Ameriprise Financial, Inc.

Welcome to the fourth 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 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'd 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. Reconciliation 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 2019 earnings release, our 2018 annual report to shareholders, our 2018 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On slide three, you see our GAAP financial results at the top of the page for the fourth 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. Additionally, we are providing an annual update to our long-term care disclosures as an appendix to the slides posted on our website today. And with that, I'll turn it over to Jim.

Good morning, and thanks for joining us. Ameriprise delivered an excellent fourth quarter, completing a very good year. As many of you know, we held our investor day in November to give you an even deeper understanding of our go-to-market strategies and long-term growth plans. I want to thank everyone who attended. We enjoyed our conversation with you. Regarding our growth strategy, as we discussed, there are four key areas driving our momentum. First, we have a significant opportunity to build on our strong position and further grow as a wealth management leader with deep client relationships. Second, we're transforming our global asset management business to meet the important needs for active management. Third, we're managing well-developed insurance and annuity books of business that generate significant, consistent free cash flow. And finally, Ameriprise is delivering profitable growth, has a sound balance sheet, and is generating a high return for shareholders. On our call today, I'll discuss our results, the operating environment, and our progress executing the growth drivers we've outlined at Avesta today. Turning to the markets, U.S. equities reached yet another record high, and our average weighted equity index that reflects the mix of assets we manage finished up strongly for the year. As you know, the Fed interest rate cuts in 2019 are a headwind, and yesterday the Fed said that interest rates remain unchanged. As January comes to a close, equity markets remain strong, but would it pick up in volatility? We cannot predict the year or market cycles, but with deep client relationships, good cash flows, and a strong balance sheet, Ameriprise is built to manage these cycles and emerge stronger. Now let's discuss the quarter. On a consolidated level, fourth quarter results were quite good compared to a year ago. On an adjusted operating basis, we delivered revenue growth of 6%, excluding auto and home revenue in the year-ago period. Solid EPS growth up 11%, even after absorbing some additional expenses in corporate. A return on equity of 38.6%, XAOCI and unlocking, which remains well above many peers. And with the sale of the auto and home business, we generated $161 million in net benefit on a full year gap pre-tax basis. Our assets under management and administration reached a new high, up 18% to $973 billion. We also achieved new records in wealth management for retail client assets and advisor productivity that I'll discuss further. With that, let's now turn to our growth engine, advice and wealth management. We delivered solid revenue and earnings growth in the fourth quarter, even with significant decline in short-term interest rates. Margin in AWM was nearly 23% and continues to be among the best in wealth management. I'm pleased with how we're executing our priorities. We're growing our client base, serving more affluent investors, and deepening client relationships. It all starts with the large and compelling market that we're concentrating on. Responsible investors with $500,000 to $5 million in investable assets. They are looking for comprehensive advice and strong digital capabilities from an advisor and a firm that they trust. Ameriprise is uniquely positioned to serve this market, and it's translating into terrific results. We had an excellent year in advice and wealth management, including some nice fourth quarter highlights. Client assets were up 19%. Our fee-based advisory business continues to stand out with more than $4 billion of inflows into advisory in the quarter. This brings total wrap assets to $318 billion, a 26% increase. Importantly, we had strong client acquisition results in the quarter, particularly in our fluent target market. And we saw good pickup in transactional activity as more clients engaged with us in financial planning relationships. And in the quarter, Advisor productivity increased 6% as advisors leveraged the extensive support we offered to help them grow. In recruiting, we had another good year. We continue to attract experienced advisors from across the industry. In addition, another 63 advisors joined us, and it's one of the best quarters for recruiting large production practices. What's behind our continued success? the deep, long-lasting relationships we work diligently to earn with clients, and we're using our goal-based advice expertise and our enhanced client experience to deepen these relationships even further. We're also leveraging our recent investments to drive future growth. Here are some updates. We continue to increase uptake of our digitally-enabled advice experience to even more clients. We completed the rollout of our custom advisory relationship program. We finished the conversion of our new customer relationship management platform, and we're growing the Ameriprise Bank. We brought more than $1 billion of cash sweep balances on the balance sheet in the fourth quarter, bringing our full year total to close to $4 billion, and we will continue