阿默普萊斯金融 (AMP) 2015 Q4 法說會逐字稿

Welcome to the fourth-quarter 2015 earnings call. My name is Hilda, and I will be your operator for today.

(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 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 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 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 earnings call. This morning I'll provide my perspective on the business, and Walter will discuss our financials.

Ameriprise, like the industry, was impacted by a more volatile market environment during the second half of 2015. Overall, our fourth-quarter results were solid. We are executing our strategy and have worked to continue to do in certain areas that I'll discuss.

For the quarter, operating net revenues and operating earnings were largely flat, with operating EPS up 7%. And for the full-year, operating net revenues were up 1%; operating earnings grew 3%; and operating EPS increased 9%.

In terms of operating return on equity, Ameriprise continues to deliver at a differentiated level. We generated a new record return of 24.3% of 130 basis points, which is one of the best in the industry.

Ameriprise continues to demonstrate strength in our ability to return capital to shareholders, returning another $569 million in the quarter. In fact, 2015 represented the fifth consecutive year we returned more than 100% of operating earnings to shareholders through dividends and share repurchases, while investing for growth and maintaining our capital strength and flexibility.

Very clearly, our financial foundation remains in excellent shape. In total, assets under management and administration were $777 billion, as solid Ameriprise retail client flows were dampened by asset management outflows; market depreciation; and an unfavorable foreign exchange impact.

Let's move to these business results in the quarter. In advice and wealth management, we have a strong business. And I feel good about our ability to continue to help advisors build productive practices. The strength of our advice value proposition is even more attractive in this environment.

Ameriprise is well-positioned to help clients and prospects in every stage of their lives and to address the full spectrum of their needs across both market cycles and their lifetimes. We are helping advisors uptake the extension of our successful confident retirement approach that we launched last quarter for 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. And 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.

We continue to invest significantly in our brand and marketing programs that help our advisors spend more time with their clients and grow their practices. Our Be Brilliant advertising campaign tells our story by illustrating the everyday moments of brilliance that they can realize by working with the right advisor in the right firm. The campaign is doing well and outperforming competitive norms with all of our key audiences: consumers, clients and advisors.

We are complementing our broadcast activity with digital channels, like social media and online ads, to expand the Ameriprise message and increase engagement with our brand. Our advisors are taking advantage of Be Brilliant in their local committees and online to gain new clients in assets.

Overall, client assets remain strong at $447 billion. We also had solid flows into fee-based investment advisory accounts and cash positions increase to more than $23 billion. Clients are naturally taken a more conservative position, which is a typical pattern in this environment.

With regard to our advisors, Ameriprise value proposition and culture is attractive in the industry. It was another strong quarter for recruiting, as more advisors are recognizing the strength of the Ameriprise value proposition. 82 new experienced advisors moved their practices to Ameriprise. For the year, nearly 350 advisors joined Ameriprise in both the franchise and the employee channels. And so far, the pipeline for this year looks strong.

Advisor practices are more productive because of the combination of excellent retention of our most productive advisors, very strong recruiting results and our investments in growth. The advisor productivity, a metric that we consistently grow, increased 4% year over year to $514,000 on a 12-month basis.

We're well-positioned in the marketplace in generating good profitability. In this environment, we are working closely with our advisors to handle the effects of market volatility with clients. As client pullback, it's important to keep them focused and engaged on their goals. People need to plan for their future, and that doesn't change based on market conditions.

As we look ahead, the US Department of Labor's pending fiduciary rule will add additional requirements that will have implications for our industry as well as Ameriprise. We're hearing the DOL will be issuing the new regulation in the coming months.

With that in mind, we're very much focused on putting together our plans and resources to effectively meet the DOL's requirements. But we need to understand what the final rule will be and how it will impact our clients. We have the resources, compliance infrastructure and capabilities to respond to the DOL's objectives. And we believe that our value proposition, satisfying client needs for the long-term, has been, and will continue to be, very appropriate.

Lets move to annuities and protection. I'll focus more on the underlying business, and Walter will cover the financials. In terms of annuities, we continue to see solid sales of our variable annuities with and without living benefits in our channel. While we are in the outflows, it reflects our closed third-party book, and we remain focused on serving our clients.

Within fixed annuities, we continue to have a level of outflows, given the book is in runoff as we have not been adding to it, given the current rate environment. Our focus remains on working with advisors to help clients understand the importance of guaranteed income in a well-diversified plan. It's integrated within our confident retirement framework. And I feel good about how we're managing the business, developing and enhancing our competitive products and features while managing risk.

Within protection and life and health, we closed the year with a nice increase in sales driven by UL products. And while life claims were higher than a year ago, we recognize there will be fluctuations quarter to quarter, and these movements are within our planned ranges. We have a good book, and we are working with our divisors to serve clients' protection needs. The environment does create growth challenges for these longer-term products. But at the same time, it reinforces the importance of protecting what matters most to clients.

In auto and home, we're disappointed with the financial results in the quarter. As you saw, we did increase reserves this quarter for higher claims experience in some of the older business. New business is performing in line with our expectations. Walter will explain that in more detail.

We continue to make a number of enhancements to improve the financial performance and risk characteristics of the business. We brought in significant resources and leadership to continue to enhance our pricing, underwriting and claims management. We feel that we are making the progress necessary. But we recognize it will take time for the benefits to work through the book and be fully realized. Importantly, we continue to maintain our strong client satisfaction and [fitting] relationships in auto and home.

In asset management, we're generating solid financial results and executing our strategy focused on gaining market share and profitable flows. With $472 billion in assets under management, we have an at-scale business with a diversified base of assets and earnings. And we are focused on serving more individual and institutional clients in key markets globally.

