阿默普萊斯金融 (AMP) 2016 Q3 法說會逐字稿

Welcome to the third-quarter's 2016 earnings call. My name is Sophia and I will be your operator for today's call.

(Operator Instructions)

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

Thank you and good morning. Welcome to Ameriprise Financial's third-quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, our Chief Financial Officer. Following their remarks, we'll be happy to take your questions.

Turning to slide 2 of the earnings presentation materials that are available on our website, includes a discussion of forward-looking statements. Specifically, that during the call, you will hear reference 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.

Some that statements 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, our 2015 10-K report, and the first and second quarter of 2016 10-Q reports. We take no obligation to update publicly or revise these forward-looking statements.

Turning to slide 3, you see our GAAP financial results for the third quarter. Below that, you see our operating results, which Management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Additionally, we completed our annual non-cash unlocking and long-term care review in the third quarter. We included operating results, excluding unlocking, for additional transparency. The comments that Management makes on the call today will focus on operating financial results as well as results excluding unlocking. And with that, I'll turn it over to Jim.

Hello and thank you for joining our third-quarter earnings call. I'll provide my perspective on the Business and progress we are making and Walter will discuss our financials, including the non-cash impact of annual unlocking. Regarding Ameriprise overall, like others, we are experiencing headwinds in the operating environment from industry trends, the regulatory change agenda globally, as well as geopolitical volatility.

During a time of change for the industry, I feel good about how Ameriprise is positioned, and I'll focus on serving our clients and advisors. The current environment amplifies the value of the advice and solutions Ameriprise provides. Today, I'll cover our underlying operating results, excluding unlocking.

Total assets under management administration increased nicely to $796 billion, and that includes the difficult foreign exchange translation in asset management. Financially, earnings were down a bit, while earnings per diluted share, excluding unlocking, increased 4%. As always, we are closely managing our expenses while continuing to invest for growth. Return on equity, excluding unlocking and AOCI, was a healthy 23.8%.

Our business generates good free cash flow, and as you know, maintaining our excellent financial foundation is core to how we operate the Company. These consistent management principles enable Ameriprise to navigate this time of change and invest in the business, as well as returning capital to shareholders at a meaningful level. For the third quarter, we returned more than $500 million to shareholders through our share repurchases and dividends, bringing our total return for 2016 so far to more than $1.6 billion.

Let's move to the businesses. In Advice and Wealth Management, we are situated well with our strong advice positioning and value proposition. I spent a lot of time during the year with our advisors and just returned from our private wealth advisors conference, where over 900 of our top producers were gathered. They are feeling good about their ability to run strong practices and the growth opportunity at Ameriprise, as well as the way we support them during times of change. We believe more than ever our advice value proposition is strong and desirable. Personal comprehensive advice is critical in handling the volatility and issues facing consumers as they look to achieve their long-term goals.

For the quarter, retail client assets grew nicely, up 10%, and we had nearly $3 billion in net inflows and fee-based investment advisory accounts in the quarter. Our investment advisory platform is in the top five mutual fund advisory and a consistent growth driver for Ameriprise. In addition, we delivered operating earnings of $231 million, up 5% from a year ago, and our margin increased to 18.2% for the quarter. As we continue to serve more clients in fee-based relationships, transactional business represents less of our total production. As an example, more than 70% of our gross dealer concession is asset based. Average advised productivity is holding strong at over $500,000 on a trailing 12-month basis.

As we look to grow the Business, we are ensuring advisors fully benefit from the investments we have made, including our technology platforms, our e-tools, and online. Our advisors are more efficient when they use capabilities like our e-File Delivery and e-signature tools, and more productive when they use our aggregation tool like Total View. We are meeting more and more clients online and visits to Ameriprise.com are up significantly year over year. And engagement with clients and prospects on social media is a continued strength of ours.

Brand awareness is another important component for growth. We are back on the air with our Be Brilliant advertising, and the next chapter of our Be Brilliant ads will be live in January as we continue to reinforce the confidence clients can realize from working with an Ameriprise advisor. In addition to focusing on client growth, recruiting is going well. We added another 80 experienced productive advisors, bringing us to about 250 advisors year to date, and our pipeline is looking good into the next quarter and next year, as Ameriprise stands out as a destination for successful advisors who appreciate our advice value proposition and supportive culture.

Let's turn to the Department of Labor's fiduciary rule. Clearly, it is a significant change for the industry and a top priority for us. I believe Ameriprise is well positioned to handle the changes required to respond to the rule and to help advisors do the same. Frankly, this is a complex change and it will continue to consume a lot of our energy, with dedicating significant resources and leadership time to manage it in a regimented way.

Consistent with our financial planning leadership, Ameriprise is one of the largest providers of fee-based investment advice, and we already operate as a fiduciary under a very high standard of care. In terms of our product offering, we are focused on minimizing disruption to our clients and ensuring our advisors continue to have a broad suite of solutions to help meet client needs, grow and protect their assets, and achieve their goals. We continue to believe providing investor choice is important, and therefore, we have been hard at work to enable both advisory and brokerage options for clients and advisors.

Ameriprise has a very strong compliance foundation and conducts robust due diligence on the products and platforms we offer. We have always been able to operate in a heavily regulated environment and comply with the requirements, while also delivering maximum client experience as we focus on helping our clients achieve their financial goals over a lifetime. Because of our robust supervision compliant processes and training already in place, we are operating from a position of strength relative to many others in the industry.

