阿默普萊斯金融 (AMP) 2015 Q3 法說會逐字稿

Welcome to the third-quarter 2015 earnings call. My name is Ellen, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Alicia Charity. Ms. Charity, you may begin.

Thank you, and good morning. Welcome to Ameriprise Financial's third-quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman & CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we will 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 Company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials that are 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 2014 annual report to shareholders, and our 2014 10-K report. We take no obligation to update publicly or revise these forward-looking statements.

And with that, I will turn it over to Jim.

Hello, everyone, and thanks for joining us for our third-quarter earnings call. This morning, I will provide my perspective on the quarter, and Walter will follow up to discuss our financials.

Ameriprise delivered solid results in what was, as you know, a tougher operating environment. Volatility spiked across global markets. Equity markets dropped in the quarter, and currency translation was a headwind, as well as the ongoing pressure of low interest rates.

Across the Firm, we focused on executing our consistent strategy and managing expenses as we invest in the Business and navigate these conditions. Because of our ability to consistently generate strong free cash flow, we are able to return to shareholders at a significant level while maintaining an excellent capital position. For the quarter, operating earnings per share increased 12%, and that includes some moving pieces that Walter will address.

In terms of return on equity, we continue to deliver at a differentiated level. Operating ROE increased to 24%, which is one of the best in the industry. This is up nearly 200 basis points from last year, and marks another record high for us. Assets under management and administration were down to $766 billion, as good Ameriprise retail client flows were muted by the market impacts I have discussed in outflows and asset management.

Let's move to the businesses. In Advice and Wealth Management, even with markets depreciating, our financial results and metrics remain strong. Clearly, the market dynamic was difficult in the quarter, and asset levels were essentially flat at $433 billion.

That said, in a volatile market environment, our advice value proposition shines. Our advisors are using this opportunity to get in front of clients, and reinforce the value of financial planning and advice across market cycles. It's in this type of environment that people really need their financial advisor to help them remain calm and focused on longer-term goals. Overall, we had strong client inflows; and of those inflows, just under $3 billion went into [rare] products, which is quite good in this environment. Our investment advisory platform is one of the largest in the industry, and a consistent drove growth driver for Ameriprise.

While this was down a bit from the second quarter, we did see a pickup in client's cash positions given the volatility. I'm feeling good about the strength of our field force. I've spent a lot of time recently with our top advisors, and they are pleased with the support from the Company and the ability they have at Ameriprise to build even more productive practices.

During the quarter, we increased our advisor count. In fact, this was one of our best quarters for recruiting. We had 95 new experienced advisors moving their practices to Ameriprise, with strong average productivity per recruit across employee and franchise channels. Looking forward, our pipeline remains strong as more advisors recognize the strength of the Ameriprise value proposition. We're also pleased to welcome more than 50 JHS advisors to Ameriprise, as we completed that acquisition in the quarter.

In terms of our focus on growth, as we shared previously, we continue to seek to serve more of the mass affluent and affluent clients, and see opportunity in two areas, consumers who are accumulating assets and those who are transitioning to retirement. I believe our Firm and advisors are well positioned to help clients and prospects in every stage of their lives.

During the quarter, we launched an extension of our successful confident retirement approach with those who are still building their wealth. Wealth builders, as we call them, represent more than half of our target market, consumers with $500,000 to $5 million in investable assets. They value a financial planning relationship, so this is a real opportunity for us going forward as we introduce it to our entire field force over the coming months. And a recent external study showed that 89% of generation X, 92% of baby boomers, and 87% of millennials surveyed want to work with an advisor who will meet them personally. This research reinforces the growth opportunity we have, as people continue to value working with a financial advisor, and the importance of that human perspective for saving, investing and retirement planning.

Helping advisors serve client needs, deliver strong service and operate efficiently has always been a priority. And we continue to get good uptake from the advisor capabilities we are investing in. At the end of the quarter, we launched a new mobile capability that integrates functionality from our highest use advisor capabilities into one simplified experience that's accessible on any type of device. We are seeing good initial results. It's freeing up advisors' time to focus on serving their existing clients more comprehensively.

In September, we unveiled the next evolution of our story to the US marketplace with our new Be Brilliant brand and advertising platform. It illustrates the benefits of working with Ameriprise advisors, and how comprehensive financial planning and the right advisor can help people achieve their personal goals today and in retirement. The campaign tests very well with our target market, and our advisors are taking great pride in the ads as they bring to life what they do every day on behalf of their clients. We are working closely with the field to take advantage of the campaign in their local markets.

