阿默普萊斯金融 (AMP) 2021 Q2 法說會逐字稿

Welcome to the Second Quarter 2021 Earnings 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, and good morning.

Welcome to Ameriprise Financial's Second 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 reference to various non-GAAP financial measures, which we believe provide insight into the company's operations.

Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials 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 second 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 second quarter.

Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of 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.

Hello, everyone, and thanks for joining us this morning.

As you saw in our release, Ameriprise had another strong quarter, and I feel good about how we're performing at this point in the year.

The environment in the U.S. continues to improve as the economy reopens more fully and equity markets remain strong.

Recent spikes in the virus are putting some pressure on Europe's recovery.

But overall, there's a lot to be hopeful for as we look ahead.

As I consider this landscape, we're executing well across our businesses, driving growth through our lower capital fee-based businesses and freeing up capital to generate shareholder value.

We delivered another quarter of excellent organic growth in wealth and asset management and strong productivity across our system.

This included strong client flows with more than $16 billion of inflows in wealth management and asset management in the quarter.

And we ended with assets under management and administration up 28% to $1.2 trillion, another new high.

With regard to recent strategic moves, we completed the RiverSource Life fixed annuity reinsurance transaction.

This further advances our mix shift to capital-light businesses and frees up approximately $700 million of excess capital and our acquisition of BMO's EMEA asset management business, which we announced in April is on track to close in the fourth quarter.

Let's turn to our adjusted operating results for the quarter.

Momentum in the business continues, with revenues coming in strongly at $3.4 billion up 22%, fueled by organic growth in markets.

Earnings increased 34%, excluding the reversal of the NOL a year ago, with earnings per share up 39%, reflecting strong business growth and capital return.

And ROE remains exceptionally strong at 37.5%.

As always, we continue to manage expenses well.

Let's move to Advice & Wealth Management where we're consistently generating good growth.

Our strategic investments continue to be an important part of what we're doing.

People are coming to Ameriprise for a high-quality advice experience backed by leading-edge technology.

Client satisfaction remains high and clients are engaging with us personally and through our extensive digital capabilities.

Importantly, our advisers are embracing our training, coaching and powerful suite of tools that are fully integrated with our CRM platform.

And we continue to add capabilities, including testing a new e-meeting tool that helps advisers prepare for client meetings in minutes.

Our ongoing investments in the technology ecosystem are helping advisers connect with more clients and prospects and run their practices more efficiently.

This high level of engagement is leading to really good client activity, asset flows and client acquisition.

Total client inflows were up 54% to $9.5 billion and that continued the positive trend we're seeing over the past several quarters.

Consistent with strong client flows, wrapped net inflows were $10 billion, continuing a very strong run rate.

Transactional activity also grew nicely, up nearly 30% over last year, with good volume across a range of product solutions.

All of this momentum, along with positive markets, drove nice growth in adviser productivity, up 14%, adjusting for interest rates to a record of $731,000 per adviser.

On the recruiting front, we have 42 experienced advisers join us in the quarter, a bit below where we've been.

We're hearing that advisers have been focused on all that comes with reopening and some held off on transitioning firms or delayed their start dates.

That said, people are getting back to a more normal rhythm.

We're now hosting in-person meetings that complement our virtual recruiting, and we feel good about our pipeline for the third quarter.

Turning to the bank.

Total assets grew to $9.7 billion in the quarter.

We continue to move additional deposits to the bank, and we have adjusted our investment strategy to extend duration a bit.

We're also seeing a good pickup in demand for our lending solutions.

Loan volumes are steadily increasing, led by a pledged product, which represents a nice opportunity for future growth.

Wrapping up AWM on metrics and financials remain very strong.

Margin increased 380 basis points year-over-year, ending the quarter at 21.4%, showing consistent expansion since the Fed cut short-term rates a year ago.

Moving to Retirement & Protection Solutions.

Results were good, and we continue to advance our strategic initiatives.

With regard to Annuities, we had strong variable annuity sales with total sales up 88% from a year ago.

This was driven by increased demand for both our structured variable annuity product and our RAVA product without living benefits.

Together, this represented over 2/3 of sales in the quarter, a continuation of the shift that we're driving.

On the insurance side, Life and Health insurance sales approximately doubled driven by our VUL product, which is an appropriate product to this rate environment.

Now let's discuss asset management, where we continue to grow the business consistent with our plans.

Assets under management rose to $593 billion, up 25% over last year from strong business results in positive markets.

