阿默普萊斯金融 (AMP) 2017 Q4 法說會逐字稿

Welcome to the Q4 2017 earnings call. My name is Paulette, 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. You may begin.

Thank you, and good morning. Welcome to Ameriprise Financial's Fourth Quarter Earnings Call.

On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, our Chief Financial Officer. Following their remarks, we'll be happy to take your questions.

Turning to our earnings presentation materials that are available on our website, on Slide 2, 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. Reconciliations 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 fourth 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 will see our GAAP financial results at the top of the page for the fourth quarter. As you are aware, the Tax Cuts and Jobs Act was established in the fourth quarter, resulting in a $320 million unfavorable charge in the quarter. Given the charge is onetime in nature, we also provided our operating results adjusted for the tax remeasurement impact. Management believes this enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on operating financial results adjusted for tax remeasurement.

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

Good morning, and thank you for joining today's earnings call. I'll provide my perspective on the business, Walter will speak about the numbers and then we will be happy to take your questions.

Let's get started. I'm pleased to share that we had an excellent fourth quarter concluding what was a very strong year for Ameriprise. Clearly, the strong markets and operating environment we experienced throughout most of 2017 remained favorable in the fourth quarter.

In addition, we had the beneficial impact of improving economies globally and the pro-growth agenda in Washington, which boosted financial markets and investor sentiment.

As I reflect on last year, we remain focused on what sets us apart, providing a top-quality experience to clients and advisers supported by strong solutions, while we executed and invested in our strategy for long-term value creation.

We delivered strong results across the firm, with excellent momentum and returns in Advice & Wealth Management. Assets under management and administration reached a new high of $897 billion, up 14%, driven by continued strength in Ameriprise's client flows and equity market appreciation.

As you saw, while we took a onetime charge in the quarter for the new Tax Act, we expect the ongoing benefits from tax reform to be positive. The lower corporate rate will provide additional opportunity for further free cash and capital generation, which we can further invest in the business, while generating a good shareholder return.

Regarding our operating numbers, excluding the tax impact we highlighted, we reached new highs on many metrics. Both earnings and earnings per share grew significantly from a year ago. Earnings were $502 million, up 13% and earnings per diluted share was $3.26, a 19% increase.

When we look at full year operating results, Ameriprise achieved a new record. Earnings were $1.9 billion, up 35% with earnings per share up $12.27, a 45% increase.

In addition, we achieved a new high for return on equity at 32.3%, which is one of the best returns in financial services. Very few financial services companies are generating this level of ROE and capital return, and Ameriprise has consistently grown these measures at a meaningful rate.

In 2017, we continued our growth investments and excellent expense management discipline and at the same time, maintain our strong financial foundation. And consistent with our long-term strategy, we grew our lower capital fee-based businesses of Wealth Management and Asset Management to be 73% of our total operating earnings for the quarter, complemented by our Protection and Annuity businesses.

Let's move to the businesses. Our Advice & Wealth Management business is powerful and growing. The consumer opportunity around the need for advice is increasing. Ameriprise is one of the largest providers in the industry and we're very well situated with our leadership position in advice value proposition.

Recently, I met with our field leadership team to kickoff the year and reminded them how a year ago, our industry was facing a great deal of uncertainty with the Department of Labor rule. Ameriprise devoted considerable time and resources to ensure we were well prepared. We kept our advisers focused on serving clients and running and growing their practices, while managing significant regulatory changes. The way we work with and support our advisers reflects the strength of our culture and why Ameriprise is so attractive in the industry.

Moving to some of the key metrics for the quarter. Ameriprise retail client assets grew by 17% to $560 billion as we continue to serve more clients, including more affluent clients and deepen our relationships with them. We brought in good client flows and our wrap net inflows grew 51% to $5 billion for the quarter. As a result, we continued to grow productivity nicely, with operating total net revenue per financial adviser increasing 15% year-over-year, adjusting for net 12b-1 fee impact.

