阿默普萊斯金融 (AMP) 2021 Q1 法說會逐字稿

Welcome to the First Quarter 2021 Earnings Call. My name is Sylvia and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, Sylvia, and good morning. Welcome to Ameriprise Financial's first quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, our Chief Financial Officer. Following their remarks, we'd be happy to take your questions.

Turning to our earnings presentation materials that are available on our website. On Slide 2, you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website at www.ir.ameriprise.com.

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 first quarter 2021 earnings release, our 2020 annual report to shareholders, 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 first quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results.

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

Good morning. Thanks for joining our first quarter earnings call. As you saw in yesterday's release, Ameriprise is off to a strong start in 2021. We're continuing the positive momentum from the past several quarters, as you can see in our first quarter metrics and financial results.

Regarding the environment, equity markets continue to rally in the first quarter as vaccinations increased and activity accelerated with the U.S. beginning to open back up. The economy is gaining strength with the further fiscal stimulus as well as better employment data.

With this backdrop, key for us is that we remain focused on serving our clients. Engagement is high, activity is strong, and we're bringing in record client flows across the business. We ended the quarter with assets under management and administration of 36% to $1.14 trillion, a new high. In addition, we recently announced the strategic acquisition of the BMO EMEA Asset Management business.

Taking a step back, and looking at Ameriprise overall, I feel really good. We're executing well and delivering on our strategy for growth that we discussed with you. We continue to transform Ameriprise with Wealth Management and Asset Management now representing over 75% of operating earnings.

You've seen the financials. Revenues are up 10% to over $3 billion. Earnings per share also increased nicely in the quarter of 27% ex the NOL benefit a year ago, even with low short-term interest rates this year versus last year's quarter, and ROE remains very strong at 30%.

While we continue to invest strongly in the business, we are managing expenses thoughtfully. With our strong financial foundation and free cash flow generation, we returned more than $490 million to shareholders in the quarter through dividends and our ongoing repurchase program, which is comparable to the last few quarters. Yesterday, we announced another 9% increase in our quarterly dividend, our 17th increase since becoming public 16 years ago.

Let's discuss Advice & Wealth Management, where we've been executing well and driving growth. We're benefiting from the strategic investments we've been making to deliver a differentiated client/adviser experience built on advice. We've been on a multiyear journey to take our client experience to the next level.

A big part of that is the training and support we provide advisers and ensuring that the new digital tools and capabilities are fully integrated within their technology ecosystem. One of our more significant investments, our CRM platform, is increasingly serving as the hub for advisers allowing them to collaborate with clients while driving efficiencies. And we've seen good uptake as advisers integrate these capabilities into their practices.

This strong engagement is helping to drive good client activity, excellent flows and new client acquisition as we continue to build on our momentum from last year. Our total client net flows was strong at $9.3 billion in the quarter, with total client assets of 36% to $762 billion. Our investment advisory business continues to grow nicely. In the quarter, wrap net inflows were more than $10 billion, up 55% over last year. This is another record for us and reinforces our excellent client adviser engagement and focus on organic growth.

Transactional activity continued gaining strength in the first quarter, picking up 12% over last year, with good volume across a range of product solutions. Even with clients putting more of the cash back to work, client cash balances remain elevated at more than $40 billion. And adviser productivity was strong, up 8%, adjusting for interest rates.

And we're bringing on new advisers. Our virtual recruiting program is driving good results with 93 advisers joining us in the quarter. Advisers recognize what we have to offer in terms of our culture, technology and high level of support. And as more states reopen their businesses and economies, we're looking forward to connecting with more advisers in person as we move through the balance of the year.

We also continue to build out the Ameriprise Bank, where total assets grew to $8.8 billion in the quarter. As we discussed, we plan to move additional deposits to the bank over the course of this year. Pledge and margin loan volumes increased nicely in the quarter as our advisers engage with their clients with our lending solutions from a liquidity perspective. Wrapping up AWM, even with interest rates at all-time lows, AWM margin increased 90 basis points sequentially, ending the quarter at a strong 20.7%.

Turning to our Retirement and Protection Solutions business, we're off to a good start and continue to adapt to the low interest rate environment. We have been very proactive in this climate as we serve client needs and prudently manage the business. Variable annuity sales increased nicely, up 33%, driven by our success of structured product, as well as our annuities without living benefits. As a result, the percentage of VA sales without living benefits grew to 64% of total sales in the quarter.

