阿默普萊斯金融 (AMP) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameriprise Financial fourth-quarter and full-year 2005 earnings conference call. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Ms. Laura Gagnon.

Ms. Gagnon, you may begin.

Thank you and welcome to the Ameriprise Financial fourth-quarter earnings call.

With me on the call today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer.

We will have approximately 20 to 25 minutes of remarks, after which we will open the line for Q&A.

During the call we will be referring to various non-GAAP financial metrics like adjusted earnings or adjusted premiums.

Management believes that the presentation of these adjusted financial metrics does reflect the underlying performance of the Company's ongoing operations.

The adjusted numbers exclude accounting change, discontinued operations, AMEX Assurance, and nonrecurring separation costs as described in our Form 10 filed with the SEC on August 19, 2005.

The majority of AMEX Assurance's profits from July 1, 2005 and forward will be transferred to American Express has per the separation agreement.

The agreement also specifies our intent to sell the legal entity back to American Express within two years from separation.

The presentation of adjusted earnings aligns with the pro forma financial information contained in our Form 10.

Reconciliations of non-GAAP numbers discussed in this presentation to the respective GAAP numbers can be found in the press release issued yesterday and available on our website, www Ameriprise.com.

Some of the statements that we make in this discussion may constitute forward-looking statements.

These statements reflect management's expectations about future events and operating plans and performance and speak only as of today's date.

These forward-looking statements involve a number of risks and uncertainties.

A list of the factors that could cause actual results to be materially different from those express or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our registration statement of Form 10 as amended filed with the SEC.

We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

With that, I would like to turn the call over to Jim Cracchiolo, Chairman and CEO.

Good morning.

Welcome.

Thank you for joining us today.

Today marks the first opportunity to discuss our results as an independent company. 2005 was a historic year for Ameriprise Financial.

We started 2005 focused on continuing to build on the traction we already gained from the transformation we began a few years ago.

But our focus shifted when American Express announced its intent to spin us off in early February.

On September 30 we successfully executed one of the largest spinoffs in U.S. history.

The successful launch of the Company was a significant achievement and yet what was equally significant was our employees and advisors ability to remain focused on meeting client needs.

As a result, the Company drove solid business results despite lower equity market appreciation during the fourth quarter of 2005 compared to the fourth quarter of 2004, as was stated previously, our on average over time financial targets, our revenue growth of 6 to 8%, net income growth of 10 to 13% and ROE of 12 to 15%.

While we present both GAAP and adjusted results in our release, Walter and I will adjust the metrics, which best reflects the underlying performance of the business.

Fourth-quarter 2005 adjusted revenue grew 5% over last year, slightly below our 6 to 8% target.

For the full year, we delivered adjusted revenue growth of 9%, which is slightly above our targeted range and brings our total adjusted revenue base up to $7.4 billion.

Adjusted earnings for the quarter and full year were down 4%.

The full-year decline is primarily the result of higher legal and regulatory costs in 2005 that we already told you about.

In addition, our transition to an independent company raised our expense base, which impacted both our fourth-quarter and full-year numbers.

In terms of the fourth quarter decline, lower taxes last year had a significant impact.

Pretax adjusted earnings were up 13%.

Our trailing 12-month adjusted return on equity was 10.2%, reflecting the more conservative capital position we took to support our business as we separated from American Express.

I would like to now address five core growth and profitability objectives which we believe drive future financial results related to our clients; financial planning; our advisors; owned, managed and administered assets and our diverse product mix.

Our first objective is growing our mass affluent client base.

Our focus remains on increasing the number of mass affluent clients and deepening our relationships with these clients.

We believe we have a competitive position in the marketplace due to our ability to profitably serve the needs of the mass affluent, most notably their retirement needs.

In fact, our number of mass affluent clients was up 6% versus the prior year.

Importantly, assets from this client base grew double-digits.

A key component of our focus on the mass affluent is maintaining our leadership in financial planning, our second objective.

Our experience shows that financial planning results in longer deeper relationships and more satisfied clients.

We continue to make steady progress in the quarter, increasing the percentage of retail clients with a financial plan for 44% at year-end and selling approximately 55,000 plans in the quarter.

The combination of growth and mass affluent clients combined with increased financial planning penetration helped drive advisor productivity up 9%, even in the face of a relatively flat market.

Our success in enhancing advisor productivity, our third key objective, reflects the efforts of our advisors and field management organization to remain focused on meeting client needs and growing individual practices.

This year we ranked number five in JD Power's full-service investor survey, 31 points above the industry and higher than many other well-respected firms.

While the number of advisors is essentially flat for the year, I'm pleased with our branded advisor retention.

The separation and loss of the American Express brand, the aggressive recruiting by competitors and initial advisor concerns created a challenge for us in managing our branded advisors.

While we have done well, we will continue to be very diligent in our efforts to effectively manage through the transition.

Our client acquisition and advisor productivity objectives require us to establish the Ameriprise Financial brand, and I'm very pleased with where we are today.

While advertising has only been in the market for a little over four months, our research shows a significant increase in strong momentum and building overall Ameriprise Financial brand awareness, and it is on target with our expectations.

Our fourth objective is increasing owned, managed and administered assets by driving our key client advisor and financial planning objectives, improving and expanding our product solutions and extending our distribution reach.

We ended 2005 with more than 428 billion in owned, managed and administered assets, up 5%.

We have seen strong asset growth in our wrap business, as well as variable annuities.

In other areas, like RiverSource mutual funds we have experienced declines.

Enhancing our products and distribution is the final key objective I want to talk about today.

Underlying our business is a very broad and diverse product mix.

We continue to strengthen our position as the largest mutual fund wrap provider with total wrap assets of 36% in 2005.

Our clients increasingly choose to use wrap products in an asset base fee relationship where they can work with an advisor to manage those assets as part of our financial advisory services.

RiverSource variable annuities contributed significantly to our overall asset flows as a result of successful new product enhancements and expanded third-party distribution.

During the year, RiverSource variable annuity sales group 44%, ending 2005 with assets of 33 billion, up 17% from year-end 2004.

