阿默普萊斯金融 (AMP) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameriprise Financial 2009 fourth quarter earnings call.

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

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Ms.

Laura Gagnon, Vice President Investor Relations.

Ms.

Gagnon, you may begin.

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

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

After their remarks, we will take your questions.

During the call, you will hear references to various non-GAAP financial measures which we believe provide insight into the underlying performance of the Company's operation.

Reconciliations of non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website.

Some of the statements that we make on this call may be forward-looking statements reflecting management's expectations about future events and operating plans and performance.

These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties.

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2008 annual report to shareholders and our 2008 10-K report.

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

With that, I would like to turn the call over to Jim.

Good morning.

Thanks for joining us for our fourth quarter earnings discussion.

Today Walter and I will give you some insight into our performance for the quarter.

We will provide an update on our acquisitions and I will give you some thoughts on our positioning for 2010.

We generated solid results in the quarter and for the year.

Now that market conditions have been stable and improving for three quarters, our metrics are rebounding from their low points and we're beginning to regain the earnings power of our diversified model.

As we begin to derive benefits from our acquisitions and other investments, and with the continuing support of our strong balance sheet and expense control, I believe we're in a good position for 2010 and beyond.

Clearly, the nation still faces economic concerns.

But we feel good about our ability to execute our agenda.

We have emerged from 2009 stronger and with many opportunities ahead.

As our fourth quarter business results demonstrate, we're driving positive trends across our segments.

Our clients are continuing to gain confidence as they emerge from the long-lasting paralysis brought on by the financial crisis.

During the quarter, we drove improved client growth, our advisor productivity increased nicely, and our asset flows were strong across product lines.

As a result of the good flows and rising markets, our asset levels increased significantly.

In fact, our total owned, managed and administered assets increased to $458 billion, a 23% increase over a year-ago.

Just as important, our client and advisor retention continues to hold at very high levels, and the long lasting client relationships that defined our franchise remains strong.

We're also making good progress on our recent acquisitions.

The Seligman and H&R Block financial advisors integrations are essentially complete, and each is giving us additional leverage.

Seligman drove strong growth in hedge fund business in 2009, and our employee advisor channel is now operating on a more efficient and productive model as a result of the H&R Block financial advisor acquisition.

During the fourth quarter, we accomplished the last major phase of the H&R Block integration with the successful merging of our technology platforms.

We also continue to feel good about our Columbia Management acquisition, and I will give you an update on that shortly.

Our strong financial foundation and prudent operating principals continue to serve us well.

The balance sheet remains in excellent condition, and we remain in a net unrealized gain position.

We're also maintaining our capital flexibility with over $2 billion in excess capital, including the capital we raised to prefund the Columbia acquisition, and a strong liquidity pool of $1.8 billion in free cash.

In addition, we remained focused on expense control and reengineering.

We accelerated our reengineering agenda in 2009 to offset the effects of weak operating conditions, and we achieved over $400 million in full year savings with about two-thirds of those savings going to the bottom line.

Walter will give you some detail on our fourth quarter expenses shortly.

But I want to emphasize that we fully intend to maintain this long-term expense discipline, even as conditions continue to improve.

So overall, I feel quite good about our earnings trends, and I am pleased with both our positioning and the opportunities we have created.

Now, I would like to provide some insight into our segment performance.

First, in advice and wealth management, we reported pretax income of $18 million, and our core earnings in the segment were $35 million.

Retail client assets increased 22% over a year-ago, which reflects both higher markets and incremental increases in client flows.

The positive trends in client activity are meeting our expectations.

We knew from past downturns that retail clients would return to investing slowly, and we expected the upswing to take longer this time around because of the depth and severity of the crisis.

So while client activity is improving, it remains below pre-crisis levels.

At the same time, we're still earning very small spreads on our cash as a result of the near zero short-term interest rates, and these two factors have compressed our margins in the segment.

If conditions remain stable, we expect the slow improvement in client trends to continue.

As that occurs and if interest rates begin to rise, we will have the opportunity to drive higher margins.

We also believe that our new advertising campaign which launched two weeks ago will help us reach more of our target market.

The campaign is built around real Ameriprise advisors and the tagline More Within Reach which brings to life the values of our close advisor-client relationships.

It is a broad campaign that you will see on TV, in print and online, and we hope to expand on its multimedia possibilities going forward.

Our advisors are enthusiastic about the new exposure for the brand, which they view as an important element of support we provide to help them grow their practices.