With regard to insurance, our focus has been on our flagship VUL product rather than IUL. In fact, VUL sales were up 76%. We're focused on making sure we have the right product for this rate environment while maintaining strong underwriting. Overall, I feel good about how the Retirement Protection Solutions business is performing in this challenging environment. As part of this strategy, we are actively pursuing a reinsurance transaction for the remaining closed block of fixed annuities, and we feel we can execute it in the near term.

Turning to Asset Management, we're generating strong results. Our team is engaged, serving clients' evolving needs well and driving profitable growth. I'll speak to the strength of the quarter and then comment on BMO's EMEA acquisition.

With the continuation of positive flows in markets, assets under management were up significantly, increasing 32% to $564 billion. We're investing in the business, including in transforming how we use data. This is both within investments in terms of our use of data and our research as well as in distribution. In addition, and also key, is the thought leadership we provide and how we are targeting the right advisers to drive meaningful engagement.

Regarding investment performance, our teams consistently generate strong performance for our clients. It's across all categories: equities, fixed income and asset allocation strategies. As an active manager, our research expertise is a key differentiator.

I'd highlight that Columbia Threadneedle ranked in the top 10 and over the 1-, 5- and 10-year time frames in the recent Barron's Best Fund Family ranking, 1 of only 2 firms that ranked in the top 10 across all-time periods. We also won 7 Lipper Awards in the U.S. this year and over 22 awards in EMEA over the last year. This level of performance bodes very well in terms of earning future flows.

At quarter end, Columbia Threadneedle had 103 4- and 5-star Morningstar rated funds globally, which represent the close to 70% of our assets. This shows the breadth and strength of our product lineup. So with this type of investment performance and the strong execution of our plan, you saw that flows continue to be quite strong.

In the quarter, we had net inflows of $4.9 billion, an improvement of $7.3 billion from a year ago. Excluding legacy insurance partner outflows, net inflows were $6.2 billion. Global retail net inflows were $4.6 billion, largely driven by the traction we've seen in North America. We're driving high engagement with clients and intermediaries, including with the larger broker-dealers and independents.

Sales and flows traction is broad, and we're working hard to maintain that. In the quarter, we had 9 funds that generated over $250 million in net inflows, including 5 equity and 4 fixed income funds.

In EMEA, we've seen good flows in Continental Europe in a number of key markets. In the U.K., we remained in outflows. However, we saw improvement in the quarter as the economy started to reopen there more fully, and we're hopeful that investor sentiment will strengthen.

In terms of Global Institutional, we had net inflows of $1.6 billion ex legacy partner outflows, driven by our results in EMEA. We've made considerable progress in strengthening our consultant relations and client service globally. Consultants have increased their ratings on a number of key strategies in recent quarters. This is important in terms of our ability to gain additional mandates from existing clients and grow our sales pipeline.

As you saw earlier this month, we announced our strategic acquisition of BMO's EMEA asset management business. The acquisition is right in line with our strategy that we consistently discuss with you. It will add complementary capabilities and solutions with their established strengths in responsible investing, liability-driven investing, fiduciary outsource management and European real estate. It will also expand our scale in other traditional asset classes, especially in European fixed income, and recent flow trends in their EMEA business have been favorable.

In addition, post close, BMO's North American Wealth Management clients will have the opportunity to access a broad range of Columbia Threadneedle investment management solutions. From an asset management perspective, we gained important geographic diversity. Upon close, EMEA's AUM will increase significantly to 40% of total AUM at Columbia Threadneedle, which provides a good balance to the U.S. business.

We've always been a disciplined acquirer, and we expect this transaction will add to our strategic growth and generate a good return over time. Importantly, as we executed, the team will remain focused on maintaining our strong business momentum.

So, for Ameriprise overall, we're in an excellent position. The business is performing really well and delivering strong results. Based on the current environment, we feel comfortable that we'll continue to generate strong returns with a strong balance sheet and substantial free cash flow.

With that, Walter will cover the quarter in more detail, and then we'll take your questions.

Thank you, Jim. Ameriprise delivered a strong quarter of financial results and excellent business metrics, which are a direct result of our continued execution of the strategic priorities. We continue to demonstrate strong performance in our core growth businesses of Advice & Wealth Management and Asset Management, driven by ongoing organic growth and expense discipline.

At the core, we remain focused on accelerating our mix shift through specific actions. For example, our recently announced strategic acquisition of BMO's EMEA asset management business will expand key capabilities in attractive and growing market segments, while also adding to traditional asset classes. This provides a larger combined capability to meet client needs.

