阿默普萊斯金融 (AMP) 2021 Q4 法說會逐字稿

Welcome to the Fourth Quarter 2021 Earnings Conference Call. My name is Sylvia, and I'll 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, Sylvia, 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, Chief Financial Officer. Following their remarks, we'd 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 references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website.

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 2021 earnings release, our 2020 annual report to shareholders and our 2020 10-K report. We make no obligation to publicly update or revise these forward-looking statements.

On Slide 3, you see our GAAP financial results at the top of the page for the fourth quarter. Below that, you'll see our adjusted 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. Many of the comments that management makes on the call today will focus on adjusted operating results.

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

Good morning, and thank you for joining our fourth quarter call. I hope you're all doing well.

Ameriprise delivered another strong quarter, completing an exceptional year in 2021. We continue to execute well and produced record results. Importantly, we helped our clients navigate the environment, while driving profitable organic growth, advancing key strategic initiatives and reinforcing our strong position in the marketplace. At the same time, Ameriprise continued to generate excellent shareholder returns.

In terms of the environment, with the economy continuing its recovery, U.S. equity markets finished the year strong. In Europe, the environment improved, but continue to lag the U.S. As we've seen, higher inflation is pressuring the Fed to move on raising short-term rates, causing greater volatility in the equity markets.

Let's move to the highlights for the quarter. Total assets under management and administration were up 29% over last year and reached a new high of $1.4 trillion. In the quarter, we added $136 billion from our acquisition of BMO EMEA's asset management business and $40 billion in total client flows, also a new record.

Turning to our fourth quarter adjusted operating results. Revenues were $3.7 billion, up 18%, fueled by strong organic growth I've mentioned and equity market appreciation. Earnings rose 29%, with earnings per share up 36%, reflecting robust business growth and sound capital management. And ROE, excluding AOCI and unlocking, was at a record 50.7% compared to 36.1% a year ago.

Our fourth quarter results are consistent with the record results we delivered for the full year. Excluding unlocking, revenues were $13.8 billion, up 17%. Earnings rose 29% to $2.7 billion, with earnings per share up 35%, $22.75. We continue to execute our strategy, investing strongly in our higher multiple businesses, which now represent 80% of our 2021 adjusted operating earnings for the year, while continuing to generate strong returns from our high-quality Retirement & Protection Solutions business.

Let's move to Advice & Wealth Management, where we continue to generate strong momentum and growth. It was a standout quarter. Clients were active, working closely with their advisers, benefiting from our comprehensive advice and solutions and the strategic investments we've made over many years. Engagement is high and a large number of our clients are utilizing our extensive digital capabilities to track and achieve their goals.

This is leading to robust client activity, asset flows and client acquisition. For the quarter, total client assets were up 17% to $858 billion. Client inflows were up 29% to a record $12.5 billion driven by strong client acquisition and deepening client relationships. Wrap net inflows remained strong at $10.5 billion, up 17%, driving ramp assets under management to a record $465 billion.

Client cash balances grew to $43.8 billion. Transactional activity grew for another quarter, up nearly 9% over last year with good volume across a range of product solutions. Our advisers are highly engaged. The training, coaching and full suite of tools we provide advisers is helping them build and deepen client relationships, track prospects and run and grow their practices on our fully integrated platform. This is driving strong adviser productivity growth, up 18% to nearly $800,000 per adviser.

With regard to recruiting, we added another 86 highly productive advisers in the quarter. Helping advisers grow their practices is a top priority, along with continuing to recruit experienced productive advisers. We recently surveyed hundreds of advisers, who joined Ameriprise over the last few years. 90% said they had better client-facing technology, financial capabilities and are better able to serve and acquire clients at Ameriprise than they did with their prior firms. That's terrific, and it's an example of why we feel so strongly about our value proposition and the ability to grow.

The strength of our value proposition is also reflected in the recognition we're receiving. That includes being named the #1 Most Trusted Wealth Manager and clients consistently rating us 4.9 out of 5 in overall satisfaction. In fact, we're showcasing this strength in our latest national advertising campaign that we launched this week called Advice Worth Talking About. It's a distinct platform that conveys how we help clients feel so confident with their experience that they're referring Ameriprise to their friends and family.

Turning to the bank. Total assets grew to nearly $12.5 billion in the quarter, up from $8.1 billion a year ago. And we feel well positioned as we transition to a rising rate environment. We continue to have strong demand from our lending solutions, especially our pledge loan products.

As we move through 2022, there's clearly an opportunity as interest rates rise. We would have a direct benefit in wealth management, where in addition to what we currently have at the bank, we have our cash sweep deposits and certificate businesses that would benefit.

To wrap up AWM, our metrics and financials are excellent. Pretax income was $472 million, up 34% and margin was strong at 22.3%, up 250 basis points, which compares very well in the industry.

Now I'll turn to our asset management business, where we delivered a strong year. We stay focused on meeting our clients' needs and drove the business forward while completing a significant and complementary acquisition that added $136 billion in acquired assets, significantly expanding our capabilities and reach. Total asset management assets under management increased 38% to $754 billion, also a new record.

