阿默普萊斯金融 (AMP) 2017 Q3 法說會逐字稿

Welcome to the third quarter 2017 earnings call.

My name is Jason, and I'll be your operator.

(Operator Instructions) Also please note, this conference is being recorded.

I will now turn the call over to Alicia Charity.

Alicia, you may begin.

Thank you, operator, and good morning.

Welcome to Ameriprise Financial's Third Quarter Earnings Call.

On the call with me today are James Cracchiolo, Chairman and CEO; and Walter Berman, our Chief Financial Officer.

Following their remarks, we'll be happy to take your questions.

On Slide 2 of the earnings presentation materials that are available on our website, you will see a discussion of forward-looking statements.

Specifically, 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 statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall 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 our third quarter 2017 earnings release, our 2016 annual report to shareholders and our 2016 10-K report.

We make no obligation to update publicly or revise these forward-looking statements.

Turning to Slide 3. You see our GAAP financial results at the top of the page 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 noncash unlocking in the third quarter.

We have included operating results, excluding unlocking, for transparency as well.

The comments that management makes on the call today will focus on operating results as well as results excluding unlocking.

And with that, I'll turn it over to Jim.

Good morning.

Thank you for joining today's earnings call.

I'll provide my perspective on the business.

Walter will follow with our detailed financial results.

Then we'll answer your questions.

Let's begin.

With favorable equity markets, low volatility and a slightly better interest rate environment, our clients continue to put their money to work.

I'm pleased to share, it was an excellent quarter for Ameriprise, continuing the trend that we set in the first half of the year.

In terms of operating numbers, excluding unlocking, we set record results.

Both earnings and EPS grew significantly from a year ago.

Earnings were $484 million, up 27% and EPS of $3.12 represented a 36% decrease.

We also achieved a new high for return on equity at nearly 30%, which is one of the strongest returns in financial services.

And assets under management and administration also reached a new high of $869 billion, up 9%.

We continue to grow our lower-capital, fee-based businesses of Wealth Management and Asset Management to be a larger part of the overall company, complemented by our Protection and annuity businesses.

From an overall company perspective, I feel very good about Ameriprise.

We continue to set ourselves apart by the way we work with our clients with growing assets, serving more clients and delivering strong returns.

Let's move to our Advice & Wealth Management business where we had an outstanding quarter.

Ameriprise is a leader in advice.

The importance of what we do for our clients and how we do it continues to differentiate us in the industry.

We're rated #1 in customer service, #1 in forgiveness, #2 in trust, a top performer in serving clients' best interest.

And we're also ranked first for likelihood to recommend the firm to friends or colleagues.

And we're very focused on helping our advisors serve clients well and build even stronger practices.

And we believe there remains a tremendous opportunity ahead for our business.

The need for advice is significant and continues to grow.

Our target market has increased significantly and the largest wealth transfer in U.S. history will take place in the coming years.

That's where we're focused.

And we see in the results, client assets grew significantly in the quarter.

In fact, Ameriprise client assets increased 13% to $539 billion, a new record.

Net inflows into our fee-based investment advisory accounts were $6.1 billion, another all-time high.

Inflows more than doubled what we brought in a year ago.

And this is our sixth consecutive quarter of increasing growth in wrap net inflows.

We're also acquiring new clients, both organically and from our recruiting efforts.

We're bringing in more clients in the $500,000-plus market, which is a great complement to the mass affluent segment that we've long served.

Advisor productivity also reached a new high in the quarter.

Normalized for the net impact of transitioning advisory accounts to share classes without 12b-1 fees and IPI, productivity was up 14% on a quarterly basis.

Reflecting on our position in the marketplace, the Ameriprise brand is very strong and differentiated.

In fact, just last month, brand awareness reached a new all-time high.

Our Be Brilliant advertising continues to tell the Ameriprise story in the marketplace through our integrated TV, digital and social media approach.

Our advisors embody our brand.

We had tremendous growth in the number of Ameriprise advisors recognized for their excellent client service and successful practices in the top publications like Barron's, Financial Times, Forbes and as well as Working Mother magazine.

Ameriprise is an attractive destination for productive advisors, and recruiting is another strength for us.

Another 88 experienced advisors joined in the quarter.

These advisors are from wirehouses, regionals and independents, and on average, they're more productive than advisors we recruited in 2016.

