阿默普萊斯金融 (AMP) 2007 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ameriprise Financial second quarter 2007 earnings conference call.

At this time, all participants are in a listen only mode.

Later, we will conduct a question and answer session.

Please note this conference is being recorded.

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

Laura Gagnon, Vice President of Investor Relations.

You may begin.

Thank you, and welcome.

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

After their remarks, we would be happy to take your questions.

During the call you will hear references to various non-GAAP financial measures like adjusted earnings or adjusted premiums.

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

The adjusted numbers exclude non-recurring separation costs in all periods.

The presentation of adjusted earnings is consistent with the non-GAAP financial information presented in the Company's annual report and Form 10-K for the year ended 2006.

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, available on our website as well as furnished under an 8-K filed with the Securities and Exchange Commission.

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 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 2006 Annual Report to shareholders and the Earnings Release and under the heading Risk Factors and elsewhere in our 2006 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, I'd like to turn the call over to Jim.

Thank you, Laura.

Good afternoon, everyone and thanks for joining us for today's call.

We had another very strong quarter at Ameriprise Financial and I'm extremely pleased with what we have accomplished over the past two years and the Company is in a very good position today.

We've established a strong foundation and we're seeing good results from our investments.

It's important to recognize that we have now essentially completed our separation from American Express, which has been a transforming event for this Company.

While there are still some separation expenses to realize during the remainder of the year, the technology separation, which was one of the most critical and time consuming factors, is over 98% complete.

Today, we're in a much better situation to continue to build on our solid foundation and take advantage of the great opportunity before us.

Let me begin by giving you some highlights of our performance in the Second Quarter.

Revenues grew 6% to a 10% adjusted for the sale of our defined contribution record keeping business in the Second Quarter of last year.

Adjusted earnings per diluted share increased 24% and adjusted return on equity reached 12.5%.

Each of these targets met or exceeded our on average over time goals.

I want to point out that we've changed one of our key metrics to better reflect how we're deploying capital from earnings growth to earnings per share growth.

In the past, our target was 10 to 13% earnings growth.

Our new EPS growth target is 12 to 15%.

Now, I'd like to talk in more detail about two very important areas: Increased productivity within our advisor force, and growth in assets from strong flows in our fee based businesses.

Advisor productivity is improving substantially, with 20% growth in total GDC during the quarter.

Productivity is improving because we are growing our mass affluent and affluent client base, which is up 12% over last year and we're giving our advisors the right platform to deliver a better and more consistent client experience.

Over the course of the year, we've enhanced our marketing programs for advisors, rolled out improvements in advisor technology, and introduced a number of innovative goal based solutions that help advisors manage their clients' assets.

For the remainder of the year, we will have significant releases to further improve our technology offering, including the introduction of a new enhanced suite of integrated financial planning tools.

By year-end, we feel that we will have one of the leading advisor desktop technology platforms in the industry.

Our advisors like the investments we're making to support their practices and they're highly satisfied with the Company overall.

In fact, our franchisee advisor retention remains quite strong.

As anticipated, our total advisor force declined in the quarter because we reduced the number of new hires in the employee advisor channel by over 40% compared to a year ago.

We intend to remain selective in our new employee advisor hiring with the long term goal to grow our total advisor force while improving the profitability of our distribution business.

We're confident that the many improvements we're putting into place for our advisors will foster continued growth and further productivity gains.

Another area of focus is growing our asset base, and we're achieving solid momentum in our asset flows in the key areas we're investing in.

We ended the quarter with $484 billion in owned, managed and administered assets, up 13% from a year ago.

Product innovation and performance continued to drive asset growth.

We've developed a suite of goal-based solutions that have been extremely well received by our advisors and clients.

In fact, these products help drive our First Quarter of net in flows in RiverSource funds in several years.

We've ended the quarter with more than $700 million in positive net flows in mutual funds and annuity variable accounts, which is a significant turnaround for the Company.

It's a reflection of our ongoing investment to strengthen our asset management capabilities.

In addition we generated $3.5 billion in net inflows in wrap programs.

This growth includes more than $1.1 billion in ending assets and Active Portfolios, the discretionary mutual fund wrap platform we launched just a few months ago.

Active Portfolios is an important addition to our suite of goal based solutions and it's proving to be one of the most successful product launches we've ever had.

In total, we ended the quarter with more than $89 billion in wrap assets under management, which is up 34% over a year ago.

We also continue to produce very strong flows in variable annuities, with net inflows of $1.5 billion in the quarter.

At the same time, we've been managing the outflows we have in fixed annuities and certificates.

We haven't focused on growing fixed rate products because of the current interest rate environment and we expect outflows to continue for the time being.

Threadneedle is also performing well.

They're growing revenues from their higher margin retail and alternative businesses and controlling expenses, which is driving profit growth.

As we've said before, Threadneedle continues to manage outflows in lower margin institutional assets.

During the quarter, Zurich transferred part of its UK annuity business, accounting for the bulk of the outflows.

