阿默普萊斯金融 (AMP) 2022 Q1 法說會逐字稿

Welcome to Ameriprise Financial's First Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions.

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

Some statements that we make on this call may be forward looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our first quarter 2022 earnings release. Our 2021 annual report to shareholders and our 2021 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'll see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results.

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

Good morning, and thanks for joining our first quarter call. I'll begin by sharing that Ameriprise delivered another good quarter and a solid start to the year. As you've seen, the economic environment remains strong, but the global equity markets are more volatile, both given the impacts of the Russian invasion of Ukraine and the higher inflation that we're experiencing here in the United States, as well as globally. In fact, the Bloomberg U.S. aggregate experienced its largest single quarterly loss in over 40 years.

In this climate, the Fed has finally begun to raise short-term rates, which is appropriate. They've been slow to take action and signaling that they'll have to get more aggressive.

Before I discuss the quarter, I'd like to acknowledge the horrific situation in Ukraine. Ameriprise vehemently condemns the atrocities being committed by Russia and our thoughts are with the Ukrainian people and all who have been affected. Our focus has been on supporting humanitarian relief. I should note, we don't have staff or conduct business in Ukraine or Russia and our direct exposure is extremely limited.

Let's move to the first quarter results. We're in a very good position to kick off the year, and we've been able to execute very well during this volatile time. Client activity remained very strong. We continue to generate good results. We're investing for growth and executing our plans and serving clients really well. And that resulted in good asset growth and strong financial performance.

Total assets under management administration were up 17%. Revenues were up double digits. Earnings per share was up 10% and ROE is terrific at 49.9%. All in, strong results in a challenging market environment.

Let me now turn to Advice & Wealth Management. We delivered another strong quarter. With the volatility picking up, it's important for us to be engaged with our clients and advisers. They're leveraging the tools and solutions that we invested in over the last number of years that we told you about. We had strong activity in flows in the quarter and good client acquisition, particularly in our 500,000-plus market. I know that our advisers have been doing a level of reallocation and rebalancing that's appropriate in clients' portfolios. And in fact, we saw good flows coming in and cash balances have picked up, which is appropriate at this point.

So let me give you some of the numbers. Total client assets were up 8% to $823 billion. Client inflows was strong, up 12% to $10.4 billion. Wrap net inflows of $8.7 billion was strong in a more volatile environment. And even though they're a bit lower than a year ago, clients are holding more cash.

As you would imagine, transactional activity was impacted a bit, but it's only down 6%. As markets stabilize, we expect to see more cash going back to work. High cash balances present a significant revenue opportunity for us as we move through 2022 and beyond. In total, cash balances increased to nearly $46 billion of more than $5 billion from a year ago. And as the Fed continues to raise short-term rates, we expect to see a meaningful lift in earnings.

With this backdrop, our adviser productivity growth reached another new high of 18%, which is terrific. With regard to recruiting, we continue to demonstrate the attractiveness of our adviser value proposition with another 80 experienced advisers joining us in the quarter. The pipeline continues to look good. And in our surveys of advisers who have joined us, over 9 out of 10 advisers have said they have better technology, financial planning capabilities and ability to acquire clients more easily than they did at their prior firms.

One of the things I'm proud of is how we consistently work with our clients and our strong client satisfaction. It's great to see that Newsweek has named us one of America's most trusted companies. That complements our investors business daily #1 trusted wealth management ranking. And earlier this year, we launched a new ad campaign, Advice Worth Talking About. That's telling our story even more broadly in the marketplace. We showcased that 9 out of 10 of our clients are likely to recommend Ameriprise to their family or friends.

And a few weeks ago, we released our money and family research on generational wealth that underscores the significant need for holistic advice in the marketplace, which plays to our strength.

Turning to the bank. Total assets grew to $14.2 billion in the quarter, up more than $5 billion from a year ago. We continue to have good demand for our pledge loans with balances increasing nicely in the quarter. The bank presents a significant opportunity as a long-term growth driver within Wealth Management and provides additional flexibility in this rising rate environment.