Regarding investment performance, the team continues to generate excellent performance for clients across equity, fixed income and asset allocation strategies, with more than 80% of the funds above medium over the longer-term time frames on an asset-weighted basis.

At quarter end, we had 110 4- and 5-star Morningstar-rated funds representing more than 70% of our funds.

This quarter, we had net inflows of $6.7 billion, an improvement of $4.1 billion from a year ago.

Excluding legacy insurance partner outflows, net inflows were $8.1 billion.

These results build upon the favorable net flows we saw over the past several quarters.

Global retail net inflows were $4.2 billion, driven by another quarter of strong results in North America.

Engagement with clients and intermediaries remain excellent.

Sales and flows traction is broad-based with 15 of our investment capabilities, generating over $100 million of net inflows in the quarter.

And in EMEA, retail sales have been weaker given the risk-off environment.

As I said, we're hopeful that EMEA flows will strengthen in the second half as the post-pandemic reopening and economic recovery continue.

In terms of global institutional, we saw a nice improvement with net inflows of $3.9 billion ex legacy partner outflows with wins across equity and fixed income strategies in both North America and EMEA.

I feel good about our sales pipeline.

Turning to BMO.

As we discussed with you, the acquisition will add important capabilities and build on our reach in EMEA.

Their business remains in positive flows, and we continue to receive good feedback from clients and institutional consultants.

As I mentioned, we're on track to close in the fourth quarter.

In terms of the balance sheet, our capital management is excellent.

The business continues to generate substantial free cash flow, and we're freeing up additional capital.

In fact, the approximately $700 million of our reinsurance deal largely pays for the BMO acquisition, giving us additional flexibility to return capital to shareholders at an attractive rate.

In summary, Ameriprise is in a terrific position.

We're performing well and generating strong results.

Our team is serving more clients and deepening relationships.

We're delivering excellent organic growth in both wealth and asset management.

And the BMO transaction will add an additional growth opportunity, and we're accelerating our business mix shift with the reinsurance of the fixed annuity block.

I'd like to close by talking about our team.

Our people have been coming back to the office a few days a week this summer and re-acclimating.

It's been great to be together again in-person.

We're looking forward to being more fully backed this fall where conditions are safe to do so while maintaining a level of flexibility.

Now I'll turn it over to Walter and then take your questions.

Thank you, Jim.

Ameriprise delivered very strong financial results across the firm with adjusted operating EPS up 39% to $5.27.

We continue to demonstrate excellent metrics, earnings growth and margin expansion in our core growth businesses of Advice & Wealth Management and Asset Management.

Sales of our Retirement & Protection products were up significantly from last year, and were focused on low risk and higher-margin offerings.

We're already seeing a shift in our import block and expect this to continue going forward.

As Jim mentioned, in the quarter, we continue to advance our strategic priorities to expand our growth businesses and reduce our risk profile.

We remain on track to close the acquisition of BMO's EMEA Asset Management business in the fourth quarter, which will expand our core geographic and product capabilities in attractive and growing market segments.

Additionally, we entered into an agreement to reinsure approximately $8 billion of fixed annuities and closed on the RiverSource Life transaction in early July.

As noted, we will free up approximately $700 million of capital and will have a marginal projected impact on fixed annuity profitability.

In addition to the reinsurance transaction, we continue to effectively manage our risk profile through product mix shift to lower risk and higher-margin Retirement & Protection Solutions offerings.

Our diversified model generates robust free cash flow and strong balance sheet fundamentals.

We returned 92% of adjusted op earnings to shareholders in the quarter, aligning us to our projected 90% target for the full year.

Let's turn to Slide 6. In the quarter, Ameriprise adjusted operating net revenues grew 22% and PTI increased 35%, reflecting continued excellent business performance.

Revenue and earnings in our capital-light businesses of AWM and Asset Management drove nearly 80% of the total, excluding corporate and other, a significant shift from a year ago even normalizing for the unusually high earnings in RPS last year.

We remain disciplined on expenses.

G&A expenses were well managed, up 6%, given the strong business growth in the quarter.

Overall, we delivered another excellent quarter that underscores the strength of the business model that continues to yield robust profitable growth.

Turning to Slide 7. Advice & Wealth Management delivered another quarter of excellent organic growth with total client assets up 28% to $807 billion.

Total client flows were $9.5 billion, the third consecutive quarter of total client flows at or above $9 billion, demonstrating the sustainability of our organic growth.

