Welcome to the Ameriprise Financial first quarter 2016 earnings call. My name is Hilda, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct our question and answer session. Please note that this conference is being recorded. I would now like to turn the call over to Ms. Alicia Charity. Ms. Charity, you may begin.
Thank you. Good morning. Welcome to Ameriprise Financial's first quarter earnings call. On the call with me today are James Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we will be happy to take your questions. During the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of the non-GAAP numbers to their respective GAAP numbers can be found in today's materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and 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 today's earnings release, our 2015 annual report to shareholders, and our 2015 10-K report. We will take no obligation to update publicly or revise these forward-looking statements. With that, I'll turn it over to Jim.
Good morning. Thank you for joining us for our first quarter earnings call. I'll provide my perspective on the business, comment on the Department of Labor rule, and Walter will discuss our financials. We'll answer any questions you have. Clearly, it was a difficult market environment for the industry. Volatility was high with significant declines in the average equity markets during the quarter. Our internal index that aligns to our assets under management characteristics was down 8% on average year-over-year and 6% on average sequentially, which impacted client activity, assets under management, and fees given we billed through the quarter. Total assets under management and administration ended the quarter at $773 billion. Across the firm, we're focused on executing our consistent strategy and managing expenses as we invest in the business and navigate these conditions.
With regard to our financial results for the quarter on an operating basis, revenues reflected the tougher environment and were down 4% to $2.8 billion. Earnings per share were relatively flat at $2.17. Our return on equity ex-AOCI remains very strong at 24.2%, up 110 basis points from a year ago. Because of our ability to consistently generate strong free cash flow, we're able to return to shareholders at a significant level while maintaining our excellent capital position. During the quarter, we nearly doubled the number of shares we repurchased from a year ago to 5.1 million shares. In total, we returned about 150% of our earnings to shareholders. Yesterday, we added to our regular quarterly dividend, announcing a 12% increase, the ninth increase over the past seven years. Very few financial services companies are generating our level of return on equity and capital return.
In core to our long-term approach, our financial foundation remains in excellent shape, enabling us to consistently invest in the business and return capital to shareholders in a meaningful way. Let's move to an overview of the business in the quarter. In advice and wealth management, we have a strong business and a significant and growing opportunity to serve more consumers with advice. The strength of our advice value proposition is how we help people navigate environments like this and help them to plan for their long-term needs and goals. Ameriprise is well-positioned to help our clients and investors address the full spectrum of their needs across market cycles and their lifetimes. The strength of the Ameriprise brand and our reputation is an important differentiator. We're back on the air with our successful Be Brilliant advertising. Consumers, advisors, and employee reaction remains very positive.
As a result, Ameriprise brand awareness hit an all-time high in the quarter. Delivering strong client service is key to our reputation and how we run the business. I was pleased to see in a recent industry survey, Ameriprise ranked fifth out of 20 full-service firms for overall investor satisfaction. In terms of client assets under management, overall client assets remained strong at $451 billion. The market volatility in the quarter continued to affect investor behavior, and clients remained conservative. Cash balances remained elevated at $23 billion, and we had solid flows into fee-based investment advisory, where we have one of the largest platforms. I'm feeling good about the strength of our field force. The Ameriprise value proposition and culture is attractive to our advisors and in the industry. We continue to maintain very good advisor satisfaction and retention.
Another seven experienced advisors joined Ameriprise in the quarter, and our pipeline going forward looks good. Overall, given market pressures, advisors maintain good productivity at $510,000 on a 12-month basis. In the current environment, comprehensive advice and our Confident Retirement approach resonates strongly. Our extensive consumer research confirms that advice is what clients in our target market are seeking, and they're not getting it from their current financial services provider. We're focused on this opportunity. This also extends to younger generations, as many are looking to work with an advisor who will meet with them personally, reinforcing the value of the human perspective and personal interaction when saving and investing. With the volatility earlier in the quarter, we increased our market commentary and communications for the field to equip the advisors to have meaningful conversations with their clients.
Overall, we're delivering good profitability with margins of 17.1% in the quarter, up 50 basis points on a sequential basis. We remain well-positioned in the marketplace to take advantage of the opportunity for further growth as conditions settle. Let's move to annuities and protection. In terms of annuities, we have a consistent story. We continue to see good solid sales of our variable annuity products, which are appropriate solutions for clients to meet their long-term goals. While we're experiencing outflows, it primarily reflects our close third-party book. In fixed annuities, the level of outflows has slowed in recent quarters. Overall, though, the book is performing as expected in this low-rate environment. Annuities and their unique benefits are integrated within our Confident Retirement framework. I feel good about how we're managing the business, developing and enhancing our competitive products and features while managing risk.