In asset management, each of our investment platforms is delivering solid investment performance.

RiverSource managed equity mutual funds had their best performance year since I have arrived.

We have also seen strong improvements in taxable fixed-income performance.

In fact, during the past two quarters, we have seen improved proprietary mutual fund sales in both director fund accounts and within our growing wrap account business, which we believe are early indications of the acknowledgment of the improvement in quality of our investment operation.

That said, we continue to manage to through significant redemptions in RiverSource funds that are caused by the transition to an open architecture environment.

This has been compounded by the underperformance in our largest mutual fund, RiverSource New Dimensions, which we address by repositioning the fund and transferring portfolio management responsibilities to our high performing Boston office.

Threadneedle, our UK-based asset management platform, is beginning to be an important contributor to our results.

It is delivering strong investment performance while executing against its strategies of shifting its mix to higher margin retail and alternative assets and implementing strict cost controls.

While this shift results in lower net flows, it has the intended effect of driving higher fees and revenues.

In 2005 Threadneedle delivered double-digit growth in revenues and pretax income.

We are achieving strong sales in our insurance business as well.

Last year Variable Universal Life or VUL cash sales were up 17% in the fourth quarter and 11% for the year.

As of the last 2005 (inaudible) survey, we were number one in VUL sales in policies, face amount and premiums.

Also, Ameriprise Auto & Home reported earned premium growth of 15% to 129 million, and we recently announced the renewal of our alliance with Costco.

In summary 2005 was a historic year, and our success in achieving these objectives positions us well as we execute against our plans to build on this momentum in 2006.

Going forward, our strategic plan and overall focus remains the same.

Our plans are intended to drive continued momentum against the same core growth objectives we have in 2005, as well as ensure an increasingly strong and efficient operating platform that delivers the financial targets we have set.

I would like to describe to you the actions we are taking to build the business in 2006.

I have organized this discussion under our strategic priorities which align with our key objectives.

The first set of initiatives supports our primary objective of continuing to focus on the mass affluent and, in particular, their growing retirement needs.

We plan to continue to build out the Ameriprise brand.

We intend to drive new mass affluent client acquisition through our national and local marketing programs, including our successful private dining events.

We will provide research and tools to help our advisors engage these clients.

Our recently released research on the New Retirement Mindscape is just one example.

This research is the first in the industry to explore people's attitudes, worries, behaviors, ambitions and needs before and after retirement.

This research conducted for us by Age Wave and Harris Interactive increases our understanding of our clients' retirement needs and dreams.

We will also be continuing and expanding our client value proposition, gold and platinum financial services, to offer a differentiated experience to our mass affluent clients.

Our second set of initiatives focus on strengthening our lead in financial planning and advice, and we have a range of actions planned throughout the year, including introducing new retirement focus planning and advice approaches to increase client engagement such as our recently launched Dream Book, a way to help individuals to find their dreams.

Our research shows that those who right down their dreams and goals and then develop a plan are for more likely to achieve them.

The client response rate to date on our Dream Book offers has been great, reaching the highest level response we have ever achieved on a client mailing.

We will focus even greater levels of advisor engagement through increasing linkages between planning and advisor compensation.

For example, our equity compensation plan for advisors provides the greatest rewards to those advisors that are more productive and do more planning.

And finally, we will continue to strengthen our tools and processes that support our advisors in planning.

Third, we have a number of initiatives to support profitable growth and improve productivity in our advisor channel.

Delivering profitable growth is a balance of improving perfect advisor productivity, while growing the size of our force.

In the near-term, more of our efforts are focused on improving existing advisor productivity such as helping advisors to be more effective in serving our targeted mass affluent clients and ensuring that we are easy to do business with.

Some of the major items for 2006 include, strengthen leadership support and training, including optimizing the mix of specialist support we provide advisors on topics such as client acquisition, financial planning and practiced development.

We will continue with our Ameriprise equity ownership program.

We intend to release enhanced advisor desktop tools and technologies throughout 2006, which will provide advisors with the ability to enhance their operations and free up more time to spend with clients and prospects to better meet their needs.

Our fourth set of initiatives drive our ability to capture greater assets and net flows by improving and expanding our product solutions, as well as by extending our distribution reach to alternative channels.

These are our plans in each major product area.

In wrap products, our plans are to continue our industry-leading position in mutual fund wraps, while also improving and expanding our range of other wrap offerings and services.

In annuities, our plans are to continue to expand the use of living benefits by our clients and to expand our outside distribution further with a continued focus on variable annuities over fixed.

In our asset management business, we plan to continue to drive improved investment performance, and we will be introducing several new retail products, which will focus on helping our clients reach their asset accumulation and income goals for retirement.

These new products effectively embed advice within the products.

We are also investing in growing our presence in other channels -- institutional, subadvisory and later in 2006, retail third-party.

In life insurance, earlier this week we launched two new universal life products, and we plan to follow with additional retirement-oriented solutions in our Variable Universal Life product line later in the year.

In Auto & Home Insurance, we expect to continue to develop alliances to expand our distribution.

In banking, pending regulatory approval we expect to launch our Ameriprise FSB by midyear.

This will enable us to better serve our clients deposit and credit needs, rounding out our solution set for our clients.

This has been a substantial contributor to some of our competitors' earnings over the recent past.

Last but not least is our fifth set of initiatives targeted to insure an increasingly strong and efficient operating platform.

For us, this means five major things.

First, ensuring compliant business practices.

We are firmly committed to maintaining adherence to evolving regulatory and compliance requirements of our industry.

Second, continuing to execute through the transition from American Express.

Everything is on plan, and we are comfortable we can continue to meet the plans we have laid out earlier in 2005.

Third, enhancing the requisite technology infrastructure.

Fourth, expanding operating margins through reengineering, a program that has delivered substantial savings for us in the recent past.

And fifth, improving our ROE through capital optimization.

In summary, I feel good about the significant progress we made in 2005 and believe that the strategies and initiatives we have in place for 2006 will deliver the momentum we need to meet our targets on average over time.

With that, I would like to turn it over to Walter Berman, our CFO, who will give you his perspective.

Walter?