For the quarter, operating earnings were $193 million, as revenues were largely flat and earnings were down a bit year over year from the timing of a few expense items and investments in the business. Including supporting our new Columbia Threadneedle Investments brand in our key regions of the US, UK, Europe and Asia.

Investment performance remains quite strong. I'd highlight US and European equities, asset allocation and tax exempt fixed income as particulars strengths. Our investment teams in the US, London and Singapore are demonstrating the importance of active management, both in terms of capital appreciation as well as preservation, given the volatility we are experiencing.

On the product front, in Europe we're seeing good sales in our UK and European equity products. Here in the US, we've had good traction with sales in large cap equity products as well as in our strategic income fund. And within the solutions space, our [CARA] strategy continues to gain interest. From an overall flows perspective, we had about $700 million of net outflows in the quarter with reinvested dividends. This did include a higher level of outflows at US Trust. However, underlying flow trends are improving; and I'll take you through it.

Let's start with institutional. Total outflows were driven by about $6 billion in net outflows of former parent assets, largely driven by outflows of low-fee, fixed-income common trust funds in IMA's at US Trust, given the changes they have made. We mentioned this last quarter and expect continued IMA outflows of several billion dollars at US Trust in the first half of 2016.

In addition, we and others in the industry continue to experience outflows from a large client who redeemed from strong-performing strategies to address liquidity concerns. That was approximately $1.4 billion in the quarter. And we expect at least $1 billion of additional of low in the first quarter.

These two components, low fee former parent assets in a single large client, muted continued progress in third-party institutional flows. We have strong client and consultant relationships, a solid list of one not funded mandates, and a good pipeline, which we expect will drive flows this year.

Let's now move to retail. In the US, we're seeing positive trends from the work the team has done to focus our sales strategy. However, this was muted from a flows perspective, given continued outflows in Acorn Fund. The fund's short-term performance has improved from the changes we've made, including adding an experienced lead PM who came onboard at year end. We expect outflows will continue to near-term as the team reestablishes the funds longer-term track record.

In addition, in the quarter we made the decision to end a sub advisory relationship with Marsico Capital Management, given the strength of our global investment capabilities. This resulted in a few hundred million of outflows in the fourth quarter. We plan to ask shareholders to support our plans to merge certain funds in 2016. In addition, we expect outflows of about $700 million in Marsico managed institutional SMAs in the first quarter. Based upon the previous servicing relationship with them, these outflows will have no financial impact.

Overall, we've been able to grow gross sales and market share in the larger broker dealer and independent channel in the past year at a time when gross sales declined for the industry. This bodes well as industry sales may pick up down the line. We recognize we need to do more to increase both gross and net sales in US retail. But I feel good about the business, the team in place and our strategy. We're seeing early results.

With regard to European retail, we continue to build on our strong presence in the UK and serve more clients in key markets on the continent. At $1.4 billion in the quarter, European retail flows bounced back strongly from a tough third quarter.

The market environment so far this year is clearly challenging. But we're focused on what we can control. We're generating strong performance for clients. We have a good product line and distribution. I feel good about the team in place, the moves we are making, and the traction we have in key initiatives in asset management.

Overall, the Company is performing well, and our core businesses are strong. Ameriprise delivered solid earnings in a more difficult environment. Higher market volatility and declines have clearly shaped the start of 2016. We've managed through different market cycles before. And we're very much focused on executing our strategy, connecting with clients and advisors, and driving results.

Ameriprise has the ability and long-term perspective to continue to invest as we navigate the environment, capture opportunities and generate shareholder value. We have a strong track record of returning capital to shareholders and intend to continue to return to shareholders as we have, as well as maintain our excellent financial foundation. We are focused on keeping the Company strong as we look for further growth opportunities.

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

Thank you, Jim.

I'd like to build on what Jim shared with you as we review the financial results.

As context, markets were volatile and on a downward trend in the second half for 2015, which impacted revenues for our growth businesses. However, the results we delivered in the quarter were strong. The one exception is auto and home business, where we were disappointed with results, which we'll cover in more detail when I review the segments.

We remained opportunistic in repurchasing our stock at an elevated level in the quarter, given the pullback in the valuation and still believe our stock is undervalued. Our capacity to buy back stock remains strong, given our balance sheet fundamentals. And the business mix generates strong free cash. We are committed to maintaining a differentiated level of capital return.

Let's turn to slide 4. Macro conditions impact revenue in a few ways. We had limited equity appreciation, which impacted asset under management.

Volatility also suppressed client activity and contributed to asset management outflows. Low interest rates remained a headwind for our insurance and annuity businesses. And foreign exchange translation impacted asset levels in our earnings. These impacts were felt across all financial services companies, and we are not unique in this regard.

As you can see, total revenue growth was not at the level we have seen in the past. Volatile markets and lower interest rates, which decreased AUM and client activity, slowed. This muted the impact of areas where we successfully built the wealth management business through increased wrap flows, growth in insurance and annuity sales, and building cash sweep levels as clients wait for a less volatile environment to make investment decisions.

Let's turn to slide 5. Ameriprise delivered solid growth in EPS and return on equity, demonstrating the multiple levers we have to manage the business in a variety of market environments. Specifically, we managed G&A expenses, investing for growth in targeted areas but remaining disciplined. This, combined with solid tax planning and share repurchase, supported good 7% EPS growth. The operating effective tax rate was 20.1% in the quarter, which is lower than we had anticipated, driven by the level of dividends received deduction coming in harder than we expected.

Turning to segment performance, starting with AWM on slide 6. The advice and wealth managed business continues to perform well, delivering solid financial results. Operating net revenue was $1.3 billion in the quarter, up 1% from last year. Our revenue growth slowed due to the impact of market levels of volatility and didn't experience the typical lift we have seen from markets. Wrap net flows were quite good, at $2.1 billion, despite the deterioration in the markets and flat client activity levels.