Within protection, in life and health, our UL products have been our sales leaders of late, becoming a larger portion of our balanced book with VUL. Claims experience in the quarter was also within our expectations. Overall, we have a good book, and we're working with our advisors to serve clients' protection needs. In auto and home, we're making good progress as we enhance our pricing, underwriting, and claims management. Our improved results were masked a bit in the quarter due to higher cat losses, which we pre-announced. In asset management, we're executing our strategy focused on gaining market share and generating profitable net flows. Similar to our wealth management business, in asset management, the market declines during the quarter challenged flows and assets under management. We ended the quarter with assets under management at $464 billion. Investment performance remains quite strong.
We have a broad portfolio of strong performing equity and fixed income products, and I was pleased to see five of our Columbia funds were recognized with Lipper Fund Awards in 2016. Overall, outflows were $7.5 billion in the quarter, with $5.8 billion of the outflows were in lower fee portfolios or areas we've highlighted. Fixed income IMAs at U.S. Trust, which is a continuation of our fourth quarter outflows, as U.S. Trust has taken a portion of this business back in-house. Former parent and other insurance portfolios in the U.K., and in sub-advised funds where we had ended the relationship and are merging assets into existing Columbia funds. Importantly, there is very little revenue impact to this move. Outflows also include a single large institutional client who has again redeemed for liquidity purposes. Overall, though, there are positive themes across the business. Let me start with third-party institutional.
We're continuing to see good interest in a number of our strategies, including high yield. We're winning mandates across our key regions of the U.S., Europe, and Asia. That includes in Korea, where we opened an office last year. Our new business pipeline remains healthy, and we expect to see the one not funded mandates come through later in the year. In terms of retail in the U.S., it was a particularly challenging January, but net sales improved in February and again in March. We made meaningful market share gains over the past year at nearly all of the major players in the broker-dealer and the independent channels, and at a time when gross sales for the industry are down. With regard to the Acorn Fund, outflows have slowed, and if industry flows pick up in the U.S., we expect to build on these positive trends.
With regard to retail flows in Europe, we're continuing to reinforce our strong presence in the U.K. and serve more clients in key markets on the continent, including in Germany, Italy, and Spain. European retail net flows in the quarter were similar to the U.S., but they picked up nicely to end the quarter only slightly negative. As we've said before, U.K. and European retail sentiment can turn quickly with the markets, and that has been true in recent weeks as markets have rallied. Overall, we are comfortable with the performance of the business. In a challenging market, we remain focused on providing important perspective to investors and delivering competitive performance. There are positive themes within our flow trends that are consistent with the strategy we're executing.
As I look at the company overall, we have a good combination of businesses and people to continue to execute the strategy we have in place. Our diversified business generates good earnings and strong free cash flow that we reinvest in the business and return to shareholders. Our return on equity remains strong and is one of the strongest across financial services. I feel good about our ability to continue to navigate the market and consistently generate shareholder value. Now, let me turn to the Department of Labor's fiduciary rule that came out a few weeks ago. As America's leader in financial planning, we take our fiduciary responsibility very seriously and put our clients' interests first. As you know, while the government removed some of the more onerous elements of the initial rule, what remains is a rule that is comprehensive and complex.
It's hundreds of pages long and is a principle-based regulation that requires very detailed analysis. Clearly, it will require a change agenda for firms across the industry to execute it and be compliant within the timeframe provided. We will take the time necessary to understand it and get it right. It wouldn't be prudent to try to oversimplify the rule for you today. I know you have questions, and based on what we understand today, we believe that the impacts will be manageable. We're operating from a position of strength. We have the experience and the capabilities that will allow us to adopt and comply with the new rule. Consistent with our financial planning leadership, we are one of the largest providers of fee-based investment advice, and as I mentioned, we already operate as a fiduciary under the very high standard of care.
We also benefit from investments we've made to establish a strong compliance foundation, including our infrastructure, policies, supervision, and disclosures. Underpinning all of this, our clients and advisors are highly satisfied with the experience we provide. We have a proven track record of navigating through change, and we'll build on that experience, enhancing our processes and capabilities where necessary to effectively comply with the new DOL rule. With regard to some products you had questions about, we are confident that our advisors will still be able to recommend the products that they do today in qualified accounts, including annuities and affiliated products, which are expressly permitted under the rule. In short, we will continue to offer a full solution set. Today, we apply a rigorous degree of review and due diligence to the products we offer, and we have extensive disclosures in place.
