earnings to shareholders through buyback and dividends, a continuation of our track record of differentiated return. Lastly, we have increased excess capital to $1.8 billion, while achieving a 36% return on equity, up 790 basis points. We have seen strong growth trends in advice and wealth management, which you can see on slide seven. Total client assets were up 6% year-over-year, demonstrating a nice recovery after the pullback in the fourth quarter, and continued strong $4.3 billion inflows into RAP accounts. Brokerage cash balances of $25.3 billion are consistent with last year. On a sequential basis, we saw balances come down in line with historic patterns. We are benefiting from short rates getting back to more normal historic levels, and we earned 212 basis points, up from 132 basis points a year ago. Based on recent Fed announcements, we do not anticipate additional rate increases this year and remain committed to being competitive in our client rates. Finally, advisor productivity also continues to improve. reaching $628,000 on a trailing 12-month basis in the face of market and activity headwinds. We continue to see strong productivity gains and are seeing good payback from our investments, as well as from the strength of the experienced advisor recruits that we've been bringing in. The 90 experienced advisors we brought in in the first quarter has record productivity which will support continued productivity growth over time. Let's turn to financials on slide eight. Advice and wealth management is continuing to deliver consistent, strong financial performance over time. I thought it would be helpful to provide a detailed description of revenue this quarter because there are a number of dynamics at play. First, management and financial advice fees grew 4%. Unlike previous quarters, with good RAP inflows, have been supplemented by market appreciation, this quarter, the benefit from good inflows was partially offset by the impact of lower average markets. So the growth rate lagged a bit. However, as we exited the quarter, markets have recovered up 13% point to point, and RAP flows improved in February and March after a slower January. As a result, we expect improved growth in management fees as we move through 2019. Next, distribution fees were up only marginally. We had meaningful benefits from the spread earned on brokerage sweep balances. However, market sentiment following the fourth quarter disruption resulted in lower client activity levels early in the quarter. This improved throughout the quarter and April activity levels have returned to good historic levels. So again, we would expect improved growth in distribution fees in 2019. Lastly, net investment income is up 43% from both a higher certificate asset earning rate and higher balances. Overall, both markets and activity levels have recovered well, and this should lead to more robust revenue growth going forward. General and administrative expenses were up 6% for the quarter, but we believe they continue to be well managed. As Jim discussed, we are making substantial investments for future growth in this business, and the level and timing of those expenses was more heavily weighted in the beginning of the year. We remain committed to effective expense discipline and will continue to execute on our re-engineering initiatives that will benefit the remainder of the year. Finally, pre-tax operating earnings were up 11%, and margins were strong at 22.5%. Let's turn to asset management on page 9, where financial performance was clearly impacted by substantial headwinds, including average equity markets down 3% and unfavorable foreign exchange translation. Additionally, the cumulative impact of net flows hurt results, as did a previously disclosed prior year one-time item. This resulted in a decline in revenues of 11% and a decline in PTI of 25%. G&A expenses were down 4%, demonstrating our continued commitment to expense discipline. However, a significant portion of our expense base is fixed, so it will be difficult to adjust quickly to this challenging revenue environment. Margins in the quarter decreased to 34%, and given the challenging revenue environment, we'd expect margins to remain pressured. Let's turn to annuities and protections on slide 10. In the quarter, variable annuities earnings were $115 million, up 5% from last year. Variable annuities continued to be in outflows, though at a slower pace than last year. Variable annuities sales slowed, similar to the overall slowdown we saw in client activity. It should be noted that our net amount at risk declined to 0.8% of account value with living benefits and 0.2% of account value with death benefits from improvement in markets. Fixed annuity pre-tax adjusted operating earnings declined $3 million, reflecting the continued impact of lapses in interest rates. The previously announced reinsurance transaction had a small impact on fixed annuity results, but it is earnings neutral across the firm for the year. Importantly, the transaction generated $200 million of excess capital and established a platform for future reinsurance transactions. The remaining block of fixed annuities is backed by about $1 billion of capital. In life and health, Earnings were within expectations at $74 million, up 14% from last year. Claims remain within expected ranges, though favorable relative to the prior year period. Let's move to the balance sheet on slide 11. Our balance sheet fundamentals remain strong. Our excess capital increased to $1.8 billion, which benefited from the fixed annuity reinsurance transaction, and incremental debt from our recent issuance. Our hedge program has been quite effective, with weighted managed hedged effectiveness at 97% in the quarter. The investment portfolio has high credit quality and is well diversified, and free cash flow generation remains excellent. We returned nearly $500 million of capital to shareholders through dividends and share repurchase in the quarter. and we recently announced a new share repurchase authorization and an 8% dividend increase. Continued capital return will be supported by both our free cash flow as well as the execution of capital optimization strategies. Let's turn to slide 12. As Jim discussed, we have announced a variety of proactive actions this year to optimize our capital structure and risk profile. Over the past several years, we have spoken with you about the initiatives underway to improve the underlying performance of our auto and home business, and we saw the intended results. We completed a strategic review, which resulted in our decision to sell the business. When this transaction closes later this year, cash proceeds will be $950 million, the majority of which will be additive to our excess capital position. As I mentioned, the reinsurance of a portion of our fixed annuity block freed up substantial capital without an earnings impact to the firm. And the framework is now in place to execute additional reinsurance transactions as appropriate. And we issued $500 million of senior notes, part of which is being used to pre-fund an upcoming maturity and reposition our debt ladder. In aggregate, These actions will enable us to increase the level of capital that we will return to shareholders this year by accelerating our share repurchase. We plan to return approximately 110% of adjusted operating earnings to shareholders through buyback and dividends, and we will fund the anticipated bank capital requirement. We are completing a review of our capital structure and evaluating potential uses of excess capital. In summary, Ameriprise is well situated to drive continued growth in advice and wealth management and continues to generate substantial shareholder value. With that, we will take your questions.