We have high confidence in the financial benefits from the acquisition as well. It will be accretive on a cash and operating basis by 2023, generating a 20%-plus IRR and have a payback period consistent with the Columbia acquisition of 8 years. In addition, we have established a strong partnership with BMO in North America, which we expect to generate strong profits.

We are actively engaged in a fixed annuity reinsurance process and anticipate finalizing the transaction shortly. Lastly, we continue to effectively manage our risk profile and continued profit mix shift to lower risk and higher-margin retirement and protection solution offerings.

Our diversified model continues to generate robust-free cash flow and strong balance sheet fundamentals. We remain on track to return approximately 90% of adjusted operating earnings to shareholders in 2021.

Let's turn to Slide 6. Ameriprise's strong underlying business performance and activity levels in our core growth businesses continue to neutralize headwinds from short-term interest rates. As a reminder, this will be the last quarter where we have a reduction in short rates, sorting the year-over-year comparison.

Excluding the impact from interest, Ameriprise adjusted net operating revenue grew 13%. Advice & Wealth Management and Asset Management businesses' profitability continues to increase, with adjusted pretax operating earnings up 35%. General and administrative expenses continue to be well managed. Excluding the impact of share price appreciation on compensation, G&A expenses were up 2% as we remain disciplined executing reengineering initiatives. In total, we delivered excellent underlying EPS growth of 27%, excluding the net operating loss tax benefit and very strong margins in the quarter.

Turning to Slide 7. As Jim mentioned, Advice & Wealth Management continued to deliver excellent organic growth during the quarter, with total client assets up 36% to $762 billion. In response to the request from many of you, we are now disclosing total client flows, which increased 21% to $9.3 billion.

From a product perspective, we had a terrific growth in our wrap flows, up 55% to $10.4 billion. Cash balances remain elevated at $40.4 billion, with a substantial opportunity for clients to put cash back to work in the future.

On Page 8, financial results in Advice & Wealth Management were strong, with underlying adjusted operating earnings up 30% to $389 million after the $78 million interest rate headwind. Adjusted operating net revenues were up 16% to $1.9 billion, driven by client flows, improved transaction activity and higher market levels. On a sequential basis, revenues increased 6% from strong performance despite fewer fee days in the current quarter.

Expenses remain well managed and we continue to exhibit strong expense discipline. G&A expense increased only 2% including higher volume-related expenses, bank expansion, investments for future growth and elevated share-based compensation. Pretax adjusted operating margin was 20.7%. Adjusting for interest rates, the margin would have been 215 basis points higher. On a sequential basis, pretax operating earnings increased 11% and pretax adjusted operating margin expanded 90 basis points.

Turning to Page 9. The significant growth in asset management was due to our investment engine that is driving revenue growth through consistent investment performance and compelling thought leadership leading to increased client engagement. Net inflows in the quarter was $6.2 billion, excluding legacy insurance partners, an $8 billion improvement from a year ago. Adjusted operating revenues increased 21% to $828 million, reflecting cumulative benefit of inflows, favorable mix shift toward equity strategies and market appreciation. The prior year quarter included an unfavorable impact from a performance fee adjustment.

General and administrative expenses grew 12% from higher compensation expense related to strong performance, Ameriprise share appreciation, as well as the costs associated with increased activity levels. Adjusted for compensation-related expense, G&A increased a more moderate 5%. Putting this together, pretax adjusted operating earnings grew 45% with a 43.9% margin. We continue to be very encouraged by the continuation of positive flow trends and strong profitability.

Let's turn to Page 10. Retirement and Protection Solutions continue to perform in line with expectation in this market and rate environment. While we have a strong book of business from a risk perspective, we continue to execute our strategy to improve it further. In the quarter, 64% of retirement product sales did not have living benefit guarantees. This sales shift is already having an impact on our in-force block, with the account value of living benefit riders down from 65% to 63%.

In protection, sales were flat, as we continue to see a meaningful increase in higher-margin VUL and a significant decline in index universal life. These mix shifts are expected to continue going forward.

Financial results continue to be in line with expectations. Pretax adjusted operating earnings increased 10% to $183 million. We had a steep drop-off in claims following January's high level, and we were approaching pre-COVID levels of claims by the end of March. This business is very well managed. Net amount at risk remains among the lowest in the industry, and our hedging remains very effective.

Let's turn to Page 11. In total, the corporate and other segment had a $21 million loss in the quarter, which was a $29 million improvement from the prior year. Excluding closed blocks, the loss in the corporate segment was $63 million, which included a $15 million investment gain, largely offset by $11 million of higher share-based compensation expense. The year ago quarter had $11 million benefit from Ameriprise share price depreciation.