We also welcomed 215 advisors from IPI, the independent broker-dealer we acquired in July.

I recently spent time with our top advisors, and they have a lot of pride in Ameriprise, who we are, what we do and what we stand for in the marketplace.

They're also pleased with the support they receive from the company and the investments that we're making for growth.

We continue to invest in our brand, as I've mentioned, in training and helping advisors use the tools we offer.

We continue to enhance our client experience with more digital, mobile and online capabilities.

We're also making goal and performance tracking easier for our advisors to do.

Of course, robust information security is more critical than ever.

And we've been actively communicating with clients and advisors about their security to make sure they understand the important steps they need to take and how they are protected.

We invest tens of millions of dollars annually in people, processes and tools to protect our clients' information and the firm through a multilayered approach to security.

Overall, it was an excellent quarter for AWM.

We're focused on serving our clients' needs well and bringing in more clients and assets as we support advisors to deliver our advice value proposition even more fully to all clients.

And in an evolving regulatory environment, we remain very well prepared.

We continue to provide clear direction and extensive training for advisors so that they're well supported.

I feel very good about the momentum in the business and the opportunity we have to continue our growth.

Moving to insurance and annuities.

These businesses contribute to our strong client satisfaction asset persistency.

And they're performing as we expected, given low rates and industry trends.

Life insurance sales picked up in the quarter and were strong.

We continue to help our advisors provide these important solutions to their clients from using data analytics to improve insurance underwriting, to implementing new digital and e-capabilities.

In annuities, variable account balances increased on market appreciation and sales continued, but at a slower pace, consistent with the industry.

However, we've seen a nice pickup in Simply RAVA sales, which is our variable annuity product without living benefits, up 10% year-to-date.

In Auto and Home, due to the focused actions we're taking, our loss ratios continue to improve as does underlying financial performance.

We, like the industry, have been impacted by recent hurricanes and we've been able to manage through them quite well.

And with the reinsurance programs we've put in place, we were able to significantly reduce catastrophic losses in the quarter on a net basis.

In Asset Management, we're growing client assets under management and delivering strong financial results.

Like others, we're managing industry pressure and the evolving regulatory environment.

We're in a strong position with Columbia Threadneedle, managing $484 billion in assets under management globally, up 3%.

Importantly, we continue to deliver good investment performance.

We have a compelling lineup with 115 Morningstar 4- and 5-star funds that we sell globally.

And we're delivering good 1-, 3- and 5-year records across our range of asset classes, both in domestic and international.

In terms of the business, we're focused on executing our plans and investing in areas where we see opportunity.

That includes identifying and gearing our capabilities and products to help clients and advisors address important investment themes, themes like generating income, managing taxes in a changing interest rate environment as well as asset growth.

And we continue to further develop our data analytics and business intelligence to enhance our distribution capabilities and execute our targeted channel strategy so that we can better understand particular needs of distributors and help our sales team grow productively.

Complementing our core product lines, we also see a long-term growth opportunity globally in the multi-asset solution space, both for individual and institutional investors.

Our Columbia Adaptive Risk Allocation and Threadneedle Dynamic Real Return strategies are growing and generated about $500 million in gross sales in the quarter.

As you

saw, we announced the acquisition of Lionstone Investments, a leading U.S. real estate investment firm with $6 billion in assets specialized in investment strategies based on proprietary analytics.

This will complement our U.K. property business and give us a bigger presence in a growing asset class.

Feedback from clients has been very good, and we're on track to close in the coming weeks.

And as I mentioned previously, we continue to enhance our operations and move from separate regional operations capabilities and controls to global capabilities will help us increase efficiency and flexibility, especially in the solution space.

In addition to the product and distribution work, another priority is to build and strengthen Columbia Threadneedle brand awareness here in the United States and internationally.

We had a good response to ongoing print and digital campaign, reinforcing our consistency positioning.

Complementing the advertising, we've made many enhancements to the Columbia Threadneedle U.S. advisor website, providing additional functionality and personalization.

Regarding flows.

The majority of our outflows in the quarter, $3 billion of the $4.7 billion, were former parent assets.

Our Zürich and U.S. Trust relationships remain strong.

We typically average about $1 billion in outflows each quarter from Zürich, as we had this quarter.

