阿默普萊斯金融 (AMP) 2020 Q3 法說會逐字稿

Welcome to the Third 2020 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, Sylvia, and good morning. Welcome to Ameriprise Financial's third quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we will 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 insights into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials.

Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our third quarter 2020 earnings release, our 2019 annual report to shareholders, and these may be supplemented in our third quarter 2020 10-Q report. We make no obligation to update publicly or revise these forward-looking statements.

On Slide 3, you see our GAAP financial results at the top of the page for the third quarter. Below that, you'll see our adjusted operating results, followed by operating results, excluding unlocking, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. We completed our annual unlocking in the third quarter.

The comments that management makes on the call today will focus on operating financial results, excluding unlocking.

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

Good morning, and thanks for joining our third quarter earnings call. Clearly, the operating environment in the quarter had ongoing challenges with both elevated market volatility and the impact of extremely low interest rates. While there has been good growth in equity markets, volatility has returned, given the election and the unknowns related to the virus. Overall, I feel very good about how Ameriprise is performing against this backdrop.

Client activity and organic flows are strong, which is a real positive as we operate through this pandemic. We continue to invest strategically to further enhance our position. In addition, our capital strength continues to be a clear differentiator.

Our results are good considering the environment. Extremely low interest rates pressured our results, which is why revenues were down 1%, with adjusted operating earnings per diluted share down 1%, excluding unlocking and the sale of the auto and home business. Due to the significant move in short-term rates, revenues and earnings were reduced by $116 million year-over-year. This precipitous drop in rates muted the underlying revenue growth in earnings, which would have been up 3%, with EPS up 18%.

We've offset some of the interest pressure with good expense management. In fact, G&A expenses were down 5% year-over-year, and we will continue our disciplined efforts here. We continue to have good margins and generate substantial free cash flow while we invest in the business and return to shareholders.

Our return on equity remains well above many peers at 35.5%, ex unlocking. In terms of assets under management and administration, we ended the quarter with a record of nearly $1 trillion.

Let's begin with Advice & Wealth Management, client activity and flows are good. The Ameriprise differentiated advice value proposition works well, both in this environment and for the long term. Total client assets increased nicely, up 9% to $667 billion, with strong client inflows, including $5.2 billion in wrap flows, which is a 26% improvement over last year. Meanwhile, transactional activity picked up from the lows of last quarter. And although it's 3% below last year, it is returning to more normal levels as conditions improve.

Client brokerage cash balances are very high, up 24% year-over-year. And as opportunities arise over the next few quarters, we expect clients to put even more of their money back to work. Being digitally enabled with extensive web and mobile capabilities has been core to the excellent client engagement and the client satisfaction we're driving. working with clients really well in this environment, and we're getting very positive feedback. Our advisers are helping their clients stay focused on their long-term goals, which they can track online.

We're also receiving great feedback from advisers about our integrated ecosystem of capabilities, which is helping them operate their practices remotely, process business efficiently and serve their clients well. This high level of support gives us the ability to help advisers be more productive. Adviser productivity was up 3% in the quarter, even with the slowest summer months in this pandemic and the low interest rates. The significant drop in short rates also muted the underlying growth in productivity, which would have been up nicely at 8%.

Turning to recruiting. We welcomed 99 highly productive experienced advisers to the firm in the third quarter. Activity continue to pick up over the summer as our virtual recruiting program helped us connect with even more top advisers across the industry, including from wirehouses, independents and RIAs. The fact that we had such good success in getting advisers to move during this period points to the strength of our value proposition. We're using our capabilities to engage more advisers and onboard them quickly in this environment. The pipeline continues to look good.

In regard to our banking activities, we had more than $6 billion of sweep deposits and $7 billion of total assets at the bank already, and we expect to continue to move additional suite deposits next year. We also launched our mortgage program nationally, and we will be adding pledge loans in the fourth quarter. Our lending capabilities are a great complement to our advice value proposition, and the bank allows us to help clients with both sides of their balance sheet, the AWM margin, which was strong at 19.2%, and that's with the full weight of interest rates. In fact, the margin is up 160 basis points from the second quarter. And as I mentioned earlier, expenses are well managed with G&A up only 3%.

Keep in mind that, that includes investments in the bank as well as increased volume-related expenses from business growth. So as we grow from here, we feel good about our ability to continue to drive margin improvement.