Long-term care had $46 million of earnings in the quarter. The high COVID-related mortality and terminations that we saw in January declined in February and March and were approaching pre-COVID levels by the end of March. This benefit was partially offset by the COVID claims level on life insurance.

Fixed annuities had a $4 million loss related to the low interest rate environment. As I mentioned, we are making good progress on our fixed annuity reinsurance transaction.

Now let's move to the balance sheet on the last slide. Our balance sheet fundamentals remain extremely strong. Including our liquidity position of $2.3 billion at the parent company, substantial excess capital of $2 billion, 96% hedge effectiveness in the quarter and a defensively positioned investment portfolio. Adjusted operating return on equity in the quarter remained strong at 30%.

We returned $491 million to shareholders in the quarter through dividends and buyback. We just announced a 9% increase in our quarterly dividend, and we are on track with our commitment to return 90% of adjusted operating earnings to shareholders this year.

With that, we'll take your questions.

(Operator Instructions) Our first question comes from Alex Blostein from Goldman Sachs.

Great. So Jim and Walter was hoping to start maybe with some trends you guys have seen in Advice & Wealth Management. Obviously, another really strong quarter. Particularly in the wrap account flows, as you pointed out, over $10 billion, and thanks for the new disclosure on the $9 billion for total.

I guess the first question is there, just kind of around sustainability, particularly in the wrap flows. And maybe we can tackle it from a perspective of kind of giving us a breakdown of how much of this is coming from existing clients sort of reengaging, given the fact that market backdrop is better versus new assets coming from either recruiting or same-store sales?

Alex, this is Jim. So I think we're seeing good growth coming from all of the areas you've mentioned. We see a good additional flow coming from current clients as we're deepening through the advice relationship that we've been really -- having our advisers really engage with clients on and the deepening. But we also see good new organic growth from client acquisition coming in as well from our advisers.

And as a complement from recruits that we've added over the last year, as they transfer their book, they're bringing over some of the clients. But I would say it's a lot coming from the organic growth from our core base, both for new clients that our advisers are bringing in as well as current clients, where they're deepening the relationship and bringing in more of those flows as well.

Got it. That's great to hear. Shifting gears, maybe we can touch on the BMO acquisition. I was hoping to get a little more details on that property. So it sounds like the flows there are positive. Maybe you can talk to, sort of, the sources of growth and kind of what products are driving flows in that asset? And I guess, more importantly, are you thinking about any risks from attrition as we can typically see in an asset management acquisition.

And then from a financial perspective, I guess, Walter that one's for you. I think I heard you say accretion to operating earnings by 2023. I think you guys are paying for this with cash. So I guess, why is the deal not immediately accretive? And I guess, within the same lines, maybe kind of help us with a jumping off point for revenues and pretax income, pre- and post synergies for that asset. A bunch of things in there, but strategic and financial highlights would be helpful.

Okay. So what I can say really is that we know right now that the EMEA BMO area is in inflows for the last number of months through the first quarter. They're seeing it in some of their core programs and initiatives. The ones that we sort of laid out to you are the strategic capabilities that we think that will really enhance and strengthen our areas to really get a more formal presence on the continent there, but also that we could leverage globally.

We feel like as we go through this transaction, since we're not really, what I would call, meshing together, both investment process or distribution capabilities in some of those areas, they're more of an add-on to us, that we shouldn't suffer, as you mentioned, a bit more of a attrition going through that process.

We feel very comfortable that we're adding their people, we're adding their capabilities. And what we're spending more time integrating will be more of the back and middle offices. Adding our capabilities, which are much more state of the art much more current in what we can provide them technology-wise and support wise. And so we feel like it could be a win-win.

We always factor in, when we do a transaction, there is always some breakage. You can't really determine how much it is, but we always factor in that in thinking about a deal. But we're hoping that, that would be one that will not be significant based on what we're looking to do here, which is very different than merging and integrating front offices and people from that standpoint.

We like their capabilities. We think that those capabilities with our added distribution globally can actually enhance their flow picture as well. But we didn't count on the revenue flows when we did the deal to make it like a make or break. We really look at this from having the cost synergies from the back and middle office, plus what they think they can grow, plus what we can add in. And then we complement that with our distribution as a plus.

And so we feel like this is really good strategic. It's exactly what we were looking for as a complement. It is one that we can easily handle through the excess cash and balance sheet that we have, and it doesn't take away from the organic growth that we want our people to continue to focus on in the asset management business.