We have always been focused on advisor support, and over the past two years in particular, we made great strides in the tools, technology, marketing and other support we provide, including the new brokerage platform we began rolling out in the fourth quarter.

As a result, our advisors remain satisfied and engaged and our advisor retention rate remains high.

At the same time, advisor productivity has begun to rebound with net revenue per advisor increasing 7% compared to the sequential quarter and with a solid increase in financial plan sales in the fourth quarter.

The increase in productivity is also evident in our wrap business where we had net inflows of $2.6 billion.

Total wrap assets were $95 billion at year end, a 30% increase over a year-ago.

Our support for advisors is one of the reasons we have had success in ramping up our experienced advisor recruitment efforts.

For all of 2009, (inaudible) 500 experienced advisors.

And while we slowed the pipeline in the fourth quarter as we completed the Block integration and roll out the new brokerage platform, we still see good opportunity to bring in experienced people.

You'll notice that our total advisor count decreased during the quarter.

That is a result of our continued focus on productivity and the reengineering of our employee advisor group.

We have been removing less productive advisors from our system and bringing in established and more productive advisors, a strategy that should generate stronger economics over time.

In the asset management segment, we generated a significant improvement in profitability, with pretax income of $70 million, or $77 million excluding integration costs.

The stronger earnings were driven by net inflows, market appreciation and hedge fund performance fees.

We drove total inflows of $1.4 billion for the quarter and $3.6 billion for the year, which represents a dramatic turn-around from the significant outflows during 2008.

The inflows in the fourth quarter came from both the US and our international business and from strong institutional net inflows.

Internationally, Threadneedle built on the strength of the third quarter and delivered solid results highlighted by strong sales and net inflows.

In terms of investment performance, domestic performance continued its positive trend in the quarter with 72% of equity funds and 80% of fixed income funds above their peer mediums on an asset weighted basis for the year.

At Threadneedle, while one year performance was down, 90% of equity funds were above the median for three year performance.

We firmly believe the Columbia Management acquisition we announced in September will be an excellent addition to our asset management business, and we remain on track to close in the spring.

The assets we will acquire ended the year at $186 billion, a 13% increase since we announced the deal.

Our planning for integration is proceeding according to the schedule and expectations, with most personnel decisions made and communicated.

We remain confident that we will be able to execute the transaction and deliver on our financial projections for the deal.

The annuities segment reported pre-tax income for the quarter of $157 million, and I continue to feel good about both the results and the direction of that business.

In variable annuities, asset balances increased to $55 billion, a 27% increase over a year-ago and a 4% sequential increase.

Net flows remain positive despite slower sales as clients continue to be reluctant to enter long dated contracts.

In fixed annuities, our balances were up 20% compared with a year-ago, but flat compared with the third quarter.

Following several months of very strong fixed annuity sales through the middle of the last year, we lowered our rates in response to the changing spread environment.

While we have slowed the faucet on our fixed annuity sales, higher balances in the book are continuing to generate solid returns.

The production segment generated pre-tax income of $129 million for the quarter.

Life insurance in force remained at $193 billion, which is flat compared with last year.

Sales were weak for most of the year, but during the fourth quarter, we saw early signs of improvement in variable universal life sales as well as continued strong sales in UL.

The overall book of insurance business remains very solid, and it continues to generate strong returns.

I should point out an ongoing strength in auto and home.

This business continued its steady growth with another 9% year-over-year increase in policy count, and it continued to deliver solid margins.

In total, as I look across our businesses, I am seeing improvements in our key metrics with client activity, advisor productivity and asset flows all pointing in the right direction.

To wrap up, as I think about the very volatile period that began in 2008, I feel good about where we stand today.

It has been a tough time, but we're emerging a stronger firm, and rather than having to fix problems, we're focusing on realizing the opportunities we have created.

I believe we're positioned well for 2010.

We have solid and improving business fundamentals, a promising opportunity to hedge through our Columbia acquisition, a strong balance sheet including appropriate excess capital and liquidity and an ongoing commitment to prudent expense management.

While we obviously don't know where the markets and the economy will head this year, especially considering the weak January, I feel comfortable with our ability to navigate the conditions.

Now I will turn it over to Walter, and later we will take your questions.

Thanks, Jim.

We posted slides on our website again this quarter, and they will be updated with my talking points after the call.

Please turn to slide 3.

