To the Q1 2019 earnings call. My name is John, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you do have a question, press star then one on your touch-tone phone. Please note that this conference is being recorded. Now I'll now turn the call over to Alicia Charity. Alicia Charity, you may begin.
Thank you, operator, and good morning. Welcome to Ameriprise Financial's first-quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. According to our earnings presentation materials that are available on our website, on slide two you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall 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 our first-quarter 2019 earnings release, our 2018 Annual Report to Shareholders, and our 2018 10-K report. We make no obligation to update publicly or revise these forward-looking statements. On slide three, you see our GAAP financial results at the top of the page for the first quarter. As you're aware, we changed our definition of adjusted operating results beginning in the first quarter, which now excludes mean reversion-related impacts. Management believes this enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results.
We announced in April that we have signed a definitive agreement with American Family Insurance to sell our auto and home operations. This transaction is expected to occur later this year. Effective immediately, we have moved our auto and home business out of the Protection segment and into our Corporate and Other segment. All prior periods have been restated for both of these changes. With that, I'll turn it over to Jim.
Thank you, Alicia, and good morning, everyone. As I believe many of you are aware, we had an active and successful quarter. We took some critical steps to focus on our core business strategies, further optimize our capital, reduce our risk profile, and increase capital flexibility. I'll come back to this in more detail. First, I'll take you through our quarterly results. In terms of the operating environment, clearly, the impact of the market dislocation from the fourth quarter carried over to the beginning of 2019. The decline in consumer sentiment combined with lower markets affected client activity in the U.S. and Europe. This impacted our average assets and associated fees in the first quarter. How did this translate to our financial performance? Well, it was quite solid. In terms of our adjusted operating results, revenues were flat.
Normalizing for taxes and a one-time vendor payment a year ago, EPS was up 8%, and return on equity, excluding AOCI, was up 790 basis points from a year ago to more than 36%. Assets under management and administration were steady compared to a year ago, even though our average weighted equity index was down 3%. Let's talk about wealth management, which is the growth driver of Ameriprise and continues to be a great story for us. We did well in the quarter and delivered 11% growth in earnings in AWM, with margin increasing to 22.5%. Even though the quarter got off to a tougher start, client flows were strong. Total client assets increased another 6% year-over-year, with more than $4 billion of net inflows moving into wrap. This is an important growth platform for us and one of the largest in the industry.
Client acquisition, overall fees, and client activity were muted to start the year but gradually improved during the quarter and are coming back to more normalized run rates. Even with the lag, advisor productivity remained strong, up 6%. Regarding recruiting, we had a terrific recruiting quarter, both in quantity and quality, with the average productivity of recruits reaching a new high. Our pipeline for the second quarter also looks good. Experienced advisors are attracted to our client and advisor value proposition and appreciate the investments we're making and what this means for their future growth potential at Ameriprise. Our AWM segment now generates half of the earnings of the company and contributes even more to the total firm. The investments we're making and the way we work with clients also results in excellent client satisfaction.
We earned 4.9 out of 5 stars consistently since we rolled out our online survey. That's translating into top industry recognition for us. Last week, complementing our other recognition, we learned that Ameriprise earned Hearts & Wallets' top performer recognition in three important categories: unbiased and puts my interests first, explains things in understandable terms, and understands me and shares my values. These are very important attributes to be known for. They help set us apart as a leader in advice. However, we're not resting on our laurels. We're investing in our end-to-end client experience to take it to the next level of engagement and to help advisors grow productivity. Let me touch on a few of the key areas. First, we continue to invest in our digital capabilities.
We're digitally enabling our goal-based advice capabilities to make it even easier for advisors to fully engage clients and deliver the value and service they're seeking. We just begun to roll out this training in the field and are pleased with the initial results. I'm already receiving advisor updates and client stories, and they're very positive. Many clients feel more engaged and confident and have shared that these are some of the best conversations they've had with their advisor and they're beginning to move more money and assets to Ameriprise. Second, we're implementing a new customer relationship management platform, and we are on track to deliver it this year. Third, we're further developing our investment advisory platform to provide a streamlined and customized experience for clients and advisors to help in the management of their investments.
Fourth, we're investing to expand our banking solutions, and I'll share an update on our bank investment in a moment. Given these growth investments, you saw we had higher expenses in the quarter. While we're making these investments, we will continue to re-engineer and reduce expenses so that the incremental expense is very manageable. We are dedicated to delivering a comprehensive, best-in-class Ameriprise client experience more fully and to more consumers who seek it. As a leading wealth manager, we're building an even stronger position, and we feel very good about the significant opportunity before us. Now I'll move to our insurance, annuities, and asset management businesses. In I&A, we're providing good value in generating free cash flow with strong books supported by excellent risk management.
These solutions complement our third-party offerings and help address clients' retirement income protection needs, and they're part of a high-quality experience we're known for. With regard to the quarter, sales were slower in January, but they started to come back nicely and we're getting back to a more normal run rate. In asset management, it's clearly a tough environment, and there are real industry pressures for all active managers, which we're also feeling. However, our asset management business is part of our larger enterprise and supported by the strength of Ameriprise rather than a standalone active manager. We're investing in the business while making trade-offs to manage expense levels. Our margin in asset management is competitive, but was clearly pressured in the quarter, and you're seeing this with others.
