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spk01: Welcome to the Q1 2022 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 0 then 1 on your touchtone phone. I will now turn the call over to Alicia Charity. Alicia, you may begin.
spk00: Thank you, Sylvia, and good morning. Welcome to Ameriprise Financial's first 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 and on our website. 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 first quarter 2022 earnings release, our 2021 annual report to shareholders, and our 2021 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 first 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.
spk05: Good morning, and thanks for joining our first quarter call. I'll begin by sharing that Ameriprise delivered another good quarter and a solid start to the year. As you've seen, the economic environment remains strong, but the global equity markets are more volatile, both given the impacts of the Russian invasion of Ukraine and the higher inflation that we're experiencing here in the United States, as well as globally. In fact, the Bloomberg U.S. aggregate experienced its largest single quarterly loss in over 40 years. In this climate, the Fed has finally begun to raise short-term rates, which is appropriate. They've been slow to take action and signaling that they'll have to get more aggressive. Before I discuss the court, I'd like to acknowledge the horrific situation in Ukraine. Ameriprise vehemently condemns the atrocities being committed by Russia, and our thoughts are with the Ukrainian people and all who have been affected. Our focus has been on supporting humanitarian relief. I should note we don't have staff or conduct business in Ukraine or Russia, and our direct exposure is extremely limited. Let's move to the first quarter results. We're in a very good position to kick off the year, and we've been able to execute very well during this volatile time. Client activity remained very strong. We continue to generate good results. We're investing for growth and executing our plans and serving clients really well. And that resulted in good asset growth and strong financial performance. Total assets on the management administration were up 17 percent. Revenues were up double digits. Earnings per share was up 10 percent. And ROE is terrific at 49.9 percent. All in, strong results in a challenging market environment. Let me now turn to advice and wealth management. We delivered another strong quarter. With the volatility picking up, it's important for us to be engaged with our clients and advisors. They're leveraging the tools and solutions that we invested in over the last number of years that we told you about. We had strong activity and flows in the quarter and good client acquisition, particularly in our 500,000-plus markets. I know that our advisors have been doing a level of reallocation and rebalancing that's appropriate in clients' portfolios. And, in fact, we saw good flows coming in and cash balances have picked up, which is appropriate at this point. So let me give you some of the numbers. Total client assets were up 8% to $823 billion. Client inflows were strong, up 12% to $10.4 billion. Wrapped net inflows of 8.7 billion were strong in a more volatile environment, and even though they're a bit lower than a year ago, clients are holding more cash. As you would imagine, transactional activity was impacted a bit, but it's only down 6%. As markets stabilize, we expect to see more cash going back to work. High cash balances present a significant revenue opportunity for us as we move through 2022 and beyond. In total, cash balances increased to nearly $46 billion, up more than $5 billion from a year ago. And as the Fed continues to raise short-term rates, we expect to see a meaningful lift in earnings. With this backdrop, our advisor productivity growth reached another new high of 18 percent, which is terrific. With regard to recruiting, we continue to demonstrate the attractiveness of our advisor value proposition with another 80 experienced advisors joining us in the quarter. The pipeline continues to look good, and in our surveys of advisors who have joined us, over nine out of ten advisors have said they have better technology, financial planning capabilities, and the ability to acquire clients more easily than they did at their prior firms. One of the things I'm proud of is how we consistently work with our clients and our strong client satisfaction. It's great to see that Newsweek has named us one of America's most trusted companies. That complements our Investors Business Daily number one trusted wealth manager ranking. And earlier this year, we launched a new ad campaign, Advice Worth Talking About. That's telling our story even more broadly in the marketplace. We showcase that nine out of ten of our clients are likely to recommend Ameriprise to their family or friends. And a few weeks ago, we released our money and family research on generational wealth that underscores the significant need for holistic advice in the marketplace, which plays to our strength. Turning to the bank, total assets grew to $14.2 billion in the quarter, up more than $5 billion from a year ago. We continue to have good demand for our pledge loans, with balances increasing nicely in the quarter. The bank presents a significant opportunity as a long-term growth