As a company, we take all of these elements very seriously, and work to integrate compliance and supervision throughout our business processes across the Firm. Here's how we are approaching the rule and the support we are providing our advisors to adopt a new landscape. Let's start with our investment advisory business.

We're making the choice to use long-standing exemptions under Arista for our investment advisory business. We believe this is the most appropriate way to continue to offer clients more flexibility in investment choices, while offering our advice the most protection and flexibility. The adjustments necessary to comply with this rule will be fully executed by the end of the first quarter of next year, to be ready for the April deadline, and we are working with advisors now to help them execute the changes.

With that, I'll turn to brokerage and our commission business. We intend to use the BIC exemption for brokerage and other commission-based recommendations. The deal will introduce the BIC exemption, in large part to address unique challenges of brokerage and other commission-based accounts under the Arista framework.

The BIC exemption permits compensation that varies by product, as long as the requirements of the exemption are met. This is an area where we are starting to see some changes across the industry relating to product availability and product compensation, as it would apply to products like mutual funds and annuities. Ameriprise, like others in the industry, will likely need to narrow the offering to help advisors meet the rules' duties of prudence and loyalty.

Similar to the approach we are taking in advisory, we want to continue to offer flexibility and choice. In addition, we have best-in-class due diligence and (inaudible) strong supervision, which will further enhance where necessary, with both qualitative and quantitative filters to ensure we continue to have robust solutions that will be appropriate in the qualified market.

As you know there will also be new requirements for IRA rollovers. Today, we have industry-leading leave-it-or-roll-it approach that helps clients evaluate their options for their retirement plan assets, and we are working right now to determine how we will enhance that as appropriate. We will also build on our already strong and comprehensive rollover education disclosure materials and documentation to meet the deal well to expectations.

As you would expect, it is very important to us to bring this to life for advisors and support them to comply with the new rule. Last April, we began executing our comprehensive communications and training plan, including holding a series of webcasts that continue throughout the remainder of the year. Throughout first quarter, we'll be conducting extensive local in-person training to help our advisors and their teams prepare to comply for the initial effective date of April 10.

Clearly, this is a large change agenda for the industry. We have devoted tremendous resources and are making progress and have a lot of work to do, and you'll see that across the industry, whether or how they decide to do business. We continue to review the regulation and all of its intricacies to ensure we can meet all the requirements of the new fiduciary standards to minimize potential exposure to the firm, and our advisors, by having a right due diligence, analysis and documentation, as well as the appropriate supervision necessary. Given what we know, we feel comfortable that we can effectively navigate through it.

Next quarter, I will share even more about our compliance approach and progress on our training and implementation. Again, we feel comfortable that we will continue to offer a broad sweep of products with the necessary oversight. As I stated earlier, we already apply a rigorous degree of review and due diligence on products we offer and have extensive proper disclosures in place.

While there will be additional disclosures and documentation for advice required going forward, based on what we know at this time we believe these requirements will be manageable. In this regulatory environment, the importance of delivering advice is even more significant than ever. We know clients and consumers are looking for us to serve them holistically. The growth opportunity we have is compelling. To summarize, we are delivering nice growth and profitability in Advice and Wealth Management. We are working closely and comprehensively with advisors to manage the [deal of] change ahead, and we feel good about our near- and long-term opportunities to serve even more consumers with advice.

Let's move to Annuities and Protection. I'll focus more on the underlying businesses and Walter will cover the financials. In Annuities, VA account balances were up 4% year over year, and while our VA sales are down year over year, we look to be faring better than the industry, given our financial planning focus. We are helping our advisors meet their clients' retirement income needs and continue to make it easier for clients and advisors to conduct business.

As an example, we are seeing good results from the advisor workshops we've held which focus on the new challenges for today's retirement, and we are seeing good uptake on our enhanced digital tools that help advisors present retirement solutions. On the fixed side, the story remains the same. The overall book is performing as expected in this low interest rate environment, and we are not adding to it at this time.

In life insurance, VUL/UL account balances were up 5%, and overall sales were down like others in the industry. Overall, claims experience remained within an expected range. During the quarter, we launched an index account for our VUL 5 product that provides the benefits of accumulating cash value with the added safety of an index floor, and we are seeing a nice initial response by clients and advisors.

Finally, in auto and home, we are beginning to see improvement in business results from the changes we have been making. Both current and prior accident year loss trends are showing solid improvement. As I shared previously, we are taking a number of actions, including enhanced pricing sophistication and raising rates in both auto and homeowner lines. We have improved risk quality through tighter underwriting and more disciplined exposure management. We also enhanced our claims organization, and as a result, are seeing better loss outcomes that will contribute to a higher performing portfolio over time.

With regard to the quarter, in line with many industry players, we had higher than expected cat losses. We're making systemic changes to lessen the impact of cats on our results, including improving cats-related pricing and strengthening the team handling cats claims, including adding more field adjustors. Overall, we are making good progress. I feel confident in the team we now have in place, and the actions that we are taking to bring the business back to historical profitability.

Let's turn to Asset Management. During the significant period of change for the industry, we are managing headwinds and have a good level of scale capabilities and distribution to navigate this period well. For the quarter, assets under management declined slightly to $468 billion; however, that included an unfavorable foreign exchange translation which impacted assets under management by about $14 billion year over year.

