Okay. Next from Ameriprise Financial, we have CEO Jim Cracchiolo, CFO Walter Berman, and the Head of IR, Alicia Charity is also here. Under Jim and Walter, Ameriprise has produced an impressive track record of significant growth and margin improvement in its advice and wealth management business, plus a very high level of capital return to shareholders. Let me turn it over to Jim to tell the Ameriprise story.
Thank you, and good morning. I appreciate your attendance. What I'd like to do, and I know we're going to go over the Q&A, and so what I'd probably just like to do is give you a little perspective of how we're feeling about Ameriprise, and some of the things we're focused on, and then we can get into the questions. Very clearly, I think we've had an excellent track record of continuing to build our diversified business. It's around really retail financial services, per se. The way we go to market is really a focus around our advice and wealth management business under the Ameriprise brand, and then complemented with that would be our asset management business that we're looking to continue to grow on a more global basis.
In the advice and wealth management business, we have been able to generate very good returns over time as we've continued to grow our client base, bringing in good client assets, bringing good flows into our wrap-type asset management business. Also serve our clients very well with very deep relationships that we have. Our client satisfaction is quite high. In fact, it's highest it's ever been. We've gotten very strong recognition in the marketplace for what we provide to the clients. Forrester rated us number one in customer experience across the investment industry. We got rated number two in trust across all financial services in the investment world. Only Vanguard beat us out there. We got number one rating in Forgiveness Ratings, meaning that if we ever made a mistake as a financial institution, our clients would forgive us.
From a perspective, we've been really positioning ourselves quite well under the Ameriprise brand. We go to market more around our advice value proposition, but we serve our clients with deeper relationships across their full needs, investments, protection, liquidity. We also look to serve mainly the populations of those people transitioning to retirement as well as those accumulating for retirement. The biggest need we're trying to satisfy is how do people manage their finances through 30 years in retirement. We feel like we have an excellent value proposition. We've invested a lot in our business over the last number of years, technology capabilities, marketing, branding, helping our advisors even become more productive under the advice value proposition. That has translated to very good margin growth, very good revenue growth, and very good profitable growth.
Our advice on wealth management again last year grew by double digits, over a 30% increase in PTI. Complement to that is our insurance and annuity business that we only sell those products through our advice channel to our clients as part of that depth of relationship as solutions for those clients. Because of that, we have built those businesses over decades. We have an excellent books business, and we can generate very good returns because we don't look to grow that aggressively at any period of time, but over time. It's part of a solution set that our advisors work with their clients, and they keep those products over many years. We can generate very good returns because those products are very long-tailed, and that long tail gives us a very good ongoing revenue and profit source.
As a complement to our distribution, we have those products as part of the solution set in addition to all the other products and services that we sell. That's the way we think about our INA business very clearly. From that, we can generate good returns and give us some diversification. On the asset management side, over the years, we now have created more of a global asset manager. We have about a half a trillion dollars under management between our Columbia and Threadneedle businesses, both retail and institutional. It's an area that we feel we can grow. We generate good returns in the business. We have a good margin in the business. We have a good number of products that have good performance. We think there's a growth opportunity for us as a quality asset manager.
Not the largest, but definitely of the size and scale to be a player. That's what we've been investing in also over time. This year, we'll be coming out with a new brand where we're combining our Columbia Threadneedle business and going to market now as a global provider. Clearly, we've gained a lot of traction over time in what we needed to put together there. Now we need to grow the flow situation, dealing against some of the ex-parent outflows, but really moving that into an inflow situation. When you put that all together, Ameriprise has been able to generate excellent returns for the shareholder. Since we've been a public company, we have been the second-best-performing financial across the entire financial services industry. We beat the asset management index, the life index, the S&P financial index, the S&P index by a distance. We've generated excellent return.
We are giving back to shareholders, one of the best out there across the industry on a share of capital return. We have raised our dividend consistently over the years, and generate a good return there for the shareholder on a yield basis. Over time, we have a very good capital position and diversity of businesses for us to continue along that line. I do believe we're positioned well. I think we have a good foundation in place. We've been able to prove that we've been able to generate good returns, and we want to continue that track record as we go forward. With that, I'll go back to Q&A.
I'll start it out, and if anyone has any questions, please just raise your hand. Jim, just starting with how well your stock has done, and I think one of the key drivers of it has been the advice and wealth business and the very impressive turnaround of that business and growth. I guess my main question on it is, why do you think it has gotten so, what's been the main driver of improvement there? It's pretty rare when you see 30% compounded growth in any business within financial services, let alone something with such high free cash flow. What do you think has been the main driver? And is there a risk that at some point, competition starts to intensify? Anytime I see something that's doing that well, you always got to ask yourself, why isn't there more competition?