Yes. So Alex, it's Walter. So obviously, the BMO is generating EBITDA. But again, it's a division of a large corporation. So commenting on that number would be a little problematic. We certainly have done our analysis of it. But the big reason, obviously, for the accretion in '23 is the substantial amount of onetime expense that we will be absorbing between now and that time frame. We feel very comfortable, and that's why we gave you the bookends as it relates to the IRR on it. And the -- certainly, the elements of payback.

So we are working through right now. And certainly, we'll keep you abreast as we go through this and get additional information as we feel good about the fundamentals of it.

Got you. And as we find with a typical kind of M&A transaction, are these integration charges going to be backed out of your operating reported results? Or are you guys going to leave those in, as you think about '22?

No. As we normally do, Alex, we will back them out like most other firms do.

Our next question comes from Suneet Kamath from Citi.

I wanted to start with asset management and the very strong margin that you guys reported in the quarter. The 43.9%, well above your 34% to 39% target. So was there anything unusual in there that we should think about perhaps normalizing in the balance of the year?

And relatedly, what kind of gets you back down into the range? Is there an expectation that maybe investment spending will increase in the back half? Just want to get a sense of the trajectory of the margin.

So Walter, why don't you handle the first part and I'll handle the second.

Yes. There's nothing unusual in this quarter. Indeed, what we do, gain the benefit of deleveraging and the fact that we do not have a wind in our face as it relates to the outflows. So it's really from that standpoint. It's solid performance on the inflows. And we feel the expenses will remain well-managed as we go forward. But it is really the benefit of the inflows and the market. There's nothing unusual.

And when we look at going forward longer term, I mean, in the current period, if markets hold, we don't see that reverting back to in the 30s at this point in time. I think longer term, it's hard for us because there's a business mix, as we said, even adding the BMO transaction, which is largely institutional, there will be some differences there just on fee, not that they don't have -- they have good fees, but on a relative, compared to our retail side. So there are those various things.

And as you know, there's always a mix change that occurs over the longer term based on markets and a number of other factors. But from a cost perspective, we do not see anything that would cause a problem. And from revenue, you can see that our fee basis has been holding pretty well based on new assets that we're adding versus anything that are trading.

So it's nothing in the near term. It's just longer term, it's hard to predict. We'll have to do some further work depending on what happens over the course of the year.

Got it. And then on the retail flows, can you give us a sense of how much of that activity is coming from A&WM versus the third party channels?

No. I would say, overall, we're getting very strong flows from our third-party channel. Ameriprise has picked up a bit. But in totality, it's really coming from the third party channels.

And so I would say we feel really good. We've actually grown our share in 7 of the top 8 distributors in the U.S. We're getting it from a number of different disciplines, the broker dealers, the independents, RIAs, et cetera. So we feel very good.

And we have a broader lineup that is actually selling pretty well. This is actually a time when even fixed income kicked in for us where we were more equity. Now we're a combination of getting good equity and fixed income has picked up as well. So we really feel good about the broadening there.

Got it. And then just the last one for me, if I could. Just on M&A more broadly, obviously, the BMO transaction is what you're focused on. But anything that you guys are still needing to or desiring to have from an M&A perspective? Or do you pretty much have what you need post BMO in-house?

Yes. We actually feel like the BMO was one of the primary areas that we wanted to really complement, which is growing a bit more and balancing out for more of the solutions-oriented business, a little more institutional business, a little more weight for our distribution, particularly in that area for EMEA.

So we feel like that was our primary focus in what we're looking to do if we did an incremental acquisition right now, and we want to concentrate on getting that integrated well.

We feel like we got good momentum in the core of the businesses, both in the U.S. as well as what we think we could expand internationally with some of our capabilities now institutional as well with the product set we have. We've got some very good consultant approvals and ratings, which we think will expand our platform capabilities to -- for distribution.

So we're feeling pretty good about that. That was one of the things that we wanted to focus on in the near term, and we think that this deal gives us some of that ability here.

Our next question comes from Brennan Hawken from UBS.

Thanks, actually, for the total client flow disclosure, the net new assets across the Wealth Management business. Certainly, that helps to show the strength of the business.

Was curious if it's possible to get a longer historical time series for that data? And maybe for right now, how indicative is the roughly 5% total organic growth rate that is reflected in the 3 quarters that you disclosed? Like how does that compare over time to the sort of organic growth rate implied by the total client flows over a period of a few years?

Yes. So I think I'll have Walter respond a little. What I can say is that, and we've always sort of mentioned, we feel like the numbers -- and I think Walter's team is trying to reconcile going back based on the definitions being utilized, which is, I think, the ones being utilized in the industry a little more today.

