阿默普萊斯金融 (AMP) 2011 Q4 法說會逐字稿

Welcome to the fourth-quarter and year-end earnings call.

My name is Jon, and I will be your operator for today's 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.

Alicia Charity.

Ms.

Charity, you may begin.

Thank you, and welcome to Ameriprise Financial's fourth-quarter earnings call.

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

Following their remarks, we'll be happy to take your questions.

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

Reconciliations of the non-GAAP numbers to their 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, reflecting management's expectations about future events and operating plans and performance.

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

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2010 annual report to shareholders, or our 2010 10-K report.

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

With that, I'll turn it over to Jim.

Good morning.

Thanks for joining us for our fourth-quarter and full-year 2011 earnings discussion.

I'll begin with an overview of our business performance and some thoughts about our positioning for future growth, and then Walter will discuss our financial results in more detail.

After that, we'll take your questions.

We finished the year of substantial progress with a solid fourth quarter, despite continuing challenges from the environment.

Markets recovered a bit in the quarter, but remained highly volatile, which caused clients to become more cautious and move to larger cash positions.

And interest rates remained near zero, which resulted in further spread compression.

My key message for you today is this, as always, we have the ability to navigate through the short-term challenges, and we're focused on the medium to long term, which holds great potential for us.

Our financial foundation remains one of the best in the industry, and it continues to give us important stability and strategic flexibility.

We believe our financial strength enables us to weather the current storms and retain our strong position in the future.

We continue to generate significant capital, and we're still holding more than $2 billion of excess capital, and that is after returning $1.7 billion of 135% of our operating earnings to shareholders through dividends and buybacks during the year.

In addition, in December we announced a 22% increase in the dividend, which will be paid in February.

And we now have increased our dividend five times in our six years as a public Company.

Even with the significant capital we've returned, I believe we are in a stronger capital position now than we were a year ago.

As our business has become less capital intensive, we've been able to free up capital to return to shareholders and invest for growth while maintaining our ratings.

Our many strengths from our highly diversified and proven business model to our client focus to our financial position allowed us to generate record operating earnings of $1.23 billion and record operating revenues of $10.1 billion for the year.

Now I'll provide you some commentary on our business segments, and then I'll give you my thoughts on the year ahead.

First, in our advice and wealth management segment, we delivered another strong quarter and our most profitable year ever.

The market volatility and low rates seem to be affecting firms across the industry with clients once again seeking safety and moving to cash and other low-risk options.

Still, our advisors generated good quarterly production and a record $384,000 of annual operating net revenue per advisor.

We've generated strong client asset flows, highlighted by $1.4 billion dollars in wrap net flows for the quarter and $7.3 billion for the year.

We also recorded our third consecutive quarter of growth in the number of advisors.

Our long-term work to reengineer our advisor platforms is largely complete and has given us the lift in advisor productivity that we anticipated.

At the same time, we stepped up our experienced advisor recruiting efforts and generated good momentum with 105 advisors joining us during the quarter and a total of 337 for the year.

The momentum is continuing into this year.

In fact, January was one of our best recruiting months ever, with 52 recruits joining the firm.

In the quarter, our margins in the advice and wealth management segment decreased slightly as a result of our increased investments for growth and slowing client transaction activity due to market volatility.

Even in the difficult operating environment, we're investing in the business.

Beginning in September, we increased our national television advertising presence, and we're finding that the ads are resonating well with consumers.

We're also continuing to roll out our new brokerage platform, which is a major multiyear investment.

The conversion has gone smoothly for our employee advisors, and now in the process of converting franchisee advisor systems, which is the larger part of our overall network.

The brokerage platform investment will continue at a fairly high level this year, but we expect the process and related expenses to wrap up in 2012.

We're also investing in new avenues for long-term growth, including the launch of a financial planning business in India.

[That palate] with India advisors bringing our holistic approach to the Indian consumer is off to a promising start.

In addition, we will soon open a new operations site in Las Vegas where we have been able to take advantage of a good labor market and low real estate prices.

Our building there will house several functions, including advisors, technology support staff, and client service people.

We continue to invest while we're beginning to tighten our management of discretionary expenses to offset potential market volatility.

We're doing that across the firm, and I'll comment further on this topic in a moment.

Now I'll move on to asset management where the fundamentals remain solid and our growth opportunity is quite attractive.

For the quarter across the segment, we generated $4.3 billion of net inflows.

That number includes the $14 billion institutional mandate Threadneedle One from Liverpool, Victoria, which was one of the largest single pieces of institutional business that went up for bid in the UK in 2011.

Apart from this significant win, as we mentioned during our financial community meeting in November, we experienced $6.7 billion in redemption from low revenue from low-revenue former parent accounts.

We expect some lumpy outflows to continue, including about $4 billion of former parent-related outflows in the first quarter, and an additional $3 billion of these low-margin assets as the year progresses.

We also still expect to lose the previously announced $1.8 billion outflow from the New York 529 Plan at some point this year.

It's important to note that the vast majority of these expected outflows from former parent account should be completed this year.

Retail assets remained a significant challenge for the industry, with almost $50 billion in net outflows from domestic long-term equity funds in the fourth quarter alone.

We remain in net outflows in retail funds at Columbia primarily because of weakness in sub-advised accounts, which accounted for $1.3 billion of net outflows in the quarter.

That said, we are seeing significant improvements in sales early this year, particularly in our focused funds.

As a result, we're generating net inflows in certain fund areas that are in significant outflows in the industry.

The institutional business is also making progress, especially in third-party channels.

We have won several mandates that have not yet been funded, and our pipeline of potential new business continues to grow.