As an active manager, we start with our research, which is excellent. It's foundational to our business as we focus on generating consistently strong investment performance for clients. That's across equity, fixed income and asset allocation strategies. At year-end, well over 80% of our funds were above the median on an asset-weighted basis over 3-, 5- and 10-year time periods. This is terrific performance. And when we compare it to a broad group of U.S. peers we tracked, we performed at or near the top of the Lipper ratings for multiple time periods.

Overall, we had net inflows of $27.5 billion. We're able to earn a significant level of flows from BMO's U.S. clients that elected to transfer their assets to us in both retail and institutional strategies. This is a great example of the value we can realize from our strategic relationship with them. Global retail net inflows were $13.6 billion, including reinvestment dividends as well as strong flows from U.S. BMO clients.

In terms of fixed income, our results were good and in line with the industry as we've made significant progress in increasing our market share. In equities, our flow rate declined a bit and is consistent with the industry average after outperforming in recent quarters. As you've seen, there has been more volatility given concerns about monetary policy and the pandemic.

In EMEA retail, we had inflows on the continent. In the U.K., market conditions remain challenging. And while we experienced some net outflows, flows continued to improve over the past 2 quarters.

Looking ahead for global retail, as we navigate this period of heightened volatility, we have a strong lineup of high-performing strategies across equities, fixed income and asset allocation. 13 of our U.S. investment strategies had over $1 billion in sales last year, and that's up from 4 just 2 years ago. We will continue to execute our successful strategies and reinforce relationships with advisers and our partner firms that have driven strong results over multiple years.

Turning to global institutional. Excluding legacy insurance partners, net inflows were $14.8 billion driven strongly by U.S. BMO client transfers as well as mandate wins and top-ups from existing clients.

In terms of our BMO EMEA acquisition, I feel good about how we're tracking and the teams we have in place. Executing the integration is a top priority, and I'm encouraged by our progress in these initial months together. We've seen that BMO is now in our numbers, and Walter will take you through that further.

To wrap up asset management, I feel good about the business, the progress we've made over recent years and our priorities to drive long-term growth.

Moving to Retirement & Protection Solutions. Our results were strong with strong sales in the quarter. Variable annuity sales were up 15% driven by our structured product and traditional RAVA product without living benefits. And in Protection, sales were up 41% driven by our VUL product with sales nearly doubled as it is an appropriate product in this low rate environment.

As you know, we have been taking strategic actions within the annuity business, and that continued in the quarter as we further narrowed our variable annuity offerings. As part of our focus on products without living benefits, effective January 1, we discontinued 3 of our 4 living benefit riders. These 3 riders represented 98% of our living benefit sales for the past year. And by the end of the second quarter of 2022, we will have stopped all new sales of our one remaining rider, which represents a very, very small part of our business.

On the insurance side, we're making similar moves in the product line, where we discontinued 2 products in our UL lineup. We've built differentiated Retirement & Protection Solution businesses over many years that delivers superior financial results, returns and steady free cash flow, consistent with our other business lines.

Overall, Ameriprise delivered a record year, and we're positioned exceptionally well for 2022. Listen, across our business, we're driving terrific results. We ended the year with excellent organic growth, a strong balance sheet and a significant excess capital position. And Ameriprise continued to generate one of the highest ROEs in financial services, above 50%. And that's with our asset-light and higher returning balance sheet businesses and while maintaining a strong excess capital position.

So to close, our team is focused on executing our successful strategy, delivering for our clients and continuing to drive profitable growth.

Now Walter will review the numbers in more detail, and then we'll take your questions.

Thank you, Jim. Ameriprise delivered strong financial results across all our businesses. We reached new record levels of revenue, pretax adjusted operating earnings and return on equity in the quarter and for the year. We delivered strong flows, earnings growth and margin expansion in our core Wealth and Asset Management businesses, with Wealth and Asset Management now representing 81% of Ameriprise's earnings in the quarter. This compares favorably to 75% of total earnings a year ago.

Our Retirement & Protection Solutions businesses continue to perform well as we further optimize our risk return profile. We continue to generate robust free cash flow across all our businesses. Our balance sheet fundamentals are excellent. And we returned nearly 90% of adjusted operating earnings to shareholders in the quarter and for the year, consistent with our target. We ended the year with a significant $2 billion in excess capital position.

Let's turn to Slide 6. We delivered on our profitable growth strategy in our core Wealth and Asset Management businesses. In the quarter, our organic strategy was supplemented with the acquisition of BMO's EMEA Asset Management business, which added $136 billion of AUMA. In addition, we were able to add a net $15 billion of flows and AUM in the quarter primarily from BMO's U.S. clients that elected to transfer additional retail and institutional assets to us. Overall, AUMA was up 29% to $1.4 trillion and Wealth and Asset Management client flows reached $40 billion. On a full year basis, our flows were up nearly 140%, representing the successful execution of our growth strategies in each of these businesses.

Let's turn to Slide 7, where you can see that we are delivering profitable organic growth. Revenues in Wealth and Asset Management grew 23% to $3.2 billion, with pretax operating earnings of $802 million, up 45%. This drove a blended margin of 28.3%, up 420 basis points from a year ago.

Let's turn to the individual segment performance, beginning with Wealth Management on Slide 8. Our strategy of providing best-in-class tools and technology to enable advisers to grow their practices has generated strong organic growth results. In the quarter, we generated record client flows of $12.5 billion, including $10.5 billion into our wrap program.

