阿默普萊斯金融 (AMP) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ameriprise Financial First Quarter 2006 Earnings Conference Call. [Operator Instructions].

I will now turn the call over to Ms. Laura Gagnon, Vice President of Investor Relations.

Ms. Gagnon, you may begin.

Thank you, and welcome to the Ameriprise Financial First quarter earnings call.

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

We have approximately 20 minutes of prepared remarks, after which we will open the lines for Q&A.

During the call, we will be referring to various non-GAAP financial measures like adjusted earnings or [inaudible - background noise].

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

These adjusted numbers exclude discontinued operations, AMEX Assurance and non-recurring separations costs as described in today's earnings release, which was filed in an 8-K report with the SEC.

The presentation of adjusted earnings is consistent with the non-GAAP financial information presented in the Company's annual report and Form 10 for the year ended 2005.

Reconciliations of non-GAAP numbers discussed in this presentation to the respective GAAP numbers can be found in the earnings release and statistical supplement issued today and available on our website.

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 expressed or implied by any of these forward-looking statements is detailed under the heading "Forward-looking statements" in our 2005 annual report to shareholders, a complete copy of which is available on our website and under the heading "Risk Factors" and elsewhere in our 2005 10-K report, already on file with the SEC.

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

With that behind us, I''d like to turn the call over to Jim Cracchiolo, Chairman and CEO.

Welcome.

Thank you for joining us today.

Today marks just the second opportunity for us to discuss our results with you as an independent company.

As we do so, I think you will notice our disclosures are more clear and thorough, and we expect this to continue to evolve as we move forward.

In summary, we had a strong first quarter, and I am pleased with the results.

I will start with some context for our business results and then Walter Berman will provide insight into the results by segment, as well as other information, and then we'll take your questions.

So, let's begin with the key financial results.

As we stated previously, our on-average, over time financial targets are 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 earnings release and statistical supplement, Walter and I will speak in terms of adjusted results, which we believe best reflects the underlying performance of the business.

Adjusted revenues for the quarter were up 10% over the same period last year to over $1.9 billion.

Adjusted net income for the quarter was up 17% to $189 million or $0.75 per share.

Adjusted ROE for the trailing 12 months was 10.4%, up from 10.2% that we reported for the year end.

We had a strong start to the year with regard to our key financial targets.

Two of our three measures, revenue and net income are well above goal, and we are making progress against our ROE goal.

Now I would like to highlight and discuss three main drivers of our results -- driving mass affluent client acquisitions, improving advisor productivity and increasing our own managed and administered assets.

First, client acquisition.

A core component of our strategy is to increase the number of mass affluent clients and deepen our relationships with them.

There are nearly 30 million U.S. households with $100,000 to $1 million to invest and $50,000 or more in household income, and they hold more than 50% of the nation's investable assets.

Within this segment, the baby boomers represent our largest opportunity.

Our research shows boomers rate planning for retirement as one of their biggest needs, and we are very well positioned to serve them.

Financial planning is our core value proposition, complemented by a broad range of protection, asset accumulation and income product solutions that help meet their needs.

During the quarter, the number of mass affluent clients with $100,000 in assets or comparable product values with the Company increased from 11% from the year ago quarter.

In addition, our acquisition of these clients increased 23% year-over-year with approximately 57% having a financial plan.

Our marketing programs are key in driving mass affluent client acquisition, and none have been more critical than our innovative advertising campaign.

As you know, the name Ameriprise Financial did not exist before we announced it last May.

Starting on the base of near zero awareness in September, we are building a significant brand awareness with our advertising.

At the end of March, our trackings show the total brand awareness at 40%, which is higher than what we had expected at this point in our campaign.

Establishing a new brand was a concern of many before the spin-off.

What would we do without the American Express brand?

I believe that our independence has enabled us to define the Company better and more clearly within the retirement space.

Our improving overall brand awareness should continue to help drive results, both now and going forward.

Second is the increase in advisor productivity.

A good measure of advisor productivity is gross dealer concession or GDC per advisor.

For the quarter, GDC for branded advisor increased by 17% over the same period last year.

It is also up more than 10% compared to the fourth quarter of 2005.

We attribute the increase in productivity to a favorable market environment, which we do not control, and to a strong set of product and service offerings and advisor support, which we do control.

Meanwhile, our total advisor force, including branded Ameriprise Financial advisors and unbranded, those at Securities America, declined by 58 to 12,339 at the end of the quarter.

Part of this resulted from a repositioning of several less productive employee advisor offices during the quarter and increasing employee advisor minimum productivity requirements, which negatively impacted employee advisor retention.

However, our more tenured and productive franchisee advisor force remains stable, up 99 advisors from year-end 2005.

Franchisee advisor retention remains high at 91%, down slightly from 92% last year and unchanged over the past three quarters.

While growing the advisor platform over time is an important long-determined goal, our immediate focus is stability of the advisor force and continuing to build upon advisor productivity gains.

The third driver I'd like to discuss is progress in increasing owned, managed and administrative assets.

We continue to emphasize growing our own managed and administered assets by developing innovative product solutions, generating strong investment performance and broadening distribution.

During the quarter, our own managed and administered assets increased to $446 billion, up 11% from the year-ago period and 4% from year-end 2005.

This improvement in assets reflects both market appreciation and an improved flows, including strong flows in our industry-leading wrap program and our variable annuities.