As a result of our consistent investments and the support we provide our advisers, we help them grow at a higher rate than the industry competitors over the longer term. With good growth and productivity as well as our expense discipline, we expanded the pretax operating margins in AWM significantly to 22% in the fourth quarter. And if you look at the full year, margins grew 300 basis points to 21.1% for the full year.

It also was another strong quarter for recruiting, with 99 high-quality advisers joining the firm. In fact, it was one of our best quarters in terms of quality and quantity of adviser recruits. And we continue to see larger size practices joining Ameriprise. There are changes occurring in the recruiting landscape, but I believe we're well situated to continue to attract good advisers who appreciate our advice value proposition and client-centric culture. These are important differentiators and key to our strong reputation in the industry.

In addition, we earned a number of important accolades in 2017: #1 in customer service, #1 in forgiveness, #2 in trust, a top performer in serving clients' best interest and we also ranked first for the likelihood to recommend the firm to friends or colleagues. And recently, Ameriprise ranked #1 for customer loyalty in the investment industry in the 2017 Temkin Index.

We're going to continue to tell our story through our integrated TV, digital and social media platform and we kicked off 2018 with new ads for our Be Brilliant campaign. And we'll continue to invest in our brand and marketing, including in our digital experience, to provide clients with increased capabilities and security.

As we move forward, our Wealth Management business is situated well. We're building off an excellent year and started 2018 in a favorable position. We know that the experience and the advice value proposition we provide to clients creates confidence and is industry-leading and we want to help more consumers experience it.

Let's move to Annuities and Protection. We continue to serve our clients' long-term financial security needs through our annuity and protection offerings. These are solid books that we manage well. Total annuity and our VUL/UL insurance balances were up due to equity market appreciation. Variable annuity sales overall have been at a slower pace consistent with the industry and essentially flat to last year. However, we're continuing to see a nice pickup in sales of annuities without living benefits, up 18% from a year ago.

And on the Life side, fourth quarter sales continued to show improvement over previous quarters, particularly in IUL sales. We continue to help advisers provide these important solutions to clients from using data analytics to improve insurance underwriting to implementing new digital and e-capabilities.

In terms of the quarter, RiverSource launched our first Fixed Index annuity, which is a long-term retirement savings vehicle that can add stability to clients' retirement portfolios. Overall, we're focused on maintaining strong books of business in 2018.

In Auto and Home, our changes are taking hold and we're seeing good progress and results. We remain focused on increasing rates and enhancing segmentation with disciplined underwriting, enhanced reinsurance coverage to mitigate property cat risk and improving claims management.

Unfortunately, like the industry, we were impacted by higher cat losses in the quarter from the wildfires in California. Overall, aside from those cat losses, we are seeing improvement in the underlying loss development trends and that's starting to be reflected in our financial results and reserve position.

In Asset Management, we're generating good financial returns and managing an evolving operating environment as we benefit from positive markets and our expense discipline. Regarding the business, we're focused on executing our near-term plans, while positioning the firm to compete globally over the long term. Assets under management were up 9% to nearly $500 billion, and we're generating competitive financial results in the quarter.

Operating earnings were up 27% and the adjusted margin increased to more than 39%. This included a strong quarter for performance fees and CLO unwinds.

In terms of the quarter, I'll start with investment performance. We continued to generate consistent competitive performance with about 70% of our funds, equities, fixed income and asset allocation above Lipper medians or benchmarks for 1, 3- and 5-year time frames. We've delivered strong results in North America across domestic and international equities as well as taxable and tax-exempt fixed income. This performance is reflected in our strong lineup of 114 4- and 5-star MorningStar-rated funds globally. We've also earned more than 50 investment awards around the world, including terrific recognition as Multi-Asset Manager of the Year in the U.K.

On the product front, we continue to focus on our strategic products that are in high demand categories and align with investor needs. We're also adding products where we see opportunities. That includes our multiasset solutions business where we're generating solid flows in our adaptive risk and diversified real return strategies in the U.S. and the U.K. We continue to build upon these capabilities.