driver within wealth management and provides additional flexibility in this rising rate environment. To wrap up advice on wealth management, our financials are good. Pre-tax income was up 13%, and we generated a strong margin above 21%, up 80 basis points. Let's turn to asset management now. We, like others, have experienced the market volatility and the risk-off headwinds given the geopolitical environment. It has affected us and the industry, largely in retail. But overall, based on the strong progress we've been making over the last number of quarters, we saw good growth in assets up 24%. Our long-term investment performance continues to show good consistency with our three, five, and ten-year time periods and over 80 percent of our funds were above medium on an asset-weighted basis. Our one-year performance did slip a bit based on the volatility out there and the rotation from growth to value given our quality growth positioning in certain equity funds, especially in Europe. But our investment teams feel good about their positioning as they manage through a tough market environment. Let's turn to flows. where we were out about $700 million in the first quarter, reflecting the pressure you've seen in the industry. In retail, we were out $1.9 billion. In terms of U.S. retail, our gross sales slowed, and we saw a pickup and redemption similar to the industry. Our flow rate was slightly better in terms of active peers in equities and slightly worse in fixed income. We haven't really played in a large way in the short-duration market or the leveraged loan area. However, we benefited from the remaining piece of the U.S. asset transfer that was part of a BMO transaction and which is largely included in our retail numbers this quarter. In EMEA, retail net outflows improved a bit in the U.K. However, they worsened in continental Europe given the risk-off environment. Gross flows have certainly slowed for the industry and we're seeing similar pressure. Yes, retail flows are a bit challenged, but we have a strong lineup of funds and good engagement with distribution partners, advisors, and gatekeepers. When the markets start to stabilize, we'll be in a good position. Turning to global institutional, excluding legacy insurance partners, net inflows were $1.9 billion as investors looked through the current volatility. We had some good wins, but there were some asset allocation calls, as you would expect, and we experienced some redemptions. We've added to a number of our rated strategies, and similar to retail, we're having good engagement with clients and prospects globally. Our investment performance is key to this, and it's being recognized. We did well in recent Barron's rankings, and five Columbus strategies earned 2022 U.S. Refinitiv Lipper Fund Awards with four as repeat winners. With regard to BMO EMEA integration, we're on track. The combined senior management team is in place, and we announced that we will rebrand the BMO Global Asset Management EMEA business to Columbia Threadneedle Investments in July. So, for asset management, we're focused on our clients, executing our plans, and generating good financials and returns for Ameriprise. Pre-tax operating earnings were up 25 percent, and margins were above 40 percent, and that's with the full quarter of BMO in the numbers. Moving to retirement and protection solutions, we're seeing good results. I'll start with variable annuities. I want to mention again that we discontinued products with living benefit riders at year end. We had some sales in the pipeline that came in in January, but that tapered off as we moved through the quarter. Given the environment, we had good sales in our Rava product without living benefits as well as our structured products. Overall, our sales were down 27%, but that should be expected given the volatility and a move away from living benefit guarantees. In protection, we continue to have strong sales in the quarter coming off a positive year. We're seeing good activity. Our life sales were up 22%. We've been focused on our VUL and DI products, which are good margin and return businesses for us and appropriate for clients in this environment. In terms of earnings, we're at 4% in line with our expectations. Financial results and free cash flow were good, particularly given the volatility and our move away from living benefits. So overall, for Ameriprise, in terms of our capital positioning, We feel really good about continuing to give back to shareholders at an attractive rate. We returned $562 million in the quarter, which is substantial. And with that, we raised our dividend up 11%, our 18th increase since becoming a public company in 2005. So overall, as I began our conversation, I think Ameriprise delivered another good quarter. Even with this changing landscape, I think we're situated very well. Our advice value proposition and high-quality solutions are necessary and key in this environment. And with that, we feel very well positioned to satisfy our client objectives. In looking over the past cycles, we have consistently performed well, especially during volatile periods. I'm confident that this will continue based on our strategic investments, our focus on execution, and serving clients holistically in our balance sheet strength. Now, Walter will review the numbers in more detail, and then we'll take your questions.