In terms of flows, we had a little over $4 billion out in the quarter, compared to more than $7 billion out this time last year. Global retail outflows improved substantially, to $1.9 billion in the quarter, excluding former parent company-related flows and inflows from acquisitions. In US retail, we are seeing some improvement. While we're in outflows, we've improved gross sales by nearly 10% over the past 12 months.

We are also earning a higher market share on many of our key intermediary distribution platforms. This is at a time when overall industry sales in the active space are down, and we are all facing slower activity on the equity side of the business. Overall, redemptions have slowed, and that includes in the Acorn Fund, which was about $600 million out in the quarter. Performance versus peers has improved with the changes that we've made. And we are focused on continuing to generate competitive performance to strengthen long-term numbers and helping the turnaround of this product line.

In the UK and European retail, as you know, retail outflow spiked in June and July because of Brexit. As we moved through the quarter, the level of redemptions slowed to end the quarter largely neutral. Our teams have done an excellent job navigating this environment, including the property space where we preserved value for investors and have smoothed reopening of our fund.

As market conditions remain stable for the remainder of the year, we expect better results in the fourth quarter. In terms of institutional, we and others in the industry have experienced a slowdown in the rate of fundings, which contributed to about $2 billion in outflows in the quarter. That included a loss of one of the remaining Acorn mandates of around $700 million in the quarter.

We feel good about the rest of 2016 and into 2017, as our list of won-not-funded mandates was good, with wins in both domestic and international that should fund in the fourth quarter and into next year. Our win rate remains strong, and we have a healthy pipeline of opportunities in a number of equity, credit, and solution multi-asset strategies. Consistent with our normal level of outflows in former parent portfolios, we had about $1.4 billion of the lower-fee outflows with the majority from Zurich. Outflows in US trust IMAs significantly slowed as we moved through the quarter.

I would also note we had about $1 billion of inflows from the EGA acquisition. Regarding performance, we're very focused on ensuring we have a strong performing product line to serve individual and institutional investor needs. That includes delivering consistent performance expectations and existing products, and developing new products and strategies as we look forward. With 110 foreign five-star Morningstar-rated funds, Columbia Threadneedle has an excellent track record of generating competitive performance across the asset classes and styles. We have particular strong performance in a number of funds in domestic and international equities, as well as the first taxable and tax-exempt fixed-income at Columbia and asset allocation products globally.

In regard to UK and Europe, we have been able to remain focused on our business and feel we are in a good position to manage the change related to Brexit and what will be a multi-year transition. Columbia Threadneedle already has an established fund range and presence in Europe, and we're in a good position to continue to serve European investors going forward. We are focused now on expanding the scope of our Luxembourg-based management company.

We plan to further replicate a more complete product line and establish a broader asset management presence in the EU, post-Brexit. Importantly, we have a well-resourced and experienced product development team, with the capacity to ensure the needs of our clients are met in an efficient and transparent manner. Like the industry, we will be looking for further clarification that will inform us and others of how to manage the transition for clients. Again, this will take time, but I feel that we are in a good position.

As we look forward, we are doing a number of things on the product development side to capture close. In addition to enhancements to our traditional mutual fund product line, we're further building out our managed account and solution businesses. We are seeing good interest in our multi-asset tax-efficient and adaptive-risk products. In fact, our US retail care product has grown to north of $1 billion in assets under management. We also completed the EGA acquisition that strengthened our strategic beta and ETF capabilities and complements multi-factor products we developed and launched earlier this year. This is a long-term growth opportunity in the US and we are beginning to build upon.

Finally, we are a recognized leader in the UK for responsible investment and we are working to expand that capability here in the United States. Our US Social Bond fund is a unique product, and our recently launched Strategic Beta products include a sustainability screen. Similar to Strategic Beta work, it's an initiative that we intend to grow more fully over time.

Our Asset Management business is an [upscale] business and we are generating competitive margin in a challenging period. We're managing expenses well, knowing we have revenue pressure from the level of outflows we have experienced. We're seeing some nice underlying trends in domestic and international. We have more work to do, and I feel good about the teams in place and their execution focus.

For Ameriprise overall, we have a strong base and a good track record for handling periods of industry change. Ameriprise has always been able to operate in a heavily regulated environment to strongly comply and deliver an excellent experience as we help clients achieve their financial goals. Our excellent capital position provides flexibility for both organic growth and inorganic opportunities in both Wealth Management and Asset Management. We also have a very solid Annuities and Protection business.

We are bringing a very strong focus so that we can navigate the current environment. As we look forward, I feel good about the long-term opportunity Ameriprise has in the marketplace as we focus on delivering for our clients. Now, Walter will cover the financials and I'll be back to take your questions.

Thank you, Jim. Ameriprise delivered another solid quarter of financial performance on an underlying basis. As you saw in our release, results were impacted negatively by our annual non-cash unlocking and unusual items.

Advice and Wealth Management continues to be our primary growth segment with improved wrap net inflows, strong experience advisor recruiting, and excellent margin expansion. Asset Management remains impacted by industry trends away from active management. But we are seeing good traction in a few areas that Jim discussed and maintaining our focus on sustaining our good level of profitability.

