阿默普萊斯金融 (AMP) 2021 Q3 法說會逐字稿

Welcome to the Third Quarter 2021 Earnings Conference Call. My name is Sylvia and I'll be 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 First Quarter (sic) [Third 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 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 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 Third 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 third quarter. Below that, you'll see our adjusted operating results, followed by operating results excluding unlocking, 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.

We completed our annual unlocking in the third quarter. 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 thanks for joining us. As you saw, Ameriprise delivered another excellent quarter, building on a strong year. We continue to perform extremely well. The environment in the U.S. is largely positive as the economy continues to show solid growth.

Equity markets remain strong and have recovered from a weaker September. Inflation has picked up given demand, and there remains some headwinds due to pandemic. In Europe, conditions continue to improve. As you consider this backdrop, we're executing well and consistently generating important organic growth and shareholder value.

Our differentiated results reflect the strategic investments we've made in the business and a culture built on performance and a high level of care for our clients and team. Our growth businesses are delivering strong client flows and nearly $14 billion of inflows in the Wealth Management and Asset Management businesses in the quarter. So with these positive flows and markets, assets under management and administration are up 21% to $1.2 trillion.

Turning to our financials. The excellent results we delivered in the quarter reflect the high level of performance we've generated this year. Adjusted operating results for the quarter, excluding unlocking, revenues came in strongly at $3.5 billion, up 17%, fueled by continued organic growth in attractive markets. Earnings rose 32%, with earnings per share up 38%, reflecting strong business growth and capital management. And ROE is exceptional at nearly 48% compared to 35.5% a year ago. Let's move to Advice & Wealth Management, where we continue to deliver meaningful and consistent growth.

With the strategic investments we've made over the many years, coupled with our expertise in planning, we're delivering a differentiated and referable advice experience. Clients are actively engaged with us. They're turning to Ameriprise and our advisers for comprehensive advice and solutions.

And they're leveraging our extensive digital capabilities to track and achieve their goals. Our client experience is sophisticated, personalized and supported by our integrated digital technology and backed by our strong reputation.

In fact, Investor's Business Daily recently named Ameriprise, the #1 Most Trusted Wealth Manager. We've earned this impressive credential based on how consumers rate Ameriprise for how we serve them, the quality of our products and services, our commitment to ethical practices, fair prices and protecting personal data. To being #1 in trust is high praise and we're honored.

This type of recognition and client satisfaction doesn't happen without an industry-leading adviser force that's highly engaged. Our advisers are benefiting from our training, coaching and suite of tools to build and deepen client relationships, track prospects and run and grow their practices through our fully integrated platform.

This positive momentum and engagement are leading to robust client activity, asset flows and client acquisition. Our results reflect the traction on organic growth that we've consistently demonstrated. Total client inflows were up 64% to $10 billion, continuing the positive trend we've seen over the past several quarters.

Wrap net inflows were excellent at $9.4 billion, up 65%. Transactional activity grew for another quarter, up nearly 16% over the last year, with good volume across a range of product solutions. Adviser productivity reached another new high of 18%, adjusted for interest rates to a record $766,000 per adviser.

I'd highlight that our advisers continue to be recognized across the industry, including in top national rankings from Barron's, Forbes and Working Mother. We have long focused on driving productivity growth for our advisers, and we're generating some of the highest growth rates in the industry.

At the same time, we complement this with targeted recruiting of experienced productive advisers who are attracted to our brand and value proposition. In the quarter, recruiting picked up nicely and another 104 experienced advisers joined us.

We're getting a great response from our in-person events and virtual recruiting activities. And importantly, the quality of our recruits is very good. Let's turn to the bank where total assets grew to nearly $11 billion in the quarter. The trends we've been discussing with you remain consistent.

We continue to move additional deposits to the bank, and we're seeing a growing demand for our recently introduced Lending Solutions, especially our pledge loan product that is getting good initial traction. To wrap up Advice & Wealth Management, our metrics and financials are very strong.

Pretax income was $459 million, up 43%, and margin was strong at 22.4%, up 320 basis points, which compares very well in the industry.

Now I'll turn to Asset Management, where we continue to build on our momentum and results.

Assets under management increased 17% to $583 billion. Our outstanding research is core to our business and our ability to consistently generate excellent investment performance for clients. That's across equity, fixed income and asset allocation strategies with more than 85% of our funds above the medium on an asset-weighted basis on a 3-, 5- and 10-year basis.

In fact, compared to the broad group of U.S. peers we tracked, we performed at or near the top of the Lipper rankings for multiple time periods. Flows remained strong given our excellent investment performance, client experience and continued support we provide advisers and our partner firms. We had net inflows of $3.9 billion in the quarter. This is an improvement of nearly $5.5 billion from a year ago.

