Ameriprise Financial, Inc.

Welcome to the Q2 2023 earnings call. My name is Chris, 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 1 on your touchtone phone. As a reminder, the conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, 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. 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 second quarter 2023 earnings release, our 2022 annual report to shareholders, and our 2022 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 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.

Good morning, everyone, and thank you for joining today's call. As you saw in our press release, Ameriprise overall delivered a strong second quarter to round out a very good first half. Given our complement of businesses, we consistently generate good returns and strong earnings. Advice and wealth management continues to lead our growth, where we had another quarter of solid client engagement and flows. We also saw good earnings from our bank, reflecting our ability to create a sustainable and attractive revenue stream in this interest rate environment. In our asset management business, we continue to experience headwinds in this environment and remain focused on adjusting appropriately. In terms of the market environment, the S&P 500 and international equity markets have rallied more recently through the end of July. However, they were only up 2% year-over-year on average for the quarter. Fixed income markets remain unfavorable, particularly in Europe. While inflation has come down, it's still above the Fed's targeted rate. As we saw yesterday, the Fed increased 25 basis points and said it would continue to assess additional information in determining the extent of additional policy firming that may be appropriate to return to a 2% inflation rate. With that as a backdrop, Ameriprise continues to benefit from our diversified business mix as well as higher interest rates in our bank and certificate companies. Assets under management and administration increased nicely up 9% to $1.3 trillion, reflecting our organic growth and positive markets. Total adjusted operating net revenue was up 10% to $3.8 billion. The combination of strong revenue growth, particularly from our spread business, as well as well-managed expenses, drove earnings to $807 million, up 23%, with EPS up 30% to $7.44. and our return on equity was outstanding and reached a new record of 51%, a level that few financial firms have achieved. Now let's turn to business highlights. In wealth management, we delivered another excellent quarter as we serve clients well with goal-based advice and deliver a highly satisfying experience. We continue to drive very good asset growth with total client assets up to $833 billion, and total client flows of $9.4 billion, up 10% year-over-year. Our client acquisition growth was also strong, especially in the 500,000 to 5 million client range. This is an area where we consistently had good momentum, and it's a key growth opportunity for us. We're leveraging our strategic investments to help advisors engage clients and prospects, provide a great client experience, and run highly successful and efficient practices. Our fully integrated technology suite streamlines many of our advisors' administrative tasks and frees up their time to go deeper with clients and to navigate the complexities within their financial situations. For example, we introduced an important capability that enables advisors to generate highly personalized presentations centered on client goal achievement. Since the launch, it has helped to build on our already strong client satisfaction net flows and practice growth for our advisors who are incorporating it into their practices. And it's reduced meeting prep time as much as 70% and allows more time for client acquisition. We're also beginning to use AI and analytics to further enhance how we engage and work with clients. With AI, we can serve up real-time information to help advisors identify a possible next best opportunity for clients based on their needs. Backed by our exceptional support, Advisor satisfaction, retention, and growth are all excellent. Ameriprise advisors consistently have some of the highest productivity growth in the business. In the second quarter, it increased nicely again, up 7% to 874,000 per advisor. We're also incorporating the use of data and analytics in how we identify productive advisors who are a good fit to recruit to the firm and more likely to make the switch. It was another strong quarter for recruitment with the addition of 99 experienced advisors. We're consistently bringing in large, highly productive advisor practices from across the industry. In the spring, I spent time with our top 10% of advisors, both tenured at Ameriprise and more recently experienced advisors who have joined us. They repeatedly shared that our advanced capabilities and technology, combined with our excellent leadership, coaching, and marketing support, gives them a tremendous advantage in how they serve clients and run successful practices. They are very proud to affiliate with Ameriprise and energized about the direction of the company and the opportunities in front of us. During the quarter, clients remain cautious, seeking yield as they continue to maintain higher balances in cash-oriented products. Cash continued to increase as clients continued to hold cash, and we ended the quarter with about $70 billion in cash and cash equivalents. WRAP assets under management increased 14% to over $450 billion, reflecting positive flows and market appreciation that occurred at the end of the quarter. The more recent increase in markets will be a benefit as we go through the quarter. For the first time since the beginning of the year, We saw signs in June that clients are starting to move some funds back into the market, which brings me to the bank. Ameriprise Bank continues to perform well with assets growing to nearly $22 billion. It's a strong complement to our business and an attractive way to gain spread revenue in this rate environment. Bank and certificate balances grew up 50% to $33 billion. The cash balances in these accounts are very rational today, and we feel comfortable with our position. We will continue to build out our banking capabilities and are in the process of introducing other savings products later this year. This will help advise us further deepen client relationships and bring in more assets from other banking institutions. With our latest research, in