While there will likely be additional disclosures and documentation required going forward, based on what we know at this time, we believe that these requirements will be manageable. While we cannot predict client advisor behavior in response to the rule, our business model has proven to be adaptable. We can make adjustments prudently to respond to the evolving market environment. There will be added costs that we will address through expense reengineering and other means to position the firm for continued growth and margin expansion over the long term. I should also note that during this period of disruption, we see potential opportunities. For example, the regulatory environment will likely lead to consolidation within the industry, which we are already seeing. Independent advisors or independent broker-dealers may lack the resources or the scale to navigate the changes required and seek a strong partner like Ameriprise.
The financial foundation we built allows us to remain opportunistic while also making the necessary investments to comply with the rule. In closing, this is a large change agenda for the industry. At a high level, given what we know, we feel very comfortable that we can effectively navigate through it. We'll keep you apprised as we move forward. With that, I'll turn it over to Walter to take you through the numbers for the quarter.
Thank you, Jim. Ameriprise delivered solid results in the quarter despite market disruptions. However, we successfully navigated these conditions, and results in the quarter were overall quite good, as well as within each of the business segments. We continue to believe our stock is undervalued, which you can see by the elevated level of repurchase in the quarter. Our capacity to buy back stock remains strong given our balance sheet fundamentals, and our business mix generates strong free cash flow. We are committed to maintaining a differentiated level of capital return. Let's turn to slide four. Macro conditions impacted revenue in a few ways. A weighted equity index, the proxy for equity market movements on AUM, declined 8% on average year-over-year and 6% on average sequentially. This affected average AUM and thereby fees, which we collected based upon average daily assets.
Continued dislocation also muted client activity and contributed to asset management outflows. Sequential results demonstrated a similar dynamic from a mark and inflows perspective. The last quarter had strong asset management performance fees and a CDO liquidation. Low interest rates remained a headwind for our insurance and annuity businesses, and foreign exchange translations impacted asset levels and earnings. This is an industry-wide trend felt across financial services companies. Let's turn to slide five. Ameriprise delivered stable earnings per share and continued return on equity expansion in a challenging revenue environment. This clearly demonstrated our ability to navigate across business cycles using the multiple strong levers in our business model. Our business model generates significant free cash flow, and our valuation allowed us to optimistically repurchase stock at this depressed level. Additionally, we are tightly managing expenses while making the right investments to address regulatory changes and grow.
We initiated an additional expense reengineering assessment in the quarter and identified good opportunities for the balance of the year. This way, if market disruptions persist, we'll be able to effectively manage our margins. Let's turn to segment performance, starting with AWM on slide six. The advice and wealth management business continues to perform well, delivering solid results. Leading indicators for the business were good. We brought in 70 experienced advisors in the quarter, and the advisors we've onboarded over the past 12 to 24 months are ramping up nicely. Advisor retention was also strong at over 90% in both channels. Product flows were solid for this environment with $1.8 billion of wrap net inflows. Operating net revenues was $1.2 billion in the quarter, down almost 3% from last year, driven by market dislocation even after the benefit of the increase in the Fed funds rate in December.
The market dislocation impacted PTI in a similar manner. Operating margin in the quarter was strong at 17.1%, up 50 basis points sequentially. Outside of significant market disruption, we expect future margin expansion to continue over time. Asset management continues to provide a solid contribution to our revenue and earnings, as you'll see on slide seven. Clearly, we face two external headwinds in the quarter. First, the average WEI down 8% year-over-year and 6% sequentially. Second, foreign exchange translation was unfavorable. These impacted both revenue and pre-tax operating earnings. Operating net revenue was down 10% to $724 million. Over 50% of the decline was related to markets and foreign exchange, with the balance largely related to the cumulative impact of net outflows. Pre-tax operating earnings were down 22% to $149 million, with over 60% of the decline related to markets and FX.
We are prudently managing expenses, with overall expenses down 7% and G&A down 3%. The results in the quarter were in line with our expectations in this environment. However, we began additional expense management actions in the quarter and have the capacity to further reduce expenses to support margin improvement. Turning to annuities on slide eight. The segment is performing in line with our expectations. Variable annuity pre-tax operating earnings were $100 million, down from $144 million a year ago. This business was also impacted by market dislocation in the quarter, both in terms of the direct impact on account values and lower asset earning rate, as well as the impact on DAC and DSIC and SOP reserves. This non-cash impact was about 60% of the decline in the quarter. The underlying business is solid, and the risks are well managed.