In terms of assets under management, we ended the quarter with $459 billion, which was down from a year ago, but up 7% sequentially. After a tougher fourth quarter last year, short-term equity investment performance improved in the United States in many of our strategies, and longer-term performance also remains quite good. In addition, short and long-term taxable and tax-exempt fixed income performance continues to be strong. In EMEA, our short-term performance in U.K. equities weakened, however European equities bounced back nicely and long-term equity and fixed income track records continue to be good. Moving to our flow picture, though we remain in net outflows, the team is very focused on gaining traction, and we have some improvement when compared to fourth quarter last year. Here are the key themes for the first quarter when compared to a year ago. Former parent outflows were better year-over-year.
Global institutional outflows were higher due to clients' asset allocation calls, some performance challenges, and a slowdown in mandate fundings. However, recently, in the areas where we had some strategies underperforming, we saw improvement. In U.S. retail, we remain in net outflows but are beginning to benefit from our investments in data analytics and our segmentation strategy. We did improve in the broker-dealer and independent channel, where we were positive in five of our top seven firms. Equity fund flows improved somewhat from the fourth quarter, though we still experienced outflows. Fixed income flows were essentially flat, as we didn't get as much of a boost as the industry in ultra short and short duration products, where we're not a big player in this tight margin asset class. In the U.K. and European retail, the ongoing uncertainty about Brexit and slower economic backdrop in Europe created flow challenges.
With regards to Brexit in particular, the team has been supporting clients and taking actions to prepare the business. During the quarter, we completed a transfer of EU client assets from our [OEIC] funds into Lux domiciled [SICAV] products. While this pressured sales and increased expenses, it will be beneficial to gaining flows on the continent going forward. Quarter after quarter, we've been very proactive in expense management while we invest for the long term, including in our data capabilities, operating platform solutions, and expanding in Europe. As I said at the beginning of the year, we recognize the ongoing challenges we in the industry face, and we'll continue to make the changes necessary to compete. When I opened, I indicated some additional strategic actions we're taking to drive future growth and value creation.
As many of you have acknowledged, Ameriprise has a strong record of returning capital at a differentiated level, and we're adding to it again. In the quarter, Ameriprise returned $482 million through share repurchases and dividends, which is consistent what we've been returning. We also announced a new $2.5 billion share repurchase authorization. Yesterday, we declared another increase to our quarterly dividend, another 8%, which will bring our capital return even higher. In fact, this is our 12th increase over the past 10 years, something we're very proud of. As many of you know, we've always focused on enhancing our capital flexibility and risk profile, and that was punctuated at quarter end with the culmination of our strategic review of Ameriprise Auto & Home and decision to sell the business. We had four priorities as we executed the deal.
Continue to deliver outstanding service to policyholders, find the right firm to help Auto & Home grow, provide the potential for a great future for our team there, and earn an appropriate return. I'm very confident that we found the right partner in American Family Insurance. They plan to grow and expand on what we've built. We're pleased with this outcome, and as we do in all transactions, we will work to ensure a seamless transition over the next few quarters. The sale of Auto & Home will generate $950 million of net proceeds when we close the deal later this year. In addition to the Auto & Home sale, we announced our first fixed annuity reinsurance transaction. We've reinsured about 20% of our block, which freed up about $200 million in capital for us.
It positions us to explore additional transactions for the approximately $1 billion of capital that backs our remaining block. Fourth, last week, we gained final approval from the Fed to convert our national trust bank into a federal savings bank, allowing us to further expand our product suite. We plan to launch the bank in the latter part of the quarter. This is a long-term growth opportunity for Ameriprise, and I feel good about the future contributions it will bring. As you can tell, we made significant progress in the quarter executing some important strategic actions. We're freeing up capital, further enhancing our risk profile and capital flexibility. I know you may have questions about our plans to deploy the additional capital that we're freeing up that will grow to above $2 billion when Auto and Home sale closes later this year.
On that front, you can expect us to continue to build on our long-standing record of managing our capital just as well as we have for many years. We'll evaluate a number of alternatives, such as investing in our bank, looking at other opportunities to add to our wealth management business. We'll continue to look at adding capabilities for asset management and further de-risking our long-tail businesses. Finally, we will look to further increase our return of capital to shareholders. In that regard, we plan to increase our share repurchase rate in 2019. As you can see, we're in a very strong position. We're serving client needs, building on our advice-value proposition while generating strong returns. Now, I'll turn things over to Walter.
Thank you, Jim. Ameriprise achieved another solid quarter of financial results while proactively executing several strategies that will optimize our capital and risk profile, positioning the company to drive continued shareholder value creation. On a normalized basis, EPS grew 8%, and I will go into the details on the next page. Financial results were led by Advice & Wealth Management, which delivered 11% earnings growth and contained strong metric trends in the face of market headwinds and volatility as we entered the year. Our other businesses are generating good, stable financial results that were in line with our expectations. Let me take you through the details beginning on slide six. In total, adjusted operating EPS was $3.75, up 2%, which understates the underlying financial performance in the quarter.