As a result of our efforts, our advisors continue to grow productivity, which increased 6% year over year to a new record of $514,000 over a 12-month basis. This resulted in solid revenue and profitability growth in the quarter. Therefore, on a relative basis, considering the significant market pullback and volatility in the quarter, the Business performed strongly.

Let me now turn to Annuities and Protection. I'll focus more on the underlying business, and Walter will cover the financials, including the impact of unlocking. In terms of Annuities, we continued to see nice sales from the introduction of new living benefit riders earlier in the year, as well as products without living benefits. New sales within our channel look good, which has helped offset some of the pressure from lower equity markets on account balances. And there is no real change in the fixed annuity trajectory, given where we are with rates.

In Protection Life and Health, insurance sales remain muted overall; and while life claims were higher, we do expect it to normalize. We have a good book built to serve Ameriprise clients in planning relationships. Around the Business, we are focusing on supporting our advisors to serve clients' protection needs. We continue to see more of an interest in our IUL products than VUL, and I expect that will continue in the near term given the market volatility we are experiencing. We recognize that the volatile market environment creates challenges for these longer-term products; but at the same time, this environment reinforces the importance of guaranteed retirement income, and protecting what matters most to clients.

In Auto and Home, we experienced higher collisions, in part due to the increase in the number of miles driven, as others in the industry have noted. We continue to invest in our capabilities as we adjust pricing, tighten underwriting, as well as improve claims management. This work has begun to take hold, but it takes time for these enhancements to work through the book. As we said last quarter, we do expect to see some benefits next year and beyond.

The enhancements we are making are to restore the Business to its historical performance. In terms of a client experience, we continue to maintain strong client satisfaction and retention. Auto and Home has a good client base, and good distribution.

Now let's move to Asset Management. This was clearly a tougher quarter in terms of assets under management. The market environment I've discussed was particularly difficult, with foreign exchange driving a large piece of the assets-under-management decline. In addition, we had outflows from two large clients in strong performing funds where asset allocation, or geopolitical and liquidity concerns, drove their decision to sell. As we finish the year, we are likely to see some additional pressure here.

Outflows in low-fee former parent-affiliated assets this quarter were elevated. In terms of the fourth quarter, we expect these will continue with additional outflows in low-fee collective trust funds given US Trust's decision to manage some of these fixed income products in-house. In terms of Acorn, outflows have persisted; and while investment performance has improved year to date from the enhancements we put in place, in the near term we expect that outflows may continue. In terms of underlying flows, the market dropped in August and September, and related volatility dampened retail activity globally.

With regard to US retail, our gross sales were up compared to last year. We have some improvements in sales share over the last few quarters, and our wholesaling productivity has improved, reflecting the steps we have taken to better align our sales strategy. In Europe, retail also slowed, but we feel good about our positioning, and flows could turn as conditions improve and clients become more comfortable.

Overall, our investment teams are generating strong performance across equities and fixed income, and in solutions. The volatility is helping to demonstrate the benefits of active management. We've added new talent to our sales leadership in both the US retail market and UK institutional, complementing the teams in place. We also continue to strengthen our retail product line, including the recent launch of the Columbia Global Unconstrained Bond Fund.

In institutional, we were impacted by the client moves we discussed. That said, we are building on the Business. We have good strategies with competitive track records in both the traditional and solutions space, and an aligned sales and service organization. Our pipeline remains strong as we look to the end of the year.

In terms of financials, we continue to deliver solid earnings, given our ongoing commitment to effective expense management as we focus on executing our strategy in delivering for our clients. From the perspective of the overall Company, we are consistently generating an excellent return. Our balance sheet and capital position is strong, and our investment portfolio remains high quality. That allows us to return more to shareholders; and on a year-to-date basis, we have increased our buyback significantly. And combined with our dividend, we have returned $1.6 billion this year alone.

Our capital position also provides flexibility as we look to drive organic growth, and consider inorganic opportunities in both wealth management and asset management. To that end, earlier this month we officially marked our 10 year anniversary as an independent publicly traded company. As I reflect on the last decade, we successfully executed one of the largest spinoffs in US history. We navigated the financial crisis better than most, and that was without government support.

Ameriprise emerged stronger because we had our own financial plan in place, made good decisions, and managed risk well. We stood by our clients, delivered appropriate products and solutions to satisfy their long-term goals. At the same time, we invested in our Business and the right capabilities, and set the stage for our future.