At U.S. Trust, outflows were a bit higher relating to the closure of 2 collective trusts where U.S. Trust made the decision to manage them internally.

In third-party retail, in the U.K. and Europe, we had a good quarter with net inflows of $400 million as the political environment has settled from a year ago, given the disruption of the Brexit vote.

Investor sentiment has improved.

In U.S. retail, we experienced outflows of about $1.5 billion, excluding the former parent.

We're making progress consistent with our focus on serving the largest broker-dealers and wealth managers.

However, the overall industry pressure on active managers remains challenging.

And in third-party institutional, it was a relatively quiet quarter where inflows in EMEA, however, this was offset by outflows from a couple of clients, including our largest state mandate due to a credit rebalance and CDO liquidations.

Overall, the actions we're taking to drive long-term growth are the right ones and there is more work to do.

In a fluid time for the industry, there is a continued focus on the roles of active and passive and the regulatory environment continues to evolve.

As I reflect on the company overall, we have a great team at Ameriprise.

I'm proud of our strong engagement results and values-based culture.

During the quarter, we received the results from our annual engagement survey.

Proudly, Ameriprise significantly outperformed the financial services industry for engagement, and we rate up there with the best companies in United States across all industries.

We're also consistently recognized as a best place to work.

The way we work together positively influences client, employee and adviser satisfaction, which is fundamental to our success and long-term growth.

Regarding the quarter, Ameriprise continues to generate very strong earnings.

We have solid businesses and we continue to invest in them.

We're generating one of the best returns in financial services.

Very few financial services companies are generating this level of the return on equity.

And we also continue to return to shareholders at meaningful levels.

As we look forward, our client-focused financial strength as well as our strong compliance and risk management, Ameriprise is positioned well.

Now Walter will cover the financials, and I'll be back to take your questions.

Thank you, Jim.

Ameriprise delivered another quarter of excellent financial performance across our business segments.

Top line growth was over 6%, and our operating EPS was up 36%.

Advice & Wealth Management continues to be our primary growth driver, representing almost half of our total operating revenue and over 40% of our operating earnings, excluding corporate.

Our other businesses have also performed well.

Asset Management delivered strong earnings growth and margin expansion.

And our Annuities and Protection results were consistent with what we would have expected in this market environment.

Our balance sheet remains strong.

We are generating strong free cash flow, which we are using to consistently return capital to shareholders and to make selective acquisition for future growth.

Turning to Slide 6. Ameriprise delivered solid top line performance.

Ameriprise operating net revenue was up 6%, normalizing for our annual unlocking and the net impact of 12b-1 fee changes.

Top line growth was driven by our Wealth Management business, which was up 14% from a pickup in activity levels and strong growth in client assets.

This was coupled with good growth in Asset Management revenues.

Turning to Slide 7. We had an excellent EPS growth of 36% to $3.12 and a record return on equity of almost 30% normalizing for unlocking.

In addition to the solid revenue growth, we demonstrated good expense discipline across the firm.

G&A expenses were up 3% year-over-year, which was primarily driven by the timing of performance-related compensation accruals.

Also, results in the quarter included the benefit of $0.60 per share from changes to share-based accounting made earlier this year.

In addition, we also booked a premium deficiency reserve for long-term care that resulted from updating morbidity assumptions, which negatively impacted our EPS by $0.24.

Supporting our strong operating earnings, we returned $462 million in capital to shareholders through dividends and share repurchase, driving excellent EPS growth and return on equity at the firm.

Let's turn to Slide 8. The Advice & Wealth Management business is performing extremely well, delivering very strong business metrics and financial results.

Operating net revenue was $1.4 billion, up 14% in the quarter from solid growth in wrap assets from client inflows and market appreciation as well as higher earnings on brokerage cash.

The previously announced move to share classes that do not have 12b-1 fees for advisory accounts and other associated changes reduced revenue by a net $54 million in the quarter.

The PTI and margin impact from 12b-1 fee changes remain marginal and within expectations.

Expenses were up 4%, reflecting higher distribution expenses from good client asset growth and investments in recruiting experienced advisors.

G&A expenses were up 5% from last year due to the timing of performance-related compensation accruals and the addition of IPI in the quarter.

We expect G&A expenses for the full year to align with our year-to-date trend line.

This revenue growth and expense discipline drove operating earnings up 29% to $298 million, and we delivered a consistently strong margin of 21.5%.