Because these are lower margin assets, this transfer does not have a material impact on our revenues.

The protection business continues to produce solid results as well.

Life insurance in force grew to $181 billion, an increase of 8% from last year.

In addition, we continue to see growth in Auto and Home premiums.

So I'm feeling very good about our asset growth and also the increase in productivity in our advisor force for the quarter and the year.

I'm also feeling very good about our future.

Our opportunities are significant and we're focused on realizing them over the medium to long term.

We've built a strong foundation and we're seeing good results from our investments.

So to summarize, we've introduced a number of new products and services that are getting very strong uptake from our advisors.

We've been improving our technology platform to provide advisors with enhanced tools to serve their clients, and we believe this will lead to continued gains in advisor productivity and a larger base of mass affluent and affluent clients.

Even with this robust investment agenda, we're controlling expenses through a disciplined management and strategic reengineering.

These investments are generating strong performance which in turn is contributing to a very strong capital position.

We currently have more than $1 billion in excess capital.

We are committed to returning capital shareholders and we're executing our plans to reinvest for sustainable growth.

Over the past seven quarters, since our spinoff, we have delivered consistently strong earnings in business growth.

We've established ourselves as an independent public company while executing our separation from American Express.

Now with the right resources and capabilities in place, we're in a great position to continue this momentum and further create shareholder value.

With that, I'd like to turn it over to Walter Berman.

Thanks, Jim, and good afternoon, everyone.

I want to underscore what you just heard from Jim, by adding some context around our improved PTI margin, growth in fee based activities, effective expense management, and ongoing strength within our Balance Sheet.

First, the solid performance we experienced during the quarter has resulted in improvement in our PTI margin.

Excluding separation costs, PTI margin improved to 14.1% from 13.2% last year.

We have been focused on our equity fee based businesses and that has been a key contributor to these PTI margin improvements.

A greater percentage of our revenues and profits are coming from management and distribution fees, which combined grew 22% during the quarter.

This growth was partially offset by declines in net investment income due to net outflows in annuity fixed accounts and certificates consistent with prior quarters and the industry overall.

At the same time, we have been exercising effective expense management.

Now, on a reported basis, total expenses increased 5%.

Excluding the cost related to the sale of record keeping businesses last year, expenses rose 7%, so let me break down the drivers of this growth for you to understand this a bit better.

A large portion of this increase is driven by the strong sales growth which, as you would expect, increased our field compensation and benefits line.

Then, there are two other important line items from an expense perspective:non-field compensation and benefits, as well as other expenses.

Combined, these two lines increased 2% on a reported basis; however, in the Second Quarter last year, we had a number of special items related to legal fees, the sale of our 401(k) business, and severance.

This quarter, we also had offsetting expense items, none of which were material.

They included the cost associated with our bank, timing differentials for management incentives, severance, and accruals for sales and use taxes.

Factoring in these items, underlying expenses are within the ranges for us to generate ongoing improvement in our operating margins.

We have been investing in the business at even higher levels than last year while also keeping overall operating expenses well controlled, so we're confident in our ability to manage expenses and continue to drive margin improvement.

Now let's move to the final area I wanted to touch on: the ongoing strength in our Balance Sheet.

There has been a great deal of focus on credit quality in the capital markets, so I want to address that up front.

Our exposure to subprime is limited to $26O million of residential mortgage backed securities, down from approximately $350 million last quarter due to liquidation and paydowns.

These securities are high quality, predominantly triple A rated bonds, backed by seasoned, traditional, first lien subprime collateral.

They include both floating rate and short duration fixed securities and as of last week, were trading at 99% of book.

In total, subprime accounts for less than 1% of our portfolio.

We have no investments in CDOs or CLOs with a subprime component.

We have no investment in hedge funds whose "style" involves subprime, and we have no investment in bond funds with a subprime component.

Similarly, with respect to Alt-A, we are also comfortable with our exposure.

We own $1.1 billion in triple A rated bonds and $177 million in double A, and $12 million in single A bonds backed by Alt-A collateral.

None of our structures are levered.

The majority of triple A bonds are "super senior", meaning they have more collateral support or credit enhancement than required to get a triple A rating.

These securities are seasoned as well.

As of last week, these portfolios were trading at 99% of book.

We thought it was important to make sure you have the facts about our total investment portfolio, $35 billion of cash and investments, given today's environment.

We continue to be risk / return oriented.

We've consistently maintained that the market is not providing adequate compensation for taking additional credit exposure.

Our $3.0 billion traditional commercial mortgage loan portfolio, 8.6% of the total investment, is very high quality, with an average loan to value of 55%.

Our high yield bond portfolio of $1.8 billion or 5.1% of total investment is in the top end of the credit spectrum.

We continue to avoid the major writedowns in the market as we've done for several years, and we don't hold any debt related to subprime mortgage lender bankruptcies.