10 years in, Ameriprise is one of the strongest financial services firms in the business. When we look at our brand and reputation, it is one of the best in financial services. I believe, over that time, we have earned an excellent track record of growth and return, and for making thoughtful decisions in the interest of our clients, advisors, employees and shareholders. Though markets have recently become more challenging, we remain focused on navigating the environment while we look to continue to generate good returns over time.

With that, I'd like to hand things over to Walter to review the numbers.

Thank you, Jim. Ameriprise delivered another solid quarter of financial results in a volatile market environment. The S&P 500 had substantial volatility in the quarter, ranging from 1868 to 2128. And the VIX ranged from a low of 12 to a high of 41.

In the quarter, we generated operating net revenue of $2.9 billion, down 1% from last year and down 4% sequentially. This was obviously driven by the impact of market movement in the quarter on asset levels and the associated fee generation. Assets under management administration were $766 billion, a 4% decline year over year, with a more pronounced 7% decline in asset management, where geopolitical concerns, equity markets and unfavorable foreign exchange reduced asset level and fee-based revenue.

While top-line growth was impacted by the environment, we continued to manage expenses tightly and use lower valuation levels to repurchase additional shares in the quarter, and we benefited from effective tax planning. These actions drove strong 12% growth in EPS, and resulted in achieving a new record return on equity in the quarter of 24%, up almost 200 basis points year over year.

Let's look more closely at capital on page 4. Our ability to return capital to shareholders at this level reflects our strong balance sheet fundamentals. Our investment portfolio is well diversified and low risk. Our hedge program is effective. Our risk based capital ratio is estimated to be over 625%, and we have approximately $2.5 billion of excess capital.

Given the share price in the quarter and our current valuation, we accelerated the level of share repurchase. We returned $571 million to shareholders through share repurchase and dividends, which is our highest quarterly level. This equates to 133% of operating earnings. We are confident in our continued ability to generate free cash flow, return capital to shareholders, and bring down our excess capital prudently over time.

Turning to segment performance, starting with AWM on slide 5: The Advice and Wealth Management business continues to perform well across all dimensions to deliver solid financial results. Operating net revenue was $1.2 billion in the quarter, up 3% from last year and down 2% sequentially. Our revenue growth slowed due to the impact of market movement on asset levels and its associated fee generation, but still compares favorably to others in the industry.

Wrap net flows were quite good at $3 billion, despite the deterioration in the markets. While total expenses increased 2% year over year, it was driven by higher distribution expense. G&A expenses improved 1% year over year, while still investing in key business growth initiatives, including more productive, experienced advisor recruits, advisory platform product expansion, and investments to improve the ease of doing business for advisors and clients.

This resulted in earnings of $219 million, up 7%, and a record high margin of 17.6%. Results were achieved without the benefits of increasing short interest rates. We have $21 billion of brokerage cash balances that earned 23 basis points in the quarter. There is a substantial upside opportunity when rates rise.

Asset management continues to provide a solid contribution to our revenue and earnings, as you will see on slide 6. As I previously discussed, both equity markets and foreign exchange translation impacted asset levels in the quarter. Combined with elevated net outflows due to geopolitical concerns and the timing of performance fees, it resulted in a 7% decline in operating net revenue to $782 million.

We remain committed to managing expenses tightly, with G&A down 3%. Pre-tax operating earnings were $180 million, down 13% from last year. Again, this represents the low markets, and timing of performance fees.

Let's turn to slide 7. Before I focus on the underlying business results in Annuities and Protection, I want to review the annual unlocking completed this quarter. Overall, unlocking provided a $42 million favorable impact. Variable annuities had a $64 million favorable unlocking this year. While continued low interest rates negatively impacted our unlocking, it was more than offset by favorable net persistency, withdrawal utilization, and model updates.

Fixed annuity unlocking was only a $2 million favorable impact. The benefit of clients lapsing was largely offset by the impact of continued low rates. For insurance, the primary driver of $24 million unfavorable unlocking was low interest rates.

In long-term care, we conducted the growth stream valuation, and did not have loss recognition despite low interest rates. While low interest rates impacted the assessment negatively, we have received approval of more premium increases than we had anticipated. And the benefit of these future rate increases more than offset the impact from low interest rates.

Turning to Annuities on slide 8, I will focus on underlying results that exclude the impact from unlocking and mean reversion. Underlying variable annuity pre-tax earnings declined $3 million from a year ago to $116 million. This decline was driven by lower account values from markets, and from the run-off of the closed block distributed through third parties. Underlying fixed annuity pre-tax earnings declined $23 million due to elevated lapses of the blocks running off as it comes out of the surrender charge period. Given the current interest environment, there are limited new sales; and as a result, this book is expected to gradually run off, and earnings will trend down.