Turning to Slide 9. Asset Management generated strong profitability and margin.

Operating net revenue was up 5% at $778 million from market appreciation and strong performance fees and CLO unwindings.

As Jim discussed, we had outflows in the quarter and are taking action to bring in profitable flows.

Our fee rate was elevated in the quarter by the timing of CLO unwindings and performance fees.

Normalizing for these items, our fee rate remained stable in the 52 to 53 basis point range.

We continue to maintain very competitive margins by tightly managing expenses with G&A essentially flat to last year after normalizing for CLO and performance fee-related compensation.

Pretax operating earnings were up 29% to $200 million.

This included $8 million from performance fees and a similar benefit from the CLO unwindings in the period.

Normalizing for the timing of these items, earnings grew 20% and the adjusted margin was 39%.

Let's turn to Annuities on Slide 10.

Variable annuities pretax operating earnings were up 14% to $130 million, excluding unlocking and mean reversion.

This increase included the other benefits of 4% sequential equity market appreciation, partially offset by net outflows.

Variable annuity net outflows were elevated again this quarter, reflecting a decline in VA sales as well as higher lapses, both of which are in line with industry trends.

In terms of the unlocking in the third quarter, we had a favorable impact of $120 million, primarily from updating market-related assumptions.

On a net basis, our policyholder behavior assumptions were largely in line with our expectations.

The quality of our book is excellent.

Our net amount at risk is exceptionally low.

As a percent of account value, it is only 0.3% with living benefits and 0.1% with death benefits.

Fixed annuities earnings declined as expected to $19 million from $24 billion, driven by lower asset portfolio yields and decline in account balances.

Turning to Protection on Slide 11.

Life and Health earnings declined 9% to $68 million due to continued low investment portfolio yields after normalizing for unlocking.

Claims experience on these products remained within expected ranges.

The unlocking charge in the quarter was an unfavorable $20 million.

Mortality experience improved on our book, which reduced the future benefit of our reinsurance program.

Auto & Home results improved $15 million from last year despite higher gross cat losses.

As you are aware, we took action to establish several new reinsurance arrangements to reduce net cat exposure this year.

Despite the severe weather experienced in the third quarter, our net cat losses were actually lower than the prior year.

We are pleased with the continued progress in our underlying loss performance.

Our non-cat auto loss ratio improved 5 points and our non-cat home loss ratio improved 4 points.

Many of the policy and pricing changes are still rolling to our books, which will support continued improvement in these trends.

On Slide 12, you can see that Ameriprise continues to make progress, shifting its business mix to less capital-intense businesses.

Advice & Wealth Management and Asset Management made up 68% of Ameriprise's pretax operating earnings.

We anticipate that this shift will continue and reach 75% over the next couple of years.

It is an important aspect of our continued capital return story.

You'll see on Slide 13 that our balance sheet fundamentals remain strong with excess capital of $1.7 billion and an estimated RBC ratio of approximately 475%.

We returned $462 million of capital to shareholders through dividends and the repurchase of 2.3 million shares in the quarter.

Additionally, we are deploying capital through selective acquisition to drive future growth.

We continue to target returning 90% to 100% of operating earnings to shareholders as a baseline.

For the year, we are running about that level.

But as we did this quarter, we will remain optimistic and adjust as we assess market conditions, other uses of capital and our valuation.

And with that, we'll take your questions.

(Operator Instructions) And our first question comes from Nigel Dally from Morgan Stanley.

Walter, hoping you can provide a little more data all about the long-term care reserve charge.

I think when it comes to long-term care, I consent that any charges could just be the tip of the iceberg.

So anything you can share with us with regard to the nature of the charge that would allay that concern, that would be helpful.

Basically, during the quarter, we basically assessed that the active claims were increasing.

And we -- the actuaries basically analyzed in, and this is the -- we took a level of reserves that we felt was appropriate to basically deal with the experience we're seeing.

Again, the experience we're seeing is in younger vintages coming in, and we just basically prudently book the amount of money that we felt was appropriate.

Okay, helpful.

And then second on Advice, clearly, very strong increases in the level of activity and rev flows.

I know market conditions were favorable, but there's also some positive impact from the delay of the fiduciary standards.

I know it's impossible to quantify, but in your view, was that perhaps a factor helping the results as well?