Organic growth, combined with strong markets, led to client assets of $858 billion, up 17%. Our adviser force continued to deliver exceptional productivity growth, with revenue per adviser reaching a new high of $796,000 in the quarter, up 20% from the prior year.

Turning to Slide 9. You can see that the results in the quarter are a continuation of our strong trends for the past 2 years. Flows increased, and we continue to see excellent transactional activity levels from a differentiated client engagement. Total client assets grew 33% to $858 billion over the past 2 years with client flows more than doubling over the same period. And over the past 2 years, adviser productivity was up 28%.

On Page 10, you can see that our focus on profitable growth is showing up in excellent financial results and wealth management. In fact, revenue and earnings for Wealth Management reached record levels. Adjusted operating net revenues grew 19% over $2.1 billion, fueled by robust client flows, an 8% increase in transactional activities, supplemented by strong markets while management pretax adjusted operating earnings increased 34% to $472 million.

Ameriprise Bank is a growth driver of Wealth Management. In total, the bank has $12.5 billion of assets after moving an additional $4 billion of sweep cash onto our balance sheet in 2021. Expenses remain well managed. G&A expenses increased 2% as higher activity-based expenses and performance-based compensation were largely offset by expense discipline.

As we move into 2022, we will continue to manage expenses in light of the strong revenue environment, and we expect proportional expense growth. In the quarter, our pretax adjusted operating margin was 22.3%, an excellent result with an increase of 250 basis points from the prior year without a benefit from short interest rates.

Let's turn to Asset Management on Slide 11, where we continue to deliver excellent organic growth that was supplemented by the closing of the BMO acquisition in the quarter. Assets under management were up 38% to $754 billion, including $136 billion of assets acquired from BMO EMEA. Net flows were also strong at $27.5 billion in the quarter, up from $7 billion a year ago.

Closing this quarter included a net $15 billion of inflows and AUM related to BMO. This included $16.9 billion of inflows in the U.S. from a decision by BMO U.S. clients to transfer retail and institutional assets to us as well as $1.9 billion of outflows in EMEA, about 40% of which was deal-related breakage. And margin in the quarter was quite strong up 46%, up from just under 40% last year.

On Slide 12, you can see these strong results are a continuation of the trends over the past couple of years. Assets under management grew 53% and underlying flows improved $35 billion, excluding BMO over this time period. The operating leverage in the Asset Management is significant with margins from the trailing 12 months of 46%, up from 36% 2 years ago.

Additionally, you saw in our press release that we made some enhancements to our AUM disclosure. Specifically, we broadened our definition for alternative assets to better demonstrate our underlying business and the additional assets from BMO. Alternatives are an important point and growing part of our business with about $40 billion of AUM across various strategies.

Turning to Page 13. You see that these organic growth trends are generating excellent financial performance and asset management. Adjusted operating revenues increased 33% to $1.1 billion. The acquisition of BMO's EMEA Asset Management business contributed about $60 million to our revenues for 2 months. Excluding BMO EMEA, underlying revenue growth remains very strong at 25%, reflecting the cumulative benefit of net inflows over the past year, market appreciation and higher performance fees.

The fee rate in the quarter was 54 basis points, which benefit from higher performance fees, partially offset by the negative impact of 2 months of BMO EMEA in our results. Excluding the impact from performance fees and BMO, our fee rate was in line with our prior quarters at approximately 52 basis points.

Expenses remain well managed and in line with expectations given the revenue growth. G&A expenses were up 12%, excluding BMO, as well-managed underlying expenses was elevated by performance fee compensation.

Pretax adjusted operating earnings was $330 million, up $129 million from last year, including $22 million of higher performance fees and a $4 million pretax earnings contribution from BMO. This demonstrates the underlying strength of our asset management business. We delivered a 45.7% margin in the quarter, which included BMO EMEA for 2 months of the quarter. Excluding BMO EMEA, the margin in the quarter was 48.6%. If BMO had been in our results for a full quarter, we expect our overall adjusted margin to decline by approximately 3 to 4 percentage points.

With the BMO transaction closed in November and a couple of months with BMO under the Ameriprise umbrella, the business fundamentals and financial performance are in line with our expectations. This includes our expectations around accretion targets, synergies and integration expenses.

Let's turn to Page 14. Retirement & Protection Solutions include blocks of business with a differentiated risk profile that generates substantial free cash flow. The business is performing well with pretax adjusted operating earnings of $183 million, up slightly from a year ago.

As Jim said, we continue to focus on optimizing our risk profile and shifting our business mix to lower risk offerings. We're accelerating that shift with our recent product announcements to exit VA living benefits, universal life with secondary guarantees and our UL/LTC combo product.

These announcements caused an uptick in living benefit sales at the end of December, with a total of 67% of variable annuity sales without living benefits for the full quarter. Account value with living benefits represent only 61% of the overall book now, down another 240 basis points in the past year.

In 2022, we would expect less than 1% of our new sales to include living benefit riders. We had a similar trend in protection with sales driven by higher-margin VUL sales. This mix in sales and account values for both retirement and protection products are expected to continue.