Our wrap program saw $1.9 billion in inflows, bringing total assets in wrap within our branded advisor channel to $54.9 billion.

This reflects our clients increasingly choosing fee-based advice products within their portfolios.

In addition, variable annuities remained the popular choice for clients saving for retirement.

Variable annuity cash sales were up 44% versus the first quarter of 2005 and variable annuity in-flows were $1.1 billion in the quarter, reflecting solid growth in both the advisor and third-party channels.

We also saw a sequential growth of approximately $700 million in RiverSource mutual fund assets under management, reflecting market appreciation and increased sales in the advisor channel.

However, this was offset by increased redemptions of our funds in the 401(k) channel, largely from RiverSource new dimensions fund.

Performance has improved since our Boston-based team has been managing the assets of the fund.

We were pleased that shareholders supported the proposal to merge the fund into RiverSource Large Cap Equity Fund, which occurred in March.

Though RiverSource funds remain in net outflows, we saw a 29% improvement in net flows compared to the prior year quarter.

The outflows are slowing, due largely to our strong investment performance, new product development and improved wholesaling capabilities.

Investment performance at both RiverSource and Threadneedle continues to be quite positive.

Our focus is on building competitive, long-term retail and institutional track records.

Importantly, our one-year equity and taxable, fixed-income performance at River Source is strong and is helping to drive improved three-year numbers.

Threadneedle is an important contributor where we continue to demonstrate solid performance against benchmarks.

As an organization, they continue to perform well, not only with investment performance and retail, institutional and alternative investment portfolios, but also in managing the business as they execute strategies of shifting its mix to higher margin, retail and alternative assets in implementing strict cost controls.

While this shift is expected to result in reduced flows, most notably in lower-margin, Zurich-related assets, it continues to have the intended effect of driving higher fees and revenues.

Consistent with our efforts to offer clients innovative asset accumulation, income and protection products and advice-based solutions to help them achieve their retirement and other goals, we launched several new products, including two new universal light products, RiverSource Foundations and RiverSource Foundations Protector, that added to our broad insurance product set, and build on our position as a leading provider of variable, universal life insurance.

And six new mutual funds, including RiverSource Income builder series, a series of three fund-to-funds that offer investors and advisors a sophisticated and comprehensive income solution, designed to deliver high-current income, protection against inflation and capital preservation over time.

Lastly, our improved performance product features and competitive products set allows us to continue to broaden distribution of RiverSource annuities to banks and other broker dealers, and we are continuing to build our sub-advisory, institutional, and third-party distribution capabilities.

So, recapping, we started off the year well.

We had good progress on our financial targets.

That progress has been fueled by an 11% increase in our high-value clients, a 17% increase in the productivity of our branded advisors and growth in our own managed and administered assets, driven by strong flows in our variable annuity and wrap products and improving flows in our proprietary mutual funds.

We continue to effectively manage our separation activities and our operating platform is strong.

We have prudently managed our separation expenses, having spent approximately 360 million of our original 875 million estimate, which is less than we had anticipated at this point in the transition.

While there is a significant amount of work yet to accomplish, we have the right teams in place and I am confident that we will continue to effectively execute against our plans.

Before I turn it over to Walter, who will provide some more context about the segments, I want to mention an important event.

Last month, the Ameriprise Financial Board of Directors authorized a two-year, 750 million share repurchase program.

That amount is in addition to a previous authorization of 2 million shares.

As part of these authorizations, we completed a 275 million share repurchase of 6.4 million shares of Ameriprise Financial common stock.

I mention this because I believe this is an effective use of our capital to maximize shareholder value creation.

With that, I would like to turn it over to Walter Berman, our CFO, to give you further insights into our results.

Thanks, Jim.

Overall, I feel very good about our financial results this quarter.

The benefits of our diverse product offering and revenue streams are reflected in our overall profitability, as well as in our operating segments.

As Jim mentioned, we exceeded two of our three on-average, over time financial targets and made good progress toward our third financial target.

Our first target, adjusted revenue growth, was up 10% versus the first quarter of 2005.

This growth was driven by a 17% increase in the management, financial advice and service fees, balanced against a 5% growth in investment income and distribution fees.

Our adjusted net income and EPS growth was fueled by the excellent performance, now equity-driven management products, offset by the anticipated slow growth in fixed annuity and certificate activities.

In addition, the tight control of our operating expenses contributed to this strong performance.

Adjusted return on equity for the trailing 12 months improved sequentially to 10.4% from 10.2%.

It should be noted that since the share repurchase was completed at the end of the first quarter, it had a minimal contribution to the improvement in our EPS and return-on-equity performance.

I will update you on capital management later on, but first, let's review the results in each of the segments.

The asset accumulation and income segments' relative weight in our overall business continues to increase as we focus on shifting to less capital-intent businesses.

During the quarter, the AA&I segment contributed 73% of the quarter's consolidated revenues.

The segment experienced strong net flows, including $1.9 billion into wrap products and $1.1 billion into variable annuities.

We also benefited from market appreciation during the quarter.

Fixed annuities and certificate products continue to put pressure on net investment income revenues.

They represent about 50% of revenues in this segment and were flat to last year.

Overall, AA&I revenues increased by 9% or $123 million. $97 million of this increase was in brokerage, banking and other, and revenue relating to variable annuities increased $14 million.