Our focus is not only on growth, but profitable growth.

In the quarter, our pretax-adjusted operating margin was 21.4%, an increase of 380 basis points from the prior year and an increase of 70 basis points sequentially despite continued low interest rates.

On Page 8, financial results in Advice & Wealth Management were very strong with pretax adjusted operating earnings of $423 million, up 56%.

Adjusted operating net revenues grew 29% to $2 billion, fueled by robust client flows and a 29% increase in transactional activity in addition to strong market appreciation.

On a sequential basis, revenue increased nicely to 5%.

Ameriprise Bank continues to grow at a solid pace, reaching nearly $10 billion in the quarter after adding $700 million of sweep cash to the balance sheet.

Expenses remain well managed, and we continue to exhibit strong expense discipline.

G&A expense increased 3%, reflecting increased activity and the timing of performance-based compensation expense.

Going forward, we remain committed to managing expense and margin in a disciplined manner.

Turning to Page 9. Asset Management delivered another strong quarter, driven by excellent investment performance and sustained inflows resulting in outstanding financial results.

Net inflows were $8.1 billion, excluding legacy insurance partners, which is a continuation of an improved solid flow trend.

Adjusted operating revenues increased 32% to $879 million, a result of the cumulative benefit of net inflows and market appreciation.

On a sequential basis, revenues were up 6%.

Our fee rate remains strong at 52 basis points, reflecting the strong momentum we are seeing across the board with strength in both equity and fixed income strategies.

Expenses remain well managed and in line with expectations given the revenue environment.

G&A expenses grew 12% primarily from the timing of compensation expense related to strong business performance as well as foreign exchange translation and higher volume-related expenses.

As with AWM, going forward, we will manage the expense tightly.

Pretax adjusted operating earnings grew 79%, and we delivered a 45% 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 current robust equity markets.

Let's turn to Page 10.

Retirement & Protection Solutions continue to perform in line with expectations in this environment.

Pretax adjusted operating earnings were $182 million.

Sales in the quarter were up significantly off a low base in the prior year driven by the pandemic.

Sales were above pre-COVID levels, resulting in an increase in distribution expense in the quarter.

Additionally, earnings in the prior year were positively impacted by the lower surrenders and withdrawals relating to the pandemic environment.

Importantly, we continue to reduce our risk profile by growing sales of retirement products without living benefits.

Retirement sales increased 88% during the quarter, with 2/3 of the sales on products without living benefits.

This is shifting the overall book and now only 62% of the AUR block has living benefit riders down over 200 basis points from a year ago.

In Protection, sales nearly doubled as we continue to see a meaningful increase in higher-margin VUL and a significant decline in IUL.

This mix shift in both retirement and protection products are expected to continue going forward.

Now let's move to the balance sheet on the last slide.

Our balance sheet fundamentals remain extremely strong, including our liquidity position of $3 billion at the parent company and substantial excess capital of $2 billion, which does not include the capital release from the recently announced fixed annuity transaction.

Adjusted operating return on equity in the quarter remained strong at 37.5%.

We returned $585 million to shareholders in the quarter through dividends and buyback, and we are on track with our commitment to return 90% of adjusted operating earnings to shareholders for the year.

With that, we'll take your questions.

(Operator Instructions) Our first question comes from Brennan Hawken from UBS.

So just a quick one on insurance here.

Now that you've got the fixed annuity sale announced, what are your plans for the rest of the insurance business?

It seems as though there's a decent amount of demand, particularly from certain alternative asset managers to run the insurance business.

How should we think about the potential for you to capitalize on that demand and offer up further opportunity to monetize some of these insurance assets?

So this is Jim.

As you -- as we said, our first focus was really to execute the remaining part of our fixed annuity book, which we think we were successful in doing that, that was just completed in July -- at the beginning of July.

And so we are continuing to look at other opportunities that may make sense for us both strategically as well as tactically, for certain parts of our business.

And we're doing that more holistically to evaluate what that does from a client perspective, what it does from a company-wide perspective regarding our capital situation, our risk profile and also what the appetite is in the marketplace.

So to your point, we're constantly looking at that as we now completed the fixed annuity transaction.

And we'll see what opportunities may arise in the future.

Okay.

And then shifting gears, another strong quarter in AWM.

The organic growth there, really quite good, building on success in 1Q.

So to me, this really underscores that Ameriprise really is a wealth management firm at its core.