To wrap up, Advice & Wealth Management, our financials are good. Pretax income was up 13%, and we generated a strong margin above 21%, up 80 basis points.

Let's turn to Asset Management now. We, like others, have experienced the market volatility and the risk of headwinds given the geopolitical environment. It has affected us and the industry largely in retail. But overall, based on the strong progress we've been making over the last number of quarters, we saw good growth in assets, up 24%. Our long-term investment performance continues to show good consistency with our 3, 5 and 10-year time periods, and over 80% of our funds were above medium on an asset-weighted basis.

Our 1-year performance did slip a bit based on the volatility out there and the rotation from growth to value given our quality growth positioning in certain equity funds, especially in Europe. But our investment teams feel good about their positioning as they manage through a tough market environment.

Let's turn to flows where we were out about $700 million in the first quarter, reflecting the pressure you've seen in the industry. In retail, we were at $1.9 billion. In terms of U.S. retail, our gross sales slowed and we saw a pickup in redemptions similar to the industry. Our flow rate was slightly better in terms of active peers in equities and slightly worse in fixed income. We haven't really played in a large way in the short duration market or the leveraged loan area. However, we benefited from the remaining piece of the U.S. asset transfer that was part of our BMO transaction and which is largely included in our retail numbers this quarter.

In EMEA, retail net outflows improved a bit in the U.K. However, they worsened in Continental Europe given the risk-off environment. Gross flows have certainly slowed for the industry, and we're seeing similar pressure. Yes, retail flows are a bit challenged, but we have a strong lineup of funds and good engagement with distribution partners, advisers and gatekeepers. When the market starts to stabilize, we'll be in a good position.

Turning to Global Institutional. Excluding legacy insurance partners, net inflows were $1.9 billion as investors look through the current volatility. We had some good wins, but there were some asset allocation calls as you expect, and we experienced some redemptions. We've added to a number of our rated strategies and similar to retail, we're having good engagement with clients and prospects globally.

Our investment performance is key to this, and it's being recognized. We did well in recent Barron's rankings, and 5 Columbus strategies earned 2022 U.S. Refinitiv Lipper Fund Awards with 4 as repeat winners.

With regard to BMO EMEA integration, we're on track. The combined senior management team is in place and we announced that we will rebrand BMO Global Asset Management EMEA business to Columbia Threadneedle Investments in July. So for Asset Management, we're focused on our clients, executing our plans and generating good financials and returns for Ameriprise. Pretax operating earnings were up 25% and margins were above 40%, and that's with the full quarter of BMO in the numbers.

Moving to Retirement & Protection Solutions, we're seeing good results. I'll start with variable annuities. I want to mention again that we discontinued products with living benefit riders at year-end. We had some sales in the pipeline that came in, in January, but that tapered off as we moved through the quarter. Given the environment, we had good sales in our RAVA product without living benefits, as well as our structured products. Overall, our sales were down 27%, but that should be expected given the volatility and a move away from living benefit guarantees.

In protection, we continue to have strong sales in the quarter coming off a positive year. We're seeing good activity. Our life sales were up 22%. We've been focused on our VUL and DI products, which are good margin and return businesses for us and appropriate for clients in this environment.

In terms of earnings, we are 4% in line with our expectations. Financial results and free cash flow were good, particularly given the volatility and our move away from living benefits.

So overall, for Ameriprise, in terms of our capital positioning, we feel really good about continuing to give back to shareholders at an attractive rate. We returned $562 million in the quarter, which is substantial. And with that, we raised our dividend up 11%, our 18th increase since becoming a public company in 2005.

So overall, as I began our conversation, I think Ameriprise delivered another good quarter. Even with this changing landscape, I think, was situated very well. Our advice value proposition and high-quality solutions are necessary and key in this environment. And with that, we feel very well-positioned to satisfy our client objectives.

In looking over the past cycles, we have consistently performed well, especially during volatile periods. I'm confident that this will continue based on our strategic investments, our focus on execution and serving clients holistically in our balance sheet strength.