Total expenses increased 2% year over year, driven by higher distribution expense. G&A expenses in the quarter were flat year over year and also flat for the full year 2015 versus full-year 2014. On a sequential basis, we had a normal uptick in G&A related to elevated advertising spend and other timing-related items in the quarter. This resulted in earnings of $210 million and a strong margin of 16.6%.

Margin for the full year was up to 17.1% from 16.5% in the prior year. Results were achieved with little benefit of increasing short interest rates. We had $23.5 billion of brokerage cash balances. We anticipate a more material benefit in the first quarter from this Fed rate hike, with a majority of the first 25 basis point increase flowing to the bottom line.

Asset management continues to provide a solid contribution to our revenue and earnings, as you'll see on slide 7. Operating net revenue is essentially flat at $833 million, reflecting marginal growth in equity markets and the cumulative impact of net outflows. Partially offset by strong CLO benefits and the performance fees in the quarter.

Expenses were up due to elevated performance fee compensation, as well as the timing of certain project-related costs. We remain committed to delivering strong profitability by tightly managing expenses. Pretax operating earnings were $193 million, down 3% from last year. Again, this reflects the impact of markets and outflows, partially offset by elevated performance fees.

Turning to annuities on slide 8. The segment is performing in line with our expectations. Variable annuity pretax earnings increased $6 million from a year ago to $129 million. We are maintaining good profitability in this book. Fixed annuity pretax earnings declined to $23 million, due to elevated lapses as the block runs off as it comes out of the surrender charge period. Given the current interest rate 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 the protection segment on the next slide. Pretax operating earnings were $35 million in the quarter. Let's focus on life and health first. Pretax operating earnings benefited from $28 million from an assumption change related to our waiver reserve. Underlying earnings were pressured by elevated life and long-term care claims, which were at the higher end of our expectations, as well as continued low interest rates and the mixed share from VUL to IUL.

Moving to auto and home, we were disappointed with the results in the quarter. We built reserves by $57 million, primarily in the auto book from the 2014 and prior accident years. Driving this was elevated frequency and severity experience for auto injury claims, which is in line with the trends the industry has experienced. Additionally, we did not see the level of impact in improving the outcome of 2014 and prior accident year existing claims as much as we'd previously expected.

We have been focused on operational improvements this year, including our pricing to risk. We have begun rate actions on almost 95% of the auto base and approximately 80% of the home, which will take time to be seen in the financial results. These actions have been effective in slowing sales across product lines. And performance for 2015 accident year is in line with our expectations. While results in the quarter did not meet our expectations, we are aggressively pursuing additional business improvements and anticipate better profitability in 2016

Let's turn to the balance sheet on slide 10. Our balance sheet fundamentals remain strong. Our excess capital is approximately $2.5 billion, with an RBC ratio of approximately 640%. Our hedging program has been quite effective, and the investment portfolio remains strong. And I will get into our industry exposure momentarily.

We continue to return over 100% of operating earnings to shareholders, with $569 million distributed through dividends and share repurchase in the quarter. For the year, we returned $2.1 billion to shareholders, which was 125% of operating earnings. Looking into 2016, we plan to return 90% to 100% of earnings to shareholders as a baseline. But we will be optimistic based on valuation.

There's been a lot of interest in the energy sector given our oil prices. So I'd like to take a few minutes to give you more detail on our portfolio.

As you'll see on slide 11, we have approximately $3.3 billion of energy sector exposure. The duration is short on these energy holdings, with over 35% maturing in less than three years. We feel quite comfortable with our holdings for the following reasons.

We have a consistent, rigorous research process behind our investment decisions. As we analyze investment opportunities, we consider low commodity prices when we analyze, stress test and purchase energy company volumes. Our analysis focuses on key variables such as a company's core structure, balance sheet health, flexibility of CapEx budget, asset coverage, and our assessment of management quality and behaviors.

Approximately $1.2 billion of our energy exposure is to pipelines, which are essentially the infrastructure to move oil, oil products, and natural gas from the producer to the end users. The vast majority of our exposure is with a handful of the largest US pipeline operators. These pipeline operators are highly regulated and receive most of their revenues from contracts, where the customers pay of reservation charge regardless of the quantity and price of product being moved.

In many cases, these pipeline assets originate at the wellhead, making this pipeline infrastructure essential to the producers. Additionally, contract terms with producers and customers are generally multi-year in duration.

The rest of our energy exposure is focused on large, diversified North American-based companies. While we anticipate that some investment-grade holdings may be downgraded to high- yield by the rating industries, we do believe that these companies have the financial flexibility to weather this extreme pricing environment.

We have already seen these management teams taking aggressive actions that we would expect of them: reducing their cost structures, cutting capital expenditures related to future production growth, reducing or limiting dividends, undertaking asset sales and even issuing equity. All with an eye towards living within cash flow as these distressed commodity prices continue. So far we have only two downgrades from investment grade to high yield in the energy space.

The last thing I'll mention is that the team we have in place today is the same team that managed our portfolio well during the global financial crisis. In fact, approximately 30% of our overall energy exposure was purchased in 2008 and 2009, when commodity and bond prices were last near these levels.

Overall, I feel very good about our financial performance in the quarter and in the year. We delivered solid earnings growth in the face of challenging market conditions.

2016 is off to a difficult start with continued market deterioration and volatility, which will pressure results if it persists. However, we have managed through challenging environments in the past. And we have the levers to do so this year. We have an excellent track record returning capital to shareholders in a meaningful way and will continue to do so opportunistically.

With that, we will take your questions.

(Operator Instructions)

Ryan Krueger, KBW.