In terms of investment performance at Columbia, our shorter-term numbers dipped somewhat, but our longer-term record remains strong.

We're seeing good improvements in performance early this year.

In fact, Columbia generated very strong performance month in January.

Internationally Threadneedle continues to generate strong results with excellent investment performance and reasonable flows, given European market conditions.

I should note that Threadneedle also retained a mandate to manage substantially all of the Zurich assets through a competitive (inaudible) process.

Like Columbia, Threadneedle is off to a good start this year with good net inflows in January.

Overall, we feel good about our positioning in global asset management and what we have created with Columbia.

The integration will be complete in the quarter.

We have our wholesaling teams fully engaged across the country, and they have strong performance to back their efforts.

And we're developing new business collaboration between Columbia and Threadneedle to drive global growth opportunities.

Now I'll move on to annuities and insurance.

The annuity business continues to perform in line with our expectations, both in terms of sales and risk.

In total, the variable annuities business generated net inflows of $227 million, and the Ameriprise channel delivered net inflows of $442 million.

Overall flows continue to be impacted by our decision to exit outside distribution of variable annuities, and we continue to feel good about that decision given the interest rate environment and the current risk-return parameters of the business.

With regard to fixed annuities, we continue to be in net outflows because we have not put new product on the books, due to the low rates.

Walter will discuss this in more detail.

Overall, both the fixed and variable annuity books continue to deliver solid returns, and our risk is well managed.

That said, we recognize that the economics of this business are changing.

To accommodate the changes brought on by the years of near-zero short-term interest rates, we've decided to raise fees on new variable annuity writers, and we have communicated the decisions to our advisors.

The higher fees are likely to dampen sales in the short term, but we believe this is the right move to ensure we can continue to meet the long-term guarantees in many of our annuity contracts and deliver strong shareholder value from this business.

In addition in the second quarter of this year, we will introduce new variable annuity products that we believe will meet client needs while providing sustainable economics.

In fixed annuities, with low rates continuing, and with the Fed's operation twist last year, we expect spread compression to continue in 2012.

The protection segment delivered strongest quarter of the year, primarily from improvements in auto and home results.

That business returned to more normal claim levels, and is once again generating solid growth in profits.

Auto and home policy accounts continued at a steady increase, up 7% over a year ago.

In the life business, while clients continue to be reluctant to commit cash to long-term contracts given the tough economy in volatile markets, we have seen some improvement in sales.

We generated good sales of our new indexed universal life insurance product, which meets an important client need in volatile markets.

During the quarter we were recognized by Insure.com as the number-one life insurer in terms of client satisfaction, and those kinds of accolades serve us as good sales through for wholesalers and advisors.

In total, life insurance in force remained essentially flat at $191 billion.

To summarize, 2011 was a very good year for Ameriprise, despite significant environmental challenges.

While the economy in the US is slowly recovering, the market environment remains quite challenging, and I think you are seeing the impacts across the broader financial services industry.

Even with our recent bounce back equity markets are exceptionally volatile.

Interest rates will likely to remain near zero for three more years, and the regulatory environment is changing rapidly.

We are very conscious of the environment and its effect on our revenues.

Expense discipline has long been one of our core competencies, and we are further stepping up our expense management efforts now.

We're taking a close look at all discretionary spending across the firm to ensure we're operating as efficiently as possible.

That said, we're continuing to make important investments.

For the year and beyond, we are focused on a number of initiatives that we believe will drive the business forward.

I'd like to briefly review just a few of them.

We're going to emphasize our retirement capabilities through our advertising and a new approach to help our advisors discuss retirement with their clients.

You all know that the retirement need is very large.

We think we are ideally situated to meet the holistic needs of people approaching this milestone.

Second, we'll continue to invest to help advisors become more productive and to bring in highly productive, experienced advisors.

We're providing the technology and marketing support advisors need to serve clients efficiently and bring in new clients.

Third, in asset management, we're focused on flows and broadening our distribution.

We believe we have the investment performance to drive improved flows, and we've emerged from merger- related impacts in the US.

Now we are investing to build a Columbia Management brand and to promote our investment performance.

At the same time, we're broadening our distribution reach to new markets, with Threadneedle making inroads in the Middle East, Continental Europe, and Asia.

Overall, we are uniquely positioned to take advantage of the extremely compelling consumer need for retirement products and advice.

And we have the financial strength and talent to realize our opportunities.

So we will continue to invest to drive long-term growth and shareholder value.

We have demonstrated our ability to succeed in good times and bad, and I believe we are in an excellent position to navigate this period and emerge stronger, just as we did following the financial crisis three years ago.

Now I'll turn it over to Walter.

Thanks, Jim.

Operating earnings in the fourth quarter clearly reflected the challenging environment.

While equity markets have rallied about 5% in January, market volatility will remain with us in 2012.

And is it clear that interest rates are unlikely to increase until 2014.

Looking at revenues in more detail, you can see that excluding the hedge funds fees, revenues would have been about flat to last year.

The underlying slowdown in revenue growth reflects low client activity from weak market sentiment.

Clients are increasingly focused on capital preservation and generating income.

This impacted revenues in two ways, lower transactional volumes and an increase in cash balances.

How long this shift in behavior continues is difficult to predict.

Revenues were also impacted by low rates with net investment income down 4% from last year.

However, the underlying fundamentals of the business remain strong, with a growing advisor base and good asset growth.

From an earnings perspective, operating earnings per share grew 2% despite lower revenues, as we managed expense levels and continued to make substantial investments in brands and technology.

We also realized synergies from Columbia integration and saw good improvement in auto and home results.

Turning to slide 4, operating return on equity in the quarter increased 13.1%, compared with 12.9% a year ago.