As Jim mentioned, we're pleased with the fundamental strength of our business and our improved financial performance.

Let me take you through the highlights.

Fourth quarter 2009 reported earnings per diluted share were $0.90 compared to a net loss last year, and core operating earnings were $0.91 in the quarter.

We generated double-digit net revenue growth driven by strong fee and spread-based businesses.

G&A expenses remain well controlled.

We made our fourth quarter and full year expense targets and remain committed to effective expense management.

And our balance sheet remains strong.

Let me talk you through each of these points in more detail.

Please turn to slide 4.

Net income in the fourth quarter of 2009 was $237 million compared to a loss a year ago.

Earnings per diluted share in the quarter were $0.90 compared to a loss of $1.69 last year.

I should note that the current year's quarter EPS calculation included 36 million shares we issued to prefund the Columbia acquisition.

We will not capture the earnings from the acquisition until we close.

So for year-over-year comparison, we're showing you the adjusted EPS, excluding the shares issued for the acquisition of $1.04.

As for core results, we established the core earnings concept to help segregate the impact of the market dislocations from the underlying business trends and recently, to provide transparency in year-over-year comparisons.

In 2010, we will transition to focus on reported earnings excluding integration costs, primarily for the Columbia acquisitions.

That said, we will continue to provide the same level of transparency and factors impacting earnings.

In summary, earnings growth was solid.

With strong revenue growth driven by the business trends, federal market comparisons and expense controls.

On slide 5, we show revenue growth trends.

Year-over-year net revenue, excluding realizing gains and losses, increased 29%.

Management and financial advice fees grew 41% with about a third of the growth coming from market.

The remainder was driven by business growth, positive flows and asset management and wrap accounts and strong hedge fund performance.

Distribution fees grew 17%.

While a portion of these fees are asset-based and impacted by the market, the portion related to client activity is still below pre-crisis levels.

Net investment income, excluding realized gains and losses, was up 37%, driven by higher fixed annuity balances due to the strong fixed annuity flows in the first half of the year as well as benefits from repositioning our portfolio and cash during 2009.

Net investment income growth does not reflect equity driven returns and hedge funds or alternative investments, but rather base revenues generated from the bond portfolio.

Please turn to slide 6.

Our improving revenue picture also reflects our growth in assets.

Owned, managed and administered assets were $458 billion at year end, up 23%, or $86 billion year-over-year.

Owned assets grew $5 billion, or 16%, primarily due to market's impact on non-prop separate account assets, as well as business growth.

Managed assets in both wrap accounts and the asset management segment grew 23% or $61 billion.

Market appreciation drove a substantial portion of the increase, with $13 billion driven from net flows in 2009.

This is a substantial improvement from the $23 billion in net outflows in 2008.

And administered assets, primarily brokerage accounts, grew 26%, or $20 billion, driven by both markets and retail inflows.

Let's turn to the next slide.

In spite of slower overall client activity, average per advisor productivity has seen steady increase over the past several quarters and is up 18% in the current quarter.

This is primarily driven by market appreciation and improvements in client activity and the actions we have taken to improve our advisor productivity.

As a result of these actions, our overall advisor count is down 4% from a year ago, consistent with our efforts to reengineer our employee advisor platform.

Advisors must meet productivity requirements, and the vast majority of departing advisors had less than $50,000 in annual production.

However, we have also seen solid growth in experienced advisor recruiting.

As we stated, more than 500 experienced advisors joined the firm last year.

In fact, productivity of the new advisors is over four times the departing advisors, which is contributing to our productivity growth.

Let's turn to page 8.

I want to spend a few minutes on our general and administrative expense line.

It is important that you understand the various movements to get a picture of the underlying trends.

Core G&A, which excludes market and integration impacts increased $129 million year-over-year.

However, on a fully normalized basis, G&A is down approximately 6% for the quarter and 10% for the full year.

I want to provide insight into the items we take out to get normalized trends.

You saw that we booked strong hedge fund earnings in the fourth quarter of 2009, which also includes the related compensation.

In addition, the year-over-year increase in G&A is distorted by the decrease in performance based compensation in the fourth quarter of 2008 when our overall firm-wide performance suffered due to the market.

In 2009, we had the reverse impact due to the strong year end performance.

Both of these items are timing issues and are not expected to carry into the first quarter.

We also had accelerated business investment systems and marketing and other expenses, including a legal settlement.

Normalized for these impacts, we achieved our expectations of the fourth quarter, 6% to 8% decline in G&A expenses, as well as a full year 10% decline.