Turning to Protection on the next slide, I will focus on underlying earnings. Protection pre-tax operating earnings were $49 million in the quarter, excluding the unusual items noted for the quarter. This is down $38 million from last year, with the impact essentially split between our Life and Health business, and our Auto and Home business.

Let's focus on Life and Health first. Underlying pre-tax operating earnings were impacted by higher claims activity and a lower interest rate environment. Life claims were elevated in the quarter, as we had four large later-duration VUL claims that had a much higher retention level than our more recent policy years. Year over year, gross claims increased $19 million compared to a very favorable quarter a year ago. As you can see, we did not see a corresponding increase in the benefit from reinsurance.

The Auto and Home business generated a pre-tax operating loss in the quarter. First, we experienced deterioration in collision results from an increase in miles driven and lower salvage values, which is consistent with many in the industry. Second, we had a loss associated with travel accident program, a small program we piloted, but did not meet our profitability targets. Therefore, we are in the process of exiting this business. Third, we had some prior-year CAT development associated with hailstorms from last year.

Finally, we had higher expenses this year as we continued to enhance our operation and staffing levels. The operational improvements we have made this year are beginning to show across our product lines, other than collision. Unfortunately, that has been masked by some of the unusual items in the quarter. Our activities are on track, and we anticipate marked improvement next year.

To wrap, Ameriprise delivered another solid quarter of financial results, despite some revenue pressure related to market volatility. We will continue to actively manage the levers within our control, like expenses, balance sheet strength, and capital return to drive consistent, solid financial performance.

With that, I will open it up to questions.

(Operator Instructions)

Suneet Kamath, UBS financial.

Thanks, good morning. Wanted to start with asset management. Jim, in your color around the flow picture it seemed to me to suggest that there is probably not going to be a turn in Q4 from some of the trends that affected you in Q3. My question is do you think Q4 flows could actually be worse than what we saw in third quarter?

I think as we look at the fourth quarter I don't think from sort of the core businesses that that will be the case. On the other side we know that there's a level of volatility in August and September, and we know that that may continue depending on markets. So we wanted to be clear particularly in the institutional space that is a little lumpy.

The only area as I highlighted in my opening remarks was around one of the ex-parent activities and some of the low fee as they take a bit of that portfolio back in-house. But we were planning on that, and it is very low revenue to us. But that is the only thing that probably would be higher in the area that we highlighted in the ex-parent activities. But from the retail and institutional I don't see that at this point in time, but again I don't know how the rest of the year will go in volatility.

Okay. Then, Walter, you had mentioned that performance fees were lower in the quarter. I think you said it was $10 million in a year ago in less than $1 million this quarter but that some of it was related to timing. Any sense based on what you know today of what that could look next quarter?

I think we will see -- normally fourth quarter is higher, but I think we will see that it will shift into the fourth quarter and basically on the year it's within our targeted ranges.

And what are those targeted ranges?

It will -- let me send you -- it's tough to -- but now fourth quarter is basically the $10 million that we talked about should be able to flow through, and so there will not be a variance factor except for that $10 million. And we anticipate that the normal performance fees that we had last year and this year will be in the ranges that won't cause a variance like it did in this quarter.

And just lastly on the capital. I fully acknowledge that the move from $425 million buyback to $450 million, but, given where the stock is which I think is lower today than where you bought back stock in the third quarter, and the excess capital position remains at roughly $2.5 billion. Why can't that quarterly run rate of buy back be in excess of $500 -- $500 million on a quarterly basis?

It could, but as we demonstrated, as we feel the stock is undervalued looking at our -- that we have purchased 133% of our basically earnings. So we are evaluating that and looking at it, but certainly we are -- we talk about our range as 90% to 100% but we have demonstrated as we see the opportunity we will buy up -- I don't know we if will go to $500 million but certainly we have the capacity to do that, and we will evaluate it. But I would imagine we should expect it will be higher than 90% to the current situation continues.

I think you should take the buyback up over $500 million, sell auto and home, and your stock price would be higher than $100 million.

(laughter) I wrote that down.

Yaron Kinar, Deutsche Bank

Good morning, everybody. I wanted to start with a question on the advisor hires. It seems like the last two quarters you maybe turned a corner there, and we're certainly seeing some momentum. Can you maybe talk about what -- has there been any shift in terms of your recruiting strategy or the efforts or what's leading to the higher advisor recruiting levels?

