Good morning, everybody. Thank you for joining us for Ameriprise's financial community meeting. My name's Alicia Charity, for those of you I have not met. We've got a great agenda today. We're going to start off hearing from Jim Cracchiolo, then from some of our business leaders, then wrap up with some comments from Walter Berman, our CFO. At that point, we'll open it up for your questions. Wanted to briefly bring your attention to our forward-looking statements and information around non-GAAP measures. With that, I'll turn it over to Jim.
Thank you. Thank you, Alicia. Good morning, everyone. Thank you for joining us here at the New York Stock Exchange. For those of you who are tuning in on the web, we hope that we'll give you an informative session this morning. What we'd like to cover is to give you an update on our story, the Ameriprise story since we became public in 2006, and the major transformation that we've gone over. In that regard, we think that we're set up for a significant opportunity of what's happening out there in the larger market price around retirement, around the growth of mass affluent and affluent populations, and their need for advice. With that in mind, we think that we've created tremendous value over the last six years, and that we're positioned well to continue to create value.
We think today our company is a bit undervalued, both on a pure basis, also as we think about it as the sum of its parts beyond that of what we can grow for the future and the type of returns that we can achieve. We think there is a significant opportunity. We think we're positioned well, we'd like to walk you through that today. We wanted to now talk about the company a little differently than we've talked about it before. We've talked about it mainly in segments. We want to start to think about how we go to market, how we position the company, how we invest in the company, and how we make decisions. With that, we wanted to give you a little better understanding of our advice and wealth management businesses today.
Don Froude, the president of our advisor group, as part of that leadership team, will talk about the advisor part of the equation. Then Ted Truscott, our CEO of the U.S. Asset Management, and Mike Jones, the president, will give you a better understanding of Columbia Asset Management. Crispin Henderson, the CEO of our international asset management, Threadneedle, will talk a bit more about Threadneedle's opportunities as well as how they're positioned because we think the combination gives us a good makeup to continue to grow in that space as well. Let me start by saying when we first came out, we had to undertake a major separation, as you're well aware, then we went into one of the most severe financial crises and recessions that we faced in many, many decades. Today, we've come out in a strong way. We're a diversified retail financial services firm.
We really focus moving from the mass population to the mass affluent and affluent, that's where mainly all our growth is coming from. We're today a recognized brand. Ameriprise today has grown in awareness around the country. It's grown in awareness both from a client and a prospect perspective, it's grown in awareness even from a rep and advisor perspective, you'll hear more about that from Don in a minute. We also have a strong wealth management business. We've invested heavily. We're generating good, strong returns and good, strong growth. Our asset management moved from more of a middle-type player to now one of the largest out there, not just domestically, but as you look at it, having to have a good international makeup for us to be positioned well for global activities.
Our insurance and annuity business is now a true part of the equation, it's part of the way we think about our client relationships and solutions rather than a dominant part of the business on a standalone basis. We have proven through this financial crisis, through the market challenges, as well as the investments that we've taken on, that we can execute well, that we have established ourselves as one of the strongest players out there from a capital perspective, a liquidity perspective, from a financial investment perspective that Walter will talk about in a few minutes. What does that look like financially? Well, over the last six years, we've grown our revenue base, even through the financial crisis, significantly, up 42% in that period of time. Our earnings on a net basis has almost doubled, 94% up.
Our ROE improved by 38%, that's with a very strong capital base and excess capital position that we're holding today. Our assets under management and administration grew as well, over 40%. For you as investors, shareholders, and for us in looking at the value we created from a total shareholder return, over that period of time, we're up 43% against the S&P index of 16, the asset management index, a negative 10, the life index, life and health, negative 15, the S&P financial is negative 47. We've been able, since we became public, to execute against the strategy we put in place, what we told you we were looking to do.
We were able to navigate one of the most severe financial crisis and keep the company strong, give us the ability to invest, gave us the ability to acquire, today we think we're in the strongest position. Now, there are still significant headwinds out there. We understand with the interest rate environment, that's still a major headwind. The market volatility, that's still out there and is affecting us and the industry. We also feel we're positioned well for growth, that our balance sheet and our ability to navigate the storm as we did previously is there as well, we are very much focused to continue to ensure that we can generate strong returns for the future. The reason we feel so good is because of what's happening beyond what you see today in the marketplace day to day and quarter to quarter.
Three secular growth trends that are really helping us move forward. One is around retirement. We'll talk about that because more people are moving to retirement, and the people moving to retirement, the people in these age groups, have most of the assets. The mass affluent and affluent population is where those assets are growing most significantly. What they are seeing today, based upon the financial crisis, the volatility, the idea that they themselves have to be responsible for their retirement, is they're starting to ask, "How do I achieve it? I need advice." Let's look at some of those stats. The U.S. investable assets by age bracket. You can see the 55 to 64 years old, that was roughly 25% of investable assets today. In 2010, that's 29%, that will grow to 30% as that total pie doubles over the next 10 years.
The 65 plus, biggest movement, baby boomers to retirement. It's growing nicely. 34% of the total makeup today, that will grow to 40% by 2020. The total pie is estimated to double. We play right in the heart of that arena. You also look at where those financial assets are invested for retirement, whether they're in non-qualified investments held for retirement, IRAs, DC plans, deposits, annuities, protection. We play across that range of all those product solutions and the way people need to be handled for their retirement, qualified as well as non-qualified. If you think about it from the overall population of who we serve, those populations are saying 79% of consumers do not feel very prepared for retirement. We know that today. All the conversations are around that.
68% of consumers desire to receive advice, that continues to grow, and 54% of the target market prefer to work with a financial advisor. Ameriprise is having one of the largest networks, a network built around financial planning and advice. That is our go-to-market value proposition. The ability to serve clients with the solution set we have, we think that we're situated quite well. Our asset management business plays in a similar arena, whether through product that they manufacture for us at Ameriprise and solutions, whether through intermediaries to satisfy those same types of opportunities for intermediary clients, or in institutions and pension plans, et cetera, to serve that market. The other way. Thank you.
We think that we have a makeup, the type of businesses we're in, how those solution sets work together, how can we target this market, the network that we have to target the market with. We can take greater opportunity, both for our wealth management as well as our asset management businesses. What I want to talk to you today about is not our segments, but the way we go to market. See, as we think about our strategy, as we position the company, as we invest, as we target, as we develop the type of solutions that we need, we focus on two real opportunities, the wealth management and retirement market and the asset management market.
In the wealth management market, we look at the advice and solution-driven businesses to focus on the mass affluent and affluent populations, the ones that we said are growing and have all the opportunity. We look at a range of solutions, both ones that we manufacture and ones that we network in, to satisfy those opportunities. Through deep relationships, we're able to generate very good diversified revenue streams. In the asset management business, we transformed ourselves into now more of a global asset manager. We have size, we have scale. We serve both the retail and institutional market, and institution will be one that we think there's a large growth opportunity for us. The solutions that we continue to innovate against will help people achieve wealth as well as their retirement solutions to achieve goals beyond just achieving their benchmarks.
If we think about the wealth and the retirement area, today, we're situated quite well. We have one of the largest networks, the fifth largest in the country, the leader in financial planning and advice, more than 2 million retail clients, roughly $300 billion of assets that we manage or administer for those clients through our network of 9,700 advisors. What's critical is that even from a solution set, we're one of the largest. Number 2 in the way we manage assets and mutual fund wraps. Number 7 in managed accounts. Number 7 in IRA accounts and administration. Top 5 in the retail retirement space.
One of the things that we truly stand out for is the satisfaction we get with the clients, the tenure of our clients, the persistency of their assets, the depth of their relationships, the amount that they refer us based on their satisfaction. There are other large companies, but many of them now are part of larger institutions. We have a makeup as an independent company, truly focused here with a branded nationwide brand serving this population. If you think about our advice and wealth management business and retirement, where were we and where are we today? We established ourselves, so we separated from American Express as a new brand. Now we have a well-recognized brand, one that is taking space in all the areas that we want to do business in. We've moved more from a mass market to mass affluent and affluent now.
We're moving further upmarket. This is where our growth opportunity continues to come as well. We've always built our network from the ground up, novice advisors, college graduates, some career changes. Now today we're bringing in career changes and more experienced people with books of business, people who actually want to grow in the financial advice and planning in a more fruitful way. Our model is around developing deep relationships, growing productivity. We have some of the best productivity gains of anyone in the industry over the last decade. This is where we continue to gain share of wallet, where we continue to attract more clients in, where we continue to get more referrals. This business has moved from a cost center or a distributor to now a strong profit center in its own right.
Beyond that, it is the gateway for every other product that we manufacture. It is the gateway that brings in the clients, the assets, maintains the relationships. That's why we have a good risk profile, good behavior. That's why we can generate good, strong returns with less volatility and risk in the products that we manufacture. That's why it's all linked and tied together. Our brand is starting to stand out. Not just a brand that's out there today in financial service, but more of a trusted brand. We did not break that trust during the financial crisis. We did not take government support. That is really standing out in the consumer's mind. It's standing out in the advisor's mind. It's very critical that we continue to be focused on who we are and what we're all about.
That's why even the new ad campaign with Tommy Lee Jones, whether it's on national TV, it's on web, it's through our seminars and what we bring to life in local communities and what our advisors do, is starting to really have an impact for us. If you look at one of the stats that we talked to you about, operating net revenue per advisor, that continues to grow nicely. Why does it grow nicely? Because we continue to gain more clients with more assets. We've transformed our employee network, as I said, from a novice network to a productive network. That productivity continues to rise. You'll hear more from Don, but we continue to grow the productivity by keeping more people in that channel, as well as adding to that channel and hiring productive people.
With deepening relationships, the tools, the capabilities you'll hear about helps our advisors go to market better, helps them deepen their relations, identify opportunities, helps train them and develop them, and give them the marketing support to grow. Part of that is also the way we do business. We go out to look at their needs, look at their goals, look at their goals over lifetime, look at how they can achieve retirement the best way. That's why 65% of our revenues are fee-based. Even within this business, the largest part of the business is asset management. We have one of the largest fee-based businesses regarding financial planning. The way that comes together and continues to add value is tremendous.
As we grow the network, moving from where we transformed it and brought down the number of advisors to the stability we have to growing, and you'll see that we think that we will be able to add to that. Now, even with the headwinds, one of the biggest revenue streams you know we have and the industry has is net spread for free cash. Very little in these economics today. Could be significant as the world repairs and interest rates start to get more normalized. Even with that, our net operating revenue, again, year-over-year, third quarter to third quarter has grown by 15%. If I put 2009, you'll see it nice again. Same thing in our operating pre-tax income, grown by 43%.
We're achieving the margins we told you about, even though we're not getting the benefit of the interest rates that we've mentioned to you. We think we can continue to grow productive. I cannot predict the global economy. I cannot predict markets. I cannot predict the level of volatility that people will experience. I just know that based on our success through the crisis, our success to date, and the ability for us to continue to grow in this space, that I think we'll do reasonably well, again, adjusted for markets. People all the time say, "Well, Jim, how do I think about your business? How do I compare it?" What we're trying to do here is give you some comparisons both on a segment basis, but then absolutely. Again, we're not someone just coming into this space.
We're established, we're large, and we should be reckoned with. I just use two proxies out there, whether they be Raymond James or LPL. One's a regional player, one's more of an independent network, not a branded proposition. Here again, if you look at our net revenue per advisor, quite strong. If you look at our operating PTI, quite strong. Look at our margins, quite strong. Look at their PEs versus ours, quite different. I would challenge and say, this is a nationwide branded proposition. This is not a highly leveraged individual entity. This is one well established with strong tenure, with client relationships that are also tied to my brand as one or two others like Raymond James. Look at it in that light.
I would also say look at our growth rates in each segment as I talk about it against whether it's those players or other peers. Our annuity and insurance business are solutions for our clients. We choose to manufacture them. Why? Over many years, we developed tremendous scale, a great book of business, good risk profile. Strong, persistent client relationships that these solutions satisfy, as I mentioned to you in our advice and planning model. If one of our products takes part of that space, we generate another revenue stream, another profit stream, another detail attachment in that client relationship. One that we feel very comfortable to honor. I'll explain a little about that, and Walter will complement my conversation here. Our products are focused on our channel. We do not sell these products now externally.
We sold a bit of them in annuities. We curtailed that a year ago. Let's look at the annuity business as an example. It represents a piece of our client assets, less than 24%. It's a critical capability for us to help satisfy the retirement income part of the equation for the client. Walter will tell you about the makeup of that, the type of benefits or guarantees, and that's not against the entire book. Those relationships with our clients are strong. They last a long period of time. It also, because of the type of client that we associate with through financial planning and advice, have both good persistency but good behavior. Our products are manufactured to work with that behavior in the right way so that we can generate appropriate returns over the long haul. We're a scale player, we can operate efficiently.
We put in place and continue to manage our risk well, including the way we hedge, so that we can eliminate some of that volatility. Having said that, one of the questions that you've always raised is, well, what if? Walter is going to give you a little more of the what if. We don't think the what if in any way will affect the entire company as you would think. Yes, it will have some effect on our earnings here, et cetera, but we've been able to manage that well. We've been able to limit some of the downside and still generate good, strong returns over 16%.
I believe that our risk profile against our client relationship, against the type of products we put out there, against the way we manage our exposure is better than what is out there if you sold this through a third party intermediary that you can't control the behavior as well or understand the behavior as well. From an insurance and protection perspective, you look at our life business, it's mainly focused on asset accumulation. Our largest book is of VUL product. VUL sales have slowed in this environment. Of course, market conditions, the volatility of equity markets, but that is the large part of our book. Again, it's designed for our type of clients through these planning type relationships. 85% of our life growth annualized premiums are permanent products. The remainder are as in term. Here again, we reinsure 90% of the mortality risk.
We have strong client persistencies. The reason this business works for us is because our clients do live longer. They do have good persistency. Our life book generates good ROEs. We have a piece of that book, long-term care. It's a closed book we continue to raise. We're starting to improve some of the returns there, but it's not something we've grown. It's something we manage, et cetera. Even there, we freed up some reserves and capital recently. Our P&C book is only part to our clients. The other piece is to third parties, but it's through affinity relationships. Even there, outside of the volatility we experienced with some of the cat losses this year, et cetera, you'll find that that book over time generates a very good return. It's a direct player.
In that industry, it actually has some of the better returns, the better PEs, the better focus on what that is as a low-cost provider. We feel that the businesses we're in the protection, in the annuities, in the P&C, really does give us a good risk profile as part and complement to what we do. It's not the highest growth part of our businesses. It's lower growth, and I'll show you that in a few moments. It gives us a good diversity, a good solid base, diversity of revenues and premiums, et cetera, that will complement and give us an overall good return with less volatility over time to equity markets alone. When you put this all together, our products are designed as solutions, not commodities. We have a lower risk profile because it's a client-centric approach. It's not a commodity product sale.
Our revenue streams are diversified and recurring. Because of our deep relationships, our strong and high client satisfaction, our high advisor satisfaction with the company, strong retention rates there, strong client retention persistency results that gives us strong returns versus our peers, and ones that we feel we can continue to grow based on the need that I had mentioned to you upfront, the growth in retirement, baby boomers moving to retirement, the bulk of where the asset pools are, and the need for advice. I'm not saying Ameriprise is the only player out there, but I am telling you that we're one of the few, as an independent public company of the size and scale, to take advantage of that opportunity. We don't need to gain share from anybody else.