Thank you. We will now begin the question and answer session. If you do have a question, press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, press star then 1 on your touchtone phone. Our first question is from Ryan Krueger. Please go ahead.

Hi, thanks. Good morning. My first question was on capital management. Appreciate the guidance for 2019. It looks like after that you'd still have a fairly substantial amount of excess capital. So I guess as we move past 2019, into 2020, would you anticipate still being positioned to continue returning similar levels of capital in 2020 as well? Or are you contemplating, I guess, other potential uses for the excess capital outside of share purchase?

Well, as I just said, we will be looking at another level of opportunity. So number one is, yes, we still think we can strongly return capital and will. to shareholders. We will also look at opportunities to further grow and invest in our wealth management business. Maybe there are some add-on capabilities that might be nice to continue to grow there that we'll be looking at, as well as, as we said, looking at continuing to improve our overall capital structure, and therefore that in itself we think will create some additional shareholder value that will either return or, from a perspective, invest for growth. Thanks.

And then just a click on the tax rate of 16% for this year. Is there anything unusual about that, or is that a decent level to assume over the intermediate term as well?

No, it's actually totally in line with, really, the earnings we will have and with the tax rate and the items that we normally have as basically adjustments through it. It's totally aligned with last year and this year.

Okay, thank you. Our next question is from Alex Bloestein. Please go ahead.

Great. Good morning, everybody. Hey guys, was wondering if you could comment on the pace and the process of the build down of the bank from here. So clearly you got the approval, assuming you can move some deposits fairly quickly. So maybe walk us through what that will require in terms of both expenses and initial capital utilization and kind of how you expect the bank growth to start kind of ramp up from here.

Okay, so it's Walter. Let me start with that, Alex. Once we have approval and then we'll target operationalizing the bank before the end of the quarter, we will be transferring in about $2 billion, $2.5 billion worth of sweep accounts that will go in, and those will be invested. And that would be the primary focus. And the next activity would be our credit card transfer over, and then will be a series of other products that we'll be working on. But that's where the focus is going to be. As we anticipate for the year, the bank will be accretive from an earnings standpoint, and we'll start incurring expenses, obviously, from an operating standpoint starting – we started now and obviously ramp up during the year. But we will be a positive accretion from an earnings standpoint.

Jim? Got it. I guess on that point, so I guess when we look at the G&A growth in expenses for AWM, it sounded like it's a little bit heavier on the investment side in the beginning of the year, so maybe just give us an update of what you guys expect G&A costs to be and advice and wealth for the year, kind of on a year-over-year growth perspective as, again, contemplating the bank and what that will take.