Nigel, could you repeat that?

I'm sorry, you broke up a little.

Sure.

The activity that we've seen in Advice clearly very strong.

Was that in part a reflection of the delay of the fiduciary standards?

No, this is Jim.

We are continuing to see our advisors get back focused on their businesses and books.

And we had implemented a lot of the changes necessary due to the fiduciary standard that was put in place in June.

There's still more activity underway there, but people are back focused on serving their clients and getting back to activity.

And so we feel that it's getting back to more normalized focus that we had.

And our next question comes from Alex Blostein from Goldman Sachs.

So Jim, I want to follow-up on some point you made in your prepared remarks just related to largest wealth transfer from -- over the next several years, obviously from baby boomers to millennials.

Can you spend a minute, I guess, on like how are guys positioning Ameriprise to make sure you retain these assets and perhaps capture an incremental share of wallet?

And I guess, as a follow-up to that, what are you guys doing with respect to potentially segmenting your customer base from more of a full advice versus a digital offering versus some form of a combination of the 2 and kind of a hybrid offering?

So there are 2 aspects, very clearly, that we have advisors focused on.

One is, as there is a transition of wealth to retirement and how do they actually develop appropriate levels of income checks to the clients over time, our advisors are very much focused on helping the client do that transition and ensure that they can live successfully 30 years in retirement or more.

With that, we use our Confident Retirement approach, which is having tremendous success in looking at the client's complete life.

In addition, we're also focused on the people continuing to accumulate and not necessarily ready for that transition, but starting to prepare themselves for the ultimate retirement.

And therefore, our Wealth Builder approach is also having a nice effect there, focusing our advisors on the asset accumulation, which is really the core of what the old IDS company used to do.

And so we're getting back a little more to our roots there.

Regarding digital versus nondigital or robo, what we find for our clients -- and this is millennials, this is Generation X, this is baby boomers that people want to be served fully, but they want to be served when, where and how they would like.

So therefore, the enablement of the digital capabilities to our personal advice relationships is the way we're proceeding.

We're enhancing our websites, the mobile capabilities, the ability for advisors to serve their clients through secured messaging and Skyping and various other methods by which they could be in constant contact to the clients.

Now it doesn't mean that we won't further digitally automate.

So right now, we're working on digital advice, in which case, the adviser with the client could even do more things more fully digital or even through our AAC remote operations, work digitally with the clients in a more self-serve environment.

So those things are underway.

But what we find is, across our house, if we can digitally enable our activities even more fully with our advisors, that's the way for us to go with our clients.

Got it.

That's helpful.

And that actually feeds into my next question around just the investment in G&A and the margins.

So Walter, for you, I guess, spend a minute on the operating margin expansion opportunities at AWM from here.

Clearly, very strong recruiting dynamic.

Organic growth is very good.

But I'm just kind of trying to dissect what the incremental operating margin expansion would be from here, something kind of like flat market, flat rates, just trying to get a bit of sense of operating leverage on the organic basis from the kind of current 21-ish percent pretax margin in the segment?

So with your restrictions, I'll try and answer that.

We do have productivity capability, both from the vintaging and certainly based upon the years and the basic legacy advisors.

As Jim indicated, we are certainly penetrating our client base.

So I certainly feel that we'll expand and also manage our expenses prudently.

And investing on that will give us the opportunity to certainly increase undying your condition sets.

I do believe we have that capability.

Jim, I don't know if you want to add to it?

No, I think...

And our next question comes from Humphrey Lee from Dowling & Partners.

First off, very nice results, knocking it out of the park.

Just to follow-up on Alex's question earlier, in terms of A&WM, definitely margin continued to be strong.

And I hear it loud and clear in terms of the productivity and the expense management.

But looking at -- comparing to some of your peers, like their operating margins are in the mid- to high 20s.

So kind of structurally speaking, any reason why Ameriprise can't get to a similar level at some point, so any kind of potential leverage that would get you there?

Yes.

So I think when you look at the various margins, I think it did vary.

What you're probably referencing, I think the largest warehouse is -- are in the mid-20s.

They incorporate my understanding, at least from the work that we've seen, incorporate a number of activities, including a lot more on the banking and lending activities that they do in their client base.

And that really has boosted their margins.

I think on a relative margin basis, ours are very competitive to their wealth management activities in that regard.

