阿默普萊斯金融 (AMP) 2016 Q1 法說會逐字稿

Welcome to the Ameriprise Financial first-quarter 2016 earnings call. My name is Hilda, and I will be your operator for today's call.

(Operator Instructions)

Please note, that this conference is being recorded. I would now like to turn the call over to Ms. Alicia Charity. Ms. Charity, you may begin.

Thank you and good morning. Welcome to Ameriprise Financial's first-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 the non-GAAP numbers to their respective GAAP numbers can be found in today's materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and operating plans and performance.

These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2015 Annual Report to shareholders and our 2015 10-K report. We will take no obligation to update publicly or revise these forward-looking statements. And with that, I will turn it over to Jim.

Good morning and thank you for joining us for our first-quarter earnings call. I'll provide my perspective on the business, comment on the Department of Labor rule and Walter will discuss our financials. Then we'll answer any questions you have.

Clearly, it was a difficult market environment for the industry. Volatility was high with significant declines in the average equity markets during the quarter. Our internal index that aligns to our assets under management characteristics was down 8% on average year over year, and 6% on average sequentially, which impacted client activity, assets under management and fees given we bill through the quarter.

Total assets under management and administration ended the quarter at $773 billion. Across the firm, we are focused on executing our consistent strategy and managing expenses as we invest in the business and navigate these conditions. With regard to our financial results for the quarter on an operating basis, revenues reflected the tougher environment and were down 4% to $2.8 billion, earnings per share were relatively flat at $2.17 and our return on equity ex-AOCI, remains very strong at 24.2%, up 110 basis points from a year ago.

Because of our ability to consistently generate strong free cash flow we were able to return to shareholders at a significant level while maintaining our excellent capital position. During the quarter, we nearly doubled the number of shares we repurchased from a year ago to 5.1 million shares. In total, we returned about 150% of our earnings to shareholders. And yesterday, we added to our regular quarterly dividend announcing a 12% increase. The ninth increase over the past seven years. Very few financial services companies are generating our level of return on equity and capital return. And core to our long-term approach, our financial foundation remains in excellent shape enabling us to consistently invest in the business and return capital to shareholders in a meaningful way.

Let's move to an overview of the business in the quarter. In advice and wealth management, we have a strong business and a significant and growing opportunity to serve more consumers with advice. The strength of our advice-value proposition is how we help people navigate environments like this and help them to plan for their long-term needs and goals. Ameriprise is well-positioned to help our clients and investors addressed the full spectrum of their needs across market cycles and their lifetimes.

The strength of the Ameriprise brand and our reputation is an important differentiator. We are back on the air with our successful Be Brilliant advertising. Consumers, advisors and employee reaction remains very positive. As a result, Ameriprise brand awareness hit an all-time high in the quarter. Delivering strong client service is key to our reputation and how we run the business. I was pleased to see in a recent industry survey, Ameriprise ranked fifth out of 20 full-service firms for overall investor satisfaction.

In terms of client assets under management, overall client assets remain strong at $451 billion. The market volatility in the quarter continued to affect investor behavior and clients remain conservative. Cash balances remain elevated at $23 billion, and we had solid flows into fee-based investment advisory where we have one of the largest platforms.

I'm feeling good about the strength of our field force. The Ameriprise value proposition and culture is attractive to our advisors and in the industry. We continue to maintain very good advisor satisfaction and retention. And another 70 experienced advisors joined Ameriprise in the quarter and our pipeline going forward looks good. Overall, given market pressures, advisors maintain good productivity at $510,000 on a 12-month basis.

And in the current environment, comprehensive advice and our confident retirement approach resonates strongly. Our extensive consumer research confirms that advice is what clients in our target market are seeking and they are not getting it from their current financial services provider, so we're focused on this opportunity. This also extends to younger generations as many are looking to work with an advisor who will meet with them personally, reinforcing the value of the human perspective and personal interaction when saving and investing.

With the volatility earlier in the quarter, we increased our market commentary and communications for the field to equip the advisors to have meaningful conversations with their clients. Overall, we're delivering good profitability with margins of 17.1% in the quarter, up 50 basis points on a sequential basis. We remain well-positioned in the marketplace to take advantage of the opportunity for further growth as conditions settle.

Let's move to annuities and protection. In terms of annuities we have a consistent story. We continue to see good solid sales of our variable annuity products which are appropriate solutions for clients to meet their long-term goals. While we are experiencing outflows, it primarily reflects our close third-party book.