Now let's move to the balance sheet on Slide 15. Our balance sheet fundamentals remain excellent. We had holding company available liquidity of $2.4 billion and excess capital of $2 billion at the end of the quarter following the acquisition of BMO. Our diversified high-quality AA-rated investment portfolio remains well positioned, and our hedge program was 95% effective in 2021. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders.

As I mentioned, we returned nearly 90% of earnings to shareholders in 2021, consistent with our target. Yesterday, we announced an additional $3 billion share repurchase authorization to be used through March 31, 2024 and feel good about our ability to continue to return capital to shareholders.

With that, we'll take your questions.

(Operator Instructions). Your first question comes from Suneet Kamath from Jefferies.

Jim, I wanted to start on the U.S. retail flow picture. As we think about the past couple of years, you've had a pretty good run, sort of bucking industry trends in terms of inflows. Do you view what's happening in the fourth quarter here as a little bit of a bump in the road where you get back on track? Or is there anything that you need to do that's more substantial?

I'm assuming that you're talking about the asset management U.S. flows.

That's correct.

Okay. Yes. So what we saw in the fourth quarter was that we had actually some good flows in our fixed income consistent with the industry. So we're like right in there with the industry average, which we've been able to gain share, which is one of the things we want to do. And we actually see stronger opportunity there as we move forward based on the funds and the performance of the funds and some of the categories that we know are in demand. So I think that will be positive.

In equities, there's been some rotation that occurred in the fourth quarter, value growth, et cetera, a little more volatility, a little sales slowed. I think you saw that in the industry. Our total sales were about industry average when we were above the previous [2Q] quarters.

We actually feel pretty good about the fund lineup, the performance of the lineup, which is very strong and the number of funds that we're selling now versus what we did in the past. We had a little reduction in some sales as we soft closed our dividend income fund. We wanted to temporarily look at that as we got a lot of activity into it to digest it, but we'll be reviewing that as we move forward, and that has been a good sales driver for us.

So I actually believe with the lineup and what we will do there and the continuation that equities will be in demand. I feel good about that as we move forward.

Okay. That makes sense. And then I guess one for Walter on expenses. I guess, in the past when we've had these periods of market volatility, you sort of stepped up your cost savings. Just wondering if that's in play at this point. And then relatedly, we're hearing from other companies about expense pressure from inflation as well as people coming back to the office. Can you give us your thoughts on those impacts and your outlook for G&A overall?

Sure. So obviously, with the markets dropping, did a correlated reduction in expense as it relates to third-party compensation, so that's going to happen. As it relates to developing, we have strategies. We have not certainly been implementing. We've had this event take place in '19 to '20. You want to make sure we stay on track to get profitable growth and still invest in the business. So we're engaging this situation. We feel comfortable as we navigate, we have our strategy. We'll address it. It's a leveraged business, but -- good about that.

And as it relates to inflation, we looked at our expenses on -- certainly, there is inflation -- some of the wages, but it's totally manageable and it's been incorporated into our plan.

And do you have like an overall outlook for sort of G&A growth?

G&A growth, we felt was going to be, and again, in the -- our targeted range, excluding BMO, of course, because that's add-on from that standpoint. We're normally in mid-low digits. And so again, at this stage, we feel a little comfortable from that standpoint, and we're just evaluating where the market is going. But this year -- and I'll just point out, we anticipate we could get a benefit coming from the Fed on interest rates, which would mitigate some of that.

Our next question comes from Alex Blostein from Goldman Sachs.

This is actually Ryan Bailey, on behalf of Alex. I was wondering maybe if we can spend a second on the BMO flows for the quarter. So the U.S. clients electing to transfer assets and I think you said that was about $17 billion, are there any more assets that you think could transfer?

And then perhaps a second question. I think you said that there was some deal-related breakage on the EMEA part of the business. Is there anything else that you're expecting there?

So on BMO, we do expect a few billion more, I think, will come in, in the first quarter, something along those lines. On the breakage -- and we started to see a bit of breakage in the fourth quarter, as we said, probably of the $1.9 billion out from BMO we can estimate is probably around 40% to 50% or so. Now some of that was LDI, et cetera. So we actually think that there will be -- I mean, we always have to plan for a level of breakage. However, we saw that last year, clients stayed in pretty well. They really did like the assumption that we did of the business and what we're doing in regard to putting it as part of our makeup.

So we're not really in any way disrupting some of the investment areas, et cetera, that are important for that. But we're trying to bring more capabilities to bear, greater technology, et cetera, et cetera, that would also be helpful. And so we will experience -- I mean, it's an institutional business. So there may be up for review various things that they have to go through their processes. So we have assumed the level of breakage, but we will be reporting on that as we go through. But that's all in the assumptions that Walter mentioned as we look at the business and what it will generate.

Got it. Completely fair. Okay. And maybe just one on the impact for higher rates, particularly for the Wealth Management pretax income. So some of your peers have talked about sort of 100 basis points of sensitivity. Is there any color you can give us on how much pretax income we can be thinking about? And then also sort of additional to that. How are you thinking about moving incremental cash to the balance sheet in 2022?

Walter, you can handle it.