In regard to us versus the independents, which we also have a very large independent, we're probably double or triple their margins based upon the retention of our clients to longevity of our advisors and the productivity.

Our productivity is more than double or more of what they do.

So I actually feel very good about our margins, but to the point referenced, we continue to help our advisors grow productivity.

We continue to leverage our capabilities and use the investments to continue to increase those margins.

But I would also say that we're very competitive, but we continue to focus on what we can do further.

Got it.

And then looking at Asset Management, just for the expenses associated with the performance fees, those are still pretty much flat year-over-year and quarter-over-quarter, even though you're reinvesting into the business.

I think that simply, kind of expense reengineering and also the platform consolidation kind of offsetting the reinvestment expenses, but how much room do you still have in terms of these expense management?

Or would we see kind of expenses gradually creep up as you continue to reinvest?

Yes, so we continue to make good investments in the business.

I think over the last year or so, we had to focus a bit more energy on the regulatory side of it that's part of our expense base.

But we are now starting to -- we focus those energies back to the core investments.

We always kept the core investments, but we probably used a bit more we had to of the resources in a period of time.

So now we're refocusing the resources back to the growth areas and the new capabilities that we continue to focus on.

And we have some good things underway.

And so I think to Walter's point, we constantly look at reengineering as a part of our activities.

So we think that expenses will increase on a very low rate, continuing with the growth that we continue to get in the productivity and the revenue side and we reinvest with that, but we don't see that accelerating as an expense issue for us.

And our next question comes from Erik Bass from Autonomous Research.

Historically, the Advice & Wealth business, I guess, had seasonally higher G&A expense in the fourth quarter, but we didn't really see that last year.

As we think about the fourth quarter of this year, should we anticipate a return to more of the normal expense pattern where there is a little bit of more advertising or other expense?

As I indicated in my presentation that we anticipate that it's going to go back to the third -- the year-to-date levels, which are -- which will average out to around 3%.

Right now, it's 3% year-to-date.

So you figure somewhere -- again it's in our range.

But certainly 3%, 4%, we'll be in that range for the fourth quarter.

Got it.

You're talking G&A expenses year-over-year?

Yes, I am.

Okay.

And then also in Advice & Wealth, are you seeing any competitive pressures on sweep yields?

And I guess, how much incremental bottom line benefit do you anticipate from any additional interest rate hikes?

Well, we are certainly today competitive.

And certainly, the lion's share as we indicated of both us and the industry on the sweep accounts has been for the broker-dealer.

We do anticipate and looking to situation going forward that as for the next increase, that will be the largest sharing with the clients as we now reach that 1% minimum we talked about that would be mostly for us.

Got it.

And final question on that.

As you're seeing more clients put money to work, with the cash sweep yield now at 111 basis points, is money moving out of cash a net benefit to you from an earnings perspective?

Actually, it depends on where it goes.

But it is both very profitable.

And the money, which is (inaudible) being deployed, but yet money is still -- the sweep accounts are staying at pretty high levels.

And I think it only dropped $400 million this quarter.

The profitability range for us is quite good as they deploy or stay in sweep accounts.

Our next question comes from John Barnidge from Sandler O'Neill.

What's your expectation for impact to your business from implementation of MiFID II?

We're certainly going to be complying on [1.1].

We believe we are dealing with certainly the reporting requirements.

We are certainly -- that we feel comfortable with.

As it relates to the research, we've already announced that we will basically be absorbing that, and we believe the amount will be manageable.

And we're certainly working to make sure we provide the right research for our clients, but also optimize the course for that.

Okay.

And then what was your catastrophe loss load, excluding the hurricanes this quarter?

Because it seems like there is a trend with property/casualty insurance having hurricane losses, but not much off this quarter.

So wanted to see if it's the same with the case here.

I just want to make sure I understand your question.

You're talking about the gross amount?

Or -- I'm not sure I understood your questions.

Could you repeat or elaborate a little more?

Yes, sure.

Net of reinsurance, what was your catastrophe losses from cat activity outside of hurricanes this third quarter?

They were mostly -- the majority was the hurricanes.

Our next question comes from Kenneth Lee from RBC Capital Markets.

Just had a question on Advice & Wealth.

Looking back several quarters, productivity has been increasing, and this has a huge change in the advisor account.