You know, as we indicated, there are a substantial level and timing of investments in the first quarter. And as we look towards the year, we're in a range, probably it will be in the 4% range on excluding the bank, as I mentioned, but the bank will be accretive. And also, let me just add on, I forgot to answer one part of your question. We'll put in initially around $200 million into the bank since capitalization.

Got it.

Great. Regarding the expenses, but the investments per se in advice and wealth, we're actually managing expenses really well and will continue. Actually, we'll probably reduce some expenses in that regard as we move through the next few quarters. But we are investing heavily, ramping up, and bringing over good recruits that, as you know, there's always the first-year expenses from that, and we have very good pipeline, et cetera. And for the things I mentioned previously, we're making some really good investments, investing in our advisors, investing in the ability for them to actually grow even more their productivity. So that expense incremental, we think, will give us very good paybacks in that regard, client asset, client productivity, and result in the fee revenue. So that's the way I would look at it. I wouldn't look at it as an increase in profitability. G and A in a sense of overhead expense. I'd look at it as investments for growth. And on a relative basis, where we're reducing expenses as an offset, that incremental that Walton mentioned, roughly around 4% or so, excluding the bank, I think should be thought about that way. Otherwise, I think it would be relatively flat. And the bank, the expense incremental will be offset by the revenue as we ramp up the bank. But again, starting this mid-year, and then that will get into a much better run rate next year.

Great. Awesome. If I could just sneak in one more. When you guys talk about the opportunities to deploy the Axis Capital, which obviously is going to go up by the end of the year, and it sounds like there's going to be opportunities to further rationalize the fixed-set annuity portfolio, which again will probably drive some incremental capital relief. Where does the rationalizing long-dated risk, whether it's long-term care or maybe even some of the VA business on your priority list, is that sort of part of the framework over the near term or that's something that will likely to happen kind of over time?

Okay, it's Walter. Let me take a shot at that. Obviously, we feel very comfortable with the exposure profile that you mentioned in those areas, but we are continuing evaluating options as they come up, and if they do, we will then certainly assess is that in the best interest of shareholders to deploy it that way.

Got it. Fair enough. Thanks very much.

Our next question is from Sunit Kamath. Please go ahead.

Thanks. First, a comment just on the optimization. It's clearly good to see you guys pull some of the levers that you have. But on that point, are there things that you're looking at in terms of further optimization beyond the fixed annuity business?

The answer is yes. You know, I think, Sunit, you know we're very thoughtful, but we're always looking out and planning. And we evaluate the business in a way that says what will be good for us to continue to grow in the areas of opportunity, what can we leverage appropriately, but also what will generate a good return in cash flow and manage a really good business on behalf of our clients. So, yes, we have, and I mentioned a range of them just before, but that's clearly some of the things that we'll be talking about with my board. as we go through our planning process, but more importantly, that we're focused on even here in the near term.

Okay. And then just shifting gears to asset management, I mean, you've talked about industry pressures, dropping the margin there, and some of the challenges that you face. But given our view, if we take the view that those pressures are not going to subside anytime soon, is it time to start thinking about something more strategic and in terms of that business, either building scale or pursuing another strategy to rationalize costs or something along those lines, just given these pressures seem to be in front of us for some time.

Right. So we approach this twofold. Very clearly, as you know, we look to continue to make changes in the business of areas that we can really garner some good activity and flows and fees That does mean that we adjust and have to prune certain areas, which we've been doing. But very clearly, we're making some of the core changes and core focus on areas of opportunity. I think this market's been a bit more pressured. The volatility's been high. Brexit and other things have been unfortunate, impacting many companies doing business there. But that's the first and very clear focus we have right now. But at the same time, We are thinking out and looking out strategically. The industry is changing. There continues to be a combination, a level of combination, consolidation out there. And there may be some good opportunities with some of the assets and capabilities we have and some of the knowledge we have of what we've been able to do in the past to meet up and look at other capabilities with other firms that are having the same challenges. So it's one of the things I think we're very open to, but we very clearly focus on what the client needs, what's good for overall for our people, the culture we have, as well as the shareholders. But as you know, Sunit, just like we're very thoughtful and have been, we'll continue to look and explore opportunities.

Okay. And then just lastly on the recruiting in AWM, I think both Jim and Walter referenced the productivity being higher for the new recruits. So if we think about the base at that $628,000 revenue per advisor rate, Can you give us a sense of where the new recruits are coming in? I know it's higher, but just any quantification of that?