This brings us to our balance sheet discussion on slide 9.

We continue to maintain strong balance sheet fundamentals.

Our excess capital position was over $2 billion, or over $1 billion when factoring in the capital for the Columbia acquisition.

RiverSource Life ended 2009 with an estimated RBC ratio of more than 400%.

Our investment portfolio remains well diversified and high quality.

We reported a $700 million unrealized gain at year end.

Our capital ratios are strong.

Our debt to capital ratio is 19.5%, or 14.5% when excluding non-recourse debt and the credit for the hybrids.

We continue to maintain a prudent liquidity position.

We ended the year with $1.8 billion in free cash and over $900 million in cash at the holding company.

In addition, we expect to take a material dividend from the life company in the first quarter.

And finally, our variable annuity hedging continues to perform well.

In closing, we had a solid quarter.

Our business metrics are headed in the right direction, and our foundation remains strong.

While markets continue to evolve, we will monitor them closely to make sure we are managing prudently within the context of the environment.

We are well positioned and focused on execution.

With that, I will turn it back to the operator so we can answer your questions.

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.

Great, good morning.

Couple of quick ones.

First, the net realized gain after tax, $12 million, Paul or Walter on maybe some of the big gains or maybe some of the big losses or impairments that were behind that $12 million?

Sure, Andy.

Obviously, a lot of the gains were generated by tenders and basically calls.

There was a gain that we had on an investment we had in the P&C companies, $12 million that came in, but basically that was only surprise that we had.

The impairment side of it was around $7 million, and the actual realized loss was around $20 million.

And then we strengthened reserves around $5 million.

Nothing too big there.

You mentioned that -- Walter, you mentioned that you might be taking a material dividend up from the life companies a moment ago.

Could you give any -- could you quantify that?

And then, sitting on $1 billion-plus of excess capital right now, do you see deals, or how soon possibly could you get to a buyback?

Okay, let me -- on the first part of the question, as you know, when we look at excess, we try to get that excess up to the parent where we believe it is the most effective utilization point for it.

We do have capacity.

Obviously, the actuaries are finishing their work and everything they have to complete, but there clearly is a reasonable capacity to -- that will allow us to potentially declare a dividend in the first quarter.

And certainly, when we have that sort of capacity, that will be probably the action we will take.

As far as your second part --

Yes, Andrew.

As far as the second part of the question, we do feel like we're in a very good position and we have flexibility.

Our primary focus is really closing the Columbia deal and getting that integrated.

As we get through that and we see how the economic cycle markets hold over the first part of the year, we will have the flexibility to, you know, think about buybacks as well as if there were smaller things that make sense from a strategic opportunity for acquisitions, we can start to explore that as well.

But we will be looking to see how we will use our capital moving forward, if we -- if the market continues to be stable.

So you wouldn't feel inclined to necessarily sit on capital in excess of $1 billion?

Say when we get to the end of the year, you could indeed buy back if there weren't deals?

Yes, yes.

Again, it depends on if we're continuing to be in stable markets versus that there's any other downtown.

But if that holds, yes, we would have flexibility and we would be looking to do some things.

Got it.

Then just real quickly on the property casualty business, combined ratio kind of jumped up a little bit to 99.3 from 96.6.

Any concerns there?

Are you feeling good going forward?

What's the outlook?

No real concerns.

I think the jump up was really attributed to weather and nothing more than that.

It was really in line just a blip there on the weather situation, but no concerns.

Okay thanks a lot.

Your next question comes from Suneet Kamath from Sanford Bernstein.

Please go ahead.

Thanks, and good morning.

I would like to drill down into the advice and wealth business a little bit, if we could.

If I look at the pre-tax earnings in that business and I take out the certificates and banking fees, just focusing on the wealth distribution, it was sort of minus $9 million, I think if you put back the integration costs, maybe around $5 million, $6 million.

If I go back to 2007, that number was closer to, I think $70 million for the quarter.

I think you talked -- Jim, you talked about some of the drivers in your prepared remarks, but I was hoping you could go into a little more detail, maybe just put numbers behind those drivers in terms of what really has to happen to get you back from say where you are $5 million to something closer to that at $70 million or whatever you think sort of a normalized quarterly earnings run rate would be.

Okay.

I will talk about some of the business aspects, and Walter can comment a little bit on the numbers.