Thanks, Jim.

I would like to give you my perspective on the quarter and then expand our 2006 initiatives relating to reengineering and capital optimization.

I continue to be pleased with our positioning and believe we have a solid foundation to build upon in 2006.

Balance sheet strength is a key to our foundation, and we remain committed to our AA- financial strength ratings.

The quality of our invested assets remain very high with a percentage of A rated bonds and above increasing to 70% from 65% at the end of 2004 and below investment grade declining to 7% from 8%.

Included in the net realized gains during the quarter was an impairment of $18 million related to GM and Ford bonds, the only significant credit loss this year.

At this point we do not expect to increase investment yields by assuming more credit risk as we don't believe the existing risk return characteristics are currently attractive.

We remain pleased with our mortgage and asset-backed portfolio, which is about 34% of our insurance company invested assets.

Three payments in the quarter were immaterial, and during the quarter, duration fell slightly and negative convexity improved.

Our adjusted revenues for the quarter were up 5%, and overall I'm pleased with the growth relative to our targets.

I would like to mention two items.

Market year-over-year growth -- market year-over-year drove declines of $28 million in our net investment income line.

This impact in growth was about 2%.

The quarters' revenue are also impacted by a shift in the mix of products sold from fixed annuities to variable annuities, which trades off fixed annuity revenues, reported gross of (inaudible) amounts for variable annuity revenues which are reported net.

On the expense side, we remain well-managed with adjusted expenses up only 4% in spite of the higher costs associated with being a stand-alone entity.

The 4% decline in quarters adjusted earnings was primarily the result of taxes with pretax adjusted earnings being up 13%.

Note that the market's impact on net invested income and revenue growth, as well as the higher costs associated with being a stand-alone company, also impacted our segment's results.

As a result of separation, there are some changes you should be aware of.

For the first three quarters of 2005, we reported our results two ways -- as a single segment under American Express and then as three segments under Ameriprise.

During the period, we did not automate the process of mapping products to segments.

In the fourth quarter, we automated the mapping of revenues via Ameriprise segments, and as a result, Asset Accumulation and Income and the Corporate and Other segments were impacted.

But consolidated fourth-quarter results and full-year consolidated and segment results were not impacted.

We continue to enhance our processes and expect to complete the automation of expense mapping in the first quarter.

Second, you will see movement from the other expense line to the compensation and benefits non-field line as individual support for technology services originated by American Express shift to Ameriprise employees.

Before I get into initiatives to enhance our margins and ROE, I would like to give you some context in terms of how we make decisions, as well as our market assumptions for next year.

Our business decision-making model considers our customers' needs, current and expected market conditions, our capabilities, as well as risk return financial metrics.

With a goal to create sustainable shareholder value creation, we take a multiyear view and make decisions that balance trade-offs in three areas -- growth in profits and margin improvement, return on capital and stability and safety.

Our decisions are made within this context.

These decisions and expectations include key assumptions about the market.

For 2006 we are expecting average equity returns of 7%, interest rates will be -- are based upon the current forward yield curve, and we are anticipating a benign credit market.

In 2006 our plan is to improve our margins and return on equity.

We expect to achieve this improvement while assuming additional costs associated with being an independent company.

Minimal growth in our fixed annuity products and a continuing while slowing shift from proprietary mutual funds to nonproprietary funds.

While many factors will drive our anticipated improvements, my focus today will be on reengineering initiatives that are expected to drive a significant portion of the improvement.

As a back (inaudible), our reengineering assets in 2005 yielded over a 175 million in savings, in spite of the distractions and efforts associated with the spinoff.

This level is consistent with the savings we realized in 2001 through 2004 which totaled approximately $900 million.

In 2006 our reengineering projects are expected to yield results similar to what we achieved over the past five years.

Most of the 2006 initiatives are already underway and span all three major reengineering categories -- strategic, structural and cost control.

The bulk of the expected savings are in the strategic and cost control areas.

Our current initiatives are focused on improving processes throughout AMP and impact all three of our segments.

Let me give you some examples.

A large component of our 2006 initiatives focus on technology and the service delivery organization where we are redesigning management structures to lower cost and optimize our outsourcing relations to improve efficiency, effectiveness and service levels.

In addition, we are in the process of realignment of some of our employee or P1 offices to reduce cost, improve advisor training and enhance the quality of services we provide in certain regions.

We are also redesigning corporate and field college recruiting programs to increase effectiveness and efficiency, and we have several procurement-related initiatives underway to curtail bypass of our preferred vendor relationships and end to end redesign of key print production processes to improve cost, quality and speed.

Improvement in our margins and return on equity is also expected to be generated by our strategy to continue to shift our business mix from high capital to low capital intents products and from low margin to high margin products.

In 2005 2/3 of our pretax income came from products that generated returns in excess of 12%, an improvement of 9% over 2004.

In 2006 we are expecting that mix shift to continue as momentum in our core business drivers lead to a higher contribution from lower capital intents and higher margin businesses.

We believe this mix shift coupled with our capital optimization initiatives will generate the targeted ROE improvements we are anticipating.

Before I get into specifics about capital optimization initiatives, I want to remind you of our start point.

Our adjusted return on equity of 10.2% is calculated on a 12-month trailing basis and removes the short-term impacts related to the separation.

If we did nothing, the increase in average equity from the capital contribution we received in the third quarter will continue to push our ROE down.

It is simply the math and calculation of average equity.

To get a sense for this magnitude, the average adjusted equity for the year, using the calculated -- used in calculating the 10.2% was $6.82 billion.

The average adjusted equity for the quarter was $7.3 billion.

We believe we can overcome this negative impact and continue to close the gap in 2006.

There are two critical steps for us to hit our target.

First, create and identify excess capital.

Second, deploy that excess capital.

Without this, the first step really does not matter.

In 2006 we continue to work on capital optimization.

As discussed, we believe our increasing product mixshift will improve capital utilization and ROE.

In addition, we are well on the way to consolidating our five insurance entities into two.

The consolidation is expected to be completed in 2006 and should free up approximately $80 million in regulatory capital requirements.