And in fixed annuities, the level of outflows has slowed in recent quarters. Overall though, the book is performing as expected in this low-rate environment. Annuities and their unique benefits are integrated within our confident retirement framework. I feel good about how we are managing the business, developing and enhancing our competitive products and features while managing risk.

Within protection and life and health our UL products have been our sales leaders of late becoming a larger portion of our balance book with VUL. Claims experienced in the quarter was also within our expectations. Overall, we have a good book and are working with our advisors to serve clients' protection needs.

And in auto and home, we are making good progress as we enhance our pricing, underwriting and claims management. Our improved results were masked a bit in the quarter due to higher CAT losses which we pre-announced. In asset management, we are executing our strategy focused on getting market share and generating profitable net flows. Similar to our wealth management business, in asset management the market declines during the quarter challenged flows in assets under management. We ended the quarter with assets under management at $464 billion.

Investment performance remains quite strong. We have a broad portfolio of strong performing equity and fixed-income products and I was pleased to see five of our Columbia funds were recognized with Lipper Fund Awards in 2016. Overall, outflows were $7.5 billion in the quarter, with $5.8 billion of the outflows were in lower fee portfolios or areas we have highlighted.

Fixed income IMAs at US Trust, which is a continuation our fourth-quarter outflows as US Trust has taken a portion of this business back in-house. Former parent and other insurance portfolios in the UK and in sub-advised funds where we had ended the relationship and are merging assets into existing Columbia funds. Importantly, there's very little revenue impact to this move. Outflows also include a single large institutional client who has again redeemed for liquidity purposes.

Overall though, there are positive themes across the business. Let me start with third-party institutional. We are continuing to see good interest in a number of our strategies including high yield. We're winning mandates across our key regions of the US, Europe and Asia, that includes in Korea, where we have opened an office last year. Our new business pipeline remains healthy and we expect to see the one, not funded mandates come through later in the year.

In terms of retail, in the US, it was a particularly challenging January, but net sales improved in February, and again, in March. We made meaningful market share gains over the past year at nearly all the major players in the broker-dealer and the independent channels and at a time when gross sales for the industry are down. With regard to the Acorn Fund, outflows have slowed. And if industry flows pick up in the US, we expect to build on these positive trends.

With regard to retail flows in Europe, we are continuing to reinforce our strong presence in the UK and serve more clients in key markets on the continent, including in Germany, Italy and Spain. European retail net flows in the quarter were similar to the US, but they picked up nicely to end the quarter only slightly negative. As we have said before, UK and European retail sentiment can turn quickly with the markets and that has been true in recent weeks as markets have rallied.

So overall, we are comfortable with the performance of the business. In a challenging market, we remain focused on providing important perspective to investors and delivering competitive performance. There are positive themes within our flow trends that are consistent with the strategy we are executing.

As I look at the Company overall, we have a good combination of businesses and people to continue to execute the strategy we have in place. Our diversified business generates good earnings and strong free cash flow that we reinvest in the business and return to shareholders. Our return on equity remains strong and is one of the strongest across financial services. And I feel good about our ability to continue to navigate the market and consistently generate shareholder value.

Now, let me turn to the Department of Labor's fiduciary rule that came out a few weeks ago. As America's leader in financial planning, we take our fiduciary responsibility very seriously and put our clients' interest first. As you know, while the government removed some of the more onerous elements of the initial rule, what remains is a rule that is comprehensive and complex. It's hundreds of pages long and is a principal-based regulation that requires very detailed analysis.

Clearly, it will require a change agenda for firms across the industry to execute it and be compliant within the time frame provided. We will take the time necessary to understand it and get it right. It wouldn't be prudent to try to oversimplify the rule for you today. But I know you have questions and based on what we understand today we believe that the impacts will be manageable. We are operating from a position of strength. We have the experience and the capabilities that will allow us to adopt and comply with the new rule.

Consistent with our financial planning leadership, we are one of the largest providers of fee-based investment advice, and as I mentioned, we already operate as a fiduciary under the very high standard of care. We also benefit from investments we have made to establish a strong compliance foundation including our infrastructure, policies, supervision and disclosures. Underpinning all of this, our clients and advisors are highly satisfied with the experience we provide. We have a proven track record of navigating through change and we'll build on that experience enhancing our processes and capabilities where necessary to effectively comply with the new DOL rule.