First of all, I think, as I said, we're seeing very good trends in the AWM business from an advisor perspective, productivity.

But one of the things that it is hard to glean from the absolute numbers is we have gone through a pretty major transformation last year.

We moved from more of a novice employee network to an experienced, both the integration of Block with over 900 advisors plus 500 experienced recruits.

Now during that cycle, we have also had to change out from being in the novice business and all the costs around that and the real estate and how we do that through recruitment of experienced people.

We also had to deal with the integration of the Block in a very down market.

So though the revenues disappeared last year, the expenses were still there and carrying two systems.

The fourth quarter, those two systems came together.

We closed about 44 offices, we integrated the technology onto a brand new platform, we started -- we made change in a lot of the leadership and the organization there in combining and putting a number of people laid off in that regard.

So I think we have come through that in a good way.

We also have the hiring costs of bringing in those experienced people that hit last year.

So all those things are embedded in our AWM P&L in what I would call a reduced market.

Some of those fees started to come back in the fourth quarter, but we also had a lot of that integration hitting as well in the fourth quarter and carrying the two operating environments.

So we're through that now, and we're coming out of that as we go into the first quarter.

But I will have Walter talk a little more about the numbers.

The only thing I would add to that is really, as I indicated as we looked at our G&A expenses, a reasonable portion of that certainly as it relates to the catch up and then the basically the reduction last year, but more of the catch up in 2009 took place in the AW AIM segment.

We do have investments.

We're putting in a new platform, and that started up in the fourth quarter and certainly, advertising from that standpoint.

But the big element, as Jim said, is going to focus on the spread, the transactional side of it and getting the expense benefits that we are -- that we started to realize as we did the integration in the third quarter.

And obviously, if we get the improvement in transaction elements as we potentially see, that will start taking us towards the objectives has the we outlaid.

One quick follow-up if I could.

I think Walter, you had mentioned that the incoming experienced advisor productivity is four times greater than the folks that have left the Company.

Can you just talk about what the contribution to the bottom line is?

I'm guessing you are not going to get specific, but are the experienced advisors that you brought on covering the initial payouts that you have to make to them and contributing to the bottom line, or are they just still sort of not contributing to the bottom line, but they will once those initial payouts kind of roll off?

Yes, I think if you look at it from the standpoint -- obviously, the payouts get amortized over a point.

But what happens when you bring them on board, obviously, you're picking up expenses associated.

The paybacks on these advisors, as we indicated, are in the two year, three year ranges.

So they are a lot better than most, but obviously we brought on a lot in 2009.

So I would say that they are still not providing a payback in that year, in 2009, but they certainly are on target to do -- to meet our objectives of the two to three years.

I think that the key there is anyone coming on board they have to transfer their book and get settled and then start their productivity, and their productivity in the first year is always much lower until they ramp up again.

And so we will start to see more of that productivity hit in 2010 as they came in, but also, the markets are pretty weak, too, so they are not as active, similar to our advisors initially.

Okay, thank you.

The next question comes from Eric Berg from Barclays Capital.

Please go ahead.

Thanks very much, and good morning Jim, Walter and to your team.

My first question regards some definitional issues.

You talk about free cash.

Can you remind us exactly what you mean by free cash and how, if at all, that term differs, that amount differs from excess capital?

Okay.

The free cash is the cash we keep from our standpoint for liquidity purposes that we have the ability to utilize in situations, and we are investing that in very short situations.

If you look at the fourth quarter, we're earning in the area around 15 basis points.

It is available for any sort of crisis or any sort of situation that we need on a stress situation.

Obviously, the excess capital element -- all excess capital isn't necessarily totally as liquid.

But certainly has characteristics of it and certainly, from that standpoint, you can achieve excess liquidity without having capital.

And from that -- so from that standpoint, there is a distinction and the excess capital to us is driven by what our required is and what our available is.

And there is an element of crossover, but certainly, it isn't dollar for dollar as you look at it.

But the key thing is, as we have always said, you need liquidity to be strong, you need the excess to be strong.

But the first line of defense is on your liquidity.

Thank you, I have two more quick ones.

First, in thinking about expenses, I'm looking at your slide 8.

Why would you adjust out or remove from the calculation the increase in hedge fund performance compensation?

After all, that was a real expense to the Company, to the shareholders.

It is going to recur if you have strong hedge fund performance again.

So why would that somehow be an adjustment?

No, it is not -- again, let me characterize what we're trying to explain.