Hi. Thanks. Good morning. First question was can you give us a rough sense of the fee rate differential between the former parent related outflows that you've referenced as being low fee and new sales at this point?

You were looking for the differential from the -- differential that we had on -- from a basis point on fee? That's what you're talking about?

Yes or even just rough -- even roughly is the --

Okay. Roughly approximately, again, for the inflows and outflows, again, looking at that as we talk about the low base point -- it was about a nine point differential between -- the inflows were about nine points higher than the outflows. And obviously the US trust element was substantially lower than -- at the lower end of flow basis points revenue.

Okay. Got it. That's helpful. And then secondly, have you seen any improvement in the M&A environment given lower property valuation in the asset management vector?

I would say that there seems to be a bit more activity going on. I think the stuff that was out there a little over the course of this year was still at a bit more elevated price. But I would probably see if we continue in this environment that things would probably either come forth more or be in a better valuation basis.

Okay. And then just last quickly, do you have a tax rate expectation for 2016?

Yes. Right now you -- we (inaudible) -- it should be in the range of 24 to 26.

Okay, great. Thank you.

Darin Arita, Deutsche Bank.

Good morning, everybody. So I realize we ended the year with a pretty challenging environment with deteriorating and volatile markets. But it seems like this is continuing this year. Can you give us any sense of how the first month of the year is looking for you?

What I would probably say is with the increase volatility at the beginning of the year, we're probably going to see client activity slow a bit as people sort of get to a better perspective of where the markets are balancing out or not to put more money to work.

I think as you saw in the fourth quarter, even though we had good client inflows, we did build cash balances. Usually what you find is that as you begin the year, those cash balances will go to work a lot quicker in the first quarter. We're probably seeing them being held more now. Until the volatility sort of calms down, there is a little more direction to the markets.

Okay. And then if we turn to the auto and home business -- I understand it was a little disappointing on your end as well -- do you still expect it to be profitable in 2016 as you indicated earlier?

Certainly from the standpoint of the action we've taken and certainly looking at the 2014, it -- we are expectations are that it should, but it is going to be at the real low-end of that profitability.

Okay. And I guess I'm surprised a little bit to see the continued prior-year reserve developments, and now going back to 2014 as well. I haven't really seen that coming from other auto players in the industry. And I'm just curious, what is it that really makes this business so difficult to get the reserves right for -- particularly in Ameriprise's case?

Okay. Let me try and answer it. Again, I can only take you through what we see in the industry statistics and other things like it. But when you're looking as long date as you look at BI under-insured and fiscal damage, what you're seeing there is we had claims on the books looking at this. And this is typical, I think, for the industry.

And as they go through their aging cycle, the environment has become a lot more litigious. And I think that is not just exclusively for us. I think that is an overall situation. And basically assessing as we looked at it, we added the staff and certainly started looking at the claims performance and aspects and realized this was more about our case reserves were going to need to be bolstered as it relates to the 2014 and prior.

And again, if you look at up to 2014, you're looking at probably more severity. And in 2014 combination of severity and frequency. So we, therefore, had to increase our case reserves to do that. We are now believe that certainly assessing the situation that we have -- we're more confident and that these reserves will be adequate and certainly with the amount of staff.

But I think the reason why you don't see some of it, even though, again, we talk about claims on liability have deteriorated, I think there are other firms that probably had higher reserve capabilities and to -- and basically weather that situation and we did not as we were building it.

Last year when we built the reserves, we built it more to -- when we went into 2014, we were caught that -- what we were reserving in that year as we indicated was -- when we assessed it at the end, it was not adequate. And that's where the majority of that money went. We've seen for every deterioration, like I said, in BI and UIM and UM.

Great. Thank you very much.

We have a question Erik Bass, Citigroup.

Hi. Thank you. I just had a couple questions about advice and wealth management expenses. First, how much of your G&A expenses variable cost? So if you do see revenue pressure from market conditions, how should we think about the impact on margins?

Again, as you look the -- as a rough rule of thumb, again, it's three category fixed -- semi-variable and variable. I would say variable in that case would be a about one-third. And again, from that standpoint -- and certainly we've demonstrated in the past our ability to appropriately assess the situation, see what expenditures provide the sort of return and reduce. So we have flexibility.

Got it. And can you help us think about the level of expenses you may need to incurred to comply with the new DoL rules? And is this something you may be able to offset through reengineering or should we expect some net impact in 2016 once the final rules are out?

Well right now we are assessing and obviously from the standpoint the rules have not been distributed. But certainly we realize that if we reread it -- and depending on -- there will be development expense and there'll be some on going operational expense.

We hope to then -- certainly we've been in a [plan-for] mode at this stage trying to be proactive. But again, not having the full elements of that is difficult to put a number on. But it will -- we will then look to what reengineering and basically repositioning -- we would have to do.

And I think that is something, as this comes out, will be more direct about. And again, it will -- it is something that we are focusing on and be part of the development. I don't know if Jim wants --

Yes. I think what I would say right now is we do -- we have mobilized our resources. We're looking at all aspects from the compliance to the technology to training necessary for the advisor force. And we will go into deployment of that as soon as we know exactly what the rule looks like.

We're doing some work already to prep for that and get a various activities underway that we think, based on some of the directions that were in the previous proposal. And that's already in the functional requirements and stuff from a tech perspective.

Depending on how significant that is and what the change is, we think we do have the capabilities to accommodate that or adjust for it. There will be impacts and expense from it. We will offset some of that based on what we will tighten the reins and for some other things we might have underway as this takes a priority. So there will be some offsets there.

Having said that, I couldn't tell you in the short term, depending on how aggressive the timetable for implementation is, what we would have to do to heavy up on some of the resourcing necessary. But as I said, I think Ameriprise will be one of the companies that would have the ability to deal with this more effectively.

