Aiming High

Aiming High

Ameriprise has long been dismissed, by some, as a place for unsophisticated advisors to push proprietary products. A recent change in strategy may challenge that stubborn stereotype.

A quick Google search of “Ameriprise” yields an ordinary list of results: the firm's homepage, a link to its insurance business, local business locations via Google maps and even a Wikipedia entry. A few entries from the top, however, is a website created strictly to discuss how much Ameriprise “sucks.” Yes, sucks. The website is named, aptly, “Ameriprisesuck.com.” Some topics on the site's discussion board, which has over 4,000 registered users, include, “A Resource for Unhappy Ameriprise Advisors,” and “I'm an Advisor and I Want to Leave Ameriprise.”

Ameriprise isn't the only financial services company to get a hefty dose of flak from Internet cranks (just ask the relentlessly happy folks at Edward Jones about that). But, the Internet complaints directly contradict a more important “approval metric” of the firm — Ameriprise's stock price. Shares of Ameriprise show how much the descendent of IDS Financial and American Express Financial Advisors doesn't suck. The stock (ticker: AMP), at around $40 a share, has more than doubled since January 2009, and is hovering just under its 52-week high.

Obviously, investors are betting on Ameriprise's prospects, on the fundamental health of its business model. But the firm is indeed at a crossroads. With its unusual advisory model that includes a training platform for newbies, a quasi-independent “franchisee” platform and a true independent broker/dealer — Ameriprise is seeking to grow by focusing on its wealth and asset management business (RiverSource and now Columbia funds). The goal: to make those units contribute a bigger portion of its bottom line. It's doing that by moving away from training newbie advisors, hiring larger producers with existing books of business, and making more acquisitions. Since it was spun out from American Express in 2005, Ameriprise has relied heavily on its annuity and insurance business, which made up, on average, about 71 percent of its pre-tax operating income between 2006 and 2009.

That is expected to change. In fact, in 2012 Ameriprise aims for its Advice and Wealth Management segment to grow to 23 percent of pre-tax income, from 15 percent today. Similarly, its Asset Management business is forecasted to account for 29 percent of pre-tax income in 2012, up from 14 percent today. The asset management and wealth management arms require fewer capital reserves than its annuity and insurance business.

The purchase of Columbia Management from Bank of America in September made Ameriprise the eighth-largest manager of long-term mutual funds in the U.S., with nearly $400 billion in global assets under management. The deal added $93 billion in equity assets and $72 billion in fixed income assets. Ameriprise expects pre-tax operating margins in its asset management business to reach 25 percent in 2012. Its pre-tax operating margin was one percent in the first nine months of 2009, and 17 percent in 2007. “The Columbia purchase makes Ameriprise's focus very clearly on asset management. It's a significant acquisition for them that will give them plenty of scale in that segment of their model, says Aite Group analyst Doug Dannemiller.

Jim Cracchiolo, chairman and CEO of Ameriprise said after the purchase, “The acquisition will transform our asset management business and, along the way, add to our earnings diversity and help us continue the shift to higher-margin, less capital-intensive businesses.”

Just a Distribution Channel?

As one recruiter puts it, “Ameriprise is reinventing itself. Once again.'' Says one equity analyst: “Almost all firms are raising the bar in terms of what their advisor force looks like. Ameriprise is no exception. There is a shift toward slightly more experienced advisors with existing books of business. They're not totally moving away from training new advisors but there is a bigger focus on established advisors.”

To that end, like many other firms, Ameriprise has been on the recruiting trail over the last year. Since the third quarter of 2008 through the third quarter of 2009, Ameriprise saw its rep count increase by 8 percent to 12,314 from 11,433. It hired over 800 advisors in 2009 alone — a record 600 of those to its branded platform. Annual net revenue per advisor at Ameriprise is about $230,000, based on the last four quarters. By comparison, Commonwealth Financial Network, the Waltham, Mass.-based b/d, boasts average annual revenue per advisor of $350,000. But average revenue per advisor at Ameriprise compares favorably to the rest of the independent b/d channel, where the median is about $131,000, according to research by the Financial Services Industry, the independent b/d lobbying group.

What kind of advisor is joining Ameriprise? It has long been seen as the kind of place that insurance-oriented financial planners would join — and small, unsophisticated ones at that. Don Froude, president of the U.S. advisor group for Ameriprise, says the firm is recruiting from every advisor channel, but that the majority of recruits come from the wirehouses. The typical recruit averages at least $300,000 in annual revenue and has five years of experience. In short, the bottom rung at most wirehouses. Ameriprise, however, covets these reps. Ameriprise is also said to be offering recruiting bonuses of up to 100 percent of trailing 12 months production in some cases. (Froude would only acknowledge that “financial assistance” was sometimes offered; the company's official response is that the deals it offers are “very competitive.”) But 100 percent is chump change compared to the money being offered by the wirehouses over the past year or so (for the best, 300 percent, with incentives). On the other hand, Ameriprise's “financial assistance,” if accurately depicted, would far exceed most offers by rival IBDs. With an average 7 percent operating profit margin, most IBDs simply can't afford to dole out that kind of upfront cash.

“Historically, our employee platform was made up of recent college graduates that we trained,” Froude says. “But training someone from the start is costly, and there's maybe a 50 percent success ratio.” There are still a few hundred novices going through the training program, but the focus is on experienced advisors these days, he says. He adds that Ameriprise is neutral as to what platform the advisors join since profitability on both is just about equal.

