Ameriprise profits rise in Q4 due to interest rates

Ameriprise nets record 30% margin as interest rates boost profit

January 26, 2023 6:14 PM

Ameriprise's wealth clients are responding to falling stock values by investing evenly between advisory and brokerage accounts, according to CEO James Cracchiolo.

In the Minneapolis-based firm's Jan. 25 earnings statement for the fourth quarter and a call the next morning with analysts, Ameriprise reported that slightly more clients than before are opting for cash and other investments priced on a one-time, commissionable basis over advisory assets that have recurring fees. After the launch of Ameriprise's bank in 2019, the firm reaped record profit margins in the quarter from cash and a record inflow of client assets in 2022.

In particular, the cash assets tied to rising interest rates are buoying the firm's wealth business.

"With the investment climate this year, we've seen an even split into the mix of flows into advisory and non-advisory accounts, which is appropriate in this environment," Cracchiolo said in his prepared remarks, according to a transcript by Seeking Alpha. "We're maintaining an appropriate level of cash balances with good growth in our certificate business and the Ameriprise Bank, which is a key growth area for us."

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To see the key wealth management takeaways from Ameriprise's third-quarter earnings statement, scroll down the slideshow. For coverage of the company's earnings in the third quarter, click here. To see the firm's results from the second quarter, follow this link.

Financial advisor headcount

Ameriprise recruited 72 experienced advisors in the quarter, raising its headcount 2%, or a net 153 year over year, to 10,269 brokers across its W-2 employee channel and 1099 independent contractor franchise arm. The number of employee brokers ticked down by 32, or 2%, to 2,096, while the franchise arm added a net 185 to boost its ranks by 2% and reach 8,173.

Client assets

For the year, Ameriprise's wealth unit tacked on a record $42.5 billion in client flows, even though the quarterly figures displayed how stock and bond values affected the incoming assets. Total client flows ticked down 1% year over year to $12.38 billion, while incoming advisory assets in wrap accounts tumbled by 41% to $6.21 billion.

The flows into Ameriprise accounts in the fourth quarter were "very strong," Cracchiolo said, noting that they were just below the record from a year earlier and the second-highest ever.

Overall, client assets slipped 12% to $758.16 billion, and advisory assets dropped by 11% to $407.76 billion. The Ameriprise Bank and Certificate Company's holdings jumped 59% to $29 billion as investors opted for cash over stocks and bonds. Cash balances climbed 8% to $47.21 billion.

Expenses

The stock and bond losses reduced Ameriprise's expenses from volume-related compensation to advisors and other costs in the fourth quarter. Across the whole unit, adjusted operating expenses fell by 5% from the year-ago period to $1.56 billion, with much of the decline caused by distribution expenses coming down 10% to $1.15 billion.

General and administrative expenses went the other direction, rising by 11% to $406 million after investments into the bank and other growth areas, volume-related costs and low levels of staffing, travel and entertainment in the prior year, according to the firm.

Bottom line

Ameriprise's wealth management unit generated a record pretax adjusted operating margin of 29.9% in the fourth quarter, which is 7.6 percentage points higher than the same time a year earlier. The earnings tied to interest rates and asset flows easily offset pressures from the stock and bond losses in the period, according to the firm.

The unit generated pretax adjusted operating earnings of $665 million on net revenue of $2.23 billion. Profit soared by 41% from the year-ago period, while revenue increased 5%. For the whole company, the wealth unit constitutes 64% of adjusted operating earnings, which is well up from only 48% a year ago, Chief Financial Officer Walter Berman noted.

Remark

Cracchiolo described the fourth quarter as a good one for advisor recruiting at Ameriprise. "Advisors are attracted to our value proposition and the strength and stability of the firm, and the pipeline looks good," he said. "We are consistently investing in the business, including the bank, which is helping to drive organic growth and continue to generate strong results."