We will also use hedging to manage risk exposure and capital requirements.

For example, in late 2005 we established our GMWB hedging program using long-term options.

We believe these hedgings substantially cover our economic exposure and lower future regulatory capital requirements significantly.

We will continue to look for opportunities to minimize regulatory capital requirements by optimizing where assets are held in our legal entities.

For example, they may require less capital to hold certain assets at the parent level than in the life insurance companies, bank or property casualty companies.

Finally, we will continue to use our decision support framework to optimize returns and business objectives.

We believe that through these actions, we will be able to achieve a reduction of required capital of up to 5 to 10% of our current equity base.

Ultimately we must redeploy excess capital to have any impact on our return on equity.

We have told you we will pursue acquisitions, dividends and share buybacks all with the approval of our Board to redeploy this capital effectively.

Yesterday we announced that the Board has approved a limited share repurchase to mitigate the impact of stock issued to our advisors under the 2007 incentive and retention plan, and we reaffirmed our quarterly dividend.

For concluding remarks, I will now turn back to Jim.

Jim?

In summary, I'm very pleased with all that we have accomplished last year.

We entered 2006 with a solid foundation to continue to build our business.

But I open it up for questions, I want to clarify a few points related to our recent media reports on a company laptop stolen from an Ameriprise employee's locked car.

First, the laptop held only two pieces of client data, their names and an internal reference number, and it is not enough information to access any accounts or account data.

In spite of that, we have increased security on their Ameriprise accounts.

Second, for advisors the data included Social Security numbers, and we will provide additional service to advisors to help them to monitor for any potential fraud.

Third, we have taken all the required legal and regulatory steps and taken additional measures to protect the affected clients and advisors.

Since storing this data on a laptop unencrypted was against company policy, measures have been taken to reinforce that policy and the employee has been terminated.

Because of the specific circumstances surrounding this crime, we believe the risk is low.

No one breached our systems.

No one stole or misplaced any data tapes.

A car was broken into and property was stolen.

That property unfortunately included a laptop with private data.

I will now open it up for questions.

Operator?

(OPERATOR INSTRUCTIONS).

Tamara Kravec, Banc of America Securities.

A couple of questions.

You talked a lot about capital optimization here.

You said you were going to free up about 80 million of capital in 2006.

But can you just give us a better idea of what your current excess capital position is and maybe what you were able to generate in 2005?

And then anything more specific in terms of the size of a potential share buyback program that you could implement?

Right now I can say we are in an excess capital position.

We really have not disclosed that amount.

We do believe, as I indicated, we are conservatively capitalized, and that will give us a substantial amount of flexibility.

As far as expanding the share repurchase beyond this amount, that is for something that we have to discuss and review at the Board as we align our operating and our capital plans.

But we certainly appear to have flexibility.

And any insight on any potential acquisitions that you might be looking at?

Would they be more life-oriented or asset management oriented?

Well, we are exploring as everyone looking strategically at our business, and as we find opportunities that will strategically enhance our capabilities and move us quicker to our endpoint, we will entertain that.

Primary areas would most likely be in the distribution or the asset management categories.

Again, as we talk about our objectives, you should really be able to increase our return and certainly match our strategic positioning.

That will help give you guidelines.

Again, I just want to reiterate that the share repurchase again is set at a set amount to cover the advisor equity that was given out and vested as of the beginning of this year.

Okay.

And then also just in terms of two-thirds of your product generating returns that are greater than 12%, can you give us a sense of maybe which products are higher return and which ones are not pushing the envelope in terms of earning your benchmark hurdle?

(multiple speakers).

As you imagine, the products that are not generating returns are in the certificate area and also in the fixed annuity category and in the long-term care.

These are areas that we have identified and the products that we are focusing on that are generating rates of returns for us are in the asset accumulation area, specifically in variable annuities and in our SPS product and our asset management products.

So those are the ones that we are getting momentum, and the shift is occurring.

SPS is our wrap program.

I'm sorry, yes.

Okay.

And then in the corporate segment, I guess you remapped some of your revenues, but I wanted to get a better understanding of what you think the run-rate is in that segment?

You know, you produced a substantial positive result this quarter, and you have your Securities America distribution channel in that segment.

So if you could just explain a little bit more where is that and why the fees were up so much and kind of what you expect going forward there?

Yes, and that is where we are working on the remapping of it, and obviously Securities America is there, and this element of it is from our (inaudible) we do see Securities America will be certainly generating income.

But mostly what resides in that segment is residue of technology that has not charged overhead expenses that don't get allocated, so I won't look at it as a substantial to profit situation from that standpoint.

So we do believe that, you know, SAI is certainly momentum and its trajectory is up.

But again, there are other elements within the line.

SAI is Securities America, and their business is growing nicely.

Their production is up strongly, and their revised account there is positive as well.

And they will be a growing part of our business in the future.

So, would you believe that it will be better maybe to reclassify them into your asset management business?

We are evaluating and looking at it as we look at it from that standpoint.

And then my final question is I was just curious out of the 875 million pretax how much you have spent on your branded advertising already, and do you think that the budgets that you have for that are reasonable given how much you have spent and how much you are looking to spend over the next year or two?

I will let Walter give you the number in a moment, but very clearly we are tracking very tightly against our plan.

We feel that we are very comfortable with the amount of spend that we need and what we have budgeted to be appropriate.

And, as I said to you, we are building strong awareness through the first four months.

Our total awareness has built very nicely, and we will be able to continue that as we have said over the next two years.

And approximately I think we are for the -- hold on -- we are about at this stage nearly 30 or 40% through 2005. (multiple speakers) -- she was asking how much we actually have been spending in marketing.

The marketing and the spin costs also includes the transition of signage, changes, etc.

So we have both in advertising -- of the additional advertising in the spin costs, as well as our core advertising budget that gets books in our operating expense.

But we are well on target and in line with what we had planned and budgeted, and we don't see any issue of continuing the building of the awareness campaign.

Okay.

So just to be straight, the 875 million includes both your core budget and your --?

No, no, no, it is the additional spinoff budget and it is a reestablishment.