We're trying to explain, we said on a normalized basis we would look at expenses, and we're managing those expenses.

So we're saying yes, we generated a profit for the hedge fund last year.

It was much lower.

And so we're trying to explain the changes that have taken place between the '08, and the '09.

We are factoring in -- obviously, in 2010, hopefully, whatever expense we incur relating to that, our profit will be factored in our run rate.

The same thing, if you take a look at the elements on the performance.

Last year we were in a situation where, as we entered into the fourth quarter of last year, we had accruals that anticipated our higher payout due to the dislocation that took place, we reversed those.

This year -- and that created certainly the appropriate action, but reduced the expense for normalized element.

This year, we have now -- we entered this quarter, and we had a catch up because we continued to improve.

So we're just explaining the deltas between it.

We're not saying that it is not part of our expense base.

I understand.

-- between last year and this year.

That's a helpful addition.

And then my final question relates to productivity.

What -- I would think productivity would be a function of just what it sounds like -- how many contracts, how many annuities, how many life insurance policies, how many REITs, how much securities people are selling.

Why would -- you mentioned rising markets as driving productivity.

Why do rising markets affect that productivity number?

That's it.

Thank you.

Because it is based on our wrap.

We earn higher fee on the market, and that drives it.

That is the one element of it.

Thank you.

Thanks.

The next question comes from Tom Gallagher from Credit Suisse.

Please go ahead.

Good morning.

First, just one follow-up on the advice and wealth management.

If you're paying two to three year payouts or guarantees for the experienced advisors, help us think about how that is going to affect the future margins.

Does that tell us that if you're hiring a considerable amount of them, is that likely to mean margins remain flat to down in a flat market?

Or would you still expect to see your -- a margin lift all else equal, in that segment, if we had a flat type market over the next couple of years here?

That's my first question.

Let me try to make sure there's no misunderstanding.

What I said, I thought I said, was that we have targeted two to three year payback okay?

When we basically provide trans comp, the trans comp is some up front current trans comp that gets amortized over a period.

The rest of their compensation is based upon either production on bringing over assets or productions of bringing over GDC.

So obviously --

So Walter -- sorry, so it is not -- so Walter, if I can cut you off for a second.

So it is not a two to three year guarantee.

It is a two to three year payback for when they will become profitable.

That was my answer to that question, is they were asking about the drag on the margin.

Sorry, okay, go ahead.

No, that was it.

I was just answering that part of the question.

Oh, okay.

So if we think about that as kind of the starting point, how -- maybe you can frame a little bit, how much of that -- when we think about how much of a drag that actually is, and the volume of producers you're actually hiring, where there is that payback that we're looking at.

Is it a fairly small number relative to the total base, which means you can get margins lifting or getting better even in a flat market?

Or is that -- are there enough of those new types of hires that in a flat market, you would see a continual drag on that business?

Okay.

So -- this is Jim.

What really occurs is, you do pay some trans comp up front and the rest is paid based on them having their assets and their production over time.

That trans comp up front, part of it is expense, part of it is amortized over a number of years that the contract is for, which goes out more than three years.

So, five, seven years.

So in that regard, when those people are on board and they actually get productive again, then it will add to our margin, because they will be covering our overhead that is in those offices already.

That overhead in the past was covering the lower producers that will now be covering much higher producing advisors.

And so overall economically for us, it will add to our margin over the next number of years, it's not after the three years that it will just kick in.

But as I said, there is always a ramp up time.

They don't come in and automatically, day one, produce like they were producing from when they left.

And in addition to that, the comment was really around, this is a market that even our current advisors as we know, are slowly ramping up again.

It is not as though everyone is fully productive to where they were prior to the cycle.

So it is a combination of those factors, but this will give us much better economics over time than when we had a few thousand novices in our system, and it will add to our margins and lower our -- absorb more of our fixed overhead.

So Jim, if you look at the difference in the old strategy versus the new strategy, I presume there's a much quicker payback, breakeven profitability timeframe if you look at the employee advisors versus the experienced.

Is there any way to frame that, like how that differs?

It is significantly better, as Walter said.

The payback here is probably two to three years.

The other one was probably more like five to seven years.

Okay that's helpful.

Then my other question is just, I recall, I think it was within the last year or so, you used to talk about how the very high RBC you were maintaining in the insurance operations, which at the time I think was north of 500, was a bit distorted in that because of your variable annuity business.

Your target RBC, I thought needed to be north of 400, if I remember that correctly.