Fixed annuity pre-tax operating earnings declined to $24 million due to the elevated lapses as the blocks run off. The earnings in the quarter also benefited from a couple of million dollars of one-time items. Given the current interest rate environment, there are limited new sales. As a result, this book is expected to gradually run off, and earnings will trend down during the year. Turning to the protection segment on the next slide. Pre-tax operating earnings were $69 million in the quarter. Let's focus on life and health first, which is in line with expectations. Pre-tax operating earnings benefit from stable claims experience and the recapture of a reinsurance treaty, but continues to be pressured by low interest rates.
While auto and home was certainly impacted by elevated cat losses in the quarter, we were pleased to see early indications of improvement in the underlying loss trends and the operating results. The changes we have been making to enhance pricing, underwriting, claims, and operations are taking hold. New business has moderated in targeted areas as a result of prudent rate taking and additional underwriting discipline. Let's turn to the balance sheet on slide 10. As we have told you before, Ameriprise maintains a strong balance sheet that we'll use opportunistically. In the quarter, we returned 150% of operating earnings to shareholders through dividends and share repurchase. We repurchased 5.1 million shares in the quarter, almost double the number of shares repurchased a year ago. Additionally, we announced a 12% increase in our quarterly dividend to $0.75 per share. Our balance sheet fundamentals remain strong.
We have more than $2 billion of excess capital and an RBC ratio of approximately 550%. Our hedging program is working well, and the investment portfolio is diversified. We feel good about our energy exposure, and it was in a net unrealized gain position at the end of the quarter. Our strategy is consistent, and we are well-positioned to navigate challenging environments using the various levers to continue to deliver excellent results. With that, we'll take your questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star and then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, for any questions, please press star and then one on your touchtone phone. We have a question from John Nadel from Piper Jaffray.
Thank you very much. Good morning. Jim, I think all of us on the call are probably really interested in your commentary around the Department of Labor fiduciary standard. In particular, I recognize that it's very early and probably too soon to talk about quantifying costs and those sorts of things. I think I understood your comment to say that you're confident that your advisors will be able to continue to recommend annuities and other affiliated products in the qualified accounts. Could you just go through that? Is that a matter of the BIC exemption language being changed enough in the final version versus the original proposed language that you guys feel comfortable that that's the way you can go?
Yes. We're reviewing almost 1,000 pages of what the rule says. From our review and interpretation, variable annuities will continue to be sold, as would other investment products that are proprietary or affiliated. Of course, consistent with that, like we do today, everything would have to be appropriately disclosed. There would be no difference in the sense of, let's say, we're offering one mutual fund versus the other in compensation differences or anything like that, which we do today. The BIC exemption does allow for it in that regard. Even if you look at annuities today, we do a very detailed review before any annuity is sold, whether in the qualified or the non-qualified, to ensure that it meets the standards appropriate in regard to that there are real appropriate benefits that are the right solutions for the client versus alternatives.
We will carry that into what we do here moving forward. There may be some other disclosures that the rule would want. Having said that, we feel very good about the business we're currently doing, and it is permissible, as we read it, under the rule going forward.
Yep. I totally agree with that take. What I'm also interested in is you talk about the disruption that you could see throughout the industry, which could result in some consolidation. I think your words were we're already seeing some of this. Can you expand on that a bit? Are you already starting to have some real dialogue, whether it be with small financial advisor groups or some others around potentially joining Ameriprise as a result of this and other factors?
The short answer to that is yes. As an example, I know one of the questions you have is around the cost of implementing and making these changes. As I said, and I can elaborate, is that we have a tremendous level of resources and foundation built. As an example, a company like ours, we have about 400 people devoted to this right now. I doubt very much that a small broker-dealer or even independents in general or advisors on their own are going to have the means by which they can navigate this, both from a legal, a regulatory, a compliance, a technology, a support, a servicing, an education, a training. We have mobilized our field resources, the company resources. We're going to be doing extensive training where technology is underway. We have the ability to do this, and we will.
It's not just incremental cost. We're devoting and rechanneling our resources so that we redeploy to get this done appropriately. I would just say it will squeeze others in the industry unless they have those capabilities and the means.
Much for all the color, Jim.
Thank you. Our next question comes from Nigel Dally. Please go ahead. From Morgan Stanley, I apologize.