Now I'd like to move to Retirement & Protection Solutions. As we discussed with you, we continue to reposition the business to reflect the interest rate environment and our conservative risk appetite. We are managing our books in a very intentional way in terms of product changes, sales priorities and product exits. As part of this strategy, we moved our closed blocks of fixed and fixed indexed annuities to the corporate segment, and we continue to reassess reinsuring our close fixed annuity in-force blocks. Additionally, we are proactively shifting our variable annuity mix away from products with living benefits. In fact, our new structured product and variable annuities without living benefits represent 56% of total VA sales in the quarter, more than double where it was last year. And this complements the wide range of competitive products from other firms that we offer in our channel.

In protection, we're taking similar steps with a focus on growing our higher-margin VUL and disability products. In fact, we saw a strong pickup in VUL sales up 58% year-over-year. We reduced our focus on IUL as it is less attractive in this interest rate environment.

You can expect that we will continue to manage the business in this manner, and this will help accelerate the shift in our business mix to wealth and asset management.

Now I'll turn to asset management, where the improvements we've been making are translating into good results. Assets under management at Columbia Threadneedle were up 6% year-over-year to nearly $500 billion. In terms of financials, earnings were also strong, up 14%, with good revenue growth and excellent ongoing expense management. In fact, margin came in at nearly 44%, well above our target range.

Our investment performance has been excellent during this period of intense volatility. This is a great credit to our global investment operation and outstanding research.

In equities, on a global basis, more than 75% of our funds on an asset weighted basis were above medium or beating benchmarks for 1-, 3- and 5-year periods. And within that, I'd also like to highlight that nearly 50% of our funds were in the top quartile. While this performance is broad-based. Importantly, it is particularly good across strategies we are focused on in terms of client demand.

In fixed income, globally, our teams are delivering good performance. Our taxable performance is very strong at about 80% of our funds above medium or beating benchmarks over 1-, 3- and 5-year periods. And in tax-exempt fixed income, our 3- and 5-year performance globally is strong with some weakness in the 1 year.

I'd like to turn to flows now, starting with global retail, where we had another good quarter. Retail inflows were $1.7 billion, not including $300 million of inflows from former parent-related retail assets. This was a significant improvement year-over-year. In the U.S., net inflows ex former parent, were $1.5 billion as we continue to deliver very good results across distribution channels, particularly at large broker-dealer firms and independents. We're in net inflows at 7 out of 8 of our top firms, and we're now delivering positive flows in each of the past 2 quarters.

Year-to-date net flows were $3.5 billion. And in EMEA, we returned to net inflows of $200 million after a long period of headwinds due to Brexit and economic weakness in the region.

In terms of institutional, we continue to gain traction globally, winning good, higher fee mandates in all 3 regions. We did have 2 low fee redemptions in the quarter that totaled $4.4 billion. One was an insurance client that sold the business and redeemed, which we fully expected from the transaction. The other was from a client who was in a quant strategy for well over 1.5 years and redeemed largely due to an asset allocation decision. Adjusted for these 2 moves and former parent related outflows, we had $1.7 billion of net inflows in the quarter. The institutional mandates we're winning are attractive, higher fee businesses that more than offset the lost revenue from these lower fee outflows.

Overall, in institutional, we've strengthened the core of the business in terms of consultant relations and client service, and we continue to build our pipeline. We'll also soon complete the final phase of the installation of our technology platform for trading and portfolio management globally. This will help reduce our use of duplicate legacy systems drive additional efficiency and improved scale.

To sum up asset management, we have excellent investment performance, and we're making real progress in our distribution activities and intend to keep that focus.

So for Ameriprise overall, when I look at the business, we have strong value propositions, terrific distribution and clear focus on execution. We're serving our clients well while generating significant free cash flow and shareholder value. And from a capital perspective, we're able to deliver a differentiated level of return when most of our peers have pulled back, all while maintaining excellent balance sheet fundamentals. We returned $448 million to shareholders in the quarter and are on track to return close to 90% of adjusted operating earnings to shareholders for the year, and you saw the Board approved a new $2.5 billion authorization through 2022.

In closing, I'd like to take a moment to highlight that earlier this month, we reached a 15th year anniversary as an independent public company. I'm proud of what we accomplished, the respective brand we built and how we care for our clients, advisers and employees. We've been able to deal with very challenging environments during these 15 years to emerge even stronger, just as we're doing today. As we move into the fourth quarter, I continue to feel good about how we're operating.

Now Walter will cover the quarter in more detail, and I'll take your questions.

Thank you, Jim. Ameriprise has delivered very strong financial and metric performance in light of the interest rate environment, both on a consolidated basis and across the business segments. Both revenue and EPS were down slightly year-over-year on a reported basis as the interest rate headwinds of $116 million or $0.68 per diluted share muted results. Normalizing for that, Ameriprise delivered revenue growth of 3% to $3 billion and adjusting operating EPS growth of 18% to $4.27. These favorable trends are evident across our business segments.