Have you considered adjusting some of the AWM reporting or maybe providing some enhanced reporting that would be a little bit more in line with the wealth management competitors in the marketplace?

And allow for a little bit more clean comparison on some of these metrics.

Distribution revenue, including some components that are yield-oriented, compensation being part of distribution expense.

Just some of these metrics that are probably really more tied to the insurance legacy of the firm that don't make for the easiest comparisons to the wealth management firms.

And so just curious whether or not that's something you've looked at or is something you'd consider?

Yes.

So I think to the first comment that you made, 80% of our total business right now is really in the asset-light asset management, wealth management segments with the wealth management really even driving the components of whatever is remaining in our retirement business, which is actually a high-returning subset of the company.

But if you take that to your point, we have been moving more in that direction of disclosing more of that type of segmented results for our wealth and asset management.

I know Alicia and team working with our finance people are looking at all those things.

And just like we introduced some of those additional metrics, as you would imagine, we have to go back and make sure that well, the data and everything is consistent quarter-to-quarter, how we look at it to track it, et cetera.

So we're doing that now, and we'll come out with some other things as we move forward, but we want to make sure that we're just doing that in a way that is consistent with both the industry, but also that we're able to report it appropriately.

Our next question comes from Alex Blostein from Goldman Sachs.

So first, I wanted to start with maybe a little bit of a deeper update on BMO EMEA asset management acquisitions.

So Jim heard you guys saying that the flow is just still positive, which is great and the transaction is expected to close in the fourth quarter.

But now that you've had maybe a little bit more time kind of working through the transaction, maybe an update on sort of run rate revenues and pretax margins in that business?

And how you think these margins eventually going to look like once you're fully integrated with Columbia Threadneedle?

Yes.

So Alex, as you would imagine, a little different than a U.S. acquisition being in the international marketplace in Europe.

We do not have as much access to underlying information as you would have normally thought in sort of where you're already in a deal in contract because of privacy and all the limitations there.

So it sort of gives us a little bit of a delay in what we're able to really look at in a much more detailed equation to look at the expenses, the details of that, the various aspects underline the absolutes to really then come up with what we would consider a combination of run rates and synergies and other things.

So we're just going to have to wait a bit.

And it's not all usual, but it's one that we're -- we know that that's what is required at this point in time.

So we will definitely provide that to you as we continue to gain information for that.

So we're not holding it.

It's just more that we don't really have it at the level that we would feel comfortable disclosing something that could change.

Got you.

All right.

We'll stay tuned for that.

That's not to say we don't feel good about it.

It's just more that -- it's not something that we can be accurately reporting on.

I got you.

I hear you.

Second question, Walter, maybe just your view on G&A outlook at a firm-wide level, I know there are moving pieces between AWM and Asset Management.

But as you think about G&A holistically for Ameriprise off of kind of $820-ish million run rate in the second quarter.

How should we think of that for the rest of the year and maybe even into 2022, given there's some evidence of inflationary pressures building in asset management compensation and things like that?

Okay.

First, let me start off.

I think as we look at the results for the second quarter, we're managing expenses in a pretty disciplined way and certainly correlated to our revenue growth.

We do expect going forward that we are going to continue to have good strong revenue growth.

So therefore, the expenses will correlate to that and -- but we will manage it in a disciplined way.

The thing that I would say at this stage, Alex, is that -- we are seeing -- we are going to start spending in development and other things.

So -- but it's going to be measured.

And certainly -- we do not see inflationary pressures yet.

Certainly, our compensation is up, as we talked about, because of the performance characteristics this year versus last year.

But from our standpoint, the underlying expenses are being well managed, and we will continue to spend money as it's prudent, but you could expect that they're going to be a disciplined approach to it.

But we don't see the inflation right now, just the normal increase that you could see with the top performance that we're having.

Great.

If I could just sneak one more in and a little bit in those.

But I was curious about the point Jim, you made about pledge loans in the bank.

Can you guys give us a balance of those loans in the second quarter versus what it was in the first quarter?

Sort of the yield that you guys are earning there and the outlook for future growth definitely seems like one of the ways to grow the bank's NII in a bit of a unique way.

I don't have that in front of me.

Walter, I...

No, I don't have the -- it is growing.

And right now, the way we operate with our -- a third-party partner is we basically do the share in the underwriting and pay a certain expense.

So the growth potential there is very good.

I just don't have the number at hand at this stage.

And Alex, since we just more fully launched this across the system in the fourth quarter of last year, we rolled it out.