We do have the resource capability and can things around to try to accommodate that. And we will set up so that in the end, hopefully, will be a place that would be better able to serve.

Okay. That's helpful. Thank you.

John Nadel, Piper Jaffray.

Good morning, everybody. First question is, related to advice and wealth management. I'm curious, Jim, market volatility and maybe client activity slowing certainly make some sense. And it's sort of a continuation from what we saw in the third quarter. I'm just curious whether you're seeing, or you believe you're seeing, any impact just yet in the results from the proposal -- from the DoL proposal or are advisors already starting to adjust?

No. I would say as advisors are as curious as you all are to what exactly this will mean, et cetera. And we're starting to give them a little better sense and communication on that. What I would just say is I think what you're seeing more near-term is more of the volatility picked up in the market.

You have some -- in our case, we run a route a lot of assets in the management fee-based business. And so you have that depreciation at the end of the third quarter. But as you saw, we still got $2 billion into our RAP flows. Our cash balances increased by a few billion.

So I think that at the end of the day, activity is still going on. I think people are just like you and I, probably looking and saying is there another leg down? What is it? What's the level of volatility?

I think on the other side, we're not seeing wholesale changes to client activity or people pulling money or anything like that. But I think people are more stating tune. There's still money going to work and some people are using this as an opportunity. But I think at the end of the day, I think increased volatility always gives people a little pause.

And then related to that, Jim, most -- I think at this point most of your competitors who have some sort of an advice based business have really tried to quantify at least provide some sensitivity around where they might expect to see some of the impacts from the DoL proposal. Assuming it goes through as it's currently written, and it seems more and more likely that there won't be any significant changes to it, just wondering now with many months to evaluate the proposal, whether you can help us with some sensitivities on where you might see some impacts on your revenues and margins?

What I would say is this. I think one of the things people have identified is the idea that if they're unable to sell [REITs], et cetera, or some of the type of broker transactions into the qualified accounts and what would that do to revenue. I would just say over the course of this year, based on changes in regulations and other things and where the market was, our advisors pulled back from that. So I think the pullback from that's going to be less significant because it was already occurred in our numbers in 2015 in a large way. Because you know there are a level of changes happening there already.

I think in regard to the business overall, it really depends on where the DoL comes out with their best interest contract exemption. And if they truly are giving you the ability to do commission-based business within that and to satisfy your obligations there, that's one method. If they're saying no we don't like that and we want to move more to fee-based, yes, we can accommodate that as well. We're trying to figure out which way that -- as far as the actual final rule.

You would imagine that there's going to be some increase in compliance and cost disclosure and various things like that. But over time, we'll get everything adjusted for it. It's hard to really say. We probably see some adjustments that would happen in the idea of the commission-type business for these accounts.

We do see that a lot of our annuity business -- I know that was one of the things that people mentioned. But a lot of our annuity business today -- very, very little, almost none of it is done without the extra [death] benefits or living guarantees or something that, again, the administration has said that's still important.

So we are still under the impression that under the best interest contract, you can still actually do those things as long as you satisfy the requirements of the value provided and what that is and how you disclose it, et cetera. So that's why I'm saying it's kind of hard to give you an adjustment.

But we have all the what ifs depending on where we go. What we're planning on doing is as soon as we get that information, we'll come out in a more informed way and let you know what that is.

We already know that there are a number of offsets that we can do by adjusting things, including what fees we charge and don't charge and where we do it. On the other side of it, it's hard to tell exactly what is permissible at this point. I hope that -- I wish that -- but I don't want to get ahead of my skis on this.

No, I understand. And if I can just ask one more question on the asset management side. Just curious whether you can help us with what the underlying -- either the fee rate or the operating margin, what that looked like in the segment in the quarter if you adjusted out the performance fees in the CLO again?

On that basis, it would be pretty similar to what you've seen before in the 53% range.

Okay. Thank you.

Jay Gelb, Barclays.

Thanks and good morning. On the capital management perspective, I know you're sticking with your baseline of around 100% return of capital in terms of dividends and buybacks. It was 125% last year.

Given the drop in the share price, which I think is largely due to macro conditions, is there a hard stop in terms of what percentage of annual earnings you -- the Company would return to shareholders, buybacks and dividends?

I don't believe we have a hard stop. We certainly evaluated and look to see our assessment of the -- is shares undervalued, the environment and where we certainly understand the fundamentals of the business. So we have the capacity and capability. So there is no hard stop on it.

But as we've seen in different years, we've moved to 120%, 125%. So we will assess that based upon the circumstances of the -- how we feel about the environment and obviously the excess position that we have. But we do believe the shares are undervalued right now. And opportunistically, we will certainly assess that and -- like we did in the last quarter and certainly with the price being down, it certainly -- you have more bang for your buck with the money being spent.

Okay. My next question is on advice and wealth. The margin in the fourth quarter did not increase for the first time for any quarter in I think over three years.

And I'm just wondering what that means on an ongoing basis. Do you feel in this environment, especially given what's happened in the first quarter with equity markets, that there's any chance of margin improving versus the 17.1% in 2015?

What I would say is this, if you look at the fourth quarter, actually the fourth quarter margin looks pretty good. I mean our overall revenue stayed. It didn't go down or anything like that.

But we had an impact because the lower markets at the end of the third quarter. And as our RAP fee business builds at the beginning of that quarter through the quarter, you saw that it would be impacted because assets are depreciated by -- it was 8%, 10%, whatever it was from the beginning -- the end of the third quarter.

So it did have some impact in the revenue based on the billings for lower -- from the depreciation that occurred. The transaction activity was pretty much consistent with the previous quarters. It didn't necessarily go down in the fourth quarter.