While strong business fundamentals were a primary driver of the 31% increase in pretax segment profit, this segment also benefited from a $24 million decline in legal and regulatory costs during this period.

I am also confident with the underlying performance of our protection segment.

Adjusted revenue grew 9%, but pretax profit was essentially flat as our segment expenses grew 11%.

This revenue growth primarily reflects continued success of Ameriprise auto and home insurance activity.

While most of the current period's growth related to our established Costco alliance, we anticipate our new alliance with Ford Credit will generate growth in subsequent quarters.

There were a couple of specific items that caused the segment expenses growth to outpace its revenue.

Importantly, we don't believe these items are the beginning of a trend.

First, we had higher claims in disability income insurance, primarily in January, but the expected annual loss ratio remains below industry averages and within our anticipated trend lines.

In addition, in the first quarter of 2005, the disability income business had favorable claims experience, which negatively impacted the year-over-year comparison.

And finally, we had an increase in claims associated with our long-term care insurance business.

Regarding the long-term care business, we no longer manufacture a proprietary product.

All new business offered by our advisors is primarily underwritten by Genworth.

We are, however, committed to managing our in-force block of long-term care business, which includes taking price increases as warranted.

The final item of note in the protection segment was an increase in the amortization of deferred comp -- deferred acquisition cost in the quarter, primarily related to an adjustment to the unearned commission balance.

So, aside from these items, protection has strong fundamentals and the trends are good.

We continue to be the number one provider of VUL insurance.

In January, we launched new UL products in over 40 states.

Disability income insurance business has historically outperformed the industry, and we have no reason to believe that will not continue.

And our auto and home insurance business is showing strong profitable growth.

In addition, I feel good about our expense containment efforts.

Our adjusted expense growth was up 9% or $144 million from a year ago.

We believe that expenses are well contained.

The year-over-year growth was primarily driven by a $62 million increase in field compensation and benefits and a $41 million increase in other expenses directly associated with business activity.

Non-field compensation and benefits increased $37 million, reflecting higher costs associated with being an independent company, $11 million in severance costs, primarily within the technology function, as well as other costs.

These increases substantially offset the prior year legal and regulatory course.

In addition, the first quarter included only a small portion of our re-engineering benefits expected for the full year.

So, overall, we feel expenses for the quarter were prudently managed.

Before I pass it back to Jim, I would like to quickly address capital management.

Our fourth quarter 2005 conference call, we outlined examples of how we are working on capital optimization.

Here is a quick update.

The consolidation of our five insurance entities into two is on track, and we expect to be completed by the end of 2006.

We received our bank charter and we expect to launch Ameriprise FSB by mid-year.

As we said, the FSB will enable us to better serve our clients' deposit and credit needs, rounding out our solution set for our customers.

The quality of our balance sheet remains high and our capita ratios are strong.

The percentage of bonds rated A or above increased to 70% from 66% in the first quarter of 2005 and below investment grade remains at 7%.

Debt to capital was 17% as of March 31, and our fixed-charge coverage was 7.2 times.

With regard to hedging, as I mentioned before, we used hedging instruments to manage our risk exposure and capital requirements.

The hedging program we put in place in late 2005 to manage our exposure related to GNWB on variable annuities has been effective to date in mitigating our exposures and reducing our regulatory capital requirements.

And finally, as Jim mentioned, in late March we announced the Board authorization for the additional share repurchase and the completion of the 6.4 million share repurchase for $275 million.

On an ongoing basis, we will continue to evaluate our alternative uses of capital.

The impact of the 6.4 million share repurchase is evident within our ending share outstanding of 244.3 million shares, but it had no impact on our EPS for the quarter and a minimal impact on our return on equity calculations.

Average diluted shares for the first quarter were 253.5 million shares.

You should note, because of the unique characteristic of the 2 million vested shares we granted to our advisors as part of their 2005 incentive and retention plan, they are not included in our shares outstanding.

However, for purposes of both the basic and diluted share count for EPS calculation, these shares are included.

So, for the second quarter, our starting point for the diluted shares is 247.7 million shares.

The second quarter, obviously, will show the full impact of the 6.4 million shares.

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

Thanks, Walter.

I think you have given a good perspective on what we obviously think was a strong quarter and some highlights.

And with that, I would like to turn it over to Laura for Q&A.

Thank you.

Operator.

Thank you.

We will now begin the question and answer session. [Operator Instructions].

The first question comes from Andrew Kligerman from UBS.

Please go ahead.

Good morning.

I have three questions.

Let me just kind of break them up in pieces -- or good morning.

Expense savings -- the expense savings year-over-year were 9%.

I'm sorry, the expenses were 9% up year-over-year and then, Walt, you mentioned that we have really not seen any of the benefits of engineering and re-engineering, and you expect that to flow through.

So, my question is, at what type of a growth rate should we be expecting to see expense savings?

And with that question, the $11 million of severance that you said was primarily technology related, was that an adjusted number or was that out of the operating line?

Well, the $11 million in the severance is in our operating line.

And on that basis, it went to us, really setting up a more flexible model from that standpoint, as we talked about, for the re-engineering.

As far as the growth, as we talked about, we are managing our expenses to really fund our re-engineering program and also to maintain our contribution and PTI margin from that standpoint.