It's starting to really percolate.

So what I would probably say is that we're in very early innings, but I think based on the appetite as well as where that fits in, I think it will be a nice growth area for us.

But I would probably say it's still in the early stages, but one that's growing nicely and hopefully, will be to some larger balances over time.

Our next question comes from Erik Bass from Autonomous Research.

Starting with AWM.

Can you talk a bit more about the client trends and the outlook for transactional activity?

And where are you seeing most of the wrap flows coming from?

So I think the -- what we saw is a consistent pickup after last year's sort of low period, particularly on longer-term contracts.

So as you saw I mean our sales of Retirement & Protection Solutions activity really picked up strongly, whether it's maybe our VUL product or it's a structured or even our RAVA product, which has no living benefits.

And so I think now as you look at the market environment and you look at the ability for our advisers to feel more comfortable actually executing those type of transactions in the environment and with the clients, even a combination of remote and in-person that has picked up nicely.

Now for other transaction activity, we see good activity there as well.

And we had to pick up generally both in there and wrap all through these periods.

So the wrap business is really coming from both new client inflows as well as new clients that we're adding.

And we had good client acquisition also during the period, and the flows also were strong.

So I think it's a combination of those factors.

I don't think there's one in particular.

I think the environment, particularly with low interest rates now that people are looking for how do they get on -- a more return more holistically.

In our wrap program, we do, do balanced portfolios and diversify it pretty well so that there is a level of what we would call not just overreliance on the equity markets, but not at the same time, just looking for yield from fixed income.

And so I think it's a combination of those factors.

I don't know if that answers your question, but as you saw, it continued from the latter part of last year all through the first half of this year.

Got it.

Yes.

I guess I was thinking about just the sustainability of the organic growth rate.

So do you think there's still some dry powder from existing clients to drive flows into wrap or is it transitioning more where you need new assets coming into the platform?

Yes.

I would say, it's not just the transition.

I mean, as we said, if you look at -- even though we have strong sales of our annuities, it's still down a few hundred million in net flows because we're really putting out there the variable with the guarantees, et cetera.

But we had a nice pickup on those that didn't have it.

But having said that, I feel that there is a continuation in the wrap.

And that continuation will come not just from a mix shift per se.

I don't think that's where the large part is.

We're maintaining very large cash balances still, and we -- our flows in are also very good.

Okay.

And you mentioned the impact of low interest rates, just a quick one there.

What are you doing, I guess, to mitigate the impact of low rates on the bank and certificate products?

And then on the other hand, if we do start to see higher interest rates -- has anything changed versus the last tightening cycle in terms of your sensitivity to upside?

No.

In fact, I think we sort of hit -- we feel like we hit a low point.

I mean, if you're looking at what is discussed of whether inflation is there or not there, what the Fed may do or not do, it looks like there's more of the potential for it to go back with rates going up, I'll let Walter speak to a little bit of the actual rates or what we're doing with the bank to complement that.

So obviously, the bank is very opportunistic now because, obviously, if you look at our sweep account rates, the 27 basis points.

And we're now -- new money is being placed at 140.

We're putting an emphasis on more duration than credit.

So we see seizing upon the opportunity to be prudent about it, not to extend you on credit, but certainly investing out and picking up that spread.

And you should anticipate there will be more sweet money to play on balance sheet.

Our next question comes from John Barnidge from Piper Sandler.

With long-term care experience in the second quarter, would you say that's back to completely normalized levels?

Or do you think it comes down more?

I know in March, it was about $5 million in earnings on the 1Q '21 call.

Yes.

Thanks, it's Walter.

So listen, 1 month, 2 months don't make a trend.

But yes, the numbers that we're seeing are certainly returning to the pre-COVID situation.

Yes.

Okay.

Great.

And then my follow-up, how should we be thinking about timing and efforts to reduce an extended cost left with the fixed annuity transaction?

Well, okay, as part of our program.

We are certainly always evaluating reengineering and the stranded cost, again, is manageable from the fixed annuities based upon the expense base it had in the allocation elements that we feel comfortable that we'll be able to neutralize that as we do our reengineering and evaluate within the RPS product and also across the firm.

So we will be able to neutralize the majority of it.

Our next question comes from Hung-Fai Lee from Dowling & Partners.

Just to follow up on AWM activities.

Given the strong rep falls and transactional activities.

But as you think about it, how much of that would you attribute that to pent-up demand since last year versus the productivity gains that -- from the actions you've taken?