Our residential MBS and CMO portfolio including our Alt-A exposure is $6.5 billion or 18.6% of total investments.

From a credit standpoint, it is very high quality with 96% rated triple A.

In addition, we've taken on limited rate risk in this portfolio with the duration at 2.7 years, with favorable convexity at minus 0.5.

Our commercial mortgage backed securities of $3.2 billion are also very high quality and highly structured.

Generally, they behave like bullet bonds with very limited prepayment risk.

We view these securities as substitutes for corporate bonds.

And finally, our asset backed securities of $1 billion, less than 3% of total investments, is almost all triple A rated with approximately $500 million backed by SBA loans and guaranteed by the U.S.

Government.

This portfolio also includes the subprime bonds previously mentioned.

In total, this portfolio is positively convex.

In total, our assets and liabilities are matched based upon stochastic modeling, limiting overall interest rate risk for the Company.

In addition to very high asset quality on our Balance Sheet, we maintain strong leverage ratios.

Our debt-to-capital ratio excluding non-recourse debt and the 75% equity credit for hybrid securities was 16.9%, and our ratio of earnings to fixed charges excluding interest on non-recourse debt was 7.6 times.

We also have ample liquidity from a diversified business model with substantial dividend capacity from both our insurance and non-insurance subsidiaries.

We continue to generate -- through both earnings and shifting to more fee based -- less capital intensive products, which is the direct result of executing our strategy and doing what we told you we would do.

This in turn is freeing up our capital for redeployment.

During the quarter, we repurchased 2.3 million shares, which brought our total repurchases over the past six quarters to 18.9 million shares for about $964 million.

We have about $871 million remaining in our current share repurchase authorization.

In summary, we are generating solid results that demonstrate our strategy is working.

We're growing our fee based businesses and managing expenses to drive PTI margin expansion.

Our interest rate risk is well managed.

Our Balance Sheet assets are high quality, and our capital base is strong.

And now, I'd like to open it up for Q&A.

Operator?

(OPERATOR INSTRUCTIONS) Okay, our first question comes from Joan Zief from Goldman Sachs.

Please go ahead.

Thank you.

I just had a few quick questions.

One of them is can you talk to the tax rate?

Is the 25% tax rate that we have now for the first half a good run rate for the full year?

That's my first question.

The answer is yes.

Okay, well, that was easy.

All right, and my second question has to do with the corporate expenses.

They look like they ratcheted up a bit.

Is there anything unusual there, and should I think about that as a new run rate or should I look at it more on a six-month basis?

You should look at it more on a six-month basis and not incorporate it as a new run rate.

Is there any one-time item or anything in that that explains it?

The interest rate differential from prior year, and there was some relating to our basic financial planning DAC which is really not a reoccurring event.

Okay.

Then my last two questions, just relate to the asset management.

One is the RiverSource sales.

If you believe that the current level of those retail sales are sustainable and then can you talk to Threadneedle because I understand there's new management.

And can you just tell us if that was expected, if there's any shift in personnel that might change the performance and whatever else you can offer and then I'm done.

Okay.

This is Jim.

First, in regard to the retail flows, we have seen steady progress increasing sales and lower redemptions.

We think that that progress will continue as we continue to move through the latter part of this year.

It is a significant turnaround.

We've been seeing that improvement over the last number of quarters, and this quarter brought us into net inflows, and that has also helped with the introduction of, as I mentioned, of some of our newer products, our goal based solutions.

In regard to Threadneedle, the succession was planned.

It gives us a complement of using Simon Davies' strengths, who was the current CEO, for him to really focus on continuing to put in place the next level of growth strategy and talent acquisition for the firm, and Crispin Henderson, who has been the Chief Operating Officer, that has been the person incorporating all of the processes as Threadneedle continued to grow to be a larger Company.

And he has a very strong skill set, understands the business.

So it was a planned succession and we think now with the complement of Simon and Crispin at the top level, we've also been ensuring that we have the right leadership in the investment group with a new Head of Equities, someone who has performed quite well in our Equity Group, Dominic Rossi, as well as the addition of a new Head of Fixed Income.

Thank you.

Thank you.

Our next question comes from Suneet Kamath from Sanford Bernstein.

Please go ahead.

Thanks.

Just a quick follow-up on that tax rate and a couple others.

First, obviously there was a tax release that you cited in your Press Release.

Are you saying that the difference between the 23.1% and the 25% normalized for the run rate tax rate -- is that basically the impact of that reserve, of that tax benefit?

Yes.

Okay.

And then the other ones were -- if I can go back to recent transcripts, you've been pretty cautious about the outlook for return to positive flows in RiverSource.

I think you even said optimistic that maybe you'd get there by the end of the year and now you're getting there in the Second Quarter.

And I guess the question is what surprised you there?

Is some of this from the third party distribution or has that not kicked in yet?

Just some color around that?

No, it is not from the third party.

We're still in the build phase there.

We've recruited a number of wholesalers and we're signing contracts, so that's starting up, but it's really coming from our advisor channel.