To understand the underlying results, you must consider both a previously disclosed one-time vendor settlement last year, as well as the tax rate. The tax rate in the quarter was 17.3%, higher than last year, and above our expectations of 16% for the full year, primarily due to share-based accounting changes and timing. Normalizing for these items, EPS was up 8% and better reflects growth in the quarter. Revenue growth reflected continued strong wrap net inflows offset by lower average markets, asset management outflows, and slower transactional activity early in the quarter. Expenses continued to be well managed across the firm, with G&A up only 2%. We are continuing to make important growth investments in advice and wealth management while executing on our expense reengineering objectives across the business.
We returned over 90% of earnings to shareholders through buyback and dividends, a continuation of our track record of differentiated return. Lastly, we have increased excess capital to $1.8 billion while achieving a 36% return on equity, up 790 basis points. We have seen strong growth trends in Advice & Wealth Management, which you can see on slide seven. Total client assets were up 6% year-over-year, demonstrating a nice recovery after the pullback in the fourth quarter, and continued strong $4.3 billion of inflows into wrap accounts. Brokerage cash balances of $25.3 billion are consistent with last year. On a sequential basis, we saw balances come down in line with historic patterns. We are benefiting from short rates getting back to more normal historic levels, and we are in 212 basis points, up from 132 basis points a year ago.
Based on recent Fed announcements, we do not anticipate additional rate increases this year and remain committed to being competitive in our client rates. Finally, advisor productivity also continues to improve, reaching $628,000 on a trailing 12-month basis in the face of market and activity headwinds. We continue to see strong productivity gains and are seeing good payback from our investments as well as from the strength of the experienced advisor recruits that we've been bringing in. The 90 experienced advisors we brought in in the first quarter has record productivity, which will support continued productivity growth over time. Let's turn to financials on slide eight. Advice & Wealth Management is continuing to deliver consistent, strong financial performance over time. I thought it'd be helpful to provide a detailed description of revenue this quarter because there are a number of dynamics at play.
First, management and financial advice fees grew 4%. Unlike previous quarters, where good wrap inflows have been supplemented by market appreciation, this quarter, the benefit from good inflows was partially offset by the impact of lower average markets, so the growth rate lagged a bit. However, as we exited the quarter, markets have recovered up 13% point to point, and wrap flows improved in February and March after a slower January. As a result, we expect improved growth in management fees as we move through 2019. Next, distribution fees were up only marginally. We had meaningful benefits from the spread earned on brokerage sweep balances. However, market sentiment following the fourth quarter disruption resulted in lower client activity levels early in the quarter. This improved throughout the quarter, and April activity levels have returned to good historic levels. Again, we would expect improved growth in distribution fees in 2019.
Lastly, net investment income is up 43% from both a higher certificate asset earning rate and higher balances. Overall, both markets and activity levels have recovered well, and this should lead to more robust revenue growth going forward. General and administrative expenses were up 6% for the quarter, but we believe they continue to be well managed. As Jim discussed, we are making substantial investments for future growth in this business, and the level and timing of those expenses was more heavily weighted in the beginning of the year. We remain committed to effective expense discipline and will continue to execute on our re-engineering initiatives that will benefit the remainder of the year. Finally, pre-tax operating earnings were up 11%, and margins were strong at 22.5%.
Let's turn to asset management on page nine, where financial performance was clearly impacted by substantial headwinds, including average equity markets down 3% and unfavorable foreign exchange translation. Additionally, the cumulative impact of net flows hurt results, as did a previously disclosed prior year one-time item. This resulted in a decline in revenues of 11% and a decline of PTI of 25%. G&A expenses were down 4%, demonstrating our continued commitment to expense discipline. However, a significant portion of our expense base is fixed, so it will be difficult to adjust quickly to this challenging revenue environment. Margins in the quarter decreased to 34%, and given the challenging revenue environment, we'd expect margins to remain pressured. Let's turn to annuities and protections on slide 10. In the quarter, variable annuities earnings were $115 million, up 5% from last year.
Variable annuities continue to be in outflows, though at a slower pace than last year. Variable annuities sales slowed similar to the overall slowdown we saw in client activity. It should be noted that our net amount at risk declined to 0.8% of account value with living benefits and 0.2% of account value with death benefits from improvement in markets. Fixed annuity pre-tax adjusted operating earnings declined $3 million, reflecting the continued impact of lapses in interest rates. The previously announced reinsurance transaction had a small impact on fixed annuity results, but it is earnings neutral across the firm for the year. Importantly, the transaction generated $200 million of excess capital and established a platform for future reinsurance transactions. The remaining block of fixed annuities is backed by about $1 billion of capital. In life and health, earnings were within expectations at $74 million, up 14% from last year.