And how do you think about that going forward?

Yes.

So I think it's a combination.

So again, we know the market conditions are favorable, and we know the equity markets are strong.

And that always lends itself to a consumer appetite to some speak about being comfortable investing.

I think part of it is not just the market but sort of the economy reopening and the feeling that there's not going to be a big shoot a drop, so to speak, in the near term.

I would also say that part of it is definitely the capabilities we put in place and the engagement we have with our advisers.

We've done a lot over the last few years.

Just the idea is like we're one of the few firms that were able to like fully operate virtually with all of our capabilities with not losing a beat with our advisers or engagement with the clients.

Our digital activities with the clients and the advisers is very strong.

We keep on adding capabilities there.

We are integrating everything in an ecosystem that works together, not just putting tools on a platform and saying, "Hey, we got this service and look how great it is." And usually, when we talk to you about it, it's not something like we just like thought of or just introduced or just added.

It's something that we really have tested out.

We've proven.

We've actually rolled it out, and it really works well.

And so I would just say that has added a lot to our advisers having this type of engagement with their clients and also with the way they're able to transact with the firm and the information that we're providing.

So I think it's a combination of that -- all of that.

I mean I can't sit here and tell you how much we got from each.

What I could tell you is the feedback from our advisers is very positive about what we have enabled for them and how that's operating as they're working through things, including some of the capabilities we've added on the whole advice modules and what that does in client flows.

So that's why we feel good about our system.

And we feel like when we do discuss these things with you, it's not vaporware.

It's not something that we just like introduced, and we're making a big marketing play on it.

It's something that we feel really comfortable that has been executed.

So it sounds like if market conditions continue to be favorable or at least stable, at least for the near term that the current kind of activities level should be at least sustainable in the near term?

Is that the right way to think about it?

Yes.

I can't sit here and tell you there's anything that we see has changed that from what we're seeing.

I mean, as I mentioned to you, at year-end and then the first quarter.

I mean I don't have a perfect crystal ball and if the market fell out or the economic situation changed or COVID jumped back up in some fashion that closed parts of the economy, we may see some effect.

But I think as we're just chugging along right now, we don't see anything materially changing that outlook.

And so again, as I said in the first quarter, no crystal ball, but we feel good about the continuation of what we have.

Got it.

My second question is related to asset management.

The margin clearly was very favorable this quarter.

But at the same time, adding the BMO block will likely lower your overall margin for the segments, given the business mix.

But if the market conditions remain stable, any reason why the margin at Columbia Threadneedle would not remain in the low to mid-40s percent range kind of going forward?

No.

I would say this, we actually feel like if Europe improves a bit, and our flows turn around there, margins will be a bit higher.

I mean we offset foreign exchange and et cetera, we think that would be a possibility.

But even if you sort, even where there's a level of margin compression or institutional flows or a little low fee base, we've been able to maintain a 52 basis points over the course of the year, that spread because we are winning some mandates and getting good flows in certain of our products that have the fees.

I think Europe, U.K. would actually be favorable if that started to turn around to add to that.

BMO is not a negative at all.

I mean that's what you're doing is you're weighing in like $100-and-something billion of assets that have an institutional base mainly.

And with that, they have a lower fee.

But we think the revenue contribution will be positive and the float situation, we can make positive as well.

And so really, that's all you're doing is you're doing the math.

But if you said you're at the 40s now and that will stay, and then you just add the institutional, adding that component, it will come to whatever the number comes to, and we'll provide that to you as soon as we get a more fine-tuned breakout of it.

But I would say there's nothing that I would sit here to tell you would change in that regard at this point.

Okay.

So -- but it sounds like for Columbia Threadneedle, there's still more kind of operating leverage that you can get as if you will turn around.

Our next question comes from Andrew Kligerman from Crédit Suisse.

Maybe just to quickly follow up on Hung-Fai's last question about Advice & Wealth.

So $9 billion plus in wrap flows for 3 quarters in a row, you're sitting at $39 billion in cash or north of that, actually.

These are more than double or around double the numbers we would have seen 2 years ago before the pandemic.

So I just want to make sure this is the new normal.

Well, I think, Andrew, it's an excellent question.

And I think you're right.

I mean listen here sometimes when we compare it to a little of the level of activity that we saw just prior quarters or year.

I think if you do go back to '19, our level of activity or productivity, our margins on that productivity and the amount of flow activity has definitely increased.

We do feel we're more productive.