We just need to grow a bit against the very large population out there that need our services. That's what we're doing. We will continue to transform this business to take advantage of that opportunity. This year, last year, next year, we're making some of the largest investments in our technology, already built into the results I've explained to you. It's not as though our cost base is going up, but that's there as well, and that will come down over time. We're making those investments, and that's already factored into those returns. We want to continue to build deeper relationships with the mass and mass affluent. We want to continue to grow a high-quality advisor force. I'm not looking for number of count. I'm looking for productivity.
I'm looking for good people to serve the population that we want to serve for the long term. We're going to focus on growing productivity year in and year out. That's what we've done over the last decade. That's what we're going to continue to do. We're going to ensure that we're balanced in the insurance annuity product development, pricing flexibility, and effective hedging. We don't want products what will cause risks to our entire company or to this value equation. We'll manage that in an appropriate way. When we can't, based on competitive factors, et cetera, then we will move away. Clearly, based on our credit ratings, our ability, our scale, our knowledge, our understanding of client behaviors, we feel we're situated quite well here. We will continue to expand profitability. We continue to open our network.
We continue to bring in more people, we're going to do that. As we grow our employee part in complement to our franchisee part, remember, both of them operate under the same value proposition as a national brand, we'll even gain better and stronger economics. Let me move to the asset management business. The first question is, why asset management? Let me just give you a makeup. Our company, the IDS company, this is how the company was built. We were one of the largest, most successful players in this until the 1990s, in the late 1990s. Since I've become CEO of the business, I wanted to reestablish that. Based on the marketplace, consolidation has occurred, moving from proprietary to open architecture. The way we did that now is through a combination of internal, but more acquisitions that complement what we do.
That's what others have done as well. In this case, I think we've transformed this business into a leader today. There are still things that we have to continue to invest in and grow and gain share, but I will tell you, in size and scale and scope and capabilities, I think this is a player to be reckoned with. We can meet the retirement institutional needs, and it does serve us well as part of a complement. The type of knowledge, the capability, asset management, asset allocation, all of those things complement how we can serve people to come up with solutions for the long term. It fits neatly into this equation. It is one of the areas that we really do want to go and market beyond our own channel.
This is one of the areas that scale does matter, and we think we can take that space, but we can bring the intellectual capability to help others serve those markets. We moved from a mid-size asset manager to now increasingly global in scale and size, and Ted and Crispin will walk you through that. Our overall distribution was affiliated to our channel. Now it's mainly to third-party channels. We moved from a limited suite of product, and that's where we never were able to get the flows we wanted consistently through cycles, to a broad suite and one that we continue to complement and grow on a global basis. We moved from a single sub-scale manager as we were, to now having scale. We successfully did a number of acquisitions. Threadneedle is a successful acquisition. Seligman and Columbia are successful acquisitions. You'll hear more about them.
We think we're set up well. We think that gives us capability for the future. We were below industry margins, right? Because we lost scale. Now we're back to competitive margins. Yes, we can continue to increase those margins. Everyone says, "Well, you need to get to X." No, that's not true. If you look at us against competitors and all the things, and I'll give you a few, we're already there. Now, could we get better? Absolutely. We're competitive. Look at our makeup, $417 billion of assets. Ted and Crispin will go over this in more detail. A nice mix between international and domestic. A nice mix between equities and fixed and some alternatives that's growing. Good, strong performance. Over 100+ Morningstar star funds in both the U.S. and the U.K. A growing diversified distribution. Two-thirds of our assets now are from non-affiliated channels.
Look at our operating PTI, over $400 million for the three quarters. We have a good, strong leadership and talent team that you'll hear more about from Ted and Crispin and Mike. Diverse distribution channels, as I've mentioned. We're finalizing the integration, and we're achieving margins, but there's more that we can do. One of our focus is to get into inflows. Now, the industry is an outflow. This is a major change occurred across the industry based on market conditions. We have to reestablish ourselves, gain traction and ground in a tough market. I think we're seeing some signs of that, but you'll hear more about it. What we set out to achieve with these acquisitions, we've achieved. We have the foundation, we have the earnings power, we have the diversity of product and performance, and those things we didn't have before. Again, how do we compare?
We're not small anymore. We're not unprofitable. If you look at, again, PEs of these companies, not all of them are inflows, in fact, many of them are outflows. It's not as though we have to gain to be competitive against what's occurring in the industry or across the industry. Having said that, we definitely want to improve. We definitely want to get into inflows. We definitely want to ensure that we continue to gain profitability and margins. Again, this is not something that we have to prove that we're in the asset management business, that we have to gain scale, that we have to gain performance, that we have to gain distribution, that we have to gain profitability. Having said that, we got a great foundation because we're not stopping here. Let me be very clear with you.
This is an opportunity for further growth, opportunity to continue to globalize, opportunity to continue to gain traction in the market, to innovate. That's where we're going. That's what we're going to do. We want to continue consistent competitive investment performance. We want to generate strong inflows across our product base, across domestic and international. We want to be a global player over time, truly global, we want to continue to expand our profitability. What has that created in value creation? I told you at the beginning of the presentation what we've been able to achieve. We don't want to stop there. Two years ago, 2009, I stood before you to say we wanted to set some goals. Some of you thought they were lofty goals. Some of you thought that they couldn't be achieved.
Some of you thought that the transformation couldn't be as aggressive as we had targeted. We feel that we've achieved that in many cases. In cases that were short, we still are pushing. We got a year away. In that regard, net revenue growth, we said it wanted to be at the high end of the 6%-8% range that we give to you on average over time, 17% compounded through the third quarter. EPS growth, we wanted to be at the high end of that, 24% compounded. ROE, we wanted to be at the high end of that. We're at 13.4%. We think, again, we got a lot of headwinds from market interest rates, DAC unlocking, et cetera. We continue that a year there. We're going to continue to push. Markets are good. We think that we're going to be close to that benchmark again.
Excess capital. I'm not using all my excess capital in that equation. If I did, I'd get a different ROE. Over $2 billion, we said approximately $1 billion. I think on those factors, you'll see, again, we're only in the third quarter of 2011, not the end of 2012. We'll give you more about the details. Walter will walk you through more details against what we said in the 2009 FCM. Again, we feel like we're achieving what we set out to do in many instances with a tougher environment. Walter will explain that tougher environment versus the assumptions that we used. Very different. Over that period, our revenue grew by 17%, as I showed you, operating is 26%. This is only three quarters in 2011.
If you annualize that number using fourth quarter last year as an example and add it, you're talking $1.3 billion in net earnings. Quite substantial with a good return. Again, what does that look like in what we've achieved here? When we started out, we came out as one segment, and people didn't understand this, and I agree with you. Many people were trying to figure out who we were, where we generated our revenue, our earnings, et cetera, and we couldn't give that to you until at least a year later, maybe a little longer. We had to set up our accounting systems, general ledger. We had to put everything on a basis going back and forward. It wasn't only till after that we came out to give you some of our segment activities.
We were growing nicely until the crash occurred again, and then everything got mixed up in the industry. What's valuations? What were the risks that companies have? Today, we've made a big shift, okay? Today, over 50% of our earnings are coming from the businesses I've mentioned and closer to 60% on a revenue basis. Significant. This is no longer we generate some asset management revenues from the assets that we manage for our insurance or annuity business. The clients we have aren't insurance and annuity clients that we sell asset management to. They're financial planning clients that a network of reps that are licensed across the industry for all the products and services work with a client against their entire life, not to sell them an insurance product. This is the makeup of our company today.
The risk profile of annuities and protected costs are against the broad client set with deep relationship against the retirement entire to solve their equation is a different mix than what you see as the broader industry. We started to move, our PE started to increase over the periods, and then again, going through another market cycle like we have, that sort of got, in some way, it lagged. But today, if you look at insurance group, less than 9% of their profitability from the makeup of some stats done here is from the businesses I just mentioned. But if you look at our PE, we're close to what the insurance group is.
I would actually say, and I put on the slide, if you compare revenue growth, earnings growth, return on equity, you compare all those index against whether it's the wealth management index, the asset management or the insurance, both on an individual peer basis or even absolute against the numbers I just gave you for the total company, you'll find they compare quite well. Again, I believe we're way undervalued if you assume that the industry should be priced the way it is. I would go one step further and say, if we continue to do what we need to do, then my return that I'm going to focus on will be in the 15%-18% range. I don't think you'll find the larger industry able to achieve that.
I think even when you look at asset management peers on a GAAP basis, not just on a cash basis, you'll find that their returns, because of amortization and all the cost of acquisition, et cetera, also have lower returns. I believe as the entire company, not looking at segments will be higher in advice and wealth and asset management. If you look at the entire company, I think we can comfortably, in normal markets, achieve a type of range of 15 to 18 with a good capital position, not high leverage on our debt based on the model we've put in place. Now, of course, over time, you can get impacts, interest rate impacts that are severe that we're already facing headwinds, markets that depreciate, in which case anybody's going to find a hard time achieving their normalized returns.
I do believe that returns across our financial services industries will go down based on capital requirements, will go down based on the things that all of us are experienced. I believe that Ameriprise will move to another range if things are continued to get normalized based on what we put in place. That's what we're going to try to shoot for. That's what we're going to target. No guarantees in life, but that's what we're going to be focused on. I think that will be very good, appropriate margins that still give us flexibility. Now, with that, capital management and deployment is very important. Walter will talk to you. We're generating good, strong cash flow. Currently, 90% of our earnings is free cash. We have already a large capital position. We are already deploying significant amounts of capital.
Again, compare us against the industry at large or against segments. We're one of the few at the very high end returning capital to shareholders. We've raised our dividend 27% this year. It's again, something we're going to focus on. What is our dividend growth strategy here? That's one of the conversations I'll be having with my board. We have the flexibility, we have now the experience to continue to look at acquisitions on an opportunistic basis. The two businesses that we've been successful investing in and growing. That's what we're going to continue to do. We're not going to use all capital one way and not have flexibility. On the other side, we want to have a good capital base, flexibility to deal with environments. We want to have the ability to acquire if something comes along that we can generate good value from.
We want to return to shareholders to achieve the type of returns consistently along those lines. We think, again, through a very difficult cycle, including a difficult environment today, we're achieving what we set out to do. We think we're positioned quite well. We think that we have the strategy in place. Most important, I want to say to you, what drives a company like Ameriprise or any company, I believe, is the leadership and the people and the talent and the satisfaction of your employees and your advisors, as in my case with Ameriprise. I believe I got one of the strongest management teams, I got one of the best employee populations, and I have a fully engaged advisor and high satisfaction for them to continue to help me build this company. I want to thank you.
With that in mind, I'd like to tell you that that's the story that we have for you today. I'd like to now introduce Don Froude, who is the President of the Personal Advisor Group, to give you a better understanding of how we deal or actually develop our advisor network and the types of things that we're achieving. Don?
Good morning. I'm very excited to be here with all of you today, my purpose is to give you an overview of the Advice and Wealth Management business and focus specifically on the Personal Advisor Group, which is our advisor force, which I am very proud and privileged to lead. My team is in a very great position for us to show you what we've done and how we're positioned for growth in the future. I am privileged to work with a very powerful and strong leadership team in our Advice and Wealth Management business, and this is the team that delivers our integrated business model. I'd like to just introduce Tim Sharan, who heads up our marketing and financial planning and wealth strategies, Joe Sweeney, Advice and Wealth Management product and services, and Glen Salow, my partner who leads the service delivery and technology team.
Let's take a closer look at the advisor force. As you think about the advisor group, there are a few key points that I'd like for you to take away from our discussion today. First, we have a very strong advisor force in place that's continuing to grow. Over the past several years, our advisor force has become a very powerful growth engine for Ameriprise Financial, the platform is highly scalable. Not only is it strong, we have continued to increase the overall productivity of our advisors, which you're going to see in many of the slides that I'll present today. This transformation of our advisor force has really built the foundation for how we're going to continue to grow into the future. Although the markets have been tough, I feel very good about our business.
I'm confident that we can continue to grow, that we can continue to grow our revenue and our margins. Today, I'm going to walk you through some of our priorities for us to continue to drive that growth and how we're executing against the strategies. Across our Advice and Wealth Management business, we have three top priorities. First, we want to serve more clients comprehensively. Secondly, we want to grow our advisor force and the productivity. Thirdly, we want to deliver very strong financial results. The goal of today's presentation is to show you how we're driving this productivity and the profitability by executing together as a team, how we're executing against those priorities and the success that that's giving us. Let me start by discussing how we're working on serving more clients.
As you heard from Jim a few minutes ago, we are ideally positioned to take advantage of an extremely compelling market opportunity right now. The retirement need is going to continue to grow. It's going to continue to grow in this country, and it's going to grow for decades, but it's going to grow against our target clientele, the mass affluent and affluent clients. They are a huge part of the retirement marketplace. Unfortunately, today, their confidence level in their ability to retire comfortably has eroded significantly. They're looking to have a comfortable retirement, and they're looking for some answers against that. Just as important as these clients have learned that they truly need advice and guidance in order to help them achieve that confidence and to achieve that retirement. We found out that they're willing to pay for that advice.
We are a firm that is focused intently on comprehensive financial planning and providing advice and guidance to the mass affluent and affluent client base. In my opinion, there's no one that does it better than we do. Our biggest differentiator in the marketplace is just simply what we do and how we do it. Our approach to our business is centered around the concept and the belief that we are in the business of life. We know that all advisors in the industry look at certain milestones and try to achieve them. Getting married, buying a house, planning for college education, aging parents and retirement. An Ameriprise advisor would look at this scrapbook that you see here with all the pictures that depict many of those milestones, and their belief about that and their behavior would be different.
They would be looking at those things and working with the client saying, "What could possibly go wrong with the goals and dreams that you've shared with me? What could derail this from happening?" Why does this become so important? Because issues like long-term care, disability insurance, life insurance, have ways of fixing some of those possible things could go wrong in a person's life. We all know that whether you get a 6%, 7%, or 8% return on your overall portfolio is insignificant if a 41-year-old spouse passes away unexpectedly and doesn't have enough insurance for their family. The questions that we ask our clients are tough questions. Sometimes they create a level of uncomfortableness, but they're critical for us to be able to understand how we can best position ourselves to help the client achieve their goals and show them how much we care.
My advisors have a philosophy that we help our clients prepare for the certainty of uncertainty. Don't know what's out there, but I know that something's there. There are many potholes in life, and our job as an advisor is to help you see what's there and how we can help you avoid many of them. When I look at this and think about where we're going here, our ability to use financial planning and understanding the emotional connection here enables us to create very deep relationships with our clients. This is one of the best ways I know to show the client just how much you care about them, their family, their situation, and their future. By doing this, we're creating very long-lasting and emotional relationships with our clients. What this leads to is increased trust.
To me, that is something that's very special right now, and it's needed in this industry, and it's needed for our clients. This is ultimately what we found our clients are looking for. Last year, a study was done in this industry, and the study was asking clients what was the number 1 concern that they had about their advisor. Number 1 concern. Interestingly enough, their number 1 concern was, "Does my advisor truly understand my situation?" In that study, number 6 was investment performance. At Ameriprise, we conducted a similar study earlier this year, and what we found out was that our clients were looking for an advisor who makes them feel valued and trustworthy and dependable. In our study, number 9 was investment performance.
As the leader of the Personal Advisor Group, one of the things that I feel very compelled to do is to provide our advisors with the tools that they need to make sure that they understand the client's situation better than anyone else and can deliver that in a trustworthy, dependable manner. The best way for us to do that is through comprehensive financial planning and advice. This is the cornerstone of how we help our clients, and it's the best way that I know that we can deepen relationships and continue to prove to clients just how much we care and how much we are aware of their particular situation. Through our financial planning process, we uncover an incredible amount of needs that we can solve.