Yes. So I would say the average recruits we're bringing in now probably come out on average to roughly where we are in the numbers that we're mentioning. But what we're finding is we're starting to really get now more and more larger teams coming And so it's been gradually continuing to move up. Of course, there's always the transfer and the periods of them bringing over their book, et cetera. But what I would say is we have a very good class of people coming in, and we feel like we're actually hitting stride right now in really how Ameriprise can really appeal to to people in the industry and people who really can continue to grow their productivity. So we feel very good about it.

Okay, thanks, Jim.

Our next question is from Nigel Dolly. Please go ahead.

Great, thanks. First question is just on asset management margins. You had been targeting the mid to high 30s this quarter, a dip below that range. Given your comments that you expect the environment to remain challenging, What should we expect for margins going forward? Any guidance there would be helpful.

Yeah, as you look at going forward, certainly with the market improving where it ended the quarter, and with, as I mentioned, our re-engineering initiatives, I do see over the balance of the year that certainly we could get back into the range we talked about previously, but it's not without its challenges, but we have certainly put in place the re-engineering aspects of it, and certainly with the market where it is, and if it stays that way, it should improve when we exited a quarter at 33.6. Okay.

And then just a second on the annuities. Good to see the Global Atlantic transaction. Any reason why you couldn't free up the remaining capital supporting the remainder of the block this year, or is there something different with respect to the nature of what's remaining relative to what you reinsured last quarter?

No, it's actually, we chose, we basically reinsured the third-party channel account value. We have looked at and we have the total capability from an operational standpoint. We're just looking at then the environment and other things. As we said, this will be, we will continue on that path.

Okay, very helpful.

Thanks. Our next question is from John Barnage. Please go ahead.

Thanks. I know you mentioned the frameworks in place for future reinsurance transactions for fixed annuities, but would you consider a risk transfer for the variable annuity block at all?

As Jim said, we will evaluate and certainly look at what is the best interest shareholder. Again, those have different nuances attached to it, but the answer is we will evaluate for sure.

Okay, and then my follow-up. Now that we have the first year of tax returns post-reform in the books, Can you talk about how you saw activity change from 1Q18 to 1Q19 and maybe what you're seeing so far this quarter from products that demand generally sees a boost from refunds?

No, I mean, I think when you look at client activity, we haven't seen a material. I mean, I think there's been a bit more of some investments in tax exempts, et cetera, as we've gone through. If you're looking at the retail client, are you looking at the corporate –

No, I think what... It's Walter. As we... I think in Sandal, because you have to look at... We saw our activity level. Our activity... Because I think you're driving at the activity level. Are we seeing because people are not getting the refunds? Is that where you were going?

Yeah.

Yeah. So what we started seeing in January, as we said, the activity levels were lower. And then in February and March, they really came back. So... As we are not seeing that impact at all from people getting lower tax refunds or anticipation of lower tax refunds, that has not manifested itself yet, if at all.

Okay, thank you.

Our next question is from John Nadel. Please go ahead.

Good morning. A couple real quick ones. Just a clarification on slide 12. When you say return capital at 110% of earnings and fund the bank in 2019, I guess I just wanted to clarify, is the bank part of that 110% or is the 110% isolated to just buybacks and common dividends? Just buyback and common dividends. All right. That's helpful. Thank you. And then just a follow-up on the tax rate, I guess your original outlook for 2019, Walter, was 17% to 19%. Now we're looking at 16%. So my question is, how should we be thinking about that tax rate beyond 2019? I understand your earnings mix will continue to shift, but I'm just wondering if we should be thinking more about that 17% to 19% range beyond 2019, or is there a reason why we stay below that range on a go-forward basis?

John, if I'm not drawing on If I'm not incorrect, I think we actually didn't give guidance for 19. This is the first time we're actually mentioning it. I'll go back and check. But the 16 is totally consistent where we thought it would be, and that is, like I said, it's aligned with what 18 was. I can't really – you're right. It's going to change based on mix of earnings and things like that as you go because you add more to the marginal 21. But the answer is I think this is a pretty comfortable range.