First of all we are bringing in what we think is a good core new advisers to the firm, have very good productivity and think will fit in nicely based on the value proposition that we have and what their interests are to grow their productivity. And I think it's really over the course of the last year that we have been able to better get out there in the market and tell our story. That it always takes time to build that sort of pipeline and relationships.

And I think people are more interested as they learn more about Ameriprise. And so I think it's been a more consistent sort of ramp up that we've had, and the pipeline still looks very good. So we feel good about that. We are seeing good people, and it's all about what makes sense for them, and if it fits with what we are looking to accomplish then it becomes a win win.

Got it. And then one follow-up. Asset management clearly is coming under pressure, but that also means that valuations for franchises have compressed as well. I'm just curious as you talk about capital deployment and your thoughts about the future. Clearly you have been quite disciplined in terms of deals in the past.

Do you see a pipeline today? Is it more robust? Do you see more opportunities or more serious opportunities from your perspective as you potentially look for deals in asset management?

Yes, I do believe there is a bit more of a reconciliation of people evaluating what the alternatives are. I think there's also an understanding of what would be more appropriate pricing as we go forward, and I do believe there will be more opportunities that come about over the next number of quarters.

If something interesting does fit the bill and it strategically makes sense for us and it would be good complementary, as I said and Walter said that we have the cash on hand and the capital ability to do that. And we would be very open to exploring those opportunities. But as you also said we are also very disciplined and has to be appropriate and make sense to get us a little further down the road than where we are.

And could you remind us in that space what would be a good strategic fit from your perspective?

We are continuing to look at building out some of our product set around alternatives and solutions, and there may be some core product that would be complementary on the global platforms that we have. We are also looking to further expand some of our distribution capabilities and certain -- as we continue to built out our global activities.

Again I think there are a number of things that would fit the bill or can increase our ability to grow even more formally and some of the channels we are in. I don't think it's just a one thing that we are looking for per se, but there may be broader set of opportunities that would work for us.

Thank you very much.

Erik Bass, Citigroup

Hi. Thank you. Can you update us on your strategy accelerate the growth in Columbia's retail channel? Obviously it's a tough environment, but are you seeing progress in getting on distribution platforms or establishing performance track records for new funds or maybe some other new initiatives that give you confidence that flows can turn and if and when we see a pickup in retail demand?

Yes. I did mention that we are seeing some good traction. I think it's hard to see over all, because you get some -- we've had some additional redemptions and things like acorn fund. Over all our sales activity as we look at external benchmarks like market metrics, et cetera, shows our market share in some of the major channels that we are doing business in some of the major intermediaries has actually improved.

And so that does mean that we are able to expand a bit more. Now that takes time, and it does take that you're --you get more fully on to those platforms and the relationships formed. But I think we now are making some good progress. We have plans. We just brought in some additional strong leadership.

In both the platform business over the last year we brought in a strong leader overall for the intermediary channel. We just added a new leader to run our wholesaling activities. We have adjusted how we go to market working between the product and the marketing groups and being able to tell our story a lot better.

We are also putting out new advertising in the marketplace that will be launching shortly. We have been a little quiet there as we work on a new brand, the Columbia Threadneedle. We feel pretty good that we can continue to gain traction, but again it doesn't come overnight, and it does get impacted and influenced based on what's happening in the volatility of the markets.

But we have some really good products like our strategic income fund which really suits what the client and the advisor are looking for right now. We do believe that we can actually take more space, and we have a good group of leadership and people focused on doing that. So that's what I can say at this point.

Got it. That's helpful. Just quickly on P&C, did the emerging trends you're seeing in auto claims chang your view at all as to how much rate is needed, and should we anticipate it will take longer than initially expected to get back to target margin levels?

It's Walter. Obviously the collision and impact which was driven by certainly the drop in salvage value which was quite substantial and the frequency of people driving has, and we will reflect that, but the other actions we are taking I think are in place but we are going to have to supplement that.

Got it.

Eric Berg, RBC

Thanks very much. First in the asset management area. Jim, I'm hoping you can build on your comments -- you prepared comments that there's been a change in strategy or outlook at US Trust. I believe this is your specifics behind your reference to the former parent company relationships. What has been the nature of the change, and how long will it last? How long will the effect last beyond the December quarter?

So, what we are seeing -- first of all we have a very good strong relationship with US Trust, multiple dimensions, particularly strong in our fund family, et cetera. And that really hasn't changed. I think what I did mention is they go through their folio allocations, et cetera. They are dealing themselves and where their flows should go. They are a bit more in how they are looking at their overall lineup.