Great. Thank you. Good morning. I had a question on the asset management margins. Previously, you talked about adjusted margins in the high 30s. Clearly, given the markets, that wasn't attainable in the first quarter. Given the market recovery and the expense initiatives you talked about, how should we be thinking about margins looking forward?
It's Walter. I believe it's, again, with markets saying that we should recover back up to the 38 and up range that we were in the previous quarter. Again, it's subject to markets, certainly, we are being disciplined on our expenses. So we believe that will definitely occur.
Second question. Great, thanks. Just a second question on the, if the U.K. were to exit the European Union, any impact that would have on Threadneedle? Just wanted to check on that as well.
Well, we're reviewing. Of course, we have our various funds that we sell across Europe. We have the different units by which we sell among those. There'll be some conversion, et cetera, and there'll be the establishment, of course, if they do separate. It will require work on behalf of financial institutions on what that is. We think if it did come about, there'd be a timeframe, and we, in our initial reviews, think that we could very easily or more appropriately accommodate those changes.
Yeah. On the financial side, obviously, we have dividend flows and other things which we are looking at putting in hedges to, we're just evaluating that right now.
Appreciate the call.
We have a question from Erik Bass from Citigroup.
Hi. Thank you. First on DOL. I realize on the expenses you won't be able to provide a specific number. Just hoping you could maybe give us a little bit of sense about the incremental spend you may need and whether this is more of a 2016 or 2017 issue.
Okay. Let me take a shot. In the first quarter, we incurred a couple of million dollars as relates to. Again, that's in the context of the original publication on the regulation, which was a lot more comprehensive, and the timeframes were a lot more compressed. When the final regs came out, we are reassessing that. Obviously, that would, we believe, result in, with the elongated timeframes and the less basic change factors that we are assessing at this stage, we believe are there, that that number will be adjusted. That is a process that we're going over.
I would say at this stage, and again, please take this in the light of we are still in the midst of it, that the expenses will probably be spread as we look at it, and probably a reasonable portion of it, and again, don't know the number yet, will be in the 2016 time, with some spillover into 2017.
I think it will continue. I would probably say this. We had about $4 plus million, $4 or $5 million in the first quarter, as Walter said. We will have incremental expenses. What we are doing is if we didn't have the type of resources and the capabilities we have, then it would be a tremendously greater amount. Since we're redeploying a lot of our internal resources to deal with this off of other various activities, et cetera, we think we could accommodate. If you look at the project itself and said you took the total, it would be probably expensive.
If you look at it as where we'll add some incremental that we'll need in the timeframe, having said that, for the redeployment, would actually say the incremental would be much smaller than what would be required if we didn't have what we have in place.
Thanks. That's helpful color.
Thanks, Patrick.
I guess are you contemplating any product changes on your advisor platform? I've seen other firms announce plans to either stop selling load funds or stop selling funds with 12b-1 fees. Are these steps you're considering, and I guess how do you think about the implications for both advice and wealth management and the asset management business?
Right. The way we look at it is this. We sell a combination of funds and share classes today for different reasons. We're doing two things. One is, under the BIC, and appropriately, if you're doing a transaction-oriented sale, of course, again, that's permitted and allowed under the BIC, and therefore, a loaded fund is still appropriate, and those funds still with 12b-1s are appropriate. Again, it's a typical that you would have to evaluate, because everything moving into an investment advisory is not necessarily a right as appropriate, even from the SEC's perspective, and the BIC does allow it. Second, regarding our various activities and platforms, we are actually, and we've been on the way for this for last year and a half before this even occurred, to actually build our lifetime account infrastructure.
What that will allow us to do is across all the various platforms on our investment advisory, that we can have one seamless way of operating, and therefore, we can actually, as the various share classes are introduced, appropriately move and migrate and give our advisors the ability to use the most appropriate for the type of investment that's out in the marketplace. We're migrating that anyway. We think that's appropriate longer term, and based on our ability to do that would satisfy the DOL's regulation of what they're looking for from a fee and a leveling and transparency. That's on the way, and that's a very large investment, but we had that on the way to begin with, and it's good that we have the infrastructure that we're going to be completing in 2017.
Great. Thank you. Appreciate the comments.
Our next question comes from Yaron Kinar from Deutsche Bank.
Good morning, everybody. Could you remind us, do you sell any third-party annuities through your advisory business?
Yes, we do.
Okay. Percentage of overall annuities that comes through? Annuity sales?
We don't break it out, but it's probably in the low double digits, something like that. It's been more of ramping up as we've continued to introduce various ones after due diligence efforts, et cetera.