We recently launched a Columbia Adaptive Retirement Series, a unique product for the defined contribution market that incorporates our adaptive risk capability. Another key priority is increase in Columbia Threadneedle's brand awareness. We've had a good response to our ongoing advertising campaign centered on consistency. That included launching new ads on CNBC. Awareness is up in our key regions and we are pleased with the results so far.

As part of this work, we're investing to strengthen our online presence. We were recently recognized in the U.S. as a digital leader in asset management for our website and social media channels and how they help advisers create solutions and achieve investor goals.

And we continue to execute on multiyear project to move from regional operating platforms to a truly global front, middle and back-office operating platform. We made good progress in 2017, and once completed, we will strengthen our operating capabilities considerably, improve flexibility and our ability to offer customized solutions and increase efficiency.

And on the regulatory front, we're managing a significant change agenda, including MiFID II and preparing for Brexit.

In terms of flows, total net inflows were $2.4 billion, including reinvested dividends and the Lionstone acquisition.

In U.S. retail, overall, we were net inflows of $3.8 billion, including reinvested dividends. We experienced a more normal level of outflows at U.S. Trust given the characteristics of the legacy book. I note fourth quarter mutual fund net sales in BD and IAD channels improved by about $2 billion, reflecting progress in our segmentation strategy and enhanced business intelligence tools. We are making progress. However, with the move to passive, there is work to do.

In the U.K. and Europe retail, we had another good quarter for both gross and net sales with net inflows of about $500 million. It was the third consecutive quarter of net inflows in the U.K., Europe.

And in institutional, we had approximately $1.8 billion of former parent-related outflows. In third party, we experienced elevated outflows of $4.3 billion, which were very low fee fixed income mandates that had a weighted average fee rate of only 4 basis points. And we completed the acquisition of Lionstone Investments, which complements our strength in U.K. property and added $5.4 billion in assets.

I would note that while remaining net outflows, particularly low fee third-party institutional former parent assets, our revenues and fee rate overall for the business are up year-over-year, reflecting the mix of assets we manage. Overall, we're positioning the business for the long term to deliver for clients and generate good returns.

In closing, Ameriprise had a strong quarter and an excellent year. We continue to be recognized for the way we work together as well as for our community involvement. In 2017, Ameriprise received a 100% rating on the Corporate Equality Index and we've earned this for the last 12 years. We're, again, recognized as a Best Place to Work.

In the U.K., Columbia Threadneedle was named Employer of the Year at the Women in Finance awards. In addition, we were, again, named a Military Friendly Employer for the fourth year in a row. And the foundation for all of this, our employees and advisers, our engagement with them is industry-leading, as it's been for many years. The strength of the Ameriprise culture is essential to how well positioned we are to continue to deliver long-term value to clients and all our stakeholders.

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

Thank you, Jim. Ameriprise results in the quarter and in the year demonstrated significant progress in obtaining our long-term shareholder objectives with strong growth in revenue, EPS and return on equity.

I will go through the results in detail on the following pages.

Moving to Slide 6. Overall revenue growth was strong, up 10% in the quarter, driven by Advice & Wealth Management and Asset Management. Strong growth in client assets, particularly in wrap accounts and market appreciation drove substantial 17% top line growth in AWM.

Asset Management revenue was up 8% from markets, performance fees in our hedge funds and U.K. property funds and the unwinding of 2 CLOs. Annuities and Life and Health insurance revenues were relatively flat, consistent with prior trends.

In the Auto and Home business, revenues declined 7% due to the additional reinsurance arrangements established in 2017.

On Slide 7, Ameriprise reported operating EPS was $1.18, including the tax remeasurement impact. Adjusting for the tax item, EPS was $3.26, up 19% from last year. This was fueled by our strong growth businesses where AWM and Asset Management earnings were up 28% and 27%.

G&A expenses were up 6%. Adjusting for the timing of accruals for performance-based compensation, including Asset Management performance fees and foreign exchange translation, G&A was essentially flat. Expense discipline remains a focus as we move into 2018.