So, this is part of our program.

We announced that we had our re-engineering programs.

And those programs are meant to really balance both margins and the growth of the business.

So, we are not projecting on what the expense growth will be, but it will be aligned with our ability to generate the right profitability targets.

Okay.

And then just shifting over to the deferred acquisition costs in AA&I, it kind of shot up.

I know you were talking about [DAC] with protection, but in AA&I it shot up from $70 million to $87 million sequentially.

Anything I should be thinking there run rate wise?

Not really.

It was, from that standpoint, it was the normal -- there was nothing unusual from that standpoint other than, we had some B share amortization, which then drove it, but it was pretty much in line with where we thought it was at.

Okay.

And then certificates of deposit, we had outflows in the quarter of 522 million.

When you start up this bank and it sounds like you are ready to get rolling in the third quarter, would you expect to see that reverse significantly?

Well, I think there, as part of that -- some of that relates to our programs that we are discontinuing with AAB, with American Express.

So, that is part of it and yes, the certificate program will be a very active program in our overall integrated value proposition for our customers, so, as we look at providing both liability and asset products to them.

So, yes, that will be an important part of it.

And lastly, just the timing.

It sounded like the third party distribution is about to pick up.

You mentioned banks and broker dealers for the retail product.

Could we start to see some of that as early as the third quarter?

Well, what you are seeing is that our growth in our variable annuity sales is quite strong, both in our advisor group as well as our third-party channel.

We are beginning to expand beyond the bank channel into the broker/dealer channel, and that is occurring now.

And we are looking at probably the third quarter for a start of distribution of our funds into the third party channel.

Great.

Thanks a lot.

The next question comes from Joan Zief from Goldman Sachs.

Please go ahead.

Thank you very much.

I, too, had just a few questions.

My first is, if we could talk about the capital allocation and your ROE goal.

If I look at the way the capital is allocated, you are already earning 21% ROE on your asset accumulation and you are earning 20% on the protection side.

So, you just have this clump of capital in the corporate, which, I guess, is the drag.

Could you just discuss how much of that is basically needed to back whatever else is in the corporate line?

How can that be harvested, the timetable of that harvesting and things like that?

Okay.

I think the first one to focus on, because we don't really allocate the taxes is just pretax.

So, I think you would have to do an adjustment there.

While it is good, and certainly we will hope to get our after tax returns to where our pretax return is.

And then we basically look at capital, and this is an important thing to reiterate.

We look at it on three bases.

We really do drive it on both the regulatory capital, the rating agency capital and the economic capital of the various business than we require.

And then as we evolve that, that is how we do our allocation of capital.

And so, from that standpoint, that is the primary basis of how we set that up and how those capital allocations are assigned.

We are, as you talked about, we still have capital in the corporate segment as it relates to the [SEN].

So, that is still residue and waiting for -- and even though we discussed the rating [agencies], we don't that as capital.

So, it's like, from our standpoint, a prepay and is part of our adjustment.

It is still residue within that line.

Okay.

So just explain that to me, So, as you spend down those separation expenses, that allocated capital attached to the corporate line will diminish?

Yes.

All right.

Is there any sort of minimum amount, something that has to back a pension, something that has to back sort of a book of business in there or could that technically be close to zero and all of your capital allocated out to the divisions?

From the corporate segment?

Yes.

I think right now we make sure that each one of the operating segments has the appropriate amount of capital so we evaluate that.

And therefore -- and we also have a set dividend policy to basically bring capital out of the operating elements to ensure on our capital ratio.

So, while we have flexibility in there, there are other elements that deal -- but when you look at that, we're trying to put in the right amount of capital, as I said, using those three bases.

And the other thing -- we do have real estate that does sit up in the corporate setting.

We have the [inaudible] and we have goodwill.

So, we do feel we have the appropriate balance, but we are not, again, trying to push down.

We push down only as required.

Okay.

My other question is, if we could just talk a little bit about the flows.

Can you talk a little bit more about what drove those redemptions at RiverSource, the a 401(k) ,and can we talk about Threadneedle and their retail sales.

What are your expectations for Threadneedle?

What areas do you think they should be offering or where do you think they should be focusing and having the better flow statistics?

Let me start with RiverSource.

I think what you are seeing is, as we had the performance issues last year and as we move now the New Dimension funds and merged it in, we have seen the outflows as institutions have reevaluated.

And that usually occurs in these situations.

And those outflows really came heavily in the first quarter of this year.

And so, that did increase our outflows in the institutional business in RiverSource.

But as I said, on sale of our funds in our advisor channel has increased and we see that improving nicely with our investment performance.

We also, in that regard, have seen a slowing of outflows in our retail funds, as well, from our advisor channel in many of our portfolios and we think that New Dimensions, as well, was seeing a bit of a slowing there on the retail side.

In regard to Threadneedle, Threadneedle is actually growing nicely in their retail, as well as in institutional business outside of Zurich.

Now Zurich, we have three portfolios with Zurich, and the one you are seeing, mainly the outflows, is on the institutional or the owned assets for their insurance assets.

And we think that will continue.

That is a low fee business, a very low fee business for us.

It was what we had all originally planned for.

The Threadneedle people feel very comfortable with that.

They have been using their capacity, really, to grow their higher margin business in many of their retail areas, as well as some of their new funds in the emerging market debt, as well as in their funds of funds, the hedge fund area, as well as in their property area.