Would that be true both for variable and fixed?
No. In the fixed area, particularly based on the environment we're in, it's very little in sales anyway, so we haven't introduced them. If that changes over time, we could easily do that.
Okay. A question, another category altogether. Looking at the RBC ratios, I think I saw quite a meaningful change or decline quarter-to-quarter. Could you maybe talk about that a little bit?
Well, that was actually, I think, more driven by the interest rates situation. From our standpoint, as we looked at in both with the hedging and everything from that standpoint, it was on that basis. We also declared a dividend out of the company within the normal course, an ordinary dividend.
Okay. The ordinary dividends went up to the hold co, at the same time, excess capital also came down a bit, about half a billion dollars, right?
Well, it's in the rounding, I would say it's certainly less than the half a billion dollars. Again, if you look at the earnings, look at what we did in basic payout, it's less. It's the way we express it because we're trying to get to the, again, $2 billion approximately, $2 billion plus. I would say it's in the rounding of it, and it's probably in the quarter billion range.
Okay. I'll sneak one last quick one in. With regards to expense management, can you maybe elaborate a little bit on what the contingency plan was and whether you plan on keeping it in place even if markets do recover this quarter?
The answer to that is yes. We're doing that as well, as I said, because not just we had the market volatility, which we always plan that you don't know with a perfect science whether that's going to end or not. Second of all, we've made a number of things in our re-engineering that we think we could continue to move forward as appropriate. That actually helps free us up resources that we can deploy for the DOL without incrementally increasing our resources where unnecessary.
Got it. Thank you very much.
We have a question from Alex Blostein from Goldman Sachs.
Hey, guys. Good morning. Back to the DOL, understand that it's hard to size revenue exposures and as you try to think through financial advisory behavior, but just thinking through different buckets, actually, I wanted to focus on the asset management business for a second. I don't think you guys are a big participant in class A share classes with Columbia, but maybe help us size how much of your total AUM is in IRA accounts. I guess most of that will be in Columbia.
When we look at our sales, and across the business and then what goes into qualified, as we said to you before, Columbia is one of strong providers in our channel. As I always said to you, it's low double digits in total sales across qualified, non-qualified, the whole house. Within that, we also, within qualified, have a very large, substantial business and investment advisory, and Columbia is part of that as they are in individual sales for a transaction on the brokerage side. It's no more in qualified than it is across the house per se, and the percentage is small. If you look at what may go on within the big side of it or a transaction side of it, you're talking about low mid-single digits. It's not that substantial, and it's not different than other large providers in our system.
Again, Columbia has some excellent product with excellent performance, and their fees are below average in general. When you take, I'll just because the next question, whether from you or somebody else, will be annuities in a similar, let me answer that one for you. Annuities is only in, roughly, in the qualified business of the total sales we do across the Ameriprise family here within the wealth management is only in the mid-single digits. If all annuities went away from our business, we're talking mid-single digits of sales. It's not going to occur because based on the reviews we do today and how substantial they are in pre-clearance, we think that will continue. Now, could some of it shift, the next question, from an upfront load to a level load? Yeah. We have the ability to do that. Those products are there.
If the advisors, as you said, wanted to shift some behavior and didn't want to put an upfront load, they have the ability, just like on the wrap, to do the level load. To our perspective, we don't think there's a substantial. Even if it changed it by a few %, I guess I heard from many of you over the times is why am I in the annuity business? If it shifted away, I'll just go into investment advisory, and I'll still generate good profitability and good margins. We're not concerned. We like the solution of the annuities because it fits a solution set for a Confident Retirement and longevity of income, and that need will still be there, and our advisors will still determine appropriately whether it fits.
Whether it's Columbia product or it's annuities, as an example, we think there is a critical need. Columbia has excellent product. We don't sell it differently. We don't pay differently. We actually believe that, and the BIC does allow for it. If we didn't have what we had in place, the due diligence, the disclosures, the review processes, appropriate compensation, we would probably have a different concern, but we don't in this case. Again, we will adjust, and if there is a migration in any things, we have different alternatives, and we make those adjustments. I think from a perspective, we'll be in good shape.
Great. Thanks for that. Walter, one for you, just bigger picture around expenses. When we look at your guys' G&A over the last 3 years, it's been managed extremely well, essentially flat to down over the last 3 years. Given your re-engineering efforts, obviously the market backdrop is a little bit tougher, so certain things may accelerate coupled with whatever it is you need to do on the compliance front with DOL. Is it still possible for you to keep overall firm-wide G&A in this flattish level for the next year or two?