Underlying advice on wealth management earnings were up 14%. Asset management earnings and retirement and protection solutions were both up 14%. I will get into the details on subsequent pages.

Turning to Slide 6. In AWM, total client assets grew 9% to $667 billion, and wrap assets were up 14%, reflecting continued strong wrap net inflows. Wrap flows increased 26% to $5.2 billion. Adviser productivity continues to trend upward, reaching $668,000 per adviser on a trailing 12-month basis. Reported year-over-year growth was 3%, but the growth rate increased 8%, excluding the impact of interest rates. Strong experienced adviser recruiting, new digital tools and capabilities and serving more of our target client market are the key drivers of this trend.

Lastly, cash and certificate balances remain elevated at nearly $40 billion. We earned 29 basis points on our off-balance sheet brokerage accounts, reflecting the low Fed funds rate. Our investment yield at the bank was over 150 basis points, demonstrating the yield opportunity from bringing balances onto our balance sheet.

As you can see on Page 7, financial results were clearly impacted by headwinds from rates. Avis Wealth Management adjusted operating net revenue and earnings both absorbed $116 million from the precipitous decline in short-term interest rates. For comparative purposes, revenue was up 6%. PTI was up 14%, and the margin was up 130 basis points after normalizing for interest rates. This was driven by strong wrap net inflows, productivity gains, bank growth and market appreciation as well as effective expense management. G&A expenses increased 3%, in line with expectations, as we continue to invest for future growth, where appropriate, including the bank. We will continue to prudently manage our expense base and adjust accordingly based upon the environment.

Turning to Page 8. Asset management delivered very good financial performance and continued improvement in flow trends. In the quarter, we had continued inflows in higher fee retail assets, and institutional flows were positive, excluding significant outflows in 2 low fee mandates and former parent assets. We will continue to leverage global operational capabilities and provide diverse product offerings with strong investment performance.

Overall, we are encouraged by the continued progress the business is making.

Adjusted operating revenues was $739 million, flat compared to a year ago quarter, which included $33 million in performance fees. Adjusting for the timing of the performance fees, revenues increased 4%, reflecting improved flow trends, market appreciation and an increase in the management fee rate of over 52 basis points. Adjusted operating expenses remain well managed. General and administrative expenses remain well managed, reflecting disciplined expense management with reengineering initiatives funding target investments for growth.

Pretax earnings were $198 million, up 14%. Results include $18 million of performance fee timing in the year-ago period and approximately a net favorable $10 million impact from one-time items in the current period. This strong performance was driven by improved net flows, market appreciation and expense discipline. Pretax adjusted margin was quite strong at 44%, reflecting the positive revenue and expense trends.

Turning to Page 9. You will see our new Retirement & Protection Solutions segment. As we continue to implement strategy to target our focus, the businesses are a smaller portion of our earnings, so we combine the lines into one segment. We are taking a more focused strategy for this business, as demonstrated by changes to our product features, which focus on lower risk and higher-margin products, while continuing to seek reinsurance opportunities. Additionally, we discontinued the sale of fixed annuities and fixed index annuities in the second quarter. As a result, we moved the fixed annuities business into the corporate segment as the close file, just as we did with long-term care a few years ago.

We have seen a nice mix in sales to retirement products without living benefits. In the quarter, 56% of our sales were in products without living benefits, up from 25% a year ago. This improvement reflects traction and our new structured variable annuity product we launched earlier this year. In protection, sales of higher-margin VUL were up 58%, while index universal life, a product with lower margin in this interest rate environment declined 68%. We are continuing to assess and adjust product features to reflect the current interest rate environment.

Financial results continued to perform in line with expectations. Pretax adjusted operating earnings increased 14% to $206 million, excluding unlocking impacts that were previously announced. This is primarily as a result of lower surrenders and withdrawals that reduce the amortization of deferred acquisition cost as well as lower sales and higher ending market levels. Claims are performed within expectations, and we are not seeing material impacts from gold red on our protection business. In addition, our closed block of long-term care earned $6 million, excluding unlocking, which reflects favorable claims experience. As we preannounced, our unlocking impact in the quarter was approximately $350 million after tax across Retirement & Protection Solutions, long-term care and fixed annuities, primarily as a result of changes to our interest rate assumptions.

Importantly, the changes made this quarter were on a GAAP basis, and changes in both the interest rate and grading period do not impact excess capital, which is calculated on a statutory basis. In the fourth quarter, we completed our statutory analysis reserve called asset adequacy testing. We proactively completed an off-cycle asset adequacy test in the third quarter in conjunction with our unlocking analysis. We determined from that analysis that there is no material impact on reserves on a statutory basis.

