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On the Rise

In its fall 2005 debut on the New York Stock Exchange as an independent company, Wall Street had little enthusiasm for Ameriprise Financial. Its shares were greeted with a yawn, sliding more than 2 percent after the completion of the spin-off out of American Express that day. Analysts began covering the firm with hold recommendations a rating considered by most investors as a polite sell. Even its

In its fall 2005 debut on the New York Stock Exchange as an independent company, Wall Street had little enthusiasm for Ameriprise Financial. Its shares were greeted with a yawn, sliding more than 2 percent after the completion of the spin-off out of American Express that day. Analysts began covering the firm with hold recommendations — a rating considered by most investors as a polite sell. Even its new corporate name drew sniggers. But in the two years since it was spun off, Ameriprise's performance has impressed investors — and analysts seem to have changed their tune. And that's because Ameriprise — with its cool TV ads featuring Dennis Hopper — seems to be capturing retail clients' respect.

Since October 2005, when Ameriprise stock launched at about $35 per share, CEO James Cracchiolo has been focusing on the retirement needs of the “mass affluent” (assets ranging between $100,000 to $1 million). Although considered rather antiseptic by some, the Ameriprise brand now carries some swag, helped along by the vastly improved performance of its proprietary mutual funds, Riversourse. The stock (AMP) has since almost doubled to over $60 per share. (By comparison, over the same period — October 2005 to September 2007 — Merrill Lynch stock rose by 23 percent, and Citigroup stock by just 10 percent.) Total revenues in the second quarter of 2007 reached about $2.2 billion, a 23 percent increase from the same quarter in 2005. And a Citigroup analyst estimates 2007 revenue will reach $8.3 billion, an 18 percent increase from 2005.

Clearly, business is doing well. And yet, executives at rival firms seem not to have noticed. “It is not a place you lose advisors to. It's a one-way street of reps leaving that firm,” says the CEO of one independent broker/dealer. Another b/d executive says he doesn't even consider Ameriprise a competitor. They may find out they are wrong.


“It's a mistake to underestimate Ameriprise the way the industry does,” says Dennis Gallant, principal of consulting firm Gallant Distribution Consulting in Sherborn, Mass. “They have strong resources, they have changed their stance on proprietary products, and their reps have increased production numbers. If you're a b/d, then Ameriprise is a firm to keep on your radar,” he adds.

Ameriprise divides its operation into two segments: asset accumulation and income, and protection. The first includes the retail brokerage, its RiverSource mutual fund company, annuities and bank certificates of deposits; protection includes life, auto, home and group insurance. In the second quarter of 2007, owned, managed and administered assets increased to $484 billion, an improvement of 13 percent from the same period in 2006. Its asset management arm contributed about 18 percent to total revenues in the first half of 2007. And the firm's retail brokerage arm contributed 29 percent of the total revenue in the first half of 2007, compared to 20 percent in the same period of 2005.

But what exactly is driving such impressive growth? There may be more than one answer. For one thing, Riversource, the firm's proprietary mutual fund, insurance and annuity business, seems to be getting off the ground. The variable annuity business in particular is on a roll with solid gains in both deposits and net flows. In the second quarter of this year, variable annuity assets hit a record $49.7 billion, while deposits reached a record high of $2.8 billion. “They were a top 15 player awhile back, and now they are close to being in the top five sales ranking. You have to tip the cap to them there,” says Citigroup analyst Colin Devine.

And the firm seems, finally, to be righting the ship on the mutual fund side of the business. (Though one analyst says that it should be doing even better at this point.) Eight of RiverSource's top 10 mutual funds by assets were in the top third of their respective categories for the three-year period which ended August 30, according to Morningstar. And a Citigroup analyst report says fund flows (which had been negative for years) continued to improve in the second quarter of 2007, and should turn positive in the second half of 2007 for the first time since 1999. Net redemptions totaled “just” $106 million for the quarter, compared to net outflows of $989 million in the second quarter of 2006.

But Ameriprise may be pinning its greatest hopes on its 10,000-strong retail advisory arm. Like other b/ds, it wants to help make its advisors more profitable. James Barnash, former chairman of the Financial Planning Association and Chicago-based regional director for Lincoln Financial, who joined Ameriprise early this year as national director of financial planning, says the company is in the midst of rolling out two initiatives this year to help improve advisor productivity in both its employee and independent contractor models.


Ameriprise is just one of a handful of brokerage firms that have both employee and independent platforms. It was one of the first to try this model, and has always struggled with it, observers say. The firm's 2,800 employee reps tend to be novice advisors that are new to the industry. Barnash says improving production and profitability will start here — with the newbies. That's why the company developed Greenfield, a training program that teaches new reps about the fundamentals of the business. “Greenfield is meant to provide structure for new advisors to help them through those first four or so years,” he says. “It helps increase new advisors' success rate of staying in the profession, because it's not easy getting started,” Barnash says.