Claims remain within expected ranges, though favorable relative to the prior year period. Let's move to the balance sheet on slide 11. Our balance sheet fundamentals remain strong. Our excess capital increased to $1.8 billion, which benefited from the fixed annuity reinsurance transaction and incremental debt from our recent issuance. Our hedge program has been quite effective with weighted managed hedged effectiveness at 97% in the quarter. The investment portfolio has high credit quality and is well diversified, and free cash flow generation remains excellent. We returned nearly $500 million of capital to shareholders through dividends and share repurchase in the quarter, and we recently announced a new share repurchase authorization and an 8% dividend increase. Continued capital return will be supported by both our free cash flow as well as the execution of capital optimization strategies. Let's turn to slide 12.
As Jim discussed, we have announced a variety of proactive actions this year to optimize our capital structure and risk profile. Over the past several years, we have spoken with you about the initiatives underway to improve the underlying performance of our Auto & Home business, and we saw the intended results. We completed a strategic review, which resulted in our decision to sell the business. When this transaction closes later this year, cash proceeds will be $950 million, the majority of which will be additive to our excess capital position. As I mentioned, the reinsurance of a portion of our fixed annuity block freed up substantial capital without an earnings impact to the firm, and the framework is now in place to execute additional reinsurance transactions as appropriate.
We issued $500 million of senior notes, part of which is being used to pre-fund an upcoming maturity and reposition our debt ladder. In aggregate, these actions will enable us to increase the level of capital that we will return to shareholders this year by accelerating our share repurchase. We plan to return approximately 110% of adjusted operating earnings to shareholders through buyback and dividends, and we will fund the anticipated bank capital requirement. We are completing a review of our capital structure and evaluating potential uses of excess capital. In summary, Ameriprise is well situated to drive continued growth in Advice & Wealth Management and continues to generate substantial shareholder value. With that, we will take your questions.
Thank you. We will now begin the question and answer session. If you do have a question, press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, press star then one on your touch-tone phone. Our first question is from Ryan Krueger. Please go ahead.
Hi. Thanks. Good morning. My first question was on capital management. Appreciate the guidance for 2019. It looks like after that, you'd still have a fairly substantial amount of excess capital. I guess as we move past 2019 into 2020, would you anticipate still being positioned to continue returning similar levels of capital in 2020 as well? Are you contemplating, I guess, other potential uses for the excess capital outside of share repurchase?
Well, as I just said, we will be looking at another level of opportunity. Number one is, yes, we still think we can strongly return capital and will to shareholders. We will also look at opportunities to further grow and invest in our wealth management business. Maybe there are some add-on capabilities that might be nice to continue to grow there that we'll be looking at as well as we said, looking at continuing to improve our overall capital structure, and therefore, that in itself we think will create some additional shareholder value that we'll either return or from a perspective invest for growth.
Thanks. Just to click on the tax rate of 16% for this year. Is there anything unusual about that, or is that a decent level to assume over the intermediate term as well?
No, it's totally in line with really the earnings we will have and with the tax rate and the items that we normally have as basically adjustments through it. It's totally in line with last year and this year.
Okay. Thank you.
Our next question is from Alex Blostein. Please go ahead.
Great. Good morning, everybody. Hey, guys. Was wondering if you could comment on the pace and the process of the build-down of the bank from here. Clearly you got the approval, assuming you can move some deposits fairly quickly. Maybe walk us through what that will require in terms of both expenses and initial capital utilization and how you expect the bank growth to start ramp up from here.
Okay. It's Walter. Let me start with that, Alex. Once we have approval, then we'll talk about operationalizing the bank before the end of the quarter.
We will be transferring about $2 billion-$2.5 billion worth of sweep accounts that will go in, and those will be invested, and that would be the primary focus. The next activity would be our credit card transfer over, and then will be a series of other products that we'll be working on. That's where the focus is going to be. As we anticipate for the year, the bank will be accretive from an earnings standpoint, and we'll start incurring expenses, obviously, from an operating standpoint, we started now and obviously ramp up during the year. We will be a positive accretion from an earnings standpoint. Jim?
Got it. I guess on that point, I guess when we look at the G&A growth in expenses for AWM, it sounded like it's a little bit heavier on the investment side in the beginning of the year. Maybe just give us an update. What you guys expect G&A cost to be in Advice and Wealth for the year on a year-over-year growth perspective, as again, contemplating the bank and what that will take.
As we indicated, there are substantial level and timing of investments in the first quarter. As we look towards the year, we're in a range, probably it'll be in the 4% range on excluding the bank, but the bank will be accretive. Also, let me just add on, I forgot to answer one part of your question. We'll put in initially around $200 million into the bank as its capitalization.
Got it. Great.
Now, regarding the expenses, but the investments per se in Advice and Wealth. We're actually managing expenses really well and will continue, actually, we'll probably reduce some expenses in that regard as we move through the next few quarters. We are investing heavily, ramping up, and bringing over good recruits that as you know, there's always the first-year expenses from that, and we have very good pipeline, et cetera. For the things I mentioned previously, we're making some really good investments, investing in our advisors, investing in the ability for them to actually grow even more their productivity. That expense incremental, we think, will give us very good paybacks in that regard. Client asset, client productivity, and result in the fee revenue. That's the way I would look at it. I wouldn't look at it as an increase in G&A in a sense of overhead expense.