We usually see a little more activity happening at the end of the year. The way our expenses sort of accrue, particularly as we do our advertising -- because that's really a fall campaign. As an example, advertising expenses picked up in the quarter but that's consistent with the prior year and the year before that, et cetera. So expenses always go up a little in the quarter. On the full-year basis, we're still only relatively flat in G&A. And year-over-year in G&A is consistent because the quarterly accruals.

So I would just say what happens is you always have that little extra expense coming in the fourth quarter because our advertising campaign. There is an extra payroll week, et cetera -- a pay period and things like that. But we didn't increase expenses at all.

And what happened was we didn't get the lift of revenue needed from all the RAP balances coming in previous quarters because the market depreciated. So that's why the margin compressed.

Now going forward, I think if you just say the markets off 10% from where we were in the equities, it's going to impact our fees. I mean we run a very large fee-based business. So I would say margins would compress if the markets don't bounce back, only because that's going to take a chunk out of your revenue. Now we'll adjust and think about expenses but, again, you can only adjust expenses going out, not necessary for what's there today.

That makes sense. Jim, for the overall --

On the other side, interest may be a little more of a benefit because the short rate was up 25 basis points. So that will help us in the first quarter. I don't know that the actual numbers -- one versus the other -- it depends on where the markets are.

Right. Jim, for the overall Company in 2016, clearly there's a benefit on EPS from the share buyback, but directionally, would it be pretty reasonable to expect a flat EPS in 2016 given pressures especially from equity market?

I haven't done the calculations in my head yet because I'm trying to figure out the markets. But I'll let Walter go over that.

I think -- listen, the markets, as Jim said, are certainly effect us. And the thing that we then have to assess is the impact it has on the client behavioral aspects and then the actions that we think are prudent to sustained growth and other things and that and how you adjust it. So there's a lot of elements there. But it certainly a challenging --

The buyback and the EPS adjustment --

But the buyback, again, you will have -- it will have an impact on it. But again, is it going to be able to negate? I can't say at that stage as we assess the -- those older variables.

All right. Thank you for the insight.

Suneet Kamath, UBS.

Hi. Good morning. Just wanted to go back to auto and home for a second. Is there anything structural about that business, whether it's the distribution relationship you have with Costco or anything like that that would preclude your ability to either exit it or use reinsurance to free capital?

From the standpoint of exiting free capital, no, there's no restriction from that standpoint. And the other thing I would say, Suneet, the basic business fundamentals of this, and certainly looking at it -- we've looked at it and we've had outside consultants look at it, the basic fundamentals is quite solid. But in the contractual elements, I think we can certainly manage the balance sheet.

Yes, but, Suneet, we do run a direct affinity business and our partnerships are very critical to that business. And so very important is this is why our business is something we want to get back to a really good state and we want to then ensure that we're continue to deliver. And we are and have been and that really has reinforced the idea of growth over the last number of years.

Know with that, as I said, the most appropriate for us for shareholders from a relationship for our partnership from the longevity of the business is to get this back to a good strong state. And then that gives us a lot more ability to think of and how to continue to force the good partnerships or good arrangements for the future.

Okay. But I guess we're looking at a difficult 2015, very low profitability in 2016. It doesn't sound like there's anything structural that would prevent you from exiting. We've run the math that suggests if you free capital from it, it would be more EPS accretive than turning it around. And that was when the stock price was, I think, I don't know, $105 and now we're looking at $20 lower than that. So why is that math wrong?

I can't -- our math and when we look at it, it is -- we -- as Jim has said, the business we believe is a fundamentally sound business. We believe it's in the best interest from the shareholder perspective to take the approach that we are. And so I know, certainly, it is taking this reserve increase certainly is [impactful]. We do believe the structural elements moving forward for us are good, as we talked about them. And we do -- we have a view that from a shareholder basis of fixing it and assessing is the best approach.

You know it takes time to get these price increases, these price to risk elements adjusted through. And we certainly focus on the infrastructure and the investment we've made in people and capabilities will pay dividends for us. And the relationships are unique and very valuable and certainly provide the capability to have good returns forward.

And we certainly are trying to fix -- we think we have addressed the old. Now we are moving forward and putting in place. But it does take time to get there. And we did miss on the basis of how much impact we could have with the 2014 prior. That's our view of it.

And, Suneet, we do evaluate. We're not looking -- and we do evaluate all various options and ability. I would just tell you that based on everything would including other people looking, et cetera, that this is the way to create the best shareholder value and to maintain the strength of that business for the future for whatever may come in what we're doing right now.

So I know looking at it from just the mechanic and what you think. But I would probably say being a bit more in understanding it. Now that's where we come out and we will get this back to where it's in good shape and in some way creating a future shareholder value of greater means.

Okay. I guess we will revisit that. Then in terms of the excess capital and the buyback, maybe to follow up on Jay Gelb's question, it just seems to me that you have -- there's $2.5 billion of excess capital. It's a pretty sizable component of your total equity. Market doesn't seem to giving you any credit for that excess capital. So I know you want to be opportunistic but can you flush out a little bit more, just maybe the pace of buyback just so we get a sense of how aggressive you're thinking about being?

Again, I think we've been -- as we looked at 2015 and certainly looked at the latter half of 2015, we certainly accelerated the pace, and certainly from the dollar standpoint -- and certainly the number of shares -- as the elements there. So we do believe as we assess that that's sort of positioning is the right one to continue with. But we look at it each quarter and assess the impact.

So I think it's a good gauge maybe from our standpoint being opportunistic about it that what we did in the latter half of the year is something that is a barometer to start -- that we would continue with, of course, where the price is. But again, we get into assessing the excess, the environment, we feel very comfortable about that. So I think it's a pretty good barometer for you to use the latter half of the year.