We have broad capabilities that span all four cornerstones of a client's financial life, protection, investments, cash and liabilities, as well as tax and estate planning. These capabilities extend not only over a client's present life, but also over their retirement life. Our comprehensive approach to the client, centered around financial planning, provides us with some very unique benefits, and they're powerful benefits. What we found out, the difference between our planning clients and our non-planning clients. First and foremost, they are more satisfied. Now, it's nice and very good to be able to satisfy clients. That's a big plus. Second, they have a much more confident and optimistic outlook about their future. This also occurs during very volatile times in the market.
It was particularly telling with clients in 2008, they were very confident, felt very good about where their future was at that point in time, even though the markets were very volatile. Thirdly, they are more likely to refer another high-value client to an Ameriprise advisor, and referrals are one of the key ways in which we organically grow our client base. There's also some economic benefits to this, right? When you look at our financial planning clients, they generally have at least three times more assets with us than our non-planning clients. Those assets generally generate almost five times the GDC revenue commission-based business than our non-planning clients. They are six times more likely to have some form of a life insurance or insurance relationship with us, and we know that this is good.
The facts and the stats are very strong as to why financial planning and advice is good for the client. I'll also tell you that it's absolutely very good for the advisor, and it's very good and very strong for Ameriprise Financial. The model works because it solves both the client needs, and it helps the advisor do a more complete job and build a more stable practice. Another benefit of our comprehensive approach is it provides us with a very strong diversity of product across all of our advisors. Advisors are leveraging the breadth and depth of all of our product solutions, some that you're going to hear about this morning in asset management, in order for them to solve their client needs as completely as we possibly can. We have a very nice product mix, as you can see with wrap as being the primary driver.
As you know, we're one of the largest asset management in terms of wrap accounts, and our fee-based business is continuing to grow, particularly against the affluent and mass affluent marketplace. Our retail client assets are currently about $300 billion, which is higher than it was before the economic crash. The next slide I just want to show you very quickly, I showed you our asset mix, and I'd like to show you our leadership that we have in terms of our depth and penetration versus our peers. Compared to the industry, our clients hold more products with us, from investments, retirements, IRAs, and clearly financial planning. As you know, the more products that you have, generally the more retention you have of that client base.
Our deep relationships give us a much larger share of that client's wallet than if we didn't have that broad product base. What drives this is our comprehensive approach to the client in terms of financial planning and advice, which leads to the multiple number of products that we have because we're using that to solve client problems and not just move product. It's very compelling when you solve a problem with a product versus just, "Here's the product." That's what our approach does. In addition to the depth of our relationships with our clients, we are currently growing our client base. In fact, year to date, we're up 11% in client acquisition against our target market, the affluent and the mass affluent client.
There are several factors that are contributing to this success, over the course of this year, we've really evolved our brand messaging against the current consumer sentiment. Our new advertising campaign that Jim mentioned featuring Tommy Lee Jones reinforces the fact that we've never taken a bailout, that we're a 100-year-old company that's been very successful, that we're strong and we're stable in a market that isn't always that way, that we're focused on helping our clients meet their needs, and that we have a very strong balance sheet. This plays out very well for the client. It also reinforces this to the advisors that are looking at Ameriprise. We've brought this message to a local level with each of our advisors, it makes it very easy for them to leverage that new campaign in order to continue to make client acquisitions in their local market.
We've expanded our online presence to make it easier for clients to communicate with advisors, to make it easier for them to see their accounts and access information. What do these things really do for us? What they lead to for our clients is an increased level of satisfaction, and it leads to long-standing relationships. Long-standing satisfaction leads to referrals. It enables them and encourages them, and they want to refer their friends and their family to us. Now, there can't be a greater compliment than to have a really high-value client say, "The work that you've done for me is so compelling that I want to refer my family and my friends to you." That's what we strive for. Many of our client acquisitions, as you'll see, come from referrals. Secondly, let's transition to the second growth priority, which is growing our advisor force.
Our advisor proposition at Ameriprise is very unique in the industry. It's one of the primary reasons that I feel we've had great success recruiting over the last three years. Perhaps the greatest differentiator of that fact is that we offer one branded network, but we offer two ways for you to affiliate with us. I will just tell you, having been with advisors for 32 years, advisors love choice. If you give them choice, it makes them happy. Regardless of which way you decide to affiliate with us, affiliating with us as an employee or as a franchisee, the one thing that you can be sure of is that you will get a substantial amount of support, all kinds of support, leadership support, marketing support, product support. Both of our channels are highly productive as you're going to see.
Let me just give you a brief overview about these two channels and what they represent. First of all, our franchise channel model is particularly unique because it's an independent channel. They're independent business owners, but they get an incredible amount of support from us, which is very different. Most independent channels don't provide the level of support that we provide in terms of field leadership. This is a key differentiator. In addition to that, this is a very robust, profitable, and mature channel. We currently have over 7,500 advisors in this particular group. They're independent business owners. They hire their own staff. They pick out their own real estate. They decide where they want to be. They might come in as a solo practice, or they might come in as a solo practice and then evolve into teams within their offices.
The key here is that they have access to formal leadership. It's a big differentiator for us as a company, I need to continue to underscore that because there are not other independents out there that provide that leadership, and that's a compelling difference when you're sitting out there and you're by yourself. They have this access. They can do it through our field leadership, or we also have peer coaching, which we call franchise consultants. Sometimes nothing works better than peer to peer. The other thing that's compelling here is that these people, the franchisees, they're earning equity in their practice each and every day. At some point in the future, all of these franchise advisors will sell their practice for some multiple of revenue. This is a very big difference. Forgive me.
On the employee channel, we currently have almost 2,200 advisors in this channel. Their business expenses are paid for by the firm. They're supported by a very formal infrastructure, very similar to what you would experience at Merrill Lynch or Morgan Stanley or Wachovia. There's a much greater attention to hands-on branch management training. The value proposition that you would experience as a client is the same whether you would be in the employee channel or whether you would be in the franchise channel. I really believe that what makes the employee channel right now so exciting is the fact that this business model is so scalable. I have 130 branch offices, and in almost every one, I have at least one empty seat. I can continue to add a meaningful number of advisors to this population without adding meaningful expenses to that.
When I think about what that really means is we continue to add productivity, continue to add advisors, right? The revenues continue to increase. Overall, right now, we have one of the best advisor systems and best network, and it's powered by a branded financial services company. This next slide is one that I'm particularly proud of because I really believe that retention is the cornerstone for growth in my business. What you see is that the value proposition that led the field leadership we had has led to great retention on both channels. Historically, we've always had very strong retention on our franchise side, always in the 90% range. What you're seeing here is there's been a very strong retention that has occurred on the employee channel. If I went back to 2005 on this, we'd be in the 60%.
We were up in the 70s. We are now over 90% retention in the employee channel. This is really, really important, and it speaks to the fact that the value proposition of leadership they're providing is giving people the encouragement to stay and to continue to do the things that are important. I look at this as a very telling slide as to where we're going to be capable of going. Our advisor force is stable, they're motivated, and they're happy. We've always had a very strong system, but we've taken many steps to make it even stronger. We've dramatically transformed our employee advisor business. We're no longer hiring novice advisors. We are now exclusively hiring experienced advisors from the industry. This has really changed and transformed the look of the employee business.
We're no longer encouraging employee advisors to migrate to the franchise business if their GDC and their revenue is low as we had done before. The other cornerstone here is we have done a very successful job of integrating the H&R Block advisors into our system. Our retention of this group of people has been very high. There's been a very interesting transformation. They were a very highly transaction-centered business. They have now migrated in many ways to a more fee-based and advice model. There's obviously more room to grow there, but it's proven to me, and I think to my team, that we have the ability to bring people in, and we can dip them into our culture, and they can start to assume some of the attributes that we know are good.
We've transformed the business into a scalable, long-term career choice for someone that decides that they want to be an employee advisor and can still maintain our value proposition. Our employee channel is complemented by a very productive, highly motivated franchise business. I have the luxury of having these two businesses, and they complement each other beautifully, and both of them are continuing to gain in productivity. We're going to continue to grow our productivity, our profitability, and our margins across the entire advisor force. If you could see on this slide, both of my businesses right now are growing their operating net revenue per advisors in a very meaningful way. We're going to continue to invest in our advisor force, continue to drive their productivity and their satisfaction, and we're going to do this by deepening our relationship with our advisors and our clients.
Our advisor value proposition is centered around providing branded resources, tools, support, field leadership to help advisors grow their practice in a meaningful way. Even if you're in the franchise channel with this much support, you might be independent, but I could promise you're never alone. That's one of the things that our franchise advisors really value about us. The combination support that we provide is unmatched in this industry, and it provides us with a very competitive edge. As Jim mentioned, but as evidenced by our most recent advisor satisfaction survey, our advisors are very pleased with the support that they receive on almost every level within the company. One of the numbers that we look at the most is their level of engagement, and their engagement is extremely high. Their desire to stay with Ameriprise is extremely high.
Over 90% of them have said that they want to continue to grow their practices. We've got motivated people, they're engaged, and they want to grow. That's a great combination for someone like me. We also have a very strong history as a training culture, and we want to continue to maintain that. Beyond our formal training, we have very meaningful informal training support that's available to advisors that want to grow or to staff members that need to continue to understand how they help their advisors become more productive. We're very focused on the tool suite that we provide to advisors through financial planning or asset management. We want to have the best tools available to them. We have just converted to a new industry leading brokerage platform that's powered by Thomson One.
We're also continually develop a unique set of tools that allow advisors to systematize their practice so that they can leverage their time. They can become more productive without adding more staff. We've developed a tool called Opportunity Manager, which is to drive awareness about product solutions and opportunities at the local advisor practice level. Finally, we're constantly enhancing our financial planning software and capabilities to make this process easier for advisors and to make it easier for clients. We're going to continue to grow our advisor force by sustaining our strong retention levels. That's going to be the cornerstone of our growth. We want to continue to bring advisors into our company that believe in the vision and the value proposition that we have.
It's not for production, it's for people that have the belief that this is the best place that they can serve their clients and grow their practice. There are 4 ways that we're focused on bringing in new advisors. First is the experienced advisor recruiting that we've been talking about. I'll go into a little more detail on that in a second. We're going to continue to bring in leading advisors that are in the industry into our company. 2, we're going to help advisors acquire external practices. With the aging advisor force in the industry, there are a significant number of advisors and practices that are retiring. We make it easy for our advisors to acquire practices of retiring advisors. Thirdly, we want to continue to build out our targeted career changer program.
This enables us to partner with people that are outside of the financial services business and put them together with a leading advisor in the employee channel and build a team that it's meaningful. Someone comes in from another industry, has a network, partners with a very senior advisor. We put those things together and somehow magical things happen for both parties. Everyone gets inspired and practices and revenues continue to grow. Lastly, we are going to continue to expand our Ameriprise Advisor Center. These are virtual distribution channels that we have in Minnesota and in Minneapolis, as well as newly announced in Las Vegas. I'd just like to take a little deeper look at the experienced advisor recruiting. We've had quite a bit of success during the downturn in the markets here.
As you can see, over the past 5 quarters, I am happy and proud to say that we have built strong momentum again. We work very closely as a team in advice and wealth management to bring these new advisors on and to help them transition their clients and their practices to Ameriprise. We help them ramp up their production and their productivity once they join us. So far, this has been very successful. We have recruited hundreds of advisors, and recruiting them is the beginning. What we have to do is bring their clients and assets over. I just want to share with you that if we look at the recruits that we brought in in 2009, that currently they have brought over 94% of the assets that they had at their previous firm. If you look at 2010, it's about 90%.
We have built a very strong onboarding process to help advisors bring their practices over quickly within sort of the first 24 months. They're almost 90% of their assets there, and now we can continue to help them grow. This is a very, very big deal for us, and it's very important. The other thing that I want to underscore is that the recruits that we're bringing into this company, not only are they excited and passionate about what they're about to do, but they also, they're 4 times more productive than the advisors that are leaving us. Right? The novices that are washing out of the business, we're bringing in people on top of them that are 4 times more productive. That's a good ratio.
Overall, our recruiting pipeline today is very strong, and we're structured appropriately to continue to capitalize on the opportunity that's presented. I just want to underscore to you right now, my advisor force is very experienced, more than they've ever been before. They're more tenured than they've ever been before. They have more assets than they're ever been before, and those things lead to a higher level of productivity than we've ever had before. Coming out of this downturn, we've continued to drive increases in overall productivity, and we've done this across both channels. It's not just the employed channel. In fact, both channels are firing on all cylinders. We're well beyond where we were before the economic crisis.
As you can see on this slide, the dark blue bars are year-to-date results, and we're continuing to generate very good growth, even with a very challenging market here in the third quarter. Let me just go to our final priority, which is to deliver strong financial results. I think what I show you here is where really the rubber meets the road. Our advisor business is very strong. It's very productive, and it continues to generate very attractive financial results. I really believe that this is a very key revenue generator for Ameriprise Financial today and into the future. Let's address very quickly here the profitability improvements that we're making. We ended the third quarter with a margin of 12.4% and year-to-date at about 11.5%. We've essentially doubled our profitability compared to pre-crisis levels.
I remember standing in front of this group two years ago and our team telling you that this was our goal. We've achieved this, I want to underscore that we're not done. As a matter of fact, I really believe we're just getting started. The best is in front of us. Our priorities of more clients, more advisors, and deeper relationships are the key ingredients to our growth. When you combine that with a very strong focus on expense management, this puts us in a very strong position for us to continue to post very competitive margins in this business. As I told you at the beginning of my presentation today, I wanted to leave you with a few key thoughts. First, the advice and wealth management is a growth engine for Ameriprise. There's no doubt about it. Our advisor force is strong, and it's growing.
We're continuing to drive productivity increases across both of our channels. The platforms that I have are very scalable, and I can increase the scale here without increasing the expenses. We've transformed this business. Right now, we're going to continue to focus on the growth that we've achieved. I'd like to close today just by saying that the personal advisors of Ameriprise Financial are the people that bring our client experience to life every day. They're devoted to their clients, and they're devoted to building and growing their practice. I can just tell you that I'm very proud to lead the advisors of Ameriprise Financial. I'd like to thank you all for your attention that you've extended me today.
With that, we're going to take a 10-minute break, come back, and you're going to hear from my asset management colleagues and from Walter before we take your questions. We are going to begin promptly in 10 minutes. Thanks again.
There's no combination of words I could put on the back of a postcard. No song that I could sing, but I can try for your heart. Our dreams, they are made out of real things. Like a shoebox of photographs, with sepia-toned loving. Love is the answer, at least for most of the questions in my heart. Like why are we here? Where do we go? How come it's so hard? It's not always easy, and sometimes life can be deceiving. I'll tell you one thing, it's always better when we're together. It's always better when we're together. Yeah, we'll look at the stars when we're together. Well, it's always better when we're together. Yeah, it's always better when we're together. All of these moments just might find their way into my dreams tonight.
I know that they'll be gone when the morning light sings. Brings new things. For tomorrow night, you see, that they'll be gone too. Too many things I have to do. If all of these dreams might find their way into my day-to-day scene, I'd be under the impression I was somewhere in between. With only two, just me and you. Not so many things we got to do. Places we got to be. We'll sit beneath the mango tree. Yeah, it's always better when we're together. We're somewhere in between together. Well, it's always better when we're together. Yeah, it's always better when we're together. I believe in memories. They look so pretty when I sleep. Day now and when I wake up, you look so pretty sleeping next to me.