Annuities and life and health insurance underlying profitability remains stable, but with slower growth in the short term, given the environment and regulatory changes, this remains a strong source of capital generation. Positive trends continue to emerge in auto and home, and we began to recognize them in the financial results this quarter. Potentially, with more to come, as we evaluate loss performance. Our balance sheet is strong and returned over $500 million of capital to shareholders in the quarter.

Let's turn to consolidated results, beginning on slide 6. Revenue was up slightly from last year, to $2.9 billion, excluding the impact of unlocking in both years. Advice and Wealth Management represents more than 40% of overall revenues, and continues to trend up, given our good growth in client assets. This was offset by pressure from outflows in Asset Management and insurance and Annuities interest-rate pressure. Auto and home has had nice revenue growth from the rate actions taken, with rate increases in about three-quarters of the states we do business with during 2016.

Let's turn to slide 7. Ameriprise continues to demonstrate our ability to navigate across business cycles and deliver solid EPS growth and strong return on equity. Operating performance in the quarter included a net negative $0.12 of items. First, we had $29 million pre-tax, or $0.11, of total catastrophic losses in the quarter, of which $0.03 was above our expectations. Additionally, we had $0.11 unfavorable long-term care model corrections, and $0.06 of unusual corporate items related to low-income housing and DOL implementation, partially offset by a positive $0.08 from mean reversion, and in an auto and home reserve release.

Excluding these items, underlying EPS was $2.41, up 4%. We are [attractively] managing expenses while making the right investments to adjust to regulatory changes and support future growth. We would expect DOL expenses to ramp up as we approach the DOL implementation date in April. Our Business continues to generate significant free cash flow and disciplined capital management has driven EPS and return on equity growth.

Let's turn to segment performance. Starting on slide 8, first, the Advice and Wealth Management businesses continue to perform very well, delivering solid financial results and strong business metrics. Jim spoke about the strong leading indicators we are seeing in this business -- excellent recruiting, strong advisor retention, and client acquisition -- all contributing to record client asset levels.

Operating net revenue was up 2% from last year, to $1.3 billion in the quarter, from solid wrap net inflows, higher earnings on brokerage cash, and asset-based fees. We are continuing see our Business shift more towards advisory, which we would expect to continue and possibly even accelerate with DOL implementation.

G&A expenses are continuing to be tightly managed, down 1% from last year. We typically see seasonally higher expenses in the fourth quarter, where project spending and advertising tend to increase. We delivered a record operating margin in the quarter, at 18.2%, up 60 basis points from last year and up 50 basis points sequentially.

Let's turn to Asset Management, on slide 9. Operating net revenue was down 5%, to $740 million, primarily from net outflows and foreign exchange translation. We are prudently managing expenses, with overall expenses down 3% and G&A down 2%. Pre-tax operating earnings went down 14%, to $155 million, largely from outflows. As a reminder, the impact for foreign exchange translation is immaterial to earnings. The adjusted margin in the quarter was in our expected range, at 36%.

Turning to Annuities on slide 10, the segment is performing in line with our expectations. Variable annuity pre-tax operating earnings was $114 million, essentially flat to a year ago, excluding unlocking and mean reversion in both periods. Variable annuities had an unfavorable unlocking of $220 million this year, due to higher persistency on living benefit contracts and continued low-interest rates, as you have seen across the industry.

Our long-term interest-rate assumption remained unchanged. But we extended the period it would take for rates to reach our long-term level to 5.5 years. As a result of updating our persistency assumption for products with living benefits on our SOP reserves, there will be an ongoing impact to variable annuities earnings going forward.

Fixed annuity pre-tax operating earnings were essentially flat to last year, at $24 million, excluding unlocking. Unlocking this year is largely due to good persistency, as our clients are lapsing at a slower pace than we previously modeled. I would also like to note that underlying profitability in this business has sustained a bit better than we expected this year. This quarter benefited from some gains relating to pre-payments of investments. We are continuing to see account values decline, given minimum sales in this rate environment.

Turning to the Protection segment on slide 11, pre-taxed operating earnings, excluding unlocking, was $31 million in the quarter. There are a number of moving parts in the quarter, so I'm going to address life and health, long-term care, and auto and home, separately.

Let's first focus on life and health, excluding long-term care. Underlying pre-tax operating earnings were up from last year, to $74 million, excluding unlocking, mean reversion and a premium correction in the year-ago period. Unlocking was a favorable $17 million, primarily from increased value of future reinsurance recoverables, due to slightly worse mortality, partially offset by continued low interest rates.

Long-term care had a pre-tax operating loss of $73 million, which included a $37 million unfavorable impact of our annual LTC review, and a negative $29 million from a model correction. The third-quarter annual LTC review was negatively impacted by low interest rates, morbidity trends, and an elevated reinsurance expense. Underlying results were a loss of $7 million, essentially flat to last year, and consistent with our expectations for this [close lock].

Auto and home had an $8 million operating loss in the quarter, including excess cat losses of $7 million. As we previously told you, the actions we're taking to improve our underwriting, pricing and claims practices are taking hold, and positive trends have emerged. Therefore, in the third quarter, we lowered the peg ratio for the 2016 accident year and released $10 million of prior-year reserves. We anticipate being able to make additional adjustments if these positive trends continue.