But now you're saying you're going to take a big dividend out, so that seems to have changed.

Can you just elaborate exactly what is going on?

What, in fact, is your target RBC to maintain your current ratings?

Thanks.

All right, sure.

And on that -- okay.

Our tar -- just cut quick.

We are not changing our approach on RBC, and certainly, any potential dividend or capacity to do that dividend, we'll take that into consideration.

And so, you should assume that if the dividend did come out, it -- we would still be in an RBC ratio that would be consistent with the 350 to 400 range.

Okay.

Walter, am I correct, though?

Is it correct, though, that you used to talk about maintaining a 400-plus RBC because it was some conversion to the rating agency standards that would require you to hold that level of RBC, or is that not accurate?

No, no, you're correct.

It was RBC was the fact, and then we looked at constraints where it was coming from different agencies which took it to higher factor where they were assigning capital elements associated with assets and things like that.

Obviously, that is still the case, but it has changed because the components within those calculations changed, but we still look at the ultimate constraining factor, relating to rating agencies and RBCs, and any dividend that we would ever do would certainly be in discussion with regulators and with the rating agency.

Okay, thanks.

Your next question comes from Jason Hall from Wells Fargo, please go ahead.

Great, John Hall here.

I was wondering if you could offer a little bit of commentary around the assets at Columbia.

You mentioned what they were (inaudible) for some fund flow discussion over the quarter and whether the transaction is impacting fund flows one way or another, either at Columbia or on the river side RiverSource --

Okay.

Overall, Columbia has experienced appreciation in the assets over the last two quarters from when we did the deal.

And they have been, I think relatively -- we don't have all their numbers in yet.

But I think they have been relatively flat on their flows overall.

We don't see any material outflows driven by the transaction.

In that regard, I think people have settled in.

I think we have gone out to all the institutions, and they actually feel pretty good about where we are.

And I think Columbia is back to work again now of getting their people focused on driving their business again.

We have gone through a lot of the decisioning and the alignment between RiverSource and Columbia.

In addition, as you saw with RiverSource, our institutional flows have picked up again.

And so, we actually don't see any material change from the last quarter in regard to Columbia.

I think things are actually more settling in today, and we feel pretty good about the asset base that we are going to be buying here.

And hopefully in the first quarter as we complete this, we will be off to putting them together in a very rapid way.

And, any color on the -- from the RiverSource retail funds which after being positive last quarter went negative this one?

Really, in the third quarter, we, based on certain of our accounts, wrap accounts, et cetera, there was some recycling and some pickup in some of the reallocations to some of those funds.

And I think that's all -- you saw the difference between the third and fourth quarter.

From that, we're starting to see strengthening in our sales flows.

The performance over all of the funds have continued to improve.

So we're feeling positively about where we're positioned in 2010 versus where we were in -- going into 2009 based on the pickup in performance and the focus back now that the deal is done.

Great, and on the advertising front, you emphasized the new campaign that is underway.

I wondered if you could contrast the cost this year from an advertising standpoint versus last year.

Is that a big delta?

Well, last year as you know, we stopped our advertising after the first part of the year, first quarter of last year when we did some of the advertising.

So we were pretty dark through the rest of the year.

In the fourth quarter of this year we started to pick up to get our campaign launched.

Some of the expense was in the fourth quarter, and we're now lights on as we go into 2010.

So there will be a pick up in the advertising differential, year-to-year, but we have also made some other adjustments in some of our marketing and some of the reengineering last year.

So, we think that it will be an incremental cost of course, because we weren't advertising last year.

But it is something that is factored into our plans and that we feel we can cover based on the environment and the improvements that we're seeing.

Great.

And then finally, on the experienced advisors, 500 came in the doors last year.

Is there a number that you're targeting for this year?

Well, we had the benefit last year of a major dislocation that occurred in the first part of the year with a number of firms, and then we had to actually slow our pipe because of the integration that we had to do, because many of those advisors were joining our employee channel.

This year, as we're actually installing the system and rolling that out, we'll actually have the ability to start to recruit, again, in the employee channel, and we have now set that up throughout our system versus in pockets where we were last year.

And then second is we will also be recruiting into our franchisee channel in a more appropriate pace as well as we introduce our new Thomson platform in that system.

So I think it will take time for us to ramp it back up, but we still see that we should be able to do pretty well over the course of the year as we focus our attention, both for the employee and the franchisee side.