Global retail net inflows were $1.8 billion, driven by North America, while overall industry sales were a bit weaker in the quarter given the summer months. Overall, our flow traction is good. We continue to have good sales and equity strategies. And consistent with our plans, we're gaining traction within fixed income, and that's across multiple channels and structures.

I'd note that we expanded our successful suite of strategic beta fixed income ETFs in the quarter with the launch of the Columbia short duration bond to ETF. In EMEA retail, market conditions remain challenging. And while we experienced some net outflows, flows have improved from the second quarter.

In terms of global institutional, excluding legacy insurance partners, net inflows were $3.5 billion. The team is working hard to generate wins across equity and fixed income strategies in each of our 3 regions. In fact, we're seeing a number of current clients adding to their positions.

Of course, we recognize there will be shifts and flows quarter-to-quarter given the size of certain institutional mandates. Our client service and consultant relation teams have good traction, and we're making considerable progress expanding our consultant ratings, which position us well for growth.

As I look at the year thus far for institutional, we're making good progress. That includes expanding our presence in APAC, where we announced the opening of our new Japan office that complements our other locations in the region.

Turning to BMO, EMEA acquisition. We look forward to closing the transaction shortly pending final regulatory approval. I feel good about how we're tracking.

We'll be able to provide more details after we close and when we release fourth quarter results in January. To wrap up Asset Management, we're serving clients well, while maintaining our attractive organic growth and profitability.

Moving to Retirement & Protection Solutions. Our results continue to be strong. These are high-quality businesses that generate solid earnings and excellent free cash flow. We continue to focus on non-guaranteed retirement and asset accumulation protection products that deliver benefits to clients and our shareholders.

Consistent with this strategy, the majority of our annuity sales in the quarter did not include living benefit guarantees. Sales increased 28% and have shifted to both our structured variable annuity product and our RAVA product without living benefits. On the insurance side, life and health insurance sales increased 77% driven by our VUL product, appropriate given the current low rates.

We've also seen good response to our DI products reflecting our financial planning approach. To summarize, Ameriprise has built a differentiated book of business over many years that deliver superior financial results that are sustainable. It starts with providing clients with solutions that meet their long-term retirement needs, have appropriate benefits and generate good risk-adjusted returns for the company.

Now let me highlight why Ameriprise is clearly differentiated in financial services. In terms of our balance sheet, our capital management remains a real strength. Our Advice & Wealth Management and Asset Management businesses are performing very well in generating excellent growth, margins and returns. We compare quite favorably across the industry.

And our Retirement & Protection business is valuable and high quality, generating good free cash flow and returns. It's entirely focused on our channel and differentiated from anything else out there. Listen, we're generating some of the strongest returns in the industry and have been for quite some time, and we're able to do it with lower volatility. Importantly, we've returned capital to shareholders at very attractive levels.

In fact, we consistently return nearly all of our operating earnings to shareholders annually. And if you look at that over the last 5 years, we reduced our average weighted diluted share count by 28%. This is all while we're consistently investing in the business and maintaining a sizable excess capital position that gives us flexibility.

In closing, Ameriprise is positioned well. Our team is focused on key priorities to drive organic growth and we're delivering for our clients. In fact, I was just with our top advisers last week to recognize their achievements and discussed our growth priorities. It was terrific being together.

As I think about all of Ameriprise, it's great to have people back in the office more in-person again, as we focus on finishing the year strong.

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

Thank you, Jim. Ameriprise delivered very strong financial results across the firm with adjusted operating EPS of 38% to $5.91, excluding unlocking. In fact, we reached new record levels for revenue, pretax adjusted operating earnings and return on equity in the quarter.

We delivered strong flows, earnings growth and margin expansion in our core Wealth and Asset Management businesses. Results in the quarter are a continuation of the excellent trends we have been seeing this year as we successfully execute our growth strategies.

This is driving our business mix shift, both Wealth and Asset Management representing about 80% of earnings. Retirement & Protection performed well, and we remain focused on optimizing our risk return trade-offs in this environment. We generate robust free cash flow across all our businesses. Our balance sheet fundamentals are excellent with significant excess capital.

Combined, this allows Ameriprise to consistently return substantial capital to shareholders with 95% of adjusted operating earnings returned in the quarter, putting us on track to achieve our 90% target for the full year. Let's turn to Slide 6.

We are focused on growth in our core Wealth and Asset Management businesses, and we hit some important milestones this quarter. We are seeing excellent AUM growth of 21% to $1.2 trillion on flows and markets.