There is not enough time, and there is no song I could sing. There is no combination of words I could say, but I will still tell you one thing. We're better together.
Give me freedom, give me fire. Give me reason, take me higher. Be the champions, take the field now. Unify us, make us feel proud. In the streets our hands are lifting. As we lose our inhibition. Celebration it surrounds us. Every nation, all around us. Singing forever young. Singing songs underneath the sun. Let's rejoice in the beautiful game. Together at the end of the day. We all say: When I get older, I will be stronger. They'll call me freedom, just like a waving. When I get older, I will be stronger. They'll call me freedom, just like a waving flag. So wave your flag, now wave your flag, now wave your flag. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. Give you freedom, give you fire. Give you reason, take you higher. Be the champions, take the field now. Unify us, make us feel proud. In the streets our hands are lifting.
As we lose our inhibition. Celebration it surrounds us. Every nation, all around us. Singing forever young. Singing songs underneath the sun. Let's rejoice in the beautiful game. Together at the end of the day. We all say: When I get older, I will be stronger. They'll call me freedom, just like a waving. When I get older, I will be stronger. They'll call me freedom, just like a waving flag. So wave your flag, now wave your flag, now wave your flag, now wave your flag, now wave your flag, now wave your flag. So wave your flag. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. We all say: When I get older, I will be stronger. They'll call me freedom, just like a waving. When I get older, I will be stronger. They'll call me freedom, just like a waving flag.
So wave your flag, now wave your flag, now wave your flag, now wave your flag, now wave your flag, now wave your flag. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. Everybody will be singing it. Oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh-oh. We all will be king, yeah. This one goes out to you and yours, worldwide. I say hey, I'll be gone today, but I'll be back come around the way. It seems like everywhere I go, the more I see, the less I know. I know, one thing, that I love you. Baby girl. I love you. I love you. I love you. I've been a lot of places all around the way. I've seen a lot of joy and I've seen a lot of pain. I don't want to write a love song for the world. I just want to write a song about a boy and a girl.
Junkies on the corner always calling my name. The kids on the corner playing ghetto games. When I saw you getting down, girl, I hoped it was you. When I looked into your eyes, I knew it was true. I say hey, I'll be gone today, but I'll be back come around the way. It seems like everywhere I go, the more I see, the less I know. I know, one thing, that I love you. Baby girl. I love you. I love you. I love you. I'm not a highly metaphysical man. I know when the stars are aligned, you can bump into a person in the middle of June.
Our meeting will resume in three minutes. Please be back in your seats in three minutes.
Dancing in the night and in the middle of June. My mama told me, "Don't lose you." Cause the best luck I had was you. I say hey, I'll be gone today, but I'll be back come around the way. It seems like everywhere I go, the more I see, the less I know. I know, one thing, that I love you. Baby girl. I love you. I love you. I love you. I say, rocking in the dance hall, moving with you. I say hey mama, hey mama, close to you. Rocking in the dance hall, moving with you. I say hey papa, hey papa, give up your shoes. Rocking in the dance hall, moving with you. I say hey mama, hey mama, close to you. Rocking in the dance hall, moving with you.
I say hey mama, hey mama, hey mama, hey mama, hey mama, hey mama, hey mama.
Don't lose you. Because the best luck I had was you. I know one thing, that I love you. I say, hey, I'll be gone today. I'll be back come around the way. It seems like everywhere I go. The more I see, the less I know. I say, hey, I'll be gone today. I'll be back come around the way. It seems like everywhere I go. The more I see, the less I know. I know one thing, that I love you. Baby girl. I love you, I love you, I love you. Uh-huh, uh-huh. I love you, I love you, I love you. Hey. I love you, I love you, I love you. You know it's true. I love you, I love you, I love you. Uh-huh, uh-huh. Rocking in the dance hall, moving to the rhythm. Hey, mama, hey mama.
Rocking in the dance hall, movin' to the rhythm. Come on. Hey, papa, hey papa, hey papa. Hey, mama, hey mama.
What? The tears won't make any room for more and it don't hurt like anything I've ever felt before. This is no broken heart, no familiar scars. This territory goes uncharted. It's just me.
If we can have everybody take their seats, we're going to get started with the second half of the presentation. Thank you, guys. Good, right. Welcome back, let's start with the asset management segment of the business. My name's Ted Truscott, and it's my pleasure, along with Mike Jones and Crispin Henderson, to tell you more about the asset management business at Ameriprise. We basically have three themes in my talk. Talking about our transformation from a very mid-size asset manager to a more global player, a leading global player. The very strong investment performance that we have across both Columbia Management and Threadneedle, the growth opportunities that we have as a result. Then the margins that we're producing are competitive. There's obviously room for improvement, but we're pleased with the progression here.
Just by way of highlighting something that Jim said to you earlier, I've been working with Jim for over 10 years now in transforming the asset management business. When I sat down and talked with Jim and Walter about what we needed to do, we talked about a number of different things, but one of them was to grow out of what was really a captive asset manager, one that largely distributed only within Ameriprise and managed largely Ameriprise money, into something that's much bigger. Just to give you a little statistic, I decided to go back, as I do, I keep all these files on my computer that go back to plans back maybe as far back as 2001. We had the ambitious goal, back before the Columbia Management acquisition, of selling $4 billion in assets and funds in third-party intermediary channels by 2011.
This was back in 2008. We had that ambitious goal of selling $4 billion. We will sell 9X that number in the coming year as a result of the acquisition of Columbia. I would submit to you, as one of the key themes here, that we've transformed the asset management business completely and totally. We've done a little bit of it organically. We've done a lot of it through acquisition. That we are very good at doing it through acquisition, that we've managed to extract value from those acquisitions in lots of different ways. With Threadneedle, we basically told them to get on with running the place, and Crispin is going to show you what an amazing job they've done in transforming themselves from largely a captive manager of Zurich Insurance assets to a formidable distributor and player in performance.
We've transformed the domestic side largely through the acquisitions of Seligman and Columbia. Let's talk about being a global player. We're number twenty-seven overall in the world. We're number seven in the U.S. in terms of long-term mutual fund assets. That obviously excludes money markets. We're number four in the U.K. across the segment, and more than $400 billion in assets in a very broad product lineup with really, really great investment performance. This is our global map. You can see that we have multiple offices around the world, both in terms of distribution and investment centers. We're very good at managing ourselves on a multi-geographic basis, and that footprint is expanding out in Asia, as we will talk a little bit more during the presentation. This is what the platform looks like overall, $417 billion across what is today Columbia and of course, Threadneedle.
The breakdown by asset type, roughly spread evenly among fixed income and equities. We've got an alternatives business. That slide and that portion of the pie encompasses the Threadneedle property business, which Crispin will tell you more about. Unique business that we have in the U.K., as well as our CLO platform in L.A. and the Seligman hedge fund platform out in Menlo Park. This is where we rank in terms of long-term mutual fund assets. Keep in mind that back in 2008, little old RiverSource Investments had a whole $38 billion in mutual fund assets in the U.S. This is a huge transformation. We're roughly four and a half times more than we were in 2009, if you look at the assets back then. Big transformation on the mutual fund side. Let's switch to what Columbia looks like.
Again, roughly split across fixed income and equity in the alternatives business. One of the things that Mike's going to talk to you about is not only the retail side of the business, but also our institutional business. We would ideally like to have the business split across retail and institutional on more of a 50/50 basis as we go forward. Mike's going to talk to you a bit about that very bright spot in the Columbia picture overall. What about performance and the growth opportunities? Crispin's going to cover the Threadneedle investment performance, so I'm going to concentrate on what Columbia's about and how we're going to take that performance and deliver multiple growth opportunities. One of the biggest things we want to do is take the base of what we have and continue to expand the product offering.
We're well established in the major categories out there and have great performance in the major categories out there. Now we need to introduce newer things that are more in keeping with today's environment. That may be absolute return funds. That may be funds that look across the total balance sheet of a corporation these days, all-in-one fund. Or it may well be things like tax-sensitive investing. We've incubated four or five products this year, as well as a major absolute return launch. We think that sets us up for continued product development going forward. Product is one of the keys in this business, and we're going to keep innovating in that space in order to drive flows. We clearly need to drive flows. That's a big focus of what we have at Columbia and Threadneedle across the segment.
If you look at it, we've got some challenges in Columbia in terms of getting us into better net inflows. Threadneedle has had some tremendous success and has also got the acquisition of Liverpool Victoria's assets and the take-on of those assets that's going to drive good flows across the segment this year. Obviously, building the brand, recruiting talent, and also leveraging our opportunities with Threadneedle as we begin to focus on the fact that the industry is really competing on a global basis is one of the big, important growth opportunities that we have, and we're all going to talk to you a bit about that as well. We have very strong investment performance in the U.S. 54 four and five-star funds out of 118 funds. You can read the rest of this slide in terms of the different ways that we measure this.
Importantly, though, one of the key elements is that this is not just confined to one particular category. It's spread across 24 different equity funds in almost every style box out there, except for the mid-value space, across asset allocation categories, and importantly, across tax-exempt and taxable fixed income. This is one of the things that Mike will tell you about. We actually have some fabulous performance in the bond space. It's one of the things that we need to do better in terms of letting people know that we're not only a formidable equity manager, but we also do very well in the fixed income space. Building the brand's key. Columbia is an agglomeration of many asset managers over time. This goes all the way back to names like Stein Roe, the original Columbia Management in Portland, Oregon, and all kinds of other players.
Getting people to understand Columbia, who we are, and importantly, what the performance is a big piece of what we're doing. We've been doing a lot of advertising this year in the trade publications, and we think that's an important piece of what we have to offer as well. Let's get people to know Columbia. Let's get people to know how we invest money. Let's get people to know the strong performance that we have in multiple categories. We need them to know about our investment resources. They're strong and deep. We have multiple ways of managing money at Columbia. As Colin Moore, our Chief Investment Officer, is fond of saying is, we don't tell people what to do. We just measure to make sure they're doing what they say they do. We unify these various processes under our methodology known as 5P.
We believe that 5P has brought a consistency to the investment performance and a competitive nature to that performance that we lacked earlier in our incarnation as Ameriprise. I mentioned the very strong distribution that we have across retail and institutional, and Mike's going to give you some more details about that as well. What are the growth opportunities here? Columbia and Threadneedle are starting to work together more because increasingly the competition is more of a global approach to investing as opposed to different investment centers or functions. We're beginning to share research and intellectual capital across the platform. We're aligning a more global approach to our institutional sales, making sure that no referral goes unheeded or untouched. We're leveraging the asset allocation expertise that takes place across both platforms. Importantly, I think the cross-distribution opportunities are huge.
We are launching and distributing Threadneedle products in the U.S. In some cases, we've had people come in and ask for a customized product from Threadneedle that we have then launched through our U.S. mutual fund space and delivered that, quite frankly, in record time. At the same time, Columbia products are being distributed through the Threadneedle SICAV, and we think that this gives us a big, broad opportunity in the retail space, not to mention the aforementioned collaboration from an institutional perspective. Crispin's going to talk to you more about this, but we're also very pleased with the partnering that we're doing to increase Asian distribution. I don't have to tell anybody in this room that Asia is a big growth market going forward.
It certainly is not going to equal what we have in the availability of assets to gather within our home market, but its growth rates are huge, and we want to be able to play in that space. Now let's talk about financials, where we are. As you can see, we are now a very significant part of Ameriprise's net operating revenues as well as our pre-tax operating earnings. These are big changes from where we were just a few years ago, as Jim showed you on his slides. Importantly, the revenues are strong. Obviously, they're impacted a bit by market. Our pre-tax operating earnings on these slides, I would just urge you to focus that in the fourth quarter, we tend to book hedge fund performance fees, so that fourth quarter always looks a bit different than the other quarters.
Let's not forget that market is in here as well. In the most recent third quarter, we had some charges at Threadneedle that affected the numbers there as a few one-off items. We showed you this slide last year, which is what our adjusted net pre-tax operating margins look like. What does this do? It takes the operating margin that we report. Remember, what we tend to do is we run distribution through the revenue line, and then we take it out in the expense line.
If you adjust for the fact that we're running distribution through revenue and expenses, if you adjust for some sub-advisory fees, goodwill amortization, and some other pass-through items that relate to Columbia acting as an advisor for various wrap and discretionary wrap programs within Ameriprise, you can see that our adjusted net pre-tax operating margins are very competitive relative to some of the other players that report a bit differently from the way we do. Just in summary, what I'd like to say is that the transformation of what was a very small segment of Ameriprise's business, namely the asset management business, has been huge, that we are much larger than we were. We have the scale to compete.
We have a depth and breadth of product and performance that allows us to compete on a truly global scale across the segment going forward, that we have lots of growth opportunities as a result, all powered by what are some very strong results from a financial perspective as well. To give you more detail on Columbia, I'd like to call up my partner, Mike Jones, and have him take you through Columbia in greater detail. Thank you.
I'm going to pick up where Ted left off and really talk about two areas. First is product and product development, where we are today and where we're going. Also, I think very importantly, what folks have on their minds today, anyone in the industry does, which is our distribution channels, both the retail distribution or intermediary channel, as well as the institutional channel. I think the key part here is let's get into flows and talk about what's going on. Let me start, though, by talking a little bit about the strength of our organization. As you can see from this slide, Columbia's integration is essentially complete. We brought together about two years ago, the investment teams, along with the distribution teams and support teams.
We made those decisions up front, and we've been happy with the retention levels we've had there, which have been better than the industry norm. Secondly, as you look at the other aspects of it, from real estate to merging over 40 product lines, we've had success there and have been off to the races. Finally, as we move into 2012, we'll be completing our technology integration as well. Now let's talk a little bit about the product lineup. Here, I think the key part here is really, as Ted has mentioned, we really have a breadth of strength at Columbia. We're very well known for the strength of our domestic equity products, but as Ted has mentioned, our focus funds in terms of our taxable and tax-exempt fixed income funds. You look at our asset allocation funds. We're getting into the absolute return space as well.
We have a broad breadth of products. One of the key parts here is the beginning of every year, we take a look at key investment themes we think are going to be prevalent in the market and apply our products against these themes. We call these our focus funds. We have this in both the retail as well as the institutional segment. One of the things we have here, just by way of example, is we looked back in the beginning of 2011 and said, we believe that income-oriented equities are going to have significant importance for our clients. What we did was brought to our clients our five-star dividend income fund and our four-star dividend opportunity fund.
Similarly, we looked at our short duration credit as an area of opportunity, we took our deep research ability on the fixed income side and brought to our clients the four-star limited duration credit fund. You see, we're not just an equity shop. We have a broader array of products, and Ted has referenced the strength of these products. The key here becomes adapting to market conditions and bringing solutions to your clients in whatever space they need. The next step, though, becomes the challenge of net flows. Let me talk a little bit about that as it relates to product development. Part of the issue we've had with being in negative outflows for this year is the fact that some of our strongest performance has not been in the sweet spot of flows for the industry. What do you do about that?
Well, we address that by leveraging strengths and doing some proactive product development. On this page, you see both on the retail and the institutional side, some of the things we've done. First and foremost, we look at our improving track records, and I think a great example there has to do with our intermediary multi-sector bond funds. What we have here is a four-star Morningstar fund, which is about to drop off a couple of quarters of tough performance within the three-year timeframe. So we're out there, we're talking about that, and clients are responding. Additionally, we have the emerging market debt fund you see on the right side of the page, here's a five-star fund, which has not been as fully embraced in the institutional arena as we had hoped.