spk03: Thank you, Jim. Ameriprise delivered strong financial results across the firm, with adjusted operating EPS up 10% to $5.98. Despite significant market uncertainty in the quarter, our core wealth and asset management businesses delivered strong profitable growth, representing nearly 80% of Ameriprise's earnings in the quarter. In the quarter, these businesses demonstrated the strength of the underlying business model and ongoing execution of our growth strategies. And our retirement and protection solutions business continues to perform well with a differentiated risk profile. Our balance sheet fundamentals are excellent with significant excess capital of $1.9 billion. This allows Ameriprise to consistently return substantial capital to shareholders as we plan to return approximately 90% of adjusted operating earnings to shareholders in 2022. Let's turn to slide six, where you can see that we continue to generate strong growth in both earnings and profitability in our growth businesses of wealth and asset management. Revenues in these businesses grew 13% to $3.1 billion, with pre-tax operating earnings of $725 million, up 18%. This drove a blended margin of 26.6%, up 80 basis points from a year ago. Let's turn to the individual segment performance beginning with wealth management on slide seven. These strategies we have in place to support advisors and improve their productivity using best-in-class tools and technology continue to generate strong organic results. Despite the challenging macro environment, we generated very strong client flows of 10.4 billion in the quarter. Client assets grew 8 percent to $823 billion, and our advisory force continued to deliver exceptional productivity growth with revenue per advisor reaching $810,000 in the quarter, up 18 percent from the prior year. On slide eight, you can see that our business fundamentals are fueling continued strong financial results in wealth management. Adjusted operating net revenues grew 9 percent to $2 billion from robust client flows, which were supplemented by year-over-year market growth. However, transactional activity declined a bit given the uncertain market environment in the quarter. In the face of volatile markets, we saw cash balances increase to nearly $46 billion, which is counter to the typical seasonal pattern where cash balances generally dip in the first quarter. High cash balances should provide a substantial and immediate benefit based upon the Fed's anticipated increase in short rates for the remainder of 2022. Based upon the market's expectation of three 50 basis point increase, followed by two 25 basis point increases in the balance of the year, we would expect an additional benefit to pre-tax earnings exceeding $200 million in 2022. But that is subject to change if the Fed takes different actions. This would help offset the impact if markets pull back further this year. In addition, this provides flexibility for us to optimize the benefit from rising rates across off-balance sheet brokerage cash, the bank, and certificates. It will enable us to invest across duration where we see attractive opportunities, and capital is not a constraining factor for us. In the first quarter, we brought $1.8 billion of brokerage suite balances onto the bank balance sheet that we put to work in three- and four-year duration strategies, earning nearly 3%. In April, rate opportunities increased to the mid to high 3% range. Expenses remain well-managed. G&A expense increased 5% from higher volume-based expenses and business growth over the past year. As we move through 2022, we will continue to manage expenses in light of the revenue environment. While equity markets remain volatile, at this point, We expect a significant tailwind from rising rates to offset market-related revenue pressure. Overall, wealth management profitability remains strong, with pre-tax adjusted operating earnings of $440 million, up 13% from last year. Pre-tax operating margin expanded 80 basis points to 21.5%. Let's turn to asset management on slide 9, where we maintain strong profitability despite market conditions. Total assets under management increased 24% to $699 billion, reflecting net inflows and the acquisition of BMO EMEA. In the quarter, asset management net outflows were $0.7 billion, including $0.7 billion of outflows from legacy insurance partners. Underlying flows were flat as continued strength and institutional offset retail outflows as we, like the industry, saw pressures from global market volatility a risk-off investor sentiment, and geopolitical strain in EMEA. Margins in the quarter were strong at 41.5% and in line with what we indicated in the fourth quarter, given the full quarter BMO impacts in our results. On slide 10, you see asset management continued to deliver strong financial performance. Adjusted operating revenues increased 23% to $1 billion, reflecting the cumulative benefit of net inflows and business growth, strong performance fees, and market appreciation. The fee rate in the quarter was 47 basis points, excluding performance fees. This is consistent with guidance provided in the fourth quarter regarding the addition of BMO assets, which are largely institutional. Expenses remain well managed and in line with expectations given the revenue growth. G&A expenses were up 38 percent as a result of two items, the BMO acquisition, and hard performance compensation. Pre-tax adjusted operating earnings were $285 million of 25%, demonstrating the underlying strength of our business growth and performance fees. Let's turn to slide 11. Retirement protection solutions include blocks of business with a differentiated risk profile. The business performed well with pre-tax adjusted operating earnings of $191 million, up slightly from a year ago given market appreciation and lower distribution expense from lower sales. Our focus remains optimizing our risk profile and shifting our business mix to lower risk offerings. Variable universalized product sales increased over 40%, which now represent a third of total insurance in force. Variable annuity sales declined 27%, reflecting the uncertain market environment, as well as our decision to exit manufacturing products with living benefit riders. Account value of living benefit riders represent only 60% of the overall book, down another 280 base points from last year. This mix in sales and account values for both retirement and protection products is expected to continue. Now let's move to the balance sheet on slide 12. Our balance sheet fundamentals remain excellent. We had holding company available liquidity of $1.6 billion and excess capital of $1.9 billion at the end of the quarter. A diversified, high-quality, AA-rated investment portfolio remains well-positioned, and our VA hedge effectiveness was 94% in the quarter. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders. Yesterday, we announced an 11% increase in our quarterly dividend And as I mentioned, we remain on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022. With that, we'll take your questions.