Well, again, flat, we certainly, as Jim indicated, when we took a look and we evaluated our expense base relative to revenue growth and certainly looked at the areas that would, again, not inhibit growth and certainly allow us to deal with the DOL announcements, we do believe there's still room to manage those expenses very effectively as we go forward.
Thank you very much.
We have a question from Ryan Krueger from KBW.
Hi. Thanks. Good morning. Another DOL question. Can you talk about your view of the level fee exemption option versus the wrap platform just operating under the standard BIC?
Yeah. We are reviewing the various exemptions and the various options, and so we haven't made a determination yet on what we will utilize for the advisory and the various programs within it. That's under review right now, but there are the various exemptions, and we'll see what's most appropriate as we move forward.
I suppose this is probably a related question. Can you give us any sense, I guess, just of how much revenue sharing and marketing support payments that AWM collects? Do you see any potential pressure there because of the new DOL rule?
Well, very clearly, again, on the rule, it allows for various levels of cost reimbursement and services for rendered, et cetera. We can well support what those are and the amounts that we collect in it. We feel that as we move forward, consistent with that, based on the services rendered, the price of those, et cetera, that will continue on. There may be some adjustments as we look at it and review it, but we don't think that would be material.
At this point, you don't expect a material change to the revenue-sharing payments that you're currently collecting.
The payments we get are all for the cost reimbursements necessary for the services we rendered, that are well-supported and appropriate for what we do.
Thank you.
We have a question from Eric Berg from RBC Capital.
Thanks very much. My question is to relate to the Department of Labor. Jim, a moment ago, I just wanted to make sure I understand and have just an accurate understanding of the percentages of business that is done through the Ameriprise system for Columbia that you referenced a moment ago. I think you were dividing the Columbia sales between brokerage and wrap. I think you said, what I'm looking for ultimately is whether this is right or not, that in the brokerage side, the transaction side of the business, the percentage of sales that go to Columbia are low double digits, and that it's also low double digits on the wrap side of things. Is that the right takeaway?
Yes, because remember, there's qualified and non-qualified. Qualified, let's say, half of the total. Then within that, you get a bit more into the investment advisory than you would even get into the brokerage on a transaction side. That's continuing to shift as we continue to grow our investment advisory flow program. I think that's a natural shift that's occurring anyway and will continue to do so.
Question is, I don't want to draw the wrong conclusion, so I need to test this conclusion with you. If roughly 12% of the brokerage sales are to Columbia funds, and 12% of the mutual funds going into your wrap program are Columbia funds, I'm using 12% as a single point for low double digit. Should I be adding those percentages, and to say that, does this mean, in other words, that roughly 25% of the mutual funds that the advisors sell are Columbia?
No, just the opposite.
Okay, well, that's why I wanted to check. Why would you say just the opposite? The numbers should not be added?
No, because if hypothetically you said it was 12% overall sold in my system, and let's say you then take 50% of those sales being in qualified, and then you take more than 50% of those sales being sold within qualified in investment advisory, then you're less than a quarter of a quarter of a quarter in brokerage.
Okay. You're going, in other words, in exactly the opposite direction. I think I get it now, and I'll work with Alicia to firm things up even more. I guess my other question, well, it's just in general to revenue as well, and once again, being sensitive to the fact that it is early days, and you cannot quantify revenue impacts. Do you nonetheless see the IRA rollover business shrinking across this country and becoming just less of a big business than it had been because of the new bar that has been raised here to opening IRA rollovers?
Well, I'll put it this way again, and we're all doing our views, but the rule does not prohibit IRA rollovers. It requires a higher level of analysis, documentation, and disclosures to determine that it's in the best interest of the client. Today, we do something very similar. Rollovers are now considered part of a fiduciary advice. Formally, it's required that you do a number of things necessary to truly show what that is. It builds upon, for us, what we already have in place is very strong, comprehensive rollover education and disclosure materials. We think those, whatever we need to enhance to them, would meet some of the things. That review process would be necessary.
We have a program in place called Leave It or Roll It Over, or LIRRO, which evaluates the various options for retirement plan assets, and we're going to enhance those where appropriate. I would say that the rule does not prohibit it, but it does make sure that you're analyzing appropriately to make sure that that is appropriate for the client for a number of reasons. Again, I think that is some of the things that we do today and will continue to do. If that enhances, we'll be able to accommodate.
