Ameriprise Financial, Inc.

Welcome to the second quarter 2020 earnings call. My name is Sylvia, and I will 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, Sylvia, 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 insights into the company's operations. Due to unprecedented external events in the second quarter, we believe gap results are not comparable to the prior year period. Reconciliation of non-gap numbers to their respective gap 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 2020 earnings release and our 2019 annual report to shareholders. And these may be supplemented in our second quarter 2020 10Q 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'll 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.

Good morning and thanks for joining us. Ameriprise delivered another good quarter given the market headwinds and the challenging operating environment. The strength and stability of our diversified business continues to help us serve clients exceptionally well. I am very proud of our team, how well we're operating during this time and the results we're generating. Clearly, the Fed decision to lower interest rates in March and the volatility in the equity markets affected our business in the second quarter. Markets will continue to experience a level of volatility based on the shape of the recovery, but we are well positioned to manage through this uncertainty. Today, I'll provide an update on our second quarter results and how the business is performing. Importantly, I will discuss these results in the context of the key themes and long-term priorities that we spoke to you about at our Investor Day presentation in November. First, further strengthening our position as a leading wealth manager with a great reputation, compelling capabilities, and deep client relationships. Second, continuing to transform our global asset management business to meet client needs for active management, evidenced by our net inflows in the quarter. managing our insurance and annuity books of business thoughtfully and strategically. And finally, we're driving shareholder value through our combination of businesses, free cash flow, and capital management. Our financial strength positions us well to continue managing ongoing volatility and economic uncertainty. Our balance sheet and liquidity are very strong, and we generate a high return for shareholders. As I reflect on the quarter and the first half of the year, I feel good about our strategic direction, how we're executing and the results we're generating. We're focused on our clients and delivering good organic growth and client flows. We're navigating this climate well. Regarding financials, on an adjusted operating basis, ex-auto and home, Net revenues were $2.8 billion, down 6% compared to last year, reflecting significant pressure from interest rates and lower average equity markets that I highlighted. For the quarter, adjusted operating EPS was $2.64 and was substantially impacted by the reversal of the tax benefit realized in the first quarter and the Fed cuts. Excluding these items, EPS growth would have been 12%. and ROE was 35.6%, which remains among the best in the industry. As you review our financial results, you'll see that we were able to mitigate some of the revenue pressure through good expense management and strong capital management. In fact, adjusted for the impact of the tax item, EPS growth is good, and our ROE is near the top of the industry. And our assets on the management and administration ended the quarter at $947 billion, up 3% reflecting strong client flows and point-to-point market appreciation. Now I'll discuss advice and wealth management, where we're delivering good growth in assets and flows and absorbing market pressure as well. Total client assets were up 4% to $630 billion. In the quarter, we had strong client flows with nearly $5 billion in wrapped net inflows, which is consistent with our strong start to the year and very good when considering the volatility and unease in the markets. Clients' brokerage cash balances remain high but came down a bit on a sequential basis as clients started putting money back to work as markets stabilized. Our goal-based value proposition is resonating with clients as they navigate these markets. We're seeing good uptake in foundational advice and much greater use of our digital capabilities, including online goal tracking and record engagement on our websites and mobile apps. In fact, site visits are up 50% over last year, and traffic to the AmeriPrize app increased 70%. And clients are highly satisfied with the AmeriPrize advice experience. Ninety-six percent say their advisor provided advice that addressed their needs and that they were highly satisfied with the outcome of their experience with their advisor. Ninety-two percent say they are likely to recommend the experience to friends or family. Additionally, our CRM platform is an important component of the AmeriPrize client experience, particularly in this remote working environment, as advisors leverage these capabilities to track and act on client data and activity. We're consistently invested in our technology, which is leading to continued strong client satisfaction, engagement and growth, and advisor productivity. In fact, net revenue per advisor increased 5%, which is quite good considering the weight of low interest rates on the business, as well as lower average equity markets, and the change in methodology of billing based on beginning-of-the-month asset levels. On the recruiting front, we welcomed 75 productive advisors to the firm in the quarter across all our channels. Advisor movement in the industry slowed considerably in April due to market dislocation. We quickly moved to an all-virtual recruiting program, an activity picked up in May and June. Many advisors have more time to evaluate options, and they're taking advantage of our video sessions, webinars, virtual VIP meetings, and open houses to get to know Ameriprise. It is a very efficient way to showcase our effective advisor value proposition. These experienced, highly productive advisors are attracted to our client-first culture, and they've been particularly impressed with our technology as well as how we've been supporting our advisors during a challenging time. We're very well positioned on the recruiting front, and the pipeline looks good. With regard to Ameriprise Bank, this is an important growth area for us that we continue to ramp up. We're beginning to invest out the cash that we moved to the bank. We're also building out our capabilities. We just launched our mortgage product in July, and we will be rolling out our pledged loan capability in the fourth quarter. So in terms of AWM financials, margins remain quite strong at nearly 18%, and that's after the significant impact of the Fed interest rate reduction. We've consistently had strong sustained margins in AWM, that compares very favorably to peers, and that remains true today. And as we grow the business, we are closely managing expenses given the revenue environment while still investing to drive future growth. In insurance and annuities, we've been very deliberate in how we're managing these businesses. We've adjusted our products, features, and pricing consistent with our risk management