Our client flows, we think, are pretty close to sort of our wrap flows. There may have been a period just after the -- sort of the discussion on the DOL, et cetera, where there was more of a shift from some brokerage activity to the wrap, that we saw some blips in some of those initial quarters.

But I think if you go back over the last number of quarters, you'll probably see more of a client flow close to, again, the wrap flows. There may be some timing issues quarter-to-quarter, et cetera. But I think that's along the lines, Walter, but I -- you know more.

Yes. So right now, we're working on that. And so we will follow-up and get you to 2020. But what Jim is saying, I believe, is a good representation of it. So if you give us a chance, we'll get that out. As we look at the new definitions and other things as of the data, okay?

Yes. Great. Much appreciated. And then -- and helpful to have the high level indication. So for my follow-up, another question on AWM. It was really good to see adviser headcount pick up here this quarter.

So why not get a little bit more aggressive on the recruiting front or bolt-on M&A to try to grow that headcount more rapidly? Effectively, when we look across a lot of the wealth management peers, to get the best valuation and the stock tend to have solid growth in net new assets and in advisers. And obviously, churn is an impact.

And so what steps do you think you can take to continue to kind of grind down churn? And then -- and is maybe picking up on the aggression for recruiting something that you think is compelling at this point, given where the market is for advisers?

Yes. So good question. I think the way I'd probably answer that would be that we will continue to look at bringing in good advisers to the firm, and we could probably -- a bit more there, and we're reviewing it.

But very important for us, we want to bring in the right advisers that fit the brand, the culture, the compliance, understand what their focus on growth. We don't want to just pay advisers to join us or be part of a network and process for them.

We want to have advisers join us that we can help grow their productivity, grow their client relationships, have great client satisfaction, be with us a long time. That really builds on the culture and the brand.

We think we have a great value proposition for advisers once they join us, both from how we onboard them, how we give them support, the leadership, the technology, the capabilities. We just don't want to roll up a bunch of firms or independents and just associate and process for them per se.

So that's very important to us. I think we could probably -- maybe we could be more aggressive out there. And -- but we also think it's very important for the long term.

The other thing we really spend a lot of time different than other competitors about just rolling up advisers is that we focus on our 10,000 advisers growing their productivity, having strong client satisfaction. And I think when you compare us, the last time we did that analysis which we update, we were more than 2.5x any independent on annual productivity growth on a compounded basis for a long period of time. And the same thing against the wirehouses.

So that's where we put a lot more of our energy. But to your point, we complement that with having good recruits and having good retention. And we'll continue to look at whether we could step that up or there may be some other firms, smaller firms suited to our cultural mix. But that's what we've been focused on, and we've been successful with it.

Our next question comes from Andrew Kligerman from Crédit Suisse.

Wanted to go back to the Advice & Wealth and that $10.4 billion in net wrap flows, just a phenomenal number. And I'm kind of thinking back to pre-COVID, and it seems like a normalized range and a very good range would have been $4 billion to $5 billion, and it's kind of gradually jumped up. And now I'm looking at the deposit base of $40.4 billion.

And so my question is, what's the right strike zone for wrap net flows? Is it $10 billion? Is it $6 billion to $8 billion? Where do you think the normalized number is? And given $40.4 billion in deposits, what can we look toward in the near term?

So Andrew, I think it was a very good question. You or someone else or some people had asked from the fourth quarter on a similar basis when we had good pickup in flows and client activity as well.

What we've been seeing is -- and it's probably a combination of factors. I mean, we have a reopening of the economy. I think people are starting to feel a bit more comfortable. I think the markets have done well. So there's a little bit of that where people feel a little more comfortable in what they are doing right now.

And so I think that's part of it, because of the positive nature of the reopening and the vaccine, rolling out, et cetera. But I also feel a part of it is a level of engagement that our advisers are also having with their clients. We've really rolled out our whole foundational advice in complement to our comprehensive advice.

We have over 0.5 million of our clients already have [goals] online that they're very active with. We have been rolling out our integrated technology in the way our advisers can continue to connect with clients and understand the nature of what conversations they should be having. We'll be rolling out more tools along those lines.

So we feel like we've stepped up our level of having the advisers engage with the clients and giving them a lot more of the tools and capabilities to do that more seamlessly in an integrated fashion. And I think that's having some effect.

I mean, it's hard for me not knowing the market cycle and some of the things popping up around. But I feel good that we're going to continue to -- at least continue to gain those type of flows. I can't predict whether it's 9, 10, 8, 6 or whatever. But I feel like we're in a good spot right now, and we're very focused on helping that to continue.