But this is really regarding some of their collective trust areas for some of their clients and fixed income, and they feel that some of those things they can manage in-house, and they are looking to do some of that. Again It is a low fee business. It's something that they think it's suited at this stage for them, and so we probably will see a continued outflow from that area. But nothing fundamental around a larger relationship has changed.

Next with respect to the international institutional business where you've had clients outside of the United States withdrawing funds for what you call geopolitical reasons. Can you built on what you mean by geopolitical reasons? Are we talking about the collapse in the price of oil and the effect it has had on certain sovereign wealth funds or something else?

Well I think there are two things in broad terms. As you've seen there's a move away from some of the emerging market and Asians that we have some good portfolios in that some clients reallocate right now from. The second area is definitely around the price of commodities and other things that have occurred that may affect some of the investments from clients.

You've read about that more globally. But it's nothing particularly to Ameriprise. It's nothing against the performance. And in fact people just need to raise some -- once in a while some liquidity.

We think over time that will settle and actually things will come back into some of those areas because it wasn't a performance issue for where they're pulling some money right now. And we are probably affected less than some others out there.

Last question. I understand that there is no new fiduciary rules. You can't react to it. I'm not going to ask you to do that. I would think that you would be doing preparation for the possibility -- possibility not the certainty that the IRA rollover business could become a lot more difficult to get done in the future than it has in the past. With that be a right conclusion to reach for what sort of preparation are you doing for possible changes? Thanks.

I think, Eric, as you do understand us here at Ameriprise you know that we always do our planning, and we always look at what they happen. And so I do have my teams geared up. We look at everything that has come out from the department. We look at what based on all the comments and what the department has already said that they need to look at or possibly change.

And we are already gearing up to see what that looks like and what it takes to make those adjustments and already have things under way. I would be very clear as I've actually even outlined in my opening remarks whether they are millennials that people think they want to work with a Robo or they want to be self-administered, we clearly know that they want advice. We clearly know that the populations that we're talking to want to work with an advisor.

We have the best -- one of the best advisor forces out there. Our satisfaction is very strong. They like what we have to offer. Again I know the department will come up with something. We know we want to work in the best interest. There's no argument for us on that.

We'll see as they make adjustments to their rule that it's more rational you can work with people on a reasonable basis with reasonable compensation and try to satisfy their needs consistent with what FMRA and the SEC already look at and regulate. We are planning for it, and we are already looking at things what may come about from whether it's disclosure or how you operate or compensation. But again I think Ameriprise and what we offer is really the cake.

I think if people weren't satisfied today you wouldn't have those strong personal relationships that we have. But they really want personal advisors, and they really want -- the biggest thing they want help on is their retirement.

Thank you, Jim.

Alex Blostein, Goldman Sachs.

Back to the M&A discussion for a second, Jim, any sense, and I guess when you're thinking about opportunities to deploy capital and inorganic growth any sense of which way you guys are leaning more on the brokered side of things so similar type of deals we saw you do earlier this quarter or last quarter or more on the asset management? Just trying to see given your alluded comments on improvement pipeline and deal flow which way does that pipeline skew?

I think Alex it doesn't have to be an either or for us. We have the means and the ability to do both. We have the experience to do both and the operating infrastructure to do both. As an example if there are things that fit in for us in a broker dealer said that would complement the good recruiting we are doing, we are open to entertain that. We have the ability to do that. We do look at things that come along.

In the same thing on the asset management said. It hasn't been that we have a kicked the tires on a number of things but whether it's because of a combination of factors, operating factors, people factors, or just the value that people are attributing to some things we would have passed -- we might have passed on some of the things and never really explored them to that depth. But I think if those things come along again in that light, we have the ability to do both.

Got it. Understood. And then on AWM operating leverage and margins, clearly super strong results with continued margins here hanging in at record levels. As you guys look out and think about a more challenging equity market drop -- let's say a flattish equity tape, how much more operating leverage can we still see from just organic initiatives without help from the market. Just trying to get a sensitivity in th model?

I think as I think about that what I would say is if markets just flatten, and it depends on how they flatten and the level of volatility and how that effects client activity so it's hard to say it's driven based on the market. But as you saw in the third quarter markets actually depreciated. We still had good client inflows in. We had cash build, but we still put money to work for our clients in our wrap business.

It's hard to predict exactly what the circumstances are. What I would just say as we our operating at pretty good margins. We continue to see productivity lifts from what we've invested in, but having said that, with flat markets or lower client activity it depends on what that looks like of whether the margins would accrete from there or stay more consistent. I think I would probably put it in that sort of vantage point that says stay more consistent at this time.

