Ameriprise Financial, Inc.

Welcome to the second quarter 2019 earnings call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants are 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 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, operator, and good morning. Welcome to Ameriprise Financial's second 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 references 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 second quarter 2019 earnings release, our 2018 annual report to shareholders, and our 2018 10-K report. We make no obligation to update publicly or revise these forward-looking statements. On slide three, you see our GAAP financial results at the top of the page for the second quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim.

Thank you, Alicia, and good morning, everyone. Thanks for joining us. As you saw in our earnings release, Ameriprise continues to perform well. We've delivered another strong quarter, completing a good first half of the year. Today I'll discuss a few important themes. First, our wealth management business is leading the way. It's the front end of Ameriprise and our growth engine. Our high-quality asset management, insurance, and annuity businesses complement our leadership in the growing wealth management space. They deliver both competitive profitability and strong free cash flow. And third, we have an excellent financial foundation, which provides important capital generation and flexibility. We continue to take steps to free up capital, invest to accelerate our growth, and generate shareholder value while returning significant amounts of capital to shareholders. Turning to the operating environment, the economy continues to improve. Equity markets have recovered nicely from the pullback in the fourth quarter. Long-term interest rates have come down in the first half, and it also looks as though the Fed may cut short-term rates in the near term. During the quarter, we achieved some new milestones. Assets under management and administration reached an all-time high of $916 billion, and advice and wealth management retail client assets grew 7% to more than $600 billion, also a new record. Additionally, we delivered double-digit EPS growth of 14%, building on our track record. We've long maintained industry-leading ROE and have taken it even higher to 37%, an increase of 670 basis points over last year. Let's start with wealth management, which is driving our growth. Our comprehensive, advice-based approach is highly relevant, effective, and uniquely Ameriprise. Our approach is supported by a broad suite of solutions and anchored in strong personal relationships to meet clients' evolving needs. Importantly, assets remain in Ameriprise through clients' life stages as their needs evolve from asset growth to preservation, income generation, and estate planning. In fact, a recent report by research firm Hartson Wallets found that Ameriprise is a top performer in terms of average share of wallet across customers of all ages. This is an important distinction at a time when many investors are choosing to work with multiple financial service providers. We not only serve our clients full range of needs, we also derive consistent revenues for the business across market cycles. This recognition reinforces how we operate and serve clients. It complements our Temkin credentials where across the investment industry, Ameriprise is number one in trust, number one in customer service, and number one in consumer forgiveness. And we're number one for customer loyalty. Our advisors are also standing out in the industry so far this year. 335 Ameriprise advisors have earned prominent industry recognition, including top rankings in Barron's, the Financial Times, and Forbes. I'm proud to see our advisors recognized in the marketplace for their excellent client service and practice success. In terms of financials, with delivering meaningful revenue and earnings growth while we invest for the future. In fact, AWM generates nearly 80% of firm-wide revenue when you include contributions from our complementary businesses. Our AWM margin remains strong at nearly 23%, which is among the best in wealth management. One of our key growth drivers is fee-based advisory. Assets were up 13% to nearly $300 billion. In fact, we had $4.8 billion of net new inflows in advisory, our ninth consecutive quarter of more than $4 billion. Another important metric is advisor productivity, where we delivered a new record high. Strong client flows, coupled with the extensive support Ameriprise provides, helped drive a 6% increase. We've delivered excellent productivity growth quarter after quarter. Regarding advisor recruiting, We welcome 72 experienced advisors. As a group, they are 19% more productive than advisors we brought in this time last year. This continues our track record of bringing in larger producers who appreciate the Ameriprise brand and our advice value proposition. I feel good about our results and the ability to grow. We see a significant opportunity to serve more clients with advice, especially those with $500,000 to $5 million in investable assets who value an advice relationship backed by strong capabilities in a trusted firm. We're also investing significantly in our client experience. These investments include enhancing our advice experience with new digital capabilities. In early spring, we began rolling them out along with extensive training. Advisors are sharing success stories with me about the difference it makes in their clients' lives and for their practices. We're also in the early stages of advisor uptake and looking forward to building on this initial success. Another key investment we discussed with you is our new customer relationship management platform that we're rolling out through the fall. This integrated system helps advisors define and manage contacts, consolidate client data, and track client progress. This will make it even easier for advisors