Part of the reason is because we need to put more resources behind it. Well, we're doing that, we're seeing a response in the marketplace already. On the product development side, I won't go through all of our product development initiatives, but what I will talk about are a couple. On the absolute returns side, we launched our absolute returns funds in this past April, these are funds which essentially focus on longer-term returns, reducing the volatility, and having a much lower correlation to the respective index. We're also looking at our asset allocation fund. Something we talk about in terms of easy terrain, which is really introducing risk parity into the equation, into the asset allocation fund, so you can drive returns better. Finally, a major theme we see on the institutional side are clients who want to de-risk their portfolio.
We're already a player in this space, we'll continue to invest in this liability-driven investing because it's something our clients want. One of the things Jim mentioned this morning is both you need to be innovative, and you need to respond to the marketplace. Our marketplace, as you all know, is about retirement right now. I think you see with these products, we're doing just that. A key part here, which Crispin and I were talking about earlier, is that in a low growth environment, these are the products that sell, and you need to be in front of the curve, and you need to be quick on your feet as you do this type of development.
Here is a quick slide, just looking at some of the advertising we've done, I think the point here really is, yes, product development's important, equally important is how you launch the product. I'm pleased to tell you, with the help of Kim Sharan and her team, we launched this ad when we launched our absolute return fund. This won the Professional Industry Education Award last month, and we're thrilled about the fact that we were recognized not just for the launch but for the quality of our educational materials. Just a footnote on all this. These two funds, along with the Threadneedle Global Emerging Markets Equity Fund, since April, we have raised north of $500 million. Let's now get into the distribution side of the house and talk a little bit about intermediary distribution and then the institutional distribution.
On the intermediary side, to say we're a tier 1 player is significant. It's not just that you have the scope, but it's also about the fact that you are providing folks like Merrill Lynch and all the major broker-dealers and RIAs the coverage they want, whether it's at the top of the house, whether it's on their platforms, or whether it's in the field. This is something we're doing a great job of. Just some numbers for you just to understand some of the magnitude of this. Ted's talked about the transformation that Ameriprise has undergone as an asset manager in terms of their distribution. We have 85 wholesalers out in the field supported by an internal desk of 90 folks.
On the DCIO side alone, we have a team there which has been in the field since 2002, and we have a business which is north of $20 billion. Very importantly is our efforts in national accounts and platform distribution, where we have 26 folks out there in the field working to cover those platforms. This is becoming increasingly important as you have kind of this blending of the retail and the institutional approach, as well as the fact that we've been one of the first. We had this team in place since 2004 and have been one of the leaders in the industry in this area. We cover all the channels, broker-dealer, RIA, private wealth management, as well as DCIO. Another point here is the value proposition.
Not just the portfolio managers and research analysts working with our product and marketing teams, but also things like our Columbia Management Learning Center, which is a key value proposition. What this is a team of people supported by a help desk out in the field, working with financial advisors, helping them grow their practice, focusing on retirement, both in terms of accumulation and distribution. I think these next couple slides really get to some important issues, and I want to take some time describing them. As you can see, Columbia, in the third quarter, was in net outflows, and we're in net outflows year to date on the retail side. I want to talk about this. I frame it in my mind thinking of it three ways. Why are we in net outflows? What are we doing about it?
To what extent do I have confidence in the future that we're on the right track? Let me talk about that. In life, there's challenges, and there's challenges you create on your own, ofttimes consciously, and there's also challenges which occur that you have little control over, like the markets. The first challenge I'm going to talk about is one that I'm directly responsible for, and that was the combination of our distribution forces. We had RiverSource, as Ted described, really a force that was focused on the affiliate distribution. We had Columbia, who had external wholesalers. When we came together, even before legal day one, I made the decision, let's pull these two teams together, and let's get the best and brightest people on the field as quickly as possible.
Sounds like an intelligent decision, but you also have to consider the fact that in this marketplace, in this arena, as you read in Market Metrics and in other surveys, it takes wholesalers really three years to get fully up to speed in a new territory. When I made this decision back in the first quarter, I made it consciously knowing that, guess what? I'm disrupting 100% of the field. As we move forward today, we're now entering that third year, and I'm seeing wholesaler productivity go up. What are we doing about it? My second point, the passage of time, but also you've got to retain the wholesalers. You've got to pay them properly. You've got to give them the proper support. You've got to have advertising campaigns, and we've had excellent success in that area.
A second area of challenge is market conditions, and you can see on the left side of this slide what's happened in the industry, third quarter to third quarter. Massive outflows in mutual funds in general. Really in our sweet spot, as I said before, we're known as an excellent domestic equity manager, and that area has been particularly hit. What are we doing about it? Well, I've already talked about one of the things we're doing, which is doing product development and leveraging existing other products that we have in areas of more demand. Secondly, it's great to have those products, but you got to be out there talking about it.
All our wholesalers have been increasingly trained over the last 18 months, as well as we put incentives in place to make sure that they're talking about the full array of products, not just equity products. Finally, this is something I'm most pleased about, it's what I call to my sales team about you need to sell against the flow sometimes. We've done an excellent job of that, and there's no better example of that than as I look at what we've done in the large cap space, where our large cap focus fund, we've raised just short of $2 billion net this year in an industry category that's out north of $22 billion for the year. Don't lay back and claim defeat. Go out there if you have a wonderful product and sell it and make sure people are buying it.
In addition, on this page, I want to talk a little bit about pockets of redemptions. Some of you have probably read in the press we're losing the New York's 529 plan in the first quarter of 2012. In addition, we've had some challenges in terms of redemptions in both the Ameriprise area as well as in the U.S. Trust area. What are we doing about it? What we're doing about it is we've put a retention force in place on the sales desk, which we're growing and have been growing since the second quarter to make sure that we're focusing on retention strategies on both the firm and the product level, and then taking it down another step to the advisor level.
As I look at the right side of the page, a key point here, though, really becomes the fact that we've seen strong year-to-date improvement in Ameriprise and third parties as Ted referenced. I'm not declaring victory, but let me now reference why I'm very confident about our net flows position and the ability to grow this business organically in the years ahead. Ted has mentioned the Columbia acquisition being transformational and really how we've combined the two teams. We now have a solid affiliate base in terms of, and semi-affiliate base. I talk about respectively, Ameriprise and U.S. Trust, but very importantly, our third-party distribution is well suited for this. If you look at the histograms on the left side of the page, what you see are gross sales by channel year-over-year. Let me direct your attention to the light green bar.
What this speaks to really is our third-party distribution in terms of our broker-dealer and IED areas. We've seen this going from 27% to 34% of gross sales. You also see the foundation, as I referenced before, of Ameriprise and the defined contribution investment-only theme. Then U.S. Trust, which you see some deterioration in terms of the percentages. Let me tell you that with respect to U.S. Trust, very large, very important client to us, they also happen to be our largest tax-exempt fund, and we know what's happened in that area this year. As I look at this, I say to myself, we're going to continue to help them grow that business, and we're going to get our fair share of that business and maintain our assets and move around the corner and grow those assets.
Very importantly, on the right side of this page are what I look at, what Ted looks at, Jim and others, in terms of leading indicators of this business. Are we getting it right? If you look at the first bullet point, gross sales up 6% in a very tough environment. We're very proud of that. We've had a great year from a gross sales standpoint in many of these channels. You can see external focus firms, growths are up 25%. We have net inflows of $2.5 billion in focus funds year to date, you can read the rest. Let me highlight one other point. You see that 71% number. When we get called in to make a platform pitch against the top managers in the industry, we win 71% of the time. That is a spectacular number for us.
We take that, we combine it with our robust wholesaling force, you're on a broad array of platforms with a broad array of products, really driving your results. Again, I'm not sitting here declaring victory. Yes, we're in net outflows, a lot of the things that I look at day in and day out are going in a very positive direction, we'll continue to monitor that. In the interest of time, just a quick comment on other expansion opportunities. What I'll say here is that we have strong distribution capabilities and relationships in retirement, high net worth, ultra high net worth. The key here now is adding the vehicles within these growth channels and making sure that we're driving the flows increasingly as we move forward.
More to come here, you can see the various vehicles on the left and the channels that we're focused on the right. A theme here that you're going to hear again and again from us as we go forward is we need to be vehicle agnostic. We need to develop this excellent performance that we've been built in numerous channels with numerous vehicles, we're in the process of making sure that we're on the forefront of that. Let me now talk a little bit about the institutional business, which we're very excited about. You see on this page just the size of institutional business as well as where we are today. What I can tell you point blank is that the institutional sales team that we have on the field today is stronger than either legacy organization ever had.
We have a seasoned relationship management team that supports the sales team. On the sales team, when I'm talking about the sales team, we're covering not just the pension consultants under the territories, but we're covering fund to funds and the larger DCIO plans. Finally, our focus here really has to do with the largest of the firms, the $1 billion-plus institutional targets. A lot of progress in this business. I'm very excited about where we're going. To Ted's point, we are driving this to become 50% of our business as we're growing the other side as well. A couple of comments here. In my experience in this business, if you have an institutional firm and you're a larger firm, if you can win anywhere from 35%-50% of the finals you're in on an ongoing basis, you're doing very well.
You're, in my view, first quartile. We're winning 53% of our finals, which tells you a number of things. Just as we were a bit in the penalty box on the retail side because I disrupted the sales force there, what this tells you is both the consultants as well as the clients themselves have taken us out of the penalty box. In fact, it's been the shortest period of time I've seen an acquisition of size come out of the penalty box. To that point, if I look at the consultant coverage, which is crucial to our growth, I look at we cover approximately 65 pension consulting firms. As many of you know, these pension consultants drive, in any given year, 70%-80% of the business. As we drive that business, we tier it out.
The first tier is the top nine consultants, then the remainder are the second and third tier. Of the top nine consultants, nine out of nine have had us in searches this year, and seven out of nine we've made it to the final presentations at one. That's an important stat. I think another point here is just the number of searches we're in. Over 160 searches with the overall consultant community, a very important channel for us. You see the results in the middle of the page with the pipeline and how that's grown as well. Again, very excited about the ability to grow this business organically. A point on the challenges now on the institutional side, we can talk about market volatility and suppressed activity, which is how that translates in the institutional arena.
When the market gets volatile, people decide, let's hold off on the asset allocation switch. Let's see what's going to happen. That's had its impact on anyone in the institutional arena recently. Additionally, we've delineated this in the chart on the bottom of the page, we're going to see institutional outflows really driven by lower margin legacy parent business. On the left-hand side of the page, you see approximately $6.6 billion that's going to be coming out in the fourth quarter and another $2.7 billion. Please also note the basis points there because that's significant because from a revenue standpoint, if I take all the businesses that we have won but is not yet funded and will fund in the fourth and the first quarter, we pretty much offset the revenue hit this is going to take.
Optically it looks like large assets, but from the standpoint of revenues and profitability, it has a much more minor impact. Let me close by a couple comments on our institutional business moving forward. We're really focusing on driving the higher profit net growth in terms of the third-party assets. We're going to continue the product development I described earlier. Again, areas like LDI and absolute return, things that the institutional arena are really looking for. Again, to echo something Ted said and to foreshadow something Crispin will talk about, we're going to see growth on the international front as well, we're very excited about working with our partners over in London. To close, what I'll tell you is that the integration is largely complete. We're in strong investment performance.
We see the indicators that we like that indicate that we're going to be able to grow this business organically, and we're excited for our prospects in the quarters ahead. With that, let me ask Crispin Henderson, the CEO of Threadneedle, to come to the podium. It's yours, sir.
Good job. Morning to you, Chris. Good morning, everybody. It's great to be back in the New York Stock Exchange, I feel a little bit like the army field captain returning from the field of war in Europe to say there are some survivors that the field is a very difficult field. As you've heard domestically, the industry's in outflows, that's true globally. Not only have we got hugely volatile markets where asset levels for asset managers are reducing, but we also have significant outflows wherever you look in the world. It's good to be a survivor and a thriver in that environment. Here's why. We're a strong partner to Columbia internationally as a leading U.K. manager. We are winning mandates. We're expanding rapidly into Asia, generating great performance on the long term and growing the business for the future. Let's just recap.
Last time I was here, I talked quite a bit about the sort of substance of the business. We have significant assets under management, $96 billion. It's split 30% retail and 70% institutional. It's quite the reverse when it comes to revenues. 62% of revenues are retail, 38% institutional. You can see the asset split there, but it's a nice diverse split. That whole positioning gives us a strong market position as the international business of Ameriprise. You can see our statistics there. What's important is the distribution power, as we grow that. We're now working through 17 offices globally, distributing to clients in over 80 countries. When I talked about the war for fund flows and then volatility, this is an extraordinary story. We have won this year's largest institutional mandate in the U.K. It's $14 billion. We've also delivered record gross flows and net flows.
We've also retained on re-tender, the block of Zurich assets that is our heritage. You've heard a little, I'll talk more about our expansion into the Asian Pacific region. We're also building a tremendous global palette of products, a sort of best of, for distribution globally from both Threadneedle and Columbia. Let's focus on that large win. It's Britain's largest friendly society that had its own asset manager, wasn't making headway with it, and wanted to outsource, and they selected Threadneedle based on its tremendous long-term performance for clients like Zurich and other major insurance clients. It brings in $14 billion on November the 1st, so it's in. I just want to point to the fact that it's really two mandates. There's one for the society and one for the society's pension fund.
The society's pension fund is $1.4 billion, and $400 million of that, in due course, will flow out again as they decide to index that part of it. It's a long-term mandate. It's on good terms, and it adds significant scale to our fixed income business and positions us as the go-to place for this kind of mandate, which is great. The other very significant positions, I know a number of you've asked me about this in the past, the Zurich position. You'll remember that Zurich was our previous owner before we were bought by Ameriprise. It's our heritage client. It runs big closed-end life and pension books. Those are closed. There's no more new clients coming into them. There's continuing premium income, but no new clients. We've managed that since the acquisition on the long-term contract that was negotiated as part of the acquisition.
Zurich, at the end of that, re-tendered the contract on institutional terms in 2011. I'm delighted to tell you that Threadneedle has retained all of the assets involved there. It's retained those assets at the revenue levels that we enjoy at the moment. It continues to position us as a strong provider to the Zurich Group overall. Zurich remains our largest client, but represents less than 25% now of our revenues. Its dynamics within the business are interesting. As a closed book, you see outflows every month, along sort of industry-level outflows. Those in good markets are replaced by market uplift, and they're mitigated to some degree by the dividend and income reinvestment that takes place on a month-by-month basis. I just wanted to point to the expansion of Threadneedle globally. If you look back to 2003, we had $2.1 billion outside of the U.K.
That's a tenfold increase and one that we would expect to continue to increase. This element of diversification is very important. It's important for the group as a whole to take its business, both Threadneedle and Columbia, globally. Let's look at that from a Threadneedle perspective. This year, we're enjoying record gross sales at $17.1 billion. What is important here to note is what is the proportion sold in the U.K. versus the rest of the world. In the U.K., you can see we're selling only 32% now, and two-thirds of our gross sales are outside of the U.K. As we now look to that outside of the U.K., obviously Continental Europe is critically important and that's a huge battleground for us. We're opening up very substantially in new markets.
Asia Pacific is particularly exciting because I see this as very much a joint effort with Ted and Mike and our Columbia partners. We're collaborating very closely on this. We have an Asian board that, if you like, sits across that and coordinates our thinking and our approach, which is really, really great. Our tactics at the moment are aimed to leverage institutional opportunity while building a strong retail structure so that as our licenses come through, we will be able to sell strongly in the retail area. We've got a southern hub in Singapore covering South Asia and a northern hub in Hong Kong covering North Asia. We're distributing the best of Threadneedle and Columbia, as Ted says. The framework for that is the Luxembourg SICAV, which is the product of choice for imports to that area.