Sales are quite strong for both the products that we have as well as the introductions of some of our new products that began last year.

Our Income Builder Series this year and our Targeted Maturity Funds, but now also our Active Portfolios, which is a discretionary management account.

So we feel very good about the progress there.

Our wholesaling continues to get more productive.

And so it's a trend that you've seen the improvements over the last number of quarters and it continued this quarter.

Great, and one final one.

Your corporate segment had a mark-to-market from an equity hedge.

I was wondering if you could quantify that and specifically, does that relate to your GMWB risk management strategy or is that something different?

No, it does not, and on the mark-to-market, this should not have been a big factor in that, so I'm not sure where you're picking that up.

All right, I thought it was pretty explicit in the Press Release in terms of the description around corporate, but I guess I can follow-up.

Yes, let's follow-up on that, because that's not ringing a bell right now.

Okay, thanks.

Thank you.

Our next question comes from John Hall from Wachovia.

Or Hall, I'm sorry.

No problem.

Good afternoon.

Jim, you mentioned that the separation is complete from American Express.

I was wondering if that means we're not going to see any separation costs going forward?

And if so, is there anything left over in the till that essentially becomes excess capital at this point?

What I actually said in both the talking points is that the technology, which was the most complex of it is over 95% complete.

The separation for all of its execution though is pretty much complete.

What we do have is some additional expenses in the Third and Fourth Quarter, roughly around $70 million or so, and that's mainly due to some of the marketing, branding, and retention programs carried through the end of the year.

So very clearly, we probably come very close to the total number we presented two years ago.

And so I think we're right on target.

But what's most critical I wanted to really relay is that the execution is pretty well complete and we have not had any negative impacts to the business and the remaining dollars of expense will be pretty close to what the plan is.

And I think that's roughly around $70 million remaining for the rest of the year.

Fantastic.

And as far as the RiverSource net inflows go, I was wondering if you'd be able to sort of separate that out between the variable annuity contribution and that from the standard mutual funds?

Yes, I think we probably do in the supplement have that.

Now I just want to be clear for everyone else.

The variable annuity accounts are actually funds underlying pools of assets underlying the VUL insurance and the variable annuities.

They have very close to the fee structure of our retail mutual funds.

They are similar to the funds in their makeup of portfolios, and I think it's in the supplemental; is that correct, Laura?

We did the breakdown of the assets in the supplement.

We give a breakdown of the assets.

Where we saw large flows were into the retail funds, but we also had good flows into the variable annuity accounts.

I don't know roughly off the top of my head, probably about 50/50 or so in the net inflows?

More heavily weighted toward the variable product.

Okay.

Okay, great.

And then just finally, Walter, that was a great description of the investment portfolio.

I was wondering if you could just talk a little bit or perhaps quantify the amount of equity that you are holding relative to the CDOs that you manage?

Actually, the CDOs -- you're talking about out of the L.A.

group that we, for investing?

I think you're well aware that we're actually holding a small amount of equity because most, we invested a very small amount.

So the amount is somewhere in the area of around $30 million to $40 million.

Great.

Thank you very much.

And our next question comes from Tom Gallagher from Credit Suisse.

Please go ahead.

Hi, a few questions.

First, can you talk a little bit about -- I heard your comment about how you're being pretty disciplined on the expense side as it relates to new hires.

And can you comment a little bit about what you're seeing happening to distribution margins?

Because the numbers that we're looking at in the supplement I think it's hard to figure out precisely what's going on on the distribution margin side, so that was my first question.

Well, we don't disclose distribution margins, but candidly they are increasing.

When you say increasing, are we looking for a small increase or is it substantive and is that something we can look forward to prospectively as well?

Yes, and as you're aware we've announced that we will be coming out with enhanced reporting but I can say that it is on a steady increase and it relates to the reengineering and the growth in the business line as we focused on that as a more focused activity.

So it is increasing and it's increasing at a steady rate.

Got it.

Next question on Threadneedle, if I just try and back into I guess the asset styles that had net redemptions it would look like it's roughly $7 billion fixed income and $3 billion in equities of outflows.

And I know you mentioned it's mainly lower fee, but just looking at what appears to be somewhat sizeable net redemptions on the equity side as well, is that or -- should I be thinking about that that even the equity component of that has lower fees?

Or is it really just the fixed income piece that's lower fee?

The bulk of the redemptions that I've mentioned are lower fee -- and now of course within the redemptions of the overall redemptions, there are redemptions of fee based businesses and regular institutional accounts that have more of an institutional fee level and there are retail redemptions as well.

What I would say is that the net of all of the redemptions with the inflows is a net positive in revenue.

And so from that perspective, even though we were in major outflow -- particularly the Zurich account in particular had very low margin and fees -- the net revenue from all of the flows that we reported in the first part of the year is net revenue positive.

Got it.

That's helpful.

The other question I had was just on the turn in RiverSource on the retail side.

