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Ameriprise Financial, Inc. (AMP)

Ameriprise Financial Analyst Day Call

November 16, 2011 08:00 am ET


Jim Cracchiolo - Chairman & CEO

Don Froude - President, The Personal Advisors Group

Ted Truscott - CEO, U.S. Asset Management & President, Annuities Ameriprise Financial

Mike Jones - President, Columbia Asset Management

Crispin Henderson - CEO, Threadneedle Asset Management Holdings

Walter Berman - EVP & CFO


Jay Gelb - Barclays Capital


Alicia Charity

Good morning everybody. Thank you for joining us for Ameriprise’s Financial community meeting. My name is Alicia Charity for those of you I have not met. We've got a great agenda today. We are going to start off hearing from Jim Cracchiolo and then from some of our business leaders and then wrap up with some comments from Walter Berman, our CFO and at that point we will open it up for your questions. I wanted to briefly bring your attention to our forward-looking statements and information around non-GAAP measures and with that I will turn it over to Jim.

Jim Cracchiolo

Thank you, Alicia. Good morning everyone. Thank you for joining us here at the New York Stock Exchange and for those of you who are tuning in on the web we hope that we will give you an informative session this morning. What we like to cover is to give you an update on our story. The Ameriprise story since we became public in 2006 and the major transformation that was gone over.

In that regard we think that we are set up for a significant opportunity of what's happening out there in the larger market price around retirement, around the growth of mass and affluent populations and their need for advice. With that in mind we think that we've created a tremendous value over the last six years and that we are positioned well to continue to create value. And we think today our company is a bit undervalued both on a peer basis but also in as we think about it as the sum of its thoughts beyond that of what we can grow for the future and the type of returns that we can achieve.

We think there is a significant opportunity. We think we are positioned well and we would like to walk you through that today. We wanted to now talk about the company a little differently than we've talked about it before. We've talked about it mainly in segments. We want to start to think about how we go to market, how we position the company, how we invest in the company and how we make decisions.

With that we wanted to give a little better understanding of our Advice & Wealth Management businesses today. Don Froude, the President of our Advisors Group as part of that leadership team. We’ll talk about the advisor part of the equation and then Ted Truscott, our CEO of the U.S. Asset Management and Mike Jones, the President will give you a better understanding of Columbia Asset Management and Crispin Henderson, the CEO of our International Asset Management Threadneedle will talk a bit more about Threadneedle’s opportunities as well as how they’re positioned because we think that combination gives us a good makeup to continue to grow in that space as well.

Let me start by saying, when we first came out, we had to undertake a major separation as you’re well aware and then we went into one of the most severe financial crisises and recessions that we faced in many, many decades. Today, we’ve come out in a strong way. We’re at diversified retail financial services firm. We really focus moving from the mass population to the mass-affluent and affluent and that’s where mainly all our growth is coming from. With today a recognized brand, Ameriprise today has grown in awareness around the country.

It’s grown in awareness both from a client and a prospect perspective and it’s grown in awareness even from a rep and advisor perspective and you’ll hear more about that from Don in a minute. We also have a strong Wealth Management business. We’ve invested heavily, we’re generating good strong returns and good strong growth and our asset management moved from more of a middle tight player to now one of the largest out there not just domestically but as you look at it having to have a good international makeup for us to be positioned well for global activities.

And our Insurance and Annuity business is now a true part of the equation, but it’s part of the way we think about our client relationships and solutions rather than a dominant pot of the business in a standalone basis. And we have proven through this financial crisis, through the market challenges as well as the investments that we’ve taken on that we can execute well and that we have established ourselves as one of the strongest players out there from a capital perspective, a liquidity perspective, from a financial investment perspective that Walter will talk about in a few minutes.

What does that look like financially? Well over the last six years, we’ve grown our revenue base even through the financial crisis significantly, up 42% in that period of time. Our earnings on a net basis has almost doubled 94% up. Our ROE improved by 38% and that’s what a very strong capital base and excess capital position that we are holding today. In our assets under management administration grew as well over 40%.