Now let's move to the balance sheet on the last slide. Our balance sheet fundamentals remain extremely strong, including our liquidity position of $2.8 billion at the parent company, substantial excess capital of $1.7 billion, effective hedging at 91% and a defensively positioned investment portfolio. Our adjusted operating return on equity in the quarter remained strong at 36%. We returned $448 million to shareholders in the quarter through dividends and buyback. We are on track to return 90% of our earnings to shareholders in 2020.

With that, we will take your questions.

(Operator Instructions) And our first question comes from Andrew Kligerman from Crédit Suisse.

First question is around the real pickup in activity in the life sector around these annuity blocks, notably, we saw bid for American equities on something, and then we saw Equitable with their variable annuity transaction. And now you've put your fixed annuity business and runoff. So the question is, are you seeing a lot of interest in your fixed annuity block and as well in your variable annuity block? And what's your appetite? Is this something that you think you might do in the near term?

Andrew, it's Walter. The answer is yes. We are seeing increased interest in these blocks. And certainly, as we've indicated, the fixed annuity block is certainly one that we said it's not a matter of if, it's a matter of when. So that is clearly something that we are exploring. And as we've also indicated that we certainly will look at other potential activity in the variable annuities and other activities within our retirement and protection block. So, yes, we are certainly evaluating and certainly looking at the alternative implications of it.

Got it. And any sense of the capital in the variable annuity business that you could free up from something like that?

Well, obviously, you see the allocated capital we have. It's at this stage, it's -- with the markets, et cetera, at the lower end. But it would free up a reasonable amount, but you would have to then make the trade-off to the earnings. So that's something that we are constantly evaluating. And certainly, on the fixed annuity, it's a better equation.

Got it. And then just shifting over to Advice & Wealth Management. You had transactional activity picked up a little bit. I think it was like sequentially 6%, but still down somewhat from last year. Do you see that area picking up anytime soon? Or is this COVID environment very pressured and maybe contrast that a little bit with your record quarterly wrap account flows of $5 billion in the quarter?

Yes, Andrew. Obviously, the transaction was driven by the annuities insurance, and that's been impacted, but we are seeing improvements. So we are -- certainly, that will be -- we're expecting that will continue, but it will still be measured.

And on the wrap side, just what -- is that sustainable at $5 billion plus? That was a terrific number.

It's -- I think we are enjoying good -- very strong productivity. And certainly, we feel comfortable with the continued growth.

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

So I guess, my first question is, given the recent transactions in the asset management space and the industry's kind of ongoing quest for scale, how do you see like Ameriprise as a potential buyer or a potential sale of the asset management business? Or do you think you can kind of stay the course and grow organically and remain competitive?

Yes. This is Jim Cracchiolo. We feel very good about our asset management business today as part of Ameriprise. And we are, as you've seen, been very focused on investing in the business, really rounding out the business appropriately to places where we think that we can really provide good active management, both domestically and internationally. We've been investing in our platform and our capabilities, in our products and services and widening our distribution capabilities. And we're getting some good traction.

Now having said that, we think the world continues to consolidate. We agree. We think that there may be some opportunities for inorganic in addition to the organic. So we're very open to continue to explore those opportunities, but we're not looking to get rid of our asset management business. In fact, we're looking to ensure that we can really have a good, strong quality asset manager, and that we can grow in the environments in which we will be in.

Got it. And then looking at the expenses for the quarter, it continued to be a good story. As I think about the $125 million year-over-year lower expense target that you laid out last quarter, like how much of that would be a permanent reduction as opposed to something that will come back when we come off the pandemic?

Yes. Very good question. I'll start, and then Walter can complement my answer. So we are, as you know, there are a number of savings that came out rather quickly because of lower T&E and less travel and expenses for people in certain of their activities. And we think that, that will gradually come back. We don't think that's going to be a 100% bounce-back because we think we are moving to a world that even if the environment starts to open up, there are efficiencies of operating somewhat virtually and some of the things that we've done and are doing versus just get back out to the travel that once we and others have done. So there will be some permanent savings from that, but some of that cost will come back on a gradual basis depending on how the economy opens up, and travel is allowed. From that perspective, however, we are continuing to reengineer.

And so a number of the costs that we are reducing, we think we'll sustain. And even though we will be probably investing and growing in certain respects, as we said, we're also looking for further efficiencies. And so we have our reengineering plans to keep expenses tight, but that also assumes that we will continue to invest appropriately, but we will manage our expenses quite well. But in that regard, we have not gone into any major restructurings at this point in time. We have not laid off people in this environment. And it depends on the environment we're going into, but we've been always able to manage our expenses well. You saw that through this, and we will be able to continue to do that as we move into 2021.

Walter, you have anything to add on that? Or...

No, no. I think you covered it.

Our question comes from Alex Blostein from Goldman Sachs.

Question maybe building on the comments around M&A and the question earlier. So help me get maybe a little bit more understanding in terms of if some opportunities came about on the M&A side within asset management, are we talking more kind of holistic integrations are more sort of targeted kind of tuck-in acquisitions that gives you more kind of product or distribution capabilities? And if so, what are sort of the pieces of the mosaic that you guys feel like you're missing within the asset management business? So scale deals, just kind of adding to what you have versus more tactical kind of product capability deals.

So Alex, I would probably put it this way. We feel like we have a pretty rounded global asset manager today. It doesn't mean that we couldn't add complementary products. We couldn't expand in certain of those disciplines in certain regions of our international, domestic. We think we can. We're not the largest asset manager out there, but we do have a good makeup today. And there are always products and services, particularly a little more in the solutions-oriented space. Maybe it's somewhere in the fixed income space and expanded distribution, maybe a little more in the institutional space. So those are ways that we would look at complementary activities.

Regarding whether it would be a fit in, something smaller that would be versus something a bit larger to get greater scale, it really depends on the opportunity. I think one of the things that Ameriprise has done well with Columbia at the Threadneedle is we've been able to do both. We've been able to take smaller acquisitions and fit them in and get complementary benefits. And we've been able to do larger acquisitions, such as the Columbia deal, where we've been able to integrate that very well, drive good shareholder value at the same time, getting a bigger rounded asset manager. So I think some of the capabilities that we have in doing that, I think we've proven that would be appropriate if there's something that would make sense for us to do. But as I said, we're mainly focused on continuing organic focus and then, as opportunities arise, evaluate.

Got you. And then maybe shifting gears a little bit. I was hoping to talk about organic growth within the Advice & Wealth channel. So you guys added significant number of advisers again this quarter. I was hoping you could talk about sort of the productivity of the revenue sort of embedded in that pipeline over crudes. And how should we think about the time between sort of you bringing these advisers in versus the revenue coming through. Because it feels like the recruiting dynamic has definitely picked up. So I wonder whether -- and to what extent this could lead to sort of better organic growth over the next couple of quarters.

So let me begin, and then I'll turn it over to Walter to maybe more fully give you an answer. What we're seeing is we are bringing good advisers in. That pipeline has picked up, and our ability to actually have people join us is really good and strong. But one of the keys also is how to onboard people. And what we found is that we -- and we've done a competitive review of this, we've been able to bring people on board and -- very well and quicker, really, than many others and get them set up quicker to be really more productive. And we find that, that is very helpful for advisers making that transition.

Now regarding what that looks like, I think, Walter -- I'll turn it to Walter. But the ramp-up still takes a little bit because it's not 100% where they start day 1, but that does ramp up over the next number of periods. So Walter, why don't you cover that?

So Alex, on the ramp-up from a linear experience adviser, it's in a 2- to 3-year cycle to get back to the trailing 12 GDC. So you'll start seeing. And obviously, it builds up after the first 6 months, and that starts once they onboard. So you can start seeing that trend line take place as we're heading, and we're getting the throughput coming through for the additional advisers coming in.

Got you. Great. And the last one on, again, Advice & Wealth. Thanks, by the way, for all the added disclosure around interest rate sensitivity. So kudos to Alicia and her team for getting it out there. But if you were to think about the pressure on AWM from the spread business, it feels like we're basically there, and it's all in the run rate. So just curious if you could confirm that. And, b, since that's such an important input into the margin dynamic for AWM, can you talk a little bit about the trajectory for margin expansion from here off of kind of this $19-ish rate that we saw in the quarter?

Yes. So Alex, I'll let Walt to answer the interest rate first, and then I'll get to the margin expansion.

On the interest rate, yes, you are seeing that the basic steady state is there from that standpoint and on the sweep accounts. And certainly, we'll start seeing the improvement coming in from the bank. But on the sweep accounts, you should -- it's built in at this stage, just steady-state run rate.

And then, Alex, when we look at the margin overall for the business, we continue -- as you saw, have good productivity increases with our advisers. We continue to have good uptakes of our tools and capabilities that our advisers are feeling very good about and even operating in this virtual environment. And as they continue to really use those tools more fully as we continue to help them manage through this environment, we feel very good about their ability to bring in client flows and to keep those clients active and focused on their goals. And as -- many of our clients now have their goals even tracked online, which is very helpful.

So, no, we feel good about that journey. I mean, there are always going to be blips up and down based on quarters and activity, but, overall, we feel like we can continue that journey. And our productivity has been quite good against the industry.

Our next question comes from John Barnidge from Piper Sandler.

Much of the institutional outflows, as you noted, came from a low-fee, long-term client. Have you gone through asset management mandates to identify other potential low-fee flows, at risk for withdrawal?

Yes. So we had -- like this quarter, there were these 2, right? Part of -- one of them, that insurance mandate, we lost part of that in the last quarter, was included in our net flows because of the sale of the business, and this was the second part that came out. As the net of that, we actually got some of the client proceeds back to reinvest, but on a small amount based on what was transferred. And then the other one was, it was a very long-term client that had a reallocation. And so those things happen from time to time. You can't predict those things depending on the cycle that you're in, but we feel, again, good about the type of mandates that we're winning. I think lost in this is -- you get the size of that outflow. But the mandates we're winning have higher fee. They're across all 3 regions. They're in good product, whether they be equity, fixed income or in even property. So we actually feel like if we can continue to grow those type of mandates, the fees will more than offset anything that you will get on some of those bumpy outflows.

Yes, we always look at what clients and what the potential redemption, but I think we had a little more of that this year because of the cycle and the reallocation and some sales of activities. To the earlier part of the year, we had a very low short term, one from another long-term client. So there are things like that already embedded in the flows this year, but the new inflows we're getting, we feel very good about.

Great. And my follow-up, I think you may have alluded to this a little bit with the protection, but do you have a view on potential secular demand change for traditional life insurance products from the health crisis?

Well, I think you saw very clearly, with the low interest rate environment, some of those products that were really growing in a lot of space previously over the last 2 or 3 years now have shifted a bit. And for us, we're very focused on making sure that our clients get the range of products. So it's not just what we offer, but it's also what we offer from all of our competitive frame. But we have seen a pickup in some of the variable universal-type activities that are a little more asset accumulation. We feel there's a good opportunity there for us.

Whether it's a permanent, I think there is a bit more focus coming back on having insurance appropriate protection. But I also would say in this environment, it's probably not the first thing advisers are looking to sell. And that's why some of the long-dated contracts is starting to come back nicely, but it's taken a bit longer.

Our next question comes from Nigel Dally from Morgan Stanley.

So I had a question on asset management. Clearly, very strong margin this quarter, exceeding the upper end of your guidance range, even if we back out that $10 million of one-time items. So the question is around sustainability. Should we now expect margins, given some of the shift in the assets, which you're attracting towards being higher fee, to remain added modestly above your prior guidance absent fixed annuities in the markets? Or is the prior guidance range of $35 million to $39 million still a better target as we go towards 2021?

So I think as you saw, we are getting good fee for the products that we both have and are growing, and we've maintained those fees over time. But I would probably say, I would still put it back in the range of the 35% to 39% on average is the way we're looking at it, which I think you'll find will be a very strong margin on a competitive universe. And so that's the way I would think about it. Walter, do you have anything to add on that?

No, I think it's really, as we look on average over time, we're still in the 39% to 40%. I think, Jim, you're spot on, on that, Nigel. So I think that's a good guidance.

Our next question comes from Jeremy Campbell from Barclays.

Just a couple of follow-ups in asset management. Can you give us a sense of the fee rate differential between the outflowing products, mandates and the inflowing strategy?

So if we're talking about institutional, I would probably say that the relative is probably maybe 4:5:1, something like that, maybe probably about 4x the higher fee on the new coming in. So I don't have the exact, but it's in that ballpark.

Great. And then -- sorry if you guys covered this juggle on a couple of calls today, but second consecutive quarter of retail inflows, can you give us an idea of what products and strategies are flowing well in that channel?

So on the retail side, we are getting good flows in our income -- equity income-oriented products in our dividend categories. But we also have seen inflows in some of our fixed income. We're seeing it in a few other of the sort of equity type and solutions. So it's varied, but if I had to pick a bigger category for us, our equities is actually one of the bigger area for us in inflows and mainly in the income-oriented space. And then we have growth in the fixed income more in sort of the varied solutions, multi-asset like strategic income and other places like that.

Great. And then just finally, just maybe as a follow-up to Alex's question, and I know you mentioned kind of solutions, one you hinted about M&A earlier. But as you kind of look, especially on the retail part of the asset management equation here, is there any kind of product or strategy where you have some white space that ideally you might like to shade in, whether it's building organically or doing kind of bolt-on inorganically?