With regard to some products you had questions about, we are confident that our advisors will still be able to recommend the products that they do today in qualified accounts including annuities and affiliated products, which are expressly permitted under the rule. In short, we will continue to offer a full-solution set. Today, we apply a rigorous degree of review and due diligence to the products we offer and we have extensive disclosures in place. And while there will likely be additional disclosures and documentation required going forward, based on what we know at this time, we believe that these requirements will be manageable.

And while we cannot predict client-advisor behavior, in response to the rule, our business model has proven to be adaptable. We can make adjustments prudently to respond to the evolving market environment. Yes, there will be added cost that we will address through expense reengineering and other means to position the firm for continued growth and margin expansion over the long term.

I should also note that during this period of disruption, we see potential opportunities. For example, the regulatory environment will likely lead to consolidation within the industry, which we're already seeing. Independent advisors or independent broker dealers may lack the resources or the scale to navigate the changes required and seek a strong partner like Ameriprise. The financial foundation we've built allows us to remain opportunistic while also making the necessary investments to comply with the rule.

So in closing, this is a large change agenda for the industry. And at a high level, given what we know, we feel very comfortable that we can effectively navigate through it and we'll keep you apprised as we move forward.

And with that, I'll turn it over to Walter to take you through the numbers for the quarter.

Thank you, Jim. Ameriprise delivered solid results in the quarter despite market disruptions. However, we successfully navigated these conditions and results in the quarter were overall quite good as well as within each of the business segments. We continue to believe our stock is undervalued, which you can see by the elevated level of repurchase in the quarter. Our capacity to buy back stock remains strong given our balance sheet fundamentals and our business mix generates strong free cash flow. We are committed to maintaining a differentiated level of capital return.

Let's turn to slide 4. Macro conditions impacted revenue in a few ways. Our weighted equity index, the proxy for equity market movements on AUM, declined 8% on average year over year and 6% on average sequentially. This affected average AUM and thereby fees, which we collected based upon average daily assets. Continued dislocation also muted client activity and contributed to asset management outflows.

Sequential results demonstrated a similar dynamic from a market and flows perspective. But last quarter had strong asset management performance fees and a CDO liquidation. Low interest rates remained a headwind for our insurance and annuity businesses. And foreign exchange translations impacted asset levels and earnings. This is an industry-wide trend felt across financial services companies.

Let's turn to slide 5. Ameriprise delivered stable earnings per share and continued return-on-equity expansion in a challenging revenue environment. This clearly demonstrated our ability to navigate across business cycles using the multiple strong levers in our business model. Our business model generates significant free cash flow and our valuation allowed us to opportunistically repurchase stock at this depressed level.

Additionally, we're tightly managing expenses while making the right investments to address regulatory changes and grow. We initiated an additional expense reengineering assessment in the quarter and identified good opportunities for the balance of the year. This way if market disruptions persist, we will be able to effectively manage our margins.

Let's turn to segment performance starting with AWM on slide 6. The advice and wealth management business continues to perform well delivering solid results. Leading indicators for the business were good. We brought in 70 experienced advisors in the quarter and the advisors we have onboarded over the past 12 months to 24 months are ramping up nicely. Our advisor retention was also strong at over 90% in both channels.

Product flows were solid for this environment with $1.8 billion of wrap-net inflows. Operating net revenues was $1.2 billion in the quarter, down almost 3% from last year driven by market dislocation even after the benefit of the increase in the Fed-funds rate in December. The market dislocation impacted PTI in a similar manner. Operating margin in the quarter was strong at 17.1%, up 50 basis points, sequentially. Outside of significant market disruption, we expect future margin expansion to continue over time.

Asset management continues to provide a solid contribution to our revenue and earnings as you will see on slide 7. Clearly, we faced two external headwinds in the quarter. First, the average WEI, down 8% year over year and 6% sequentially. And second, foreign exchange translation was unfavorable. These impacted both revenue and pre-tax operating earnings.

Operating net revenue was down 10% to $724 million. Over 50% of the decline was related to markets and foreign exchange with the balance largely related to the cumulative impact of net outflows. Pre-tax operating earnings were down 22% to $149 million, with over 60% of the decline related to markets and FX. We are prudently managing expenses with overall expenses down 7% and G&A down 3%. The results in the quarter were in line with our expectations in this environment. However, we began additional expense management actions in the quarter and have the capacity to further reduce expenses to support margin improvement.

