Ameriprise Financial, Inc. ( AMP)

Q3 2011 Earnings Call

October 27, 2011 9:00 AM ET


Alicia Charity – Head, IR

James Cracchiolo – Chairman and CEO

Walter Berman – EVP and CFO


Suneet Kamath – Sanford Bernstein

John Nadel – Sterne Agee

John Hall – Wells Fargo



Welcome to the Third Quarter 2011 Earnings Call. My name is Sandra and I will be your operator for today’s call. (Operator Instructions) I will now turn the call over to Ms. Alicia Charity. Ms. Charity, you may begin.

Alicia Charity

Thank you, and welcome to the Ameriprise Financial Third Quarter Earnings Call. With me on the call today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we’ll be happy to take your questions.

During the call, you will hear references to various non-GAAP financial measures which we believe provide insight into the underlying performance of the company’s operations. Reconciliations of the non-GAAP numbers to the respective GAAP numbers can be found in today’s materials available on our website.

Some of the statements that we make on this call may be forward-looking statements, reflecting management’s expectations about future events and 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 today’s earnings release, our 2010 annual report to shareholders or our 2010 10-K report. We undertake no obligation to update publicly or revise these forward-looking statements.

And with that, I’d like to turn the call over to Jim.

James Cracchiolo

Good morning. Thanks for joining us for our third quarter earnings discussion. I’ll begin with an overview of our performance and then Walter will discuss our financial results in more detail.

Overall, we generated another solid quarter despite very challenging market conditions and we continue to demonstrate the strength of our diversified business model. In our Advisory business, earnings were up nicely and our advisors remained highly productive. In Asset Management, our net outflows increased primarily due to the equity market weakness and volatility. However, the business still produced solid earnings.

At the same time, our Insurance and Annuity businesses generated solid underlying performance despite significant market impacts, the related DAC unlocking and some catastrophic losses in Auto and Home. Our strong financial foundation continues to serve us well. We’re maintaining more than $2 billion in excess capital. We’re continuing our investments for future growth and we’ve accelerated our share repurchases.

During the quarter, we bought back nearly 10 million shares, returning $447 million to shareholders. In fact, so far this year we returned $1.4 billion or nearly 150% of our operating earnings through buybacks and dividends.

I’d like to briefly discuss the markets and their effect on our business and then I’ll provide some commentary on our underlying performance. Both the equity markets and the interest rate environment worked against us in the quarter. As you know, the S&P 500 was down 14% and the markets were quite volatile. The drop in equities affected our DAC muni reversion and the market conditions also drove an industry-wide pull back in equity investing which affected our flows in Asset Management and wrap accounts. Our overall assets were down as well which reduced our fees.

At the same time, long-term rates fell substantially because of the Fed’s Twist action and shorter rates remained near zero. The interest rate movements impacted our DAC unlocking and had a continuing effect on our spread revenue which Walter will discuss in more detail.

Even with the fairly severe headwinds we’re facing, the business generated good results and I feel confident about our ability to navigate the markets. Our diversified mix of businesses along with our strong capital position and flexibility gives us the ability to manage through this near-term disruption and accelerate our growth when conditions improve. In fact, I believe we’re in a stronger position today than ever before.

To illustrate, I’ll talk about each of our businesses and help you understand their performance apart from the market impacts. First, our Advice & Wealth Management segments generated another strong quarter. In fact, despite market conditions and despite the fact that our third quarter is typically slower for us, the segment delivered record pre-tax operating earnings of $116 million. Adviser productivity remained near all-time highs at $97,000 in operating net revenue per advisor for the quarter. We generated retail inflows, however, overall wrap inflows of $800 million were down from previous quarters as advisors held more cash in their clients’ accounts.

We’re continuing our long-term investments in our advisor force and they are providing important benefits. Our experienced advisor recruiting effort delivered its best quarter since the financial crisis in 2009 with 88 recruits during the quarter and 37 in September alone. Advisors across the industry are seeing the benefits of our model. As a result, our pipeline of potential advisor recruits is quite full. In addition, our new national advertising campaign featuring the Academy Award winner, Tommy Lee Jones, has been very well-received by both by advisors and consumers. You can expect to see more of our ads as we move into 2012.

We’re also continuing the rollout of our new brokerage technology platform, which combined with all our other advisor support is enabling advisors to be more productive and grow their client bases. All these improvements have led to a remarkably strong advisor retention and satisfaction rates. The retention of our most productive franchisee advisors is up to an all-time high of 97% and as we’re completing the transformation of our employee channel, our employee advisor retention rose to 91%. That’s an increase of 13 percentage points in just one year and it’s up 30 percentage points over three years ago.

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