Well, match last year or exceed?

We're not giving out targets, but I would just say that the recruitment will be an important part of our continued focus as we move forward through this year versus employing novices.

Thank you.

(Operator Instructions) The next question comes from [Jason Waylas] of Sterne Agee.

Please go ahead.

Thanks, I am on for John Nadel.

Our question is around the expected tax rate move to 28% to 30% in 2010.

Is it fair to assume that the marginal tax rate on each incremental dollar of earnings is roughly 35%?

And if so, can you give us approximately the incremental amount of pretax earnings necessary to bump the tax rate by one percentage point from the 2009 levels?

Thanks.

I'll go for the first part of it, 35% is right.

As far as -- I'm not forecasting where we're going for 2010.

Fair enough, thank you.

The next question comes from Suneet Kamath from Sanford Bernstein.

Please go ahead.

Hi, thanks.

Just a separate question also related to taxes.

Just wondering if you have thought through or can quantify the benefit that you're getting from the DRD.

And in your 10-K, I think you discussed the issue and you talk about your view that any change to the DRD would likely be applied on a prospective basis only.

Just wonder where that is coming from.

Is that is from your folks in Washington that are talking to members of congress?

Or what gives you confidence in taking that view?

Thanks.

I -- as I indicated, I thought I indicated, the benefit we derive from DRD is about $60 million, and I believe the DRD has been brought back in.

So I think, certainly that was our view before it was prospective.

I think we will just have to evaluate where it is going at this particular stage as it comes back in.

Okay.

But $60 million has been what is the benefit has been running at?

Yes, that's correct.

Okay, thanks.

The final question today comes from Colin Devine from Citigroup.

Please go ahead.

Good morning.

Just a couple of quick ones.

First, Walter and Jim, as you are growing the advisor channel, the concern that we have is -- we saw again this quarter a settlement for a client dispute, and candidly, there has been a bunch of these since you have been public.

Do you really feel that you have got in place the compliance systems so this starts to go away?

Because they have started to add up to fairly significant numbers.

Second, if I can get just a bit of more detail on what the charge in protection for claim reserves, what those related to?

Right, okay.

On the first, let me try and answer the first.

The claims that we had in the past and we looked at, primarily focused at SAI, and we have spent an inordinate amount of investment and time in improving the capabilities there, and we feel they are at benchmarkable standards.

But the settlement expenses you see has nothing to do with the AWM business those last few quarter settlements.

So that has not -- it is not related to the AWM, nor the advisor base.

Okay.

Is Colin -- does that answer that part of it?

Yes, that's fine.

And then on the claim reserves?

Yes, it relates to a waiver of premium benefit of UL and UL.

We improved the valuation as we got through our data and using our new system, and it doesn't reflect any underlying trend.

It is really just an update in capability we have with the new polysystem.

Okay, what assumptions then changed, just so I'm clear?

Was it your long term interest rate assumption, a lapse assumption?

What --

I would -- I will have to get back to you on the specifics of what it was -- what aspects within the tables they were using or whatever drove that change.

We will get back to you on that, or we will get back.

Okay.

And then the final one, as you laid out the issues with comp and attracting experienced advisors, right, given the delay for them to become fully profitable for you, does that put at risk your goal still of the 15% ROE for 2012?

Because I assume for the advisor channel there is lag here for that ramping up to profitability, and clearly, that's a big part of your story if you're going to hit the 15%.

Yes, let me just say, when we calibrated the 2012, we fully understood the economics associated with the advisors, both from the volume of advisors and certainly, the rate and margins associated with that, so that was certainly incorporated in.

Okay, so you're still on track for that?

That's right.

Nothing has changed since last time we presented.

Thanks.

The next question comes from Eric Berg from Barclays Capital.

Please go ahead.

Yes, my question is just to Jim as a follow up to Colin's.

If the lawsuits don't relate to the advice and wealth management business, to what do they relate?

Thank you.

It relates to a settlement we had on -- in the asset management on the Threadneedle side.

And the settlement actually -- it was a client settlement, and basically the -- we have established -- we have settled with the client.

Thank you, Walter.

At this time, there are no additional questions.

Okay.

I want to thank everyone for their participation this morning, and if there is any other follow-up questions, you can call Laura Gagnon, and we thank you very much, and you have a good day.

Thank you for participating in the Ameriprise Financial 2009 fourth quarter earnings conference call.

This concludes the conference for today.

You may all disconnect at this time.