Is that a risk for you?
Well, I don't think anyone in the financial services business today would say there's not a high degree of competition out there. I think everyone feels that level of competition. I think there are a number of players out there competing for that space. I think that the reason we've been successful is really the core focus we've had on the client. As I said to you, when we get rated, and we have some of the highest client satisfaction that has been consistent, our Net Promoter score is one of the best in the industry from our clients. We get 70% of new business coming from referrals. It has a lot to do with the value we're delivering against that clientele that we're serving. That really has lent itself for us to increase our client base, increase our asset base.
Those assets stay with us a long period of time. That helps with what we're delivering as a value proposition, the focus we've had on our advisors, helping our advisors become more productive, helping our advisors engage their clients. We've invested a lot over the years in new technology, in everything from social media to support with our advice, tools, and capabilities. We have helped our advisors engage their clients more the way the clients want to engage. I mean, a number of years ago, we weren't even on the map regarding being in the online space against, let's say, online discounters, et cetera. Over the last few years, we've been rated number one, two, or three in things like online web experience, online brand, online use of social media.
I think we have been able to change and evolve our business to really focus on how do we want to engage our clients and how do we want to prospect. We were rated number one in prospect experience. The combination of those factors with having a highly qualified advisor force that really uses more of an advice-based value proposition, I think, is fitting really in tune as you think about what clients experienced through the financial crisis.
Got you. Okay. A common question that I get about Ameriprise is, would you consider divesting or spinning off any of the pieces that might weigh on your multiples, such as the property casualty business or any of the other protection businesses? Is that something that down the road you think might be contemplated, or is there a real reason strategically to house it all internally in terms of the full breadth of businesses you have right now?
I think that has been a question that has come about over the last number of years, particularly as you go through the financial crisis, and many other companies have been significantly affected in their, let's say, their annuity block. In our case, we feel very good about the businesses we have, and I'll touch upon each one of them and what we would think about. If I think about our annuities, our life business, I feel very good about the business. As I said, it was built over decades. We closed down doing any activity through third parties because we didn't like necessarily the behavior or the churn that occurred there. These products have really been thought of solutions for our clients. We generate excellent returns on them. In many cases, they're in the 20s. We know the client behavior.
We know how to support those products over decades appropriately for generating good shareholder return as well. I feel very comfortable. Now, are we trying to aggressively grow the business? The answer is no. As you see, the mix of our business has gone where that was a dominant way we generated some of our profit to now our advice and wealth management business being now the largest segment of growth and profitability. The life and annuity business has now become less than 40% of the mix and will continue to shrink as we grow our other pieces of the business. We'll still be able to generate some very good returns there. I think the value of that business, probably others look at it and say, "Hey, I think it's just like what's out there. I think it's a better premium business.
I think there's more value. It generates a better return." Today's marketplace, I don't think I would capture the type of value, even the way you guys will look at it and rate it, because you're not looking at holistically what that business is doing, the book of it, the integrity of it. I think there's more value for us to hold that business and continue to make it a smaller part of my business as I grow my less capital-intensive parts. There are two pieces of it as you raised. There's a long-term care block. It's a closed block. We stopped writing new sales over 12 years ago, but it's still there. It doesn't generate as high a return. We constantly get price increase for whatever the increase is that we need there. We right now don't generate the type of returns.
The interest rate environment's low. Maybe when there's a different type of market for that, we can think about some alternatives for it. The second part is the P&C business. We like that business. It's an affinity model. We have a very good expense structure in how we grow that client base. We have very good client satisfaction. It was rated, again, by external sources as number 1 in client satisfaction or number 2 out there in certain states. I actually believe it will generate good returns again as it once did, but we have some adjustments we have to make against some of the reserve situations and the developments that have occurred. Over time, is that intricately core? The answer is no, because it's not necessarily primarily sold against my client base.
Right.
I do have opportunities to look at that or partner with people. Right now, our focus will be getting that back to very good, strong stead. It has been a nice diversifier in the past. We've been able to generate good returns on it. It's not as core in a sense that it's all the client relationships are through the Ameriprise clientele.
Got you. That's helpful. Maybe shifting gears to Walter for a minute, can you help dimension the long-term care that Jim was referencing? What's happening there? I believe there's some type of review going on with regard to that business, and I know there was some commentary on your call about you have a relationship with Genworth. I believe there's a reinsurance arrangement there on some piece of the block. Can you just give a little more color about what's happening there? Is there a way to dimension risk associated with potential charges?