We do feel that we're starting to hit on sort of the right channels for that growth.

But I mean, if I can define the $9 billion or $10 billion, is there something from some pent up, yes, is something probably in there.

But to your point, our cash balances are up as well.

So it's not as though we lowered the amount that's sitting in cash and just moved it into wrap.

So I think you're right in what you're concluding.

I was just trying to sort of talk about it more from a year-over-year basis.

Okay.

And maybe just following a little bit up on Brennan's question.

These M&A blocks are pretty active out there.

Maybe you could -- I could take it from a different angle, are you getting a lot of incoming calls?

And with those calls, maybe even in consideration that going forward, you would manufacture and ultimately reinsure the product as you move forward on new business?

Andrew, it's Walter.

As Jim indicated, certainly, we are getting inbounds.

We're evaluating both from a tactical and strategic standpoint.

And I would say there is clearly interest.

And certainly, we're looking at the best shareholder implications to it, taking into consideration all aspects, including PE multiple and certainly recognizing the quality of the book.

But we are certainly getting inbounds.

Awesome.

And maybe just lastly.

So the round trip of excess capital will be around $2 billion after BMO and the fixed annuity block gets completed.

Any sense -- and you're doing a great payout ratio of about 90%.

Any sense of the possibility that you might ramp that up a bit in the back half of the year and next year?

I think, Andrew, at this point, we want to execute the BMO transaction.

We just completed the fixed annuity.

As we said to you, even before we did those things, we would target a nice return, which we're doing, and we're consistent with that.

So you can keep that as sort of our base right now.

But I think it will depend on market conditions and a sense of what opportunity arises in that regard.

And it gives us also flexibility.

So I don't want to commit to anything at this point.

We want to complete the BMO transaction as we go through and see how the environment is.

But I would just say it's a real positive to have the hand.

Our next question comes from Tom Gallagher from Evercore.

First question, just on, Walter, how we should think about corporate following the closing of the FA deal.

The -- are we going to see an amortization of the negative seed flowing through corporate?

And can you give some indication for what the earnings impact is going to be going forward?

Sure.

So yes, again, we haven't finalized exactly, but it's a reasonable positioning to put it in corporate.

And yes, there will be amortization of the negative seed, but let me put this in context.

As we evaluated certainly the FA book and its trajectory going forward.

It was -- this transaction is going to be a positive from a P&L standpoint.

Certainly, you would see, as you project, it will be higher than what you're seeing right now.

But all the projections are it will be certainly P&L positive to us as we go forward.

And that does not even take into consideration the use of proceeds as it relates to the freed-up capital.

So it's risk and P&L wise, as you look over the term of this and certainly the freed-up capital aspects of it are certainly very positive.

Yes.

So Tom, it would be positive to what we would be experienced if we maintain the fixed annuity book and the losses from that.

On a relative -- I mean, in an absolute sense, it will still be some negative in each quarter and -- but, Walter, the size of the negative per quarter.

You're going to see, okay, right now, you saw it in this quarter, we had $6 million loss.

So as you look out to it, in '22, it's going to get pretty close to when the amortization and the other aspects of it will equal pretty much probably $10 million a quarter, something in that range.

Okay.

Andrew -- Tom, does that make sense to you?

That does, yes.

And that's -- and Walter, that's -- I presume that's noncash?

Yes.

That's exactly right.

because it goes -- accounting goes, it's the amortization right.

Right.

And that's not the -- and that does not include like the use of capital if we were to use it for buyback or other things or so to offset that.

But what I would say is if we held it, you would have had a higher numbers but this was a very reasonable and appropriate way, and it also freed up that amount of capital upfront rather than just over time.

That makes sense.

And as -- and just to come back to the question of potential risk transfer, so the fixed annuity deal is done.

I heard everything you guys have said about that you're getting inbound calls and you're evaluating things.

If we think about, we'll call it, the most likely path of outcomes here.

Would it be something similar to FA where you might do a slice of your remaining risk, whether that's life insurance, variable annuities, even long-term care?

Or would you be open to doing something far more strategic like a full divestiture of RiverSource Life?

When you -- and how -- I don't know how closely you've really looked at it yet, but when you think about the drag on your valuation and your multiple today from those businesses compared to bid-ask spreads in the market?

Do you have any sort of sense for whether you think it could be a meaningful positive and something bigger would make sense?

Or do you think it's more -- going to be more bite-sized transactions?

So Tom, it's an excellent question.