We are -- again at one point the Fed will raise interest rates as the economy continues to improve or even maintain at this growth rate. It's hard to see why you're at a zero interest rate with even a 2% growth rate in the economy. I think at one point that may kick in that will offset what happens with the equity market pressure.

Yes, I hear you there. And, Walter, real quick on seasonality in AWM should we still expect a similar type of pickup in G&A in the fourth quarter like we've seen in prior years?

Say that again I didn't pick up the first part of it

The seasonality and expenses in AWM's should we expect to see a similar pickup in the fourth quarter and G&A like we have seen it in prior there's? I Think there are some things market and things like that.

I think you'll see a normal pattern, but certainly the expense will remain controlled as we demonstrated in the first three quarters.

Great.

Tom Gallagher, Credit Suisse.

Good morning. First question on what drove the big increase in RBC this quarter from the 560% last quarter to 625%. Was that variable annuity hedging or what was driving that?

Yes, that is mostly variable annuity hedging and the value of it going up. Yes, that is exactly correct.

Got it. Just given the level of increase there, Walter, why wouldn't your excess capital have grown to north of $2.5 billion? Is at holding more RBC for VA?

No, it is actually -- it is the continued buy back obvious that we did in exceeding the level of the -- of our earnings, so there is an element within that. And so the net-net effect is it has been in the range that we reported last quarter.

Okay, so bigger draw down of [whole co] cash offset by an increase in RBC. Is that the right way to think of it?

Yes because RBC comes into our calculation. We look at the overall excess, certain things we discount a little as we talked about, but it is basically we are feeling very good about the requirement and we have used more cash for buy back.

Okay. Just shifting gears to M&A, Jim, your earlier response you mentioned I believe product on the asset management side as being side-- I think that was the first thing you responded to when asked about M&A which suggests to me more asset management is of interest. Can you talk about would you be interested in doing another pretty sizable deal, or would it be something smaller to expand product instead of a large AUM type deal?

What I would probably say is that we would look for deals that would be incremental to what we have established would be our primary. It doesn't rule out something else that may be out there or come along if it made strategic sense or if it really was complementary that was on a larger scale. But as we think about just the climate and things that come up in the normal course of -- over the course of the year, we think that you can easily, more easily execute smaller strategic complementary type things in product and distribution and that would be always the first thing, but if something came along that made sense larger and truly fit with us, that's something we could evaluate. But that's not our starting point.

That's helpful. Next question on your response to the AWM margins trajectory I presume that doesn't include any increased costs that you would expect if the most likely DOL fiduciary standards proposal goes through or even if you consider a range of outcomes from that proposal. Is that the right way to think about it? My point being that if we are in a flattish type market without significant revenue growth, I assume there's going to be incremental costs coming from this new standard.

It's Walter. I think that's a reasonable assumption. Again we've demonstrated in the past (technical difficulty) investments that we could have the flexibility to mitigate some of that within the reengineering base that we look at the business. But certainly it's a reasonable assumption that it is not included. We were certainly scenarioing it, but that's it.

And one other quick one. The higher frequency in auto that you mentioned this quarter, did that get worse versus Q2, Q1, or is that an elevated frequency level you have been seeing throughout the year?

On the auto, I think it's something that has been building, and we have been observing it and looking at it and again watching certainly in the industry coming back on the auto. But it's been more of a building element that we have been evaluating then reflecting.

Okay and if I could sneak in one last one on long-term care. I know you had the favorable actuarial review but on a core basis you still lost money on the business this quarter. If you continue to lose money is there still risk of a balance sheet charge here if you fast forward to next year, or do you feel you've got enough flexibility and cushion where we can start to take that off the table as a serious risk factors

Based on what we are seeing with the price increase the other element and certainly the way --you do know we visit [aspade] a little bit because we have been pretty prudent on our investment strategy and other things of that standpoint. But I think you can take it off the table.

Okay. Thank you John Nadel Piper Jaffray

Good morning, everybody. I've got a couple. If I could just ask maybe a quick housekeeping one first. I think in the past, Walter, I don't know if it's been every quarter, but you have broken our margin from the franchisee versus the employee channel for us, and I was wondering if you could do the same for third quarter?

I think basically the trend line has continued as we talked about it. Certainly from that standpoint we have seen improvement within it. We are also seeing from that standpoint we are comfortable with the development taking place in the employee channel and with the franchise channel. I don't know if we have officially broken out but I don't have the number in front of me but certainly trend line wise we feel comfortable with it.