to bring sweep deposits on the balance sheet. This year, we will be adding additional capabilities, including a mortgage program, pledge loans, and a savings deposit product. I also like to point out that outside of the bank, Ameriprise wealth management expenses will come back to more normalized levels in 2020. We also continue to receive important recognition in the industry. Ameriprise was recently certified by J.D. Power for providing an outstanding customer service experience. Our teams work hard to deliver industry-leading service, so this means a lot. I'll leave you with this takeaway. With our advice value proposition and the investments we've made, we have a great opportunity to continue to grow in the wealth management business. I'm energized by the opportunity we have in front of us. Now I will turn to our I&A businesses. These are strong books that provide earnings diversification and stability. We're focused on delivering insurance and annuity solutions that satisfy client needs while continuing to evolve our solution mix. In the quarter, we generated $185 million in adjusted operating earnings for the protection annuity businesses, in line with our expectations. And we continue to generate strong free cash flow. In terms of annuity sales, total variable annuity cash sales were up when compared to a slower quarter last year. And for the year, sales were in our typical range of about $4 billion. This month, we launched our structured solutions annuity product designed exclusively to meet the needs of Ameriprise clients. We expect this will help shift even more of our books away from products with guarantees. Fixed annuity sales were down year over year in line with our plan. In protection, we focused on continuing the shift from IUL to VUL, where we had a very strong growth in VUL sales compared to last year. Overall, life insurance and force remain stable at $195 billion. As always, we're focused on managing risk appropriately and ensuring we have the right product designs for our clients and the environment. We will also continue to evaluate further action regarding reinsuring the remaining fixed annuity block this year. Moving to asset management, earnings were strong and flows continued to improve. We remain focused on serving client needs and pursuing long-term growth opportunities in key areas. Columbia Threadneedle ended the quarter with $494 billion in assets under management, up 15% on improving flows and positive markets. And the earnings contribution to Ameriprise remained good. We're making good progress executing our strategy, and you can see that in our flow picture. We generated $3.3 billion in net inflows in the quarter, which was up $8 billion from last year. This is our third consecutive quarter of improved flows. Investment performance was excellent in 2019 across equities, fixed income, and asset allocation portfolios. On an asset-weighted basis, for our Columbia funds, over 75% are above medium for one-, three-, and five-year timeframes. For Threadneedle funds, over 80% are beating their benchmarks for those same time periods. And we're seeing improved results across strategies and regions, with global retail leading the way. In U.S. retail, we have been increasing our market share at six of our top eight broker-dealer partner firms, and gross sales in our key strategies are good. Our equity flow rate in the quarter was strong. In fact, of the 17 active firms we benchmarked, We were in the top five and one of the few that were net positive for the quarter. And in fixed income, we continue to garner good flows, and we feel that we can improve even further. We're seeing a particular strength in our income franchise. For example, our dividend income, strategic income, and mortgage opportunity funds generated more than $2.2 billion in combined net inflows in the quarter. In EMEA retail, with Brexit now moving forward and reduced uncertainty in the UK, sentiment in Europe has improved. Net flows improved by more than $2 billion from last year. We're making good progress. In fact, we were in net inflows in nearly all of our key markets in Europe now that we have built out our CCAT product range. And in global institutional, net inflows improved by more than $2 billion ex-parent to a net outflow of $1 billion. We're gaining traction in a number of areas that we talked to you about in November. It was another good quarter in asset management. We have a strong product lineup, excellent performance, and global reach, and we're focused on executing well to maintain our momentum. Now let me turn to our final key area of focus, our capital strength, which is outstanding. Last quarter, I highlighted our strong excess capital position and the benefits of the successful sale of the auto and home business in terms of freeing up capital and focusing our efforts on our core businesses. Ultimately, we ended the year at $2.2 billion of excess capital. In the fourth quarter, as a continuation of our strong return of capital, we returned 125% of operating earnings through the pickup in the pace of our buyback. And for the year, we reduced our overall share count by 8%. To summarize, it was an excellent quarter and year for Ameriprise. We're in a strong position. Later this year, we'll mark our 15th anniversary as an independent, publicly traded company. We're incredibly proud of what we've accomplished. Importantly, we're proud of how we're recognized for our client service, our records of outperformance, and how we consistently deliver for shareholders. We're poised and energized to build on our record of performance and growth. Now, Walter will discuss the financials in detail, and then we'll take your questions. Walter?