addition to our core client segments, we found that the Ameriprise value proposition and brand are very appealing to high net worth investors, as well as millennials who are hungry for advice and seeking guidance from advisors who truly understand them and their priorities. These are market segments we're looking to serve more in the future. And this was also reinforced by the complement of external accolades and recognition we continue to earn. The way we work with clients defines Ameriprise, and I believe our reputation is a competitive advantage. During the quarter, Ameriprise was named by Kiplinger's readers as the overall winner in the wealth management category. We earned the highest ratings for each of the four criteria, the trustworthiness of our advisors, the quality of financial advice provided, the likeliness to recommend the firm to others, and we earned the highest rating in overall satisfaction. Ameriprise also ranked on Newsweek's magazine 2023 most trustworthy companies in America list for the second consecutive year. And we earned top performer recognition in understands me and shares my values from hearts and wallets. And speaking of values, Ameriprise culture is another very important positive. Advisors who have joined us with decades in the business tell us that our company is unique, and not like any other they've been part of. They're impressed by things like our supportive growth culture and their accessibility to senior leadership. Finally, in terms of profitability for wealth management, it was another strong quarter across the board, and that includes margin, which reached a new record of 31.2%. Moving to retirement and protection, we have high-quality, well-risk-managed books, and we're generating strong, consistent earnings of 13%, driven by the repositioning of our investment portfolio last year, given the rate climate. Our free cash flow and return on capital remain excellent. The team is concentrated on accumulation products that align with our clients' needs and the business. In our life business, we're focused on our variable universal life and disability products that are appropriate for this environment. Protection sales were up nicely, increasing 18% with the majority of sales in high margin accumulation VUL products. And in variable annuities, our structured product continues to attract strong interest combining with our variable annuities without living benefits. Sales are down from a year ago in part due to decision to exit guarantees. Here again, we're using intelligent document processing and robotics to make processes more efficient, things like automating our processes and underwriting decisions. We're seeing the benefit in the pickup and sales. As we discussed, we feel good about our product portfolio both for clients and the business, which consistently delivers good returns. Moving to asset management, as you know, we manage the business prudently. Like other active managers, we're facing reduced flows in this environment. The business continues to operate well and generates good fees, and we're adjusting for headwinds accordingly. In terms of investment performance, we continue to have excellent longer-term performance in equities, fixed income, and asset allocation strategies, with over 75% of our funds above the medium for the five-year and over 85% for the 10-year period. Our one-year performance has improved across the board. This includes some of our larger franchises, including in UK equities, where we're benefiting from our quality positioning and in fixed income, given our strength in credit. In terms of flows, I'll start with global retail, where we continue to experience a level of outflows. In North America, we remain in net outflows, but we had nice improvement in fixed income. In fact, we are better than the industry in taxable bond. Meanwhile, we continue to see outflow pressures and equities, largely from lower gross sales as redemptions have improved. We continue to focus our advisor segmentation strategy to drive good engagement in North America. In EMEA, retail flows in both the UK and continental Europe remain under pressure. However, in institutional, we were in net inflows, excluding legacy insurance partner flows, as we garnered nice wins in high yield and investment-grade credit that more than offset large redemptions in LDI strategies given the market dislocation. Now I'd like to give you a brief update on our EMEA acquisition and executing the integration in Europe. Wanted you to know that it does take time due to the complexity of the legal entity structures as well as regulatory and employment considerations. We made it through a number of important steps, and we have now moved to the next level of consolidation, including the co-location of our teams to our existing real estate and the near completion of some of the major technology migration work. Given the environment, we're taking a very focused look across the business globally to further reduce expenses. This includes identifying and stopping less growth-driven activities and also redeploying resources where we see opportunities to support our margin. In summary, we're controlling what we can control and making the necessary changes to adjust in this environment. Reflecting on the firm overall, Ameriprise delivered a strong first half of the year and we're well positioned to continue to navigate and grow. Our complement of businesses provides nice contributions and synergies. would consistently generate good appropriate earnings in total and good cash flow to invest and return to shareholders at attractive levels. We returned $638 million of earnings to shareholders in the quarter, which represented nearly 80% of our earnings. In addition, as you saw, our board approved a new $3.5 billion share repurchase authorization that reflects the strength of the business. Across the firm, we continue to make good investments in our businesses, And as always, we are sharply focused on execution. And while we manage expenses very well, we will be looking for additional expense opportunities as we move into 2024 to adjust to the environment. From a people perspective, our team is highly engaged. In fact, in the quarter, Forbes magazine named Ameriprise one of America's best large employers. The list ranks the 500 U.S. companies most highly recommended as a top place to work. With that, I'll turn things over to Walt to provide his perspective in more detail on the quarter, and then we'll take your questions.