As a reminder, we calculate return on equity on a trailing four-quarter basis.

We saw a big swing in DAC unlocking and model changes year-over-year.

Excluding these impacts, underlying return on equity grew from 12.5% to 13.4%.

As we look ahead to next year, we are on track to hit the 15% to 18% range we provided in November.

Underlying our return on equity is our strong balance sheet fundamentals.

Our hedge program is effective.

Our capital ratios are strong with debt to cap of 18.5%.

The investment portfolio is high-quality.

We had only $11 million of impairments in the quarter, and as we have said, we have no holdings of sovereign debt in financially troubled European countries.

Turning to page 5, we ended the year with over $2 billion of excess capital and about $600 million of debt capacity.

In 2011, we returned $1.7 billion of capital to shareholders, or about 135% of our earnings.

We received $2.1 billion of dividends from our operating companies this year, with most of that coming from our life companies.

In the fourth quarter, we received $850 million dividend in the form of securities from the Life company.

These securities are highly rated and very liquid.

This additional dividend will reduce investment income at the Life Company by about 2%.

As for the dividend, the RBC ratio remained strong at 490%, which was our targeted level.

Turning to segment results, starting with advice and wealth management.

Operating earnings and advice wealth management decreased 14%.

We continue to see good asset growth and retention, with wrap net inflows of $1.4 billion in the quarter.

However, earnings were impacted by a slowdown in revenue growth from a decline in transactional volumes and from clients holding more cash.

This is a trend being experienced throughout the industry.

Cash [sweep] accounts increased to $15 billion, and we are currently earning just 42 basis points.

In the quarter, we continue to investment since by launching our new brand campaign, and the development and implementation of our new brokerage platform.

The new platform is expected to be complete by the fourth quarter of 2012.

In total, gross investments were about $14 million higher in the quarter, and we would expect that elevated level of expense to continue through 2012.

Turning to asset management, asset managed earnings declined $36 million, primarily due to hedge funds where earnings were down $21 million year-over-year.

The remainder of the earnings decline reflects the expected impact from both markets and outflows.

Expenses, excluding the hedge fund impact, were about flat year-over-year and includes funding additional brand investments.

Adjusted net operating margins were 31.4%.

The Columbia integration is progressing well, and we realized net synergies of $130 million in line with our target for 2011.

The technology integration is on track for separation in mid 2012.

Annuity earnings were up a bit this quarter, however, we see different trends in variable and fixed annuities books.

In variable annuities, operating earnings grew 13%, excluding some favorable adjustments.

On a year-over-year basis, the DAC and DSIC impact was about the same, given very similar market performance in each period.

We had client inflows and also had $10 million of favorable items, including improvements to our models, and in the market impact on our debt [benefit] reserves.

Variable new sales in the Ameriprise channel declined 9%, compared to sales a year ago when we introduced our RAVA 5 product.

Net flows in this channel were about $442 million.

In the quarter, we also announced plans to increase fees on variable annuity new business.

We believe this is an appropriate action to reflect the change in economics for that product.

In fixed annuities, operating earnings declined 32%, which includes an unfavorable adjustment to the reserve for index annuity contracts.

As we previously indicated, we expect fixed annuity earnings to decline as we invest assets at lower yields.

The incremental annual negative impact will primarily be about $35 million after-tax for all Ameriprise.

And as I mentioned earlier, the reduction of investible assets at the Life Company will add additional pressure on net investment income.

Let's move on to protection.

Operating pretax income in the protection segment increased 30%, driven by improved earnings in auto and home, and stable earnings in the life and health area.

Auto and home revenues increased 6% over last year, primarily driven by growth in sales to our partnership with Progressive.

We saw improvement in trends in auto and body injury claims, which are back to more normalized levels.

In closing, we delivered strong results in 2011 and continue to demonstrate our ability to be successful in a range of market conditions.

As Jim said, we're managing for the short-term, but we are focused on the long-term.

We have strong financial fundamentals and will continue our focus on enterprise risk management to drive shareholder value.

With that, we'll open it up to questions.

Thank you.

(Operator Instructions) And our first question comes from John Nadel from Sterne Agee.

Please go ahead.

Obviously a lot of margin pressure in advice and wealth management and in asset management this quarter.

9%-ish in A&WM, and maybe just shy of 17%, ex items in asset management.

I'm just interested in the 12% target and the 23% target for those two segments respectively.

I know client activity, etc., pressure points, how -- I guess my question is are those targets achievable, and over what time frame?

John, this is Jim Cracchiolo.

I'll respond first, and then Walter can complement.

If I look at the AWM segment, we were hit with a bit of impact due to the market volatility.

Fees were lower, our wrap business went down a lot in the third quarter because of market depreciation.

Our underlying flows are still fine.

That started to come back in the fourth quarter, but of course, you're taking the fees for every month during the quarter, and they would've been impacted.

And second, I think if you look at -- and a number of companies already reporting, and in the industry, a lot of client activity did slow in the fourth quarter, whether you look at the retail firms, the direct firms or the wirehouses because of the market volatility.

It does impact client behavior, so even though we're sitting here now in January and the markets are back, during the period, if we recollect in September, August-September, things were looking pretty ugly again.

And it does give people pause, and there is a large amount of volatility in October, November, et cetera.

So we're no different.

Our client activity is looking at CNBC and the news and looking at how many times that stock index moves up and down and the European crisis and the political climate that is out there.

And so, now, will that come back?

If things start to again continue to show stabilization etc., the answer will be yes.

But it does hit our topline revenue.

Now in addition to that, what we thought appropriate so is we are investing in a multiyear platform.

We didn't want to slow that down, and so we started the conversion to our franchisee system, integrating in the full brokerage to all of our other systems and capabilities and going through that conversion that will continue through this year.

As we get to the fourth quarter, it will be pretty much complete.

That was a step up a bit in investment.

We also are investing in a number of other things to continue to build out our systems, mobile, et cetera, apps, and a number of things that funds get committed before, and you've got project work going on before, you can tell what the market is going to do.

Yes, I understand that.

If I could just interject.

If I think about that $14 million year-over-year higher expenses on those items that Walter had mentioned, that is about 150 basis points as I calculated on the margin for the segment.

So, I guess in other words, should we think about the remainder of the difference to your 12%, which is about where you were the last couple of quarters, as being just, we have to watch.

We have to see consumer sentiment.

We've got to see transactional volumes and client activity pick back up and we regain that difference?

Yes, we will regain that because remember, our systems development was through the year.

We had a little more, a little extra in the fourth quarter, but it was through the year.

The only thing incremental was the relaunch of our new campaign, which started in September, and we had a full-year impact.

Now we are going to continue that campaign through the first quarter, and then we will evaluate how much we spend later in the year.

But I would say this, we do have the ability to control some of our discretionary expenses that we are looking at.

I do believe, again, I can't dictate the markets and client activity, but I would say -- I am still would say we will be in the 12% margins this year in the AWM business.

So, I don't look at that one quarter as an issue.

I would actually say there is strong underlying growth; indicators are there.

Advisors are not going to stop their productivity, but clients do have to get a little settled.

So, I feel good about that segment, and I feel good about what we are doing in it.

And as I said, the investments we're making, they will start to roll off like the technology this year, and there will be a big upside because we're running two systems.

We're converting thousands of advisors, and we're doing a lot of systems development.

And some of that -- a lot of that was in last year's P&L, and we still got good margins.

So, once that rolls off, it will help tremendously.

In the asset management business, to be very clear on that, we have a level of depreciation.

We've lost a number of assets because of equity markets weren't the best to get the flows where we thought we would get.

The parent stuff, I know people look at the volumes of those dollars, but we always thought that we would lose them.

There are not a lot of fee basis.

And so, I would say that 23%, no, I would probably put it more in the 20%, 21%, based on just where markets are, because I think that compressed us where we thought things would improve in the market situation.

Again, if markets come back, it will be a different story, but if we're thinking about that on a relative sense today, that is probably more where I would target it.

Having said that, I do see some underlying things changing around there.

Now, flows in the industry aren't great, but Threadneedle is doing good, I think Columbia is starting to gain some traction through its third-party, and institutional and retail is outflows are slowing.

So, we'll get over the hump of the parent stuff.

I identified it just as I told you in my talking points, so that no one is surprised in it.

But those will be lumpy, but at the end of the day, again, I think we are making a good underlying traction.

Thank you very much for all of that.

Just one last quick one.

Is your buyback currently curtailed, or is your buyback, is it operating just at a lower level than we have been accustomed to?

Yes, we did not curtail it.

Again, going into the fourth quarter -- now looking back you can always say, yes, markets, hey, why did you do that?

But markets were a bit more volatile.

We're looking at what it looked like.

We did a substantial amount over the course of the year, and we're also looking at potential opportunities at the same time, but no buyback is not curtailed.

We will continue it this year.

We just adjusted it depending on at the same time, we don't have a perfect crystal ball on things.

Understood

And let me just add to that, if you looked at the share price, it went from [$37 to $50] in the quarter, and so it was completely volatile.

We actually purchased on the average, but as Jim said, it was just looking at a pretty volatile market.

And in retrospect, you can always say you could have bought more.

The reality is, I think we bought appropriately, but no curtailment.

Our next question comes from Suneet Kamath from Sanford C.

Bernstein.

Please go ahead.

I wanted to follow up on John's questioning on the margin.

I'm actually surprised, to some degree, that you feel comfortable with the 12% advice and wealth, and you're lowering asset management.

And the reason is, you reaffirmed those targets, or those objectives in November at your investor day.

From investor day to the end of the year, I think the markets were higher in terms of helping the asset management, I get the fact that client activity is weaker, but again, you're affirming the 12% in advice and wealth.

So, I'm just trying to understand what is the delta between what you said in November in terms of asset management and what you're saying now.

I think, it's Walter, as you talk about looking at it from that standpoint, certainly, the markets have rallied.

And as we've seen the volatility with it, if you just take a straight line projection up, it is certainly, as Jim said, you might get to a higher number.

But it is challenging for where these markets are.

And the more you get shifts coming in and out of that nature, it does affect us from the equity and the fixed income flip.

So I think that is really where, because that is where the leverage is going to go in and out.

It is just this volatility in the market, it is just at a pretty steep basis.

And so I think that is where you are seeing us be a little cautious on that.

Okay, and then maybe getting back to advice and wealth, then.

12% is a pretty big lift for the year, I know you touched on it in answering John's question, but what specifically, do you think gets you from where you are today there?

Is it really a throttling back of some of the advertising expense beyond the first quarter, or what are the big levers that you have to get to the 12%?

Well, I think -- so, let's look at it.

From a perspective again, I cannot predict activity during the quarter and fees.

So, for instance, if you say -- and that goes for the SNM.

If you say the markets are down just continue to grow, go up from here, or even manage stability from here, and rise, then we're talking about a different story.

Our forecast, our projections just based on last year was we didn't take that ride.

It was up, it was down.

And you don't get, on average, the fees all the time.

So part of our difference maybe from what you are looking at is that if we are here and we are continuing to rise on a nice even slope, that is one thing.

If you've got a level of volatility it is another thing.

In regard to the margin itself, I do believe we can manage some of the discretionary expenses.

I think we are going to set some internal targets to tighten up on some things that are nice to do and nice to have.

But if revenue is weak, we got to adjust that.

At the same time as I said, we want to complete some of these investments like the technology, get it behind us.

That will help our margins in the future.

Interest rates also affected us a bit more when Bernanke we were using even the yield curve last year.

That took a little out, so we want to make up for some of that by tightening expenses.

Now, will revenue rise as much because, maybe not, but I can still tighten the margin even if revenue's a bit lower.

So we are guarding against the revenue weakness.

If the markets come back here and stay stable, then I think we'll continue to show the rise we did in the first few quarters of last year.

If it doesn't, then I need to tighten the ship a little bit.

Understood, one quick follow-up.

When you said earlier that you expect to hit 12% margin in advice and wealth in 2012, is that for the full year, or are you saying by the end of the year?

That is for the full year.

That was the expectation.

And that is still your expectation?

With the caveats that Jim mentioned.

We can't guarantee anything.

What we are saying is we are still trying to shoot for that, and we have a number of things that we are working on to help make that happen.

Our next question comes from Andrew Kligerman from UBS.

Please go ahead.

Just following on that last line of questions then, it would imply to get that 12% margin, you would need to use these discretionary spending initiatives to maybe cut 15 -- at least $15 million a quarter in expenses.

Is that the objective?

And maybe Jim or Walter, a little more clarity on those potential initiatives?

I haven't done your exact calculation, but it is a combination of certainly, as Jim said, as you look at the revenue and on managing the expense based upon that revenue base, so, yes, I think we have degrees of flexibility in that.

I haven't done the exact calculation the way you've done it because it is a combination of factors to go through.

Anything specific you could lay out that you could cut, Walter?

It really what it is across the board is this, we have -- we do a lot of technology spend for enhancements, new initiatives beyond the brokerage platform conversion.

There are numerous programs from a marketing and support levels that we have.

There is a number of things that we truly invested in and enhanced in training and setting up new initiatives like on boarding or all-new advisors and even increasing our advertising there.

So there are a number of different things that we have done that we could tighten a bit, depending on what the market situation looks like that would be helpful in this environment, controlling some of our staff expenses that got charged in from the different units into the AWM business that we can tighten.

And, listen, when we were growing in a number of areas et cetera, we wanted to continue to invest more heavily.

We had a big investment agenda, and we'll might just have to temper that a bit and tighten it.

And we've been used to doing this.

We've always reengineered.

We have a number of new initiatives that are resources.

We're consumed with the integration of Colombia that we are freeing back up that we can work on again, reengineering and moving things and enhancing the way we operate and process.

And some of the things we are looking to do will help in that line.

So, listen, this is part of what we need to do.

This is part of what we have always done.

Again, I'm not putting the 12% as a firm thing, as the most important objective.

I'm just saying I think I have opportunities, and we are still believing that we are growing the advisor force.

We're growing ways that they can deepen their relationships.

We're introducing things that, hopefully, will help them deepen and gain more assets.

And so, some of it will come from revenue; some of it will come from expense tightening.

Okay, and then maybe just shifting gears to the asset management area, particularly Colombia, where the one-year number per year above average LIPPER numbers, it went from 62% asset weighted in 2Q to 56% in 3Q, down to 38% in the fourth quarter, and that dragged down the three-year number as well.

Could you give a little color on where you expect that number to go in the near term?

Is there some -- what is causing that struggle and performance, and what do you think the implications are for retail net flows?

So, there are two things that occurred then, and I will give you a little more color to it.

In the one-year performance, what occurred is that we had a number of our domestic equity funds falling a bit below the LIPPER mediums.

The differentials between the second and third quartile were very small in 2011, and while we underperformed, since it was so small, we can make up that ground, in most cases, quickly.

And January is already showing that that has come back around.

And so we think that will start to show improvements.

The big change was we had one of our funds move below, and it was a big fund, move below the medium.

And that was because a good quarter rolled off and a bad quarter rolled on, in the sense of hurting that.

But, already January performance is good there as well, and we are hoping that will start to turn its colors as well.

But we think it has a lot to do with that movement, so to speak.

And our investment people are feeling good that there is an ability to continue to see improvements, there.

Got it, and just lastly, M&A, it seemed like you were alluding in an earlier question to the fact that you're looking at opportunities.

Do you think that the environment has heated up a bit in terms of opportunities, and in what areas, asset management, advice and wealth management?

Well, I think you're seeing a bit more level of activity out there in the asset management world.

We will continue to look at potential opportunities.

It doesn't mean there is one for us.

But we will continue to look and see if there is something that is good that we could potentially do.

And we have the flexibility to do that, incremental to what we are doing now.

We will continue to look at the buybacks, as I said, as part of what we are going to continue to execute on.

And we are going to continue to review our dividend policy as well.

We did another raise at the end of last year, and so we are going to look flexibly at how we can create shareholder value using the strength of our balance sheet and the free cash that we continue to generate.

That is why, as I look at the fourth quarter, it wasn't what we ideally would want, but having said that, I think if you look at the under line of what we've been able to invest and what we've been able to do, and even though one can estimate what that will always be the next quarter.

I think if you look at the underlying things we've just accomplished over the last few years, we want to continue to build upon that.

And we're going to continue to work hard to do that.

Our next question comes from Alex Blostein from Goldman Sachs.

Please go ahead.

So, just to go back to the margin discussion and AWM, and I understand that you aren't -- it is hard for you to predict the environment and the markets and level of the productivity, et cetera, but it does feel like you guys are bringing in higher producing advisors in the employee channel, where you have plenty of capacity and the incremental margin on that should, in theory, be higher.

So, taking that into consideration, do you think there is some room for slow margin improvement from this 9% to 10% level, assuming markets don't really change from here?

Yes.

I put the yes complement to what I say, but yes that was another thing you just pointed out.

Very clearly, we are adding a lot of productivity from new people joining us.

It takes time to ramp up.

The ones that we've added two years ago are ramping up nicely.

The ones we added last year will help to ramp up this year.

So and we are accelerating the number of people we brought in towards the latter part of the year.

And then on asset management, so you told us about the same redemptions I guess at the investor day a month-and-a-half ago.

So, net-net you're probably seeing maybe $8 billion to $9 billion of still redemptions come in that you know of in 2012.

But then you guys also talked about an additional pipeline that was pretty good, and there is some mandates that you want that haven't funded yet.

Can you quantify those and when do you think those are actually going to fund?

As I said, we have some fundings already coming in, like in our Threadneedle area.

And in the Columbia area we have some good wins that we won in the fourth quarter and December et cetera, that we think will be funding in the first quarter.

We have others that were in the pipeline for the -- we are bidding on; the pipeline is quite strong.

So, here again, I can't give you numbers, per se right now, but I would just say that the improvements are there.

We think that we will win.

Again, if you adjust for these parent stuff that I've just mentioned, I think that this will be one of the areas that we will look for improvement and growth this year based on the traction that we are gaining.

Okay and shifting gears a little bit on capital management and potential acquisition opportunities for you guys.

So on an operating earnings basis, you guys paid out, Walter you pointed out 135% of your total operating earnings between the buybacks and dividends.

Given the slowdown in the fourth quarter, but maybe we should think about it more on an annualized full-run rate basis, is that the total payout that you guys are thinking about for 2012?

That's question number one, and then the follow-up to that on the M&A side, I guess what areas in asset management do you guys still feel you have some product holes calls that you would need to fill?

Alex, we don't set a hard, fast target, but we have about, as of the end of December, about $1.45 billion left in the authorization, and that spreads over approximately six quarters.

So you can get a pretty good idea what the standard or some [planning averages] is.

And then as we said, we will be opportunistic about it.

So, really while we bought back $250 million in the fourth quarter, we didn't feel that was really retreating from it.

As I indicated, it was extremely volatile market, so we will just gauge that.

But certainly, and I don't forecast the earnings, as we look at it, it is, we do [gear] and we do understand that.

As Jim said, we are looking at which way, whether it is dividends or it is going to be buybacks.

So, those indication should get you some comfort zones of where the minimum standards are.

Okay and the product holes potentially?

I think we would like to continue to grow our international businesses.

I think if we look at the US, it is not so much product holds, per se.

We could probably take on, now that we've completed and upgrading our systems, etc., and we have good things in place, we could probably take on more assets and expand a bit more there in some of the areas.

So it is more of what would help us to continue to position ourselves well and gain from the position that we put in place, even gain some more profitability and revenue.

So, I think that is what I would say.

If you're looking at areas to expand in, it would mainly be more international than domestic.

If we're looking for more of an ability to consolidate onto something we've built, it would be more on the US.

Our next question comes from Jeffrey Schuman from KBW.

Please go ahead.

I think we hit the wealth management margin pretty well.

I maybe got a little bit lost on one of the asset management margin comments.

In response to John's question you mentioned 21%.

I wasn't clear if you were suggesting that as possibly a relevant aspiration for 2012, or whether that is the new 23% longer-term more basic aspiration?

No, I was just commenting on 2012.

Again, I can't, I'm not here to predict or project my actual numbers because again, a lot goes into it.

If we had a good read on markets and what goes into -- happens in equity and whether there is a shift back around and flows in equity, I'd be able to sit here and give you a better calculation.

But I think just off of the top of our heads here, in thinking about the 23% and based on what we've been seeing and have, we adjusted that in our view right now for 2012 not for the longer-term.

Okay, well that is very helpful, Jim, because we have seen a lot of margins over time, and I think for a period, we operated under some pretty clear goalposts, and you were advancing on those goalposts.

I think we were all on the same page.

And over the last couple of quarters, we've all gotten a little bit disoriented.

Understanding that things are fluid, it is still very helpful that you have given us some sense of where you could be in 2012.

No, I agree with you.

And as I said, if we go back a few years on the AWM, we accounted on getting a lot of margin from interest rates rising to get to the 12%.

And as I said to you, we're trying to shoot for that 12%, even in these volatile markets with heavy investment without that interest margin.

So, if Bernanke changed their view of the world, you're talking about a substantial improvement there, that we've just again put off again for another year-and-a-half because of his latest views.

So, these things are a bit fluid.

The markets are a bit volatile.

When they go down in Europe, you lose flows.

When they come back, you start to gain them again.

It's not like it is a consistent feeling that anyone has.

But it is fluid, but the underlying focus has not changed.

I want to be very clear to you, both the analysts and investors, it has not changed.

We are working hard on it, and as I said, we will continue to look at using both the balance sheet flexibly, as well as some of our current day spending in investments.

There are just some things I won't curtail, because we are halfway through them, and I think they will make --pay good dividends after we are finished.

That is all very helpful, and just one other thing if I might.

Can you just -- it is pretty clear that you probably have gotten some good traction building your brand, I think with customers, and certainly for a while the brand was attracting advisors.

Can you give us an update on how the brand is positioned in the advisor world?

Are you still drawing people in the same way you were post-financial crisis, or has that moderated, or how is the momentum, I guess?

No, actually the momentum is good, and we've ramped up our efforts last year, the latter part of last year.

Pipeline has built.

We started to even -- part of the increase in expenses, we started to actually put our name out there in trades as recruiting.

We never did that before, because we never recruited before.

So we ramped up our advertising there.

We have a good pipeline, as we said we have added 52 people in January, which is our strongest probably ever.

Productivity of the people we are adding is higher than it was.

Also, our brand just so we know, the brand launch that we did, the advertising, and a number of research things that we've looked at, it was the number-one rated financial services ad in the quarter.

And it is really hitting with the consumer.

So, that is why we want to continue it through the first quarter as well, and then we'll see where we go, but Tommy Lee Jones and those ads are excellent for us.

It is telling our story.

And the retirement market is going to be here through this volatility, and then need is going to be there.

And so that is why, again, I, even though we've weakened a bit as you saw the results in profitability in the quarter, I'm feeling more optimistic about that segment and business.

In the asset management business, for everything we put in place, I feel good about everything that is underlying that we have in place, but having said that, you saw the industry flows over the last year.

And there is only a few places where people are getting inflows, and it is usually a targeted area, a targeted fund, a global bond, or something like that.

It is not in any large case across equities or a large case across all areas.

Our fixed income is starting to pick up again, which is good.

We are starting to push that a little bit more as part of our focused sales.

So, listen, I think if the environment continues to stabilize and improve, I think we are in good shape.

Nothing has changed fundamentally from what I told you in November, nor what I told you a year ago.

And I think we are continuing to gain traction.

And the one other thing I will tell you, and don't underestimate, is the idea that we are freeing up more capital.

Our capital requirements are continuing to go down.

We are continuing to work on those things even more, including in our annuity business.

The decisions we make there we think were excellent in that regard.

And we are going to continue to put some new fund -- products out that will continue to help that in more volatile environment.

So, listen, I think the markets will be the markets.

The environment and such, quarter to quarter I can't do your modeling.

But I would say that if you are looking at this as an underlying strength and core investment, I think we are in good shape.

Our next question comes from Tom Gallagher from Credit Suisse.

Please go ahead.

First question, Walter, just on your ROE guidance on slide 4, 15% to 18% ROE, accounting for the DAC change, that implies a range of, let's just call it approximately $570 million to $670 million, pretty broad range.

Is it safe to assume, given what you're telling us about asset management margins, that you're going to be at the very low end of that range?

Or can you give a little bit of perspective about the puts and the takes there?

Can you help me, Tom, a little on when you said the -- 15% to 18% is certainly what we said at the financial community meeting, but I didn't catch the point about the $570 million?

Sure, just, Walter, I was just calculating looking at what your adjustment on book value is going to be, assuming some growth in book value throughout the year.

I'm just applying -- $570 million would imply a 15% ROE, a little over $670 million would imply an 18% ROE.

So my question for you is very simply, in lieu of what you have told us about asset management margins being below previous range, is it fair to say that we should expect the absolute ROE for 2012 to be at the very low end of the range, or can you help us, just give us a little bit of sensitivity around expectation because that range is very wide?

Anyway, any light you can shed on that, just broadly speaking?

The range, well actually the range is basically it's the same width as we had before, it is the 12% to 15% -- 15% to 18%.

The again not forecasting here, certainly, with the understanding as we just said, the mix of the business and things of that, I believe that we are in certainly a reasonable above the 15%, and it's again, depending on what takes place, we should be able to move into reasonable safe territory.

Again, I just don't want to forecast it, but certainly I feel that making the statement that we will be in that range with these challenged events I think it is a good statement.

So, remember we are still finalizing our EITF and going through there, and from that standpoint, so those factors are coming in, but the business shift is taking place.

And I think that we see a good trajectory to get us into those ranges, and that is why I said it in the comments.

That's helpful.

So you feel like comfortably above 15% at this stage in the game?

Got it.

We feel that we will go above the 15%.

Yes.

Sure, the next question I had on the asset management margins, is it fair to say that the reason you are expecting subdued margins, at least relative to plan for this year, is really just simply because you're seeing no momentum on active equity management, which is your highest fee business, so when you are seeing recovery in flows, it is going into low fee fixed income.

Is it really just that simple at this point?

I think it is actually, as Jim is saying, because as we know with the volatility that takes place, and certainly we are driven more towards equity, we are trying to evaluate the implication of that, because when you get this much volatility, it does -- we will get reasonable share to fixed income, the profitability for us is higher end on the equities side.

And so in these markets, it certainly has not been as conducive.

So, we -- that's exactly where we are positioning.

Again, it has been extremely volatile.

Certainly as we indicated, the rates have gone up 5%.

And you can start saying to world, this takes off from here, that's great.

But that is not what we are seeing, and that's not -- it is difficult to calibrate off that.

That is exactly where it is.

I think as Jim said, we are getting flows and things of that nature, but the issue is this mix, and it's really the volatility in the market.

Got it and, then, Jim, just last question, circling back on advice and wealth management.

I hear everything you said about the dampening impact of client funds, moving into cash, slowdown in client activity weighing on the margins in 4Q.

What have you seen?

You talked a bit about what you have seen thus far within asset management.

What have you seen in advice and wealth management so far year-to-date?

Have you seen any recovery in client activity in sales?

And have you seen any mix shift moving back out of cash, or is that still likely to pressure things into 1Q?

Well, I think you've got, again, two things.

One is you see an increasing back of fees again because markets have recovered a bit.

And as I said, we didn't see people pull money.

We just didn't see as much money get continued investments into the equity funds et cetera in the fourth quarter.

So, I think if things continue to show what they are showing, we will start to see it move back.

I also believe that people, today, I don't think you're going to see a spurt back in anything.

I think you could see some things happening across the industry where things have settled, but I think it might take a little time for it to start to get back to more normalized.

Well, I don't even know what normalized is anymore.

It is more of how long are you in a more stable, less volatile period for people to feel comfortable.

So, January, it is early yet.

I really don't even have all the information for January in, for me to give you a better read.

I would just say on a fee basis, it should be better because the markets have come back.

On a transaction basis, I think it hasn't gotten worse, so I think it is starting to stabilize.

And maybe it will start to prove if this continues.

But I think it is still early in the quarter for me to give you a read.

Our last question comes from Eric Berg from RBC Capital Markets.

Please go ahead.

Jim, I would like to return first to Suneet's question.

If the markets have been so volatile, affecting retail activity and affecting willingness of people to invest in mutual funds as well as institutional flows, and that was true all of 2011 and has continued into 2012, why the change now?

In other words, my thinking is that was the case as of investor day, so, as of your financial community conference so what has happened between then and now that would lead you to revise downward, admittedly for 2012 only, your margin guidance for the -- or your thoughts on margin in the asset management business?

What has happened in the last few weeks, is really what I'm asking?

So, Eric, I think -- let me, because I think you embedded two things, one is some of the retail thing that I said and the asset management.

So let me separate the two.

First of all, I do believe there was nice improvement last year in level of client activity and engagements with the markets.

I think where we saw a fallout earlier in the year in Europe that affected European flows in the asset management, but didn't really affect retail flows here in the US in the AWM business.

That changed when the market really collapsed in the third quarter and was collapsing.

So, people don't look at the first time it goes down, they look at the added effect of that, and then they start to pull back and get concerned.

But what if it went down another leg and fell from 1100 to 900 et cetera.

I think that is what happened.

I think if you look at all retailers across the industry that have reported, you will find 15% down in [darts] or transactions or fee levels, and I think many of them have commented.

So, we are not an outlier there.

We probably fall a little less, but it takes us a little more to get back quickly based on just client activity.

But I don't think we are an outlier there at all, and I think you can see that if you just look at other people and what they have said in their reporting and what has been published on the industry.

In the asset management business, as we looked at the numbers, et cetera, what we are continuing to see is that there isn't a big move into equity funds.

And now if that changes, maybe based on what is happening and settling in Europe, but when you don't get a lot more move into equity funds, particularly in the retail business, that's your higher margin business.

And when you continue to add that up, and also when you assume that and I'm, maybe it is a wrong assumption on my part, but I'm just assuming continued volatility that we saw last year.

And so, when you start to think that way, it does impact your fees.

You can't adjust your costs consistent with that up and down.

You need to continue to drive forward, and so I think you'll find that when you do that, and you take some revenue out, even though the market may end up higher, you start to compress because you have a fixed expense base.

But given that Columbia with RiverSource now is such a broad and vast complex, I would think you would have what some people have called an all-weather portfolio.

And that if customers don't like equity, well you have a broad portfolio of both municipal and taxable bond funds, and I would think you would be seeing strong flows there, and that net-net you would be okay.

That will be my last question.

Why are we seeing outflows in retail is my last question?

You get my point.

Yes, so, Eric, so I would say last year we didn't actually garner as much in the fixed income, because we got really hit, particularly in our tax-exempt at the beginning part of the year for places like the US trust business.

I think that is starting to come back.

As I look at new sales coming in right now, tax-exempt has picked up.

Fixed income has picked up.

We've actually -- we are selling and focused a lot about selling equity.

I think the wholesaling and the distribution in the pipeline, even institutional has shifted that now to balance that with more fixed income focus.

So, exactly what you said occurred, but we did not have that the way it was for the reasons that I just mentioned to you.

So, yes, I think we will continue to gain flows there, but when you gain flows in fixed income or in institutional fixed income you've got different margins than if it is retail equity.

I'll now turn it back to Mr.

Cracchiolo for closing remarks.

Listen, I think, first of all I appreciate your questions today, and also trying to better understand what is happening underlying the business.

I'll just leave you with this, I think that as you look at our Company, and you look at the quarter, but you put the quarter in light of last year, we had nice improvement in profitability in AWM.

We had nice improvement and profitability in Colombia and asset management with Threadneedle.

We have a continued strong, an appropriate base for our annuity business.

We have managed risk quite well.

Our protection business has come back where we had been having some issues with the catastrophic losses in the auto and home, and that has recovered.

We are continuing and have made stronger investments in the business for future growth.

And so, we also have put in place a stronger platform, as you have mentioned in the total of our asset management business.

So, I can't predict by quarter exactly what you will see, but what I could say is that we are building even a stronger foundation, that we have all the capability flexibility to ride out the markets.

I do believe over time our margins will continue.

I believe our earnings will continue to shift.

I believe our capital requirements will continue to come down.

And so, listen, the fourth quarter didn't change anything along those lines.

The only thing I could probably say is that we probably didn't think that volatile market would affect things as much as it has, but I think it did across the industry, and I think you can compare it across the industry to see how that is consistent.

So with that in mind, we will continue to -- if you have any other questions or comments, please call Alicia and Chad, and we will try to follow up with you.

But I'm just guarding against the continued environment that I can't predict.

And I'm going to continue to make some changes in the Company so that we can handle that quite well in the short-term.

And if the environment improves, if you guys and thinking about the equity markets continue to stabilize and go up, then we are in great shape.

So, I'm just guarding against it not being that case.

Okay?

Have a great day, and we will talk to you further as the weeks go on.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.