I'd look at it as investments for growth. On a relative basis where we're reducing expenses as an offset, that incremental that Walter mentioned, roughly around 4% or so, excluding the bank, I think should be thought about that way. Otherwise, I think it would be relatively flat. The bank, the expense incremental will be offset by the revenue as we ramp up the bank. Again, starting this mid-year, and then that will get into a much better run rate next year.
Great. Awesome. If I could just sneak in one more. When you guys talk about the opportunities to deploy the excess capital, which obviously is going to go up by the end of the year, and it sounds like there's going to be opportunities to further rationalize the fixed annuity portfolio, which again, will probably drive some incremental capital relief. Where does the rationalizing long-dated risk, whether it's long-term care or maybe even some of the VA business sit on your priority list? Is that sort of part of the framework over the near term, or that's something that will likely to happen kind of over time?
Okay. It's Walter. Let me take a shot at that. Obviously, we feel very comfortable with the exposure profile that you mentioned in those areas, but we are continually evaluating options as they come up. If they do, we will then certainly assess, is that in the best interest of shareholders to deploy it that way?
Got it. Fair enough. Thanks very much.
Our next question is from Suneet Kamath. Please go ahead.
Thanks. First a comment on the optimization. It's clearly good to see you guys pull some of the levers that you have. On that point, are there things that you're looking at in terms of further optimization beyond the fixed annuity business?
The answer is yes. Thanks, Suneet. You know we're very thoughtful, but we're always looking out and planning. We evaluate the business in a way that says what will be good for us to continue to grow in the areas of opportunity. What can we leverage appropriately, but also what will generate a good return in cash flow, and manage a really good business on behalf of our clients. Yes, we have, and I mentioned a range of them just before. That's clearly some of the things that we'll be talking about with my board as we go through our planning process, but more importantly, that we're focused on even here in the near term.
Okay. Just shifting gears to asset management. You've talked about industry pressures, dropping the margin there, and some of the challenges that you face. If we take the view that those pressures are not going to subside anytime soon, is it time to start thinking about something more strategic in terms of that business, either building scale or pursuing another strategy to rationalize costs or something along those lines, just given these pressures seem to be in front of us for some time?
Right. We approach this twofold. Very clearly as you know, we look to continue to make changes in the business of areas that we can really garner some good activity in flows and fees. That does mean that we adjust and have to prune certain areas, which we've been doing.
Very clearly, we're making some of the core changes and core focus on areas of opportunity. I think this market's been a bit more pressured. The volatility's been high. Brexit and other things have been unfortunate, impacting many companies doing business there. That's the first and very clear focus we have right now. At the same time, we are thinking out and looking out strategically. The industry is changing. There continues to be a combination, a level of consolidation out there. There may be some good opportunities with some of the assets and capabilities we have and some of the knowledge we have of what we've been able to do in the past to meet up and look at other capabilities with other firms that are having the same challenges. It's one of the things I think we're very open to.
We very clearly focus on what the client needs, what's good overall for our people, the culture we have, as well as the shareholders. As you know, Suneet, just like we're very thoughtful and have been, we'll continue to look and explore opportunities.
Okay. Then just lastly on the recruiting in AWM, I think both Jim and Walter referenced the productivity being higher for the new recruits. If we think about the base at that $628,000 revenue per advisor, can you give us a sense of where the new recruits are coming in? I know it's higher, but just any quantification of that?
Yes. I would say the average recruits we're bringing in now probably come out on average to roughly where we are in the numbers that we're mentioning. What we're finding is we're starting to really get now more and more larger teams. It's been gradually continuing to move up. Of course, there's always the transfer and the periods of them bringing over their book, et cetera. What I would say is we have a very good class of people coming in, and we feel like we're actually hitting stride right now in really how Ameriprise can really appeal to people in the industry, and people who really can continue to grow their productivity. We feel very good about it.
Okay. Thanks, Jim.
Our next question is from Nigel Daly. Please go ahead.
Great. Thanks. First question is just on asset management margins. You had been targeting the mid to high 30s this quarter, it dipped below that range. Given your comments that you expect the environment to remain challenging, what should we expect for margins going forward? Any guidance there would be helpful.
As you look at going forward, certainly with the market improving where it ended the quarter and with as I mentioned, our re-engineering initiatives, I do see over the balance of the year that certainly we could get back into the range we talked about previously, it's not without its challenges. We have certainly put in place the re-engineering aspects of it, and certainly with the market where it is, and if it stays that way, it should improve from when we exited a quarter at 33.6%.
Okay. Just on a second on the annuities. Good to see the Global Atlantic transaction. Any reason why you couldn't free up the remaining capital supporting the remainder of the block this year? Or is there something different with respect to the nature of what's remaining relative to what you reinsured last quarter?
No. We basically reinsured the third-party channel account value. We have looked at, we have the total capability from an operational standpoint. We're just looking at the environment and other things. As we said, we will continue on that path.
Okay. Very helpful. Thanks.