The insured victim center of the block with Genworth, they do the claims and administration. All we're doing right now is just a continuation of exchange of information on claims that they do normally. They're just doing up now in this quarter, so we can take a look based upon their block they looked at, certainly, we're just getting additional information. We have always basically reviewed this. We feel very confident with the reserve position that we have. My standpoint, it's a managed event. As Jim has indicated, we've been raising prices appropriately. We have not been writing. Genworth and others have been writing, so it's an entirely different situation. We feel it's totally what we have on the books right now is totally adequate, and we feel comfortable with it. With interest rates going up, it would be even better.
If there were further financial difficulties at Genworth, could you help us understand how that would affect you? I think there would be a reinsurance recoverable type situation that we'd quantify, or just in a way that you've thought about it.
Well, listen, we have been with Genworth for a long time. Again, I don't want to comment and speculate on things, but certainly, with old reinsurance arrangements, you have recoverables, the receivables, there are assets that back that up. Their RBC ratios, certainly a public record, are very good, and certainly they're meeting with their regulators. We feel at this stage, they are dealing with their earnings situation. Looking at our block, we feel comfortable, and we understand we're not even thinking in terms that immediate action is necessary because, again, going concern, good RBC ratio, regulation. We understand where things are invested, feel good about it.
Walter, another question for you. Can you help explain the economics of how it works with the hiring of the experienced advisors? Because I think that's been a big part of your success, morphed into where that was. If I go back several years ago, I think there's been a big push to hire more experienced advisors, and I just think from a margin, from a growth standpoint, that's kind of fueled a lot of the improvement you've had in that business. Can you explain? I believe it's a forgivable loan structure that in terms of the comp when you bring them over, but can you just help explain some of those details as to how that works?
Sure. First, the base franchise model that we have has certainly been the core generator of our profitability and the productivity and the improvements that are there. The experienced advisors has been an excellent program for us as we shifted from the novice approach. We developed that when we acquired H&R Block Financial Advisors and the capabilities of doing that. That has been very good. What we've done is built the employee channel, which again, has a higher expense base but has a greater contribution to that expense base. Over the years, we have brought on experienced advisors and kept on improving the productivity of those experienced advisors coming in, primarily in the employee channel. The contribution they're making to the fix as they vintage through, it takes two to three years to build the book back up.
It's been extremely good, so there's a good pipeline there. As part of the industry, basically, one person's coming over and moving their book. You try and compensate them for the fact that they will have some lost income. You go into a forgivable loan situation. We balance that with an upfront and also with a back end reduction, and certainly have the right protections from our standpoint on performance and as it relates to it. We feel comfortable that the risk return of that portfolio is quite good. The paybacks have stayed in the three to four year range. It's
Certainly, we manage it, we look at it. We have certainly trying to track the type of advisors that meet our criteria, and we feel that it's, like I said, giving us good paybacks. Employee channel is now just under 10% margin, doubled from 2013, and certainly we have expectations that will continue to grow to meet where the franchise channel is right now, which is a tad under 20.
Is that fairly commonplace in the industry? Is that the comp structure that you all use, or does that vary?
I think it's common, but I think we emphasize more the type of advisors we want to bring in, and there is a production element to it, and it's the type of advisor that actually wants to build relationships. We're careful to keep within our cultural aspects to it. I think the basic transaction commission is fair. We don't chase it.
Okay.
Again, we're looking for people that want to build relationships with, not just want to get a huge check.
Got you. And Jim, I think over the last several years, you've shifted and consistently moved in terms of the capital return program to buyback instead of acquisitions, and I know you've had some successful acquisitions in the past. What are you thinking now about that balancing?
Yeah. I would say, again, we're going to continue to return to shareholders. We said publicly again that we will return between 90%-100% of our earnings. That's our starting point as we think about the year, and we sort of target from beginning. Having said that, I think we have the flexibility to continue to raise our dividend. We have the flexibility to buy back more in certain situations if we want to. We also will continue to look at opportunities in the marketplace, and if something does present itself that we think would generate value from a shareholder return or strategically help us even grow more profitably, we have the free cash to actually go in and do an acquisition. We have the experience between what we did over the last number of years with the acquisitions we did.
We feel very comfortable that M&A will still be part of our future. What the opportunity is when that comes along, we're not sort of saying we have to go out and buy something. If something good comes along or fits what we're looking at, we'll be interested, and we have the cash to do that, and we can still return well to shareholders.
As you just think about structurally what would make the most sense for you, would it be on the advice and wealth side or the asset management side?