Well, I would probably say -- so first of all, I think there is significant room for us based on our performance and the type of products we've had, the credit orientation that we have to really grow our fixed income space, but we have a lot of good product. I think we need to just take a bit more space in the channels that we're in, both domestically and institutionally. I do believe that if I look at some other areas to look at, we feel like there's an opportunity for us to grow our property business, particularly in the U.K. We feel good about the mix we have in the product, but it's not to say that we couldn't add some more in sort of the solution-oriented space or maybe even gain a bit more traction in the leveraging of our international lineup.

So now, within that, there's always some products to fit in, but I think we have some good core capabilities. We're not in -- like in fixed income, there are some of the larger core plus products, et cetera, that there is some larger providers that get a bit more flows, but I think we have a very good credit orientation in our fixed income that we can gain more space.

Our next question comes from Tom Gallagher from Evercore.

Just wanted to follow up on the risk transfer question and what you're thinking there. I know the question was asked about, would you consider broadening out from fixed annuities to variable annuities. But I guess, my question is, would you -- are you -- or would you contemplate something even bigger, which might include your long-term care book? I think in the past, Walter, you've mentioned the bid ask spread was probably too wide. But given, I would say, recent developments, could a potential risk transfer deal be even larger and include potentially all of RiverSource life?

Walter, why don't you respond to that?

Tom, as we said, we will evaluate. And certainly, opportunities has to make sense from a shareholder standpoint, but, certainly, we would evaluate reinsurance. We are seeing interest in bounds coming in. And again, it does get back to what is the best interest of the shareholder. We have certainly product capability, and what it generates is quite good. So on that basis, yes, we're open for opportunities as they present themselves.

And I guess just a follow-up for Jim or Walter. And if -- depending on how big you would consider going with risk transfer, would you consider a full divestiture of the life and annuity business? Or do you still feel like that's kind of a key core piece of the go-forward franchise?

So Tom, I would say this. We feel -- as I -- we've said in the past, we feel very good about this area in regards to what we have, what we manage, how it adds to our solution set with advisers. Now, strategically, we will always evaluate what would be appropriate opportunity here that would -- if it can leverage the business better or, in some way, be good for the client, be good for the shareholder and employees. So we are open always to evaluate, and we're open to have good dialogue if something does make sense.

But as Walter said, I mean, there are a number of options here, including sort of reinsurance, both on a product or even on some kind of portfolio basis as well. And so, yes, we will always entertain where maybe, with a certain partner or partners, it could be leveraged and presented in a way that can be good for us and good for them and good for our clients. So that's the way we would think about it, but we think about that for the business overall every day.

Got it. That's helpful. And then just my follow-up is the bank seems to be consuming a decent amount of capital, and I know that's been part of the AWM, we'll call it, franchise buildout or enhancement plan. How do you think about sort of the capital -- return on capital associated with those continued investments relative to AWM's a great cash flow generator, capital-light business? But I guess, as you -- as more money is being put behind the bank, it becomes a little more capital-intensive. How are you thinking about that balance right now?

So, overall, I mentioned strategically, and Walter can talk to you a little more about tactically. Is we feel like the bank, the type of products, adding to our client orientation are good and appropriate? Our advisers want some of those products and services for the clients as part of the portfolio of a deeper relationship. We're not looking to, like some, others grow the banks separately or part from. It's really an adjunct to our wealth management business. So we're not really looking to build a large bank portfolio commercially or in an orientation of just direct to clients and adding those type of portfolios or higher credit risk in that portfolio based on the consumers just coming in as a direct lending opportunity. So things like pledge activity, things like mortgages and home equities attached to things where like credit cards and other things attached to the client activities we feel are good and appropriate.

I think what we've seen right now, and your point is very valid. I mean, right now, because of interest rates and spreads are a little tighter, it's not generating as high a return as it could be in a more normalized environment. But we feel like things, over time, can normalize. We can invest out appropriately and get some -- a better spread than we get with sweep. We think that we can get some good returns from the business and actually add to our margin. And since it's on a client orientation, it does reinforce the relationships that we do have. And so, yes, it takes a bit more capital upfront, but it's not as though the AWM business doesn't generate tremendous amount of capital that can be utilized for it. So we feel it is a complement, but, Walter, I don't know if you want to add anything.

Yes. The only thing I would add, listen, Tom, you know we generate a lot of equity. And currently, we have the capacity to grow the bank. And as Jim said, it does add basically spread margin to the business based on picking up over 100 basis points with really investing in a high-quality book. So yes, we are balancing those equations, but we feel we have the capacity and makes sense.

Our next question comes from Suneet Kamath from Citi.