So there are 293 million debt against advertising and marketing, which would include change out the signage and new materials, etc., etc. as part of the brand.

Okay.

And that is the number that your 30 to 40% through?

Yes.

Saul Martinez, Bear Stearns.

With your ROE run-rate still kind of at 10% or below, but with some of the capital optimization efforts that you are undertaking, can you at least put some broad parameters for us as to how long you think it might take you to get to the low end of your 12 to 15% ROE guidance.

That is my first question, and then just secondly on your VAT hedging, can you talk about whether you see any impact of the implementation of CS Phase II on your capital you know given the growth of your GMWB product, and I think hedging practices right now that might be a look bit more limited than some of your competitors?

Well, to answer the second part of the question, no, we don't see impact on C3 Phase II.

We certainly feel that with our hedge that we would be able to mitigate.

At this stage we are certainly, and I will let Jim -- we are -- I cannot object, but I can tell you that we are certainly, as we look out (inaudible) generating the excess as we talk about.

It then gets down to the deployment aspects of that really.

As I indicated in my talk points, there is two parts of it.

The generation and then the redeployment, and that is something that obviously we're reviewing with the Board and looking at the options (inaudible) things of that nature, which will be in the best interests of sustaining our growth trajectory and returning best value to our shareholders.

I would just complement that.

As Walter laid out to you, we have very clear plans focusing on our capital, both the excess of what we could free up, as well as thinking about deployment.

And so over the course of this year, we will be clearer with you of what that path is as we further discuss that with our Board.

But, as I would just complement Walter's comments, his formal remarks, we feel very comfortable that we will move into the ranges that we told you about over the next few years.

So from that, I would just say that we will be able to come back to you later in the year with clearer plans on how we will do that but, as Walter described to you, how we are actually thinking about it.

Okay.

Great.

So we will stayed tuned.

Thanks a lot.

Yes, that is the best way.

Andrew Kligerman, UBS.

A couple of questions about timing.

It is nice to see the 2 million share buyback plan.

Could you talk about the timing of when you would like to do that?

Then secondly, another timing question, I'm very pleased to hear that 5 to 10% of your current equity base could be freed up through these various initiatives.

Any sense on timing with that, and then I will follow-up with some other questions.

Since the clock is ticking on our nickel now, you would imagine that we would try to mitigate that in a reasonable timeframe.

I don't want to give an exact timeframe, but certainly we had been given authorization from the Board to move forward now.

But, Walt, there is nothing holding you back. (multiple speakers)

(multiple speakers) is holding us back.

The money has been funded as part of the spin, so everything is there.

We certainly have the footing; everything is here to certainly execute.

Okay.

Great.

And on the 5 to 10%, it is actually as we evaluate the re-engineering initiatives, it is in the near-term.

Excellent and that -- okay.

And then with respect to deferred acquisition amortization, deferred acquisition cost amortization, I noticed that it looked a little low in the AA&I segment.

But it looked like it penalized you a bit in the protection segment, netting out to a negative.

Could you give a little color on the DAC amortization?

Are these normal trends that I should expect?

Did it hurt you a little?

What exactly was going on there?

We have mutual funds in there you realized on -- (multiple speakers)

I saw that part in the write-up, but it just seemed like you were a little bit penalized there.

Would you just say it is normal for the quarter or --?

I think it is normal for the year and the quarter does, you do get the swings in the quarter, but it is certainly normal for the year on trajectory.

As you know, we go through a very extensive (inaudible) in the third quarter, and these are subject to market movements and things of that nature.

So I would -- and certainly we feel comfortable with where the trajectory is.

And again, on the quarter it is tough because it does get mean reversion and other factors come into play on that.

But overall, as we look at it for the year, we feel comfortable.

And again, it is constantly being reevaluated.

And then with respect to the new distribution in the -- to sell your mutual fund products, the RiverSource, are you still on track for midyear hitting the banks in the regional broker-dealers?

Yes, our plans are, as we said, we are initially focused on the subadvisor and institutional business, and we already have resources in place to start to build that business.

We are putting in the operational infrastructure right now to enter the third-party distribution probably in the third quarter, fourth quarter of this year.

So I don't want to factor in a set time, but it will be the latter half of the year.

Got it.

And then the last question, it did look like your branded advisor retention was quite solid ending the year.

Now we're into the new year.

Do you still feel good about it?

Well, we have been able, as we mentioned to you last year, able to have a very strong intention retention and advisor base.

I will just tell you this is a very important part of our business, and we are very much focused on it.

So we think that we are keeping a very close eye on it.

We have implemented our equity program.

We had a significant number of our advisors sign up for that program, which is a deferred equity program.

So we are feeling good at what we have been able to manage through last year.

Having said that, we continue to be very much focused on it.

We also will say we are not looking for near-term growth.

I mean actually part of our re-engineering is even restructuring some of our offices and closing down a few of them to get more efficient operationally.

So from that perspective, we're going to be much more focused on productivity rather than growth in the advisor network and then move back to the growth scenario in the latter part of the year.

Yes, but what I wanted to kind of get to, Jim, is a lot of people think there's going to be this steep drop-off in your advisors because we are into the new year.

Are you seeing anything like that?

No, we're not seeing that.

We ended the year as you saw from our run-rate out of the year.

There is probably a small shift between December and January for some of the bonuses, but we are not seeing a material shift.

Joan Zief, Goldman Sachs.

I was wondering if you could talk a little bit more about what is going on in the asset management business?

If you could talk about what really is driving your net outflow, particularly Threadneedle?

What we should expect for revenues going forward in margins?

And then just after a little bit more in-depth color on the asset management business, could you just talk as to why you want to shift from institutional to retail assets, because I always thought that institutional assets should be stickier?

Okay, I think that your last question is actually tied up with the Threadneedle question.

What we have here really is, we like institutional assets, so that's not where we are shifting away from.

In fact, our focus here in the U.S. is actually to grow the institutional business again where we lost a lot of assets over the years.

Where we are having the outflows institutionally was because we did close our San Diego complex and lost assets that some of that was in the fourth quarter, and hopefully that has now dissipated and will be back to sort of a normalized and start to rebuild.