We returned more than $1.8 billion to shareholders via buybacks and dividends as well as closing on 2 acquisitions in our growth businesses. Capital return was slower in the second half of the year as you would expect, given the share price appreciation.

Let's turn to AWM on Slide 8. Advice & Wealth Management delivered an outstanding quarter and year. Revenues were up 17%, driven by strong wrap net inflows, improved transactional activity levels and market appreciation. Expense growth was driven by higher distribution-related expenses, G&A was elevated from the timing of performance-based compensation and the onboarding of IPI. Adjusting for these items, G&A was up 5% year-over-year based upon continued investment for growth and volume-related items.

Going forward, we will be consistent and prudently manage expenses relative to the level of revenue growth. AWM had substantial earnings growth and margin expansion in the quarter and for the full year. The margin in the quarter was up 270 basis points to 22% and up 300 basis points to 21.1% for the full year.

Let's turn to Page 9. Asset Management financial performance remained very strong. Revenues were up 8% from strong market appreciation as well as performance fees and the unwinding of 2 CLOs in the period. In addition, the fee rate increase reflecting our mix of business.

The CLO business provided good revenue and earnings benefit in 2017 as a number of deals unwound. We anticipate fewer deals to unwind in 2018. Expenses continue to be prudently managed. Due to the timing of performance-related compensation that I previously mentioned and foreign exchange translation, G&A was up 8% year-over-year. Excluding those items, G&A would be up only 1%.

We delivered a 39% margin in the quarter, supported by the strong performance fees and CLOs. We continue to expect the margin to be in the 35% to 39% range in the near term.

Let's turn to Annuities on Slide 10. The Annuities segment benefited from strong markets in 2017. Pretax operating earnings were up 17% year-over-year. Variable annuities earnings growth was 25% from strong equity markets with fixed annuities earnings being down to $14 million as expected. Variable annuities continued to be in outflows, similar to the industry and the trends we've seen over the past year. We've seen an uptick in sales of our variable annuities product without living benefits.

Our non-living benefit product now comprises about 1/3 of our sales, up from 29% of sales last year. The quality of our VA book is excellent. Our net amount at risk is exceptionally low relative to the industry. As a percent of account value, it is only 0.3% with living benefits and 0.1% with death benefits.

Fixed annuities pretax operating earnings declined $6 million as lapses and interest rates continued to impact results as expected.

Turning to Protection on Slide 11. Life and Health pretax operating earnings improved 16%. Overall, claims experience is in line with expected ranges, though disability claims came in favorable to last year. Interest rates continued to pressure earnings. However, the portfolio is positioned well to benefit when interest rates rise.

In the Auto and Home business, pretax operating results in the quarter were impacted by elevated cat losses of $38 million as well as the contractual reinstatement premium on our reinsurance program. The prior year benefited from a $12 million reserve release and lower cat losses. On an underlying basis, Auto and Home earnings were up from last year.

Let's turn to Slide 12. We are continuing to grow our Advice & Wealth Management and Asset Management businesses at a faster pace than Insurance and Annuities. Advice & Wealth Management made up nearly 45% of the earnings in the quarter. Combined with Asset Management, the fee-based business has made up 70% of our earnings for the full year and 73% for the fourth quarter. This mix shift supports our strong free cash flow generation.

Let's turn to Slide 13. As we announced early in January, Ameriprise had a onetime primarily noncash impact in the fourth quarter related to the Tax Cut and Job Act of $320 million. This charge was related to the remeasurement of net deferred tax assets, repatriation tax and lower future tax benefits from low income housing assets.

On a statutory basis, this impacted our RBC ratio by about 40 percentage points. But the ratio remains quite strong at about 435%. We expect RBC to improve as we move through 2018.

Going forward, tax reform will be advantageous to Ameriprise. We estimate our ongoing effective tax rate to be between 17% to 19%, driving an improvement in our cash flow generation, particularly in AWM and Asset Management. Within 2 years, we expect to earn back the charge taken in the fourth quarter.