Okay, that's helpful. And then if I could – Just on long-term care, I guess, can you tell us, are you willing to tell us whether you've actually had any formal discussions or due diligence with any counterparties at this point on a possible risk transfer? Is that something that just hasn't really taken place in any formal way? And then if I could also add to that, as the Genworth and Oceanwide deal has now been extended, I think it's actually the ninth time they've extended, and it appears no closer to gaining the remaining regulatory approvals. I'm just wondering, have you had any discussions with Genworth around providing more details as to the protections you have in place, you know, around your reinsurance agreement with them?

Okay. So let me answer the question this way. We are approached all the time. for people to explore the opportunity to certainly enter into a reinsurance arrangement with us. There is nothing we have seen, but we keep an open mind about it based on the way we feel our exposure is as relates to our book of business. Nothing has really risen to the top at this stage to really get us into really considering. But as Jim said, we will always explore options, and that's what we do. As it relates to the ninth time, the tenth time, you know, as it relates to Genworth, I'll say it my way, we're indifferent. I'll be candid from that standpoint. We repeatedly keep on referring to the fact that we have an arrangement with them that it really does protect us, and we feel extremely comfortable whether the sale is there or the sale is not there. And that is something that we feel is something – that is really without any doubt in our minds, we feel we have the protection.

And I appreciate that, Walter. You guys have the details, right? I think investors, particularly in the event that this deal, the Genworth Oceanwide deal actually does not gain approvals or is disapproved. I guess I'm just wondering whether those details will be something that you can provide to externally to your investor base to give them the same level of confidence that you guys have internally.

Right, so this is Jim. Let me just take a minute to tell you why we don't think so and importantly why the point of view that has been expressed that an insolvency, if it ever occurred with Glick, could mean billions of exposure to us is not only highly theoretical, it's wrong. As previously disclosed in 2016, River Source negotiated substantial enhancements to its reinsurance credit protections under its reinsurance arrangement with Glick. These were intended, among other things, to protect River Source against erosion in Glick's financial position. Due to confidentiality obligations, We are not at liberty to disclose the extent or nature of such credit protections, but we hope to provide some additional color as helpful as to why we continue to believe that our net counterparty credit exposure to GLIC is very different from the gross exposure and is well within our overall risk tolerance. A few points to consider. GLIC is domiciled in Delaware. so any insolvency proceedings will be located there and governed by Delaware laws. Delaware laws and courts have a long tradition of respecting commercial and financial affairs, and the contracts sophisticated people enter into in corporate law, in trust, and in insurance. Similar credit protections to these types... We have with GLIC have been tested in insurer insolvencies proceedings in Delaware, and they have been respected by the authorities. The same holds true elsewhere in the United States. We believe that these protections would be respected even in the unlikely event that GLIC were to eventually become subject to insolvency proceedings in Delaware. While we know no credit protections are perfect, We believe the correct way to think about our counterparty credit exposure to GLIC is not the full amount of any gross liability that GLIC reinsures, but rather the net exposure to GLIC after taking into account our credit protections, which would be significantly smaller exposure if it were to exist.

I appreciate that response. Thank you, Jim.

Our next question is from Andrew Kleigerman. Please go ahead.

Great. Thank you. Most of my questions have been answered, so just some maybe follow-ups on the previous. The de-risking of long-tail businesses, clearly, Jim, when you mentioned that that was the LTC, it sounds to me that there's no sense of urgency to enter into any arrangements. Is that the right read?