I guess just looking at how good performance has been, when your numbers look pretty solid, can you talk a little bit about how you're feeling kind of overall about the continuity of the investment management operation?

Whether knowing continuity of employees and performance is pretty important, especially when you put up pretty good performance numbers and I think that's also going to be critical to the third party distribution buildout?

Can you just comment about kind of State of the Union as it relates to the domestic business?

We feel we have very good, strong leadership here in our investment group with Ted and Michelle Keeley who runs our fixed income group.

We feel that we have good investment management we've set up in sort of a boutique type of structure so they are actually leading their own sort of investment management activities with the support that they want and need and empowerment to actually structure their portfolios as they see appropriate.

And we feel good about the team we have in place, and we think the team is making tremendous progress and we have had good retention of our team over the last number of quarters and years as we rebuilt the group.

So I think with the strong leadership we have in place and the talent, we feel very good about our ability to continue to move forward.

Okay, thanks.

Thank you, and our next question comes from Jeff Schuman from KBW.

Please go ahead.

Good afternoon.

First of all, I'm wondering about presentation.

Up until this quarter, I think we've all appreciated the disclosed items table.

It's not here this quarter.

Is that because there weren't really a sufficient number of items to disclose or have you just kind of discontinued that practice or what's the case?

No, we have not discontinued the practice.

It's actually the former.

Okay, and so I think in response to Suneet's question I think there is apparently sort of unusual tax item.

Is that sort of the only maybe item we should be aware of?

Well, in essence, that was the item that we chose as a material factor and it was disclosed.

And there are smaller items but were not material enough to identify.

Okay, thank you for that.

And I'm wondering if you can help us understand a little bit better this REIT liquidation factor that I think contributed to some of the advisor activity and revenues.

Is this something that has played out or is it going to continue and how much did it impact the advisor productivity?

And I'm also wondering, did some of that money get reinvested into the mutual funds and was that a helpful factor there?

Well, similar to what happened in the Fourth Quarter, we did have this occur in this quarter, and it did reposition investments from the REIT into other areas and certainly generated productivity.

But it also, a large part of that went back into new REIT programs, upon that liquidation, so it did have an effect of boosting some of the advisor productivity.

But as we look at the trend lines, the strength of the advisor productivity has been there and continues to be there, even if you take out the REIT repositioning.

Well, my sense is that that's the case, it's just kind of hard to, I guess, measure and understand it.

It would be helpful if we had a little better transparency on that.

Yes, Jeff, this is Laura.

This is the same issue we had in the Fourth Quarter where we can tell you that the other cash sales which includes the REIT are out of trend and high.

But it's very difficult to track once the liquidation comes in where the money is going and what it's doing.

It could be going into cash.

So we can point out the activities there, but it's not something you can trace through all of the accounts.

I guess ultimately I'm wondering, is it something that should caution us in extrapolating the levels of activity from this quarter?

Well, what I would say, just again to Laura's point, do we feel that it has increased some of the productivity?

I think the answer is probably yes.

But if you look at the First Quarter where we didn't have a repositioning of the REIT, we also have very strong productivity from our advisor channel and a similar light to the production we had.

So again, we can't tell whether the advisors are doing the same amount, more business, or less business, but we would probably just venture to say it sort of probably helped the productivity in the Second Quarter, but we don't think necessarily they wouldn't have been productive without it.

Terrific.

Thanks a lot.

Thank you.

Our next question comes from Eric Berg from Lehman Brothers.

Please go ahead.

Thanks very much.

I was hoping I could maybe clarify some issues by revisiting some topics that were raised earlier.

With respect to Threadneedle, I just want to clarify, Walter, are you saying that -- do I have it right when I say that the outflows were dominated institutionally by fixed income but included equities as well?

Well, what we said is that those were related to the variable annuity transfer related to Zurich, and that they were a part of what we consider to be relatively low basis, low-yielding assets that won't have a material impact on revenues.

But then there was follow-up discussion about sort of the net effect of all of this activity on revenues.

I just wanted to clarify, were we talking about were Walter's final comments with respect to revenues.

It was actually Jim's comment.

Oh, I'm sorry.

That's fine, and what I did say which I will repeat, is that if we look at the net of the inflows and the outflows , even though the outflows are much higher in asset dollars, the fee revenue from the inflows which are going mainly into very high fee based activities, hedge funds, equity products, small cap emerging market debt, et cetera are much higher fee.

And that the net effect of the inflows and outflows, even though it's in the net outflow, is in a net revenue positive position from those

And are you referring to the institutional business, to the retail business or to all?

Total, all.

All?

All.

Okay, and then I have just a couple of quick questions to finish up my questions on expenses.

I think one of the executives -- either Jim or Walter -- was saying that there was something unusual about the corporate and other expenses compared to the year earlier comparison, but I noticed that the other expense line in corporate and other was up significantly as well from the March quarter.

It more than doubled.

Can we go over what would cause that to happen?