All right. So filled in 425 for quarter and maybe there's some opportunistic upside to that?

It seems like that's latter half of the year.

Okay. Thanks.

Tom Gallagher, Credit Suisse.

Good morning. First, just a follow-up on that last question, can you talk about priorities right now? Obviously you're -- you've upsized the buyback a little bit in the latter half of the year. But I know you've also discussed contemplating M&A.

Can you talk about, just given where your stock is, whether M&A opportunities are still on the table? Or is your money to better put to work just through buybacks right now? That's my first question.

No. M&A is definitely on the table. And if we see things that come along that are appropriate for us, we have the means to do it. I think having the capital position we do have gives us the flexibility.

We won't have to go out and leverage ourselves to do something bigger. We wouldn't have to go raise equity in a difficult market, which doesn't make a lot of sense. And over time, we also can return back in a more, what I would call, stronger way so that you always have something there in addition to whether you're in a weak market climate to buy back more. So that's the way we thought about it.

I mean I remember before the financial crisis a number of investors asked us to -- and analyst -- why aren't we returning more? Why don't we go out in the risks curve? Why don't we get more higher-yielding instruments, et cetera, et cetera.

And I think they thanked me afterward in the sense that we kept the Company on a consistent path. We did appropriately, having the flexibility and the means to navigate. And we did have the opportunity then to do a bigger deal even though we had to do because it was a little bigger deal because the environment was so unsettled. We actually just did some equity at the same time.

So I would just say Ameriprise is very well situated. And if this market gets even more difficult, I think we're actually one of the stronger players to actually be able to capitalize on it.

If it doesn't, we'll be able to continue to buy back our stock at good numbers and still be able to keep the Company strong, not knowing what the next step or the turn of the environment or a M&A comes along. So I actually think we're situated well. And this is actually kind of a good environment for Ameriprise in that sense.

Got you. And, Walter, just a question on advice and wealth margin. So -- and I realize you may not have the precise answer this time but I just want to know if you can answer this directionally. The -- a little better than 16.5% margins in advice and wealth in 4Q was lower than where it's been trending lately.

But if I consider the benefit you're going to get from higher short-term rates, plus the seasonal expense reduction that you typically get from 4Q to 1Q, and then I consider the offset of the weaker revenues, assuming we don't change a lot from current market levels, would you still expect margins to be lower than the 4Q level? Or I should just ask it this way, would you expect margins to come in below the level of 4Q or can you give us a sense of directionally?

Directionally, certainly is, as Jim has indicated, the market reduction and the deterioration impacts it. But again, you're talking about margin. So the question is really getting to base profitability and then -- because remember, revenue is going to be moving and also profitability and the actions that we then take.

I think the elements -- the moving parts of the market, both interest and with equity, certainly compounds a little. But then the actions we will be taking as we look at that and the interest lift -- the underlying direction of the business is solid. So I think -- and then the question is client behavior. So it is a difficult question.

The fundamentals are there. But we do get impacted by these variables that we just can't control. That's the non-controllable side. Then we get to the actions that we take to manage the business.

So margins are tough one, because you got moving -- a lot of moving parts on it. But profitability, certainly, will be impacted by the drop in the equity marks offset by the interest lift. And then it's a matter of how it affects decline in activity in both from the level and then the shifting. Right? So that's why it's a tough one. It really is.

But the fundamentals of where we're going is solid, certainly from that standpoint. As Jim has said, we're attracting advisors, we're certainly -- feel comfortable about the fundamentals of the business and so there is no change from that standpoint.

Got you.

Yes, please. I'm sorry --

Just one last follow-up, if I could, on the asset management business. The spike in the US Trust net outflows -- can you comment a bit about the pool of assets that remain that you believe are at risk, the level of outflows that you expect going forward?

I presume we are going to keep getting leakage. But this one was obviously kind of a jumbo redemption quarter on that end. But can you give a little color in terms of where you see that trending?

Yes. So let me just say a few things on that. And I know that was a bit of a sizable number. And as you saw, it came out of the institutional section. So this is very, very low fee type of asset. We were doing the business. It was part of an in-house operation, et cetera, that we had as part of Columbia we were supporting and the US Trust business.

And it's unfortunate that they are taking it back in-house, actually, to manage it. And it's all fixed income assets. Having said that, even though we don't like to lose it, it's a very different on a fee basis than the business that we are writing and continue to do.

I think so it will be another few billion we understand -- we don't know exactly. They're not sitting here and saying we're taking these accounts and different clients, et cetera. But we can say it could be another few billion. Having said that, I will be very clear, a stronger business with US Trust is a funds business and an equity products and all those various things and those continue on.

It would be nice if I was able to just not just report flows as a flow number in total. But again, this is part of when you do a deal that has a proprietary business and you're taking it over, you're going to have some of those things. We still have a Zurich and we still have a good account, good relationship, good overall fee basis.

So what I would say in looking through this, and I'll just give you some numbers -- and as you know, the fourth quarter wasn't a great quarter for the industry and outflows because of what's happening. But I would say if you take out the US Trust, particularly around this, and the normal Zurich, that was $6.6 billion of our outflow. And even though we don't like that per se, it was the lower fee end of the spectrum there in that regard.

If you then look at all of retail, retail would've only been out $1.6 billion this is for -- this is before reinvested dividends. And all of that was the Acorn fund. So if we can continue to improve that performance, et cetera, in this study we're actually moved to almost a net neutral on our retail. And we're making some good progress in growing in the core retail channels and Europe is continues to be good for us.