I will conclude with a few comments on the balance sheet on slide 12. As we have told you before, Ameriprise maintains a strong balance sheet that we will use opportunistically. We have over $2 billion of excess capital and our estimated RBC ratio remains above 500%. Our hedging programs continue to work well, and the investment portfolio is well positioned and diversified. We returned approximately 132% of operating earnings, excluding unlocking, to shareholders through dividends and share repurchases. This is consistent with the level of shares we repurchased before the significant increase in the first half of the year, but remains well above our baseline 90% to 100% of earnings. With that, we will take your questions.

(Operator Instructions)

Alex Blostein, Goldman Sachs.

Hey, guys, good morning. Quick question, let's start with the DOL first. Jim, you mentioned narrowing the offerings. I want to followup on that.

Maybe talk a little bit about the number of products you guys are currently offering, whether it's mutual funds or [beta] annuity products. Where it stands now, where you can go, and also interested to hear whether this just a qualified account issue or you guys will just narrow down the scope in the number of products across this whole platform?

So, we are going through that review right now, with the various screens that we'll put into effect. But again, as you know, we offer a wide range of products. So, if you take investment products, mutual funds, we have thousands of them on the platform. So, even where we will narrow them, there will still be a significant offering.

But we are making sure that the products that we do have a level go through a level of what we would say both due diligence, but also a level of screening from a research perspective, so that we ensure that the products offered we think would be both appropriate from a pricing perspective as well as from a performance and durability perspective on longevity of having those products appropriate for the client.

Got it. So, you would say the main criteria is still performance pricing. How does the overall kind of relationship with the platform play into it? Meaning that if you have a lot of offering from a certain advisor or certain asset manager, does that play a big role, or pricing and performance both takes --

No, over a wide range, we'll still have a good number of manufacturers on our platform. Having said that, we have a wide range today that we feel are probably under the DOL requirements and the level of diligence that we have to provide, we would have to narrow. I think we are going to see that across the industry.

We are doing this on both a qualified and non-qualified, we don't see a difference between the two, they're the same clients. And then we'll make that consistent.

Got it, that is helpful. My second question around is the [strengths in the wrap] account business. Nice to see organic growth pick back up this quarter.

But as we think about the fee rate obviously down a little bit sequentially, but the bigger picture, the sustainability of the, I'll call it 140 basis-point management fee of the wrap accounts, seems to be on a higher end whether we look at some of your competitors in the warehouse front or even some of the independent broker dealers. How do you guys view the sustainability of that fee rate in a world where kind of scrutiny on fees and the awareness around fees is clearly rising?

When we look at our fee rate overall, the fee rate also includes a lot of some of our activities regarding our financial planning activities. So, some of those services that we perform for clients are also embedded in our fee rate. And we do that and look at it sometimes on a consolidated basis, some advisors that is the way they price their book. In that there are a lot of services around the full comprehensive financial plan and services rendered in that regard.

Got it. Great. Thanks for taking the questions.

Darin Arita from Deutsche Bank.

I also want to touch on the potential of the DOL impact on our advisory business or on the advisory wealth management business. We are trying to see some bifurcation in approaches or strategic views from different advisory businesses, whether to continue to offer flexible options for clients and preserve, I guess, the flexibility while tweaking product offerings, which seems to be what Ameriprise is doing.

Then those who are maybe taking more drastic measures of exiting their commissions business or the brokerage business altogether. I just want to get a sense, as you are looking at the business and the future with DOL, what gives you comfort that you can continue offering this flexibility today?

As we look to serve the client comprehensively, and that's our planning approach. So, we look to make sure that the client is getting the right solutions necessary for them to have a complete financial picture. In that regard, we feel that even in the qualified part of the business, other products and services are necessary for them to be appropriate.

As an example we do believe in investment advisory, a large part of our business is done that way, but investment advisory might not be for all clients. Based on a combination of the fees for it, based on the size of account, et cetera, and that there may be more efficient and appropriate products for them, such as a fund and a particular circumstances or an annuity for retirement income and guarantees.

So, what we are trying to do is give our advisors as much flexibility as possible where these products would continue to be appropriate, both in the qualified as well as similar to a non-qualified in that regard. It doesn't mean that more business won't shift to investment advisory as it has today, but we want to give them the flexibility to do that.

Now, that does require more work on our part. It does require more compliance, it does require more due diligence, it does require more disclosures and documentation for advisors to do that fully under the deck. But we have the ability and the capabilities to support that. That is what we want to try to do for our advisors as we move forward.

My followup would be one of the excess capital position, and with the dislocation that may come with the implementation of DOL, can you maybe talk about where you see opportunities to possibly deploy or maybe look for M&A opportunities?

And maybe also talk about what is of less interest to you, even with the dislocations that you may generate in the industry.

So, we see opportunities that will continue as other players either say, hey, I can't support this business and therefore I'm not going to support activities like I'm not going to support [big] activities, et cetera, for commission-based product, or that we can't do the amount of extensive due diligence disclosure documentation appropriate to support advisors, where I think more people may want to come to Ameriprise.

We are looking for people to come to Ameriprise that would fit our culture, fit our advice value proposition, that really would continue to build in a way that they do business our brand equity in the marketplace. So, culturally, having the right fit appropriate to the quality business, that is what we are looking for. Whether they be individual firms or advisors that want to join us, we'll be looking for that over time, and I think there will be opportunities.