Flows in these businesses have improved substantially, up over 200% from a year ago and up nearly 140% on a year-to-date basis, 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 nearly $3 billion with pretax operating earnings of $744 million, up 44%. Importantly, earnings growth from Wealth and Asset Management outpaced revenue growth demonstrating the operating leverage of the business. And the blended margin for these 2 businesses expanded 370 basis points from last year, with Wealth Management up 320 basis points and Asset Management up 500 basis points, further illustrating our ability to deliver profitable growth.

Turning to Slide 8. This chart clearly illustrates our success executing our growth and business mix shift strategy. Specifically, the Wealth and Asset Management businesses are driving about 80% of the earnings over the past 12 months.

This is coupled with a stable $700 million contribution from Retirement & Protection Solutions. With that as an overview, let's review the individual segment performance beginning with Wealth Management on Slide 9.

The strategies we have in place to support advisers and improve their productivity using integrated industry-leading tools, technology and training has resulted in increased flows and transactional activity. Total client assets were up over 25% to $811 billion over the past 2 years.

Our adviser force continued to deliver exceptional productivity growth across market cycles. Revenue per adviser reached a new high of $766,000 in the quarter, up 24% over the past 2 years. Importantly, over the past 2 years, the annualized organic growth rate for Wealth Management flows improved to 6% compared to 4% in 2019.

This is coming from advisers penetrating their existing client base and adding new clients, complemented by recruiting experienced advisers. And we are pleased that our strategies are translating to this level of organic growth. On Page 10, you can see that we are delivering growth as well as excellent financial results in Wealth Management. In fact, revenue and earnings for Wealth Management also reached record levels this quarter.

Adjusted operating net revenues grew 23% to over $2 billion fueled by robust client flows, a 16% increase in transactional activities and market appreciation. Wealth Management pretax adjusted operating earnings increased 43% to $459 million.

Ameriprise Bank is adding to the growth in Wealth Management primarily by allowing us to pick up incremental spread and cash sweep deposits. In total, the bank has nearly $11 billion of assets after moving an additional $1.1 billion of sweep cash on to our balance sheet in the quarter.

In the quarter, the average spread on the bank assets was 144 basis points compared to off-balance sheet cash earnings of 28 basis points. In addition, we are seeing good growth in banking products, including pledged lending that has gained substantial traction with our adviser base since the product was launched in the fourth quarter of 2020.

Expenses remained well managed. G&A expense increased 1% as higher activity based expenses and performance based compensation were largely offset by expense discipline. In the quarter, our pretax adjusted operating margin was 22.4%, an increase of 320 basis points from the prior year and 100 basis points sequentially. Let's turn to Asset Management on Slide 11, where significant success is also being realized.

Over the past 2 years, asset under management increased to 18%. We also saw a net flow shift from outflows in 2019 to a 5% organic growth rate this year. As Jim mentioned, we are seeing positive flows across both retail and institutional distribution channels, supported by excellent investment performance.

And like the industry, we saw a bit of a slowdown during the summer months, though our relative position among our peers remain strong. The operating leverage in asset management is significant with margins for the trailing 12 months up 44.6%, up 830 basis points over the past 2 years.

Turning to Page 12. You see these trends generated excellent financial performance in Asset Management. Adjusted operating revenues increased 24% to $915 million, a result of the cumulative benefit of net inflows, market depreciation and performance fees. On a sequential basis, revenues grew 4%. Importantly, our fee rate remained strong and stable at 53 basis points.

Expenses remain well managed and in line with expectations given the revenue growth. G&A expenses were up 14%, primarily from compensation expense and other variable costs related to strong business performance as well as foreign exchange translation.

Pretax adjusted operating earnings grew 44% to $285 million, and we delivered a 49% margin. Moving forward, we expect strong financial performance to continue, and anticipate that margins will remain in the mid-40% range over the near term, driven by the continued flow momentum and equity markets at these levels.

As Jim mentioned, we are on track to close the BMO EMEA transaction in the fourth quarter. This acquisition will add significant capabilities from a strategic perspective and drive improved business fundamentals going forward.

Let's turn to Page 13. Retirement & Protection Solutions continued to reflect excellent underlying business performance, differentiated risk profile and a continued generation of substantial free cash flow.

Pretax adjusted operating earnings were $192 million, excluding unlocking, down from $206 million a year ago. Current year results reflect lower profitability from increased sales levels, whereas results in the prior year benefited from lower sales as well as lower surrenders and withdrawals.

