Ameriprise’s Advice and Wealth Management business is doing more with less: fewer advisors, higher revenue and profits. The firm’s Advice and Wealth Management business reported pre-tax operating earnings of $88 million on net revenues of $946 million, up from pre-tax operating earnings of $28 million on net revenues of $832 million a year earlier. Total client assets in the segment were up 9 percent year-over-year to $313 billion. Meanwhile, the number of advisors in Ameriprise’s Advice and Wealth Management segment was down by 6 percent from a year earlier to 11,608, a total that still ranks it among the largest employers of advisors in the country.
But turnover among top advisors is low: the retention rate for the firm’s most productive advisors is above 95 percent, Chief Executive James Cracchiolo said on an earnings conference call today. Meanwhile, advisor productivity—measured by operating net income per advisor—was up 21 percent from a year earlier. “Even with the S&P 500 still 25 percent below all-time highs, advisor productivity is near our all-time highs,” Cracchiolo told analysts. “Lower costs and higher productivity were our goals, and we’re achieving them.”
The third quarter headcount and productivity numbers indicate that lower-end producers are exiting the firm; they may have had trouble meeting Ameriprise production requirements in this market environment, or perhaps they were encouraged to leave. Clients aren’t trading, yields are low, and compliance costs are higher.
“It’s a standard problem that everybody has,” says Timothy Welsh, president of Nexus Strategy, a Larkspur, Calif. consultancy. “At the wirehouses, 20 percent of the bottom half all left or were asked to leave, or payouts were cut, making it unattractive to work. There’s going to be a real shakeout on the broker/dealer side of the business. Firms are just taking the CFO approach —‘OK, we’re going to have to make some changes because costs aren’t going to go down, they’re going to go up.’ ”
Ameriprise has three separate classes of advisors. Headcount at its employee platform last quarter stood at 2,183, down about 400 over the year, while its franchisee platform—reps who are more independent but use the Ameriprise brand—are down about 200, to 7,540. Ameriprise’s Securities America independent broker/dealer had 1,885 advisors last quarter, down 5 percent.
Managed assets of $444.9 billion were up 89 percent from a year earlier, partly a result of the company’s $1 billion acquisition of the long-term asset management business of Columbia Management from Bank of America, a deal that was completed last spring.
Shares of Minneapolis-based Ameriprise Financial jumped on better-than-expected third quarter earnings of $344 million on revenue of $2.45 billion, compared to earnings of $260 million on revenue of $1.95 billion a year earlier. “Clients are more confident now than they were a year ago, but doubts and concerns are persisting, and as a result, investing behavior continues to show a fairly high level of risk aversion,” Cracchiolo said on the conference call.
Ameriprise was spun off from American Express in 2005, and has been working to transition away from life insurance and annuities business toward wealth management for wealthy clients. Wealth management is less capital intense than insurance, and offers better growth prospects, says Morningstar analyst Jim Ryan. “Life insurance is kind of a commodity business that’s not particularly attractive,” Ryan says. Wealth management isn’t without its risks either, he adds, since it’s subject to market volatility and the risk may jump ship and take their clients with them. Still, “overall we like that business better than life insurance. We think it’s a good move,” he says. While it’s early to say how well the Columbia merger will go, “This is a pretty good management team. We think they’ll do well with it.”