Our next question is from John Barnidge. Please go ahead.
Thanks. I know you mentioned the frameworks in place for future reinsurance transactions for fixed annuities, would you consider a risk transfer for the variable annuity block at all?
As Jim said, we will evaluate and certainly look at what is in the best interest of shareholders. Again, those have different nuances attached to it, the answer is we will evaluate for sure.
Okay, my follow-up, now that we have the first year of tax returns post-reform in the books, can you talk about how you saw activity change from 1Q 2018 to 1Q 2019, maybe what you're seeing so far this quarter from products that demand generally sees a boost from refunds?
No. I think when you look at client activity, we haven't seen a material. I think there's been a bit more of a, in some investments in tax exempts, et cetera, has gone through if you're looking at the retail client. Are you looking at the corporate?
No. It's Walter. I think in Suneet, you have to look at, we saw our activity level. I think you're driving at the activity level. Are we seeing because people are not getting the refunds? Is that where you were going?
Yeah.
Yeah. What we started seeing in January, as we said, the activity levels were lower, and then in February and March, they really came back. As we are not seeing that impact at all from people getting lower tax refunds or anticipation of lower tier tax refunds, that has not manifested itself yet, if at all.
Okay. Thank you.
This question is from John Nadel. Please go ahead.
Good morning. A couple real quick ones. Just a clarification on slide 12. When you say return capital at 110% of earnings and fund the bank in 2019, I guess I just wanted to clarify, is the bank part of that 110%, or is the 110% isolated to just buybacks and common dividends?
Just buyback and common dividends.
All right. That's helpful. Thank you. Just a follow-up on the tax rate. I guess your original outlook for 2019, Walter, was 17%-19%. Now we're looking at 16%. My question is, how should we be thinking about that tax rate beyond 2019? I understand your earnings mix will continue to shift, I'm just wondering if we should be thinking more about that 17%-19% range beyond 2019, is there a reason why we stay below that range on a go-forward basis?
John, if I'm not incorrect, I think we actually didn't give guidance for 2019. This is the first time we're actually mentioning it. I'll go back and check. The 16% is totally consistent where we thought it would be. That is, like I said, it's aligned with what 2018 was. You're right, it's going to change based on mix of earnings and things like that as you go because you had more to the marginal 2021. The answer is, I think this is a pretty comfortable range.
Okay, that's helpful. If I could, just on long-term care, are you willing to tell us whether you've actually had any formal discussions or due diligence with any counterparties at this point on a possible risk transfer? Is that something that just hasn't really taken place in any formal way? If I could also add to that, as the Genworth and Oceanwide deal has now been extended, I think it's actually the ninth time they've extended, and it appears no closer to gaining the remaining regulatory approvals. I'm just wondering, have you had any discussions with Genworth around providing more details as to the protections you have in place around your reinsurance agreement with them?
Okay. Let me answer the question this way, is we are approached all the time for people to explore the opportunity to certainly enter into a reinsurance arrangement with us. There is nothing we have seen, but we keep an open mind about it based on the way we feel our exposure is as it relates to our book of business. Nothing has really risen to the top at this stage to really get us into really considering. As Jim said, we will always explore options, and that's what we do. As it relates to the ninth time, the tenth time as it relates to Genworth, I'll say it my way, we're indifferent. I'll be candid from that standpoint.
We repeatedly keep on referring to the fact that we have an arrangement with them that it really does protect us, and we feel extremely comfortable whether the sale is there or the sale is not there. That is something that we feel is something that is really without any doubt in our minds, we feel we have the protection.
I appreciate that, Walter. You guys have the details, right? I think investors, particularly in the event that this deal, the Genworth Oceanwide deal, actually does not gain approvals or is disapproved. I guess I'm just wondering whether those details will be something that you can provide externally to your investor base to give them the same level of confidence that you guys have internally.
Right. This is Jim. Let me just take a minute to tell you why we don't think so, and importantly, why the point of view that has been expressed that an insolvency, if it ever occurred with GLIC, could mean $billions of exposure to us is not only highly theoretical, it's wrong. As previously disclosed in 2016, RiverSource negotiated substantial enhancements to its reinsurance credit protections under its reinsurance arrangement with GLIC. These were intended, among other things, to protect RiverSource against erosion in GLIC's financial position. Due to confidentiality obligations, we are not at liberty to disclose the extent or nature of such credit protections, but we hope to provide some additional color is helpful as to why we continue to believe that our net counterparty credit exposure to GLIC is very different from the gross exposure and is well within our overall risk tolerance.
A few points to consider. GLIC is domiciled in Delaware, any insolvency proceedings would be located there and governed by Delaware laws. Delaware laws and courts have a long tradition of respecting commercial and financial affairs and the contract sophisticated people enter into in corporate law, in trust, and in insurance. Similar credit protections to these types we have with GLIC have been tested in insurer insolvencies proceedings in Delaware, and they have been respected by the authorities. The same holds true elsewhere in the U.S. We believe that these protections would be respected even in the unlikely event that GLIC were to eventually become subject to insolvency proceedings in Delaware.