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

Thank you, Jim. Ameriprise delivered strong financial results across the firm with adjusted operating EPS up 10% to $5.98. Despite significant market uncertainty in the quarter, our core Wealth and Asset Management businesses delivered strong profitable growth, representing nearly 80% of Ameriprise's earnings in the quarter. In the quarter, these businesses demonstrated the strength of the underlying business model and ongoing execution of our growth strategies.

And our Retirement & Protection Solutions business continues to perform well with a differentiated risk profile. Our balance sheet fundamentals are excellent with significant excess capital of $1.9 billion. This allows Ameriprise to consistently return substantial capital to shareholders as we plan to return approximately 90% of adjusted operating earnings to shareholders in 2022.

Let's turn to Slide 6, where you can see that we continue to generate strong growth in both earnings and profitability, and our growth businesses of Wealth & Asset Management. Revenues in these businesses grew 13% to $3.1 billion with pretax operating earnings of $725 million, up 18%. This drove a blended margin of 26.6%, up 80 basis points from a year ago.

Let's turn to the individual segment performance beginning with Wealth Management on Slide 7. These strategies we have in place to support advisers and improve their productivity, using best-in-class tools and technology continue to generate strong organic results. Despite the challenging macro environment, we generated very strong client flows of $10.4 billion in the quarter. Client assets grew 8% to $823 billion, and our adviser force continue to deliver exceptional productivity growth with revenue per adviser reaching $810,000 in the quarter, up 18% from the prior year.

On Slide 8, you can see that our business fundamentals are fueling continued strong financial results in Wealth Management. Adjusted operating net revenues grew 9% to $2 billion from robust client flows, which were supplemented by year-over-year market growth. However, transactional activity declined a bit given the uncertain market environment in the quarter.

In the face of volatile markets, we saw cash balances increased to nearly $46 billion, which is counter to the typical seasonal pattern where cash balances generally dip in the first quarter. High cash balances should provide a substantial and immediate benefit based upon the Fed's anticipated increase in short rates for the remainder of 2022. Based upon the market's expectation of 3 50 basis point increase, followed by 2 25 basis point increases in the balance of the year, we would expect an additional benefit to pretax earnings exceeding $200 million in 2022. But that is subject to change if the Fed takes different actions. This would help offset the impact if markets pull back per this year.

In addition, this provides flexibility for us to optimize the benefit from rising rates across off-balance sheet brokerage cash, the bank and certificates. It will enable us to invest across duration where we see attractive opportunities and capital is not a constraining factor for us.

In the first quarter, we brought $1.8 billion of brokerage suite balances onto the bank balance sheet that we put to work in 3- and 4-year duration strategies, earning nearly 3%. In April, rate opportunities increased to the mid- to high 3% range. Expenses remain well managed. G&A expense increased 5% from higher volume-based expenses and business growth over the past year. As we move through 2022, we will continue to manage expenses in light of the revenue environment.

While equity markets remain volatile, at this point, we expect a significant tailwind from rising rates to offset market-related revenue pressure. Overall, Wealth Management profitability remained strong with pretax adjusted operating earnings of $440 million, up 13% from last year. Pretax operating margin expanded 80 basis points to 21.5%.

Let's turn to Asset Management on Slide 9, where we maintained strong profitability despite market conditions. Total assets under management increased 24% to $699 billion, reflecting net inflows and the acquisition of BMO EMEA. In the quarter, Asset Management net outflows were $0.7 billion including $0.7 billion of outflows from legacy insurance partners. Underlying flows were flat as continued strength in institutional offset retail outflows as we, like the industry, saw pressures from global market volatility, a risk-off investor sentiment and geopolitical stream in EMEA. Margins in the quarter were strong at 41.5% and in line with what we indicated in the fourth quarter given the full quarter BMO impacts in our results.

On Slide 10, you see Asset Management continued to deliver strong financial performance. Adjusted operating revenues increased 23% to $1 billion, reflecting the cumulative benefit of net inflows and business growth, strong performance fees and market appreciation. The fee rate in the quarter was 47 basis points, excluding performance fees. This is consistent with guidance provided in the fourth quarter regarding the addition of BMO assets, which are largely institutional.