What drives our ability to sell and to gain mandates is our performance. 78% of our rated funds are four or five-star by Morningstar. That's 56 out of 72. We still enjoy tremendous long-term performance. That long-term performance translates into a myriad of awards, 126 so far this year. Right the way through from the left, group-type awards for the company as a whole through specific sectors like property group of the year award, to a broad set of Morningstar-type awards in France, Portugal, Spain, et cetera. A very exciting bringing to life, if you like, of that performance. What is that performance? These are the three, five, and 10-year numbers on the left of our percentage of funds outperforming their benchmarks or their peer group. As you can see, very strong numbers.
What is particularly interesting, and I'll link this back to the Zurich point, is that we manage a large amount of money on an asset allocation basis. We allocate using our underlying funds into equities and all sectors of equities into fixed income and into property. We call that the asset allocation funds. They amount to $34 billion of our assets under management. A big chunk of that is Zurich and now Liverpool Victoria. As you can see, our track record in running that kind of money is unsurpassed. Our property business is an interesting one. It's a bricks-and-mortar business. It's not a REIT, as you'd be used to here, but investing directly in bricks and mortar. It's been hugely successful.
As Mike was talking about, when you look at low-growth environments, particularly U.K. property and other products are particularly important, and this is a very useful part of our business. We've taken in a significant amount of inflow over the last two years in our open-ended funds and our closed-end funds, which we launched right at the bottom of the market at the time of the crisis and took in also about GBP 2 billion. Those are performing extremely well. We also launched our first very socially responsible property investment, which is called the Low Carbon Workplace Trust. That's already raised GBP 100 million, and we have great hopes for that going forward. You can see what we've been doing. What makes me so confident about the future growth internationally? Well, rather like Mike, we're very focused on the institutional business. We really must increase our revenues there.
We know that we're a winner in the non-U.K. area, particularly Middle East sovereign wealth funds, U.S. and Asian expansion. We need to continue to push that. We're looking to, particularly in Europe, ensure that we get to retain stickier revenues. The turnover rates in Europe are quite high. Therefore we need to make sure that as we distribute, we distribute to those that are not just asset allocators, but the private banks, the stickier end of the market. We're building our capabilities in absolutely key products for low growth and the future, both on a global distribution basis, but also what work well in low or recessionary times.
We're also building out those areas which are particularly important, fixed income, commodities, and properties, because they too form part of that sort of multi-asset, our ability to offer products at any time in the market cycle, but most particularly now in low-growth environments. I just wanted to finish by saying and picking up the theme that both Mike and Ted had put on the table of working together. This is particularly exciting. It's important for you to understand that we are not integrating the fundamental factories involved here. It's very important that you understand that. We each have our own ways of running money, and those are very important, that we preserve the tremendous value that's associated with that. Threadneedle is distributing Columbia product outside of the U.S. Columbia's distributing Threadneedle product inside the U.S. We've got that best of proposition.
We're running some products which are sleeved products. Columbia will access, for example, our global equities as part of an ETF offering. We're also cooperating on global financial institutions such as many of you represent. We come to talk to you as a single whole, if you like. In that sense, we're presenting the best of the GFI community globally. Really, that's it. We have delivered record growth sales and net sales during the year in an environment which is in outflows and in significant difficulty. You'll see in Q4 those flows coming through and the assets getting larger. We won the U.K.'s largest mandate for the year, $14 billion. We retained that heritage business based on our strong performance.
We've continued to grow and diversify the business, particularly the kinds of things we're doing in the Middle East and the Far East, et cetera. We're aligning strongly with Columbia to leverage our capabilities, our international product opportunities, and most of all, our net sales propositions. I hope that gives you an update from Threadneedle. Thank you very much indeed. I'd now like to welcome Walter Berman, who I know you're all waiting to hear from, the man with the money, and I look forward to hearing what Walter has to say.
Thank you, Crispin. I can guarantee you I'm the last speaker. What I'm going to cover is really to provide the context and basically focus on the points that were made by Jim and the other speakers. First, to talk about the challenging environment we've been in, certainly, I think you'll see from the slides and the impact factors of them, it has been challenging. Track through the financial objectives we told you in 2009 that we would go for by 2012, then talk about what creates financial strength and flexibility to meet our financial objectives in a multi-situation and in a multi-timeframe. Finally, talk about generating and sustaining substantial shareholder value. This is not a pretty picture. Back in 2009 when we met, the GDP was negative. It has now gotten to 2%, which is really not very robust.
Consumer confidence has actually deteriorated down to 59%, and unemployment is staying at 9%. When you take those factors with our fiscal policy, and we go back to what I projected using for the markets, both looking at the equity markets and the interest rate, both on the short and long term, and compare it to where it is today, what we've realized and what we're projecting out, the net impact from period of 2009, starting there and moving to 2012, is $350 million in PTI. The majority of that is in the interest arena, with about $120 million coming on the sweep accounts on the short rates, which are about 40% of what we thought they would be when we used the forward curve.
The other portion is on the long end, both looking at the impact we recently had and our DAC unlocking, totally related to interest-related dislocation, and then the impact that we've discussed about the low interest environment. The balance is the equity markets, and that is, as you look in the chart, it is coming from the drop that you just saw took place, the 14% drop, and then we're projecting that to grow by 8% from this point. What it'll do, I don't know. Certainly that is the calibration of the numbers. Certainly, it will have an impact. We certainly will work to try and overcome that. Those are fairly large numbers. Let me move to the financial objectives. A lot of this has been discussed. I won't spend a lot of time. I'll just try and add some different points about it.
First, on the mix. As we indicated, we said by 2012, we would achieve a 52% mix of low capital intense activity. We've achieved that on a year-to-date basis in 2011. Our low capital intense business have been growing at a very good pace, and we slowed a little due to the environment on our high capital intense activities. That is a big plus. The other plus that I mentioned. Jim mentioned it also. We said that in the calibrations that we did in 2009, we would have $1 billion of excess capital. That's what you should assume is there. We actually have $2 billion plus. Also in that timeframe, since we met, we have basically dividended and repurchased over $2.1 billion back to our shareholders. Moving on to the other objectives that we said. We said that we would achieve a 25%. There's 23 here.
As we looked at the way Columbia did their accounting, the way we did our accounting, we recalibrated that. We basically went to taking into revenue elements of the EPN, elements of the transfer agent sub of ours, which brought down the original estimate. It's strictly a math calculation. It was an adjustment that we just didn't know. Right now in the third quarter, with the big impact in the market, we're at an 18%. If you look at the four quarters, starting with the fourth quarter of 2010, which has the hedge fund profitability, obviously, we don't know what the hedge fund profitability will be at yet, as we go. You're almost approaching 20% when you adjust for some of the one-time items we talked about. It does have an impact on our margins when the markets get impacted at that level.
If you look at advice and wealth management, we said that we would achieve a 12%. We hit 11.5%, driven by the strong advisor productivity, the growth in the AARs, our revenue growth, and our re-engineering. That's with not achieving the approximate 120. The drag related to the sweep accounts with the rates being at such a differential versus what we predicted. Our return on equity has been impacted, but we are moving, as you saw, 13.4 for the third quarter, and I'll talk to you in a minute about what the progression has been. We believe that based upon our growth rates, we will get in the range of the 15%. Certainly, the markets are challenging, certainly, the interest environment is challenging.
We have achieved most of what we said, and we believe that we're on a trajectory to continue that way. If you take a look at the progression that we had, we started at 9.7%, we got to 14.5%, we dropped to 13.4. What you have taking place in the third quarter of 2010 and the third quarter of 2011 is the DAC impact. In 2010, it was a positive. In 2011, it was a negative driven by the market dislocation and the impact it had on interest rates. If you just normalize it, just to see where we are, we're at 14%. Let's talk about creating the financial strength and flexibility to meet our financial targets. This is a key area. It's critical because it's basically the foundational elements allow us to ensure that we can achieve our operating and strategic objectives.
It starts with the culture and how we think about managing all aspects of our business. All elements of these reviews are discussed and reviewed by Jim and his management team. We basically use an enterprise risk management framework to address and understand the risk profiles we are facing and the decision implications of them over multiple years and multiple time frames. We look at effective liquidity management, prudent product design, differentiated derivative mitigation strategies, aligned investment strategy, strong asset liability management, and finally, the creation of our excess capital. Let me go over each one of them. The most important in my mind is liquidity. It always has been and always will, because without it, you don't survive. A tremendous amount of resource and analysis and capability is focused on this. We look at two situations.
We look at one where you have a capital market dislocation and one where the focus is on AMP. In all cases, in all analytics, looking at the roll-off of our liabilities, our ability of our assets to then cover them, we are well within any of our tolerances that we look at. This is constantly evaluated because we understand the implications and cost of liquidity, and we are constantly measuring to make sure that we have adequate liquidity to meet all contingency situations. Right now, we have on average about $2.6 billion at the top company level and about $800 million at the holding company. The cost of that is fairly high. It's $30 million-$40 million a year. We constantly look at it, evaluate, and assess what the appropriate level will be as we look forward. We also extend this philosophy as we look at our debt structuring.
We basically ladder it to ensure that we have the appropriate capability to meet that in any situation. Right now, we have $700 million maturing in 2015, which certainly gives us more than ample time to strategize around achieving that repayment. Let's move on to investment portfolio. Again, a very important element. It deals with the multiple objectives of yield optimization, liquidity requirement, and credit diversification to ensure you get the right mix, because this is the cornerstone of how we basically manage the business on our own portfolio and also provide the capabilities that I spoke to you about. I think our track record is quite good. Right now, we have no holdings of European sovereign debt in distressed countries. It's not an accident.
It is basically the way we evaluate it, the risk-return elements of this, and we're quite fortunate to have an excellent team with Columbia that has helped navigate these situations today and in prior situations. We also look at our commercial real estate. We basically only have two delinquent loans out of the $2.5 billion. If you now move over to the retail sector, we had over $4 billion. We impaired $300 million since 2009. I think an excellent record. We're in a business of risk, and I think we managed it quite well. We also don't chase yield. It is critical to us to understand the instruments and understand the implications of those instruments. Therefore, we have made a decision not to invest in hedge funds, private equity, credit default swaps, or do security exposures within our own portfolio. Let me turn to asset liability management.
We presented these numbers back at the third quarter. You can see the impact of the low interest rate environment. And we follow the same discipline that we talked about as it relates to managing assets and looking at liquidity. We look at duration across the board, both on a product and on a legal entity basis, and we are assessing its convexity implications. Certainly in environments of this nature, the duration and convexity will change fairly rapidly. We believe we're within our conservative tolerances, and we are constantly making adjustments and looking at this. As you can see, we indicated that there will be, if these rates continue- At these, using the full curve, there will be about a $35 million impact as we move forward, net after tax impact.
If you take a look at managing our product, which is another core element, we are comfortable with the risk associated with our variable annuity products and other products in our portfolio. First and primary, as Jim has indicated, it's sold through our strong advice capability network that's built on relationships that provide strong consistency and risk selection tolerances that we feel quite comfortable with. If you take a look at where we are, the product features are balanced and not aggressive. Approximately 63% of death benefits are simply return of premium. On the living benefit side, no guarantees account for 50%. Now, obviously, our current sales mix is higher than that, but that's a fact. We have 50% of that book having no guarantees attached to them. And currently, we are not offering GMWB, and it only represents 1% of the entire portfolio.
Third, we take a look at the way we manage the portfolio. As we see the dislocations taking place due to low interest, we've made the decision to raise our prices. We have to do it because it's very difficult to hedge in this environment. We've changed the way we hedge right now. We're taking more of a macro out of the market hedge because of the cost dynamics, and we're trying to navigate through that, and we feel quite comfortable with the position that we are taking, and it's constantly being evaluated. At these levels, it is extremely challenging to offer these sort of products. Finally, the key cornerstone, especially for the variable annuity product, is the way we hedge and the way we approach it. From day one, we have taken a capital market approach to hedging our exposures.
We take a static, adjusted approach to ensure that we do not have the velocity of impact coming forward when you have dislocations in the marketplace that took place in 2008. It was a critical element that separated us from most of our peers. As this graph indicates, in 2011, the volatility of the market is actually quite close to what took place in 2009 and 2008. In the third quarter alone, the swing in assets and liabilities were over $6 billion in the quarter. Throughout 2011, we've maintained a 95% effectiveness. We've done that through basically the investments we made in knowledge capability of understanding the liabilities and the asset implications of it, the back testing capabilities that we constantly review to understand if we are not exactly getting the results we want, why, and then how we can best mitigate those results through our hedging capability.
It is an important and critical element, and all management participates in both the decisions as it relates to the ranges of tolerance and then how effective it is. We have a monthly attribution meeting to review each aspect of this. Lastly, is the substantial nature of our excess capital and how that capital acts under stress situations. Excuse me one second. I'm hoping nobody drank from that. That's stress, actually. Right now, we talk about we have $2.5 billion in excess. The way we analyze this, and we go through a tremendous amount of stochastic analysis, ultimately, when we sit and talk to management, we frame it on the basis of what we think is going to happen, and then we take two bookends, a stress bookend and a happy case. In this case, I can assure you that this is stress.
What we've said, we would have a 22% drop for two years, taking us down to 700 on the S&P. The 10-year Treasury would be under 1.5%, and the short rate would be at two basis points. Under that stress situation, looking at over a two to two and a half year horizon, the amount of capital call that we see is in the 30% range. We will still have over $1.5 billion in excess available to meet the needs of the business. This is constantly evaluated and looked at. Obviously, we run significantly other stress tests at 10,000 stochastic reviews due for CTE98 and everything. This is the basis we sit and go through with our various governance committees to understand the implications to our business model to ensure that we can meet the needs of our business. If we can't, we'll then talk about mitigation strategies.
As we look at it now, we feel extremely comfortable with this aspect, and that's why we feel comfortable in our buyback programs, and we feel comfortable in the programs that we launched to grow the business. Let me get on to the final subject, which is creating substantial shareholder value and growth. We achieved the 52% mix. We believe over the next two to three years, again, market conditions, reasonable and certainly subject to, we can get to 60%. That's with growing, certainly a capital-intense business at a slower level, but really getting the growth trajectory that we believe on the asset and wealth management business and the asset management business. Jim mentioned 90% of operating. This is our segment operating earnings.
With the current situation and looking at the amount of earnings being generated in our low capital business, which requires very little capital, and looking at the capital generation in the high capital business, which again, a lot of mix shifting is taking place. We have, and we feel comfortable with the generation of 90% of the capital goes to other sources than the requirements that are being created by it. We're constantly evaluating, and it shifts as you get different elements in it. Even with those shifts, we feel quite comfortable with the amount of excess capital that we generate. Jim presented this. I will just reemphasize for the revenue growth and for the EPS growth, we are maintaining it.
For the ROE, with the capabilities we have and what we've achieved, and with the EITF coming, while the EITF will add to this, is the fact that where we are and where we will believe that allows us to go up to the 15%-18%. It's not a walk in the park, but we certainly feel that this is achievable, and we've demonstrated where we've come from and our capabilities in doing this. Again, we recognize that we generate a lot, we have a lot, and we have redeployed a lot. This is the $2.1 billion that we spoke about. Then on the next slide, I'll talk about our positioning from a return on equity standpoint. We can grow the return on equity. As you heard, we are going to grow the business.