Got it. So good -- very good momentum. And then thinking about the long-term care block, which earned $46 million versus what one would normally expect to be breakeven, and I suspect there were some COVID effects that caused that uptick in earnings. Where do you see earnings going over the near and intermediate-term in that line item?

And then secondly, given that rates have come up a bit a lot in the last 12 months. Do you think that there's a stronger possibility that you could divest of that block? Is there interest?

Walter, up with you.

Okay. So Andrew, on the $46 million, that is the realization of, unfortunately, the mortality and lower, basically, new entrants into nursing homes, so -- the frequency. So as we indicated, that is starting to slow off, or slow down in March. It basically dropped to around $5 million.

So we're seeing -- we're gauging it. And certainly, we've gotten the benefit of the situation with COVID. And we're -- but we have our programs that are working. As we indicated, our benefit of programs, our price increases and other things and the claims are being well-managed and staying within expectations.

So we -- I can't say, but certainly, by the trend, it's slowing down now as it relates to the situation with COVID.

And just interest in the block itself from acquirers?

We -- again, certainly, the interest will -- interest rates certainly affect that. And we will evaluate any, certainly, bids coming in. And -- but then we are open to evaluate elements within that. But again, we feel we have this -- the LTC under control. But certainly, we would look at opportunities to reinsure that.

And maybe if I could just sneak one quick one in at the end. Just G&A overall was up 2% ex the effect of the stock and so forth. So as we look forward, and hopefully, the market opens up, could you give any insight into what we could expect would be the overall growth in G&A, given that travel and entertainment might pick up. Do you think we could see a real sharp pickup in G&A? Or do you have a way to just kind of keep it under control as we move forward?

It's more of the latter. I think that we -- as you noted, we are managing our expenses well. And even with the return to more T&E and other things of that nature, we believe we will stay in a more controlled situation with that. And as normally, we get questions on AWM, the range on that is -- you saw 2%. And we think it's going to be in the 3%, 4% range. So well-managed as we go forward.

Our next question comes from Tom Gallagher from Evercore.

A few follow-ups on AWM. Yes, I appreciate that new disclosure on total enterprise flows as well. I guess if we split those 2 businesses, Walter, how did the revenue yields and margins compare between wrap and non-wrap businesses for you? Because clearly, your flows are being driven by wrap. Are our presumption has been wrap has much higher margins and fee yield, but just curious if you can quantify that.

Well, listen, we had very strong transactional activity in this quarter. And so obviously, that drove good profitability for us. And as we look at the margins and the profitability of these programs, it's -- they are both very good. There's timing.

As you know, in wrap, you get your fee as it relates to it. On the transactional, you'll take it upfront, and will spread it back-loaded. So the profitabilities of these are certainly with -- from AWM standpoint, extremely good. And distinguishing between them, they're just different and they fit into the confident retirement approach that we take. So they're necessary for our clients, but they all generate good acceptable returns to us.

Okay. And Walter, just to follow-up on that. So from your perspective, there's not, meaningfully, better margins if you, I guess, normalize and spread them out over the life of the business between wrap and non-wrap. Would that be a fair characterization? Or are they just different?

They're different and they both generate good returns for us. They really do. Seriously, they are different, and different characterizations to meet different needs. But -- and timing of profitability, but they both really do generate acceptable and good returns.

Okay. And then just a question on the weighted average gross fee yield for the cash type deposits you break out. Last quarter, it was 69 basis points. This quarter, it was 65. The rate of change is clearly slowing.

Given what interest rates have done recently, do you think we're near a bottom? Assuming their clients continue to maintain these high balances in these accounts. Do you think we're closer to a bottom or levelizing? Or do you think there -- we might still see a little downward pressure on the margins?

I don't see downward pressure on the margins. I do see, obviously, we're evaluating from our standpoint of investment and opportunities that we have for that product and certainly looking now at duration versus credit. But I would say it certainly has slowed, as you noted, but I can't say whether it's bottomed, but it's certainly slowed, and we're evaluating now, looking at both the asset side of it, and then we'll see what happens on the short end.

Okay. And then one final one. Just the fixed annuity transaction. I think the expectation was it would garner approximately $700 million, I believe. Interest rates had changed meaningfully though. I don't know whether that would meaningfully impact your execution price on that or not.

And then also just to confirm, are you guys really, at this point, just focused on an isolated fixed annuity deal? Or how do you consider broadening out whether that's, to Andrew's question, long-term care or variable annuities or life insurance? Or at this point, it's really just fixed annuities?