Sure. Okay. So a 400 basis point increase, we will keep the majority of that as we look at it. But again, that's subject to doing competitor comparisons, but that's been the normal trend line as it relates to that. And in that range, you should think about as we publish it, we have basically off balance sheet right now on the most affected is late. That has been in the mid-20% range. And then we also have our service, which will be -- we'll get benefits from it. So that's the sort of math of it that we would get.

Our next question comes from Ryan Krueger from KBW.

Can you talk about the expected timing of the BMO-related expense synergies? And also, is $85 million that you had originally targeted still a good assumption going forward?

Okay. It's Walter. The answer is yes. The good assumption is still a good assumption about -- and you should assume in the range of about 25% should occur in '22 and the balance beyond that mostly in '23.

And then I know it's still early in the year, but given the increased volatility we've seen in the first few weeks of the year, can you give any perspective on what you've seen from retail client activity and to what extent it may have been affected by this?

So, so far for the first few weeks, retail activity has seemed to hold up pretty well. Again, it's always depends on what our expectations as we go forward and what the disruption may be. But I think there is still the opportunity for clients to appropriately allocate in their portfolios to add funds where necessary, et cetera.

So we haven't seen a dramatic shift there. I would probably say, again, it depends on what they might be putting money into that may have adjusted a bit. But this market pullback may be an opportunity for some people. It depends on whether the projection out will be more disruptive volatility versus one that people feel comfortable with. But so far, so good.

Our next question comes from Erik Bass from Autonomous Research.

Can you talk about the decision to stop selling the guaranteed VA and SGUL policies? And does this materially change the amount of capital you're allocating to writing new business? And also, does it signal any change in your view on retaining the in-force block? And should we think of the announcement as a potential precursor to a reinsurance deal, similar to what you did with fixed annuities?

Okay. So I'll handle part of that, and I'll have Walter handle the capital side of it. So as we said, we will continue to fine-tune our book to where we think both the products that are appropriate for clients in this environment, but also appropriate of the company as far as the risk return rewards and the economics overall.

And so we have continued to shift from living guarantees back to our RAVA product that has no living guarantees in our structured product. Those were actually -- the RAVA product was the core part of the business before guarantees came into favor. And we feel that they are very appropriate for a certain segment of the clientele base particularly in this environment, and structures is a way for us to give people a little more of the steady state that they're looking for in the variable side of the business.

So we feel very good about that and the shift away. In fact, you saw our sales in total actually went up last year, rather than down as we started to shift. And we don't feel an issue that we need to provide those guarantees. And there are other providers on our shelf for those guarantees.

And the same thing in the insurance side of the business. We have turned up the Dow for variable universal life or disability products as we get -- and focused a little more on the younger part of the population. These are products that, again, were the core of our business a number of years ago and that we're putting more emphasis on as we actually turn off the dial on some of the universal life-type products in this interest rate environment.

So we feel very good about that. They're good products for the clients. It's good for the company, good returns as well and ones we think are appropriate for the environment. And it does help us derisk any tail risk for the future.

So with that, I'll let Walter handle the capital. And I'll come back with the idea of how we're thinking about the books going forward.

Thanks, Jim. So on capital, yes. And obviously, in this environment, a base environment, it will certainly reduce. But the real reduction will come as you're selling less of the benefits in stress situation. So it does certainly modulate that from a stress situation a lot more. But that -- and we did stop the sales.

So overall, for the books, again, what we tried to convey to you last quarter and some of the information we released as well as some of the details we provided in the past, we actually have very good books of business. Our at risk is very low compared to what you've seen in the industry for various books in the VA category as an example. And so this just continues to add to that differentiation, per se, as we're managing to maintain these books.

Now in the environment we're looking, there's been greater levels of activity. They've been namely as the start, just like we did in our fixed annuity reinsurance, namely moving assets for the general type of account that people want in VAs. They've been deeply discounted books or unique capital requirements that have been sold recently. Our books are very well managed, very low risk, very capital efficient, very strong cash flow generators.

So we are having conversations. We're reviewing as the market evolves. And there's more of an interest strategically in the quality of book that we have in what it will generate for the future, for earnings and cash flow for a provider or even from a sales perspective.

So we will continue to monitor the market, have discussions where appropriate. And it might be, if there's a strategic or a value creation opportunity, both economic and from a shareholder and appropriate for the buyer as well as for us and our clients, we're very open to entertain that. But I would say that we continue to have very differentiated books, very strong cash flow. Our at risk is very low compared to anyone out there and could easily be managed even in a volatile environment based on our excess capital position or even the call that there might be possibly on the capital, which wouldn't be that significant. So we feel really good about it.

And then if I could ask one follow-up just on the Asset Management margins. Is this the right way to think about it, kind of a low to mid-40% margin for the business ex BMO is kind of the baseline entering 2022 and then factoring on a kind of a 3- to 4-point drag from BMO initially and that that would get smaller over time as the expense synergies come through?

I think that's a pretty good way of looking at it.

Our next question comes from Brennan Hawken from UBS.

I wanted to start with a follow-up on a lot of that great color that you just gave on where you are in the process of selling RiverSource. So you spoke to the differentiated risk profile and that becoming appreciated in the market. I guess, is your experience, so far, that the bids you received, you spoke to receiving bids from both financial buyers as well as strategics on the October call. So do those bids align with your view of the lower risk profile? Are they in line with your expectation?