In total, unlocking impacts in the quarter were immaterial resulting from consistent client behavior and interest rates that were in line with prior year estimates. We saw a strong pickup in sales of Retirement & Protection products in the quarter with a continued mix shift towards non-guaranteed retirement products.

During the quarter, the variable annuity sales increased 28% from last year, with 72% of sales and products without living benefit guarantees. Account value with living benefits represent only 62% of the overall book now, down another 200 basis points in the past year. We had similar trends in protection with sales up 77% driven by higher margin VUL sales.

This mix in sales and account values for both Retirement & Protection products are expected to continue.

Additionally, in the appendix of this presentation, we have provided our annual update on long-term care business. You will observe that the business continues to perform in line with expectations from a claims perspective. The policy count continues to decline as the book ages, and we are garnering additional premium rate increases.

Now approximately 90% of the book has extensive or substantial credible experience. And I will note that we did not incorporate recent improvements in mortality and morbidity related to COVID-19 into our long-term assumptions. Overall, our actual performance continues to be in line with expectations.

Let's turn to Slide 14. In the quarter, you have seen transactions announced in insurance and annuity space. In light of these announcements, I felt it will be helpful to provide additional context as it relates to how we view our business.

As Jim has indicated, we believe our I&A business is a highly valuable asset with a client solution-driven capability that has generated sustainable and predictable financial results, and free cash flow generation, coupled with a low risk profile.

The driver of this is our prudent approach in building all aspects of this business, resulting in a proven track record of superior value creation. The behavior of our clients has been consistent, reflecting the nature of the product sale as part of the financial plan.

We have taken a conservative approach to product features, including guarantees and crediting rates as well as requiring asset allocation for living benefits. We have maintained consistent sales level and industry market share over the last decade, avoiding the arms race seen from time to time in the industry. And our economic hedging program has performed well across market cycles with 97% effectiveness over the past 5 years. Finally, we have taken prudent and appropriate actions to manage the risk profile of the business.

For example, we stopped sales of LTC in 2002 and have successfully implemented premium rate actions and increased protection with our LTC reinsurance partner. We also sold our Auto & Home business, reinsured our fixed annuity businesses and have reduced living benefit sales. This consistent and prudent approach has resulted in a stable earnings with 24% margins and a pretax return on capital exceeding 50% with consistent free cash flow generation.

Our balance sheet fundamentals are strong with a high-quality investment portfolio and strong risk-based capital ratio. This performance is best-in-class in the industry over many years. We have demonstrated superior return on capital, dividends paid and capital ratios. And our net amount at risk is substantially lower than peers.

In summary, this is a very valuable business and we are well positioned. It is now only 20% of our earnings. We have demonstrated that the exposure profile is well managed, and we completed our annual unlocking with very minor updates. With that being said, we will continue to evaluate options from a position of strength to make the best decisions to drive all aspects of shareholder value creation. Now let's move to the balance sheet, another area we have delivered strong results.

Our balance sheet fundamentals and risk management capability are cornerstones of what we do. It starts with how we manage the business to generate substantial free cash flow in each of our segments. We had holding company available liquidity of $3.7 billion and excess capital of $2.7 billion at the end of the quarter.

We prudently manage credit risk where we maintain an overall AA- credit quality in our investment portfolio and have a highly effective hedge strategy. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders.

As I mentioned, we returned 95% of earnings to shareholders in the quarter, and we are on track to hit our 90% target for the full year. We have executed our capital return consistently over the years. Our share count declined 28% over the past 5 years, even with issuing shares to fund the share-based compensation programs. Over the past year alone, the share count declined 5%.

In summary, strong fundamentals across our businesses deliver substantial free cash flow. We manage the balance sheet conservatively, and we have substantial liquidity and capital flexibility. Combined, these attributes position us to continue delivering a differentiated level of capital return to shareholders going forward. With that, we will take your questions.

(Operator Instructions)

And our first question comes from Steven Chubak from Wolfe Research.

I wanted to start off with a question and maybe a multipart question just on the bank growth strategy. Just given continued strong growth at the bank, up roughly 70% year-on-year, as we look out over the next 3 to 5 years, what pace of growth should we be underwriting? Where do you see the bank levels getting to on a more steady-state basis?

And just given the meaningful gap between you and peers in terms of loan penetration and the strong demand for a pledged loan product that you mentioned, what do you see as an achievable loan penetration rate or target over the long term?

Okay. So with the bank, as you noticed, and we have certainly grown the underlying assets in the bank, we will continue to do that. We have the capability of our overall cash strategy to switch from off balance sheet to on balance sheet and certainly manage our effective yield on that basis and give us alternatives.