The assets we also lost was in Threadneedle, and it was really around some of the Zürich insurance owned assets as they drew down their book.

And from that, they are very based on the arrangements originally with Zürich these assets are very low fees.

So they have not really impacted our revenue streams in that regard.

Our longer-term assets that have the more appropriate fee revenues are locked into longer-term contracts with Zürich.

So where Threadneedle is really focusing attention, which is both good for us and them, is growing their retail mix, which has higher fees, as well as their alternative investments.

So their property, their hedge funds are growing real nice, and as you would imagine, they have much higher fees.

As I am on Threadneedle, let me just finish there.

They are also re-engineering part of the program we've put in place that they really put in place based on acquisition was to again drive their growth and profitability.

So they are really using their resources and freeing up capacity to really put into the higher margin businesses, and that is working very well.

So we're not moving away from institutional.

There is a drawdown on some of the Zürich assets.

That has a minimal impact on our revenues.

And, in fact, their flows have been in much higher margin businesses, which will then give us better returns over time.

All right.

And just one last follow-up on this.

And that is, when do you think we are going to see some sort of improvement in the net outflow data?

I understand it may take awhile for you to get to a breakeven point and even inflows, but what is your expectation for when we will see -- we will start to be able to track some improvement in the outflows?

Yes, I think there are three things to consider there.

One is we did suffer some additional outflows this year due to the underperformance of New Dimensions.

And we are now feeling that as we work through that cycle with the Boston team focused on that performance, we will see that slow, and that will also help offset some of the outflows.

The second thing, as we started to -- we mentioned to you in the talking points is -- and again this is still early and it is not that it is significant -- but we are finally seeing a turnaround in our sales, in our advisor channel from where the sales percentage was declining to now increasing again.

So our advisors are looking at the product again, seeing the strong performance in a number of our funds outside of New Dimensions as I have just mentioned.

But they are starting the uptick.

And third, with that in mind, we know we are going to continue to suffer outflows because we had a large base in close system moving to open.

But as we now excite some institutional sales, subadvisory, as well as entering third-party, we will start seeing more inflows that will offset some of those outflows.

So it is hard for me to predict an exact time.

That is all I would say is I think we are through a large part of the acceleration, and hopefully we will get more to the improvement where that balance will come into line over the next year or two.

Vanessa Wilson, Deutsche Bank.

Could you give us just some color and help us understand a little bit the volatility in the revenues in the asset accumulation on the corporate line?

I understand that you moved 13 million from one to the other this quarter, but what is it about those businesses that would cause the volatility in revenues that we are seeing?

Are there alternative investments in there?

Are there performance fees?

How should we think about this going forward?

Well again, let me just say, what you're seeing is an adjustment for the probably three-quarters taking place in the fourth quarter.

And that was 13 million?

Yes (multiple speakers)

For example (multiple speakers) asset accumulation distribution fees of 185 million were down from 207 in the third quarter.

That is substantially more.

What exactly is driving those kind of numbers?

The basic element on our basis, within the corporate segment, there is the main element of revenue is coming back through SAI and others, but there is not a lot of volatility.

You really are getting here, just the settling down as we move through creating these quarters and these segments, and it is driven a lot by this settling down process.

But when I look at SAI, the sales numbers, the headcount, the growth dealer concessions, none of those metrics would lead me to believe that you would have this big burst of revenues this quarter.

What exactly is driving that at SAI?

Well, it is not an SAI burst of revenue because, like I said, it is driven off the fact that we are making the adjustments coming through, and there are eliminations and other things that we are going through as relates to both the expense and reclassifications within.

But I'm talking about revenues.

You disclosed (multiple speakers) 13 million.

And is it much more than 13 million?

No, right now it is 13 million as we told you, and as we then settle down on completing the automation of the mapping, it is really the noise that is coming through.

So I really actually will tell you at this stage I do not believe that there is that sort of volatility.

It is really just settling down, and that is what we are working on now to get those elements aligned.

And again, it does not effect the net income of the company, and it is an important element.

And we look at it from the standpoint -- there are elements moving through in the corporate segment that we are trying to address through as it relates to those elements.

Now if you are referring to the other segments in the AA&I, we certainly have the market movement from our standpoint as it relates to the change in the WEI elements within that which has driven a change.

The fact that we did not have supply on REITs because of some of our core supplier, we're still in the process of being filed with the SEC.

But those are things that we managed but -- so we feel that the revenue side of this is actually reasonably understood at this stage, and we don't feel that it is a huge volatility coming through on that basis.

And we did have, as we said, on Threadneedle we did have a shipment in the third quarter and the fourth quarter as it relates to the hedge fund performance within that.

But that is something that we have already noted and I thought was actually covered.

Okay.

My next question is on the level of excess capital.

Several people have asked what the level is currently, and given that you have done (technical difficulty)-- relation for 2 million shares of stock, I would think you would have done that study to tell the board.

I just don't understand why we cannot have that number now, and the 5 to 10% of excess capital you will release over time, you know, the timeframe of that I think is important.

So why don't we focus on what would be released just during the 2006 period?

The first thing I have is the money coming for the advisor is coming out of the separation that was provided by American Express.

Okay, that is something that was part of the separation expense.

As it relates to -- it's not a reluctance (inaudible) -- these are complications that we go through and we sit and we work with the agencies and we evaluate (technical difficulty)--.

But looking at the way we evaluate capital, we do feel quite comfortable looking at both the regulatory, looking at the rating agency and looking at the economic capital.

And we are evaluating these elements -- again, we have been now in an independent capacity for basically since 9/30, and we are just feeling our way through to make sure.

But again, these elements to us we have been through this, we understand it, and we are just feeling that we want more time to evaluate and align that with the board. (multiple speakers)

We clearly know that you are trying to get some visibility to what our plans are and what those numbers look like.

We ourselves as we -- we have only been public going on four months, and we have gone through one of the major transitions and separations, and we want to manage that most appropriately.

And we have a new board in place that is also ensuring that they review the situation.

And so as we go through this year, we will know our position a bit better and how things are progressing.