Just wanted to get a better sense of how much of that improvement is due to favorable market conditions versus the impact of experienced hires that you guys have been getting or just versus improving efficiencies within the business?

So I would say the larger part is due to growth in overall productivity, because we run a very large network.

But the year ramp-up continues to be a complement to that, particularly in our employee channel.

And the employee channel has actually shown some nice growth in average productivity over the number of years, last 1, 2, 3 years.

And that continues to actually get good utilization.

That also brings up our margin in the employee channel, as we told you before.

And so we feel that the year continued recruitment and ramp-up is a nice complement.

But also when you look at the type of productivity, we're talking about 14% growth in productivity, it has to do with the larger network.

Now a piece of that, of course, is markets where you are managing some of the assets, et cetera.

But I would say the larger part of that is really advisors actually continuing to deepen their book and grow their client base activities and focus on a little more of the clients that are actually bringing in more of the assets at a higher level, as we said, continuing to move upmarket.

So it's a combination of those factors.

All of them have contributed, but we also have a very large network.

So to get 14% productivity growth, as an example, it takes those type of levers to work.

Okay, great.

And just had one more question.

In terms of the performance fees, could you remind us again of the potential seasonality where there are certain quarters where we should expect some kind of volatility from performance fees?

And then going forward, I mean, especially with the recent acquisition of Lionstone Investments, should we expect a little bit more impact from performance fees from the Asset Management side?

Okay.

On the last part of that question, probably not a lot.

It really is -- certainly as we look into '18.

The seasonality is very difficult to focus because of the aspects of the -- when these properties actually settle and close.

So it is a difficult situation.

There's no seasonality pattern.

And that's what makes it -- from our standpoint, forecasting is difficult.

It's there.

We earn it.

It's good income, but the timing of it is challenging.

Next, we have Doug Mewhirter from SunTrust.

I had a follow-up on the MiFID II question.

Just to confirm, and I know you had disclosed this, will you be implementing MiFID across your Columbia Threadneedle and -- or your Threadneedle and your Columbia, in other words, worldwide or just to European operations?

Just European.

Okay.

And do you -- or are you willing to disclose what your research budget was for Europe for this year?

We are looking at that right now.

I think the level of research that we and others consume is something that we are quantifying in a greater level of detail, but with that, what is necessary and appropriate and what is the rates necessary and appropriate for us to pay for.

So a tremendous work is going on right now.

And so we rather wait until we have that full diagnostic in what we will be doing moving forward, and then we could give you that update.

And my last question, Walter, what's your long-term care reserve on the balance sheet as it stands now?

I don't have that -- I will try -- I will get -- I have to get back to you on that.

I don't have.

I think I don't want to guess that.

So let me...

I guess, maybe to reframe the question, the reserve charge you took this quarter, was it like a single-digit percentage of your total reserves or -- just trying to get an idea of the magnitude of the reserve charge on a relative basis to the long-term care reserve?

Relative to the portion that's not reinsured, it was under -- I would say, it was under -- in the single-digit range.

And again, we looked at this.

It's dealing with the future forecasting.

And so we try to be as prudent as possible on it.

Our next question comes from Suneet Kamath from Citi.

Just wanted to go back to Advice & Wealth margins.

It looked like they were basically flat sequentially, even with the June rate hike.

Walter, I get your comment about G&A being a little elevated.

But it also looked like distribution expenses were a little bit higher, certainly relative to the change in distribution fees.

I'm just wondering if there was anything unusual in the distribution expenses line in the quarter?

No, not really, Suneet, not really.

Okay.

And then related -- you had a comment in your prepared comments about expenses associated with recruiting advisors.

So can you drill into that a little bit?

Is the environment getting more competitive in terms of attracting EARs?

And are you still seeing some of these large compensation packages being offered by the various distribution organizations?

Suneet, I think, Walter's comment -- but you can -- was more around that over the course of the year, we brought in very good advisors that have larger books and productivity, in which case, it's not just the number, but it's the size of the advisors that we're bringing in so that the upfront cost of that is a bit higher.

But the productivity we're bringing in is a bit higher.

So that's in combination with how we've adjusted the accruals and also some mark-to-market on the deferred comp based on the market price of the stock, et cetera.

So there is a combination of things that were in the expense quarter for the Advice & Wealth management business.

So I hope that clarifies a little more for you.

No, it does.