Turning to Slide 14. Ameriprise's balance sheet quality, cash flow generation and capital return remain very strong. Ameriprise's capital position remained strong with $1.3 billion of excess capital, reflecting the impact of tax reform.

In the year, we returned about $1.8 billion of capital to shareholders, which was 96% of our operating earnings. As we moved through 2017, our share price appreciated substantially. We lowered our share repurchase levels and allocated some of those resources to acquisitions.

With that, we'll take your questions.

(Operator Instructions) And our first question comes from Suneet Kamath from Citi.

Just wanted to start with free cash flow on a post-tax reform basis. Can you help us think through sort of what the annual pace of free cash flow generation is after the effective tax reform?

Yes. I guess, this is what I think through from my standpoint is, we've talked about it this particular environmental situation that we're generating 85%, 90% free cash flow. At this stage, you could assume that, that will go up by somewhere between $150 million and $200 million. I know I'm giving you a percentage versus that, but it's the best way to think about it because it will fall pretty much that level into the free cash flow category. Again, assuming the mix of businesses and things don't change, just coming from the Tax Reform Act.

Right. So take whatever our estimate is for earnings on a post-tax reform basis, apply that 85% to 90% and then you're saying add $150 million to $200 million on top of that?

Yes. That's a fair way and we'll be refining it as we go through, but it's a good measure to go through.

Okay, fine. And then as you think about tax reform just from a business perspective, do you expect to retain the benefits of the lower tax rate, i.e. have them fall to the bottom line? Or are you expecting some potential offset either in terms of pricing or additional investment in the business?

We will continue to look at opportunities for continued investment as we have and we modulate that appropriately. So we would say that some of that we would like to continue to invest as we do with the other aspects of our free cash flow and some of it will be returned as well. So -- and return, as you saw last year, we did some smaller acquisition. So we think that would also be a way to utilize some of the cash that we are generating.

Okay. And my last question is just on the Advice & Wealth Management business. In the past, you've talked about the reasons why you exited the bank, largely due to regulatory concerns and with some of the deregulation that's going on across financial services, are you contemplating or considering getting back into that business?

I think we are certainly evaluating that, and I think your observations are good ones.

Our next question comes from Ryan Krueger from KBW.

With several large firms now polling out at the broker protocol, can you talk about how you see that impacting recruiting for Ameriprise going forward?

Yes. We feel very good about the value proposition we have and our ability to attract advisers. We attract advisers not just from the protocol firms today, we attract them from firms that weren't in the protocol as well. And we have a good process in place. So we feel very good about our ability to continue to recruit appropriately if advisers are interested in joining us. We are in the protocol and so we're remaining in. And so, from that perspective, we'll continue to recruit in the marketplace, and we feel that our value proposition is strong.

Got it. And then, sticking with AWM. Can you give us -- I know expenses are somewhat elevated in the quarter for performance-related reasons. Can you help us think about what we should expect for G&A expense growth in AWM in 2018?

I would say, if you -- as we go through again, we're going to be looking to invest for growth. But I would say in normalized patterns, it's certainly tied to our revenue growth and growth in revenue, but getting back into 3% to 5% range and staying in that range because we will be investing in the business and obviously, there's volume associated expenses. But it will be correlated to what the revenue growth is.

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

A couple of questions for you guys around the AWM business. I guess, first, around recruitment. If I look at the quarter, I guess, you guys highlighted 99 new recruits, for the year, it looks, by our numbers, over 360 or something like that, that's a very strong year. Can you guys remind us kind of what the productivity of these new recruit stands today versus kind of the run rate once all the assets sort of transition over to you guys? And then I have a follow-up.

With the new recruits coming in, our average productivity on them are actually pretty strong. They are actually above the average across our system right now, particularly in the employee channel. So that was quite good, but as I said, it does take up to 3 years for ramp up. Some sooner than others, but the nature on average is it takes 2 to 3 years for them to ramp up to their productivity. And so as an example, if you look at our AAG platform, which is the employee platform, you can see it more because the number of recruits there are a bit higher against the base, but the productivity of that channel has grown nicely and so has the margins in that channel.

Right. You kind of hit on the second part of my question there. So if I look at the retention in the employee channel, that's improved nicely as well. So I guess, should we think of that as a sign that you guys are sort of getting closer to the end of kind of phasing out lower producers and in other words, that net number in the employee headcount should start to kind of creep higher and grow from here versus -- you guys had really good recruiting, but then some lower producers were leaving. So are we in a little bit more of a steady state now?

Yes. I think, overall, as you think about the core of the AAG business, that is correct. We do and have added the IPI channel, which is a new channel that we are still going through an integration of or will over the course of the year. So that's an aside. But as the core of the AAG, the answer is yes.

Got it. And then, I guess, separately, just wanted to go back to the capital discussion for a second. I hear you are reinvesting some, but I guess, if we think about the return of capital on a pro forma for tax reform, so kind of higher earnings base, is 90% to 100% payout still what you guys are shooting for? And the mix between kind of dividends and buybacks?

Yes, Alex, that is still the -- our guidance from that standpoint is 90% to 100%. And again, circumstance driven, but that's where we said that we would target.

Our next question comes from Humphrey Lee from Dowling & Partners.

In Asset Management, in the press release, you talked about the average fee rates for those $4.3 billion redemptions were kind of around 4 basis points, which is pretty helpful, but what about the average fee rates that you are collecting on the inflows that you are getting? And how does that compare to the outflows?

Well, overall, our fee base on the rate basis points, I'd say, '17 over '16 is actually up. It's a combination of mix, some of the assets that we've added, but also overall the assets that we managed were retained, which we do have a good portion -- a good thing in equity. We did lose a bit more in the fixed income side in our net flow picture, which has very low basis points for some of those institutional and ex-parent activities. So that's really the balancing. The flow picture that we bring in from the new flows actually have good rates to them, including in the institutional side of the business. So we still feel very good about the total that we're managing. And that goes both domestically, but also internationally. We're bringing in some good retail asset net inflows in the international marketplace as well as with good fees.

I think kind of if you look at the overall average fee rate for Asset Management, it's probably around 52 to 53 basis points, which is to say the new business that you're bringing in would be higher than that or kind of in line with that?

It's Walter. It's a tad lower, but if you take a look at the inflow versus the outflow for your question, the inflow basis points are about 15% higher than the outflow as we looked over the quarter and looked over 2017.

And remember it's a combination of institutional and retail assets. So that's in our mix.

Got it. And then on staying with Asset Management, so you are going through the platform consolidation that was started in '17 and my understanding is it probably will complete in 2018. And looking at your expenses, you seem to be getting pretty good results from the consolidation in terms of the expenses, which is pretty much flat for a full year at the most -- in large part. And my understanding is, some of the benefits would have to -- have yet to come through in 2018. So how should we think about the potential efficiency gains that you can generate from the platform consolidation in 2018?

Sure. It's Walter. We will generate some efficiency gains, but we also will be incurring expenses as it relates to MiFID, relates to Brexit and relates to the other elements. And the benefits that we will start garnering with the capabilities that we have through this conversion is really our ability to offer products across the global aspects of this and the consistency on the risk management and the other capabilities. So it's going to give us those capabilities, but we will get some dollar savings, but it's not going to be the main focus of it, because we picked up some already and we will be spending money on new initiatives. But certainly, the capabilities it gives us is going to be vastly beyond the dollar saving.

Our next question comes from Doug Mewhirter from SunTrust.

First question on MiFID II. Do you have a better idea of what the impact to your G&A expenses would be for your European operations? I know that it's very -- from the other side of the table, I know it's been a very complicated process. So I was just wondering if you sort of narrow that down at all as to what the impact would be?

Yes. We've gone through an extensive process and obviously looking at the level of research and how to reengineer. So I would say that we bought the cost of it down and still maintained the servicing capabilities that were associated with it. So it should not be a major event for us in 2018. Obviously, there will be some in the course, but we have really reengineered those cost levels that we can manage.