For you as investors, shareholders and for us in looking at the value we created from a total shareholder return over that period of time we are up 43% against the S&P Index of 16. The Assets Management Index, a negative 10; The Life Index, Life & Health negative 15 and the S&P Financials negative 47. So we’ve been able since we became public to execute against the strategy we put in place what we told you we’re looking to do. We were able to navigate one of the most severe financial crisis and keep the company strong. Gave us the ability to invest, gave us the ability to acquire and today we think we’re in the strongest position.

Now there are still significant headwinds out there. We understand where the interest rate environment, that’s still a major headwind, the market volatility that is still out there and is affecting us and the industry. But we also feel we are positioned well for growth, that our balance sheet and our ability to navigate this storm as we did previously is there as well and we are very much focused to continue to ensure that we can generate strong returns for the future. And the reason we feel so good is because of what’s happening beyond what you see today in the market place day-to-day and quarter-to-quarter. Three secular growth trends that are really helping us move forward. One is around retirement and we will talk about that because more people are moving to retirement and the people moving to retirement, the people in these age groups have most of the assets.

The mass affluent and affluent population is where those assets are growing most significantly and then what they are seeing today based upon the financial crisis, the volatility, the idea that they themselves have to be responsible for their retirement is they are starting to ask how do I achieve it, I need advice.

So let’s look at some of those steps. The US investable assets by age bracket you can see the 55 to 64 years old, that was roughly 25% of the investable assets today in 2010, that’s $29 million that will grow to 30% as that total pie doubles over the next ten years. The 65 plus biggest movement, baby boomers to retirement is growing nicely, 34% of the total makeup today that will grow to 40% by 2020.

And the total pie is estimated to double and we play right in the heart of that arena. You also look at where those financial assets are invested for retirement, whether they are a non-qualified investments held for retirement, IRAs or DC plans, deposits, annuities protection. We play across that range of all those product solutions and the way people need to be handled for the retirement qualified as well as non-qualified.

And if you think about it from the overall population of who we serve. Those populations are saying 79% of consumers do not feel very prepared for retirement. We know that today, all the conversations around that.

68% of consumers desire to receive advice and that continues to grow. And 54% of the target market prefer to work with a financial advisor. So Ameriprise is having one of the largest networks, a network built around financial planning and advice that is our go-to-market value proposition.

The ability to serve clients with the solution set we have, we think that we are situated quite well and our asset management business plays in a similar arena, whether through product that they manufacture for us at Ameriprise and solutions, whether for a true intermediaries to satisfy those same types of opportunities for intermediary clients or in institutions and pension plans et cetera to serve that market.

The other way, thank you. And so we think that we have a make up, the type of businesses we are in, how those solution sets work together, how can we target this market, the network that we have to target the market with, we can take greater opportunity, both for our wealth management as well as our asset management business.

So what I want to talk you today about is not our segments, but the way we go to market. See as we think about our strategy, as we position the company, as we invest, as we target, as we develop the type of solutions that we need, we focus on two real opportunities, the wealth management and retirement market and the asset management market.

And in the wealth management market, we look at the advice and solution driven businesses to focus on the mass affluent and affluent populations. The ones that we said are growing and have all the opportunity. And we look at a range of solutions both ones that we manufacture and ones that we network in to satisfy those opportunities. And through deep relationships, we are able to generate very good diversified revenue streams.

In the asset management business, we've transformed ourselves into now more of a global asset manager. We have size, we have scale, we serve both the retail and institutional markets and institutional will be one that we think there is a large growth opportunity for us. And again, the solutions that we continue to innovate again will help people achieve wealth as well as their retirement solutions to achieve goals beyond just achieving their benchmarks.

So if we think about the wealth in the retirement area, today we are situated quite well. We have one of the largest networks, the fifth largest in the country, the leader in financial planning and advice, more than 2 million retail clients, roughly $300 billion of assets that we manage or administer for those clients to a network of 9,700 advisors. And what's critical is that even from a solution set we are one of the largest. Number two, in the way we manage assets, the mutual fund wraps, number seven in managed accounts, number seven in IRA accounts and administration, top five in the retail retirement space.

But one of the things that we truly standout for is the satisfaction we get with the clients, the tenure of our clients, the persistency of their assets, the depth of their relationships, the amount that they refer us based on their satisfaction. And so there are other large companies, but many of them now are part of larger institutions. We have a makeup as an independent company truly focused here with a branded nation-wide brand serving this population.