The other expense line, in corporate, in June from March?

You're talking about from, you're going quarter to quarter?

Or sequential?

I'm going from the March, rather than using the term sequential, let's just say in the June quarter compared to the March quarter.

The numbers I'm looking at are are on --

Basically that's investments in the businesses and basically it's a seasonal pattern that we're investing in the Second Quarter at a higher level and we're investing higher in this year than last year.

Okay, and my final question relates to the overall level of operating expenses.

I think, Walter, in your prepared remarks you were commenting that there were lots of pluses and minuses that collectively offset each other.

I think that reference was to other expenses.

So when we go to Page 2 of the supplement and we look at the overall Company and we see that your SG&A, your other expenses were down 8%, year over year -- would you view that as normalized, as indicative of sort of underlying trends or does that comparison need to be adjusted for unusual items?

Thank you.

I think that as we talked about if you look back in the Second Quarter of '06 and with the 401(k) sale and being down 8% is not the pattern that one would say is underlying, that when you factor both -- I would take a look at the home office, HR, and the other expenses.

And take a look at that that when we address for the items we mentioned for in the Second Quarter '06 and some of the offsets I mentioned in this quarter that we get to a pattern that is really from our standpoint allowing us to generate the sort of PTI margin that we feel comfortable with.

And so clearly, as you saw, there's a lot of in and outs going in the Second Quarter of '06.

And so that is not -- it's the combination that will get us to that sort of positioning, Eric.

Thank you very much.

That's helpful.

Your next question comes from Tamara Kravec from Banc of America.

Please go ahead.

Thank you.

A couple of questions.

Not to harp on the corporate expenses, but just to follow-up on Eric's question.

The seasonal investment in the business -- are there particular areas that you're investing in more heavily?

Is it the cost of the bank that you mentioned or is there something in there that seasonally you're investing in?

If you could clarify that?

This is Jim.

I'll talk to the investments and Walter can talk to a few of the other one-timers that were, individually aren't material and that's why we didn't disclose them.

But they add to a few million here and there.

From a investment perspective we have a heavy investment right now in the technology releases and operating expenses for our advisor platform.

We have heavy investments in our new planning tools and capabilities that will be introduced in the latter part of this year, and we have expenses for the introduction of some of the products that we had mentioned to you and activities there.

We also have some expenses caused by even though we'll generate future reengineering saves from the reengineering activity we have.

So we do have a higher investment level of this year than last year as Walter said, and we have put a number of those investments so that we can deliver them for the latter part of the year that we've been expensing.

Part of that showed up in the corporate segment for our financial planning activities, et cetera.

So clearly, we are thinking that our expenses over the year will be managed tightly, including with the idea that we're making these investments in the business.

But of course, we have expense increases year-over-year driven both by volume as well as the heavier level of activities that we have.

Walter, do you want to mention on the sales use tax and a few other things like the bank?

Yes, and last year at this time -- and we did not have the bank and obviously, we have revenue from the bank but we also have the increased expenses associated with the bank operation.

As I mentioned, we did put in an accrual up for the sales and use tax, and we have incurred severance in this quarter that we did not incur in the First Quarter.

And there is also as I mentioned the timing differential on a management incentive, which is strictly a timing in the quarter.

So those are the combinations.

That's very helpful.

And then a question on your financial advisors.

The number of advisors is down actually I think 4% since the end of 2006.

Is there any reason for that -- should we be concerned?

Or is this something that you just think is natural attrition and loss of unproductive advisors?

If you could elaborate on that, that would be helpful.

Yes, let me clarify that for you just so there's no confusion.

On our P2, our franchisees -- that is not down.

That has very strong retention.

It's been very high over the last number of quarters, and in fact as you look at the productivity, even within that the higher producers have retention rates even much higher than the overall.

In regard to the P1, we clearly are repositioning the employee platform.

We've reduced significantly the number of brand new people because we were having -- and consistent with hiring new people is high washout rates anyway.

And what we're doing is making changes in how that platform recruits and tenures people and makes them productive.

Within the platform, over the last two years, including this year, we have continued to tighten the standards and productivity to wash out people earlier, and we are bringing in fewer people until we replatform the employee channel a bit more so that we can drive higher productivity.

Now, the net effect of this that we're looking to achieve would be improved profitability because it's a significant cost to bring untrained new people, particularly if you have higher attrition rates in that category.

And that will significantly also help improve our margins in the distribution and the economics of the distribution business.

Second is we will derive better productivity from that channel longer term as we have advisors more focused on their natural market to really focus on the mass affluent clientele and above.

And third with that, we are clearly looking to ensure that we start to grow that channel again but also bring in more experienced people into the P2 channel as a more diversified way to grow our advisor base more efficiently.

So therefore, we're going through that change right now.

I would continue to tell you you'll see a continued decline in the P1 platform as we continue to complete this process.

And then we'll look to focus on growing that again.

But that's not going to impact our productivity or overall revenue stream to a large extent, because these people have very low productivity at this point in their careers.