Turning to annuities on slide 8. The segment is performing in line with our expectations. Variable annuity pre-tax operating earnings were $100 million, down from $144 million one year ago. This business was also impacted by market dislocation in the quarter, both in terms of the direct impact on account values and lower asset earning rate, as well as the impact on DAC and DSIC and SOP reserves. This non-cash impact was about 60% of the decline in the quarter. The underlying business is solid and the risks are well-managed.

Fixed-annuity pre-tax operating earnings declined to $24 million, due to the elevated lapses as the blocks [were north]. The earnings in the quarter also benefited from a couple of million dollars of one-time items. 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 during the year.

Turning to the protection segment on the next slide. Pre-tax operating earnings were $69 million in the quarter. Let's focus on life and health first, which is in line with expectations. Pre-tax operating earnings benefited from stable claims experience and the recapture of a reinsurance treaty, but continues to be pressured by low interest rates.

While auto and home was certainly impacted by elevated CAT losses in the quarter, we were pleased to see early indications of improvement in the underlying loss trends and the operating results. The changes we have been making to enhance pricing, underwriting, claims and operations are taking hold. New business has moderated in targeted areas as a result of prudent rate taking and additional underwriting discipline.

Let's turn to the balance sheet on slide 10. As we have told you before, Ameriprise maintains a strong balance sheet that we'll use opportunistically. In the quarter, we returned 150% of operating earnings to shareholders through dividends and share repurchase. We repurchased 5.1 million shares in the quarter, almost double the number of shares repurchased a year ago. Additionally, we announced a 12% increase in our quarterly dividend to $0.75 per share.

Our balance sheet fundamentals remain strong. We have more than $2 billion of excess capital and an RBC ratio of approximately 550%. Our hedging program is working well and the investment portfolio is diversified.

We feel good about our energy exposure and it was in a net unrealized gain position at the end of the quarter. Our strategy is consistent and we are well-positioned to navigate challenging environments using the various levers to continue to deliver excellent results.

With that, we will take your questions.

(Operator Instructions)

John Nadel, Piper Jaffray.

Thank you very much and good morning. Jim, I think all of us on the call are probably really interested in your commentary around the Department of Labor fiduciary standard. In particular, I recognize that it's very early and probably too soon to talk about quantifying costs and those sorts of things. But you, I think I understood your comment to say that you are confident that your advisors will be able to continue to recommend annuities and other affiliated products into qualified accounts. Could you just go through that? Is that a matter of the BIC exemption language being changed enough in the final version versus the original proposed language that you guys feel comfortable that's the way you can go?

Yes, I mean we are reviewing almost 1,000 pages of what the rule says, but from our review and interpretation, the variable annuities will continue to be sold as would other investment products that are proprietary or affiliated. Of course consistent with that, like we do today, everything would have to be appropriately disclosed. This would be no difference in the sense of let's say, of we're offering one mutual fund versus the other and compensation differences or anything like that, which we do today. And the BIC exemption does allow for it in that regard.

And even if you look at annuities today, we do a very detailed review before any annuity is sold weather in the qualified or in the nonqualified, to ensure that it meets the standards appropriate in regard to that there are real appropriate benefits that are the right solutions for the client versus alternatives. And we will carry that into what we do here moving forward. There may be some other disclosures that the rule would want, but having said that, we feel very good about the business we are currently doing and it is permissible as we read it under the rule going forward.

I totally agree with that take. And what I'm also interested in is the -- you talk about the disruption that you could see throughout the industry, which could result in some consolidation. And I think your words were, we are already seeing some of this. Can you expand on that a bit? Are you already starting to have some real dialogue, whether it be with small financial advisor groups or some others around potentially joining Ameriprise as a result of this and other factors?

The short answer to that is, yes. As an example, I know one of the questions you have is around the cost of implementing and making these changes. And as I said and I can elaborate, is that we have a tremendous level of resources and foundation built. But as an example, a company like ours, we have about 400 people devoted to this right now. I doubt very much that a small broker dealer or even independents in general or advisors on their own, are going to have the means by which they can navigate this, both from a legal, a regulatory, a compliance, a technology, a support, a servicing, an education, a training.

We have mobilized our field resources, the Company resources. We're going to be doing extensive training where technology is underway. So we have the ability to do this and we will. And it's not just incremental costs. We are devoting and rechanneling our resources so that we redeploy to get this done appropriately. And I would just say it will squeeze others in the industry unless they have those capabilities and the means.