Then you look at institutional. And here, again, you take out the US Trust, which was buried in there, and at the end of the day, what you really have is a net $1 billion out. And that's in a tough market were institutions aren't necessarily funding at this point in time. And that $1 billion, [1/4] of it was one client and that client has taken a lot more out of the industry.

So as I'm looking at this, and it's hard to see based on you're seeing the total number, we're actually are making some underlying progress. The industry in total last year in active funds have been out $200 billion of numbers. And so we're starting to gain traction in the areas that are important for us that are higher fee, more consistent where our good investment product is, et cetera. But it is a tough environment.

So the US Trust -- listen we love that relationship, et cetera. But they're going to make their adjustments as they need to. And right now some of this lower fee stuff is going away. But we still have a very good relationship with a very good product in there with some of the stronger activity and the types of areas we want it.

And Zurich will be Zurich but it's a great ongoing account for us. But it is going to be an outflow because part of that book is pretty closed.

So I don't know how to describe it any different for you. What I'm trying to say more importantly is we're focused on those things that we would really grow. We've got a good diversified business. And if the environment continues where money gets put back to work, I think we'll be in even better stead than we were going into 2015 that we are coming out of 2015.

Okay. Thanks.

Eric Berg RBC Capital

Thanks so much for working me in here at the end. Jim, my questions really involve asking you to build on some of your early responses. First, with respect to the margin in the brokerage business and the advice and wealth management, I thought I heard you say that activity levels, while depressed from where they were at their peak, were roughly in line -- did not change much -- from the activity levels in the September quarter.

So my question is, if activity levels were in fact unchanged, if expenses were well-controlled and if the stock market -- I'm looking at the average level of the S&P and I believe I have it right when I say that it was actually up modestly compared to the average in 2014 fourth quarter -- if the stock -- if you got a little bit of a lift from the stock market, good expense control and stable client activity, why did that combination not lead to a further improvement in profit margins?

So, Eric, I think what it is is what we've said is if you look at the numbers in the fourth quarter -- I mean revenue quarter-to-quarter was actually relatively the same -- little slightly up. There are two things, one is revenue would have been higher if at the end of the third quarter the markets that didn't pullback. You remember the markets went into 1800's at the -- in August, September.

And so what happened is you have all your wrap assets under management that you bill fees starting in October -- beginning of October through the quarter. And so some of those fees being billed were at lower absolute production because the fee level was based on the asset level. And that just climbed back towards the quarter to the end of the quarter. So you don't just build at the end of the quarter.

So that's part -- that was really what took out some of the production that happens on the asset side of the equation. Right? And so that's part.

The second part of it, very clearly is, and we've had it in the fourth quarter, is we do have some of a G&A expense even though we managed the G&A expense flat over the year. When we put our advertising campaigns -- we usually go on the air at the end of September with the bulk of that being October, November, beginning of December. And so we accrue for that expense when we are actually on the air. And that's millions of dollars to run that campaign, which is not in the third and second quarter.

Now over the course of the year, since we didn't increase our advertising year-over-year, it is the same -- fourth quarter to fourth quarter. If you look at the expenses in the supplemental, you'll see that expenses did not go up and for the full year were pretty flat on G&A.

Eric, it's Walter. So let me just -- one point because he was talking about the rates -- and certainly if you look at -- and I can understand from your perspective -- that looking at the S&P and looking you would see it's up marginally. But what we do is run a weighted index related to the assets that we hold. And if you actually look at that on both on average and on ending, it's down.

So is not just the S&P. Again, we actually do the earning rate assets that we have and it's down. So that is what Jim was explaining. That is certainly -- it impacts the fee base.

And, Jim, if I could wrap up just by asking about the -- further about the fiduciary matter, are you saying that there will be -- should I take away from your comment that there will be an impact on revenue but that the impact will be muted by the fact that there is already been a pullback in some activity?

No, Eric. What I -- and so let me clarify if I wasn't clear, okay. What I said is, I think when some people have come out publicly earlier in 2015 and said, oh, it will only be X or it is X because of REITs, et cetera, and this is the percentage over the business I do in that, what I said is a lot of that business actually reduced tremendously for us in 2015. And so I don't have the exact number -- may be Alicia has it -- but I think we did not do a lot of production in REITs and it wasn't necessarily in that production. We did a lot in the qualified area. But she can give you the numbers on it.

So what I said is, they were identifying a little more of that if that went away. We say, looking and reading the DoL's proposal before all the commentary, there are number of things that are going to be affected. The question is, they also said that they would allow for certain business to be done under a best interest exemption standard that you would apply for and you would actually adhere to and you would disclose on, et cetera.

Depending on what they finalized, there would depend on whether you can continue to do a lot of the business you're currently doing today under greater disclosure in a contract and et cetera, et cetera, or that that would have to be adjusted to more of a fee-based type of basis. In which case you would have to figure out what those clients -- whether it's appropriate to move.

So I can't give you what the -- what that would look like yet until I know it. What I'm saying is there are different ways that we think that we can manage and leave the business through if those exemptions are there and if you were able to execute appropriately against them. And if not, there are some alternatives.

Part of the activity would be do you serve some of the smaller accounts? Again, smaller accounts are a little more costly. So part of that is you've got to look at your business model appropriately in that regard.

So I don't have a perfect answer to you. That's all I said is it will have an effect on the industry. It will increase some cost. The question is, what do you do over time and can you offset some of that?

And on the revenue side, again, I think there are some alternatives but I don't know until the final rule. And if it -- if the final rules says you can't do certain business or certain business has to be done at a certain rate, then there will be some adjustments there -- part coming from the advisor, part from the firm.

Very helpful addition. Thank you, Jim.

Thank you. And with this, ladies and gentlemen, we conclude today's conference. We like to thank you for participating. You may now disconnect.