So, we feel very good about where they're devoting their capacity and their investment talent.

That will grow their revenue and will generate better returns over time.

So, we are very comfortable that they are seeing clear growth as the areas that we want to invest in.

And the outflows that we are seeing is not really affecting our profitability at any expense.

My last question is, you talk about your revenue targets, your net income targets, do you have a pretax margin target for the accumulation, the asset accumulation division, some target, which you think, over time, that that division should be able to achieve?

We do, and we have not disclosed that.

And obviously, there are many businesses and products within that.

And so, from our standpoint, we do make sure it is competitive by product, but we have not disclosed that.

But again, in our asset accumulation, we have certificates.

And so, from that standpoint, we have fixed annuities, we have variable annuities.

So, there is a lot of businesses.

We make sure those businesses, in and of themselves, when we evaluate them, they meet a benchmark competitive base.

Thank you.

The next question comes from Saul Martinez from Bear Stearns.

Please go ahead.

Hi.

Good afternoon, everybody.

As you mentioned, your gross dealer concessions rose very nicely in the quarter.

Can you talk a little bit more about what the drivers were?

And I know it is difficult to quantify it, but I guess what I am getting at is to what extent the increase was driven by improvements in productivity, including the loss of some less productive advisors and to what extent it was driven by improved market conditions.

And my second question is more of a clarification.

You mentioned in the press release $11 million in pretax severance costs, $11 million in pretax legal and regulatory costs.

I just want to clarify that we should be looking at those as sort of nonrecurring items.

Okay.

I will start with the productivity and I''ll let Walter handle the expenses.

In regard to our advisor productivity, our overall productivity was up across the firm, so it is not based on just solely the idea of losing some less productive advisors, but that did occur.

But our GDC production in our most productive force was up quite strongly.

And that was due to a combination.

So, we can't give you the extent of how much is market, but again, the market environment was stable in the first quarter, which is always helpful for the retail business.

So, we do think that is part of it.

But we also know that our advisors are back to being focused on the business.

They feel really good about the advertising the brand.

They really feel comfortable with the things now that we are focused on doing to support their business activities and clearly, they are looking at that opportunity in the marketplace.

So, we feel good about that productivity increase.

Of course, again, I would say, yes, the market did contribute to it, but it is favorable for us.

We saw good flows into our wrap product and the ongoing annuity stream from those fees, and we saw very strong flows in our VA business.

We actually did not have the product we needed on the REITs at this point in time, but that came at the end of the first quarter and we will see activity from that as we move into the second quarter.

But overall, we think that the productivity was strong.

And as it relates to the second half of your question, I think I would -- as you looked at the 35 million that took place in the first quarter, I would tend to look at the items that we have mentioned for this quarter, including the fact that, in this quarter we had a lower cap gains than we had last year and that on the severance, obviously that is part of the start of re-engineering.

While we have not gotten the benefit, we certainly have taken the cost as relates to that.

I don't like to get into whether it's normalized, non-normalized.

Look at it from that standpoint.

We disclosed it.

Okay.

Fair enough.

And just one follow up question.

Your variable annuity revenues were up kind of in the high single digits year-over-year, but if I look at average account values, they were up about 22%.

Can you just discuss kind of the discrepancy between account value growth and revenue growth?

Okay, Walter.

The management fees from our standpoint, they are strong from the variable annuity growth and you are getting the assets changing from the standpoint due to the market.

So, you really are getting that effect of it, but we are tracking -- depending on when the sales come in and where they come in in the quarter, you will get different effects.

But we are getting a track on time as it relates to the payback.

Saul, this is Laura.

I think as you look at the supplement and you can see the revenue types by product, you will see that the management fees are up very strong, aligned with that.

17.

You have also got an investment income impact of the GMWB hedge.

Okay.

Maybe we can go over it a little bit more offline then.

The other thing, Laura, thank you, if you take it down to its [point], you will see it gets to more of a match.

Okay, great.

Thanks a lot.

The next question comes from John Nadel from Fox & Pitt.

Please go ahead.

Hi.

Good evening, everybody.

A couple quick questions for you.

And maybe similar to last quarter, I would kind of like to take maybe a stab at looking at the sequential trends in revenues, most notably the management, financial advice and service fees in the AA&I segment.

Those were up pretty dramatically, sequentially from the fourth quarter to the first quarter.

It looks, from the supplement, like the vast majority of that was coming from the brokerage and other.

Could you give us a sense for -- I mean, is there anything else in there driving that?

Is there anything one-timish in that number or how should we think about that growth sequentially from the standpoint --?

You should think of very strong wrap fee growth.

Yes.

It is from our managed assets, and that growth is quite strong, based on the continuation of the flows, as well as the strong flows we had last year.

And so, on the wrap, if wrap fee is a major driver of that, is it fair to then evaluate that against the growth in the competition and benefits field since the margin on the wraps to Ameriprise Financial is fairly low?

I wouldn't call it fairly low.

It is different, but I think it is --

Well, it is, for instance, different than you would have on, for instance, variable annuities or something like that.

I think as investment product, we think that it has very good and appropriate margins for the business, and as we continue to grow that and gain greater scale, we think that will also be a very strong contributor.