Thanks for all the color, Jim.

Nigel Dally, Morgan Stanley.

Thank you, good morning. I had a question on the asset management margins. Previously, you talked about adjusted margins in the high 30%. Clearly given the markets, that wasn't obtainable in the first quarter. But given the market recovery in the expense initiatives you talked about, how should we be thinking about margins looking forward?

It's Walter. I believe again, with markets staying that we should recover back up to the 38% and up range that we were in the previous quarter. Again, it's subject to markets and certainly we are being disciplined on our expenses. So we believe that will definitely occur.

And the second question on the -- if UK were to exit the European Union, any impact that would have on Threadneedle? Just wanted to check on that as well.

We are reviewing. Of course, we have our various funds that we sell across Europe. We have the different units by which we sell them under, so there will be some conversion, et cetera, and there will be the establishment of course if they do separate. So it will require work on behalf of financial institutions on what that is. But we think if it did come about, there would be a timeframe and we, in our initial reviews, I think that we could very easily or more appropriately, accommodate those changes.

And on the financial side, obviously, we have dividend flows and other things which we are looking at putting in hedges to and we're just evaluating that right now.

I appreciate the color.

Erik Bass, Citigroup.

Hello, thank you. First, on DOL, and I realize on the expenses you won't be able to provide a specific number. But just hoping you could maybe give us a little bit of a sense about the incremental spend you may need and whether this is more of a 2016 or 2017 issue?

Let me take a shot. In the first quarter, we incurred a couple of million dollars as it relates to it. But again, that's in the context of the original publication on the regulation, which was a lot more comprehensive and the timeframes were a lot more compressed.

When the final regs came out, we are reassessing that. And obviously, that would we believe result in with the elongated timeframes and the less basic change factors that we are assessing at this stage we believe are there that number will be adjusted. But that is a process that we're going over. And I would say at this stage, and again, please take this in the light of we're still in the midst of it. That the expenses will probably be spread as we look at it and probably a reasonable portion of it, and again, don't know the number yet, will be in the 2016 time with some spillover into 2017.

I think it will continue. I would probably say this. We had about $4 million plus, $4 million or $5 million in the first quarter, as Walter said And we will have incremental expenses, but what we're doing is if we didn't have the type of resources and the capabilities we have, then it would be a tremendously greater amount. But since we are redeploying our audit, or internal resources, to deal with this off of other various activities, et cetera, we think we could accommodate.

If you look at the project itself and said, you took the total it would be probably expensive. But if you look at it as where we will add some incremental that we will need in the timeframe, having said that with the redeployment would actually say the incremental would be much smaller than what would be required if we didn't have what we have in place.

Thanks. That's helpful color. And are you contemplating any product changes on your advisor platform? I have seen other firms announce plans to either stop selling load funds or stop selling funds with 12B1 fees. Are these steps you are considering and how do you think about the implications for both advice and wealth management and the asset management business?

The way we look at it is this. We sell a combination of funds and share classes today for different reasons. We are doing two things. One is, under the BIC, and appropriately, if you're doing a transaction-oriented sale, of course, again, that's permitted and allowed under the BIC and therefore, a loaded fund is still appropriate and those funds still, the 12B1's are appropriate. And again, it's typical that you would have to evaluate because everything moving into an investment advisory is not necessarily a right as appropriate even from the SEC's perspective and the BIC does allow it.

Second, regarding our various activities and platforms. We're actually, and we have been underway for this for last 1.5 years before this even occurred, to actually build our lifetime account infrastructure. And what that will allow us to do is across all the various platforms on our investment advisory, that we could have a one seamless way of operating and therefore, we can actually as the various share classes are introduced, appropriately move and migrate and give our advisors the ability to use the most appropriate for the type of investment that's out in the marketplace.

And so we're migrating that anyway. We think that's appropriate longer-term and based on our ability to do that, would satisfy the DOL's regulation of what they are looking for from a fee and a leveling and transparency. So that's underway and that's a very large investment. But we had that underway to begin with and it's good that we have the infrastructure that we are going to be completing in 2017.

Great, thank you. I appreciate the comments.

Yarin Kinar, Deutsche Bank.

Good morning, everybody. Can you remind us, do you sell any third-party annuities through your advisory business?

Yes, we do.

And overall annuities that comes to? Annuity sales?

We don't break it out, but it's probably in the low double-digit, something like that. And it's been more of ramping up as we have continued to introduce various ones after due diligence efforts, et cetera.