And when you consider and have dialogue with private equity or financial buyers, is there interest in the idea that there could be a distribution arrangement to allow for their products to be sold into your wealth distribution channel? And could that be an attractive component for that cohort?

Let me start, but I'll have Walter really respond. So I don't know what you mentioned in October. We didn't really put the books out for bid or receive bids on them for the current things. What we did was finalized and did the transaction for the fixed annuity in the summertime.

What we are doing is exploring that, having those conversations to see whether the type of books and the type of economic returns we generate would be of interest to various players out there and we are exploring that. But more importantly, we look at that from all aspects, as we've mentioned, both strategically, economically and from a client perspective.

I do feel like if someone really is looking for a high quality, something that they can build upon, something they want to be in the business for longer term, there would be some good opportunity. This is probably one of the best books you'll ever find out there, probably one of the best type of clients if you want to continue to sell to them for the type of products.

So I think as this market that it crystallizes, there will be some good opportunities. And we will look at it strategically to see if 2 and 2 equals 5. And so that's the way we're proceeding. Walter, do you want to say anything on that?

Yes. The only thing I would say, as Jim has indicated, certainly, people recognize the quality of the book and (technical difficulty) from that standpoint (technical difficulty) had been a given. And from the standpoint, yes, people do look at distribution deals to some of them from that standpoint. So it's a whole potpourri of variables that have gone into discussions.

Got it. And then when we think about cash in the bank, so that saw a nice increase and a bit of an acceleration from the prior pace this quarter. Then clearly, what we've seen in the rate market is an increase in the hawkishness and the outlook and the forward curve.

So with the acceleration in transfers of deposits over to the bank due to the improving environment, you have an ability to accelerate the pace ahead of the $3 billion to $5 billion pace per annum that you've previously indicated? And where do reinvestment rates stand within the bank at this point?

Sure. So we certainly have the ability, and we certainly have a plan to increase the amount of transfer from balance sheet to on balance sheet as -- with the current environment and looking at this and especially with the anticipated Fed increase, you can get investment -- high-quality investments the way we do it and go into 100%. So that's an opportunity.

But you also now have the situation because you'll measure it even though we have the capacity, we'll be getting lift coming in on the balance sheet. So -- but yes, the answer is we have capacity, good picking up of yield curve. But now you also get the variable of having higher earnings coming from the off balance sheet on the Fed fund side. So it's going to be an interesting evaluation point. But certainly, it is a positive for us on all aspects.

Our next question comes from John Barnidge from Piper Sandler.

I had a question on adviser recruitment, really strong at 2% up year-over-year. Could you, one, talk about maybe average trailing revenue for new advisers versus existing? And then back to your comment about better financial technology being attractive, can you talk about what you have versus where they're coming?

So from a production level, the quality of our recruits are pretty consistent now with the averages that we've given you. So we have a mix of those advisers, but we also, as part of that mix, have $1 million-plus producers. Teams are very large coming over. But on average, across the entire recruitment spectrum, I would probably put it in the average of our production levels right now, which is good.

I would also say that the survey we did of all the recruits we brought on board come from a combination of wirehouses and independents, and it was very strong. There's a long detailed list of the questions asked about technology, capabilities, tools, thought, branding, marketing, client acquisition, deepening, all that stuff. And very clearly, it was 90% or so in some areas, 90-plus percent, 95% of how well we were able to both support them, give them capabilities to grow, the use of the technology, the technology itself, et cetera. So we feel really good. And it was from a wide range of people joining us from very good firms as well as independent firms.

My follow-up question. In the deck, it says activity-based expense likely to increase from just more people going out, but you also call out expense discipline. Can you maybe talk a little bit about how certain prior expenses may not be returning at the same time that you do have activity-based increase?

Yes. So we continued -- and I'll let Walter get to the actual expense rate. But we continued even last year and the year before, et cetera, to invest strongly in the business. And with the technology, with the capabilities, with better analytics, et cetera, with robotics, with AI.

So we've been doing a number of things across the firm. We expanded our product set. And so we really feel good about what we've been doing. Yes, we have a level of investments that we will continue to do moving forward. You have to always sort of keep up, evolve, enhance with the digital capabilities of cybersecurity, things like that. But we feel very capable of managing that. Maybe the level of investment we do this year might be a little less than what we did last year, as an example, that will offset some of the expense that we do see from inflation or wages.

But we think that we'll be very well able to manage that expense against the revenue growth that we have. And we will modulate it. If we feel like the markets have come down a bit, if there's some compression that way, we will look to manage the expense base in a similar fashion. We're doing a lot now around what will the workforce continue to evolve to be, what's hybrid, what's not, what level of travel needs to come back versus not. We know that working digitally and through video does help in various sessions and reduces some of the T&E activities in the travel. But we also feel that is necessary, face-to-face meetings and support and group activities.

So some of that, yes, will come back in, but we think we'll be able to modulate it okay and have a reasonable expense picture.

Our next question comes from Steven Chubak from Wolfe Research.

So I wanted to start off just with a follow-up related to the question or a line of questioning around RiverSource. I know you guys had talked about the quality of the book. I was hoping you could speak to with the improving rate backdrop, how that could impact or inform the perceived attractiveness of the asset? And is there any change in demand or interest from the sponsor community just given the improved rate backdrop or how that's informing some of the conversations?