Expenses remain well-managed and in line with expectations given the revenue growth. G&A expenses were up 38% as a result of 2 items: the BMO acquisition and higher performance compensation. Pretax adjusted operating earnings were $285 million, up 25%, demonstrating the underlying strength of our business growth and performance fees.

Let's turn to Slide 11. Retirement & Protection Solutions include blocks of business with a differentiated risk profile. The business performed well with pretax adjusted operating earnings of $191 million, up slightly from a year ago, given market appreciation and lower distribution expense from lower sales. Our focus remains optimizing our risk profile and shifting our business mix to lower risk offerings. Variable universal life product sales increased over 40%, which now represent 1/3 of total insurance inforce. Variable annuity sales declined 27%, reflecting the uncertain market environment, as well as our decision to exit manufacturing products with living benefit riders.

Account value of living benefit riders represent only 60% of the overall book, down another 280 basis points from last year. This mix in sales and account values for both Retirement & Protection products is expected to continue.

Now let's move to the balance sheet on Slide 12. Our balance sheet fundamentals remain excellent. We had holding company available, liquidity of $1.6 billion and excess capital of $1.9 billion at the end of the quarter. A diversified, high-quality AA rated investment portfolio remains well-positioned, and our VA hedge effectiveness was 94% in the quarter. These strong fundamentals allow us to deliver consistent and differentiated level of capital return to shareholders.

Yesterday, we announced an 11% increase in our quarterly dividend. And as I mentioned, we remain on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022.

With that, we'll take your questions.

When new product for you, and might be on a different trajectory, but there's been some concerns about across the industry, what rising rates might do for demand for those products. So what are you hearing from your advisers as short-term rates are likely to rise? And how are those efforts to educate your advisers on the merits of the offering going?

Yes. So far, we're seeing continued demand for our pledge activity, margin activity. So we have not seen any negative impact. And certainly, we continue -- our voices are very knowledgeable about the trade-off of the BMO to leverage and use that capability to invest in the market. But so far, we have not seen -- we've seen good growth coming in from pledge and from margin.

Erik Bass with Autonomous Research.

Given the weaker market performance year-to-date and the turn in asset flows, do you believe sustaining an asset management margin in the low 40% range is still achievable?

Well, obviously, it will -- our range is, as we always talked about 35% to 39%, and we said we were getting the benefit of the higher market appreciation. So you would imagine if the markets where you trade continue to go down, it will go down. But we -- again, we have ways to go to still stay within our ranges that we talked about.

Got it. And I think you noted in the slides that the BMO acquisition is performing above expectations. Can you just provide some more color on this? Where has the performance been better? And has anything changed in terms of your expectations around earnings accretion?

Okay. So it's on multiple fronts. Obviously, they have garnered some very good inflows in this environment. As we talked about, we've had institutional inflows coming in, that would have been very good in LDI and other areas. And we've also had the U.S. transfer came in. So those have been very good. The profitability has been totally on target, actually a little better that we want our certain. And as we look at the elements of the performance fees that came in, and that was certainly strong profitability coming up private equity and property. So it is performing well. And then as we're looking through integration, we have our plans set, and we're moving through that and certainly moving through our strategy to get our synergies. So we're feeling very comfortable about the acquisition at this stage.

And was this the last quarter, you'd expect the U.S. transfers to come in? Or are there any more that we should expect going forward?

This is basically it. We believe.

Our next question comes from Steven Chubak with Wolfe Research.

So I wanted to start off with a question just on the recruiting outlook. Some of your peers had indicated earlier in the quarter that recruiting has slowed pretty dramatically given some of the elevated volatility, particularly in January, February. But the 5% organic growth, the net adviser adds you delivered in the quarter, admittedly be more resilient than we were anticipating. I was hoping you could just speak to some of the factors that drove more resilient organic growth trends over the course of the quarter? And maybe just your -- on a longer-term basis, you're confident in sustaining 5% plus organic growth, given some of the strong recruitment trends that we saw.