In fact, what I would say we'll do is improve our profit margins and economics.

Okay, and the Securities America actually has been on a steady decline as well.

Is there anything specific going on with that?

Yes.

Very good, thank you for pointing that out.

With Securities America, we are also tightening the productivity standards.

A number of the advisors at lower productivity levels are leaving.

We've made some adjustments.

We've also slowed down the recruitment there.

We wanted to re platform their whole compliance architecture.

We've invested additional funds and resources to go do that and we didn't want to recruit during that process, but that will start to pick up as we go through the latter part of this year.

Okay, and then my last question just relates to your excess capital.

You've been a good steady buyback buyer of your shares and you're sitting on what you said was about $1 billion in excess capital.

Can you just remind us what your thoughts are around acquisitions, spending the money on something that may be attractive to add to your product portfolio, things that you might consider that would round out what you're building in organic terms?

Thank you for that question as well.

We are clearly focused to redeploy our capital most appropriately to get longer term and appropriate returns for shareholders.

Therefore, we want to maintain some flexibility to look at opportunities that might appear in the marketplace, both in the asset management arena -- particularly to help expand third party distribution, or further based on the value proposition we're putting in place, the new technology, our ability to help advisors grow their practices more productively to look at distribution.

So we'll continue to monitor the market to look at potential opportunities.

And at the same time, we'll continue to use the capital and redeploy.

We're not going to just maintain it if those acquisition opportunities don't come along.

So it gives us flexibility, but we will continue to redeploy, and that's why we had requested and recommended to the Board an additional buyback program that was put in place and we're executing on that in the meantime.

Okay, great.

Thanks so much.

Thank you.

Our next question comes from Vlad Artamonov from Greenlight Capital.

Please go ahead.

Hi, Jim and Walter.

Hi.

Well, I just wanted to ask why the contribution margin seems to have fallen apart both on a sequential basis and year-over-year.

I was wondering if this is because of very conservative accrual in the field comp or is there some other factor?

Falling apart is an interesting term.

If you're looking at it from a year-over-year, from the standpoint -- I think you have the 401(k) activity in last year, and the distribution activity has low margin so I don't think it's falling apart.

As we said, we'll manage the contribution margin and our PTI margin, and that's what I think we've been doing.

Right.

Well, was there anything unusual in the sales comp in the Second Quarter?

The sales comp is actually matching to our productivity on GDC.

And I think you should see that it should be up in the 20% range where certainly as GDC is up in that range also.

We did have the gain on the sale of the 401(k) business last year.

Right.

That was all put into the Second Quarter.

Like I said, from that standpoint, we're feeling the balance is actually there, so --

Okay.

Laura, maybe you can take that off line?

Yes, I'd be happy to.

I think it has to do more with the mix of business and what's driving the pieces.

So we can talk about that after-hours here, Vlad.

Thanks.

Thank you.

Thank you.

Our next question comes from Sam Hoffman from ADAR.

Please go ahead.

Hi, can you comment on the 12 to 15% EPS growth goal in terms of the timeframe for that?

Is that a forever type of objective or just for the next couple years, and also does it depend on what market environment you're in?

Well, that is actually on, as we've done with the other metrics -- that is on average over time, and obviously we'll look as we evaluate it, but right now that is what we're measuring to and targeting to, just like the return in the revenue target.

So, in periods where the markets and various things have wind at our back, of course we'll look for the higher end of that range or above it.

And when the markets are low, we'll probably look low.

So on average over time is how we thought about it.

It is more of a near term over the next few years per se, and as I think that we continue to sort of remold ourselves a bit, we'll start to reevaluate those targets over time.

But they were appropriate when we came public.

So you think you can get there even without any growth in the equity markets in the next three years?

Well, we said on average over time, so again, as I said, I just explained the sort of up and down of how we would look at it.

I can't sit here and tell you all of the impacts of what will happen to the equity markets and how it will affect us.

We think we're putting in place a good business model -- that on average over time, we will achieve those targets.

Okay.

My second question is last summer in the third quarter, revenues were a bit weak, and I was wondering whether that was because the markets were weaker that quarter or whether your business is in fact seasonal?

Sam, this is Laura.

There is some seasonality in the business.

The third quarter tends to have the less activity from the distribution and advisor standpoint.

Okay, and my last question is on the institutional business.

Can you comment on just what's going on in that business currently?

I noticed that sales which were obviously lumpy dropped significantly in the quarter, and I was just wondering what was going on generally in that business?

Yes.

I think it's exactly what you said.

Sales are lumpy.

This is a smaller business that we're investing in for growth.

We've put in place we think a good team to start that activity.

We're starting to win mandates, but it is lumpy because it isn't a large business for us yet, so it doesn't have a material effect.

But we're hoping that it will grow over time to be more material for our overall assets -- but it is lumpy at this point.

Okay, thanks.

Thank you.

Our next question comes from Darius Braun from Citadel Investments.