Yes. So it's Walter. Yes, the answer is yes, certainly, from the standpoint of long-term care. I'm looking at basically our own book, that would certainly increase the attractiveness, that standpoint as people (technical difficulty) evaluate the base and then the potential of the base. And people -- certainly, it's a lot of people's thinking.

Got it. Okay. And just for my follow-up, I wanted to dig a little bit deeper into your equity market sensitivity. You provided that great disclosure, reflecting the impact of a 10% market correction. I know it's a relatively static analysis. I was hoping you could speak to some of the natural hedges in the business that could mitigate some of those pressures, both in terms of increased retail engagement that you alluded to a bit earlier, and more importantly, the increased allocation to cash as investors look to derisk their portfolio.

Yes. Obviously, listen, these are leverage businesses and certainly if you look at asset management, equity box will have an increased impact. This year, I think, because of what's causing it, the Fed and certainly the potential increase in interest rates, that will certainly give us window back on [wrap] accounts and on surge and certainly on yield curve. So that is the other aspect that would be beneficial within it. But that's the area that we would see offsetting it. And then, of course, our ability to adjust our expenses, as Jim has said (technical difficulty) previously done. But as far as yes, people shifting into sweep or in cash and the Fed increases the rates, that will certainly (technical difficulty).

Our next question comes from Tom Gallagher from Evercore.

Just a first question on the economics of the BMO U.S. assets, that almost $17 billion that you had transferred. And I guess you have a couple of billion more that you think might come in 1Q. I just want to make sure I understand how the economics works here. I believe you get close to 30 basis points on the assets. How much of that fee are you sharing with BMO?

And what is the alternative for these clients? Meaning like why are they moving their money to Ameriprise at this point? Did the ownership of the U.S. Asset Management business change hands or a little bit of an explanation for what's going on behind the scenes there?

So what it is, is really these are both retail and institutional accounts. And the clients themselves have made that choice to move over to CTI. In the retail areas, there were some mutual funds adopted. The mutual fund boards made that decision as well. And so clients had a choice. There were other assets and activities that did not move over or that we didn't feel appropriate to move over. But we feel for the ones that we had very good lineup, very good investment capabilities as well as assuming some of theirs that would be great for the clients and good for us.

And as far as the revenue type of arrangement, Walter, I'll let you handle that.

Yes. So obviously, on that standpoint, you're right on the 30 basis points in that approximate range, and there is a revenue, but it's economically profitable for us. And we feel comfortable we're certainly taking care of that. But it's good, really [interesting stage]. They've certainly signed on to be with us. And I think, as Jim said, capabilities that we provide.

Yes. And that was mainly driven by an offset to (inaudible) for what they had to do in their current business activities to wind that down, et cetera. So we feel it was very appropriate for both parties.

Okay. Okay, thanks. And is the revenue share of 50-50? Or are you keeping the majority of the fee?

I think it's reasonable. It's certainly -- I'm asking -- I don't want to get into the terms, but it is certainly, I think, a good online transaction.

Okay. And then just a follow-up on the whole process for, I guess, what you're doing with the Life and Retirement business. Based on what I've heard you describe, it sounds like this is a pretty comprehensive process. And by that, I'm just assuming it's probably going to take the full year of 2022 for this whole thing to play out. Is that fair from a timing and process standpoint?

What I would say there is that, first of all, we've listened to you as the analysts, investors, et cetera. I spoke to my Board. We're doing a thorough analysis in regards to evaluating our business. What we love about the business and what we tried to explain to you as the analysts and investors that this is a very good business built over many decades, very solid books of business, very consistent books of business, mostly all to my clients who actually take these solutions against their planning activities for their retirement, et cetera.

And so we are very comfortable with the books. We're very comfortable with the risk profile. We're very comfortable with the economic returns. I mean, when you generate a 50% ROE and you have this balance sheet business and a strong excess capital, you can see how those returns are quite good and don't negatively impact the business.

And with that, the free cash flow we use to buy back stock, which helps us just like to generate the free cash flow from the other asset-light businesses that go along with that. So it's not a -- where some others had to get rid of this business, they needed capital. They had a long tail risk that they needed to get out of to invest in their other businesses. That's not our issue.

So what we're looking at is to say, this is what we have. If that can add and someone can do better with it, we manage -- we invest it short. If they can have other opportunities with their capital structure, with their investment structure, that's appropriate. If in a certain sense that they're interested in growing the business or want those capabilities or that this would add a quality dimension to what they're doing and the values there, we're very open to explore that.

In things like long-term care even, we haven't invested out in that book. There's a lot of opportunities for someone coming in to do something like that if they wanted to do other types of investments they could make.

So that's what we're exploring. Yes, it will take probably a while. But I think the market is continuing to evolve. There's a lot of money out there. And there's some strategic players that might be interested. So we're having conversations. We're very open to that dialogue, and we'll explore it. If something is there, we will proceed. If it's not, we feel very comfortable maintaining the books.