I just want to stick with the bank first. So Walter, I think when we originally started talking about the bank, you had guided to maybe $200 million of earnings over sort of a 5-year period. Obviously, the rate environment has changed, but just wondering if you could provide an update in terms of where you think bank earnings could be in a couple of years?

Well, as we talked about it, that was a different set of circumstances and spread, but we do believe, certainly, the bank will make a reasonable contribution. But we are, again, the spreads that we're anticipating are 40%, 30% of what we anticipated when we're doing it. But it really does make sense. So it will make significant contributions to AWM. It's -- but we're being measured about it. So it's going to be a slower trajectory on that one. I just can't give you the numbers. Really sticking with this sort of situation, it really gets into what's available out there and where we do see spreads going. But it is growing, and we're growing it, and we're getting a good return. It's giving us reasonable returns and it's generating income with really very prudent asset investments.

Okay. Just to follow up on that then. If we can't get the earnings number, can you just help with the margin that you'd expect to generate from that bank?

The margin on a bank when we -- is in the 40% to 50% range, clearly, on that base is a reasonable range.

Got it. Okay. And then -- sorry. Did you want to add anything else?

No, no.

Okay, sorry. So then just to circle back on recruiting, and I guess, maybe for Jim. 99 recruits in a quarter is a pretty big number. And I know cultural fit has been a huge part of your recruiting story in the past, so how do you get comfortable recruiting that many people in what I assume is a completely virtual recruiting environment? How do you make sure that the cultural fit is there when you can't kind of meet face-to-face?

Yes. So we're doing a lot of virtual engagement. So when we we're talking to both for recruits and both for them to make an informed decision and for us to make that decision as well, they are in contact with both -- strong in this field leadership with the recruiters, even with executive management. We hold a lot of events and activities so that they can really kick the tires virtually of what we do and how we do it, from a technology, our marketing, our support, vice value proposition, the leadership, the training, the development. And so we want people to make an informed decision to join us. And we want that decision to be informed from our end that they would actually work out well here and be productive and help them grow their practices.

So we feel good about what we've been able to do there. I think you could see from some of the people joining us, they are joining us for the value proposition overall, the technology, the integration of that technology, how we help people grow their practices, the support that we give them, the culture that we have. I think those things are all very critical. Yes, it's -- always would be helpful that if you're in person, you can see and touch somebody a little more in that sense, but I think on the other side of it is people are still able to make informed decisions and connect, but it is one where there is effort that goes into that appropriately for them to make those decisions.

But I think it's an excellent question, Suneet, and I think we have all been learning for how to operate virtually a bit better, and we probably all long for the time when we can get back out, but I think it has worked well. And people can see the difference of how they're supported today and what they're looking for the future.

And can you just touch on competition for advisers, in particular with respect to compensation?

Sure. So I think it's always a competitive world out there. And so I think as you look at it, we offer, I think, competitive comp packages appropriate for the adviser, their productivity and what they can do in their growth and ramp-up. There will always be some people who will toss a bit more money at an adviser. And if the adviser leaves to do the extra money per se, that's not necessarily always the ideal situation. But we feel like for both what we do and what we evaluate and the type of people we bring on board, we feel like it is a good commensurate package for both the adviser as well as for the firm and what we can do in helping that person become productive and the returns that we can get when that happens.

And these are evaluated, both individually and holistically, with both the AWM business orientation as well as Walter's financial organization.

Our next question comes from Erik Bass from Autonomous Research.

I was just hoping you could provide an update on the current state of the DOL fiduciary rule and the SEC's regulation best interest. And how do you see the outlook for these potentially changing if we get democratic control of the White House and Congress?

Sure. Good question. So we have been able to fully execute against the SEC's best interest, and it appropriately -- and that went fully into place. We feel very good operating under it as well. If there's a full change in the -- both the administration and Congress, and there is something that comes -- changes again or comes back based on previous proposals, I actually would say that Ameriprise is very well situated in a competitive set to deal effectively with it. We have very strong standards against the best interest of what we implemented even before the SEC moved to what they moved to. We have great compliance, both from a field of centralized resources. We do look at all of the products and services that we sell. We have very good due diligence in place. And what some of the additional things that would have been required, we were ready to move on previously since they would be enacted.

So I would actually say it might be a competitive benefit in a certain sense. And on a relative basis, not that we would want more regulation, et cetera, but I think we would be very able to handle it.

And then just a quick follow-up for Walter. Is there any go forward earnings impact from the assumption updates in unlocking?

There will be some minor, but we are evaluating that right now. But there will be some minor going forward.

Okay. But I mean, any quantification you can give? Or it sounds like it won't be sizable.

Multiple is doing -- it's totally manageable from that standpoint, but it will have some impact.

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