We will redeploy the excess capital as we feel is effective for our shareholders, taking into consideration the market environment and other aspects we look at. The prudent risk management is a key element that is the way we make decisions and we make trade-offs. We have borrowing capacity, as you can see from this chart, and still stay at a 25% debt to cap. Then finally, the EITF will certainly drive up the return. Again, the base return is being driven up by the fundamentals of the business and the amount of capital we generate, the amount of earnings, and then the redeployment of that. In summary, I just think we have a great story, and I think it is coming together, and actually, I feel very comfortable about it because we're growing the top line.
Our earnings are really quite good, both in balanced markets and they're good in markets that are more challenging. We have the shift to low capital that has a great trajectory, and we have the ability, as we've demonstrated in the past, to prudently manage expenses. The company is committed to the safety and soundness and strong fundamentals and allowing us to have that capability over multiple situations to meet our operating needs. Finally, we have multiple levers to grow our return on equity. Thank you. With that, we'll take questions.
Thank you. I want to just thank the presenters, but what we tried to do here was to give you a little bit of view of Ameriprise, particularly around the areas that I know you ask a lot of questions on. We think we're situated well. We're continuing to vest. We're continuing to see opportunities for us to be successful. As I also said, one of the overall concerns you should have in today's marketplace is what happens on the negative side, depending on the environment. I think Walter tried to explain to you that even in those cases, and that's a significant stress test. That's very significant versus what you'll see out there in the marketplace. We still have the wherewithal as well as the strong foundation to navigate well. With that, we're going to open up for any questions.
My executive team's here as well, they can take any questions. We have one here. Okay. Start in the back, we'll work our way up. Yes.
Thanks, Jim. I just wanted a clarification from one of Walter's slides. When he talked about margins and ROE targets, I think he sort of re-endorsed the ROE target. He talked about some of the challenges in asset management, but I wasn't sure if the 23% margin target for 2012 is still the target, or are you trying to caution us that given the third quarter, that that's a little ambitious?
I'll let Walter answer that.
What I'm saying is it was set under a market situation that by the time we get to 2012, we'll be at least 5% under on average that we thought we was going to achieve. We're certainly going to work as hard as we can to do that, I am just letting you know, the basic drivers that we thought we'll get there as it relates to the market will be under what we used in the 2009.
Okay. Just to be clear, did you say five points then? Is that what you said? I didn't quite catch that.
No, what he said was the market itself, the overall market levels, are lower than what we assumed to achieve that margin. If the market stays below what our estimates are, it will affect that margin. He said, for instance, adjusted for some of the one-offs, we're roughly at a 20% now.
If you look at the last four quarters.
Last four quarters. Again, we're continuing to look for ways to improve that over the next year. It will be below the 23% unless the markets go back to the assumptions that we utilized for equity markets in the 2009 presentation.
Okay, great. Thank you.
Yep. Right here.
Hey, guys. I was hoping maybe, Walter, you could flesh out your comments on ROE a little bit better. The 18%, I guess, at the higher end of the new target. Can you give us a sense, I guess, how much of that is really the accounting change versus the business and capital deployment, and just kind of walk us through that, high end of 15 to now the high end being 18? Just a follow-up to that, looks like you guys are obviously still generating a ton of excess capital. How much do you guys see deploying on an annual basis, kind of on a run rate going forward? Then maybe the breakdown dividends and buybacks within that?
I'll let Jim handle that one. I'll do the first part of the question. If you look at the EITF 09-G, we're estimating somewhere between 1.8% and 2%. The reality of that is that, if you take now we've gone to 15%-18%, that we really are saying that our old target, 12%-15%, is now like at a 16% that we're going to be trying. Again, we're approaching coming up onto the 15%, or the upper end of the old target, and we felt that with the capabilities we have and hopefully the growth momentum we're seeing, that we will be able to get without the EITF, have a range that will get to 16%. Jim, I don't know.
Yeah, I think very clearly what we're saying to you is the EITF does adjust the equity return a bit. Without that, we feel very comfortable moving out of the 12% to 15% range. One big caveat is always the idea of equity markets and interest rates, et cetera. We feel even in the environment we're roughly in, with the EITF, we should be in the 15% to 18% range. Again, we might correlate to get to the high end if we're in good markets versus not. We feel that that's our new range that we're really focused on. The second question is the redeployment of capital. Again, there are a number of factors, as I explained and Walter explained, that go into that, but we didn't give you or plot out exactly how we'll use the capital.
This is our thinking so that it's consistent with where we've been, is number 1, the first and foremost is based on the success of the business, we're generating good additional capital. We have a strong excess to begin with, and we need to redeploy that excess to get into a 15% to 18% range, because adding that much capital every year is going to dilute that return. That's number 1 that we have to factor in from a return basis as we think of it. Second thing, what's the best way to deploy that capital? Right now, we've accelerated, as you saw in the first part of the year, buybacks based on how low the stock price is.
We raised the dividend, but I think that's becoming more important for certain investors, we're going to evaluate our dividend strategy there and take that up with our board. The third thing, very clearly, is this. We've had good success in acquisitions that strategically add value to us. We want to maintain a level of capital, on a cash basis, we could acquire, that would make some sense depending on what the asset is and what would add for the two businesses we spoke to you about of where our value proposition is. We always want to have some flexibility so we don't have to raise capital, and we don't want to over-leverage ourselves from a debt perspective. If we keep a strong capital position, it gives us the ability to navigate.
If we see markets really bad, we know that we have the capital, and we don't have to raise or do anything. On the other side, if markets start to tend or we're in a good situation where value presents itself, we on a cash basis can do a complementary acquisition that fits in with what we've done. Those are the balances. There's no perfect science to it. What we will do is continue to evaluate that on an ongoing basis to redeploy capital, because based on our earnings strength and power, if we just sit with it, we're not going to get to the 15%-18%. We will be, if you look at it. On Walter's last slide, you saw that amount of excess. That's a large part of our capital position.
If we adjust to that right away, you're going to boost your returns. What we want to say to you is this. We will return it to you. We will do it on a consistent based on our earnings power. But with that, we want you to know that you're investing in a strong company that can navigate, that has opportunities as well beyond what we're generating organically. That's what the equation is for us. Yes. Next question, right here. Oh, sorry, up here. Yeah.
Thanks, Jim. Jay Gelb from Barclays Capital. I just want to make sure we're setting the baseline the right way for 2012. You talked about 12%-15% earnings growth. Is there anything we should expect in 4Q of 2011 in terms of one-timers, or would the earnings power be similar to what we saw in, say, 1Q and 2Q?
Okay. In the fourth quarter, Walter, I don't know if there's.
Well, I don't give forward looks. They're obviously by nature, they're one time, so they will come through. I do not contemplate, but again, that doesn't mean it's not going to happen.
Let me try to explain the 12%-15%, just to be clear, because again, I can't predict for you the market. If the markets, again, tank in the fourth quarter, they made some of their way back from the third, they will impact our short-term earnings. On a 12%-15%, we're not saying every quarter we will do 12%-15%. What we say to you always is that over the cycle, over a longer period, we will look to achieve 12%-15%. There may be some quarters where, because of market conditions or just the amount of what's occurred, just in the depreciation that occurred, we might not be able to hit the 12%-15%. I would tell you over time, just like we said to you since 2006, those are the sort of the ranges that we're looking.
The last two years, even with headwinds, we did much better than that. We did 24%. On that, I'm not sitting here to say next quarter will be 12%-15%, but Walter?
Yeah. Let me add one other thing. We talk about the drivers that I put in or the assumptions I put in back in 2009, where we all sat down. One of the other things which is not factored in here, and I think we've been certainly very fortunate with the productivity and elements. These sort of markets actually could have a dampening effect, but we don't know if they continue to get volatile with our clients. Right now we're talking metrics, but our clients are performing well. They're being managed and certainly guided through this situation. But when you get movements like you saw of 14% in one quarter, it is a little disruptive. Again, there is a lot of things that go into it, and you know that we are in equity markets and we are certainly impacted by interest markets.
I guess, Walter, it was more specifically for 2012 where we talked about 15% bogey for earnings growth. It would probably just be helpful to set the baseline because I am not sure it is squaring the right way relative to ROE and your EPS growth.
Well, you got to remember, earnings get you could go to the lower end of range. We have tremendous capacity again. We have $1.7 billion out on our shelf as it relates to buy back shares. There is a lot of things that drive it is not getting 100% correlated. On that basis, I think it does make sense. You would imagine, depending on where markets go and where you think we have our assumptions that are built in that the markets will be 8%. On that basis, certainly we will get into those ranges that we are talking about.
Okay. Then for Ted, I think there is a lot of interest in when you feel the net outflows for Columbia could come to an end.
We've given you some view of what we would call a large outflow coming in the first quarter of next year is. Mike also discussed some of the variables in terms of having product where the flows tend to be, and I think part of this is going to relate to market, and are we in the right spot for where the market goes? Part of it's going to relate to what we develop. Look, I think as we head forward on this, we're obviously trying to improve the picture significantly in 2012 and reverse that, taking into account that first flow that Mike talked about in terms of the outflow we're expecting in the first quarter.
If you start to strip away that large one-timer in the fourth quarter, we think there's going to be significant improvement in 2012 and obviously well beyond that in 2013. That's what we're looking for. Those variables obviously impacting things.
Thanks.
Yes. Suneet, right here.
Thanks, Jim. I just want to follow up on the capital again. As we think about that 15%-18% ROE target over the next several years, what is the level of capital cushion that's sort of built in there? Because it used to be $1 billion, now it's whatever, $2 billion plus. The business mix has changed dramatically, right? Maybe the level of excess capital that you felt you needed to hold in the past is no longer the same. Maybe it's just some color around what you feel is appropriate.
I think, Suneet, in thinking about this, what I would say is we always would think that we want flexibility to maintain a reasonable extra capital base. I would probably put out there, and Walter, I don't know if you want to comment, I would assume that we're still within those ranges, assuming $1 billion of excess. Doesn't mean we couldn't use it. If we're in good markets, we might want to use it for something. Having said that, just on average over time, we like having that sort of cushion, so to speak, so that we can not only navigate but take advantage of some opportunities if they come along. I would say it still is a conservative capital base because that's above everything required in our numbers.
Right. The $1 billion would be on balance sheet, and it wouldn't include that $500 million of debt capacity that you have.
Yep.
Okay. My second question, I guess is on Threadneedle. On this $14 billion Liverpool Victoria mandate that's coming in, should we think about that business as having a similar margin as the Zurich business? Meaning it's insurance related, it could be margin dilutive, or how should we think about that?
Yes, you should. I think the other thing to just bear in mind, it is a longish term contract, pretty much like we had with the original Zurich proposition. Those two factors.
Crispin, I think it's margin accretive, not dilutive.
Oh.
Just for clarity, it's margin accretive.
Okay. Just that's the way the math works because the size of the assets coming in.
The leverage.
Right. Okay.
The overall position is, if you look at the economics, we bring in $14 billion U.S. dollars. Our cost increase is a price we pay for servicing that at the outsourcing end, what we pay down there. We brought in roughly 15 people, no fund managers, just 15 people from Liverpool Victoria to help us to manage the account and to do various other actions associated with promoting Liverpool Victoria's products, because that will be a sales channel. Not a huge sales channel, but a sales channel for the future. If you can imagine $14 billion coming in at large institutional rates at essentially a cost increase of 17 people, plus your normal servicing costs, and you can see that this is a significant margin improvement.
Okay, thanks.
Yes. Here.
I have two questions. Just to follow up on what Suneet was saying, Jim, you want to retain at least $1 billion of capital excess, and then beyond that, you're active in deploying it. I just want to make sure.
Yeah. I would say it's not that I want to retain. I'm saying we assume in those ranges that we would have additional. It doesn't mean that I won't use it if there's a good opportunity to use it that makes sense. I would also say to get to those ranges wouldn't be that we are just having no access.
Got it. Okay. Well, two questions. One, I want to ask one to Ted and Crispin and then follow up with one for Don. Saw the numbers with the Morningstar, they look terrific. One of the things when I was looking at the third quarter results were your asset-weighted above Lipper average ratings. For the one-year number in Columbia, it went from 62% above average to 56% above average. At Threadneedle, and I think this was the above-average Morningstar average weighted, and that's for one year again. Threadneedle went from 87, 83 rather, to 67%. I was kind of wondering what was going on with that one-year experience, and should we be concerned about that going forward? Is performance taking a wrong turn?
I'll obviously let Crispin comment on his numbers. If you look at the last quarter, we had weaker equity results, which I think influenced that asset-weighted result. The fixed income numbers are actually really strong on both the taxable and tax-exempt basis, as are the asset allocation numbers. Yes, we had a weaker result in equities, Andrew, which drove that piece down. Am I concerned about it? No. These things wax and wane a little bit. As you know, we manage over this three and five-year cycle, which we think is really the piece that you want to end up on. Obviously, the three and the five are a collection of ones. That's not a huge move, and we know exactly where it was. It was just really in the equity results and the rest of the places is doing quite well overall.
In Threadneedle, the reduction in the numbers comes about from two points. First of all, the bond side, and secondarily the equity side. On the bond side, it's the same theme between both, we took the view that bond markets were particularly volatile, therefore, we needed to be playing a sense of a very prudent bond type approach to investing. Therefore, we deliberately didn't try and press the envelope. On the equity side, we have a quality bias whenever you see significant volatility. We are long-term asset managers, so we need to make sure that we deliver long-term results. Often you'll see within this volatility, the shares that are moving up and down very quickly are not necessarily the shares that Threadneedle would buy.
We are buying and holding strong balance sheets, strong management positions, strong ability to call price in the market, excellent management teams, those kinds of quality assets. During times of high volatility, both in the bond area and the equity area, you will see us play in the high-quality area. That's a deliberate policy. Sometimes, as you point out, it affects your Lipper ratings. A very good example would be 2002, when markets came back, and another just more recently when markets came back. There was a sort of dash for trash. People were buying things that they thought were going bankrupt, but all of a sudden weren't, so their prices were going up. We participate only to a modest extent in that kind of dash for trash. We're quality investors in quality companies.
Just, I don't know if you've gotten numbers recently, but did you see any change after October? The market rallied back. Do you think that might have corrected the underperformance in the one-year number? Maybe it's too early.
It's too early. One month is going to obviously influence you somewhat positively, and that moves it at the margin. I think you've really got to take a multi-month view of it overall. Yes, October in general was a better month. We obviously, in some ways look at this stuff too much, i.e., we get performance reports every day. Whether you can really influence things on a daily basis and performance is a really, I think, open question. Generally, Andrew, I go back to the statement I think both Crispin and I are making is, we're comfortable where we are, we're comfortable with the processes. We know where we had the difficulty, and it's not something that we're particularly concerned about at the moment.
Perfect.
Don, I was looking at your slide 12, the franchisee retention is off the chart, phenomenal at 94.6%. When I think about those type of advisors, these big-ticket guys, I wonder if they have long-term contracts that you're giving them, if they get big upfront commissions. Could you give us a sense of what the upfront is to these folks and how long they're locked up? That's one. The second part of it is what happens at the end of that period? Would you expect the retention ratio to fall to something like 70% or 80%?
You guys mean specifically on the franchise side of the business?
The franchisees. Yeah. Not the employees.
The franchise side of the business is very unique. When people go into the independent channel, they're making a decision that is very different than one going from wire house to wire house. If someone's been at Merrill Lynch for 15 years and they're coming over to our franchise side, our independent side, they're doing that because they want to monetize their practice one time and one time only. When you get on the typical treadmill of wire house to wire house, you're working, you get your upfront money, you work for seven to nine years, then as soon as that's over, you have to do it again. Your franchise advisors are very different. As I said in my talk, is that one of the key ingredients to an independent advisor is that they're building real equity in their practice.