That's very helpful, Jim. Just one final follow-up, if I could. I guess the perception in the market that I hear right now is that lower-quality variable annuity books have generally gotten pretty good bids, like better prices than most investors were expecting. We have not yet tested the market with higher quality books. Yours would certainly fit that bill. It's much better quality, I think, on most measures than a lot of the other ones out there.

And so the concern is that there may not be the same level of attractiveness of bids on the higher-quality books. But I guess you'll be the test case of that. Do you have any sense for whether, at least even very initial price discussions you've had would appreciate the quality of your book and give you, we'll say, proper value for that? Or is it just too early to tell?

So you're 100% right in your sort of look at the idea of what's been sold out there or what's been done so far. And we would definitely be on the quality end of the any spectrum.

Now having said that, what I would say is I think there is an interest as people think about long-term flows and where they want to put money to work over many years and having that quality as well. But it's a little different. It's not deep in the money, discounted. It's not just the general account, there's variable accounts, et cetera. But I actually believe that as people start to evolve their thinking or appropriate -- or strategic players have more of an appetite again, I do believe there might be some good opportunities that could be a win-win. But yes, I think those things are forming. That's why we're having conversations as the marketplace evolves and as people get a better understanding of how to differentiate.

So that's what I would say, but that's a positive. That's not a negative. And as I said, I think you looking at our returns, our cash flow, et cetera, that's more of -- we will make the right decision for shareholders. If that comes along tomorrow or the next day, we'll see, but I feel good about it.

Our next question comes from Andrew Kligerman from Credit Suisse.

Question around Advice & Wealth Management, where wrap net flows for another record $10.5 billion, 4 quarters in a row above $9 billion. And yet, just 2 years ago, before the pandemic, I think most investors would have been happy seeing somewhere in the $4 billion to $5 billion range. So the question is, what's kind of changed here? And is this the new normal?

So Andrew, we would probably say we do feel like we are and have been able to generate more flows through our client base and our adviser. Our adviser productivity has picked up. Our capabilities are we feel very good and very strong even as I've mentioned, advisers that we recruit in. We've been able then to really get more clients appropriately, move up market actually to deepen those relationships quite well with the technology and the capabilities and the relationship management tools we've been giving them.

We're actually adding to that as we go forward with the use of AI and capabilities looking at further opportunities, segments of the book that they can even focus on even more appropriately. So we feel good that we have been helping them pick up a level of that activity. And that has translated to the flows that you're seeing.

Our client acquisition was up strongly this year, including in the segment that we really wanted to grow, which is the $500 million -- the $5 million category. We're starting to work on moving even further up market to higher net worth. We're also focused on some of the younger generation as we bring in through the remote and the digital capabilities that we've been investing in.

We're also -- as we develop our product solutions, our integrated wrap programs and how they can move money and do it across multiple types of their portfolios for our clients and how we're looking at that. And we're developing a new retirement solution for the long term for them to optimize returns for the clients and longevity income.

So I feel really good about what we've been able to do is help advisers grow and the flow picture that, that will result in. Of course, yes, as I said last year, markets always helped a little bit when there's a positive environment. So that's part of the base. So I can't tell you regarding volatility and other things, whether that will slow down a little bit. But I think the base of activity is much stronger than it was 2 years ago and 3 years ago because of what we've been doing.

Got it. And I think that helps somewhat with my second question. But I looked at your adviser count. I was just checking my model and I look in 2016, adviser count is down 1% and then '17 is up 2%. It was flat in '18, down 1% in '19, up 1% in '20. And then this year, it's up 2%.

In a business, Jim, that advisers in general appear to be in secular decline, do you think you could kind of at least grow -- continue to grow in the low single digits? Or is it going to be very tough?

And the answer to the prior question was great. And you mentioned that 90% that we're very happy with the technology. What about the other 10%? Why were they not that happy?

Well, it wasn't that they weren't that happy. What we had asked them is across all these dimensions. So that's why I said there are a number of things that were above the 90%. And above all the things we asked them, whether we gave them and the capabilities to support the brand, et cetera, help them grow better, work with clients better, help them get better client satisfaction, all those things, grow their businesses. And so that's like an unbelievable. So that's 9 times out of 10.

Now there might be certain things in certain firms, but certain of those activities might have been good or the technology for that capability might have been good or solutions that they provided. So it's not like we're going to be best in everything. But when you get 9 out of 10 across a whole bunch of dimensions, I would say we were very pleased. And I think that you'll find -- I don't know if you'll find that with other firms recruiting people in, so I'll be interested. What I would tell you is as we look at the business, we do feel good about our ability to continue that along those lines.

Now as far as the number of people, there are people out there that have been buying up networks and growing in advisers. And it doesn't matter what their productivity level is, it doesn't matter what they -- how they want to do business, et cetera. We don't really want to play that game. We feel if we can bring in good quality people, if we could help them grow their productivity and if I can grow the productivity across 10,000 advisers, and I can replenish that and grow at 1%, 2%, 3%, I'll do really well, and I'll continue to give a very strong client value proposition.

My client satisfaction is 4.9 out of 5. I mean that, to me, makes it a branded value proposition is adding value to clients, adding productivity to advisers. And I got a really good branded company that I think is valued more than just an independent or someone on a process or a network and giving them technology support. So that's really what we're focused on.

This is all the time we have for questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.