There are three ways to affiliate with Ameriprise's Advice and Wealth Management unit. Advisors can be 100 percent employees (or P1s, as they're called) and receive full back-office support, much like an advisor at, say, Merrill Lynch. Historically, P1s are newbie advisors and recent college graduates that the firm would then train. The payout for P1 reps is about 50 percent of an advisor's revenue. As of the third quarter of 2009, there were 2,600 reps on the employee platform.

Then there is the “franchisee” platform, where advisors, referred to as P2s, are not totally independent but pretty darn close (with an emphasis on “close”). With about 7,700 P2s as of the third quarter of 2009, this is where the bulk of Ameriprise reps do business. Typically, these are P1 graduates who are now running their own businesses but still want to hold onto the Ameriprise brand. Executives and advisors at the firm say the brand is a big draw and helps bring in business. One advisor says his clients have told him they'd leave him if he started his own firm. “Clients are not cutting checks to me personally,” he says. “They're writing them to Ameriprise, and there is comfort for them in that. Everyone says being totally independent is so great, but that's where a lot of the fraud happens.”

Like other independent advisors at, say, Commonwealth, LPL or Raymond James, P2 advisors pay for their own offices, hire their own staff and, in return, receive a much higher payout — as high as 90 percent. However, P2s have certain guidelines they must follow that come from the corporate office. The “guidelines” can get pretty specific, including stipulating how the advisor's office should look.

The third affiliation is through Ameriprise's independent b/d unit, Securities America. The IBD has about 2,000 reps who, like other indies, pay for their own office space, hire their own staff and manage their own practice with a similar payout level as P2s. The key difference between P2 advisors and Securities America reps is that the latter manage their own brands instead of using Ameriprise's, and face little-to-no product restriction. This cohort is truly independent.

As Froude points out, there are certain restrictions on which variable annuities a franchisee rep can sell. As a result, some say, Ameriprise advisors, the franchisees specifically, can't call themselves truly independent. “If you're only allowed to sell one kind of variable annuity, I don't care how great it is, you're not running your own shop. Someone is telling you what to do and what to sell,” says one former Ameriprise advisor who now runs his own RIA.

The agent model is well-accepted in the insurance world. But in the investment advice game, it is a no-no. For example, P1s and P2s are limited to selling only RiverSource variable annuities. (RiverSource is a subsidiary of Ameriprise that provides mutual funds, insurance and annuity products.) “That's the kind of thing outsiders hear about us and think we are being forced to push the company's products,” says one franchisee advisor with about $50 million in assets.

To be clear, Ameriprise advisors only have limited product choice on the variable annuity front — for instance, they do have access to mutual funds and other insurance products from third parties. Aite Group's Dannemiller says Ameriprise knows that in order to remain profitable while serving the mass affluent market it must sell its proprietary products via its own distribution channel. “Only allowing your own proprietary variable annuities on the platform is definitely against the open architecture trend. But they have to get paid to do financial planning for the mass market, and, if their products work for clients, then this is one way to do it.”

Ameriprise does not break out what percentage of its RiverSource products are sold through its advisor channels. But one research analyst who covers Ameriprise says that while RiverSource products are sold by outside parties including banks, the “vast majority of them are sold through Ameriprise advisors.” Also, according to a Wells Fargo research report, RiverSource and Threadneedle (a London-based asset management subsidiary) represent 15 to 20 percent of mutual fund sales in the Ameriprise advisor platforms.

Building Up Advice

Froude acknowledges that in order to attract a certain breed of advisor there must be certain products in place to support them. One small step to attract those advisors: offer more than just RiverSource variable annuities. Beginning in spring 2010, advisors will be able to offer products from three additional annuity carriers: AXA Equitable, Lincoln National and MetLife. Froude says he'll be looking for additional ways to broaden the platform at Ameriprise as more seasoned advisors join.

Another way Froude is trying to raise standards is by increasing the production levels an employee advisor must achieve to graduate from employee advisor to franchisee. As of December 2, 2009, advisors must generate $200,000 in trailing-12 month production and have at least $20 million in client assets. “We used to really encourage the transition,” Froude says. “But we found out sometimes it was happening too soon, and advisors were moving that did not yet have a stable base of clients or assets. We have no problem with advisors making the move, but we want to make sure that when they make the move they are going to be able to support themselves as franchisees.”

In October 2009, the firm acquired about 1,000 advisors from H&R Block Advisors for its employee platform. The move helped transform the P1 employee platform from a training ground for newbies into a platform of seasoned financial planners. (Ameriprise claims it employs the largest number of financial planners of any retail advisory firm, though when asked to specify, it could only say there are “several thousand” in its advisor force.)

The H&R Block deal added advisors with a total of $28 billion in client assets; Block FAs generate annual average revenue of about $300,000. From September 2008 through September 2009, the number of Ameriprise advisors with production levels greater than $150,000 is up 400 percent, and the number of advisors with more than three years experience is up 68 percent, according to the company. Froude says that's thanks to the firm's new recruiting requirements and also the acquisition of H&R Block Advisors. “I'd love to add several thousand advisors between now and 2012. We're looking at all methods: acquisitions and recruiting,” he says.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish