阿默普萊斯金融 (AMP) 2014 Q4 法說會逐字稿

Welcome to the fourth-quarter and full-year 2014 earnings conference call. My name is Lorraine, and I will be operator for today's call.

(Operator Instructions)

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, good morning. Welcome to Ameriprise Financial's fourth-quarter earnings call. On the call with me 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 insights into the Company's operations. Reconciliation of the non-GAAP numbers to their respective GAAP numbers can be found in today's materials, available on our website.

Some 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 2013 annual report to shareholders and our 2013 10-K report. We take no obligation to update publicly or revise these forward-looking statements. And with that, I'll turn it over to Jim.

Good morning, and thank you for joining us for today's earnings call. I'll spend my time discussing what I'm seeing in the business. Walter will talk to the numbers. And then we will be happy to take your questions.

In terms of the quarter and 2014 overall, I feel good about Ameriprise and our position. The fourth quarter we delivered was a continuation of a strong year. We're executing our strategy well and generating good results.

For the fourth quarter, operating net revenues continue to grow, up 5%, with good growth in operating earnings, up 16%, and operating earnings per diluted share up a very strong 23%. For the full-year 2014, operating net revenues grew 7%, with good movement in operating earnings, up 14%, and operating EPS up a very strong 21%.

We also had solid growth in assets under management and administration, which increased 5% to $806 billion. This was driven by continued good advisor-client flows and market appreciation. Our strong growth in earnings allows us to generate significant free cash, so we're able to consistently deliver differentiated shareholder return while maintaining our financial strength, all while investing in the business.

In the fourth quarter, we returned $444 million to shareholders. And for the full year, we returned $1.8 billion to shareholders, which is 109% of our operating earnings. In fact, 2014 marked four consecutive years that we have returned more than 100% of our operating earnings to shareholders. We expect to continue to return strongly to shareholders, and have targeted a 90% to 100% range annually, and we will evaluate based on circumstances.

With strong business results and significant capital return, operating return on equity reached another high. Excluding AOCI, we ended the year at 23%, up from 19.7% at the end of 2013. Very few financial services companies are generating this level in growth of ROE and capital return. We have consistently grown these measures at a meaningful rate.

Let's move to the business, starting with Advice & Wealth Management, where we had another terrific quarter in terms of financial results and executing our strategy for continued growth in margin expansion. We had strong growth in our key measures. Revenues, earnings, client assets, inflows and advisor productivity were all up nicely. Operating net revenue increased 11% to $1.2 billion, reflecting our strong fundamentals and positive markets.

We're seeing good levels of client activity. Total client assets grew 9% to $444 billion, with continued strong net inflows of over $3 billion into our investment advisory programs. Our total RAP program is one of the largest in the industry at $175 billion, growing 14% for the year. With good revenue growth, we've also increased profitability in AWM, up 33%, and we've also significantly expanded operating margin to 17% for the quarter. And we have delivered this with interest rates at all-time lows.

In AWM, we continue to focus on growing the business and delivering an excellent client experience. And we feel good about our ability to help our advisors build productive practices. With millions of Boomers moving to retirement, we're at the heart of the opportunity with our Confident Retirement approach. You have seen it in our commercials, which we just brought to market in early 2014. Confident Retirement works well for the mass affluent and resonates well with the affluent. We think there's a terrific opportunity for us to serve even more affluent investors as we move forward.

Another opportunity that we're focused on is around accumulatives. We're expanding Confident Retirement to use with clients in the accumulation stage. In addition to the affluent, and to those who are closer to retirement, the Gen Xs and Ys who are building their wealth also fit within our sweet spot.

We continue to invest significantly in our brand and our leading capabilities to help our advisors grow their practices and increase efficiency. As we ended the year, brand awareness reached an all-time high. In fact, we were recently awarded the Gold Midas Award in Financial Services: Retirement category for our real-questions, real-answers advertising campaign that is currently in the market. The campaign includes commercials and digital advertising, social media and the three-minute Confident Retirement digital experience. With that in mind, we continue to invest significantly in our brand and leading capabilities that help our advisors grow their practices.

And we're helping our advisors to ensure they fully benefit from the investments we've made, especially in our brokerage platform, online and mobile capabilities. As we help advisors take advantage of these capabilities even more with greater uptake, our advisors can grow productively and serve more clients. Our advisors who are taking advantage of our technology platform find that it helps them save time, increase efficiency and productivity.

At the Company level, we're realizing operating cost efficiencies from our technology investments and upgrades made over the past several years. Because we're providing good value and service, client satisfaction with Ameriprise is at an all-time high, in the 90%s. And with that, Ameriprise was rated number one in customer experience across the investment firms in the 2014 Forrester Customer Experience Index.

We also have strong relationships with our advisors. Our culture of support and helping them achieve good growth in their practices has led to good engagement and retention that is very high, on average in the mid-90%s. I spent time at the start of the month with all of our field leaders, and they're feeling motivated about helping our advisors to continue to grow.

The Ameriprise value proposition and culture is attractive in the industry. In terms of recruiting experienced advisors, we brought in another 73 in the quarter. The productivity of the advisors we're attracting continues to grow, and our recruiting pipeline for 2015 looks good. As a result of the actions we're focused on to drive growth, advisor productivity, a metric we consistently grow, continues to increase. Compared to a year ago, it's up 13% on a trailing 12-month basis, to $496,000 per advisor.

Overall, it was another terrific quarter and year for AWM. We have deep relationships with our clients and advisors, and excellent satisfaction. We're focused on continuing to drive client engagement and serve more people, especially in the affluent space. This leads to strong results. We're delivering nice growth and profitability, with the ability to continue. And the business consistently delivers the results we're targeting, and we feel good about our opportunity for future growth.

Now let's move to Asset Management, where we have generated good earnings growth and continue to build our positions in the US, the UK and Europe. Net revenues were up 1% year over year, with pretax operating earnings up a solid 6% and adjusted net pretax operating margin increased to a strong 40%. Assets under management were up slightly to $506 billion as market appreciation offset net outflows over the past year.

In institutional, we're seeing good growth and making good progress in third party, with $1.7 billion in net inflows in the quarter. We continue to win key mandates from clients in North America, Europe and Asia, including certain strategies like Contrarian Core and investment grade debt. We have a solid pipeline and feel good about our capabilities, as well as our global growth opportunity. However, some of our growth was offset by the regular outflows from Zurich and our ex-parent relationships. Excluding these previously disclosed items, we would have had stronger net inflows.

For the quarter, we reported retail net inflows as a result of strong re-invested dividends. However, we still experience a level of outflows in one of our large funds in the DCIO channel, as well as former parent company-affiliated distribution and a sub-advisor. We have seen some traction in a number of our retail channels and we know we can make further progress this year. We're focused on a number of enhancements that we're making in retail distribution. As an example, we installed a new leadership team and we're revamping our wholesaling. And we're making greater use of business intelligence in our improved segmentation strategy.

At Threadneedle, we expanded retail net outflows of about $0.5 billion, largely from a single client who is a frequent asset allocater. That said, the underlying rate improved from the last quarter. The recent ECB action should be a catalyst for European investors to see opportunities in the market, and we would expect to benefit as investors put money to work.

You may have also seen our announcement from a few weeks ago that Columbia and Threadneedle are rebranding in the spring to Columbia Threadneedle Investments. The teams have been working together to increase the depth of our offering for the benefit of our clients in the business. Introducing our global brand is a natural next step for the Business. The new global brand will represent the global capabilities, resources and reach of these two well-established investment firms.

We're focused on expanding our distribution and global presence, and continue to add high-performing products to our mix. Together, Columbia and Threadneedle have 118 4- and 5-star Morningstar-rated funds. We delivered another good quarter of investment performances. Many of our equity and fixed income funds were positioned with the quality buyers, which helped, as equity markets were volatile in the quarter.

In terms of product, we're looking to build off of our strength in traditional products and we're investing in a number of areas, including in multi-asset solutions. We just recently launched a Columbia Adaptive Risk Allocation Fund, one of our key new products. And I'm pleased with the response it's getting in both retail and institutional channels. In fact, Jeff Knight and his team were recognized recently with an innovation award. We think that over time, we can gain good traction that would further add to our flows and complement our core business, as we build our track record and awareness of these products and capabilities.

Another example is Columbia's Adaptive Alternatives Fund, which we launched yesterday. It's an innovative collaboration with Blackstone Alternative Asset Management, an example of the steps we're taking to broaden our solutions. Overall, we have good talent, an expanding distribution footprint and a growing product line. We're very focused on gaining traction in these key areas.

Let's move to Annuities and Protection, which are important to our Confident Retirement approach, helping to protect our clients' wealth and generating retirement income. We're achieving good returns in our annuity business, with lower risk and volatility, as we continue to grow at the moderate pace we want. In variable annuities, client account balance were up slightly to $77 billion, due to market appreciation. And sales were $1.2 billion. As we work with clients to help ensure their retirement lifestyle through tax management and protection, we're selling more variable annuities without living benefits.

In December, RiverSource Annuities launched Income Guide, a new income monitoring program for clients with a variable annuity without a living benefit. This complement sales with living benefits is a way for clients to cover essential living expenses. In fact, sales of variable annuities without living benefits increased to 28% of total variable annuity sales in the quarter.

In fixed annuities, underlying results were solid, as the rate actions we undertook in 2014 have improved spread income. As we've stated, our focus remains on the overall profitability of the book, while the size of the book will gradually shrink, given the overall sales environment. Overall, we're focused on making it easier for clients and advisors to understand the benefits that annuities can provide in terms of reliable retirement income.

In life insurance, VUL/UL sales picked up a bit year over year with our RiverSource TrioSource product. VUL/UL ending account balances were up 3%, largely from the markets. TrioSource is an interesting UL product that combines a tax-qualified long-term care rider that fits well within our financial planning approach.

In auto and home, we're seeing steady growth. However, auto and home has been experiencing higher claims that resulted in us adding $60 million to reserves in the quarter. Walter will cover this area in more detail. However, I did want to mention that we've been taking action throughout 2014 and into this year in the areas that have increased our loss ratios and caused exposures. We're working to further enhance claim processing, underwriting and pricing to improve performance.

This remains a very strong business model. We're seeing steady growth in policies from our focus on affinity channels and reputation for excellent service. Our auto and home business was rated one of the best firms for client satisfaction in 2014.

Overall, Ameriprise had another strong quarter, with good financial results adding to a strong year overall. I believe we're positioned well for the year ahead. We continue to have a very strong financial foundation that will give us the flexibility to navigate the markets ahead. We are very focused on delivering this strategy we discussed with you. We continue to invest and generate good returns. And we've set Ameriprise apart in terms of the strength in the consistency of our results.

We're focused on continuing the strong growth we've had in AWM. And we're addressing areas where we can gain traction and improve our flows in asset management. Our ability to generate significant free cash flow enables us to continue to return to shareholders as we have, and maintain our excellent financial foundation. As I mentioned at the start, we delivered record return on equity and we think we can take it even higher. With that, I'd like to hand things over to Walter for a detailed review of the numbers.

Thank you, Jim. Ameriprise delivered strong results at the aggregate level in the fourth quarter, with solid underlying performance in our Advice & Wealth Management, Asset Management, Annuities and life and health businesses. We had double-digit growth in earnings and EPS in the quarter. The auto and home reserve increase and a significant business-driven tax benefit were largely neutralized on an EPS basis. We continue to strengthen our balance sheet fundamentals. Our investment portfolio is solid, hedging is effective, and we have $2.5 billion of excess capital and strong liquidity.

Let's turn to slide 4. Ameriprise has strong aggregate shareholder performance. Top-line performance was good, with operating net revenue of 5% to $3 billion. Operating net revenue without investment income was up 7%, which is very strong. Overall, operating EPS was up 23% to $2.30. And our strong earnings, free cash flow generation and capital return drove an operating return on equity of 23%, which is at the upper end of our target range.

The operating effective tax rate was 20.3% in the quarter, which is lower than we had anticipated for a couple of business-driven reasons. About half of the benefit was related to the dividends received deduction being higher than expected. The other half of the benefit was state taxes being lower, which reflected a shift in the states where business and activities are occurring.

Going forward, we expect the hard DRD benefit and lower state taxes to continue. But the impact would be spread across the year rather than being recognized all in one quarter. Looking into 2015, we expect taxes to be in the 26% to 28% range, up from 25.4% in 2014.

As you can see on slide 5, the strong financial performance we had in the fourth quarter was consistent with the excellent year in 2014. Operating net revenue grew 7% to $11.6 billion, well within our target range of 6% to 8% on average, over time. Without net investment income, operating net revenue was up 9%. Operating earnings were $1.7 billion, up 14%. And operating EPS was up 21% to $8.52 for the year.

Turning to slide 6, our business mix shift is a direct result of the strategy we are executing. Advice & Wealth Management and Asset Management represent 68% of pretax operating earnings this quarter. The mix was impacted by the auto and home reserve increase. But without that, AWM and Asset Management are still over 62% of the total. Going forward, the mix shift will continue and should reach 70% from these businesses.

We continue to expand margins in Advice & Wealth Management, reaching 17% this quarter. As we bring in experienced advisors and help transfer their books, their productivity ramps up over time. This benefit, combined with the improving productivity of our legacy advisor base, is driving margin expansion and profitability improvement.

Margins in the employee channel were approximately 10% in the quarter, and were almost 19% in the franchise channel. We feel good about the improvement we are seeing across this business to drive profitability even higher. Asset Management margins were a solid 40% in the quarter on an adjusted basis, up from 38.8% a year ago.

I'll get into the segment results in detail now, beginning on slide 7 with AWM. The business is performing extremely well, leading in [ladding] indicators, as well as financials. Client assets are up 9%, as we've seen good flows in our RAP platform, new accounts acquired and market lift. Our experienced advisor recruiting is on target, with 73 hires in the quarter. And productivity is at an all-time high of 496,000 for the trailing 12 months.

Revenue is up 11% to $1.2 billion on strong sales and flows, as well as markets. We kept G&A expenses flat year over year. This resulted in earnings of $212 million, up 33%, and margins of 17%, up from 14.2% last year. It should be noted that we had over $20 billion of brokerage cash that was earning 20 basis points, which is still near all-time lows. Overall, the business continues to deliver consistent, good results, demonstrating the strength of our business model. We continue to invest for future growth, building on our brand and adding capabilities to support our clients and advisors.

Turning to Asset Management on slide 8, revenue increased 1% to $830 million, primarily from market appreciation, which was essentially offset by the cumulative impact of outflows and lower performance fees. During the first three quarters of 2014, we enjoyed the benefit of robust equity markets, which more than offset the cumulative impact of net outflows on revenues. In the fourth quarter, markets pulled back, especially in Europe. As a result, the lift we enjoyed from equity markets decreased and provided less of an offset to the impact of net outflows as it relates to revenue growth.

In the quarter, earnings were up 6% to $198 million. Which was impacted by the market pullback, lower performance fees, and additional expenses for rebranding Columbia Threadneedle investments and relocating Threadneedle to a new office space. G&A was very well-managed. This is reflected in the margins at 40%, up from 38.8% last year.

Turning to flows on the next slide, we had net inflows of $5.7 billion in the quarter with inflows across retail, institutional and alternative. Retail inflows of $4.9 billion benefited from re-investment dividends. However, Columbia had outflows in a number of areas we have previously discussed, namely, the former parent-affiliated distribution -- the RIA channel, the sub-advisor and one of our large funds in the DCIO channel. Threadneedle had retail outflows as a result of the industry-wide slowdown from geopolitical and economic concerns in Europe, as well as a mandate that shifted from retail to the institutional channel.

The global institutional business is performing well, with $300 million of net inflows. We had outflows in the form of parent-related mandates at both Columbia and Threadneedle that partially offset the strong third-party inflows. We continue winning global mandates, and have a good pipeline as we move into 2015. We have also launched a new CLO in the quarter, resulting in $500 million of net inflows and alternatives.

Turning to Annuities on slide 10, annuities' pretax operating earnings were $159 million, down 8% from last year. However, the prior-year results included a significant benefit from clients moving to our managed volatility funds, as well as a higher mean reversion benefit last year. Without these items, underlying annuities earnings were up 15%.

Variable annuity pretax operating earnings grew 5% from a year ago to $114 million, without the benefit of clients moving to managed volatility funds and mean reversions in both periods. This was driven by higher account values. Fixed annuity pretax operating earnings increased 71% to $36 million. This reflects the repricing of our five-year guaranteed block earlier in the year. And our lapse rate was in line with expectations.

Let's turn to the Protection segment on slide 11. Protection pretax operating earnings were $30 million in the quarter, impacted by a $60 million reserve strengthening at auto and home. Underling earnings are in line with prior periods and our expectations.

The life and health business is performing well, with cash sales up 3% over the prior year, and insurance in force of $196 billion. We saw marginally higher life claims than we have in recent quarters, though still within expected ranges. Earnings were also impacted by an unfavorable DAC model correction.

As a reminder, we re-insured half of our long-term care block to Genware, and they process and pay all of our claims. We carefully monitor and evaluate the information and processes. However, based upon recent events, we have begun a more detailed non-routine review. We feel good about our block, particularly the risk characteristics from selling it only within our channel, and the pricing actions we have taken since the mid-2000s.

As I mentioned, we are increasing auto and home reserves by $60 million this quarter, of which 96% is related to several products in our auto book. There are a couple of key drivers of the reserve increase. First, we had an additional frequency and severity experience on book years 2012 and prior, representing approximately 15% of the reserve increase. These are based on estimated ultimate losses, but now have a higher probability of being realized, as there are fewer outstanding cases and they are more vintaged.

Second, the remainder of the reserve increase was for 2013 and 2014 auto books, which are strongly influenced by 2012 prior years experience, as well as preliminary 2013 and 2014 trends. We have minimal to moderate claims experienced for these acts and years, and patterns are still developing. The reserve analysis was complicated by changes associated with claims re-engineering and unusual climate patterns this year.

Earlier this year, we engaged outside consultants to review our processes. Now we are phasing in changes to our pricing-to-risk modeling, which will be rolled out fully by early 2016. Additionally, we are making modifications to underwriting, claims and operations. And we have made a variety of staffing change, including bringing in a new LFO, a new head of claims, and new actuaries.

Let's turn to the balance sheet on slide 12. Our balance sheet remains strong, with approximately $2.5 billion of excess capital. Our risk-based capital ratio is estimated to be 600%, up from 450% last year, due to an increase in the unrealized gains on our hedges from lower interest rates and higher volatility.

We continue to return over 100% of operating earnings to shareholders, with $444 million distributed through dividends and a share repurchase in the quarter. For the year, we returned $1.8 billion to shareholders, which was 109% of operating earnings. This is down from the level returned in 2013, which did include the return of capital associated with exiting bank operations. Looking into 2015, we plan to return 90% to 100% of earnings to shareholders as a baseline. With that, we will take your questions.

(Operator Instructions)

John Nadel, Sterne Agee.

A couple of questions, maybe two to start off for you Jim. First, obviously you've had a lot of pressure in the auto and home business over the past year or more. And the results are in stark contrast to what we're seeing from most industry participants where underwriting results really are among the best in history. So can you help us understand exactly what you're doing to correct this? And do the results of this business alter your view on whether this business should reside as part of Ameriprise, or be divested to a more traditional operator?

Very clearly, we have experienced increase in our reserve positions, based on developments that have occurred, beginning probably in the 2012 period. We have grown the business tremendously over the last number of years. We've expanded in a number of areas. However, we still feel very good about the front end of the business, the affinity relationships, the ability to bring in good clients in a very cost-effective way. But we had to tighten up a number of our various areas from the underwriting to more discipline around some particular areas in pricing, et cetera.

We are making those changes. We think that we have the ability to prove that position over time. But we did take the opportunity here to further increase our reserve positions, based on some of those earlier trend lines. We don't have perfect information about them. Having said that, clearly there are opportunities for us to improve. We think that we can make those improvements. We do believe that it is, and continues to be, a good differentiated model. And in the future, once we make those improvements and those changes, we can evaluate the business on a go-forward basis.

Okay. So if we looked out and you had to peg when does this business generate an underwriting profit, i.e. a combined ratio under 100%, is that within your visibility next couple of years? Or do you think it takes longer?

No, it is definitely within our visibility, and we're looking to see some improvements in 2015 and beyond. Again, it will be gradual improvements as we make these changes and they flow in. But we really do feel that this is something that we can get back to a good level of profitability and, as I said, we will evaluate as we go along. But we are aggressively focused on it. It's unfortunate that some of these things have blipped up, but it's something that we think we can definitely correct.

Okay, that was really helpful. And then just overall on capital return, the slide this year in your presentation is very similar to last year, that your baseline target of returning 90% to 100%. And obviously, the last several years, you've done above that. Can you talk, Jim, to the factors that would influence your decision to bring that down toward the 90% to 100%, or keep it up somewhere well about that 100% level? What are some of the factors? I assume M&A opportunities would be part of that, share price would be part of that. But, can you speak to that it a little bit more depth, please?

Yes, I think to the point you referenced, there are always a number of factors, and you go into a year not knowing exactly what all those factors are and how the environment is. Which is actually quite good, is that, I think very few firms target at the beginning of the year to return 90% to 100% of their earnings.

No doubt, Jim.

We're doing that, even not knowing exactly how the environment plays out. But as you saw in the past number of years, we've increased that over the year, based upon those various circumstances. So if there aren't any real good deals that we want to execute on, we up that buyback. If the market gives us even more opportunity, depending on certain circumstances, we can increase the buyback there as well. So we regulate that.

We are still committed to return strongly to shareholders. We will evaluate again a dividend increase, as we always do in the first part of this year. It's a combination of factors. But I think the positive should be that we're probably one of the highest in targeting that at the beginning, based on a total of the earnings, and then we regulate it from there.

Totally appreciate that, thank you. And then if I can sneak one more quick one in for Walter. If I look at the Annuity segment, I generally see declining account values in both the VA and the fixed annuity blocks. So, in the face of that headwind, is it reasonable for us to expect any real earnings growth from this segment off of the core 2014 results? I think the core numbers about $590 million.

It seems spreads are about as wide as we can expect. And with the headwind of lower long-term rates, I'm just wondering -- without, of course, Walter, giving any specific guidance directionally, how should we think about this segment's earnings potential?

I think, certainly with the headwinds that you talked about, it will be muted. Especially if you look at facing the fixed annuities coming out of surrender. So, you would see that. We made the adjustments on the rate, but we will see increased lapses there. So I would say yes, it would certainly be less robust, with the factors you refer to.

Okay, thanks very much. Appreciate it.

Erik Bass, Citigroup.

First, on Advice & Wealth, you mentioned a 19% margin for the franchisee channel this quarter, which I think is higher than even you were talking about at Investor Day of last year. Do still see additional upside to this margin, excluding any benefit from higher interest rates?

As we talked about, certainly as we vintage on the employee channel, and certainly productivity, and improve that, we do. If you look at the two models, certainly from that standpoint, we see the employee channel increasing. And it has doubled from last year, as we look. We've seen improvement, and I do anticipate some improvement. But again, interest rates are certainly a factor, and certainly markets will influence, but we are getting good productivity improvement.

Okay. But you still see from this point that the 19% can stay at this level, or move slightly higher, even without rates?

Again, yes, I do. Again, we're talking about environmental and other things, yes. Take those into consideration, yes, we are making progress.

Thanks. Is there any sensitivity that you can provide for how changes in interest rate assumptions, or if we are in a low [for long] environment, would affect your balance sheet? You obviously do the annual review in the third quarter. But any help in terms of sensitivities to your long-term rate assumptions would be helpful.

I think it's from the standpoint, again, it's not so much the long-term rate, it's going to be the grading. It's a start point where you are and then the grading from there, which would be the implication. I think the long-term rate, again, we think we're using, is appropriate. But we will then have to assess, just like we will now, the start point of where the rate is. And then while we do anticipate the long-term grading, depending on which product you are looking at, and obviously long-term care has a very long window, others have less, that would be the balance sheet impact.

The other thing is the re-investment. We're turning over mostly about 25% a year or so. As we re-invest, that's going to have a bit of a drag on it.

Got it. And can you remind us, what was the change that you made in the third quarter of 2014?

The change, from what standpoint?

Sorry. For the interest rate assumption that drove the modest charge that you had in the third quarter.

What we did is, basically, we reset it, obviously, to the June rate. And then we basically re-adjusted the grading and slowed it down. We kept the long-term rate the same, but we re-adjusted down. Which, of course, did not hit the original target that we thought that we set in 2013. So we did take that on unlocking. And then we just graded it up, either basically more looking at, from our standpoint, the situation, which was a little slower in grading up.

Okay, thank you.

Alex Blostein, Goldman Sachs.

Jim, couple questions in the Asset Management business, and just a follow-up for Walter after. When I think about the rebranding initiative between Columbia and Threadneedle, and you guys will try to go out and market it as one, help me understand a little bit what kind of doors does this approach open up relative to what you guys were doing before? What kind of new client pools are you targeting with that? And just some sort of a tangible way to illustrate how one plus one could equal three in that scenario, if that's the case?

We've have made a number of changes over the last year and a half or so, really to put together a number of capabilities between the Threadneedle business and Columbia. And put together both core product that are managed by the capabilities of both, to how we're even doing asset allocation on a global basis in some of the managed type of activities we're doing and the new solutions that we're launching.

So very clearly, there's the underlying activities that already made some changes to what we're doing today and how we are doing it. Including the ability to share research, the ability to use some of the capabilities of Threadneedle and Columbia combined to build various portfolios and global products. The combination of the brand gives us a further ability to market our products across borders. Today, we are already selling Columbia funds as part of the Threadneedle, and Threadneedle as part of Columbia.

But, particularly as I think about -- as an example, I'll give you the first one, institutional. To go to market better as a combined firm makes it easier to work with global clients. It gives us the ability to talk about more of those products, using our institutional sales force together. It also gives us the ability to use the combined resources for products that we're putting in the market and to talk about that in a much more appropriate way.

We do see good opportunity coming from the combination. But we did a lot of work behind the brand already, and we do [continue mork] work, to really leverage the combined capabilities of the two firms. We will launch this in the market in the spring, more formally. The underlying, for retail distribution in the US or retail distribution in Threadneedle, won't be as significantly impacted. It will start more from a global positioning institutional basis and then, over time, take shape and form in the retail segments.

Got you, that's helpful. The recent product launch you guys announced with Blackstone [ternal] looks pretty interesting, given all the chat around retail liquid [alts] in the space. Help us understand a little bit how this product will be managed and how it will be marketed to clients. How long do you think it requires for us to see some [sen attraction] from an asset-gathering perspective? Is that like your typical, you know -- you seed it, and then you market it, and a couple years down the road. So it's going to be a few years until we see some meaningful progress? Or could that be done sooner?

We do believe that there is an appetite for this type of product in the retail space today. It's more of a convenience of a traditional mutual fund with daily liquidity and multiple share classes that will give investors access to Blackstone's advised multi-strategy perspective, with leverage in their underlying hedge fund advisers that they select. And it will combine that with alternative beta strategies in nontraditional assets, including commodities, REITs, inflation-linked bonds, private equity, managed by Columbia.

The combination, we think, of the types of capabilities that we're bringing to bear, put into a wrapper of a retail fund with daily liquidity, we think will have some appetite, as advisors look to diversify their portfolios and get some alternative means, based on the market conditions. I think it gives them a greater access to these alternative type of strategies. It has the combination of benefits of the two strong firms and the diversification that they can get from alternatives.

So we think it will take shape. We don't think it's something that will wait to see flows over a long period of time. We think there's an appetite there over the course of the year and, hopefully later in the year, we'll be able to report some of the sales that we're seeing from the product.

Got you. And just a follow up to that one, how are the economics in this product work, with the fee split or the sub-advisory fee that goes to Blackstone?

I think, again, based on the combination of the fund and the make-up, there is a fee structure as part of the alternative side that will go to Blackstone. And then there is the fee for the other part of that managed fund that we share, so that we have. There's a sharing, truly, of the fee structure underneath it. Of course, with the combination and being on the alternative side, there is a higher fee for that type of product than the normal mutual fund fee.

That sounds great, thanks. And then Walter, just one for you, quick. When we think about the currency fluctuations over the course of last quarter and certainly continue the dollar strength so far in 2015 -- when I think about Ameriprise holistically as an enterprise from a pretax income perspective, is it fair to assume you guys are pretty currency-neutral, given expenses and revenues from Threadneedle, obviously, and pounds?

Well, I would say, it's [currently] -- it's obviously going to make a profit, so we'll take a translation there, if that's what you're referring. That's with the translation.

Got it.

That is the majority of the exposure, is out of the UK. Obviously there's some offsets, but it is certainly -- it would impact the PTI asset.

Any chance on the sensitivity if it does? So, like, if the dollar strengthens --

Well, the dollar strengthening is -- again, the pound has moved from -- last year, it was somewhere in the $1.60s, and now it's in the $1.50s. So, on that basis, I think we talked about it last year, it has impacts that certainly [matter]. But, I would say on the translation basis, it's probably in the $10 million, $15 million range -- when you dropped it down. Actually on that drop, you're probably talking, say, around $20 million.

Got you. Okay, great, thanks so much.

You're welcome.

Ryan Krueger, KBW.

First, I had a follow up on the rebranding of Columbia and Threadneedle. I certainly understand the long-term rationale and the benefits that it could have. But in the shorter-term, should we expect any meaningful cost associated with that rebranding over the next few quarters?

There will be and there was some incremental cost in the fourth quarter; there will be some incremental cost in the first quarter this year. But we're not looking at real sizable amounts here. What we are doing is re-purposing some of our current marketing and branding costs for the new brand. But there will be some incremental, as you change the various materials and signage and some other aspects of it. It's something that we think is very manageable. It will increase costs slightly, based upon the rebranding. But again, as I said, we think it's the right thing to do that can be leveraged over time.

Got it. Okay. Given the lower long-term interest rate environment we're in today, do you have any updated sensitivities you can give us in terms of the earnings headwind that gives you in the fixed annuity and protection businesses?

Sure. Let me break it out. The first, obviously, is going to be on DAC. When we set our DAC rates back down, we're in the to 250 range now. The start point is in the 170s, as we look at -- and we were grading up. So that's going to be one impact we are constantly monitoring. That will have a non-cash impact, when we look at locking in the third quarter, or if we see there's a situation we have to unlock earlier.

As it relates to the long-term book with the fixed annuities, it is more on the -- we reset on the guaranteed minimum [interest] rates. So in this basis, it's the earning rate. And the earning rates on both that and on the life and health will be impacted because of the duration of the situation as we turn it over. Like I said, it's about 20%, 25%. And on that basis, you're talking about 40, 50 basis points in differential, as we look at it on average, as you go through it. That's the sort of activity levels [they see].

The numbers themselves are manageable. It's just, we are defensive and -- defensive posture there. And it will have an impact, but the impact is manageable, and the number [but it].

Okay. And then last one on the tax rate. You gave the 26%, the 28% tax rate guidance for 2015. As we think about the mix of your earnings shifting over time, specifically, you seem to have a lower contribution from variable annuities and the DRD benefits that, that provides you. Would you expect your tax rate over a longer period of time to gradually rise as a result of the mix shift?

[When the] current legislation, that's exactly what you're going to have. We're [arso] deriving the DRD benefits, as you saw. But again, the tax rates associated with the AWM business and the asset [bent] managements business don't have some of the benefits that are derived. So therefore, they're at the more marginal -- the statutory rate. So yes, it will erode. But again, it's good profitability.

Got it. All right, thanks a lot.

[Ewarin Kenar], Deutsche Bank.

I want to go back to the P&C results, or the auto results, specifically. One question I still have is, looking at the PIF count growth, why are we seeing growth which I think is above industry average, while there's still turmoil and while you're still trying to clean up the claims experience in previous legacy premiums?

First of all, we do have good growth. We actually have very strong growth in the home side of it. The auto side has slowed down a little bit, but we've made some adjustments over the course. We'll probably adjust a bit more as we go through, and put in some of the tighter underwriting and repricing in certain areas.

But we did experience some good growth, based upon the expansion of some of our channel activity in the affinity area. It's one of the things that we're closely monitoring right now. We have slowed down a bit of that growth. We might slow it a little more, in certain sections, where we have experienced some of the blip-up and the exposure. But we do feel like we can continue to add good new clients based upon the relationships that we have. We're just going to be a little tighter in that regard.

Okay. Going back to the Advice & Wealth Management, there was an industry publication, I think, that spoke of Ameriprise as the second largest independent broker by commissions from alternative investments sold. I think they come to about 20% of the segment's total commissions earned, coming from alternative investments. Given some of the problems that some of your peers have faced with a high-commission product, I was wondering if you would be willing to talk about what percentage of the alternative investment commissions come from high-commission products?

Right now, it is a smaller percentage of the sale revenue and profitability. But again, it's coming from [reeds]. And we've talked about, from our standpoint, that we have not suffered the same situations, obviously, as certainly looking at the quality in what we bring on in our, basically, compliance processes. [With he sinasian point], it is an important part of the solution set with our clientele, and certainly go through very due diligence process to ensure that.

And like I said, the revenue contribution is under 5% -- it's more like 3%. So it's an important solution area and adds value from that standpoint, and it's about the 3% range. I think if you're talking about, like, the REIT area, it's only a couple percent in our total mix of business across the Firm. Of course, we have more alternatives that we offer, from hedge funds to other types of activities, commodities, various things like that. But I think if you're referencing more of REITs, it's only a couple percent.

Okay, that's helpful. Quick numbers question. I may have missed it; I apologize. On the $20 billion of brokerage cash balances, can you tell us what the current yield is on those?

20 basis points.

Okay, thank you very much.

Suneet Kamath, UBS.

Walter, in your prepared remarks on Protection, you talked about long-term care and the fact that you're conducting, I think, what you characterize as a non-routine review. Can you go into a little bit more detail in terms of what exactly you will be reviewing? Is it the reserve level? Is it GAAP versus STAT? Any more color on that would be helpful.

I think what we're doing right now, we're in contact with Genware, as relates to their announcements and other things like that. Because they do all the claims and the administration aspect; they feed the information to us. Obviously we're aligned on that information. We certainly try and do our own checks on it. But based on their reviews, we're cooperating with them to get, really, the performance aspects they've seen, both from claims and to re-validate. As they looked at what they evaluated for their block, how that is applicable to ours. So we are working with them just to get the additional information, as it allows us to do the actuarial assessment.

How should we be thinking about this in terms of a potential risk to the Company? Is it that you might have to boost reserves, because Genware is telling you that they're seeing more aggressive claims or utilization? I just want to get a sense what the risk factor is.

We think the risk factor is actually very contained. Because, again, it's small overall. But the reality is, we have our own checks, and we've been looking at it from our standpoint. There's different characteristics of our block versus theirs. So we do believe this is a precautionary element to make sure that we are aligned.

Again, they're making a major announcement that they did make some changes to their actual assumptions. We felt that it was prudent to work with them to get that applicability to our block. And again, it's our block and their block; it's a shared block. So it is really precautionary, but we believe it's very containable and it's not a significant amount, if any.

Is that something that we're going to learn about in 1Q results, because that will be after they've put out their fourth-quarter reserve review?

We're obviously dependent on their time and effort and everything. But yes, we are hoping to have that within that timeframe.

Okay, got it. For Jim, on the resale flows at Columbia. You've mentioned that it's a work in progress and there's all sorts of, I think you used the word, traction that you're gaining. Just really hard to see from the outside how the strategy is progressing. Is there any more color that you can give us in terms of what is exactly changing there, what's different this time, and why we should have some comfort that the flows can start to turn positive?

I wouldn't, I think -- labeling it to get more comfort. I think what we've been saying and what we've actually been seeing is, we will continue to have some of the type of outflows from some of the things that we mentioned to you. So as an example, when we made all the pricing changes in the RIA channel, we experienced more of those outflows. That's starting to slow and turn around, and we're starting to see some pick-up in the inflow side.

For the ex-parent, we experienced more of that, even in retail, initially, as things were changed. And now that's starting to -- and slow. It will still be an outflow, but not as material as it was. And we think we can get some new product out there, hopefully, over a time.

I think, in regard to the intermediary channels, we're actually seeing some pick up in a few of the areas as we get better penetration in some of the channels and get on some of the platforms. Having said that, I think it's been lumpy. We saw nice improvement in October and November, we thought it would actually show positive. And then December was a little rough month, I think, for the industry. From a perspective, we still experience some additional outflows in a particular large fund that we had in the DCO channel that actually masked some of the improvements for some of the other product across the other channels.

So, I think with the changes we continue to make, with the new leadership we have in there, with how we're revamping the way we go to market with our product, with the wholesaling, with the disciplines we're putting in place. We're hoping that we can gain traction with more of our product across more of the channels in 2015.

Of course, there's no guarantee. There's market environment, there's what the consumer is looking or the [intermarry] is looking, based on market conditions. But we think we have enough good product. We think that we have a good wholesaling capability and platform that we're applying better. We think that we're going to bring product to the market better, to talk about what that is and what the solution is and what we can provide. There are some new solutions we're coming out, like our KRA fund that I mentioned to you, which is a risk parity allocation fund that we think can take some space.

I think it's going to be a number of things that we can do to gain. But we're still going to experience some of the outflows from some of the ex-parent ongoing, from some of the sub-advisor, from one of these particular large funds we have that will continue to bleed a little bit until we get that more fully turned around and get some other product in that channel.

I'm not sitting here to predict quarter by quarter. But I do feel that we can gain some greater traction. I think Europe can come back again. I think, again, it was in strong inflows. We got hit with a loss of a PM last year, but that has stemmed the tide there. Actually, the UK, where we lost a PM, that was actually turned around pretty quickly for us.

So I think with the ECB doing what they do, that can turn around people's appetite back in Europe. So we'll see. But I got more high hopes for this year moving better in the trajectory. I can't predict but, hopefully, we'll apply more time and attention. And hopefully, we'll get some better results.

All right, thanks, Jim.

Tom Gallagher, Credit Suisse.

Few questions on your Advice & Wealth business. The franchisee advisor story has been a really good one. Just want to understand a little more about the outlook as you see it. How is the recruiting environment right now? Would you still expect to grow that channel over the next year or so? I noticed a little bit of a tick down there in terms of number of franchisee advisors. That's question number one.

And then, the margin. Walter, I think you had said the margin in that channel for this quarter was 19%, which is obviously a pretty robust number. Can you comment a bit about when you are hiring, making the new hires of the experienced advisors, what is the margin you're seeing there? Is it above or below that 19% level?

Let me start with the overall channel, and then we will talk to the margin. Very clearly, we feel very good about our franchise channel and the growth of the productivity of that channel. Now, part of it that you are looking at when you just look at the number, per se, is there is a level of even consolidation going on in our own channel. As advisors hit certain points in time, they actually don't want to be running the practice, as they continue to age at a certain level. So what they do is make arrangements with other advisors, they sell their practice. And then they transition from an advisor to an assistant, and then ultimately, retire.

We have some of that going on in our channel across the nation that we help foster and develop. Part of our attrition, or so to speak, that we report, is part of that activity going on. The assets don't leave, the clients don't leave, but the number on the headcount does adjust.

In addition to that, we also have assistants that advisors bring in as junior players in their to practice, license practitioners, et cetera. And sometimes there is a higher rotation of those people, just like we do when we bring in new people that we're training and developing in the employee channel. Part of that turnover is also in those numbers. We feel that the productivity remains in the channel, the asset growth is good and strong. And we feel very good about that channel continuing to be a growing part of the total.

In addition to that, we do have the employee channel, again, with that same adjustments that are occurring. We have much more productivity in the channel, we're bringing in good people that have much higher productivity than the people who are leaving or left.

And the pipelines to the first party of the question that you asked is very good. We saw it on the third and fourth quarter. We're bringing in high-quality people that are actually of higher productivities than even previous quarters. And we see that [do] occurring, both in the franchise and the employee channel. So we feel like we can continue to recruit on an ongoing basis and see quality people. Walter?

On the second question, from the standpoint of the marginal contribution from a PTI standpoint, for the experienced advisors in the franchise, and actually in the employee channel, are higher than the [obviously] the [19] and the current margin in the employee channel. So yes, that is accreting, based on the correlated expenses that we associate with bringing on experienced advisors.

Walter, from an order of magnitude -- and Jim pointed out that the new hires in the franchisee channel are actually more productive than the average advisor. What type of margin are you seeing for those new hires, let's say, by the end of the first year? If the average for that channel is19, is it 25, is it 30? I just want to get a sense for the [grade in] of that. And what kind of earnings kick you get as you hire people.

Let me correct that. We didn't say -- for instance, in the franchisee channel, we're bringing in good people. But we have very good, strong margins, very high productivity in the franchise. So the people we're bringing aren't necessarily of even higher margin than that. I think they're consistent with the type of productivity that we have in the channel.

In the employee channel, what I did say is, the people we are bringing in have higher productivities and will, over time, add to that margin, and will be higher than the average margin. But as Walter said, a year ago that margin was in the low single-digits. We ended last year with it being now about 10% or so. And as we add even more productive people and utilize the capacity we have in the employee channel for better, productive people, that margin will continue to accrete.

Understood. So it's really the employer channel that you're saying is higher?

Right. And then the franchisee channel, just as we continue to bring in good client flows and good productivity, and our advisor productivity increases, then that will help with the margin there. Because that's a very large channel, it's a very productive channel. Most of that will come from the productivity improvements continuing in that channel and the use of some of our capabilities to help them do that.

Understood. And one last one, on the property casualty business. Can you quantify, based on the changes that you expect to make, can you give us a little bit of quantification, what are the levels of rate you're actually submitting for to regulators in that business? Are we looking at double-digit rate? Any quantification you can give there. And would you expect that book to shrink as you implement the changes?

For each state, and again, depending on both as we do the price risk assessment, and then you deal with the states that are within theirs, that we will certainly -- we are looking then to get that ratio. As we have had -- we filed in 2014 -- we had rate increases on auto of close to 3%. And this is now being evaluated state by state, using the models that we're bringing up. So the rate increases are going to be very [off]. I couldn't really give you an average as it [relates to]. Because you're getting into [waiting] again to everything from that standpoint.

The reality on shrinking the book; I don't think the book is going to shrink. I think we're going to more intelligently manage through the application of the sophisticated models and the other things that we do from an operations standpoint, and just extract a better pricing risk return from it. That takes time, as Jim said. It takes time to work through, both the analytics as we roll it, the filings, and then the realization of it.

I would hope your rate is going to be significantly above 3%.

That was 2014. (multiple speakers) I didn't say what was going to happen in 2015.

Okay. But can you give us any indication? Or is it too early?

They basically just started through [growing] the states now. And those will progress, and the folks [see on] auto and them rolling through on homes. So I can't give you, really, the rate increases that will take place. Because they have to do the analytics for each one, and then evaluate it on that basis, both looking at the new and then the existing block.

Okay, thanks.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.