Now compared to a proprietary mutual fund, yes, it would have a lower fees to us on a dollar-per-dollar asset, but in this case we do capture fees on the total of the product flows rather than just our own proprietary, in which case it is returned to us, is quite good.

And it is a growing business and it is one our clients really like, as part of how they would like their assets managed.

And so, to us, we think that we will be able to generate very good returns, and we are from the product.

One of the things I would mention is also that our prop share in the SPS has actually hit a two-year high.

So, based on the performance and the improvement in performance, people are recognizing that as they incorporate it into the assets that are accumulating within the wrap.

I'm sorry, Walter, the profit share on the what?

The RiverSource component, meaning of our own mutual funds, is beginning to grow within the wrap product.

Got it, the prop.

It has always gone the other way.

And as we saw in the last two quarters, that is actually turning around, as we have more of the product appropriate with the performance.

And that is increasing in the wrap product as well.

Okay.

And then maybe a question on hedge fund performance and hedge fund fees.

Last year in the third to fourth quarter, there was a pretty significant change in the Threadneedle hedge fund fees, and I noticed that, when you guys gave the restatement, you provided that information, which was helpful.

Was there anything dramatic, if you look at the fourth quarter to first quarter shift there?

And then separately, also, maybe a question about hedge funds.

I think, in your press release, you mentioned that net investment income benefited in a couple of places from hedge fund performance.

I think that is separate from Threadneedle.

Am I right?

That is separate.

And can you quantify that?

Do you think it was more unusual in nature or I'm not sure why you pointed it out in the press release.

This is Laura Gagnon, John.

It is clearly market driven, but what we have also tried to do in the supplement is to break out for you the more volatile components in net investment income.

So, you will see kind of the variance, over time, of seed money and other hedge funds and other equity-driven performance numbers so you can track that variance over time.

And as it relates to the first part of your question, in the quarter, we did not recognize Threadneedle hedge fund performance fees in that quarter.

We will recognize them at full-year impact in the fourth quarter 2006.

Prior quarter fees were disclosed in the [8-KM] we filed in early April.

So, that should give you an indication from that standpoint.

Okay.

So, there was nothing in the first quarter then.

That is correct.

That's what I said.

Okay.

And then last question would just be with respect to outflows in the RiverSource retail mutual funds.

If I got the calculations correct, it looks like, in the first quarter that was a little over 8% of beginning of carried assets.

And it had been running, let's say for the past four or five, six quarters or so, at about 7 to 7.5% of beginning of period assets.

I definitely understand that the sales are on an upswing, but is there anything other than that 401(k) New Dimensions fund?

Is that the only major driver of why that percentage increased?

Yes, but the emphasis on only.

We actually, when you back that away, we feel we have actually seen the proof.

Okay.

So, if you back out New Dimensions, you would see an improved trend, sequentially, from fourth to first.

Yes.

Okay, thank you.

The next question is from Eric Berman from Lehman Brothers.

Please go ahead

Thank you, and good evening to everyone.

Looking at results on a consolidated basis, I note that your two most important expenses, basically compensation, rose 15%.

Total revenues -- I am talking about field and non-field combined -- but total revenues rose 10%.

Apart from the reasons that that is going on, which I am hoping you can review with us -- we have covered a lot of numbers.

I will ask you to review why comp is rising faster than revenues.

Why shouldn't that -- should we be concerned about that?

And if not, why not?

Well, basically, your increase is tied to your GDC from that standpoint.

So, are you talking non-comp?

I'm sorry.

I am talking about comp in total.

I am saying that both elements of comp, both field, which is tied to production, I presume, and non-field, which is essentially home office, as I understand it, rose more rapidly --

Okay, okay.

Now I've got your question.

If you just take a look from the [side], of the field comp, that is tied to the GDC.

The non-field comp is really, as I think we mentioned in a couple of other quarter discussions, that there is a shift in the way that we used to be taught for our tech expense.

It was really, it was a charge-out and it was in the other line.

And now that's shifted up, since these are employees of our activity, are now in the tech line.

So, the answer is no, you should not be alarmed.

And from a standpoint -- if you looked at the number of, actually staff count, looking across that, we have increased 30 year-over-year.

So, we feel we have that pretty well controlled, as I indicated, and we built in some of the severance elements within that.

So, the answer is that I think that it is, we tried to explain it from that standpoint.

So, overall, I think we are managing the -- certainly as we look at the field expense that side to the activity level and we look at the comp as it relates to the headquarters, that is being managed, also prudently, from that standpoint, including, as we said -- we did add expenses relating to being independent.

As we indicated, we are now looking at the re-engineering of that.

So, all of those elements, we feel, are being managed and are on plans to be managed.

Just on the field side, the payouts have not gone up as relative to the actual production, and so that has been pretty consistent from quarter to quarter.

And I think, as Walter has mentioned, a lot has to do with how to classify now the charge-outs that we once got from American Express to actually be salaries and benefits now that we are separate, with the extra severance, as well as, we had mentioned to you, adding some of the additional cost of being a separate independent company, people like Laura and others that have set up our corporate function.

Before we move on, Eric, I also want to remind you, because you were making the comparison to revenue growth, that the movement from fixed annuities and certificates, which are reported as gross revenue, to the variable product, are also having an effect on our revenue growth rate.

Which have been, as I indicated, relatively flat.