Okay. So I think you had sort of 2 parts in that. One is around the recruiting and then around, I guess, the organic growth just from flows. So yes, we -- at the beginning of the quarter, it was always a little to start off the year based on what we've seen as some of the volatility that occurred in January. And then we were able to really pick that up as we got through the quarter, and we had good -- 80 good quality people come join us. Our pipeline still looks pretty good as we continue to move forward. I mean there's been a greater level of volatility as you saw in the month of April. But I think that we're having good conversations with people. They understand the value of what we can provide them and the type of support that we provide for people who have joined us.

Regarding the organic flow activity, in general. As you would imagine, when you have a pickup of volatility, and you got a little more unknown, you have a little bit holding on cash, not going necessarily to work or the idea that people want to put a lot more money in the market if it's going to sort of fall the next day. But our overall client activity has held up, the engagement is good. I just think the volatility will always cause a little bit of a slowing in how people are thinking about it. I'm not sure how you're thinking about it, whether you're putting a lot of money to work right now if you have a little bit more of the unknown.

But I do believe that since the engagement is strong, the conversations are good, and the client relationships are good, and we're actually gaining more client relationships that those flows will be there over time. Whether there's a little slowdown because of this period of the unknown is the usual occurrence. So we feel good.

Our assets stay with us. I think people are seeking the advice that we provide. And it's just more of what happens in a particular month or quarter or week. But I think you see that, that is something that we can sustain.

That's great color. And just for my follow-up on the brokerage cash we extend to the bank. Was hoping you could just help frame what level of sweeps we should be modeling over the course of the year as you continue to scale the bank, given that high 3% reinvestment yield assumption you had alluded to earlier. And as we think about just the pace of Fed tightening, what expectation should we be underwriting just for both deposit betas and cash sorting or yield-seeking behavior as we get deeper into the tightening cycle based on your historical experience?

All right. So from a bank standpoint, we've already moved from our off balance sheet and on balance sheet, about $1.8 billion. We are evaluating. We have the -- a range or you can get into $4 billion to $5 billion that we think would be applicable here that we would start evaluating that trade because the bank is giving us that opportunity to balance -- to pick up our yield from that standpoint. And so that is something that you should expect that we will be targeting to do in 2022. As you indicated, the yields are up, and certainly those yields have low risk profiles as we've continued to manage that. So it would give us a good balance between the increase in short term and picking up the spread with low-risk and low duration because we will stay in the 2.5% to 3.5% range on the duration. And that's the sweet spot that's working out very well for us.

And with regards to this data and yield-seeking behavior or with the expectation for the level of cash balances, as we get deeper into the tightening cycle.

Yes. We don't -- if you're looking from our standpoint with the off-balance sheet cash and the stability of that, it is quite good. It is, again, it's more working capital and certainly, it's built up over the years, but this is something we feel very comfortable for the amount that I mentioned that we can shift that gives us more than enough liquidity about to manage that.

The next question is from Andrew Kligerman with Credit Suisse.

Just following up on that bank question. Walter, you just mentioned a $4 billion to $5 billion trade-off. And as I'm looking at these bank assets or deposits going from $8 billion last year to $13.2 billion this year. And as you mentioned, it's up just $1.8 billion in the quarter alone. When you said $4 billion to $5 billion trade-off, is that -- are you indicating that there's a good possibility over the course of the year, you could add another $4 billion to $5 billion?

Yes. So if you're -- I'll take your number, $13 billion, they had $4 billion to $5 billion, you can go to the upper range of $18 billion.

That's great. And in terms of recruiting, you were touching on that a bit earlier too, Jim. And it is a tight labor market. So could you touch on what you're seeing in terms of bringing in new advisers de novo? Is that a big initiative at this stage in the game? And just given this environment, is there comfort in gaining advisers from other firms?

Yes. So we have continued to recruit in office advisers, as well as assistance and even our franchisee channel and help develop them as part of the franchisee systems, as well and as we do with the employee side. And we will continue that. We haven't made that an extended large part of our activities, but it's a nice complement to our activities. And we're seeing some good people join us that way.