While we know no credit protections are perfect. We believe the correct way to think about our counterparty credit exposure to GLIC is not the full amount of any gross liability that GLIC reinsures, but rather the net exposure to GLIC after taking into account our credit protections, which would be significantly smaller exposure if it were to exist.
I appreciate that response. Thank you, Jim.
Our next question is from Andrew Kligerman. Please go ahead.
Great. Thank you. Most of my question's been answered, so just some maybe follow-ups on the previous. The de-risking of long-tail businesses. Clearly, Jim, when you mentioned that was the LTC. It sounds to me that there's no sense of urgency to enter into any arrangements. Is that the right read?
No. What I would say in my read, just based on what I and Walter said, is this. We feel good about what we have for our own business and what we manage, just like we have in place for our reinsurance. We feel that we take appropriate reserves. We look at the experience. We constantly evaluate. We're again taking rate. We've gotten approval for rates that are going into effect. We're adjusting even some of the alternatives that clients have as they move forward. With that, don't get me wrong, there can always be some exposure in the future, right? We know things change, world evolves. There could be change in some claims. Our book is very aged. Our people have been there for a long time. We have very strong claim experience.
As we continue to make these things, remember, this is a book that we closed in 2002. The age is much higher than average, and our experience levels are very strong and knowledge of what we have. We're not saying there couldn't be some exposures going forward, but on a relative basis, based on the strength of our position, our cash flows, our capital, and what necessarily even could change in the near future, next few years, next five years, 10 years. This is immaterial to our ability to handle it. I know people are putting this undue sort of risk out there as an umbrella on us, but it's not going to have an effect that people think in any stretch of the imagination.
Even if you said it was hypothetically a few hundred million dollars, we could easily take that against our excess capital position with not even a beat at this point.
Right.
The point of reference is if there's a reasonable transaction, even if it's at a discount, with a good party, and I think people are getting more sophisticated in understanding the differences, I think a transaction could occur. Okay? One of the big variables is interest rates. Long-term rates have come down a little more. If they went back to maybe where they were, it would even be more appetizing.
I see.
Let me be very clear. We're not opposed to anything like that. We're evaluating. You saw we just started the reinsurance. We told you it would take a little time for us to get where we want in the auto home. Listen, I think we're credible in what we say and what we'll do. We'll make very informed decisions, and we'll evaluate to continue to invest and grow the business. What I would take away from this today is this. We're really excited about the opportunities we have in Ameriprise, in a wealth management business, and a generation of cash across the company. Even with our asset management and I&A business, I&A is really good, solid books.
If there are opportunities for someone to get a certain based on the structures they have, but keep the real good benefits and the growth and us really growing the opportunity with our clients and working on our good products, we're open to it. The same thing with long-term care. We're going to manage it really well. We're going to make sure that we get appropriate return and cover our risk. To the extent that there are those little blips that pop up, we're well easily able to cover them. That's the way I would think about it. No, we're not opposed to any transaction in LTC, and we think that people are getting more sophisticated in understanding the differences, and maybe there will be a potential for us in the near future. We're looking at it.
People are starting to call, and we're starting to talk.
Right. Great. Yeah. It is kind of a shame because you've got so many great businesses and trends going on that talking so much time about this, it just doesn't make a lot of sense. With that said, then it sounds like you're not going to do anything that would harm your balance sheet given your feeling about the LTC block and the stability of it. Shifting over to two items. One, the crediting rate on your sweep fees and Advice & Wealth Management. I think I saw that it came up by seven basis points in March. Looking out into the second quarter, are the yields pretty stable right now? Walter, you mentioned you might need to stay competitive. Is there any impetus to raise crediting rates any further?
No. What you saw is we are constantly evaluating our competitive positioning, and we believe we are competitive now, and we constantly review, but I don't see anything that would be changing going forward. If it does, we will adjust it.
Got it. Just lastly on that tax rate, it says in the press release the 16% range. I think that means for the year. Can we assume that given you had 17.3% in the first quarter, that it might trend a little bit under 16% for the balance of the 3 quarters?
Yes.
Got it. Thanks so much.
Thank you
Our next question is from Erik Bass. Please go ahead.
Hi. Thank you. How are you thinking about the best options for growing the Advice & Wealth Management business going forward? Are there meaningful organic investments of capital that could accelerate growth? If you were to pursue M&A, what type of transactions would be of interest?
What I mentioned before is that we're taking the opportunity to make really good investments in enhancing all of our digital capabilities, our advice capabilities, our client engagement systems. We feel good about that. We are actually picking up our pace in recruitment out in the industry as well. We feel good about that. It gives us opportunities. I do believe there may be some opportunities for us, as I mentioned, in the use of capital to look at some good potential additional add-ons to our wealth management business from an M&A perspective. It's a bit early for me to get into that right now, but it's some things that we're going to spend a bit more time exploring. We think that may be a good use of our capital moving forward.
Got it. On that note, would it be similar to some of the transactions you've done recently, where sort of team lift-outs or acquisitions of small, independent firms? Could it be something bigger than that as well?