So if you think about our Advice and Wealth Management business and retirement, where were we and where are we today. We established ourselves and we separated from American Express’ new brand. Now, we have a well-recognized brand; one that is taking space in all the areas that we want to do business. We’ve moved more from our mass markets and mass affluent and affluent now. We’re moving further up market. This is where our growth opportunity continues to come as well.

We’ve always built our network from the ground-up, novice advisors, people coming, college graduates, some career changes now they were bringing in career changes and more experienced people. People with books of business, people who actually want to grow in the financial advice and planning in a more fruitful way.

Our model is around developing deep relationships, growing productivity. We have some of the best productivity gains that anyone in the industry over the little last decade. And this is where we continue to gain share of wallet; where we continue to track more clients in, where we continue to get more referrals. And this business has moved from a core center or a distributor to now a strong profit center in its own right.

But beyond that it is the gateway for every other product that we manufacture. It is the gateway that brings in the clients, the assets, maintains the relationship that’s why we have a good risk profile. Good behavior, that’s why we can generate good strong returns with less volatility and risk in the products that we manufacture; that’s why its all linked and tied together.

And our brand is starting to standout, not just a brand that’s out there today in financial service, but more of a trusted brand. We did not break that trust during the financial crisis. We do not take government support that is really standing out in the consumers mind, its standing out in the advisors mind.

And so its very critical that we continue to be focused on who we are and what we are all about and that’s why even the new ad campaign with Tommy Lee Jones whether its on national TV, its on web, its through our seminars and what we bring to life in local communities and what are advisors do is starting to really have an impact for us.

So if you look at one of the stats that we talk to you about operating net revenue per advisor that continues to grow nicely. And why does it grow nicely; because we continue to gain more clients with more assets. We transformed our employee network as I said from a novice network to productive network. And that productivity continues to rise, you’ll hear more from Don that we continue to grow the productivity by keeping more people in that channel as well as adding to that channel and hire productive people.

With deepening relationships, the tools, the capabilities you’ll hear about helps our advisors go to market better, helps them deepen their relations to identify opportunities, helps trained them and develop them and give them marketing support to grow. And part of that is also the way we do business; we go out to look at your needs, look at their goals, look their goals of lifetime, look at how they can achieve retirement the best way and so that’s why 65% of our revenues are fee based. So even within this business, the largest part of the business is asset management and we have one of the largest fee based businesses regarding financial planning.

So the way that comes together and continues to add value is tremendous and as we grow the network moving from where we transform them and brought them number of advisors to stability we have to grow in and you’ll see that we think that we will be able to add to that.

Now even with the headwinds one of the biggest revenue streams you know we have and the industry has is net spread for free cash, very little in these economics today could be significant as the world we’ve had and interest rates start to get normalized, but even with that, our net operating revenue again year-over-year third quarter to third quarter has grown by 15%. And if I put 2009, you’ll see it nice again. Same thing in our operating pretax income run by 43%. We are achieving the margins; we told you about even though we’re not getting the benefit of the interest rates that we mentioned to you.

And we think we can continue to grow product – no, I cannot predict the global economy; I cannot predict markets, I cannot predict level of volatility that people will experience. I just know that based on our success through the crisis, our success today and the ability for us to continue to grow in this space that I think we’ll do reasonably well, again, adjusted for markets.

Now people all the time say, well Jim, how do I think about your business? How do I compare it? So what we’re trying to do here is give you some comparisons both on a segment basis but then absolute, because again, when that someone just coming into this space. We are established, we are large and we should be reckoned with. So I just used two proxies out there, whether they would be Raymond James or LP; ones a regional player, ones more of independent network; not a branded proposition.

And here again, if you look at our net revenue per advisor is quite strong. If you look at our operating PTI, quite strong, look at our margins, quite strong. Look at their Ps versus ours, quite different.

Now I would challenge and say this is a nationwide branded proposition. This is not a highly leveraged individual entity. This is one well established with strong tenure, with client relationships that are also tied to my brand as one or two others like Raymond James. So look at it in that light and I would also say look at our growth rates in the each segment as I talked about against whether it’s those players or other peers.

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