And on the experience side, we continue to, I think, have a very strong value proposition. As I mentioned in more of my opening remarks, we've gone out to the advisers who've joined us, and they are highly satisfied in what we've been able to provide much better than what they got at their previous firms, either wirehouses or independents. And so that story we're telling that in the marketplace. We're not just -- it's not just about what the payment is. It's about what someone can establish themselves here and actually grow and have a very strong productive practice with a quality type of profile. And so again, we're not looking to just add large numbers. We are rolling up people based on even have low productivity, we're looking for quality people that really want to manage a really good franchise or become a highly productive employee as part of our system with all the support that we can provide them. And so we feel good about that.

So amidst all this economic noise, you can likely continue to grow that channel?

Yes. Yes.

Our next question from John Barnidge with Piper Sandler.

There's been some thought that energy issues in Europe may increase demand and interest in ESG investing. I know BMO had a large ESG product portfolio. Can you maybe talk about how demand for that product has been versus others broadly and maybe specifically in Europe?

Yes. So part of the BMO acquisition was actually heading to our capabilities in responsible investing. And their portfolios are doing well. They are garnering good flows there where it's been a little softer in other areas in Europe. And very clearly, it's one of the areas that we're working on to leverage more holistically across our international franchise, but even so in the United States. And so we feel good that that's part of what we confer the leverage in the environment that we're continuing to move into as demand also picks up in that area. I think energy is one part of that, but there is -- the easiest S and G part of it, and that's an important part of overall responsible investing.

Okay. Great. And then my follow-up question. Given the market volatility, can you maybe talk about asset management time line for unfunded to funded how that's fitting versus maybe 3 to 6 months ago?

Yes. So on the institutional side of the business, as you would imagine, there is always a little bit of a trying to recognize what's happening in the market and how funds need to be reallocated or even where you have won something. It sometimes takes a little longer just based on the market conditions to fund. I haven't necessarily seen a further extension in that regard. Things have been funding. I wouldn't say they're -- they quickened at all, but I wouldn't say they've extended themselves. I think there's always certain portfolios as you have a backup in the fixed income market or you have some reallocation in some parts of the equity segments. But I think it's been running consistently for where it was over the last 6 months.

The next question is from Tom Gallagher with Evercore.

The drop in insurance and annuity distribution fees, it sounds like some level of that is going to be sustained at a lower level, given you're exiting the guaranteed VA product sales. Any color you can give there on what percentage of the move there of the downward move you think might remain depressed versus potentially getting some recovery on the other pieces?

I can't really give you a percentage, but certainly exiting the living benefits, we'll certainly eliminate that aspect of, but we are seeing strength in the SDA product. So I can't really give you the exact proportionality on them, Tom.

Yes. And Tom, I think in the first quarter, I think you'll see across the industry a bit more slowing in annuity activity because of the volatility. So part of that is part of it. And then part of it was the guarantees versus the pickup in the non-guarantee activity. But we feel very comfortable with that, and we think it's the right trade-off for us as we continue to move forward. But we also -- there will be some expense savings as well from not booking some of the new business. So overall, we feel very good about that move and the total balance of what we think that we can continue to garner there.

Got you. Any color you can give on just overall outlook for flows between institutional and retail on the asset management side, not to overreact, but there was definitely a pretty sharp drop in 1-year performance if you look at the statistics there, which I would imagine probably won't have a big near-term impact, but any color between the 2 pieces of the business in terms of where you think flows are going? Should we expect overall than to remain depressed here for a while?

Yes. So the 1-year performance, so we know it's more of what had occurred more quickly. It didn't really affect the flow situation in that regard. I think the flows -- and you can see it across the industry. You're going to have a little pickup of redemptions as people say, "Hey, maybe I need to get out." And they particularly if you look at fixed income, there's been a major pull out on some sectors of the fixed income market, including munis, et cetera. You also had a bit slowing of people investing in, let's say, growth stocks at this point in time based upon how they've pulled back. So I think that should be expected.