And what I would say is we're evaluating a lot of different aspects.

So as an example, if something optimizes us for slices, we will look at that.

If something strategic that really makes sense from what we're doing for our system or a client, et cetera, it makes sense, we'll evaluate it.

So it's not as though we're just being myopic at this point.

We're looking at it more holistic.

We will look at what that generates for shareholders as well as what it is from a client value proposition.

But when I say that, I look at it, so just think about it for that 20% that's remaining, again, outside of the LTC, which we manage, and it's not going to be an earnings for us.

The rest of the business that we have right now generates a very good return.

Now there are subsets like low interest rates for like the IUL book is not as lucrative as the VUL and other things like that.

But even our annuity book has a very good return.

It's well risked, even the guarantee portion and well managed.

And so if there are assets that are favorable for us to evaluate something different, and we also take into account the PE, we'll evaluate it.

If there are subsets that like we did with the fixed annuity that sort of optimizes the book right now as other things unfold, we'll look at that as well.

So I can't sit here and give you a perfect again view of the crystal ball, but we're open and thinking about what makes sense, but we look at all aspects of that, not just the financial aspect in the short term.

Our next question comes from Suneet Kamath from Citi.

I wanted to go back to AWM for a second.

Jim, you had mentioned that you brought in, I think, 42 experienced advisers, which is about half of what you guys would normally do.

I know you said there's some focus on reopening, et cetera, but -- can you talk about the competitive environment for advisers?

And do you think you could get back to that kind of 80-ish plus adviser recruiting per quarter kind of in the near term?

Yes, Suneet.

So I think, listen, as we went through the quarter, we didn't expect it to slow down as much.

But for a combination, again, we can't put a fine point on it, but in speaking to our people, et cetera.

It wasn't that there wasn't strong interest and that we're having good conversations.

But it's sort of where like some people who were there wanted to delay it, some people didn't want to sort of like, well, the reopening and what I'm looking at the markets are what they are, et cetera.

So right now, our pipeline looks really good, and we feel like we'll get back to those numbers, and that's really and maybe even a little more favorable.

But I would probably say it was just the way it came.

Now is there a competitive market?

Absolutely.

There's a competitive market.

And we're being disciplined as well because we don't want to just -- if it's not right for us, we don't jump at it, just like we want it right for the adviser we're recruiting in that we can help them be successful.

But I would probably say the second quarter, I wouldn't attribute it to competitive frame.

I could attribute to a confluence of factors.

And that's really what I'm getting from my people.

So as I said, I'm not coming up with that myself.

It's really what I got as feedback as I went through the system.

Okay.

That makes sense.

And then just a few quick production questions.

First in asset management on the North American retail business.

Can you give us a sense of where the growth is coming from in terms of channels?

How much of it is A&WM versus the third-party intermediaries?

And then I'll have a follow-up for A&WM.

Yes.

So we have strong flows across our system in the U.S. in retail as well as we had some nice flows in institutional.

In the retail, it's actually across the combination of those channels.

We've actually picked up share in most of the intermediary.

In AWM, it's just they're getting their similar share just that our growth is strong.

And so they're getting a piece of that action.

So they're no different than the third parties as far as what we're seeing in the pickup, but it's across.

And also, I think we did mention that it's not in just 1 or 2 disciplines.

We have a range of products that are actually getting.

And I think if you looked at the industry outside of passive, there was a bit more of a slowdown like in the equity sales, in the active.

Our equity has held up pretty well.

So even though there was a little bit of a slowing in certain aspects, it was still quite good.

So we feel good about the retail and the consistency of it and the variety of products that we're putting in the market.

I think where we had a little more softness was really in Europe.

We had positives in Europe, U.K. was weaker previously.

And now Europe slowed down a little just because of what happened in the environment, but we're hoping that will bounce back.

Okay.

That makes sense.

And then the last one I had on production.

I think this might have been asked before and I didn't hear the answer.

I apologize if you said it and I missed it.

But in terms of the wrap flows, can you give us a sense of how much of that is coming from sort of the newer advisers maybe that you added over the past couple of years versus the sort of what I would call installed base folks that have been around for a while?

We're seeing -- so on the new advisers, we can see the consistency of the ramp-up.

Our ramp-up has actually improved a bit, and we're actually, on a relative basis, for the industry quite good.

We're at the higher end of that.

But I would probably see the flows are really coming from the combination of factors, but the legacy advisers are really generating good flows, organic flows.

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.