Okay. So would it be fair to say that the gap between the two is still closing?

Again, when we take quarterlies the answer is certainly directionally is closing.

Okay. That's helpful. I have a question on variable annuities and the relationship to advice & wealth management revenues. So, really nice growth in sales on a year-over-year basis. I think it was 11%.

I'm sure that had to help the revenues in the advice and wealth management channel. I guess the question is do you think you are seeing any advisers hold back on VA sales into qualified accounts given any anticipation of some changes there or would you said it remains business as usual until a finalized rule is enacted? And also related to that I know I'm getting long winded here, but perhaps you could give us a sense of approximately what percentage of advice and wealth management revenue are being driven by VA sales into qualified accounts? I've estimated it's about 5% of revenues but I'm wondering whether you think that is in the ballpark?

First thing I would say is I do not believe that there is any hold back. It's an important solution set within and certainly we offer the product, and I think from our standpoint it's been more of a business as usual. Again it's the percentage I don't really have that in front of me. It is certainly an important part of the element, but I think you consider it relatively small [sorbets] five or where your range is it's a relatively small.

It's relatively small. Okay. And just one other housekeeping one. If my math is reasonable I think your current remaining buyback authorization or at least as of September 30 your remaining authorization is down to around $500 million give or take. I guess the question is can we expect the board will re-up the authorization sometime relatively soon. Is there any reason to expect the capital deployment strategy you guys have enacted so far would change at all as we look out the next year or so?

The answer is your math is correct, and certainly we intend to discuss with the board re-upping.

I don't foresee an issue there. It's just a timing issue.

Okay. And then final one just quick on asset management. You've given us some color on what to think about as we look at fourth quarter and a couple of these items that could in terms of flows that could continue to impact the numbers in the fourth quarter, but as we turn and look out to 2016 or even a little further out than that, Jim, do you feel you have enough visibility into what's happening underlying some of this noise to say you feel like you're reaching an inflection point on flows or is it still a little too soon?

No, I think listen, we've worked very closely and had the teams really diagnose and also put their plans in place. We have very clear objectives and initiatives underway against the strategy we have and where we think there are opportunities and how to grow against those opportunities. And again you run into a sort of environmental end market, you run into geopolitical of what's happening in China and Asia versus, et cetera, whether you have a slowing in Europe versus the US.

All of those things if we look and just say the world will continue to be a bit more adjusting over time and that's part of the landscape, I do see underlying some really good core improvements, some really good people and focus that we have that we have that we either brought on board or got channeled into areas that we are focusing on, and we do have some very good product and people and performance in those product. I don't think there's an issue that we can't compete and get the flows in the right situation, but I think and see what the injury pressures are.

We had our own one offs because it's some ex-parent or a portfolio here or there that might have underperformed or just getting reestablished as we've integrated Columbia with River Source with Threadneedle, but I think those things are actually moving forward very nicely, and we are seeing some positive both energy and synergies. No, I actually think there is a growth but I'm not going to sit here with a quarter right now because it hasn't actually happened based on the environmental and complement some of the internal. But I do see a path forward and I feel positive, really positive about the group we have in place.

Excellent. And following up on your ten year anniversary of spinoff I'll leave you with this thought. Your stock despite some pressure this year is up threefold or more since your spinoff while your former parent is up only 40% so I wonder who misses whom? Take care.

Ryan Krueger, KBW.

I had a couple follow-ups. On the US trust change and the relationship in the fourth quarter, can you just quantify the amount of assets that could be impacted by that?

I don't have a full thing but we're probably talking a couple billion, something in that neighborhood.

All right. Great. Going back to the AWM margins. I know you were asked about and you commented that you'd expect flattish margins if the equity markets remains fairly flat, but if we get more normal equity market lift and the interest rates remain where they are, do you still expect further margin expansion from here over the next few years?

Yes, I do. There's a number of moving parts in there as we've said we've seen productivity improvement from our advisers, but we are also adding a good number of new advisers that we have incremental cost initially as they ramp up but then the elder vintages ramp up nicely in the productivity. It's hard for me to sit here without doing the exact calculation, but if equity market continue to improve we would see a continuing incremental margin over time.

Okay great just last one can you remind us what percentage of Columbia retail sales are distributed through Ameriprise advisors?

We are talking in the teens from a sales perspective. We are good provider in our channel, but we have other good providers. But it's not an overly dominant position, but we have a good sales platform here. But it's one of a good number -- we have a large number of providers. We have good providers in the system as well.

Understood. Thank you.

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