I think as you see more people reporting, you're going to see that. I think you can see that in the SIMS data. What I did say is that our level of flows is consistent with the industry. We were 1% better in equities, and we're looking at the U.S. and we're 1% worse in fixed income. And I mentioned the difference in the segment. So I actually don't think we had a major full up compared to the industry. I think the industry is falling off as well.

Now the other point -- and this is active. We're talking about active. Now the other thing I would say is on the performance side, there are 3 things that occur: number one, in Europe, there isn't a segment that calls growth and value, and they -- it's all meshed together. We have a little more of a growth quality bias versus more of a value. And so when you look at the European and your benchmark it, we had a little more underperformance there because we're a little more growth oriented. Our institution and our retail clients understand that a little more. But on the benchmarking, it just shows that your performance goes down.

Then in the U.S., we have one big fund, which is the 50th. It's not way below. It just dropped, and it will go back. It's a few basis points and that's what caused the little of the U.S. in equities. And then in fixed income, you could imagine with the pullback of the bond market. You had a little more dislocation there and a few basis points is what tips the thing. But we feel very good about the quality of those portfolios. And therefore, we feel like that will bounce back as well. So we don't feel like there's a major change. And again, when you look at a quarter within a 1 year versus 3, 5 and 10 years of having really strong performance, I don't think that has an effect. And I think particularly institutional clients understand a little more of what's underlying the portfolio. And so I think that is also very important.

That's helpful color, Jim. If I could just slip in one last question. Just on risk transfer, interest rates have gone way up, which presumably would help the pricing on potential risk transfer of life annuity, long-term care. Any update you can give on either the broader potential evaluation of that and also as it relates to interest rates, whether you think that would be a step in the right direction as you think about doing something down the road? And also maybe a little bit on timing, if this is a several quarter out likely development?

Yes. So let me take a shot, maybe Jim will add up. Clearly, the interest rate environment improves as you look at long-term care and other aspects of that. And as it relates to risk transfer, there's clearly, in our opinion, a more active interest in these sort of products, and you're seeing that. And -- so yes, those 2 aspects combined to certainly have a higher profile for people looking at books of that nature. These are long, complicated transactions. Again, you've seen it with many of the things that have been now how long they have taken. So I'm going to put a time frame on them. Like I said, we're starting off in a very good position. We have great products, and we just -- with people expressing interest, we basically evaluate from that standpoint. So it's -- but the environment is certainly beneficial at this stage.

(Operator Instructions) We have our next question from Alex Blostein with Goldman Sachs.

I was hoping to dig into a little more into the AWM brokerage cash and sort of the dynamics that are likely to see here with higher interest rates. So the topic of sort of cash sorting and the ability to retain customer cash is definitely top of mind for investors. You guys are kind of bouncing around pretty close to historical lows in terms of percentage of client assets as cash. As you think forward and presumably there will be some surge for yield as better kind of higher-yielding options become available to investors. How are you thinking about the ability to retain this cash? Is there a way to frame kind of the absolute downside in terms of percentage of client assets that could remain within the AMP channel, whether it's the bank or the broker suite. Just trying to get a sense for kind of holistic cash balances.

So Alex, I think what I would say is over the years, our total asset levels have gone up. And so to your point, our cash levels have risen in consistency with that. I think what I would say, if I even look at over the course of the year or from the first quarter, et cetera, we're up a few billion dollars as we sort of -- usually what you have is a little more of a draw down in the first quarter as more money goes back into work from the end of the year and stuff. And what we've seen is a little more of a pickup. So I would probably say to the effect if people will put some more money back into the bond market or whatever or keep a little less cash on the hold, but I don't see it materially going down because we didn't really increase it as far as positional cash that much in that sense.

I think to your point, it's been maintained as a percentage of our total assets. Our advisers have been very good about the rebalancing of portfolios, and keeping that money active. But I would say, yes, it's gone up a few billion dollars from where I would probably normally think it would be at this juncture. But I don't see it falling dramatically from there because to Walter's point, it's positional, it's transactional. It's keeping some emergency cash levels that we think is important from a client perspective to have.