I would say it could be both. Listen, there's different opportunities in the wealth management space right now that we're thinking about or looking at. I don't want to go further than that, but just say, listen, this is an area that is our core. We know it well. We understand it. We do believe we can bring a lot to it. It's one of the things that we want to spend a little more energy on.
Got it. Lastly, big picture, it sounds like your focus is really to continue to shift Ameriprise more towards being a distribution company and away from product manufacturing. Would this just be, I guess, organically growing AWM at a faster rate, or could you also see exiting more of your manufacturing businesses?
Well, what I would say is this. As you just saw, based on our mix and growth, our distribution business, the AWM, is over 50% now of our earnings. We still have very good businesses. Our I&A business, however, are solutions to our clients, and they're very complementary. The real good cash flow we get, the solid nature of the books is because they're part of where my client assets go for products that we manufacture in addition to what we distribute externally. I think that's how I think of it. Same thing with our asset management business. Columbia manages a good amount of assets, both for our retail clients, also as part of our books for our I&A business, and it's very complementary. If you go back many years, we started as a manufacturer with distribution as a cost center.
When I came in, I converted the distribution to the profit center and wanted to round out my solutions group. I exited third party in the I&A because of what was happening in the industry. In the asset management, I figured I would complement that by buying some companies to give me more of that third party distribution as a complement. I think we've accomplished that to a good regard. Having said that, I still value the solutions part and what we do here. As I would probably say, the growth driver of the company right now based on industry pressures, et cetera, is in our distribution channel. We're going to continue to be a quality provider in the other areas, and they will generate some good returns for us.
Great. Thank you. Appreciate the comments.
Our next question is from Jeffrey Schmidt. Please go ahead.
Hi. Thank you. Good morning. Looking at that as a percentage of assets or of average wrap assets, it was down a fair amount to 1.32%. Can you maybe speak to that and give us a sense of where you see that going over the next year or two?
Yeah. Well, I think in the first quarter, just as we saw in the fourth quarter, you had depreciated assets from the level of where you started in December. [inaudible] have been consistently strong fourth quarter, first quarter. They're even getting back to even higher levels as we exited the first quarter. I think when you look at the fee level, you had equity markets down significantly at the end of the year, just making its way back through the quarter. When you run a very large portfolio like that, with a reasonable portion being in equity or a portion of that 50%, 60%, that's where you're going to get that fee compression.
To Walter's point, what he explained would be as we're exiting this quarter with the markets back up, you should probably see it come back to the full level of the type of fee that we had. The good inflows over the course of the entire last year will complement that as we move forward.
Okay. Thank you.
Our last question will be from Humphrey Lee. Please go ahead.
Good morning. Thank you for taking my questions. Just a question related to rep flows at AWM. You've talked about January was a little bit weaker, a muted start, and then kind of picked back up in February and March. I guess, how much of the impact was January was to the quarter? Do you feel if the kind of going forward to see a more normal activities, do you feel like you can go back to roughly $5 billion range a quarter in terms of rep net flows?
Yeah.
In January, it was substantially down. Basically, by March, it was back at the historic levels. Again, I can't give you an exact number, but certainly we are seeing a pattern that we feel comfortable with as the client activities started coming back. We felt very good about that trend line, and that's continuing in April to a degree.
Okay. Basically, fourth quarter and first quarter was an anomaly, but then we should looking back the rest of the quarters in recent history.
Yeah. That's what certainly the pattern is saying. Especially as you started March. You just watched January's down, and it just progressed its way right back up in March, and it exited, and we're seeing that continuing.
Got it. In asset management, you've mentioned that the EMEA flows were weaker, but then you have some of the distribution build-out that should hopefully improve the flows activities a little bit better towards the balance of the year. Can you talk about the build-out of the distribution in Continental Europe, and then your expectation for how productive these channels will be in the coming quarters?
This is Jim. What I would say is, first of all, in the first quarter, we completed our transfer of our OEICs assets into SICAVs out of the Luxembourg range that we had established last year. Even part of the expense that we have in the P&L was based on completing that, shifting the assets, offsetting some of the expense for our clients, et cetera. When we've done that, we now have a range of the product, a good range of the product, and we are adding resources in some of the markets like Italy and Spain and Germany, ramping up with some manpower, distribution, et cetera, marketing to start to sell more formally in Europe. We always sold, but we always sold out of the idea that we were distributing OEICs, and we didn't have necessarily all the resources fully on the ground.
We are ramping that up. I would just say activity in Europe and Brexit, if you look at a number of European firms out of the U.K. in asset management, you'll find that activity is pretty weak. Redemptions were there. If that starts to get back as people start to see clarity around Brexit or the idea that the European economy is not slowing, I think you'll see a rebound in that activity. With what we're doing to expand in Europe, hopefully that will even give us even a greater level of upside down the road. I don't think it's going to happen immediately because of the situation across Europe and the U.K. right now. It's one of the areas where we've always gone into good flows. We have good product.
One where we do believe that there is a benefit as that starts to settle down on the continent and in the U.K.
Appreciate it, Cracchiolo. Thank you.
Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.