So we do see we have a substantial room to grow as we take deposits. Right now, they're in the $11 billion range, to be -- increasing that by at least $2 billion to $3 billion, as we move forward into the years and evaluate the situation.

It gives us certainly yield pickup from that standpoint and gives diversity. As it relates to the underlying assets, we are seeing a tremendous success as we look at our pledged loan activity and margin loan activity, which, of course, is in the broker deal. But -- and the other actives, we are investing to build that. And we will see a significant penetration capability with that as the uplift has taken place since December when we launched the pledged loans, has been very good. And certainly, the other products that John and his team are working on.

That's great. And I'm recognizing it's a multiyear endeavor. Just curious, given some of your peers have loan penetration rates around 1% to 1.5% of AUM, do you view that as a credible long-term target for Ameriprise as well?

Yes we do.

Okay. Great. And just for my follow-up on organic growth sustainability, certainly encouraging to see you maintain that 5% annualized organic growth rate. Also saw some improving trends in the employee channel as well as better momentum in AFIG. I was hoping you could speak to what's driving that improved adviser adds, both in the employee channel as well as the financial institution channel.

And just given those improving trends, how that informs your confidence level on the sustainability of that mid-single-digit organic growth rate.

So this is Jim. We -- so first and foremost, the organic growth rate that we've been getting, we feel very good about based on how we're penetrating our own client base today, how we're enhancing and deepening the relationships through our advice modules and the support that we're giving the advisers with our tools and capabilities that really helped them engage the clients more fully.

So we feel like what we've made is good investments there. Training and development is really starting to show its fruits. In regard to the external recruitment, that has picked up again, which we did as we moved from the virtual back to in-person. We're seeing good advisers join us, good quality books.

And we feel like we have a good opportunity as people better understand the type of capabilities that we offer, the brand support that we provide as well as the recognition that we're getting there from a client perspective for trust in regard to our brand. And that's very important. And we see that both in the adviser and employee channel, the franchisee, but as well in the FIG channel.

We -- as you know, it took us a little while to integrate that in, into our platforms and capabilities. And now we're actually adding new bank partners and adding advisers to those partners. And so that's actually taking shape kind of nicely for us, and we think there's a good path forward on that.

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

My first question is on the G&A expenses in AWM and Asset Management. The overall expenses continue to surprise on the lower side, especially for AWM. The growth was less than 1% year-over-year and actually down quarter-over-quarter. I understand that the lack of travel and the delay in returning to the office was a factor, but like organic growth activities were very strong. So it seems like the expense management continue to yield very good benefits. Just how should we think about the G&A expenses will trend going forward?

Why the -- I think in the past, you talked about 3% to 4% growth rates. But why isn't that too conservative?

The 3% to 4% is a good number from our standpoint. Certainly, we do believe that we are managing expenses well and certainly making investments. But as you indicated, certainly, T&E expenses and other things have not exactly returned, but we do see that certainly coming back into more steady state. But the 3% and 4% would be a good number in my mind.

Got it. And then in terms of the Asset Management, so retail flows were very good in the U.S., but the media flows continue to be a little bit weak. You talked about seeing some improvements since the second quarter. Can you just talk about what you're seeing in that market, and what can you do to drive better flows? And then what do you expect when the flows in EMEA will look like once the BMO acquisition is closed?

So this is Jim. If we look at the wholesale flows in EMEA, they've actually were positive and been maintaining a bit more positive over the course of the year. The U.K. was the area that even though it has improved, so it was still in a bit of an outflow, it did improve over the last 2 quarters.

And as you would imagine, U.K. went through a bit more of a lockdown in the summer months, they're still working through some of their issues regarding Brexit, et cetera, just completing how that looks and how people should think about investing.

But we actually see that, with the economy starting to bounce back, the pandemic starting to get a bit less impactful, that we should start to see a bit more pickup there, but that was the weak spot in EMEA. But overall, it did improve over the course of the year.

Now on the institutional side, we've seen good inflows in EMEA, and in certain of the mandates as well as in the U.K., we've gotten a big mandate there as well. So we see the institutional being a little firmer in that regard versus the wholesaler intermediate at this point.

Our next question comes from Alex Blostein from Goldman Sachs.

I want to go back to the discussion around the Retirement business. Obviously, you guys kind of provided more details and try to kind of showcase the quality of the business. Should we read that as sort of reaffirmation of your commitment to the business? Or the fact that, look, it's actually a great business in the mind, but will look better with somebody else?

And as a threshold, for us to think about you highlight plus 30% ROE over 3 years in that business, how should we, I guess, think of that as a sort of a metric for us to think about like would you need to see to part with that business?