What that does longer term to behavior, I can't sit here, as I said, I can't predict what happens longer term and why, but I would say that the client needs the ability to determine whether they should be managing the assets differently, they should consolidate them, they should develop the various ways of getting streams of income, whether the plan does provide that to them or not. Those are all things that would have to be evaluated on an individual basis.
I'll work with Alicia further. Thank you so much.
We have a question from Suneet Kamath from UBS.
Thanks. Good morning. I just want to go back to some of the expense issues on DOL. Walter, did you say in the first quarter, you guys incurred, I think it was $4 million to $5 million of expenses related to DOL, and if that's the right number, was that all in AWM?
That was, again, as looking at across the enterprise, that was around $4 million or $5 million, yes.
It was spread across the segments?
Well, actually, again, as we look at that expense, it is a one-time expense looking at because it affects most of the segments. Actually, we're picking that up in corporate.
Okay. Was the guidance that four to $5 million was sort of predicated on the earlier timetable and that now that things have gotten extended, that number might come down. Is that what you're suggesting?
What we were doing is very clearly we weren't waiting till the rule came out to start the work necessary in thinking about what would be required. Since the rule came out, what it said is that the period was extended a bit and it was less onerous for some of the requirements, particularly that you would have to do with calculations and data and all that stuff. As we now look at it, some of the incremental that we thought would even ramp up a lot more is not going to be as necessary. The expenses we're talking about are incremental, as I said, internally, particularly in AWM, but in other places in the company, we are redeploying significant resources that is within the AWM's expense base.
Even though we've tightened expenses, we could have probably tightened them a bit more, but we're now ensuring that we do that. I would consider that more of a redeployment rather than incremental. There will be some more incremental. Walter's working on what that would look like, and we'll give it to you in the second quarter. As we said, a lot of it will be from redeploying what we do.
Maybe just a broader question, because I'm trying to figure out what the word manageable means. When you think about this DOL impact and your view that it's manageable, can we assume that the financial targets that you've sort of established for the house in terms of EPS growth and ROE as well as for AWM in terms of margin, that sort of manageable means that those goals are still achievable?
Yeah. What I would say, Suneet, is this. I wish I could give you more perfect science. I can't. I would say this. I know people have looked at us and said we are going to be more significantly impacted from the industry, et cetera. We don't believe that. We think that some other people will be impacted a lot or in general across the industry. What I would just say is we will be impacted. There's no doubt about it. This will cause a level of disruption, change, focus on moving and migrating where necessary, changing people's behavior a bit. We will get that done. Now, what that would probably mean is there'll be some adjustment in whether there'll be cost or revenue in some fashion over a number of periods, it will work its way through.
I would not say that it would be significant. That's why we say manageable, I can't say it won't be anything. Longer term, we do feel that we have a good value proposition. There's a real need for our services. We will put in place the necessary things appropriately to help our advisors continue to build their businesses. With that, we will get back on track to the margins that we said we were targeting. More important than the margins, the growth of the business. From the growth of the business, the margins will occur. I can't sit here and tell you that, no, we've changed the strategy.
We haven't. I can't say that we see something that would take us off of our cost longer term, I could probably say that maybe just the seamless idea that you're going to continue to do everything in the next periods where that's not going to translate to some change, I can't say that at all. Longer term, we'll see what happens, this is an environment that does change. Ameriprise has the capability. We have a good value proposition, good foundation, that's the way we're going to navigate. I'm not here to give you a perfect science. What I'm telling you is we're not falling off a cliff. We're in good shape. We have the means. We have the ability. We have great client satisfaction. We got terrific advisors that know their business well, we already operate in a very compliant way.
Maybe just the last one, just to try to get a little bit more color on maybe why the market is wrong in terms of you guys being more impacted. Can you just maybe highlight one or two of the areas, both on the revenue side and the expense side of where you see the biggest impacts from this?
Well, listen, Suneet, it's Walter. We're scratching our heads also. I'll be candid about it. Maybe, of course, people think we have both sides of it, but certainly, as Jim has said, both on the annuity side and on the Columbia side, these are all numbers within ranges that are certainly not concentrated at such levels. We have demonstrated adjustment, and these products work. These products are within acceptable exemptions and things like that, and they are solution-driven. We're scratching our head also. That's why, candidly, we basically purchased what we purchased in this quarter because we do believe we're undervalued.
All right. Thanks.
Thank you. We have no further questions at this time. We would like to thank you, ladies and gentlemen, for participating in today's conference. With this, we conclude today's call. You may now disconnect.