Because as we are showing to you we have a firm that has a lot of capability, but we're devoting tremendous resources for this. We have anywhere from five to a thousand people working on this DOL initiative right now embedded in our firm, just based on how we are redeploying resources, because the time frame to get this done is pretty short and the amount of effort to get it done is pretty significant. So, we feel we do have the ability to do that.

Many firms will not have that ability, or be able to support their advisors to make that change. Remember, advisors have to make these changes across their book, and many advisors have 300 or 500 clients, and so, it is a big change for them, and so we have the wherewithal and the capabilities to help support our advisors through that. So, if we look at M&A, it would be along those types of guidelines that we would continue to pursue, firms and people.

We also see opportunities in the asset management space. Very clearly, this is a consolidated environment. As you can see, flows are difficult across the business, and you really do need larger platforms and capabilities to sustain the type of business, put the product to market, ensure that it is meeting the criteria that firms like ours are going to have moving forward.

And we feel that Columbia Threadneedle has a lot of those capabilities. We'll continue to look to complement what we have put in place.

Thank you.

Erik Bass, (inaudible).

Hi, thank you. Can you provide just more color on the drivers at the variable annuity unlocking and the magnitude of the changes and assumptions? What specific changes have you made to the policyholder behavior assumptions?

Sure, it's Walter. The primary element we analyzed was really on the persistency and looking at -- but that was the one that drove the biggest change in our variable annuities. And basically looking at the patterns of people that were basically taking withdrawal benefits and how they were taking them.

So, we analyzed that a little further from that standpoint. That's what led to our conclusion to increase the persistency, that was the primary element. We have seen the trend and this trend with the additional information analysis, so that's what drove the persistency element.

Obviously, we had other behavioral changes, but pretty much netted off. The change on the interest side is we evaluated this and we basically extended the newer version time frame from the 3.5 years to 5.5 years, and kept our long-term range assumption the same.

Got it. Can you quantify the exchange in the last (inaudible) or what the long-term interest rate assumption is?

It was -- no, I don't have the specifics on that. I'm not sure we give that out.

But certainly, we felt from the standpoint of analyzing and looking at that this is going deal with the situation from that perspective. I just don't have that.

Okay. Jim, just one bigger picture strategic question.

Do you think that being both a manufacturer and distributor of products provides the same competitive and economic advantages that it did historically? And in the DOL world, how do you think about maximizing the value of both your product and distribution capabilities?

I do feel that Ameriprise today is a stronger firm, because we have a combination of its very strong distribution as well as manufacturing capabilities. Our manufacturing capabilities, and the intellectual know-how and capability we have actually helps us in many regards to think about how our advisors can work better with products and services that are appropriate for them and the capabilities, even to manage some of those various assets that we deploy.

With that, as remember, in our channel we only sell products consistent with what we offer from an industry perspective. They are very competitive. They operate in the same format, same pricing, same commission structure, everything in that regard is no different.

Having said that, we also, through our manufacturing, have the ability like through Columbia Threadneedle, because we can serve a certain number of people, but to serve more people globally, both retail and institutions and leverage that capability. I feel like Ameriprise has a number of strong legs to our sort of foundation, and those complement each other over time. I think as we have proven to you, that if you look at both our ability to generate earnings growth, the volatility of our earnings are lower, our return has been higher from a combination of the businesses that we're in.

We make sure each business is very much focused about what it could deliver and the core value of it, but I feel still, even with the changes with the DOL, if you can provide good product, appropriate product, consistent with what needs to be delivered to the consumer and client in an appropriate and beneficial way, then there is no reason why you can't be in those businesses.

And remember, very few businesses today are just pure distributors. You can say, well, in the wealth management independent space, but they are very tight margins, and in that regard the sustainability of those businesses over time one can question.

Got it, thank you. Appreciate the comments.

Ryan Krueger from KBW.

Jim, you mentioned using longstanding Arista exemptions for your investment advisory business. Should we view that as being different than the level fees that you share an exemption under BIC, and if so, how do you go about -- I guess go about qualifying for that?

Yes, so, very clearly under Arista, you have the ability to offer and operate with full discretion with no conflicts, et cetera, et cetera. That is part of the way we do our advisory business. There's also an exemption called a PPA exemption that allows non-discretionary advisory accounts, where compensation paid to the fiduciary advisors is based on assets and so leveled across.

Those are the two exemptions that we will whether the way to operate under Arista that we think is appropriate and has various protections appropriate as long as you satisfy those requirements, and that would be different than operating under the BIC standard, which has its own exemption. So, it would operate a little differently. It takes it out of the idea of a private right of action, as well as you would have under the BIC.

And do you, would you still be able, in your view, would you still be able to collect existing revenue sharing payments under that approach?

Under the PPA, the answer is yes for services rendered. And that is the way we look at our cost reimbursement for services rendered, and that cost reimbursement would be consistent and appropriate.

And then that is different than where the advisory advisor will not get various differences in compensation based on product or type of platform they are on in the advisory basis. That would all be consist in what they get and what they are charged for the administration of those assets.

Thanks. Then Walter, can you quantify how much the ongoing impact to variable annuity earnings will be from the actuarial assumption changes?

Well, we are still working through it. Obviously, it will have an impact as we deal with the SOP reserve. It could be over the year, looking at this, in the $30 million or $40 million range.

$30 million or $40 million. Would any of that have been reflected in the numbers this quarter?