spk01: Thank you. We will now begin our question and answer session. If you have a question, please press 01 on your touch-tone phone. If you wish to be removed from the queue, please press 0, then 2. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, if you have a question, please press zero then one on your touchtone phone. And we have our first question from Brennan Hawken with UBS.
spk07: Good morning. Thanks for taking my question. Walter, you indicated a $200 million pretax earnings benefit from higher rates in wealth management. Is that your expectation versus the 1Q run rate? Or would that be versus where things were on the January call when the forward curve was less hawkish? And that's a 22 impact, right? So given the timing of the hikes, we'd see greater impact in 2023. Is that fair?
spk03: It really is more an indication of what the Fed has recently announced. as it relates to the short end with the 350 increases they talked about in the 225, and seeing the benefit in this year. And you're right, you would then get the calendarization full impact as you get into 2023. We will also get the benefit, as we're seeing it now, because in the quarter we did see a substantial increase in the spreads for the long end. So we will pick that up as we start shifting money from all balance sheets on balance sheets. So I think it's going to be a combination of both and will allow us to garner that additional profitability. But again, they're estimates based on a lot of variables.
spk07: Sure, sure. Of course, that's fair. Thanks for that. And then for my second question, pledge loans, new product for you and might be on a different trajectory. But there's been some concerns about across the industry what rising rates might do for demand for those products. So what are you hearing from your advisors as short-term rates are likely to rise? And how are those efforts to educate your advisors on the merits of the offering going?
spk03: So far we're seeing continued demand for our pledge activity, margin activity. So we have not seen any negative impact. and certainly our advisors are very knowledgeable about the tradeoff of being able to leverage and use that capability to invest in the market. But so far we have not seen it. We've seen good growth coming in from pledge and from margin.
spk07: Great. Thanks for taking my questions.
spk01: I'm Eric Bass with Autonomous Research.
spk02: Hi. Thank you. Given the weaker market performance year-to-date and the turn in asset flows, do you believe sustaining an asset management margin in the low 40% range is still achievable?
spk03: Well, obviously, it will. Our range is, as we always talk about, 35 to 39, and we said we were getting the benefit of the higher market appreciation. So you would imagine if the markets where you portrayed it continue to go down, it will go down, but we Again, we have ways to go to still stay within our ranges that we talked about.
spk02: Got it. And I think you noted in the slides that the BMO acquisition is performing above expectations. Can you just provide some more color on this? Where has the performance been better, and has anything changed in terms of your expectations around earnings accretion?
spk03: Okay, so it's on multiple fronts. Obviously, they have garnered some very good inflows in this environment. As we talked about, we've had institutional inflows coming in that have been very good in LDI and other areas. And we've also had the U.S. transfer came in. So those have been very good. The profitability has been totally on target, actually a little better than we want. And as we look at the elements of the performance fees, that came in and that was certainly – strong profitability coming up, private equity and property. So it is performing well, and then as we're looking through integration, we have our plan set and we're moving through that and certainly moving through our strategy to get our synergies. So we're feeling very comfortable about the acquisition at this stage.
spk02: Thank you. And was this the last quarter you'd expect the U.S. transfers to come in, or are there any more that we should expect going forward? This is basically it, we believe it. Got it. Thank you.
spk01: Thank you. Our next question comes from Steven Chubek with Wolf Research.
spk11: Hi. Good morning. So I wanted to start off with a question just on the recruiting outlook. You know, some of your peers had indicated earlier in the quarter that recruiting had slowed pretty dramatically given some of the elevated volatility, particularly in January, February. But the 5% organic growth, the net advisor ads you delivered in the quarter, admittedly more resilient than we were anticipating. I was hoping you could just speak to some of the factors that drove more resilient organic growth trends over the course of the quarter, and maybe just on a longer-term basis, your confidence in sustaining 5% plus organic growth, given some of the strong recruitment trends that we saw.