We are feeling very good about executing against -- we had planned to do the transition as Walter has mentioned to you.

As we continue to work through that and update our board, we will come back to you and let you know a bit more of our plans.

We definitely want to share where we are going and how we are thinking about the world.

We also know from many of the input we received and we have been responding to the analyst questions as such, we're clearly going to continue to provide more information as we go forward, including we had to do some major work just to put these segments in place and put all the mapping in place.

So, as you saw, some flows adjustments as we update that and better appropriately provide that information.

And so that is our plans, and we will continue to disclose to you as we move forward.

That is helpful.

I have one final question.

On the protection segment, you had a substantial earnings shortfall this quarter.

Could you give us a little more color in terms of the claim side?

Was it in visibility?

Was it in property casualty?

What should we be thinking about there given that those are very different businesses?

(inaudible) yes, they are, and from our standpoint, when we look at the claims side that we feel the trendline is actually consistent where we think it is from that standpoint.

Certainly the claims are on the -- higher than our trendline has been on the long-term tier, but again within the parameters that we feel, but within the visibility and within the other products certainly within the ranges that we feel comfortable with.

And right now we feel that on a normalized basis we are actually in targeted ranges.

This is the run-rate of earnings that we should trend forward?

Here we go.

I would believe that when you look at our protection business, we believe that we will be generating a year-over-year growth in earnings as we go forward.

John Nadel, Fox-Pitt Kelton.

Following up on Vanessa's question, maybe we can get about it in a little bit of a different way.

Last quarter I think after making some of the adjustments by segment, for the settlement and a few reserve items, etc., I think the AA&I segment came in at about a little over $200 million in pretax earnings, and protection came in at I guess around 95 million of pretax earnings both on an adjusted basis.

And at that time, you guys described those earnings levels as somewhat normal, no other unusual items.

And yet this quarter AA&I is down 15% sequentially, even adjusting for the $13 million that got reallocated to corporate and protection is down 42% sequentially.

And I guess I'm having a really hard time understanding what drove those declines?

Let me deal with the protection.

The protection line I think you asked to factor out the AMEX Assurance and (multiple speakers)

But wasn't that only about 3 or $5 million in the (multiple speakers)

No, no, it will bring that differential between 64, 64 this year -- 56 this year, 64 last year.

No, no, no, I'm talking about the third quarter.

I'm talking about sequentially from the third quarter.

Yes, but I'm talking about in the fourth quarter from that standpoint, you have there in the protection side, that's when we do our unlocking and other things like that, and I think that impacted -- so I think that is one of the major drivers of it.

But, but, Walter, not to be pushy here, but I'm making the adjustment for those items already.

You reported 136 million in the third quarter.

I'm adjusting for the 53 million of DAC and the 13 million from long-term care reserve down to $96 million on an adjusted basis.

That is your third quarter adjusting for the two onetime items that you guys disclosed.

And now we're down $40 million sequentially to 56 million in the current quarter.

I guess I'm really trying to understand that decline, as well as a similar decline in asset accumulation in income, which in the third quarter on an adjusted basis for the settlement and a few other items came in at 208 and is now 163.

Let me do this -- you're asking a complex question.

As we said, we're feeling comfortable with the trendlines.

Let us take that off-line and get back to you with those items -- Mary and Laura will -- to answer your question about it, and then we will obviously make sure that --

We do not see what you are (multiple speakers) as that (multiple speakers).

So let us take it off-line, and this way we can move to a number of questions rather than try to do a reconciliation for you here.

Okay.

And so one last question, and I appreciate that.

You mentioned that in 2005 about $175 million in expense savings from reengineering initiatives and I guess an expectation for a similar level of expense savings in 2006.

Can you give me a sense for how much of the 175 of savings that you generated in 2005 actually impacted 2005 results on a net basis and how much of that you expect is still to come through 2006?

And then I guess similarly for your '06 expectations, is that all going to flow through in '06, or is it I guess kind of getting back to timing?

Two things.

The 175 as relates to that we then make a decision, and of course, we do find that as we talked about before a substantial amount of investments for both growth, infrastructure and franchise.

And so those savings were realized, and then where they were distributed came through, and they will come through then as we fund those investments.

In 2006 similarly we are planning for investments in the business to sustain and certainly improve our trajectory.

We then make that choice between margin and investments in the business.

So we feel comfortable we have the flexibility within that to make those trade-offs and since we are on a very good and focused agenda for the reengineering.

Let me just add one thing.

We had mentioned to you our costs did go up last year because of the separation meeting that we had to add on.

That is in our operating earnings, not broken out in separation.

Just the ongoing costs of putting together an independent company and bearing those costs that we never did before on an apples-to-apples basis.

So part of our work that we want to do is we know we have to drive margin improvement and turn that back around, and so what we are going to do is reengineer to offset some of those expenses, as well as make some of the investments that we really need to do so that we can sharpen our business and get the growth.

So we are going to balance those things, but part of those savings will go to offset these increasing costs so that we keep a very tight expense budget.

And that is the way we want to do it because we want to invest to grow the business, but we also know that we cannot have our margins get out of line, and we did get a bit squeezed because of the additional expense that we bought.

So that is what we're going to do with our reengineering, and that is what we did last year going through the spin.

And as Walter said, we managed that based upon where we are going to get the best benefit.

Okay.

Thank you.

I appreciate there is a lot of moving parts, and I look forward to the follow-up.

Thank you.

Eric Berg, Lehman Brothers.

First, with respect to the composition of the advisor network, it seems like what is happening is your franchisee count continues to decline slowly and your employee -- that if you're getting growth, it is being driven more by the employee advisors.

Am I reading those data and interpreting them correctly, and what are the implications of such a mix shift in the composition of the advisors?

Well, first of all, up until this last year, our total branded network was growing, but one of the clear focuses we have is we bring in our new advisors as our employees.

And one of the things that we have been recently focused on is we're finding that giving our advisors choice is very good, but we're also finding that a number of our advisors as they reach maturity actually like to stay as part of our branch network as employees.

And so what we are doing now is building out that employee channel, so that as a productive mature advisor, they can still be part of our branch network versus just going to our franchisee system.