It's in the quarter operating, not in the quarter (inaudible). Because basically, it starts June 30, so you have it on that basis in our operating around $8 million to $9 million. Then you should expect to go forward, that would be in that range.

Got it. Okay. Thank you.

A follow-up question from Doug Mayweather with SunTrust.

What is your net long-term care reserve position right now as it stands?

(inaudible) there is no more --

Your long-term care reserves.

I don't have, I'll have to get you what the reserves are. The, obviously there is about $2 billion on our share of the re-insurance, I just don't have the reserve number.

Thanks. Just shifting gears, the charge to the advisors looks like, again, you are recruiting some productive advisors. You are losing some. Looks like the ones you are losing may be less productive.

Are you shooting for to try to break even on a net advisory count? Is that a realistic assumption? Or is the, I guess, the weeding process where you'll always tend to lose a little bit more not less productive advisors than you'll gain in more productive new advisors.

Just a quick followup to that. Has the -- with the more stress in the independent brokerage industry, have you had to maybe pay less to recruit productive advisors, given the fact they may have less options now? Thanks.

We don't look at it based as sort of a based on the number account. We look at it as bringing in quality advisors and their books that would appropriate for us, and we are recruiting more people that have higher productivity. We have been bringing on more recently even many more million-dollar-plus producers and teams.

So, they are finding Ameriprise a good home for them and appropriate from a cultural and a support perspective. The people we are losing in those attrition numbers are some lower producers that are not hitting some of the standards that we have. It also includes people who are retiring and moving their books to other advisors, so the assets don't leave, but they are sort of moving out and transitioning their practices as they have set up successful transition and succession plans that we help our advisors do here.

We are seeing some more advisors come back, even from the more independent space that want more of the support and the value that we can provide to help them build and grow their practices rather than being just more continued independent that don't get our level of that support out there. I think we will see a continuation of that pick up over time, as more people are evaluating their businesses and their practices. I think even as you move to the RAA space, it is going to be more difficult.

All those RAs, including rollovers have to operate under a big standard There's going to be a lot more compliance in supervision out there. The SEC is staffing up to do that, they've also made arrangements with [Fenverse] to handle some of the activities they did, so that they can really focus on more of the advisory space now as that has grown.

I do believe that people are going to need more support. I think the compliance is going to be very important out there, of course the industry and the liability that people will have will continue to rise.

Tom Gallagher, from Evercore ISI.

Good morning. Jim, first question is on the debt raise, $500 million. Was that related to your view of near-term M&A opportunities? Can you talk about where you are headed at with regard to M&A, are you thinking smaller financial type deals or potentially something bigger and strategic?

Yes, so, on the debt raise, I'll have Walter comment on that, just because it's part of our capital structure, and what he's looking to accomplish. And then I'll come back to the M&A.

The debt was strictly [issuance] related to the fact, looking at our capital structure, looking [to the pool], looking at our material [ladder really looking into M&A].

Now, in regard to the M&A, as we have said to you consistently, so, first, let me start by saying that we will continue to look for strategic opportunities, that we have been a very disciplined buyer and we'll continue to be a disciplined buyer out there. That M&A activities will fit where we think we could either grow the business, scale the business appropriately, get shareholder good return from the business or continue to help build out in certain platforms and capabilities that we want to continue to grow.

I do believe there will be more opportunities coming. Again, it doesn't mean we'll just jump at those opportunities, but if the right ones do come fast, we will look at them and evaluate them appropriately.

We still have the wherewithal accommodation of the cash, more debt we can actually go out to the market if necessary, et cetera, to do appropriate acquisitions of reasonable size, even small or medium size, or even a bit larger if we really felt that was appropriate.

At the end of the day, we are still going to be a very disciplined buyer. We are going to be a very appropriate to what our core business are and what will give us strategic value longer term.

Shifting gears, the re-insurance contract you have for long-term care with Genworth, I just had a question on that. The counter-party credit exposure you have to Genworth, are you just an institutional client that would be subordinated to policyholders? Or do the assets that you have there, which I think are north of $2 billion, have some enhanced protection, as you think about counter-party credit exposure?

From our standpoint, we have protections. I am not at liberty to go over them. But the issue is we do have some protections.

Okay, so, Walter, should I take that to mean you wouldn't necessarily be looking to reduce that exposure right now, that you are comfortable with it?

Let me say it this way. Certainly, we have worked with Genworth for a long time, and we, as you know, the way we operate on enterprise risk management, that we will look for mitigations and we feel comfortable with the net exposure.

Okay. And then my final question is on 12-b1 fees and marketing support fees, some of which I believe are going to go away in January of 2017, or at least the structure is going to change.

Jim, if I have taken your past comments on those correctly, those are largely pass throughs to your financial advisors. Should we be concerned at all that the loss of income that your FAs would have is going to make it harder for you to recruit and retain advisors? Or do you believe that that is going on everywhere, and it is not likely to impact you too much?

Yes, so, in regards to the 12-b1s, most of that is a pass through, particularly in the independent space that we have. The employee is not a pass through.

But in that regard, there will be a piece the firm has a piece that the advisor has. But all of that will go away, starting in January, to the extent that there aren't necessarily 12-b1 of share classes that do not have 12-b1 will be rebating anything different back, but we will move to more of an institutional share class across our house.