I was actually going to go on to a protection question, but could you rephrase that, Laura?

The shift to is the point that they shift to variable from fixed annuities and face-amount certificates is affecting the composition of revenues?

Yes, absolutely, because, as we indicated, while we are having very strong growth on the equity of related products, we are, as anticipated, having a flattening on the fixed annuity and certificate.

Very good.

If I could turn briefly to insurance, I think this is a second quarter in a row where there have been references to claims issues, and I am hoping we can just develop a little bit more in the disability business.

Whatever, pretty quickly, why is it that you -- could you review what you said, please, briefly, about what happened to the disability business?

Something about, in January, there was higher than expected claims, but disappointed that it has settled down or, for whatever reason you were hopeful that this was not --

Yes.

Let me try and answer that.

If you could elaborate, too, not only disability, but also what is happening in the LTC, long-term care area.

In the area of -- let me start with disability.

We did have an exceptional blip in the claims and in the February, March timeframe, they went back to the range that we thought they would be.

And as an overall framework, our claims are actually back on target and usually they are benchmarked very favorably against the industry.

So, we feel very comfortable about where the projectory is on this.

As it relates to long-term care, long-term care is, as we indicated -- we do not underwrite that any more from that standpoint.

We are not increasing it.

And we are managing things, so we look for situations where, if the claims situation continues, we will look to rectify that with increases as we apply to states.

And that is where it is right now.

And some of the claims have been going up on the long-term care and we are evaluating that.

Thank you.

The next question comes from Tom Gallagher of Credit Suisse.

Please go ahead.

Hi, a few questions.

First, just a follow-up on Eric's question.

So, is it fair to say that we should not expect to see any reserve charges on long-term care, that your first course of action will be trying to get rate increases on your end force book of business?

Yes.

But the thing is, it is a long process.

You have to go through that process of evaluating and then filing for it, and we are evaluating that situation and it is being monitored.

And we look at the reserves and we look at where it is.

It does fluctuate.

And right now that is what we are doing.

Okay.

And disability is still within pricing even with the Board in January, still -- ?

Absolutely.

Okay, got it.

So, there are no real reserve issues there?

No.

Okay.

The next question I had is, can you just expand a bit on the changes to employee advisor productivity standards, where it was, where it is now, what you think that will mean overall, the productivity and the employee count, moving forward?

Yes.

I think what we have now been focused on is to ensure that our P1, our employee advisors, are operating with higher productivity standards, and so, we are raising those standards.

So, in that case, what will happen is, we will see some greater level of attrition if they cannot achieve those targets quicker than they were in the past.

We think it is better economics for us in the firm.

We will drive more quality as far as the concern on acquiring new clients and growing a book of business.

So, we are going to continue down the path.

What we were focused on, and we do from time to time, is also look at the productivity of our various offices.

Are they in the right locations?

Do they have the right, what I would call, local market level of activity?

And so, we have closed a number of offices in the first quarter and we are continuing to ensure that we tighten the standards as we move forward.

So, we are not primarily focused on net gain per se.

What we are really focused on is getting the right productivity, the right quality and that is really the most important thing for us.

And from that, we think we will also derive better economics.

And Jim, I am assuming gross dealer concession per advisor is kind of a key metric to look at.

Is that fair to say?

Yes, it is.

And looking at where you are at in the quarter, 43 7, is there -- can you just reference maybe, across the board, where the minimum productivity standard was, where it is now?

We do not do that, because the -- let me give an example.

It is based on tenure, years of service.

So, we look at a number of different factors.

We have internal metrics by which we look at that and the improvement that we think is necessary, but we have not disclosed that, and we do not want to get into the management around that, at this point in time, publicly.

Okay.

Just one related question.

Can you talk a little bit about, I guess, broadly speaking, when somebody is hired as an employee advisor, their overall compensation package?

Is there some point, I don't know if it is two, three, four years out, at which they are completely taken off benefits and salary, or can you technically stay around with full compensation even if you are not hitting certain targets?

It would just be a lowering of bonuses.

Yes.

If you think about an advisor, really the salary comes in mainly when they are initially hired because they are not really generating commissions.

By the time they are after their first year or during their first year, their commission structure really kicks in, and that is really important.

So, the salary becomes less of the important base for them.

It is really their commission structure.

Now if they are not generating commissions after a certain amount of time, we will terminate them because they are not really growing appropriately to sustain themselves.

So, it is not the long-term that salary is the important variable.

It is only at the beginning of their tenuring.

Okay, got it.

And just one last question.

Fixed annuity spreads were, and I appreciate the new disclosure, were 229 basis points during the quarter.

I guess, if you just do a back of the envelope on spreads, you are actually generating a pretty significant amount of earnings before back and general expenses are taken out of the fixed annuities.

It would be, I guess, around 130, 140 million for the quarter.

Now, obviously, you are going to take some additional expenses off of that.

Can you give some ballpark or idea of what you are making from an ROA standpoint?

I think most other industry standards, with that kind of spread, you would be generating north of 100 basis points after taxes.

Is there any reason to think why you wouldn't have kind of a comparable kind of bottom-line ROA on your fixed annuities the way other companies in the industry are?

I think, as we indicated, we have not really disclosed and discussed the profitability of it.

I think we feel, as a benchmark situation, we are as good as most, and I will just leave it at that.