So Alex, it's an excellent question. And we figured that by giving you more information, someone would read something into it different than someone else. So let me try to clarify that, and what we try to do there.

We've seen the transactions, as Walter said, come out to market, and people starting to realize that our book is a bit better than what they've seen out there. And very clearly, we think it is significantly better. In that regard, the business is less than 20% of our total today.

It is very well managed. It generates very strong returns and cash flows. And so the first thing I would convey to you as an investor and as an analyst is that it does not detract from our business. It provides the level of diversity, it actually gives us strong cash flows that we use for buyback as a compliment towards free cash flows we generate in the other businesses. So it doesn't, in any way, have a draw on capital.

And that it's been very steady and consistent with excellent returns on the overall capital that's deployed there. So one thing we would bring to highlight is, as we hold the business, it should not be a discount or an overhang on us, is the first thing.

The second thing we would clearly say, just like we've sold the Auto & Home, we reinsured part of the book, we've diverted our sales from activities that don't give us really good strong returns. We're very open to continue to explore strategic opportunities with the book, either reinsurance of aspects or even the sale of certain of the businesses or total.

But as long as it makes sense from a strategic perspective, supports our clients and we can generate reasonable value for that, we think it's a good operating business. It's really a great client-oriented business. It really has great distribution capabilities as part of our solution set.

So it might be a great opportunity, strategically, for us to evaluate, but we wanted to be clear that this is not a discounted book that we must get rid of for whatever reason because it doesn't detract from us. And in fact, it shouldn't be a discount to the business today as we hold it.

But if someone was or we evaluated strategically, it made sense, I would tell you it's a valued business that should be of a valued price.

Got it. All right. Loud and clear. My follow-up is around the Asset Management business. we saw that Columbia is dividend compliant, I think had a soft close in the third quarter. This has been a really big contributor to the overall organic growth within Asset Management. Can you just spend maybe a minute on what the soft close really means in this context sort of if you were to go back over the last 12 months, and say, hey, if the product was soft closed back then, any kind of way to frame how much of a flow headwind this could create?

But also on the same context, maybe, spend a minute on how the business may have been diversified a little bit more. So to what extent should we really worry about this product soft closing?

Yes. I would not worry about it. We've been in sort of a soft close over the course of the year. That really means is we still take additions to accounts that are already there, retail and institutional, which is still a good flow. It's just that we don't go out and sell to new clients to add new mandates to it.

And since we have a really good book with the amount of incremental flows that come in from that book anyway, it still continues to be nice accretive. On the other side, to the point that you raised, we have been able to really diversify our mix. And so over the course of the year again, we have more than 10 different disciplines that are adding over $1 billion of flows too.

So we feel really good about the diversification and what may still be in income products, if that's where people are interested versus as well our fixed income business is growing as well as some of the other equity products have also been gaining traction. So we feel like our lineup is pretty diversified now, and each of what we're selling actually has excellent performance.

Our next question comes from Brennan Hawken from UBS.

Really encouraging and great to see the good fundamentals in AWM and the tick up there in FA head count this year. I guess, it seemed like from your comments that you think the growth is sustainable. So I just would like to confirm that, that's your view. But also could you maybe give some additional perspective on your approach to recruiting?

Where do you think you might stand versus your primary competitors in the marketplace as far as competitiveness of packages is concerned? And is there maybe a willingness to step up if you guys are conservative, maybe approach the market a bit more, so you could drive a bit more of that headcount growth?

Yes. So we feel very good about the continuation, our ability to continue to get good flows in the business and have good client activity and relationships, both from a client as well as with the adviser uptake of our capabilities. And the same thing with recruiting. I think we really do have a really strong value proposition to offer advisers.

The biggest thing that we try to do is educate advisers versus what people are selling out there of what we offer more completely and comprehensively. And we think it is very differentiated. We think that it really helps an adviser really improve their productivity and drive a really good, strong practice. And so that's really what we focus on.

Now part of that is the package financial for someone to transition, et cetera, we think that we offer competitive packages there. We don't get overly aggressive less some that will sort of buy the business per se. We look at the economics of that. And I want to make sure that it is reasonable and appropriate to cycle. But we feel that the offering is competitive.

And when you add that to the totality of what we provide and the support, we think it's excellent value. So that's the way we look to compete in the marketplace, and we feel good about that.

Excellent. And then following up on some of Steven's questions around the growth in the bank, curious -- clearly, we -- the bank saw a nice uptick in yields here this quarter, and that's really probably before you even saw some benefit from rates given how it happened late in the quarter.