Please go ahead.

Hi, thanks for taking my question.

Just in reference to a previous caller's question, on the contribution margin, I think it's down slightly from the first quarter on an adjusted basis, but up from the Second Quarter of last year.

Maybe a reasonable way to get at both the pre-tax margin and contribution margin is if we went back to discuss some of the reengineering benefits you had customarily referred to in the past.

Was that reinvested this quarter and we didn't see any savings from it?

Well, the reengineering investments -- basically, we achieved our reengineering target and we are in the Second Quarter investing it at an increasing level as we move through the year.

So from that standpoint, there is a reasonable balance there, but it is an increase.

But on that, I think it's more what Laura is saying.

You're getting a mix of business situation occurring.

And on the contribution margin, we then will manage to bring it back in line as I said because our PTI margins are up.

So you would -- on that basis, we feel comfortable with a combination of the contribution margin being balanced by increasing our PTI margin.

Okay, and then next question is, is the bank currently profitable?

The bank is currently profitable.

Okay, thank you.

Thank you.

And the next question comes from Al Copersino from Madoff Investments.

Please go ahead.

Hi, thanks very much.

I know you all are going to be giving more disclosure.

I think it's late this year, Fourth Quarter maybe.

But I was wondering if I can be a little bit early and ask what percentage of earnings in the AA&I segment came from annuities and certificates?

Or directionally maybe.

Al, this is Laura.

One of the issues we have is that in order to really show you where the economics are truly being created, we need to implement the transfer pricing so that you can see, for instance, the value of the broker dealer and that does impact the other products.

So at this point in time, we're not prepared to provide the full reconciliation back to the segment of those pieces.

We do have some information historically on our website that was given in previous presentations that does give you some breakdown of the revenues, if you look at it in the benchmarking format.

Sure, I appreciate that.

My other question -- you went through in some detail the quality of the MBS and ABS assets you guys hold, and I was just jotting notes down as Walter was talking.

If I did my math right -- and it's just additions so hopefully I did it right -- it sounds like there's $12.7 billion of MBS and ABS.

Which is, I don't know, roughly a third of your invested assets and well over the value of your shareholders equity.

I guess just philosophically, that mix of assets versus those life and disability and PNC reserves -- it seems a strange combination of assets to have offsetting those reserves.

Could you talk to your views on that?

Yes, let me talk, let me try and deal with that.

Clearly on the retail sector, we have 18% and that is a percentage that we have.

As we look at the commercial or the asset securitization aspects, we really look at that as a surrogate for corporate bonds.

And as we pursue that, we don't believe that's unusual at all.

We feel it matches with our portfolio the way we look at the asset liability matching, looking at the cash flows that we need within that.

So we actually feel that is totally aligned and candidly not that far off from the industry from our view.

So we're quite comfortable with that but again, the only -- we have to be careful.

The only amount of retail that we really own is about 18%.

$6.5 billion.

The rest is really surrogates for corporate bonds.

Okay.

I'm sorry, go ahead.

They have all of the prerequisites associated with that from that standpoint of really corporate bonds.

They're in structures and they really have very minimal prepayment characteristics to it.

Okay, thanks very much.

This is Jim Cracchiolo.

I just wanted to -- because for the previous questions from a few people, just on the contribution margin, to clarify, because I don't think we were clear enough when we said mix of product sales in the quarter.

The extra REIT sale activities of the reinvestment there -- really, since it was a bit higher than our normal, has a lower contribution margin from a distribution perspective that's factored into the distribution revenue.

And therefore, that in itself would have lowered the profit margin for the quarter by over 2%.

So I just -- as one of the factors that Laura mentioned, outside of all of the ins and outs, but that did have an effect on the profit margin based on where we generated the revenue.

Contribution.

Contribution margin.

Yes, as the pre-tax margin is up.

So I hope that helps people.

Thank you.

Our next question is Eric Berg from Lehman Brothers.

Please go ahead.

Just one quick follow-up.

You went nearly two years with a goal of increasing earnings as opposed to earnings per share and now you've changed, as you've indicated this evening.

You obviously felt it was reasonable and appropriate to talk about the total earnings in the Corporation.

I'm just curious, why the switch?

Well, we feel it's actually a measure that balances between the effective use of capital and the earnings.

And that's why we certainly look at the other, but we certainly feel that it's appropriate as you use your capital to buy back shares that you need to have that balance.

And we feel that is an equally good measure and we feel it's one that certainly -- we've been in conversation with analysts that they felt was important also.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

Thank you, all very much for joining us on this Conference Call.

We'll be available in my office after the call if you have any additional follow-up questions.

Thank you, everyone and I appreciate your time and hopefully you get a feel that we really feel good about the progress we're making in the business and our performance.

Thank you.

Thank you.

Ladies and gentlemen, this concludes the Ameriprise Financial second quarter 2007 earnings conference call.

Thank you for participating and you may all disconnect.

Have a good day.