From that standpoint, we just have not disclosed, but we feel we benchmark pretty well.

We have said in the past we feel like our spreads are competitive with other people in the marketplace.

Okay, thanks.

The next question comes from [Rob Green] of Sandler, O'Neill.

Hi.

Thanks for taking my question.

I just have more of a general question.

When you look at your percentage of clients for the financial plan and I guess the total number of clients you have, it does not look like there is a whole lot of growth year-over-year, about a 1% change in the percentage of financial plan.

I guess one, what is the average length of time a client is with Ameriprise?

Well, I think we have very good client retention, and so, as an example, the reason you do not see big movements in the penetration is because we do have many clients who have been with us do good business with us, that are not necessarily based on the advice relationship today going through a more formalized planning process with us.

Having said that, what I can tell you is that, as we bring on new clients, particularly in the mass affluent population, more than $100,000, that planning level of activity is higher than our average that we report, which is very good news for us.

And that is really where we are focusing our attention.

Okay.

And I guess, not for your new mass affluent clients, but where are you seeing competition within the industry?

I guess your longer tender clients are going elsewhere for, I guess, their financial needs.

I think we do lose clients.

It is for a number of different purposes.

Number one is, they are not happy with their advisor at one point in time or they have a change in what their situation is for one reason or another.

But we have not seen that attrition, in any way, change materially through the spin-off situation.

We feel very good about our client retention and our advisor retention with their clients.

We have seen some clients leave as advisors leave.

We maintain part of those client base, that book of business, and some of it we do see move with the advisor if they do leave.

But overall, our client satisfaction, we survey it every year, is quite strong.

And so, it is hard to pinpoint exactly why a client leaves, other than, we do do research on it.

We do survey them, and it is mainly for the reasons I have mentioned.

Okay, great.

That is all I had.

The next question comes from [Darius Braun] with Citadel Investment Group.

Hi.

I just needed some clarification with respect to something you mentioned.

Did I understand you correctly that you did not accrue hedge fund and center reallocation fees this quarter?

Yes.

So, you have changed the accounting, and now it will be a one-time, fourth-quarter?

Let me just say we didn't accrue it, okay?

Okay.

If you did not accrue it this quarter, in terms of year-over-year comps, was it accrued in the first quarter of '05?

We disclosed in the 8-K all of the C revenues for Threadneedle hedge fund performance fees by quarter.

Okay.

And can you comment, how large was Threadneedle's hedge fund or multiple hedge funds?

And what was their average performance, if you don't mind?

We do not break out the asset values in our public data.

Okay, thank you.

Operator, we have time for one more question.

Thank you.

The final question comes from [Brad Archimana] from GreenLake Capital.

Hi.

It is [inaudible].

I have three questions.

Number one is, can you quantify the impact of the DAC adjustment in the protection business in the quarter?

The second is, can you quantify the so-called corporate projects expenses within your corporate expense line that are referred to?

And then the third is, can you quantify the impact of the 410(k) New Dimension redemptions, in other words what the total dollar amount of the net outflow from that was in the quarter?

Okay.

I am going to let Walter Berman field those questions.

So, the first question is on the DAC in the protection segment, I'm sorry?

Right.

The reference to the adjustment.

Right.

It is substantially all of the sequential increase.

That is what it is, the year-over-year increase.

Okay.

All of the year-over-year increase in the DAC expense recognizes and relates to that adjustment?

Yes.

Substantially all of it, yes.

Basically yes.

And the second part of your question, I'm sorry?

The second part of it was, in the corporate expense line, there was a reference to expenses incurred for corporate projects.

From that standpoint, no.

We really do not disclose the elements within that.

I guess the year-over-year increase in the corporate expense, how much of that, then can be attributed to that reference?

Are you talking about the corporate segment?

Yes, within the corporate segment.

The corporate segment is -- let me just say what is in there.

We clearly have the interest expense in there, we have the severance in there.

The interest on new public debt, which is an increase over what it was, is included in there.

And we also have, like I said, the severance in there.

We have some expenses that we have identified that cannot be allocated.

We do not feel it is appropriate to allocate out to the operating.

I guess the other expenses line went from 15 million to 44 million in the quarter.

It was in that line.

And in the discussion of that line, you talk about higher costs associated with, among other things, higher expenses related to corporate projects and other corporate activity?

So, I guess then, maybe you can discuss what that is.

What do you mean by that?

Within the line -- it is those three items that we talk about.

From our standpoint, as we broke the segment in, we basically said we will have, in that expenses that we do not allocate out, to the activities because they are principally attributed more to the enterprise than they are to specific operating element.

And we have in there, also, I believe, the severance that we mentioned before as it relates to [inaudible].

That is classified in that segment.

Okay, got it.

And the third one was, if you could give us the dollar amount of the net outflow related to the 410(k) New Dimensions issue?

I think that is something we are --

I can follow up with him.

Okay.

Laura will follow up on that.

Great.

Thanks, guys.

Thank you.

We appreciate your time.

Laura will just give you some closing remarks.

Thank you all for listening.

Mary and I are both in Minneapolis, and can be reached at my phone number, which is 612-671-2080.

Thank you.

Thank you very much.

Thank you for participating in the Ameriprise Financial First Quarter 2006 Earnings Conference Call.

This concludes your conference for today.

You may all disconnect at this time.