We would say that the things that would probably use a bit more of the capital if we want to would probably be more on the asset management side, only because of the types and size of things. We're very interested to continue to grow our Advice & Wealth Management channel, but we're not just looking to acquire independents or something that we would change the way we operate or our culture or our value proposition. We can do a number of smaller activities there that will complement our recruiting, and we'll look at those things in the marketplace.
If you're saying anything of a sizable nature, it'll probably be in the asset management space only because we would look at some other solution type of set that would complement what we already have, some expanded distribution, particularly as we think about international, or some product sets in the alternative space or something like that that would be complementary. Again, we do look at things as they come along, but we also have certain criteria of what will help us advance without necessarily taking a step back.
Got you. Speaking of the asset management business, it's been in net outflow mode now for a number of years. Can you talk about the initiatives and outlook on potentially turning that around?
I do believe, the reality is we have been in outflows, I think part of those outflows is a natural occurrence when you do acquire a large asset manager, particularly that was part of a proprietary business activity. Going through that transition, it has taken a bit longer in some aspects than you always want at the beginning. I think if you look through that, including even though Threadneedle still has outflows from its ex-parent stuff from over a decade ago, we've been able to generate very good returns in that business. We've been able to grow that business in total economically. From the type of foundation we formed, even after the outflows, we still now have a half a trillion dollars of assets. We're earning more than we've ever earned before with very good margins.
What we've been doing is trying to build off of what we've put in place. Our institutional business, again, adjusted for some ex-parent outflows, is actually in inflows. We think we can continue to build that. It took us 2 years where we were on consultant watch, we couldn't sell new product then. We still suffered the ex-parent outflows. That has turned around. Now we're in third party, we're growing that. I think the Threadneedle has been growing and doing nicely, we still experience $3 billion-$4 billion of outflows from the Zurich book. We have a great client relationship with them. We serve them well. We like the business we're doing with them. The installed base has maintained itself, you're still in outflows based upon the drawdown or closed book activity they have there.
I think Threadneedle has grown tremendously over the years as well and diversified. What we're focused on now is continuing to do those first 2, also bring the third-party distribution in the U.S. into inflows. We still have a level of outflows from the U.S. Trust activities that will be there as that business continues to adjust. Again, we have a great relationship there, what we're trying to do is grow the inflows through the third parties and the intermediaries, I think we have a better team in place to go do that with some good product to sell. As any asset manager, you always get hit with some of the things that might have been either underperforming or a change in manager or something like that we've experienced over the years.
I think the big issue more so is active management hasn't been the hottest area of inflows over the last number of years. That affected the industry as well. In combination with us going through our transition, the acquisition, the integration and all that stuff, you don't have a lot of inflows outside of pockets in active management. Hopefully, based on the change in the market situation, that the correlations won't be all ideal, that indexes always beat active management. I think maybe there'll be a greater interest in some of the solutions and other products that we as others have, that would bring more inflows back into active management.
Okay. The last question from me is just to better understand, Walter, technically how it works. If short-term rates do rise eventually, how that works its way into your margin. Because I know you highlighted the fact that your margins have been depressed in your cash business within advice and wealth. Can you talk about how big of a balance that is? Whether all of the uplift in short-term rates come through and improves your margin, or is there an offset in terms of the rate that you have to give to the client? Help us understand that.
Yeah. We have basically based upon historical trends. With the first 100 basis points increase, that you would have, tell me if I sweep accounts, we have about $20 billion.
20. Okay.
$20 billion. That about 80% is retained by Ameriprise. We've been in this situation for a long time now. Obviously we have to gauge by competitive events. On that basis, you had $160 million coming into, again, for a full year coming in. The second 100 basis points, again, traditionally what happens is about 50% now goes to the client, 50% comes back to the company. Again, good increase is going through, and that's there. We'd have to gauge it, and certainly from that standpoint, but it would be. Right now we earn 20 basis points. It's not really been contributing to the margins at all. There's a big upside, and we just have to gauge what the competitive environment is. That's the general rule that we've been through on the short end.
Right now, that $20 billion, effectively, what does that translate to in terms of the contribution to pre-tax margin? It's basically closer to zero.
Yeah. It's 20 basis points on $4 billion. It's on that basis point you're earning $40 million.
Right. For that large of a
Again, this is part of the way the business is. It's part of our working capital. That $20 billion goes from $15-$20, and we've been growing it, so it's just not been contributing much to the margin right now.
Okay. Any questions out there for Jim or Walter? Okay, thanks a lot, guys. We will move to a breakout session in the Garden Room 2 starting in 15 minutes.
Super.
Thanks.