Ameriprise wealth unit sheds lower producers, boosts profits
Financial advisors at Ameriprise can expect new digital tools and other capabilities after the firm's many changes to comply with the Department of Labor’s fiduciary rule, its CEO says.
“Our advisors are actually generating even nicer increased productivity. And we’re actually going to do a bit more in helping the advisors grow this year, now that we’re not concentrating on DoL activities,” Jim Cracchiolo said Thursday during the firm’s fourth quarter earnings call.
“Over the course of the year, we’re continuing to really deploy and invest in better capabilities to help our advisors even be more engaged.”
Noting that the firm’s new cash flow rose in the past year over the amounts seen in 2015 and 2016, Cracchiolo pledged upgrades to the client experience and “contact activities” for advisors. Representatives for the firm declined to elaborate on his comments.
The Minneapolis-based firm’s advice and wealth management unit consists of the second largest independent broker-dealer and one of the largest employee brokerages. The unit’s headcount increased 2% in the past year to 9,896, mainly due to the acquisition of Investment Professionals, a San Antonio-based IBD. Without that acquisition, headcount would have been flat.
The advice segment’s pretax profits jumped 28% year-over-year to $326 million, and client assets of $560 billion set a record for at least the third straight quarter. Cracchiolo also agreed with an analyst’s prediction that now that lower producers have left the company, headcount in the employee channel is likely to increase going forward.
CEO Jim Cracchiolo reported record client assets and a sharpened focus under the fiduciary rule.
The rule has cost the firm tens of millions of dollars in compliance and lost revenue.
The firm's adviser headcount slipped 98 year-over-year.
Overall, the employee channel grew by 203 advisors last year to 2,210, while the franchise channel grew by 18 advisors to 7,686. Excluding 12b-1 fees in advisory accounts (which Ameriprise eliminated to comply with the fiduciary rule) annual revenue per advisor grew 13% to $558,000.
The Investment Professionals deal alone brought $8 billion in client assets and 215 advisors to the employee channel after the deal closed in July. Ameriprise is still completing the onboarding of those advisors.
“Our advice and wealth management business is powerful and growing,” Cracchiolo said. The potential breakdown of the Broker Protocol does not pose a negative impact for Ameriprise, Cracchiolo said, noting that the firm remains a member of the agreement.
Morgan Stanley, UBS and Citigroup have left the pact, leading many experts to predict the firms would block advisors from breaking away to launch their own firms or join independent ones. Breakaway moves could trigger more litigation against advisors who leave the three firms outside the protocol.
Ameriprise gains advisors from other independent competitors as well as the wirehouses, Cracchiolo noted.
He also rejected one analyst’s view that lower corporate tax rates might push down fee rates in the advice and wealth management unit. The firm hasn’t seen any pressure in that direction, Cracchiolo said. Earlier in the call with analysts, he had praised the “pro-growth agenda in Washington” in his prepared remarks.
The segment’s revenue grew 12% year-over-year to $1.48 billion, but its expenses increased 9% to $1.15 billion. Ameriprise attributed the rise in expenses to higher distribution costs from the rising client assets, as well as the onboarding of Investment Professionals and performance-related compensation.
The parent firm also disclosed a one-time expense of $320 million related to the new tax law. A lower rate of 17% to 19% moving forward will help cash flow in the advice and wealth management and asset management segments in particular, CFO Walter Berman said.
“Within two years, we expect to earn back the charge taken in the fourth quarter,” Berman said.
The parent firm’s EPS of $1.18 beat analysts’ expectations of $0.96. Nevertheless, investors were discouraged by Ameriprise Financial’s increased expenses and lower overall profits, and pushing its stock price down 3.4% to $174.28 in midday trading after the earnings call.