spk05: Okay, so I think you had sort of two parts in there. One is around the recruiting end, and then around, I guess, the organic growth just from flows. So, yeah, at the beginning of the quarter, it was always a little, you know, to start off the year based on what we've seen as some of the volatility that occurred in January, and then we were able to really pick that up as we got through the quarter, and we had 80 good quality people come join us Our pipeline still looks pretty good as we continue to move forward. I mean, there's been a greater level of volatility, as you saw, in the month of April. But I think that we're having good conversations with people. They understand the value of what we can provide them and the type of support that we provide for people who have joined us. Regarding the organic flow activity, In general, as you would imagine, when you have a pickup of volatility and you get a little more unknown, you have a little bit holding on cash not going necessarily to work or the idea that people want to put a lot more money in the market if it's going to sort of fall the next day. But our overall client activity has held up. The engagement is good. I just think the volatility will always cause a little bit of a slowing of in how people are thinking about it. I'm not sure how you're thinking about it, whether you're putting a lot of money to work right now, if you have a little bit more of the unknown. But I do believe that since the engagement is strong, the conversations are good, and the client relationships are good, and we're actually gaining more client relationships, that those flows will be there over time. Whether there's a little slowdown because of this period of the unknown, is the usual occurrence. So we feel good. Your assets stay with us. I think people are seeking the advice that we provide. And it's just more of what happens in a particular month or quarter or week. But I think you see that that is something that we can sustain.
spk11: That's great, Collar. And just for my follow-up on the brokerage cash sweeps into the bank, I was hoping you could just help frame what level of sweeps we should be modeling over the course of the year as you continue to scale the bank, given that high 3% reinvestment yield assumption you had alluded to earlier. And as we think about just the pace of Fed tightening, what expectations should we be underwriting just for both deposit betas and cash sorting or yield-seeking behavior as we get deeper into the tightening cycle based on your historical experience?
spk03: All right, so from a bank standpoint, we've already moved from, or on balance sheet, about $1.8 billion. We are evaluating, we have a range, or you can get into $4 to $5 billion that we think would be applicable here, that we would start evaluating that trade-off, because the bank is giving us that opportunity to balance, to pick up our yield from that standpoint. And so that is something that... you should expect that we will be targeting to do in 2022. As you indicated, the yields are up, and certainly those yields have low risk profiles as we continue to manage that. So it would give us a good balance between increasing short-term and picking up the spread with low risk and low duration, because we will stay in the 2.5 to 3.5 range on the duration. And that's the sweet spot that's working out very well for us.
spk11: And with regards to this beta, is it yield-seeking behavior with the expectation for the level of cash balances as we get deeper into the tightening cycle?
spk03: If you're looking from our standpoint with the off-balance sheet cash and the stability of that, it is quite good. It is, again, it's more working capital, and certainly it's built up over time. the years, but this is something we feel very comfortable with. The amount that I mentioned that we can shift, that gives us more than enough liquidity buffer to manage that.
spk11: Great. Thanks so much for taking my questions.
spk01: Next question is from Andrew Klingerman with Credit Suisse.
spk08: Hey, good morning. Just following up on that bank question. Walter, you just mentioned a four to $5 billion trade-off. And as I'm looking at these, these bank assets or deposits, uh, you know, going from 8 billion last year to 13 to this year. And as you mentioned, it's up just 1.8 billion in the quarter alone. When you said four to 5 billion trade-off is that, are you indicating that there's a good possibility over the course of the year, you could add another four to 5 billion?
spk03: Yeah, so if you're – I'll take your number, $13 billion. If they add $4 to $5 billion, you can go to the upper range of $18 billion.
spk08: That's great. And, you know, in terms of recruiting, you were touching on that a bit earlier too, Jim. And, you know, it is a tight labor market. So could you touch on – You know, what you're seeing in terms of bringing in new advisors to Novo, is that a big initiative at this stage in the game? And, you know, just given this environment, you know, is there comfort in gaining advisors from other firms?