No, what I would say in my read just based on what I and Walter said is this. We feel good about what we have for our own business and what we manage just like we have in place for our reinsurance. We feel that we take appropriate reserves. We look at the experience. We constantly evaluate. We've, again, taken rate. We've gotten approval for rates that are going into effect. We're adjusting even some of the alternatives that clients have as they move forward. So with that, don't get me wrong, there can always be some exposure in the future, right? We know things change. The world evolves. It could be changed in some claims. But our book is very aged. Our people have been there for a long time. We have very strong claim experience. And so as we continue to make these things, remember, this is a book that we closed in 2002. the age is much higher than average, and our experience levels are very strong and knowledge of what we have. So we're not saying there couldn't be some exposures going forward, but on a relative basis, based on the strength of our position, our cash flows, our capital, and what necessarily even could change in the near future, in the next few years, next five years, ten years, this is immaterial to our ability to handle it. But I know people are putting this undue sort of risk out there as an umbrella on us, but it's not going to have an effect that people think in any stretch of the imagination. Even if you said it was hypothetically a few hundred million dollars, we can easily take that against our excess capital position with not even a beat at this point. So the point of reference is if there's a reasonable transaction, even if it's at a discount with a good party, and I think people are getting more sophisticated in understanding the differences – I think a transaction could occur. One of the big variables is interest rates. Long-term rates have come down a little more. If they went back to maybe where they were, it would even be more appetizing. So let me be very clear. We're not opposed to anything like that. We're evaluating. You saw we just started the reinsurance. We told you it would take a little time for us to get where we want in the auto home. Listen, I think we're credible in what we say and what we'll do. We'll make very informed decisions and we'll evaluate to continue to invest and grow the business. What I would take away from this today is that we're really excited about the opportunities we have in Ameriprise, in a wealth management business, and a generation of cash across the company. Even with our asset management and INA business, INA is really good solid books. And if there are opportunities for someone to get certain based on the structures they have, but keep the real good benefits and the growth and us really growing the opportunity with our clients and working on our good products, we're open to it. And the same thing with long-term care. But we're going to manage it really well. We're going to make sure that we get appropriate return and cover our risk. And to the extent that there are those little blips that pop up, we're well easily able to cover them. So that's the way I would think about it, but no, we're not opposed to any transaction in LTC, and we think that people are getting more sophisticated in understanding the differences, and maybe there will be a potential for us in the near future. And we're looking at it. So people are starting to call, and we're starting to talk.

Great, great. Yeah, and I mean, and it is kind of a shame because you've got so many great businesses and trends going on that talking so much time about this, it just doesn't make a lot of sense. Right. But with that said, then it sounds like you're not going to do anything that would harm your balance sheet given your feeling about the LTC block and the stability of it. Shifting over to two items, one, the crediting rate on your sweep fees in advice and wealth management. I think I saw that it came up by seven basis points in March. Looking out into the second quarter, are the yields pretty stable right now? Walter, you mentioned you might need to stay competitive. Is there any impetus to raise crediting rates any further?

No. What you saw is we are constantly evaluating our competitive positioning, and we believe we are competitive now. And we constantly review, but I don't see anything that would be changing going forward. But if it does, we will adjust it.

Got it. And then just lastly on that tax rate, it says in the press release the 16% range. I think that means for the year. So can we assume that, you know, given you had 17.3 in the first quarter, that it might trend a little bit under 16% for the balance of the three quarters? Yes. Got it. Thanks so much.

Thank you. Our next question is from Eric Bass. Please go ahead.

Hi, thank you. How are you thinking about the best options for growing the advice and wealth business going forward? And are there meaningful organic investments of capital that could accelerate growth? Or if you were to pursue M&A, what type of transactions would be of interest?

So what I mentioned before, that we're taking the opportunity to make really good investments in enhancing all of our digital capabilities or advice capabilities or client engagement systems. We feel good about that. We are actually picking up our pace in recruitment out in the industry as well, feel good about that and gives us opportunities. And I do believe there may be some opportunities for us, as I mentioned, in the use of capital to to look at some good potential additional add-ons to our wealth management business from an M&A perspective. It's a bit early for me to get into that right now, but it's some things that we're going to spend a bit more time exploring. And we think that may be a good use of our capital moving forward.

Got it. And on that note, would it be similar to some of the transactions you've done recently where sort of team lift-outs or acquisitions of small independent firms, or could it be something bigger than that as well?

I would say it could be both. You know, listen, there are different opportunities in the wealth management space right now that we're thinking about or looking at. So I don't want to go further than that, but just say, listen, this is an area that is our core area. We know it well. We understand it. We do believe we can bring a lot to it. So it's one of the things that we want to spend a little more energy on.

Got it. And lastly, big picture, and it sounds like your focus is really to continue to shift Ameriprise more towards being a distribution company and away from product manufacturing. Would this just be organically growing AWM at a faster rate, or could you also see exiting more of your manufacturing businesses?