Yes. And my second and final question, maybe for Walter. What was the dollar contribution from the CLO unwind in the fourth quarter?

From the CLO, the total is $32 million, it's around $16 million.

$16 million?

Yes.

Our next question comes from Adam Klauber from William Blair.

Last year, you did 2, what I call, bolt-on deals. How does the pipeline look for '18? And if you do deals, will they be sort of that similar size?

Yes. We're continuing to look at opportunities that show up in the marketplace or that we think would be of interest to us appropriately. As you know, there's ones you look at and ones that you can actually do appropriately that make sense. So we're constantly looking at that and will -- to '18 we think the marketplace is open in that sense and things will come out this year. So it is something that we have as part of our plans, but these -- there will be smaller acquisitions along those lines, but ones that we can bolt-on.

Okay. And then in Advice & Wealth Management, I know you don't give the exact data, but would you say your net new business in '17, is that doing better than we saw, say, in '15 and '16?

Yes. The answer is yes. We've had very good, strong client activity -- new client activity and flows in. Even with the money being deployed, our cash balances are still very consistently high from the new cash flow coming in. So we feel very good about that business. And our advisers are absolutely generating even nice increased productivity, and we're actually going to do a bit more in helping the advisers grow this year now that we're not concentrating on the DOL activities and we're investing both in technology as well as in capability over the course of the year to even bring our client experience to life, even more so our advice experience, the digital advice tools that we're going to put into our advisers hands. So we feel very good. And some of the things Walter said is investment. It's in some good technology, including in some of our contact activities and engagement activities for clients. So over the course of the year, we are continuing to really deploy and invest in better capabilities to help our advisers even be more engaged.

And just one detail question. If you haven't said, what's the dollar amount of the performance fees in Asset Management for the quarter?

On our performance fees, oh, I gave you the PTI. Oh, I don't know if I have them. I'll -- we'll have to get back. I don't want to guess it.

The PTI impact...

The PTI impact I gave you is $6 million and then we have to go through the...

(inaudible)

That was performance fees and you have the CLOs. The total is $32 million.

$32 million.

Total is $32 million for CLOs and for, what you call again, for performance fees for property. But the breakdown of how much was in the revenue and how much was on the expense side, I just don't have that in front of me. But I'll get it before I'll just holler out.

Our next question comes from Tom Gallagher from Evercore.

Walter, the decline in excess capital of $400 million, the -- was that all RBC tax reform driven? And does that imply that you are not changing your RBC target despite the fact that there's kind of a mechanical change in RBC? Can you describe it better what drove the $400 million decline?

Sure. The answer to the question is yes. It is driven by the tax reform. The answer to the second part of the question is, the RBC and the effectiveness and required RBC is driven by the rating agencies. They, to the best of my best knowledge, have not given us any guidance that they will be changing what the required RBC will be. And we have the ability and will be building back the RBC as we go through the year.

Got you. And then just on the long-term care in the runoff corporate operation, the loss of around $13 million, that's the highest loss you've had as far back as I can see. And I know you guys called out claim severity and then it normalized in December. But how should we think about your comfort in reserves, just given -- I mean, you had GE take a very large charge in the market for the same type of business. But can you talk a little bit about your comfort in that exposure?

Sure. Before I go there, I just want to say that the 435% RBC that we reported actually is above the standard. So we're starting at a good place from that standpoint. As it relates to the -- what you're saying as the loss of $13 million, that was the PTI loss. That was not claims. It was not all claims. The majority -- I would say, about only 30% of that -- or 40% was claims and that related to basically experience of having new claims come in, in cohorts that were higher than on daily payouts and we, according to FAS60, booked that. We do not believe that will change our active reserve adequacy as we looked at it and we did extensive analysis. And that trend line has now subsequently changed. The other parts of it, we had around $4 million to $5 million loss in LTC, which is normal. We have that. And then the other part was really had to do with a timing issue that we -- looking at transfers and some lapsing that we didn't pickup the exact amount. But again, it is -- we feel extremely comfortable with the reserves. It's gone through extensive reviews and certainly, we feel that they are adequate, and we constantly monitor it.