approach and the environment. In annuities, total variable annuities sales were down 17%, reflecting client concerns about the pandemic and market volatility, as well as the mix shift we are driving. We continue to see very good uptake of our structured annuity we launched earlier this year. When you combine these sales with our flagship Raba VA product, more than 50% of new RiverSource annuity sales in the quarter were in products without living benefit guarantees. As we progress through the year, we should increase even further consistent with our plan. I'd also add that due to the rate environment, we stopped new sales of fixed and fixed index annuities. In protection, life sales were also down. However, we've been focused on shifting from IUL to VUL, where we have been a leader. VUL sales were stable, and the decline was in IUL. As with our variable annuities, we continue to make pricing and benefit adjustments, including cap rate reductions and adjustments to our underwriting as appropriate. Like others, we have seen a slowdown in long-dated products and we're working hard to help advisors serve their clients and grow their books with insurance and annuity solutions in this largely virtual world. Overall, we will continue to manage this business prudently and it continues to be a good source of free cash flow. Moving to asset management, we had a good quarter that reflects the momentum in the business that we've been building and discussing with you. The trends in the business are quite positive, especially in North America. At the end of the second quarter, AUM was $476 billion, up 2% from a year ago, even after reflecting lower-weighted equity markets. It was also up 12% sequentially, reflecting the recovery in the U.S. equity markets in the quarter and our improved flow picture. Our AUM growth was driven by our North America business. We are generating good earnings in asset management, and while pre-tax adjusted operating earnings were down, that was largely due to lower performance fees and lower average equity markets compared to a year ago. The success we're driving in our flows is a result of our focus and progress in a number of key areas. First and foremost, our strong investment performance. Our short and longer-term equity performance has remained strong through this volatile period, with around 70% of our funds above median or beating benchmarks. on an asset-weighted basis. Performance is especially good in key strategies like income-oriented equities, an asset class that we believe will continue to be critical for years to come. And in fixed income, we saw a bounce back from underperformance in March that impacted short-term numbers. Long-term numbers across equities, fixed income, and asset allocation remain strong in both the U.S. and EMEA. In addition to good investment performance, we're concentrating even more on strategies that align with investor needs and also improve the effectiveness of our distribution. Columbia Threadneedle was in net inflows in May and June and ended the quarter with $2.6 billion in net inflows for the quarter, a more than $4 billion improvement from a year ago. This is a nice continuation of the improving trends that we've seen over the last year. Regarding global retail net inflows, North America retail was in net inflows of 3.1 billion ex-ex-parent with 400 million of outflows in EMEA. U.S. retail had very good results across distribution channels, including large broker-dealer firms, independents, and DCIO. We're generating good results from our effective segmentation and targeting, as well as the benefits of our data strategy. In fact, North America was in net inflows in four of the first six months of the year, led by strong flows in equity income and complemented by certain fixed income asset allocation and other strategies. In addition to these North America retail inflows I spoke about, we continue to build out our model delivery business and had $315 million of assets under administration flows in the quarter. In EMEA retail... We were in net outflows as the equity market environment there is more challenging, and investors remain cautious. That said, overall flows improved nicely from a year ago, particularly in key markets, including the UK, Germany, and Italy. And in global institutional, excluding former parent assets, we had net inflows of $211 million, a nice improvement from last year. and that includes outflows of $900 million of low-fee assets from an insurance client that we expected. We were able to offset that by winning higher-fee mandates, including improved traction in Asia and with nice diversity across equity and fixed income. Key to these strong results is our excellent virtual engagement with intermediary and institutional clients that reflects the benefits of the technology investments that we've made across the firm. Going forward, our teams will operate using both in-person and virtual engagements, which should further improve efficiency and cost of acquisition. So to wrap up asset management, we're delivering good results and improving trends, and the team is focused on continuing our progress going forward. Now let's turn to our ability to return capital to shareholders, which is underpinned by excellent free cash flow generation and balance sheet strength. the business continues to generate good free cash flow that we invest for future growth and return to shareholders. Our balance sheet remains very strong with approximately $2.2 billion of liquidity that we held at high levels since increasing it early in the year given the volatility and the market and economic uncertainty. Excess capital remains strong at $1.9 billion, and as we have noted, we have a high-quality diversified investment portfolio with an average rating of double A minus and limited exposure to industries that are currently under pressure. And we restarted our buyback program in May, reflecting the strength of our free cash flow generation and capital position. In closing, we continue to focus on our clients and helping them navigate this environment. As I've discussed, we're getting good traction in advice and wealth management, and the trends in asset management are positive. Overall, the company remains strong, and we're able to return to shareholders at a differentiated level through an increase in our dividend and restarting our share repurchases. Regarding our team, while the vast majority of our employees and advisors continue to work from home during the second quarter, we have begun to gradually initiate a return to office. As you expect, we're taking a thoughtful, phased approach. We're beginning to open a number of corporate sites and our branches and franchise offices around the U.S. are starting to reopen safely. Throughout this period, our top priorities have been serving our clients as well as the health and safety of the Ameriprise team. Our people are collaborating well and they're highly engaged, and it's getting noticed. I'm pleased that we were named once again as a best place to work by the Minneapolis St. Paul Business Journal. I feel good about how we're executing and operating through this pandemic. Uncertainty remains in the environment, but we're very well positioned. Now I'll turn it over to Walter, and then I'll take your questions.