Now with that, it will affect some of the fees the advisor has had in that regard, and they're evaluating their practices, they are evaluating the value and the services that they render in that regard as well. And in the firm perspective, we are making adjustments for some of the things that we need to do to offset that as from a cost perspective or from service perspective as well.

We feel very appropriate that this is a move across the industry or will be across the industry. I think a number of players have moved that in some of their books, but we'll more fully move to that, over time.

So, we think it is reasonable and appropriate to do that, consistent of many of the funds that we offered didn't have these share classes up to this point, and so, in those cases, we are waiting for some them to get those share classes. But our date of execution and the platforms we've put in place to handle that will be fully operational by the end of the year, so we are allowed to be able to do that. But that is really where we have moved and we will move by January.

Okay, thanks.

John Nadel, Credit Suisse.

Good morning, everybody. So, Jim, I know this is going to be sort of asking to you speculate a little bit, so take it for what it's worth. But the announcements over the past couple of weeks from a couple of your key distribution competitors, Merrill, Commonwealth, they are effectively saying, or at least this is my interpretation, that they are uncomfortable with the idea of utilizing the BIC exemption beginning in April.

You are very consistent with your commentary over the last couple of quarters that you remain comfortable with the idea of employing the BIC. I guess if you could speculate on it, what is the key differences between your comfort level and their lack thereof?

I can't speak to their comfort level or their lack of. What I could say is that by implementing and executing against the BIC, it does require the firm to put more resources to ensure there is a greater level of what I would call both support, compliance, changes to products and platforms and capabilities there, and then support the advisors and the training, et cetera.

So, an easier way for us to do it as well would have been, hey, we're not going to support that and get out. It would be a lot more efficient for the firm, we'd make a lot more money, et cetera, by just people moving. On the other side, some of those clients won't be as served well, as our advisors' book wouldn't be as complete for them. It wouldn't be actually helping our advisors achieve that they think they need to achieve from a client.

The impact from a client would also be more significant. So, I can't talk to them and their book and the size of their activities and how important this is to them, but we do feel that we want to help our advisors as best as we can.

We will continue to help our advisors as they want to do more advisory business. Remember, the 70% of our fee, our total GDC already is in fee-based businesses through our financial planning activities and our wrap business, et cetera. So, it is not as though Ameriprise isn't a leader in the advisory business.

Having said that, even though this is a small part of the business, so you've taken 30% and you take only the piece that qualifies, which is about half of that or less. We still feel that we want to provide support necessary for advisors so that they don't disrupt their client activities or have the clients pay more for services already that for accounts and products that they have already offered. So, that's what we're doing. I can't speak to other competitors in that regard.

Again, we think that we can be in compliance. If we can't, we won't do it, but we feel like we can be in compliance, and where we can't, we will trim the level of activity. But where we can, then we'll help support them, document it and do it in the appropriate way under the exemption.

So, that math, broadly speaking, that you just went through, Jim, if we thought about the 30% that's not fee-based and roughly half of that related to qualified business. Is that 15% or so of AMW and revenues, is that really the piece of the revenue stream that we should think is most at risk if you did choose to say at some point, we actually aren't comfortable with the level of compliance required and we do need to rethink this?

I probably, I don't want to speculate on that as a percentage, because I haven't done the complete math on it, but what I would say, it would be a smaller part of our business. Having said that, we also feel like what we're doing here, we will make consistent in the way we operate between qualified and non-qualified. We feel that it would be inappropriate for us to say to a client, hey, in non-qualified we'll do blah-blah-blah, but we're not going to do that here, either go to our -- we'll put it in our rowboat or we'll service it a different way.

That's all I'm saying, is I think some might say, hey we are going to pass that through a rowboat. These are our clients, we value our clients, our advisors value our clients, and they are looking for a holistic value against that in services rendered in regard to just dealing with people, just an investment advisory. We love that business, we think that business is appropriate for many clients, but it might not be the perfect solution for all clients, particularly with certain products and services that they may need.

Okay, that's helpful. Walter, just a real quick followup on the variable annuity unlocking. The extension, without getting into the ultimate reversion to the [mean] interest rate that you are assuming, the extension from 3.5 years to 5.5 years to get there, about what proportion of the $220 million or so of charge did that account for?

Approximately, if you look at, again, the interest impact, I'll use the word [influence], obviously it impacted LTC. Obviously the impact is in the area around 45% to 50% of the number.

Okay, that's helpful. And then just as I think about this NEIC and Oliver Wyman approach, it seems that a few companies are sort of out there either directly or indirectly sort of indicating that a CT e98 standard seems to be what they expect is going to be implemented.

I know it is several years away and there is still uncertainty. But can you speak to what level you are currently holding capital behind your VA business?

The capital holding right now, I don't want to speculate on the number. But currently we have, I'm trying for discern approximately over $2 billion, the issue is, again, let me just say, we are evaluating that. I will get you that number.

But we are feeling that we are actually, with our situation and where we are on our hedges and everything, it will potentially impact. But we feel that comfortable to number, and like you said, this is a long journey on this. We are not so sure where it is exactly going to go all the Wyman group are potentially taking in.

Okay, so we are a few years away, but I'll followup, thank you.

We looked up the LTC reserve. Let me give this to Doug, $4.2 billion is the total. Half of that is, again, re-insured (inaudible). So, it comes down 2.1.

We have no further questions at this time. Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.