spk05: Yes. So we have continued to recruit in novice advisors as well as, assistance and even our franchisee channel and help develop them as part of the franchisee systems as well as we do with the employee side. And we will continue that. We haven't made that an extended large part of our activities, but it's a nice complement to our activities. And we're seeing some good people join us that way. On the experience side, we continue to, I think, have a very strong value proposition. As I mentioned in more of my opening remarks, we've gone out to the advisors who've joined us, and they are highly satisfied in what we've been able to provide, much better than what they got at their previous firms, either wirehouses or independents. That story, we're telling that in the marketplace. We're not just It's not just about what the payment is. It's about what someone can establish themselves here and actually grow and have a very strong, productive practice with a quality type of profile. And so, again, we're not looking to just add large numbers. We're rolling up people based on even having low productivity. We're looking for quality people that really want to manage a really good franchise or become a highly productive employee as part of our system with all the support that we can provide them. And so we feel good about that.
spk08: So amidst all this economic noise, you can likely continue to grow that channel?
spk05: Yes, yes.
spk08: Awesome. Thanks.
spk01: This is our next question from John Barnage with Piper Sandler.
spk09: Thank you very much. There's been some thought that energy issues in Europe may increase demand and interest in ESG investing. I know BMO had a large ESG product portfolio. Can you maybe talk about how demand for that product has been versus others broadly and maybe specifically in Europe? Thank you.
spk05: Yes, so part of the BMO acquisition was actually adding to our capabilities in responsible investing. And their portfolios are doing well. They are garnering good flows there where it's been a little softer in other areas in Europe. and very clearly it's one of the areas that we're working on to leverage more holistically across our international franchise, but even so in the United States. And so we feel good that that's part of what we confer the leverage in the environment that we're continuing to move into as demand also picks up in that area. I think, you know, energy is one part of that. But there is the E, there's the S and the G part of it, and that's an important part of overall responsible investing.
spk09: Okay, great. And then my follow-up question, given some of the market volatility, can you maybe talk about asset management timeline for unfunded to funded, how that's sitting versus maybe three to six months ago? Thank you.
spk05: Yes, so on the institutional side of the business, as you would imagine, there is always a little bit of a trying to recognize what's happening in the market and how funds need to be reallocated, or even where you have won something, it sometimes takes a little longer just based on the market conditions to fund. I haven't necessarily seen a further extension. In that regard, things have been funding. I wouldn't say they quickened at all, but I wouldn't say they've extended themselves. I think there's always certain portfolios as you have a backup in the fixed income market or you have some reallocation in some parts of the equity segments. But I think it's been running consistently for where it was over the last six months.
spk09: Thank you.
spk01: The next question is from Tom Gallagher with Evercore.
spk10: Good morning. The drop in insurance and annuity distribution fees, it sounds like some level of that is going to be sustained at a lower level given you're exiting the guaranteed VA product sales. Any color you can give there on that, you know, what percentage of the move there, of the downward move, you think might remain depressed versus potentially getting some recovery on the other pieces?
spk03: I can't really get your percentage, but certainly exiting the living benefits will certainly eliminate that aspect, but we are seeing strength in the SVA product, so I can't really give you the exact proportionality on that, Tom.
spk05: Yeah, and Tom, I think on the first quarter, I think you'll see across the industry a bit more slowing in annuity activity because of the volatility. So part of that is part of it, and then part of it was the guarantees versus the pickup in the non-guarantee activity. But we feel very comfortable with that, and we think it's the right tradeoff for us as we continue to move forward. But we also, there will be some expense savings as well from not booking some of the new business. So overall, we feel very good about that move and the total balance of what we think that we can continue to garner there.
spk10: Gotcha. Any color you can give on just overall outlook for flows between institutional and retail on the asset management side? Not to overreact, but there was definitely a pretty sharp drop in one-year performance if you look at the statistics there, which I would imagine probably won't have a big near-term impact. But any color between the two pieces of the business in terms of where you think flows are going, should we expect overall them to remain depressed here for a while?