And would that be to both for variable and fixed?

No. In the fixed area, in particular, based on the environment we are in, it's very little in sales anyway. So we haven't introduced them. If that changes over time, we could easily do that.

Okay. And then a question in another category altogether. Looking at the RBC ratios, I saw quite a meaningful change or decline quarter-to-quarter. Could you maybe talk about that a little bit?

That was actually I think more driven by the interest rate situation. So from our standpoint, as we looked at it in both with the hedging and everything from that standpoint, it was on that basis. We also declared a dividend out of the Company in the normal course, an ordinary dividend.

Okay, but the ordinary dividend, so it went up to whole (inaudible) at the same time excess capital also came down a bit about $0.5 billion, right?

It's in the rounding. So I would say it's certainly less than the $0.5 billion. Again, if you look at the earnings and look at what we did and basically pay out, it's less. But the way we express it, because we're trying to get to the, again, $2 billion approximately, and then $2 billion plus. So, I would say it's in the rounding of it and it's probably in the $250 million range.

Okay. And I will sneak one last quick one in. With regards to expense management, can you elaborate a little bit on what the contingency plan was and whether you plan on keeping it in place even if markets do recover this quarter?

The answer to that is, yes. And we're doing that as well, as I said, because not just that we have the market volatility, which we always plan that you don't know with a perfect science whether that's going to end or not. And second of all, we have made a number of things in our reengineering that we think we could continue to move forward with it as appropriate. And that actually helps free us up resources that we can deploy for the DOL without incrementally increasing our resources where unnecessary.

Got it. Thank you very much.

Alex Blostein, Goldman Sachs.

Good morning. Back to the DOL. I understand that it's hard to size revenue exposures and as you try to think through financial advisor behavior. But just thinking through different buckets and actually I wanted to focus on the asset management business for a second. I don't think you guys are a big participant in Class A share classes with Colombia. But maybe help us size how much of your total AUM is in IRA accounts and I guess most of that would be in Columbia?

So when we look at our sales across the business and then what goes into qualified, as we said to you before, Columbia is one of a strong providers in our channel. But as I always said to you, its low double digits in total sales across qualified, non-qualified, the whole house. Within that, we also within qualified have a very large substantial business and investment advisory, and Columbia is part of that as they are in individual sales for a transaction on the brokerage side.

But it's no more in qualified than it is across the house per se. And the percentage is small. So if you look at what may go on within the BIC side of it or a transaction side of it, you are talking about low mid single-digits. So it's not that -- and it's not different than other large providers in our system. And again, Columbia has some excellent product with excellent performance and their fees are below average in general.

Then when you take -- and I'll just because the next question whether from you or somebody else will be annuities in a similar. So let me answer that one for you. Annuities is only in roughly in the qualified business of the total sales we do across the Ameriprise family here within the wealth management, is only in the mid single-digits. So if all annuities went away from -- we're talking mid single-digits of sales, but it's not going to occur because based on the reviews we do today and how substantial they are in preclearance, we think that will continue.

Now could some of it shift, next question, from an upfront load to a level load? Yes, and we have the ability to do that. Those products are there. So if the advisors, as you said, wanted to shift some behavior and didn't want to put an upfront load, they have the ability just like on the rap to do the level load. So to our perspective, we don't think there is a substantial -- and even if it changes by a few percent, I guess I heard from many of you over the times as why am I in the annuity business? So if it shifted away, it will just go into investment advisory and I'll still generate good profitability and good margins.

So, we're not concerned. We like the solution of the annuities because it fits a solution set for confident retirement and longevity of income. And that need will still be there and our advisors will still determine appropriately whether it fits. So, whether it's Columbia product or its annuities, as an example, we think there is a critical need. Columbia has excellent product. We don't sell it differently. We don't pay differently.

So we actually believe that, and the BIC does allow for it. So if we didn't have what we had in place, the due diligence, the disclosures, the review processes, appropriate compensation, we would probably have a different concern, but we don't in this case. But again, we will adjust. And if there is a migration in anything, we have different alternatives and we make those adjustments. And I think from our perspective, we'll be in good shape.

Great, thanks for that. Walter, one for you. Just bigger picture around expenses. When we look at your guidance's DNA over the last three years, it's been managed extremely well. Essentially, flat to down over the last three years. Given your reengineering efforts, obviously, the market factor is a little bit tougher, so certain things may accelerate, coupled with whatever it is you need to do on a compliance fund with DOL, is it still possible for you to keep overall firm-wide G&A in this flattish level for the next year or two?