And then just one last one for Walter.

On the unlocking, should we expect any kind of run rate impact going forward from the actions that you took in the third quarter, particularly in the annuity space?

Yes.

You will see -- as last year when we did, we announced that -- with the unlocking that there was a negative that will continue through the SOP and the other elements on a quarterly basis.

That's been basically reversed, and it will be substantially less as we move forward between now and the next unlocking.

And obviously, the thing that we have to look at is, as it relates to VA (inaudible) markets where they increase as they impact the SOP and the cash.

Can you quantify the degree to which it's going to be left on the SOP?

It's a shift about, yes, around $10 million in the quarter.

$10 million per quarter?

In this quarter, yes, it's about that, yes.

Next we have Tom Gallagher from Evercore ISI.

Walter, just a follow-up to the Suneet's question.

So would you say the annuity earnings normalized $149 million is a good run rate then?

Or would you make any adjustments to that as we think about 4Q and beyond?

So Tom, as I indicated, we had that improvement which is from the unlocking.

The bigger factor is on the market -- the equity market and the interest.

And so again, I can't forecast that.

And that would -- this quarter, we had a very good increase, which certainly elevated.

If that continues, then you have good run rate.

If it doesn't, you will be impacted by that.

Because I think the old -- if we look at last quarter, I think you were sort of defining a run rate about $20 million lower than that, assuming market conditions were normal, up 2% a quarter.

Is there -- after the review, is that then revised higher or...

No, I would say, the number you -- $15 million, $20 million is a pretty good number.

That would be a more normalized run rate.

So take $149 million less $15 million to $20 million as a more normal run rate?

Yes.

The -- your comments around capital management.

So I know you slowed buy back a little bit and you mentioned considering M&A, I think, as well.

Can you talk a bit about what your thoughts are?

Would you -- is this a good level of buyback?

Would you expect to fade that further, pivoting more into M&A?

What are your overall thoughts there?

Well, okay, let me start with and maybe Jim will add to it.

We talk about that from the standpoint of 90% to 100%.

And certainly, we would then be optimistic about it and looking at different aspects of it.

So at this stage, I think we've been fairly consistent with that and certainly moving from $85 a year ago to $150.

But certainly, we have the capacity and the capability and we generate.

But it is really just gauging that situation to ensure that we're optimizing shareholder return, both for dividends and for buyback.

Jim, I don't know if you want to add.

No, I think it's fine.

And we also did 2 small acquisitions in complement to that during the quarter.

So we'll continue to deploy appropriately.

We're still north of 100% in our buyback.

And so we're generating good earnings and we're returning it at a substantial rate.

But we're also looking to do some incremental bolt-ons, which we are starting to do here and there.

So I think you could take it as we're going to continue to return.

Got it.

And then just 2 other quick details.

The long-term care charge, was that GAAP only or was that statutory as well, the $57 million?

That was on both.

Was on both.

And then your comment on the sweep cash fees being more sharing, is that -- should I take that to mean you'll keep 50% or in that ballpark?

It's obviously going to be based on competitive.

But it -- certainly, it would move to a more sharing range.

I just -- I can't hand you that, because it's really going to be based upon competitive situations.

But you should expect we'll be sharing more.

Next we have Ryan Krueger from Keefe, Bruyette, Woods.

I believe you said the Asset Management margin adjusted for the performance fees was 39%.

I guess, you've talked about historical kind of more of a range in the 35% to 40% range.

I guess, with doing what you've done, is it fair to kind of assume more of the mid- to upper end of the target in the current environment?

You believe that's sustainable?

Yes, I think that's a reasonable assumption, certainly in this environment.

And then just a quick one.

I know it's not a huge deal, but just on the Lionstone partner, can you give us any sense of should we expect much of a financial impact as that comes into the results?

And how the flow has been in that business?

Well, we think it's a very good property that we think we can help them continue to grow and there's opportunity to add to their book over time.

I think with this business, like anything, it's more of a slower build.

And so we think that it will accrue for us over time, but there shouldn't be any major impact to the financials over the next year or so.

It's Walter.

I just -- we got the answer on the question about the reserves active and disabled life reserve.

It's almost $2 billion.

Thank you.

We have no further questions.

Thank you, ladies and gentleman.

This concludes today's conference.

Thank you for participating, and you may now disconnect.