spk05: So the one-year performance, just so we know, it's more of what had occurred more quickly. It didn't really affect the flow situation in that regard. I think the flows, and you can see it across the industry, you're going to have a low pickup of redemptions as people say, hey, maybe I need to get out. And particularly if you look at fixed income, there's been a major pullout on some sectors of the fixed income market, including munis, etc., you also had, you know, a bit slowing of people investing in, let's say, growth stocks at this point in time based upon how they've pulled back. So I think that should be expected. I think as you see more people reporting, you're going to see that. I think you can see that in the SIMS data. What I did say is that our level of flows is consistent with the industry. We're 1% better in equities if we're looking at the U.S., and we're 1% worse in in fixed income, and I mentioned the difference in the segment. So I actually don't think we had a major fall-off compared to the industry. I think the industry has fallen off as well. Now, the other point, and this is active. We're talking about active. Now, the other thing I would say is on the performance side, there are three things that occur. Number one, in Europe, there isn't a segment that calls growth and value, and it's all meshed together. we have a little more of a growth quality bias versus more of a value. And so when you look at the European and you benchmark it, we had a little more underperformance there because we're a little more growth-oriented. Our institution and our retail clients understand that a little more. But on the benchmarking, it just shows that your performance goes down. Then in the U.S., We have one big fund, which is in the 50th. It's not way below. It just dropped, and it will go back. It's a few basis points, and that's what caused a little of the U.S. inequities. And then in fixed income, you could imagine with the pullback of the bond market, you had a little more dislocation there, and a few basis points is what tips the thing. But we feel very good about the quality of those portfolios. And therefore, we feel like that will bounce back as well. So we don't feel like there's a major change. And again, when you look at a quarter within a one year versus three, five, and 10 years of having really strong performance, I don't think that has an effect. And I think particularly in institutional clients understand a little more of what's underlying the portfolio. And so I think that is also very important.
spk10: That's helpful color, Jim. If I could just slip in one last question. Just on risk transfer, interest rates have gone way up, which presumably would help the pricing on potential risk transfer of life annuity, long-term care. Any update you can give on either the broader potential evaluation of that and also as it relates to interest rates, whether you think that would be a step in the right direction as you think about doing something down the road. And also maybe a little bit on timing, if this is a several quarter out likely development. Thanks.
spk03: So let me take a shot. Clearly the interest rate environment improves as you look at long-term care and other aspects of that. And as it relates to risk transfer, there's clearly, in our opinion, more – active interest in these sort of products. And you're seeing that. And so yes, those two aspects combined to certainly have a higher profile for people looking at books of that nature. These are long, complicated transactions. Again, you've seen it with many of the things that have been announced, how long they have taken. So I wouldn't put a time frame on them. Like I said, you know, we're starting off in a very good position. We have great products, and we're just, with people expressing interest, we basically evaluate from that standpoint. But the environment is certainly beneficial at this stage.
spk10: Okay, thanks.
spk01: With a reminder, if you have a question, please press star, then 1. We have our next question from Alex Baustein with Goldman Sachs.
spk06: Hey guys, good morning. Thanks for the question. I was hoping to dig into a little more into the, the, the AWM brokerage cash and sort of the dynamics that are likely to see here with higher interest rates. So the topic of sort of cash sorting and the ability to retain customer cash is definitely top of mind for investors. you guys are kind of bouncing around pretty close to historical lows in terms of percentage of client assets as cash. As you think forward, and presumably there will be some surge for yield as better kind of higher yielding options become available to investors, how are you thinking about the ability to retain this cash? Is there a way to frame kind of the absolute downside in terms of percentage of client assets that could remain within the AMP channel, whether it's the bank or the broker sweep, just trying to get a sense for kind of holistic cash balances?
spk05: So, Alex, I think what I would say is, you know, over the years, our total asset levels have gone up. And so, to your point, our cash levels have risen in consistency with that. I think what I would say, if I even look at over the course of the year or from the first quarter, etc., We're up a few billion dollars as we sort of – usually what you have is a little more of a drawdown in the first quarter as more money goes back into work from the end of the year and stuff. And what we've seen is a little more of a pickup. So I would probably say to the effect if people will put some more money back into the bond market or whatever or keep a little less cash on the hold – I don't see it materially going down because we didn't really increase it as far as positional cash that much in that sense. I think to your point, it's been maintained as a percentage of our total assets. Our advisors have been very good about the rebalancing of portfolios and keeping that money active. But I would say, yeah, it's gone up a few billion dollars from where I would probably normally think it would be at this juncture. But I don't see it falling dramatically from there because, to Walter's point, it's positional, it's transactional, it's keeping some emergency cash levels that we think is important from a client perspective to have.
