Ameriprise 'will adjust' if Trump delays fiduciary rule
After spending millions to revamp systems and procedures to prepare for the fiduciary rule, Ameriprise won't jettison months of effort should the regulation be overturned.
That was CEO Jim Cracchiolo's message to analysts during an earnings call Thursday, when he sought to explain how the firm's efforts to comply with the rule will leave Ameriprise well situated to compete with rivals in the future. And those efforts are not insignificant; Ameriprise spent $11 million in the fourth quarter, the firm reported.
"Clearly, the situation is evolving with the new administration," Cracchiolo said. "We are remaining flexible. If the rule is delayed then we will adjust accordingly. However, we are making some changes that we believe will situate us with where the industry is going."
For example, he said, Ameriprise would stick to its plan to phase out 12B-1 fees in favor of advisory relationships with clients, which would benefit margins. The Department of Labor's regulation targets such fees for creating potential conflicts of interest.
Other features of the rule, such as the best interest contract exemption, would be ignored, should President Trump delay or reverse the regulation.
Speculation about the demise the fiduciary rule ahead of its April 10 implementation date has spiked on account of Trump's anti-regulatory rhetoric and Republican efforts to introduce new legislation to overturn it.
The move is intended to better satisfy clients who are increasingly asking for more clarity, according to the firm.
Morgan Stanley and Advisor Group are moving ahead with changes despite the possibility that the Department of Labor's regulation could be reversed.
The brokerage industry’s watchdog would also want to play an active role in the design of a possible SEC fiduciary regulation, Robert Cook says.
"There is an added sense of urgency now," says Barbara Roper, director of investor protection at the Consumer Federation of America.
Cracchiolo's comments reflect the position of other leaders in wealth management, who say they will plow ahead with planned changes because clients are increasingly demanding greater transparency around adviser compensation as well as lower fees. In recent weeks, firms such as Merrill Lynch, Morgan Stanley and Advisor Group have made such declarations.
But lower fees can create pressure on revenues, a point that several analysts asked Cracchiolo about on the earnings call.
For the recent quarter, Ameriprise, which has over 9,000 independent and employee advisers, reported that revenue fell to $3.06 billion from $3.1 billion for the year-ago period, a 1% decline.
Cracchiolo said that the push toward advisory relationships was not only good for clients, but something in demand, and which would help offset revenue losses elsewhere.
"We're seeing us continuing to manage expenses quite well and we can use that to offset pressures on the revenue side," the chief executive added.
Indeed, companywide profits rose 5% to $400 million partly due to cost cutting; expenses fell 2% to $2.59 billion.
Separately, Ameriprise is also pushing to increase adviser productivity by focusing on recruiting bigger producers, particularly in the employee channel. Cracchiolo said the firm is continuing to "wean out lower producers" in the channel too.
Employee adviser headcount fell by 40 from the prior quarter to reach 2,007.
"As people are not hitting thresholds, then they are reevaluating if they should be in that channel there," he said.
The firm also said the independent channel shrank, inching down by 32 advisers to 7,668.
Meanwhile, productivity rose, climbing to $518,000 per adviser from $514,000 for the same period a year ago. Client assets also rose, increasing 7% year-over-year to $479 billion.