Our next question comes from Erik Bass from Autonomous Research.

First, I had one follow-up on taxes and just wondering if you expect a lower tax rate to have any impact on pricing or fee rates in either the Advice & Wealth Management or Asset Management businesses?

No. We constantly look at the marketplace competitively. In Asset Management, we make adjustments in fee levels appropriately based on whether it's institutional or retail in certain activities, but we've been doing that on an ongoing basis, not necessarily, but it will be driven by the tax rate. And in AWM as well, it's based on client level of activity and value and appropriate left for the adviser to decide for the activities with their clients. And nothing is going to be holistically driven by the tax rate.

Got it. So you're not seeing any competitive pressures with people sort of becoming more aggressive on pricing as a result of the tax benefit gains?

Not at this point.

Okay. And then, can you also update us on what you're seeing in terms of the competitive dynamics around cash sweep fees? And so what you're anticipating in terms of the benefit from additional rate hikes that we may get in 2018?

Yes. We have seen -- no, obviously, over the year, there's been some increase and certainly we follow that because we are coming off a very low base, but it has been much less than we originally would have anticipated at the beginning of the year. So we are seeing competitors being fairly consistent and we're certainly observing. But at this stage, it's very tough to gauge the exact amount that will be proportional to us and to shareholder based upon the situation. So we will remain competitive and we are competitive and so we'll have to gauge. But I imagine we would -- the percent would increase if that's what I would think and we'll just have to gauge the competitive reactions.

Got it. So you still expect to be able to retain at least some of the benefit of additional rate hikes?

Absolutely.

We believe that is what the trend line is, yes, some.

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

Just looking at the wrap flows, it had a very strong annualized organic growth in the quarter. What would you highlight as particular drivers for the recent strength in flows? More specifically, I'm just wondering how much could be driven by potential shifts from commission-based accounts?

Yes. So, over the course of the year, but over the course of the last number of years, there's been a shift from commission-based business to fee-based accounts and that's definitely included for the fourth quarter, but we're also seeing greater inflow of client activity that has been going to the fee-based business. And so, as our advisers continue to look at doing business that way, more of the flows will continue to go into that area. We still saw a very good transactional activity in the fourth quarter. So we didn't see it as just a shift. We saw it as more client activity with a piece going to commission based, but more so, on the trend line to the advice-based fee-based business.

Great. And just one more quick one. Just in terms of the Asset Management -- assets under management, could you just remind us how much of that AUM is more general account versus, I guess, I would call it more third-party AUM?

The Asset Management, what -- how much is general account?

General account is around $35 billion to $40 billion.

And we have an answer on the question on performance fees, the revenue is $34 billion and the PTI is $16 billion.

And our next question comes from John Barnidge from Sandler O'Neill.

A couple of questions. There was a lot of catastrophe loss activity in 4Q and generally in 2017 in the industry. Can you talk about your pricing power as a result? And then I have one follow-up.

When you say pricing power, the ability to raise our premiums because of it, is that what are referring to?

Yes.

It's -- again, dealing with cat losses, you have to demonstrate that they're not anomalous and that -- because if they are, it's very tough to pass rate. We have coverage. It was really the unique nature of the California fires, 2 of them. The first one, of course, being the most damaging. That basically we ate the larger portion on that. And it's -- so we will evaluate and the team is evaluating what aspects will be then put into pricing and obviously, we have to be competitive, and sure and pass-through the state filters. But certainly, it will be evaluated. If it is part of a regular trend line that is incorporated, we will start pricing for it.

And then there have been a lot of press reports about the California Insurance Commissioner possibly pressuring rates for property insurers in light of tax reform so that the corporate reduction is passed completely along the policyholders. Is there any commentary you have about that?

No. That one, I don't -- I really do not. That one I have to figure out myself, if you don't mind.

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