When they go to sell that practice, it's unencumbered. Depending on the mix of business and the diversity of revenue, when we look at our practices, they can sell, typically they'll sell anywhere from one and a quarter times in normal industry standards because our mix is so diverse and the revenue streams are so mixed in terms of insurance and financial planning, managed money, et cetera. Many of those practices are going for somewhere 275 to three. We heard one from FP Transitions earlier this year that went for 335 basis points on terms of revenue. Their future there is all about the value and the equity that they're building. I would not be expecting to see this fall off. Within our own system, when people retire, those practices get sold very quickly. I have more demand than I have supply.
If they retire, there's generally a succession plan in place that includes the sale of that asset. If someone is not in their practice to succeed them, they will sell that practice very quickly. Jim, is there anything you want to add?
No, I think Don's right. You can always get a paycheck to go, but they already have a very high payout. They'll offset that to go into a wire house. Their pay will cut in half, they will lose the value that they've built, and passing that value on is more significant than an upfront check they're going to get from a wire house. It does happen when someone's really in need of maybe cash on a short-term basis once in a while. In reality, our retention's high because of that longevity. Now, within that retention ratio, you know, is people retiring and selling their practices, or we ask to leave because they defaulted on their franchise for some reason that we didn't want them here. We have very strong, and that's consistent.
We don't see that changing as long as, again, we engage them, we support them, we are delivering for them what they need, and they really do like the company. They like what we do, what we stand for, who we are. They felt we've navigated this really well, that we're continuing to invest for their future.
They're not moving over for much money or even any check initially.
They're really moving over so that they can create that equity in their practice. For most of our advisors, and most of the independent advisors, the value of their practice is probably the single largest asset they actually have, and even maybe bigger than their home many times. This is a very significant opportunity for them, and they're doing it. We're seeing more and more senior advisors in the industry that are making that move. It's a very positive event for us. They're captive to themselves, which is terrific.
Okay. Next question. There's one here, one there, one there. One here, then one in the back there.
Can you remind us, auto and home we didn't discuss this morning probably for obvious reasons, but could you just remind us how much of PTI and capital is tied up in that business? Understanding it is a decent return business, would we consider outsourcing that business in the future to free up even more capital to make investments or buy back the stock?
Yeah. First of all, there's no reason why we didn't discuss it this time. I think it was more that we wanted to focus really on the two core growth engines of the company more than anything else. From our perspective, we are very pleased with the property and casualty business. It's something that we built organically over the last decade. It's something that's generating actually outside of a type of cycle in the market with cat losses, et cetera, from the environment, generates a good, consistent return. It's been growing nicely. Our expense ratios are good. We'll probably bring that more to light on the next time out. I would say it generates a good return on capital over, again, the cycles. With that in mind, I wouldn't say outsource it. I would say, yeah, we could probably sell it if we wanted to.
I think it would be a good asset. We like its complement. We like that it's to the mass affluent. We like that it brings in clients along those lines through affinity type relationships. Right now, with us having such a strong capital base, with us generating good capital, with us having the ability to generate the returns from it that's consistent with the overall return we want to achieve, and giving us that additional earnings as well as what I would call not having a need for capital, we don't see a pressing priority to do anything other than continue to build it and create value from it. Over time, if we do, we'll even have a stronger asset if we wanted to sell it. Walter, do you want to?
The protection segment, we don't disclose, but I can say that with what we've seen, certainly it went through with the cat losses and then the bodily injury we talked about. We do anticipate in the prior to that, it certainly was returning above average industry returns, we anticipate that that's what's going to occur as we move into 2012. Yes.
Thanks, Jim. I actually have one question for Don and one for Mike Jones. Don, the real change in your retention has been on the employee side, I'm just wondering what specifically you have done for those guys that is different from what you've done in the past, and different from what you might be doing for the franchisees. Am I right when I say that their line has really moved up sharply?
Right. That's really the story. We've changed our entire business model. We historically were bringing in novice advisors, recent college graduates, training them in our image and likeness, having them hook up with a senior advisor, then moving them into the franchise side of the business. We changed them up. We are now almost exclusively recruiting experienced advisors from the industry that know and understand our value proposition and want to become a part of that. As I say to recruits all the time, we're one of the best-kept secrets on Wall Street. It's because for 117 years, we had a methodology of the way we did things. We are now going after and telling people our story, and we're attracting quality advisors that want to come for many of the reasons that we said.
We also don't have that turnover at the bottom. It's very important, and that stability has lent itself to where we're going right now. As I said, the thing that's so important is the scalability of that platform. We've got 130 offices, and in almost every one, I have at least one empty desk. I can fill that and bring that in and bring them with people that are in three, $400,000 in GDC, and that continues to improve our overall numbers without increasing our expense ratio.
The stability of our company, the vision, the integrity, the ethics, the value, and the things that are really important, and in many cases are missing out there. As we bring in those people, they have stable books of business. They have maturity. They like what they see. What we offer, in many respects, I believe philosophically and business-wise, is almost irreplaceable. If you really believe in what we're doing, we give you the support that you need. We give you the independence to really make that happen, and you build a very strong and constructive business against a business process that's different. That's what's helping people really stay and continue to grow and onboard. If you're happy and your business is growing and your payout is very fair and reasonable, you're not looking. That's why this retention has gone through the roof.
Mike, my question for you relates to these retention desks that you referenced. I think you said that for your own guys, meaning the Ameriprise advisors, for U.S. Trust and for select third-party distributors, you've set up special teams of people to do a better job than you have of holding onto assets.
I'm inferring from that there's an issue with your own guys in holding on assets and with U.S. Trust. Is that the right inference?
I'd really describe it more as looking at the industry and saying that in any given year, if you're a manager in the intermediary space for retail, there's going to be outflows. There's going to be redemptions. To the extent you can focus on areas where you can bring that down marginally just a couple of percentage points, that's going to have a real kick into getting you to positive net flows and keeping you there. We focus on Ameriprise and U.S. Trust as two very large platforms for us, as well as some of the larger platforms on the third party. It's really more of a holistic approach as opposed to just strictly looking at problem areas.
It's more thinking about, okay, if we can bring that percentage down a couple percentage points over the next 18 months, that's going to have a real kick to our positive flow.
There's one over here that's waiting.
Hi, thanks. First on M&A opportunities. Would it be fair to say your priority, or all else being equal, your priority would be to find international? If so, is the distress in Europe possibly we see the same opportunities created with the European banks looking to divest that we saw with Bank of America Columbia?
Yeah, I would say you're right in a sense that we see a larger global opportunity for us. Threadneedle is of a nice size and scale, but as you saw in the pie, it's more of a third, a little less than that of the total assets. We would like that to be where we have a nice balance between domestic and international. Yes, that would be one of the opportunities. Again, I want to be very clear. It doesn't mean because there are properties out there that we're running to market to go do something. We're saying that if something appropriate comes along that fits, that can really leverage up Threadneedle and complement it, working with Columbia to really take more global space, we'll look at it.
That would be one of the opportunities that we would have in mind as we thought about the global marketplace. We are starting to invest more and think about that's why we're growing out the Middle East and Asia organically. In the advice and wealth management, you should know we already have on the ground, we're building a business in India. That we're testing out using the financial planning model to the affluent market. We will be looking at that in a few other emerging markets over time. We're going to start to plant some seeds, both organically as well as seeing if there's something appropriate. Having said that, it's very important that we pick the right business, that it fits in correctly, that we can get the returns that we mentioned to you before.
We're not going to just use our capital because we have it. If that's the case, we'll just buy back or dividend. It's a combination of those factors, but you're right, that will be one of the opportunities we would look at.
Is there anything when you sort of look at your early pipeline of things of interest, are there more properties coming up in Europe from distressed financials or too early for that yet?
I think there are things that are going to come up. It depends on how people make various decisions, that I think it's a very fluid environment right now. Depending on how people need to raise capital, what businesses they consider core and non-core, whether these are places that they would look at, there's always that potential, just like there was in the U.S.
Right. If I can ask one on AWM margins, you've obviously already beat the old target of 12% in the third quarter, even with the heavy drag from spreads versus where you thought they would be three years ago. I guess part one is, what was the main driver behind that? Is it largely the experienced producers coming in and they're at higher margins than the average? Or is it something beyond that?
It really was a few things, and they were all complementary. One is, yes, we adjusted our cost base. We took out a level of cost with the novice recruitment where you had a heavy upfront expense to get people hired and trained and staffed and led. That's one of the activities. The second thing was productivity improvements. We continued. Now, with that, I would also tell you, within those margins of 12%, we probably have one of the strongest investment agendas factored into that expense base. Putting in the new Thomson brokerage platform, converting our entire network is a huge expense over a period of time. Okay? Within those numbers, we also had a strong investment agenda. It's a combination of productivity. It's a combination of the cost and transformation that we went through.
It's also a combination of people that are focused on getting in more client assets and managing those assets to, as Don said, that deeper relationship. I think we can continue to grow that. One of the examples Don said is this. I have capacity within my employee channel. The more people I can add to it, I already have a fixed cost base. Right? That in itself can get those employee margins into a more competitive situation. They're not where they need to be yet. That's one of the opportunities. Second is interest rates. We're not counting on interest rates based on what Ben Bernanke said. I'm not stopping with the 12% because of interest rates.
I think based on the things we said was we've achieved more than we thought we would or targeted to do, we want to continue that anyway. If interest rates do come back one, two, three years down the line, I think that's going to be incremental margin for us that will really add to the profitability because as Walter has said in the past, the first level of that will fall to the bottom line.
Without putting a timetable on it, whenever interest rates do come back, given the productivity efforts and the investment starts to drop at some point, long term, what do you think? I mean, is 15 achievable if everything falls into place long term?
Why don't I do this before I jump to that? I'll have Walter do some calculations, we'll talk to you in an upcoming meeting.
Sounds good. Thank you.
Thanks. Maybe just a couple of follow-ups, one for Don and one for Mike. There's been a couple of articles recently pointing out that you guys picked up the FA recruiting, and I guess in October, there was 50 or so new recruits. Can you talk a little bit about that? Just broadly, if you look at the productivity of people that are coming in over the last year, including, I guess, so far in the fourth quarter, how does that compare to the overall productivity of the mix, not just by franchisee versus employee, but as a whole?
Well, we've had a very strong couple of months, there's a lot of things that factor into that. I think one of the most significant is that our story is really starting to get out there. I cannot tell you how hard my team is working to make sure that they're in front of every advisor in every city, in every marketplace, every day. We've now been at this now for a little over 3 years plus, we're making relationships with people. In addition to that, I have lots of my competitors out there that change the landscape every day.
There's nothing that makes me smile when one of my competitors says, "We're going to take and change the payout of a $300,000 or $400,000 advisor from what the current grid is down to 20% or 25%." Those are great advisors for us, they have longstanding businesses. They've got good compliance records. They have great practices, they're looking for somebody that wants to help them continue to grow their practices. We use that as an opportunity. In addition to that, because our story is getting out there, we're getting in front of much larger advisors than we've ever had the opportunity before. Just in the last month, we've recruited several million-dollar advisors and million-dollar teams. We're recruiting more million-dollar people than we used to talk to in the course of 6 months.
There's a combination of a lot of things that are really, really, really strong, it's the hard work, the doggedness, and the fact that our story is getting out, that we have an impeccable balance sheet, that we have great ethics, we have great integrity. The thing that I'm the most proud about is that people understand that we really care. Every month we do two VIPs a month where we bring advisors from all over the country that are considering us and come into Minneapolis. They get a chance to meet with all senior leadership
They meet with Jim, they meet with me, they meet with Bill Williams or Pat or Dave and the rest of the senior management, people from marketing. That accessibility is not available in other firms. I've sat in rooms where people have said, "I've been in other firms for 20 years, and I've never met with the CEO." Jim meets with almost every single recruiting team and people that we bring into these VIPs. That's what makes us different, because people now want to say, "What's real out there, and what can I believe in?" I think we're on the right track. Our opportunity's there. I really do think this is going to continue to get better. This is the cornerstone of our growth. The more people start to understand what we stand for, which is becoming the case, the better quality advisors are going to come.
These are good, solid people with great businesses.
Got you. Just quickly on asset management, I wanted to follow up on the comments you made about the institutional business.
Yeah.
It sounds like you won a couple mandates that you mentioned are going to fund, I guess, in the fourth quarter, first quarter. Could you quantify those and maybe tell us a little bit more about the products that are winning those institutional mandates?
Okay.
I guess, looking out, what's the overall RFP pipeline looking for you guys?
Sure. I can't give you quantified specifically. I can give you some color, though. From a color standpoint, it's more than a few mandates. It's multiple mandates. It's across a nice product set, equities, as well as some fixed income on the domestic side. As we look at the pipeline and we look at RFP generation, one of the things that we're happy about is our conversion rate, and the fact that what I talked about before, which is the ability to win north of 45% of the finals that you're in. From the bottom of the pipeline, the RFPs on through, we're seeing increased activity. Our pipeline is up approximately 25% year-over-year, both in terms of assets as well as number of opportunities.
We're getting in front of a lot of folks, and I think what's really contributing to that is the limited amount of time we spent in the penalty box with the pension consultants and have been able to build quickly from there.
We aim to take one question. I just want to say one thing that we try to do, and I know a number of you asked, particularly in the past, you said to me, "Jim, let us know if you see some of these larger mandates that you talk about in some of the things, like some of the parent companies." What Mike did is outline for you the fourth and first quarter, what those are. After that, there will be some, but we're getting more to a normalized basis, so it's not anything exceptional that we're looking at. In Threadneedle's case, we also wanted to mention that. In that regard, he got all back the mandates from Zurich over 10 different buckets of those mandates. We'll still have the close book, the outflows, $2 billion roughly a year.
Normal redemptions, normal in the type of industry. Some of that is offset based on just replenishment interest in equity markets. We'll always report that, and you'll say, "Well, you're in outflows there." I just want you to know that. Again, based on what replenishes in the economics, that doesn't hurt us. The last piece is there will be a large mandate, just like we mentioned the two out on Columbia. There'll be a large one coming in in the fourth quarter for Threadneedle, which is the Liverpool Victoria, which is $14 billion. We try to highlight that so that when it comes January, February, when we report, you'll understand that those things are in those total flow pictures. Okay? Let me take one other. I think we've run a bit over, not for you, but we would.
If there's other things after that, you can please, you know Alicia and Chad and others that you can give us a call.
Just a quick clarification question on the guidance. The 2012 guidance assumes EITF rolling through in terms of the ROE number, or is that apples to apples with 2011?
We will restate everything when the EITF rolls up. When we're talking about the 15%-18%, it will include the adjustment for EITF, then we will continue to look at what we generate at an ongoing basis within the 15%-18%. Again, based on market conditions, it could be at the low end of the range, or we could even get up to the high end of the range, in more normalized situations. Okay?
What about just for 2012, though?
2012, Walt, I don't know if you've given guidance on the 2012. It will be within the 15%-18% after the EITF adjustment. We didn't say exactly where, it depends on market conditions next year.
Got it. Thanks.
Okay. Thank you very much. We appreciate your time. We'll continue to improve to give you a better understanding of the businesses as we go forward. We are feeling good outside of the environment that we all live in, which doesn't make us feel optimistic every day. From a business perspective, we are. Thank you very much. Have a great day.