Well again, we certainly as Jim indicated, and we evaluated our expense base relative to revenue growth and certainly looked at the areas that would again, not inhibit growth and certainly allow us to deal with the DOL announce. But we do believe there's still room to manage those expenses very effectively as we go forward.

Thank you very much.

Ryan Krueger, KBW.

Hello, thanks. Good morning. Another DOL question. Can you talk about your view of the level fee exemption option versus the rap platform just operating under the standard mix?

We are reviewing the various exemptions and the various options. So we haven't made a determination yet on what we will utilize for the advisory and the various programs within it. So that's under review right now, but there are the various exemptions and we will see what's most appropriate as we move forward.

I suppose this is probably a related question, but can you give us any sense of how much revenue sharing and marketing support payments that AWM collects and if you see any potential pressure there because of the new DOL rule?

Well, very clearly, again, under the rule, it allows for various levels of cost reimbursement and services for rendered, et cetera. And we can well support what those are and the amounts that we collect in it. And we feel that as we move forward consistent with that, based on the services rendered, the price of those, et cetera, that will continue on. There may be some adjustments as we look at it and review it, but we don't think that would be material.

At this point, you don't expect a material change to the revenue sharing payments that you are currently collecting?

The payments we get are all for the cost reimbursements necessary for the services we rendered that are well supported and appropriate for what we do.

Thank you.

Eric Berg, RBC Capital.

Thanks very much. My questions, too, relate to the Department of Labor. Jim, a moment ago, I just wanted to make sure I understand and have just an accurate understanding of the percentages of business that is done through the Ameriprise system for Columbia that you referenced a moment ago. I think you were dividing the Columbia sales between brokerage and rap and I think you said -- what I'm looking for ultimately, is whether this is right or not. That in the brokerage side, the transaction side of the business, the percentage of sales that go to Columbia are low double-digits and that it's also low double-digits on the rap side of things. Is that the right takeaway?

Yes, because remember, there's qualified and nonqualified. So qualified's, let's say, half of the total. And then within that, you get a bit more into the investment advisory than you even get into the brokerage on a transaction side. And that's continuing to shift as we continue to grow our investment advisory flow program. I think that's a natural shift that's occurring anyway and will continue to do so.

Question is, I don't want to draw the wrong conclusion, so I need to test this conclusion with you. If roughly 12% of the brokerage sales are to Columbia fund, and 12% of the mutual funds going into your wrap program are Columbia funds -- I'm using 12% as a single point for low double-digit. Should I be adding those percentages to say that, does this mean in other words, that roughly 25% of the mutual funds that the advisors sell are Columbia?

No. Just the opposite.

Okay, that's why I wanted to check. So when you say just the opposite, the numbers should not be added?

No. Because if hypothetically you said it was 12% overall sold in my system, and let's say you then take 50% of those sales being in qualified. And then you take more than 50% of those sales being sold within qualified and investment advisory, than you are less than a quarter of a quarter of a quarter in brokerage.

Okay, you are going in exactly the opposite direction. I think I get it now and I will work with Alicia to firm things up even more. I guess my other question relates just in general to revenue as well. And once again, being sensitive to the fact that it is early days and you cannot quantify revenue impacts. Do you nonetheless, see the IRA rollover business shrinking across this country and becoming just less of a big business than it had been because of the new bar that has been raised here to opening IRA rollovers?

I will put it this way again and we are all doing our dues, but the rule does not prohibit IRA rollovers. It requires a higher level of analysis, documentation and disclosures to determine that it's in the best interest of the client. And today, we do something very similar. Rollovers are now considered part of a fiduciary advice. So formally, it's required that you do a number of things necessary to truly show what that is. And it builds upon for us, what we already have in place is a very strong comprehensive rollover education and disclosure materials. And we think those and whatever we need to enhance to them would meet some of the things.

But that review process would be necessary. We have a program in place called Leave It or Roll It Over Already, which evaluates the various options for retirement plan assets and we're going to enhance those where appropriate. But I would say the rule does not prohibit it, but it does make sure that you are analyzing appropriately to make sure that is appropriate for the client for a number of reasons. And again, I think that is some of the things that we do today and will continue to do. And if that enhances, we will be able to accommodate.