spk06: Got it. And then in terms of the different buckets, I was hoping to dig into the BankSweep channel a little bit more. You guys have obviously been moving more cash into your own bank as deposits, but you remain a pretty significant player in that market and the bank sweep, kind of broker sweep market. The demand from other banks has been pretty weak, obviously, for the last year plus. Are you starting to see any improvement in sort of brokerage demand from other banks as liquidity potentially becomes diminishes a bit over the next few quarters. Are you starting to see any discussion on pricing? You know, it feels like right now it's kind of Fed funds, flattish, no spread on top of that. Could we start to think some of that pricing dynamic improve over the next year or so?
spk03: Yeah, it's Walter. I haven't seen much change in demand characteristics. It's working its way through, and we've seen a little of basically discussions on price, but not much.
spk06: Great. Thanks so much.
spk01: We have our next question from Sunit Kamath with Jefferies.
spk04: Thanks. Good morning. Just wanted to start on capital return. You know, you're talking about the 90% of operating earnings, but given the excess capital position remains very strong, it seems like the RBC ratio is quite strong as well. and given the pullback in the stock, just wondering how you're thinking about buybacks and could we exceed the 90% as we think about the balance of the year?
spk03: I would tell us the 90% is an area of target that we talk about, and in each quarter we evaluate what we'll do. But right now I would say the 90% is a good barometer. Okay. We certainly have the capacity, but I think we are not changing the barometer right now. 90% will just evaluate options as we look through it.
spk05: Yes, and I think it's also based on what happens in the environment and the market. But we have flexibility. We've deployed that flexibility at the right times where we feel it made sense. But I think on the other side, to Walter's point, we're giving you a little bit of a targeted range that we feel – you know, at this juncture up and down will still make sense, but there is opportunity for us to deploy if necessary or we want to based on opportunities.
spk04: Got it. And then I guess on performance fees, they've been strong, I guess, the past two quarters, and I think you had mentioned some of that is related to BMO, but do you have, you know, any kind of line of sight on what you'd expect from performance fees sort of in the balance of the year, or is this kind of all in at this point?
spk05: I think one of the things I would say, and then Walter can complement. So first of all, we've added the BMO business, which is an institutional business, and it does have with some of its alternatives and real estate, et cetera. So if someone said, well, you have the same performance fees you had two years ago, the answer is no. We should have a larger number of performance fees, maybe not as a percentage over the total asset base, but more in total dollars because there's more product that have performance fees on them. But that's lumpy, and it's also based upon when things get accrued or when it gets liquidated, et cetera. So, Walter, I don't know.
spk03: No, I think it's exactly the point. We have a solid base where we do generate performance fees, and certainly it generates earnings. We can't predict what they are. Certainly, as you look at property or you look at private equity, In these environments, it gets even a little more difficult to do that, but it's a solid, solid business for us, and we just can't give you the predictability of it, but certainly we're happy we have it.
spk04: Got it. Maybe this last one, just on the environment. I think in the past when we've gone through these periods of market weakness, you guys have pulled the contingency expense lever pretty aggressively. It doesn't sound like you're doing that this cycle. And I'm just curious, is the difference here, the upside that you expect from the bank, kind of that $200 million that you talked about, is that kind of what keeps you a little bit more comfortable on the expense side versus what you guys have done in the past?
spk05: Well, what I would say, Sunid, is this. One is, yeah, there's always the upside you mentioned there. The other thing I would probably say is we have not, if you looked at us, even over the last few years when the market's been really good, We have not grown our expense base abnormally at a much higher rate. I think some other companies have and might have to really deal with that. I think we haven't. I mean, even look at Columbia Threadneedle. Outside of the increase in expenses because BMO was added, their expenses were relatively flat in the quarter year over year. Same thing, we're up only a few percent in advice and wealth with all that growth of that business and the investments we have made. So I would say that we will turn the spigot, so to speak, if we feel like things are weakening. But I would also say that we still have good activity, and therefore we want to make sure we handle that well and support the business well. So I think we're looking at what that balance is, but we haven't been overly high on the expense growth. But if we feel like things have really – well, activity has gone down, then, yeah, we'll tighten those expenses.
spk04: Got it. Okay, thank you.
spk01: That was our last question. Ladies and gentlemen, thank you for participating. This concludes today's conference. You may now disconnect.
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