And so clearly, an attractive economic proposition. How do you think about the possibility to perhaps even accelerate the deposit growth in the bank? And when we think about this, ultimately, as a strategic driver of better economics in AWM, how do you think about where the bank would break down as far as proportion or mix of the deposits. I mean, I would think it should be the majority. But how are you guys thinking about it over these next few years?

Yes. So I would say we actually reentered the banking business because we felt consistent with what you said that it was a good strategic opportunity for us to complement our business in the marketplace. Clearly, we have some experience going back on that, and we actually grew the business nicely at that point in time.

And as you recollect, the bank is kind of new right now. So we're just sort of ramping up. We're putting the products to market, et cetera. And we think that we have a good growth trajectory of moving more deposits over. We think that the margins in that business could be really good. I mean it's been a compressed spread market right now that's starting to open up a bit as we get down the road, which I think will be favorable for us to continue to do the shift.

And we are launching more of the lending products in the bank and some more deposit gathering products in the bank as well for our retail clients. Now with that, it will continue to take time to develop those books, but we see a really good traction in the ones we've launched already.

We'll be bringing more lending activities back on balance sheet, over time, for mortgages and home equities and other things like that. So we do have our plans going out, and I think it will be a great complement to the business.

Sure. But I mean, is there any idea or aspiration or indication around proportional size of the bank versus the other options like that?

Well, I think, from a movement of off balance sheet to balance sheet, that will become the majority of where the deposits go. So that's exactly to your point, yes. As far as the lending penetration, again, as we increase the number of different products we put out there for what we're going to penetrate, that's what we're working on now. But we feel like we can get some good penetration based on some of our past experience of what we worked with partners on.

Our next question comes from John Barnidge from Piper Sandler.

Can you talk maybe about some of the flow synergies for the BMO EMEA Asset Management transaction and the backdrop of strong flows for Columbia's Threadneedle maybe the opportunity in the U.S. that the transaction provides?

Yes. So we'll hopefully be able to close this in short order over the next few weeks. We're just waiting for 1 more regulatory approval. And once we have that on the books, we can start to give you more information on it. As you would imagine, with privacy and other things in the European market, that's been 1 that we can't really get into or even know some of the line.

But from the actual sales activity that they've been garnering over the last number of quarters, even though this transaction was done, has been very positive and favorable. So there have been nice inflows there and that bodes well for us to assume the business. And so we think that, that can continue.

We like a lot of their capabilities that we're already thinking about how we would integrate that in and carry some of those capabilities, not just across our European business, but actually into the U.S. And from a U.S. perspective, we think that a number of the U.S. assets are going to transfer over to us.

We've been working at a client-by-client approval and activities. But that looks very favorable, and we'll be able to give you more information as we get closer to the end of the year.

Our next question comes from Andrew Kligerman from Crédit Suisse.

Maybe just staying on the BMO EMEA transaction, I think it's a $700 million-plus layout of capital. Do you have an appetite to do any more transactions? And where might that be?

So we actually want to focus right now in the international market of closing and integrating in the BMO transaction. We have good plans to do that and leverage that capability working with the people there. We have -- we think that they add good complementary investment processes and people and capabilities, and that's our first order of business.

Having said that, as we have said, we have flat capital flexibility if something else comes along that would be complementary, that fits. We would definitely look to explore it. Having said that, we're not out in search of something to do right now. But you never know when opportunities may arise. But if we're looking at the European part of that equation, we're really focused on that integration.

I see. And if something were to come your way, any particular areas of note that you would strongly consider?

Well, again, what we're continuing to do is look at what could be complementary in either distribution or product capability, some of the maybe alternative space or solutions. But again, we feel like we got a pretty good makeup. And what BMO actually provides is a complement to the areas that we wanted to further invest in.

And so that's why, again, it would have to be really opportunistic rather than that we're in the hunt for something that we need right now.

Got it. And then just -- and maybe I missed this in the EMEA conversations, but -- and you talked about flows exceeding your expectations, which is quite promising. But at some point, there would have to be some breakage. Could you give us a sense of how much breakage we might expect over the next year or 2 in the BMO EMEA operations?

Well, as you would imagine, any time we go into a transaction or deal not knowing, we always factor in a level of breakage, et cetera. And still feel very good about the arrangement that we've made and adding it to our equation. Having said that, we feel like from what we know today, that looks less negative and more positive than what we always initially assumed. But again, it's early stages.

But I think what's important is that this will be complementary to us. We're not integrating and consolidating investment processes and people, we're adding them. We're keeping everything in tow as it is to really support clients the way they've been supported, add those processes and investment professionals through our capability.