to engage clients through personalized contact. We're also taking steps to fully integrate our investment advisory platform. Later this year, we're introducing our customer advisory relationship program, moving from multiple different programs to one cohesive program where our various strategies can work better together and freeing up time and effort for advisors to serve clients. And we launched the bank in the second quarter. And in June, brought more than $2 billion of money market cash suite balances on our balance sheet. Later this year and in 2020, we'll add new deposit-based products, credit cards, mortgages, as well as pledge lending. Ameriprise is a well-established advice leader with an excellent reputation. I'm energized about what we have today and what we're doing to further strengthen our position as a leading wealth manager. Now I'll turn to asset management, where we continue to deliver competitive profitability and focus on targeted growth opportunities. Overall, we have a high-performing lineup across equities, fixed income, and asset allocation strategies. And where we had pockets of underperformance, we've seen good improvement this year, which bodes well. our overall investment track records remain competitive and strong. In terms of flows, we're seeing an improvement in the level of outflows that we experienced from the last two quarters. Our market share in North America improved at several of our top intermediary firms with good flows into strategies where we're placing more emphasis, such as our dividend income, strategic income, mortgage opportunities, and municipal income. In fact, we saw a meaningful reduction in our outflows each month of the quarter. We think we can gain even more traction in fixed income, both in the strategies I've mentioned and a number of others where we have good investment performance. We're beginning to position these strategies even more prominently. The risk-off trade in Europe and the ongoing uncertainty of Brexit impacted our flows. That said, outflows have stabilized with improvement in the UK, Benelux, Italy, and Spain. You may have also seen that we won a $2 billion UK equities mandate, with the majority of the funding occurring in the third quarter. In institutional, we were in net outflows, reflecting the market environment where investors were a bit more cautious. That said, we're making progress in our global investment solutions business that we've invested in. We're building a good pipeline and we won some mandates in the quarter. We're also working to grow our SMA model delivery business, where the fee levels are in line with institutional mandates. We now have more than $10 billion in assets under advisement. In addition, we won a new $800 million mandate in the quarter. And as you know, these mandates are not included in our flows. These are a few areas where we're seeing good progress. And as you know, Industry headwinds for active managers continue. Despite these pressures, earnings overall for Columbia Threadneel remain strong, and we ended the quarter with $468 billion in assets under management. Our net adjusted operating margin in this business of 37.1% remains very competitive and within our targeted range. We're investing where we see long-term growth opportunities and benefiting from our reengineering to help offset higher Brexit and regulatory expenses that we and others are experiencing in the UK and Europe. Keep in mind, we run this business as part of Ameriprise with a long-term perspective. With regard to insurance and annuities, these are well-managed books. These businesses provide earnings diversification and stability. They are seasoned books of businesses that replenish with client flows, generating strong free cash flows for our company. With regard to the quarter, our variable annuity flows were down from last year. And while VUL and UL sales were down year over year, we saw improvement from the first quarter driven by a pickup in VUL. Given the environment, these results are what we would expect. We built the business to serve Ameriprise clients and therefore have differentiated risk characteristics. We effectively hedge variable annuity guarantees. In fact, our net amount at risk as a percent of account value is one of the lowest among major variable annuity riders. With regard to our long-term care business, we continue to be proactive in managing our book. In fact, this current year, we sought greater rate increases and benefit adjustments than we did in past years. The auto and home business continues to show improved results, and we're on track to close the transaction in the fourth quarter. That brings me to our capital strength and flexibility. Both are clear differentiators. We're generating substantial free cash flow that we reinvest for growth and return to shareholders. You can expect us to continue to build on our track record of strong capital management. As we've grown, we've consistently returned about 100% of our adjusted operating earnings to shareholders through steadily increasing dividends and buybacks annually. In this last quarter, based on freeing up additional capital, we began to take up our buyback consistent with what we shared with you. We are in an excellent position to continue to generate shareholder value. Our priorities on the capital front are clear. Continue investing in the business, evaluating inorganic opportunities, and maintaining our returning capital shareholders at attractive levels. Lastly, I'm pleased to share that in June, Ameriprise reached 125th anniversaries. Very few public companies in the U.S. has reached this milestone. We're proud to have been in business for more than a century, and I believe it's because we've always put clients' needs first and have constantly evolved. As we look to the future, we're energized about the growth opportunity ahead, the strength of our business, and our financial foundation. Now, Walter will take you through the numbers.