Got it. And then in terms of the different buckets, I was hoping to dig into the banks sweep channel a little bit more. You guys have obviously been moving more cash into your own bank as deposits, but you remain a pretty significant player in that market in the bank sweep, kind of broker suite market. The demand from other banks has been pretty weak, obviously, for the last year plus. Are you starting to see any improvement in sort of brokerage demand from other banks as liquidity potentially becomes -- diminishes a bit over the next few quarters. Are you starting to see any discussion on pricing. It feels like right now, it's kind of Fed funds flattish, no spread on top of that. Could we start to think some of that pricing dynamic improve over the next year or so?

It's Walter. I haven't seen much change in the demand characteristics. It's working its way through, and we've seen a little -- basically discussions on price, but not much.

We have our next question from Suneet Kamath Jefferies.

Just wanted to start on capital return. You're talking about the 90% of operating earnings. But given the excess capital position remains very strong, it seems like the RBC ratio is quite strong as well. And given the pullback in the stock, just wondering how you're thinking about buybacks? And could we exceed the 90% as we think about the balance of the year?

I would say, listen, the 90% is an area of target that we talk about and we -- in each quarter, we evaluate what we would do. But right now, I would say the 90% is a good barometer. We certainly have the capacity, but it is -- I think we are not changing the barometer right now of 90%, will just evaluate options as we look through.

Yes, Suneet, I think it's also based on what happens in the environment in the market, but we have flexibility. We've deployed that flexibility at the right times where we feel it made sense. But I think on the other side of to Walter's point, we've given you a little bit of a targeted range that we feel at this juncture up and down will still make sense. But there is opportunity for us to deploy if necessary or we want to, based on opportunities.

Got it. And then I guess on performance fees, they've been strong, I guess, the past 2 quarters, and I think you had mentioned some of that is related to BMO, but do you have any kind of line of sight on what you'd expect from performance fees sort of in the balance of the year? Or is this kind of all-in at this point?

I think one of the things I would say and Walter could complement. So first of all, we've added the BMO business, which is an institutional business, and it does have with some of its alternatives and real estate, et cetera. So if someone said, well, you have the same performance fees you had 2 years ago, the answer is no, we should have a larger number of performance fees, maybe not as a percentage of the total asset base. But more in total dollars because there's more product that have performance fees on them. And so -- but that's lumpy. And it's also based upon when things get accrued or when it gets liquidated, et cetera. So Walter, I don't...

No, I think it's exactly the point. We have a solid base where we do generate performance fees. And certainly, it generates earnings. We can't predict what they are certainly as you look at property or you look at private equity. But -- and in these environments, it gets even a little more difficult to do that. But it's a solid, solid business for us. And we just can't give you the predictability of it. And -- but certainly, we're happy we have it.

Yes. Got it. And then maybe just last one, just on the environment. I think in the past, when we've gone through these periods of market weakness, you guys have pulled the contingency expense lever pretty aggressively. It doesn't sound like you're doing that this cycle. And I'm just curious, is the difference here the upside that you expect from the bank kind of that $200 million that you talked about, is that kind of what keeps you a little bit more comfortable on the expense side versus what you guys have done in the past?

Well, what I would say, Suneet, is this. One is, yes, there's always the upside you mentioned there. The other thing I would probably say is we have not -- if you looked at us even over the last few years when the market has been really good, we have not grown our expense base normally at a much higher rate. I think some other companies have and might have to really deal with that. I think we haven't. I mean, even look at Columbia Threadneedle, outside of the increase in expenses, BMO was added, their expenses were relatively flat in the quarter year-over-year. Same thing, we're up only a few percent in Advice & Wealth with all that growth of that business and the investments we have made.

So I would say that we will turn the spigot so to speak, if we feel like things are weakening. But I would also say that we still have good activity and therefore, we want to make sure we handle that well and support the business well. So I think you got to -- we're looking at what that balance is, but we haven't been overly high on the expense growth. But if we feel like things have really -- well activity has gone down, and yes, we'll tighten those expenses.

That was our last question. Ladies and gentlemen, thank you for participating. This concludes today's conference. You may now disconnect. Speakers, please stand by for your debrief.