Right now, we're focused on fixed annuities. As Jim and I have indicated, we are working on that to bring that to closure. And yes, interest rates do affect it, but we -- the range that you're talking about should be certainly achieved from that standpoint.

And as I indicated to Andrew, we do get constant request for evaluation of different offers, and we evaluate them. But right now, we're focusing on the fixed annuity.

Our next question comes from Ryan Krueger from KBW.

On the transactional activity in AWM, can you give us any sense of if it's remained elevated as you've gone through April?

Yes, I believe it is continuing. Again, this is preliminary information coming in. But yes, we're seeing still continuing trends.

And then on the fixed annuity reinsurance, do you view that as providing additional capacity for buybacks above and beyond the 90% that you target? Or should we think about that more as replenishing capital that you'll use for the BMO transaction?

Well, again, we are sitting in strong capital position now, as we indicated, our excess capital is $2 billion. Certainly, we're going to generate strong capital -- free cash flow. And going forward, this transaction will replenish.

You can look at it that way, the BMO transaction. And then we make our decisions looking opportunistically, what's the best way to deploy that. But at this stage, we're sitting in a very good position. And certainly, the fixed annuity transaction will certainly offset the BMO substantially.

And then just to confirm that the 90% capital return target is just buybacks and dividends and excludes the M&A, is that right?

That's right. We've been -- yes, our 90% is buyback and dividends. Right.

Our next question comes from Kenneth Lee from RBC.

Wondering if you could just remind us how sensitive Ameriprise's earnings and specifically within the Advice & Wealth Management, how sensitive the earnings could be to any potential Fed funds rate increase. And more specifically, just wondering whether you could potentially see a benefit immediately.

Yes. The answer is you will see a benefit on -- if you're talking about AWM on the Fed funds. And so if you look at, say, $25 billion looking at just concentrating on sweep accounts, it's $250 million over a year period on 1% increase, right. That's the dimensions of it.

And then it's a matter of gauging how we return that to the client. But normally, you have a differential between when the Fed fund changes, and then we evaluate the competitive situation. That's trying to dimension it from that standpoint. It makes sense, okay?

Great. Great. That's very helpful. And just one follow-up, if I may. Wondering within the asset management side, wonder if you could just talk about some of the contribution that you're seeing from any solutions-based mandates. And wonder if you could also just share with us how this could potentially change once the BMO EMEA asset management acquisition is integrated?

So institutionally and even from a retail, we've been getting, sort of, mandates a little more that are solutions-oriented. And we also, as you also know, have a U.K. real estate property business, and we have a smaller U.S. business as well. So this would complement it nicely and bring some of that advanced capability in Europe to bear.

We know ESG is very big, and they're a leader in ESG as well. And we've been ramping up our activities in ESG in the U.K. for European activity and U.K. activity. So overall, we feel like it will help us hit the ground running further in Europe, but we're also looking to further use that solution capability, complementing what we're already doing in the U.S. for the U.S. And we think that, that will give us a greater ability to bring in more solutions-oriented business for the longer term.

So I don't know if that answers your question. But we had invested in solutions. We do have some of the different strategies already coming to bear for some of what we're doing internationally and domestically, but this would advance us further.

Our final question comes from Erik Bass at Autonomous Research.

Just hoping you can provide some more color on the potential opportunity from the BMO Wealth Management relationship in the U.S. and how meaningful could this be in terms of incremental flows or AUM.

Yes. So in the U.S., we're looking to first provide our platform capabilities to BMO Wealth Management. But in addition, we'll be looking to convert some of their activities over to us on the retail side for us to actually manage those activities for them.

And we're working with BMO now. We've crafted a relationship and an arrangement on that. We're not purchasing their U.S. business, but we're working on, sort of, an agreement, a revenue-type agreement as well as a distribution agreement to take up a level of their activities there.

I don't have more detailed information right now. Walter, I don't know if you have it?

No, not at this moment. Though I think we are just working from that standpoint to transfer clients over, and we're discussing with them, just as Jim has indicated. And anything we've talked about before as related to the financials, that does not include that aspect of it.

Got it. So this would all be potential upside in terms of kind of revenue synergies as well as, obviously, you don't have the assets. So there's no attrition. It would all be wins that would kind of be incremental flows in the U.S. to the extent they emerge?

Yes.

Yes.

Perfect. And do you have a sense of what their total AUM is in the U.S. kind of asset management business that could be up for grabs?

We know the amount, but we just don't know what's going to transfer over. So I rather not say it at this time. They're working on that right now.

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