Well, what I would say is this. As you just saw, based on our mix and growth, our distribution business, the AWM, is over 50% now of our earnings. We still have very good businesses. Our INA business, however, our solutions to our clients, and they're very complementary. So the real good cash flow we get, the solid nature of the books is because our they're part of where my client assets go for products that we manufacture in addition to what we distribute externally. So I think that's how I think of it. The same thing with our asset management business. Columbia manages a good amount of assets, both for our retail clients, also as part of our books for our INA business, and it's very complementary. And If you go back many, many years, we started as a manufacturer with distribution as a cost center. When I came in, I converted the distribution to the profit center and wanted to round out my solutions group. I exited third-party in the I&A because of what was happening in the industry. In the asset management, I figured I would complement that by buying some companies to give me more of that third-party distribution as a complement. I think we've accomplished that to a good regard. And having said that, I still value the solutions part and what we do here. But as I would probably say, the growth driver of the company right now, based on industry pressures, et cetera, is in our distribution channel. But we're going to continue to be a quality provider in the other areas, and they will generate some good returns for us.

Great. Thank you. I appreciate the comments.

Our next question is from Jeff Schmidt.

Please go ahead. Hi. Thank you. Good morning. Quick question on management fees in wealth management. Up 4% of the quarter, but looking at that as a percentage of assets or of average wrap assets, it was down a fair amount to 1.32%. Can you maybe speak to that and give us a sense of where you see that going over the next year or two?

Yeah, well, I think in the first quarter, just as we saw in the fourth quarter, you had depreciated assets from the level of where you started in December. And so off flows have been consistently strong fourth quarter, first quarter, and they're even getting back to even higher levels as we exited the first quarter. But I think when you look at the fee level, you had equity markets down significantly at the end of the year, just making its way back through the quarter. And so when you run a very large portfolio like that, with a reasonable portion being in equity or a portion of that 50%, 60%, that's where you're going to get that fee compression. But to Walter's point, what he explained would be as we're exiting this quarter with the markets back up, You should probably see it come back to the full level of the type of fee that we had, but the good inflows over the course of the entire last year will complement that as we move forward.

Okay. Thank you.

And our last question will be from Humphrey Lee. Please go ahead.

Good morning. Thank you for taking my questions. Just a question related to rep flows at A&WM. So you've talked about January was a little bit weaker, a muted start, and then kind of picked back up in February and March. I guess how much of the impact was January was to the quarter, and do you feel if the kind of going forward to see a more normal activities, do you feel like you can go back to roughly $5 billion range a quarter in terms of rep net flows? Yeah, so if

In January, it was substantially down, and basically by March, it was back at the levels, at the historic levels, and we are, again, I can't give you an exact number, but certainly we are seeing a pattern that we feel comfortable with as the client activities started coming back. So we felt very good about that trend line, and that's continuing in April to a degree.

Okay, so basically fourth quarter and first quarter was kind of an anomaly, but then we should kind of look back at the rest of the quarters in recent history.

Yeah, that's what certainly the pattern is saying, and especially as you started March. You just watched January's down, and it just progressed its way right back up in March, and it exited, and we're seeing that continuing. Got it.

And then in asset management, you mentioned that the EMEA flows were weaker, but then you have some of the distribution build-out that should hopefully improve the flows activities a little bit better towards the balance of the year. Can you talk about the build-out of the distribution in continental Europe and then your expectation for kind of how productive these channels will be in the coming quarters?

Yes, so this is Jim. What I would say is, first of all, In the first quarter, we completed our transfer of our OIC assets into CCAVs out of the Luxembourg range that we had established last year. So even part of the expense that we have in the P&L was based on completing that, shifting the assets, offsetting some of the expense for our clients, et cetera. Now, when we've done that, we now have a range of the product, a good range of the product, and we are adding resources in some of the markets like Italy and Spain and Germany, ramping up with some manpower, distribution, et cetera, marketing to start to sell more formally in Europe. We always sold, but we always sold out of sort of the idea that we were distributing OICs and we didn't have necessarily all the resources fully on the ground. So we are ramping that up. Now, I would just say activity in Europe and Brexit, if you look at a number of European firms out of the U.K. in asset management, you'll find that activity is pretty weak and redemptions were there. But if that starts to get back as people start to see clarity around Brexit or the idea that the European economy is not slowing, I think you'll see a rebound in that activity. And then with what we're doing to expand in Europe, hopefully that will even give us even a greater level of upside down the road. I don't think it's going to happen immediately because of the situation across Europe and the U.K. right now. But it's one of the areas where we've always garnered good flows. We have good product. and one where we do believe that there is a benefit as that starts to settle down on the continent and in the U.K.

Appreciate it, Carla. Thank you.

Thank you.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.