What that does longer-term to behavior, I can't sit here, as I said, I can't predict what happens longer-term and why. But I would say that the client needs the ability to determine whether they should be managing the assets differently, they should consolidate them, they should develop the various ways of getting streams of income, whether the plan does provide that to them or not. Those are all things that have to be evaluated on an individual basis.

I'll work with Alicia further. Thank you so much.

Suneet Kamath, UBS.

Thanks, good morning. I just wanted to go back to some of the expense issues on DOL. Walter, did you say in the first quarter you guys incurred, I think it was $4 million to $5 million of expenses related to DOL? And if that's the right number, was that all in AWM?

That was again, looking across the enterprise, that was around $4 million or $5 million, yes.

But it was spread across the segments?

Actually again, as we look at that expense, it is a one-time expense. Of course, it affects most of the segments, so actually, we are picking that up in corporate.

Okay and then was the guidance that that $4 million to $5 million was predicated on the earlier timetable and that now that things have gotten extended that number might come down? Is that what you are suggesting?

What we're doing is, very clearly, we weren't waiting until the rule came out to start the work necessary and thinking about what would be required. Since the role came out, what it said is that the period was extended a bit and it was less onerous for some of the requirements particularly, that you would have to do with calculations and data and all of that stuff.

As we now look at it, some of the incremental that we thought would either ramp-up a lot more is not going to be as necessary. But the expenses we are talking about are incremental as I said, internally, particularly in AWM. But in other places in the Company, we are redeploying significant resources that is within the AWM expense base.

So even though we have tightened expenses, we could have probably could've tighten them a bit more. But we are now ensuring that we do that. But I would consider that more of a redeployment rather than incremental. There will be some more incremental. Walter's working on what that would look like and will give it to you in the second quarter. But as we said, a lot of it will be from redeploying what we do.

Maybe just a broader question because I'm trying to figure out what the word manageable means. But when you think about this DOL impact and your view that it's manageable, can we assume that the financial targets that you've established for the house in terms of EPS growth and ROE, as well as for AWM in terms of margin, that that manageable means that those goals are still achievable?

What I would say a Suneet is this, and I wish I could give you more perfect science. I can't. I would say this. I know people have looked at us and said we are going to be more significantly impacted from the industry, et cetera. We don't believe that. We think that some other people will be impacted a lot or in general across the industry.

So what I would just say is we will be impacted. There is no doubt about it. This will cause a level of disruption, change, a focus on moving and migrating where necessary, changing people's behavior a bit, but we will get that done. Now, what that would probably mean is there will be some adjustment and whether they'll be cost or revenue in some fashion over a number of periods, but it will work its way through. I would not say that it would be significant. That's why we say manageable, but I can't say it won't be anything.

Longer-term, we do feel that we have a good value proposition. There is a real need for our services. We will put in place the necessary things appropriately to help our advisors continue to build their businesses and with that, we will get back on track to the margins that we said we were targeting. But more important than the margins, the growth of the business. And from the growth of the business, the margins will occur.

I can't sit here and tell you that, no, we have changed the strategy. We haven't, and I can't say that we see something that would take us off of our costs longer-term. But I could probably say that maybe just a seamless idea that you're going to continue to do everything in the next periods where that's not going to translate to some change, I can't say that at all.

Longer-term, we will see what happens. But this is an environment that does change, but Ameriprise has the capability. We have a good value proposition, good foundation, and that's the way we're going to navigate. So I'm not here to give you a perfect science. What I'm telling you is, we are not falling off a cliff. We are in good shape. We have the means. We have the ability. We have great client satisfaction. We have got terrific advisors that know their business well. And we are ready operate in a very compliant way.

Maybe just the last one just to try to get a little bit more color on maybe why the market is wrong in terms of you guys being more impacted. Can you maybe highlight one or two of the areas, both on the revenue side and expense side, of where you see the biggest impacts from this?

Suneet, this is Walter. We're scratching our heads also. I'll be candid about it. Maybe of course, people think we have both sides of it. But certainly, as Jim has said, both on the annuities side and on the Columbia side, these are all numbers within ranges that are certainly not concentrated at such levels. We have demonstrated adjustment and these products work. These products are within acceptable exemptions and things like that and they are solution driven. So we are scratching our head also. That's why candidly, we basically purchase what we purchased in this quarter because we do believe we are undervalue.

All right. Thank you.

We have no further questions at this time. We would like to thank you, ladies and gentlemen, for participating in today's conference. With this, we conclude today's call. You may now disconnect.