And in that regard, they feel that they don't necessarily want to be individual business owners and turn on the lights in the morning and hire staff.

So that is part of what we are focused on doing.

And as I said from that perspective, the total in the past would have grown naturally, but because of the transition, we have slowed the growth in the P1 and also lost a few more in P2, but the retention overall is high.

The P1 versus P2 economics are really -- we are indifferent to them.

What we are really focused on is how to make our advisors more productive, and if they can be more productive in the P1 channel, then that will be a better return for us and for them and the same thing with P2.

A couple of more quickies.

First, in the variable annuity area, I continue to sort of scratch my head about why we are not seeing sort of steady revenue growth.

You are managing more assets than ever.

You're getting solidly positive cash flow, right?

I would think that this would not be an issue related to net investment income because I would think that in the low interest rate environment that we still have, most people are opting not to put money in their general account, although maybe that is not a fair assumption.

With all the assets that you are adding, why are we not seeing growth in your revenues in variable annuities? (multiple speakers) -- sequentially?

The thing is also looking at the NII allocated to the market losses, which really are basically from our standpoint driving that down, and so you are getting a counterbalance on the fees from that standpoint.

Okay.

So I think we are seeing very good growth in there and also certainly meeting our profitability target ranges from that standpoint, and certainly when we have looked at the adoption on the options which are also driving a higher growth pattern both in the advisor and in the third-party channel.

Final question.

Just what is -- you referenced more than once in the news release, and I know you referenced this in your comments in passing, a stock market certificate.

I know what the face amount certificates are, but what is a stock market certificate?

Well, we have been offering this for years, and actually if you follow us on American Express, we basically give people a chanced to participate in the appreciation in the market which we then tap.

So it is -- so you basically get the increase running up in the revenue line, and then we offset it in the expense line.

Nothing to do with the equity index annuity?

No.

None.

No, no, no.

Separate effort, separate product.

Thank you very much.

John Hall, Wachovia.

In talking about the remapping, you said that it was going to lead to some broader disclosure.

Is there a possibility that a resegmentation would also be part of that process?

Right now the concentration is on automating our mappings and getting that aligned as Jim said.

We have moved to the three segments from the one segment, and we want to get that as basically to look at all the -- and that is in preparation for enhancing.

As we talked about that we will evolve this and so, therefore, but we have got to ground ourselves to have the automated mapping set, but then this is an evolving process.

Okay.

Walter, you mentioned that there was some LTC claims higher than trend in the quarter.

Was there any adverse mortality in the life book?

No.

Okay.

Are there any recruiting goals as pertains to the branded planners?

Well, what we said, and I put in my formal comments, is we are actually right now very much focused on more on the productivity end.

We are actually reengineering a bit more of our brand system, so we are closing a few offices, and we're going to expand growth in some others.

So overall I would probably say this is an environment for us as we come out of the gate to be very much focused more on the productivity than driving big net gain.

But that is when we will start moving into gear later in the year to start the recruitment cycle again for us.

Should we expect in the first quarter when results come out similar to other systems a drop-off in advisors where there is a systematic process after the end of the year to sort of call out lower producing planners and the like?

Well, we usually anyway at the beginning of the year have a falloff in the advisor account.

I mean as part of the -- naturally if you go back over the last few years, you will see that.

So I think that is what you should expect any way.

We don't see a dramatic shift from that as we said.

There might be a few that flowed between the end of the year and January, and I did mention a few office closings.

But no, I think it is more of a seasonal cycle that you will be seeing more of the impact from.

But nonetheless, it should be sort of a downward moving number from this quarter to next?

Yes, that is typical I think as you look.

That is fine.

And in the release, you mentioned strategic initiatives to deemphasize the fixed annuities in the stock market certificates.

Is there anything beyond just pulling back in terms of writing them, or is there a formalized program?

Well, what we are doing is very clearly we maintained the fixed product in our advisor channel.

We have pulled back from fixed product on the annuities and the third-party channel.

We don't think it is necessary for us to have that right now, and we're really looking to grow the variable and redeploy our capital, as I said, which will be higher returning.

And then from the internal business on the certificates, here again we still offer those products in our advisor, but we have moved away from our joint venture with the international bank of American Express.

We have closed down that business as part of the separation, and we could not maintain it anymore for that joint venture.

Those assets have moved off and are moving off.

And so here again in this interest rate environment, this is not one that we are pushing heavily.

We could but we don't think that is appropriate use of capital right now.

The demand for it is muted, and we certainly continue to service the advisor network from that standpoint.

And we believe we have a product within the context of fixed annuity to generate reasonable terms.

Operator, we will take one more question.

Jeff Hopson, A.G. Edwards.

Just to look at the productivity numbers, the cash sales overall from the branded advisors was down in the quarter.

Can you explain that?

And now that you are not going to grow the financial advisors branded ones, can we assume that the productivity is going to increase over the next few quotas?

And then you mentioned some new products on the retail side that will have advice embedded in those.

Can you give us any other details as to what those are?

Yes, first of all, let Walter talk.

A lot of our growth based on the classification and (inaudible) is not showing up in the cash sales.

So I will let Walter explain that a bit.

On your second question, yes, we are introducing next month something called our income builder, and it will be a way for using the capabilities of our asset management teams to actually generate income for our clients in a better risk reward way with what I would call dynamic rebalancing and managing the risk between the various fixed instruments.

So it takes out of the hands of the advisor the idea of what they should be in based on the interest rate cycle, based on the credit curves, etc., and we think it will be one that is very important for the retirement market to generate a certain amount of income on their principal.

And basically, you know, that ratio we show the flows in wrap not in care -- you know, not in care sales, and it is more reflected.

But certainly we have been growing that, and the productivity is quite high on that factor.

So it's really just a classification.

But the productivity is actually quite high as it relates to the non-profit in the --

Yes, the wrap business is growing, our fastest growth area.

Right, okay.

I got you.

Thank you.

Thank you all very much for joining us on today's conference call.

Mary and I will be available to answer questions at 212-640-5174.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's teleconference.

Thank you for participating.

You may all disconnect.