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Ameriprise Financial, Inc. (AMP)

Q2 2011 Earnings Call

July 28, 2011 8:00 AM ET


Alicia Charity – SVP, IR

James Cracchiolo – Chairman and CEO

Walter Berman – EVP and CFO


Andrew Kligerman – UBS Securities LLC

John Nadel – Sterne, Agee & Leach, Inc.

Jay Gelb – Barclays Capital, Inc.

Alexander Blostein – Goldman Sachs & Co.

Suneet Kamath – Sanford C. Bernstein & Co., Inc.

Eric Berg – RBC Capital Markets

Thomas Gallagher – Credit Suisse



Welcome to the Second Quarter 2011 Earnings Call. My name is Sandra and I will be your operator for today’s call. (Operator Instructions) Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Miss Alicia Charity. Miss Charity, you may begin.

Alicia Charity

Thank you. And welcome to the Ameriprise Financial Second Quarter Earnings Call. With me on the call today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we’ll be glad to take your questions.

Some of the statements that we make on this call may be forward-looking, reflecting management’s expectations about future events and 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 today’s earnings release, our 2010 annual report to shareholders and our 2010 10-K report.

We undertake no obligation to publicly update or revise these forward-looking statements. In addition, during the call, you will hear reference to various non-GAAP financial measures, which we believe provide insight into the underlying performance of the company’s operations. Reconciliation of non-GAAP numbers to the respective GAAP numbers can be found in today’s materials available on our Web site. And with that, I’d like to turn the call over to Jim.

James Cracchiolo

Good morning. Thanks for joining us for our second quarter earnings discussion. I’ll start by giving you my high-level view of the business. Walter will discuss our financial results in more detail and then we’ll take your questions. Let’s begin.

Overall, this was another very good quarter for Ameriprise Financial. In our Advisory and Asset Management businesses, we build on the momentum we’ve been generating over the past several quarters and delivered strong growth and profitability. In fact, for the first half of this year, Advice & Wealth Management and Asset Management contributed about half of our operating segment earnings, demonstrating our ongoing shift to earnings from our higher-returning businesses. At the same time, our Annuity business delivered good earnings and our insurance fundamentals remain solid, despite higher claims, especially in auto and home.

The good performance across our franchise drove our operating return on equity to 14.5%, which is an all-time high and continues to move us closer to our 2012 objective of 15%, which we outlined in 2009. Our strong foundation presents opportunities and gives us flexibility. We are maintaining a large excess capital position, we are investing to accelerate business growth and we’re returning significant capital to shareholders. During the quarter, we returned over $400 million through buyback and dividends. And so far this year, we returned well over 100% of our earnings to shareholders.

Now, I’d like to provide some commentary on our performance in each business. First in Advice & Wealth Management, we delivered strength in all of our key business metrics, as well as compelling profitability. I’d like to take a step back here and reflect on the upward trajectory we put our Advice business on over the past two years. Since we started emerging from the financial crisis in the second quarter of 2009, operating earnings in this segment have increased by a factor of five and operating margins have increased dramatically.

At the same time quarterly revenue per advisor has grown from $65,000 to a record $99,000. And remember, we’re generating strong earnings, even in a continuing environment of very low interest rates. While the market improvements of the past two years have certainly helped, I want you to understand the significant changes we’ve made to drive up the profitability of the Advisor business.

Years ago, the Advisor business was regarded primarily as a distribution platform and not a profit center. We brought in a large number of novice advisors and trained them from scratch with a field leadership and infrastructure to support them. As a result, the employee channel was a significant expense.

Today, we’ve transformed the business, both from an economic and operating perspective. Our 2008 acquisition of H&R Block financial advisors gave us a big boost in our efforts to re-engineer the employee platform. Since then, we’ve put in place a much more efficient leadership model, lower producing advisors have left the firm and we instill the sharper focus on productivity. In addition of the more than 1,000 experienced advisors we recruited over the past few years, the majority of them have joined the employee channel.

As a result of all these improvements, our employee advisor productivity is at an all-time high and our retention rate for this group has increased by 16 percentage points in just two years. The franchise channel has always been highly productive with long-tenured advisors and very strong retention. Those trends have continued throughout our time as a public company, but we haven’t rested on our laurels. We continue to enhance the platform and its leadership to ensure franchise advisors remain motivated and satisfied.

We made very significant investments in our advisors and we’re continuing to do so. We’ve consistently supported them with national and local marketing. We’ve offered new products and enhanced existing options, and we’re delivering a number of important technology upgrades, including the new brokerage platform that we’re rolling out now.

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