And we also feel like we can add some further support to what they've done in the EMEA to complement their business that would be very helpful for their clients. So we feel very positive at this stage. As we get further into it, we'll always give you that -- provide you that color.

Our next question comes from Ryan Krueger from KBW.

Given the 747% RBC ratio at RiverSource right now following the fixed annuity deal, do you plan to take higher-than-normal dividends up to the holding company this year and work that back down to a more typical level?

Yes. The short answer is yes. Obviously, with the transaction on the fixed annuities that created that situation, so we will be adjusting that.

And then just 1 follow-up on RiverSource. I guess in recent quarters, you've talked about receiving inbound interest in RiverSource from third parties. Can you just give a little bit of an update on that? And in particular, I get that you're receiving interest from strategic buyers or just financial buyers?

It's been the multiple of it. And they are continuing, certainly as it relates to, as you've seen the activity in the quarter. So it's on both sides of it.

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

Just 1 on the Asset Management side. The operating margins were very strong. Just wondering was it simply a case of operating leverage? Or were there any other particular drivers that you'd call out?

No. The operating leverage in the margins have been quite strong. And then certainly, again, we've targeted 35 to 39. It's been running in the mid-40s, that is certainly a factor of market situations, which we expect will continue if the markets -- yes.

Great. And just 1 follow-up, if I may. Wondering if we could just delve a little bit more into the organic growth improvements you're seeing within the Advice & Wealth Management side. Wonder if you could just outline what you think were the main contributors in that increasing growth rate over the past 2 years and I think that we could still see similar rates going forward?

Yes. I think we feel very good about that -- the growth rates and the continuation. And we feel a lot -- don't get me wrong, the markets are good, but we feel a lot has to do because you've seen a nice uplift from where we were based upon the integrated technology and the solution and the advice modules we've been put into market that really help the advisers engage a larger part of their client base, and deepen appropriately.

We also have added a lot of capabilities for them in our CRM systems, et cetera, to reach out to even more prospects and move up market more. And so we're seeing a combination of things that are adding to that total flow picture. But what's really important is the level of client and adviser engagement on things. And so we think that, that has given us that level of uplift.

Our next question comes from Tom Gallagher from Evercore ISI.

Just a follow-up on potential risk transfer. So from what we're seeing and hearing, it looks like pretty attractive pricing on what's the majority of your business, which would be variable annuities and life insurance. But less so, we hear the market for long-term care transactions is pretty challenged. And obviously, you haven't had a deal on that market for quite some time. Is one option for you retaining long-term care and selling the rest of your business? And if so, would that be a tough deal to structure? Or is that doable?

Listen, there's a lot of options coming in. As we talk about it is, you're correct, LTC is certainly evolving at a slower pace than the others. But the good thing about it is the strength of what we believe is our position with that business. So yes, we could structure something of that nature.

But right now, I don't want to get into speculation of it. But the good thing about it is it's performing the way we had thought it would, and we feel comfortable with it.

And then just a follow-up. The one -- I kind of agree with everything you have on your slide in terms of the, well say, the positive attributes of your business relative to some of the other businesses that have been sold, probably the most unique aspect is your distribution and I think that generally better margins and lower risk.

Is there -- do you think if something does evolve here that you would get paid something in addition for that distribution? And if so, is there any way to think about that?

Tom, again, you're right on point. I mean, we actually have one of the best channels if you want to sell a longer-term solution. And the capability there is there for someone that really wants to continue to be in the business in a good way. And based on the type of offering, our clients look for reasonable and appropriate benefits, reasonable and appropriate pricing and consistency of delivery. So yes, it would be -- probably if someone's in this business, it's probably one of the best channels for them to access.

Our next question comes from Erik Bass from Autonomous Research.

Just 1 more follow-up on the RPS. I think in the slide, you highlight the very strong cash flow from this block, which is been over 100% of GAAP earnings and it's a lot higher than your peers. So just wondering what's allowing you to generate this level of cash flow? And is this a sustainable level moving forward, if you hold sales and flows roughly stable?

Yes, it is. And certainly, we feel, as you look at -- we've been maintaining our RBC ratio it is certainly the quality of the book and the cash flows within them. So we feel very confident with the capital requirements and looking at from stats standpoint that this is a sustainable proposition. Obviously, there's been ins and outs related to other aspects of Auto & Home and other things of that nature. But on a regular steady-state basis, yes, it's in the range.

Got it. So you think of it as sort of a 100% free cash flow conversion ex kind of the reinsurance deals that you've done in the past?

In a range, yes.

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