On the independent advisor side, which has over 7,600 reps, a more in-depth program was launched to help improve production and profitability. The program is dubbed Arrow, and is meant to help advisors raise their acumen as business owners. The program includes training, development, and tools to help reps become better at managing their businesses. Services include “field coaches,” that will help train advisors in specific areas like marketing, hiring staff and financial planning. Reps are also being offered new technology to manage client relationships, as well as financial-planning software. “We know that when you run your business efficiently there is a positive effect on the end client. By giving our advisors the right tools, we can increase that efficiency so that they have more time to sit in front of clients and do business,” Barnash adds. Like Greenfield, Arrow was rolled out earlier this year, and is expected to run full steam in January 2008.

Also in play is a tactic used by many brokerage firms: Unprofitable advisors — those who can't meet production minimums — are let go. The firm would not comment in any detail on how it determines who gets the axe, but Devine says the production minimums vary for reps by length of experience. In addition, the firm is hiring fewer employee advisors, as they tend toward lower production, and require more training. The number of employee reps is down about 16 percent to 2,731 from 2005. “We have reduced the number of novice advisors in our field to focus more of our time on the productivity of current reps,” says Brian Heath, president of Ameriprise's U.S. Advisor Group.

It all seems to be working. “Ameriprise reps' production is up dramatically. It's really impressive,” Devine says. In fact, it's up 68 percent to $252,000 based on second quarter figures from about $150,000 in 2005, according to Devine. Total production at the firm is up 43 percent in the same period to $653 million.

Heath says the company has invested hundreds of millions in technology, and that a good chunk of that has directly helped reps better manage their businesses. “Our technology went from being below average in some respects, to being second to none. The last of the initial technology rollouts will happen in November, and will include financial planning software. The rollout will also include an integrated desktop management system, which maintains advisor-client relationships from the initial contact through ongoing service and delivery. Heath says the service has eliminated about 50 percent of the administrative components reps faced when dealing with clients.

Analysts add that Ameriprise has broadened its product offering, another boost to brokerage revenues. Indeed, Ameriprise reps have come a long way since their insurance -selling days, says Heath. “We were a company where the field force was more captive for manufactured financial products like mutual funds and insurance products. But we've expanded those offerings.” These days, Ameriprise offers more than 2,000 mutual funds, annuities, stock and bonds, alternative investments (REITs, limited partnerships and funds of hedge funds) and money markets. This year, the firm began offering its reps a discretionary managed account that is managed out of Ameriprise's Dynamic Ideas Asset Allocation Team lead by MIT alumni.

Heath says the quality of clients joining Ameriprise is also improving. While the company seeks out clients in the $100,000 to $1 million range, there has been a significant shift in the percentage of clients who fall into the upper half of that range. “As a result, our asset growth has been substantial, and supports our contribution to the company's total revenue,” he says.

All this seems to be keeping Ameriprise reps — many who say they were nervous about the spin-off — satisfied with their firm. Advisor retention is above 90 percent, an all-time high, according to Heath. And internal advisor satisfaction surveys reveal big jumps. “What we see is improvement in morale among the advisors as well as productivity. Those things tend to go together a lot of the time,” Heath says.

Michael Tilles, a Walnut Creek, Calif.-based advisor, has been with Ameriprise since 1990, when it was still IDS Financial Services. He says he's much happier with the company at present than he was three years ago. “[Ameriprise] has a very clear focus now. We are a financial planning firm, and we are not part of credit card company. The CEO is setting objectives and goals that tend to be more in tune with the goals of my own business,” he says. He says Ameriprise has provided him with better tools (like the Morningstar Advisor Workstation), and more products — including at least 40 separately managed accounts from outside money managers.

Many Ameriprise reps point to the company's marketing initiative that is helping to make the brand a household name. Ronald R. Oldano, a Tampa, Fla.-based rep, says the national advertising campaign has had a positive impact on his business. Indeed, the firm allotted more than $260 million to marketing and branding after its spin-off. The effort includes a national commercial that launched last fall, featuring Hollywood's Dennis Hopper and famous rock music. “They've spent a lot of money on marketing, and the brand is well known among consumers compared with other independent b/ds like Commonwealth or LPL,” Gallant says. Brand recognition, he adds, is an advantage Ameriprise has over its independent competitors who all want to be able to say something different about themselves.


Nonetheless, Ameriprise still has some improvements to work on. It has a long way to go in its attempt to position itself as a diverse financial services company. Devine estimates roughly 75 percent of Ameriprise earnings come from products such as annuities and life insurance. “I think our view is that they are still largely an insurance company, and its peer groups include Met Life and Prudential. Ameriprise would like to view its peers as Merrill Lynch, Smith Barney and Morgan Stanley, but I'd disagree based on where its revenue comes from. It is an insurance company with a growing retail brokerage operation,” Devine says.

Another shortcoming Devine points to is the company's inefficient financial reporting capabilities: On a product basis the firm is only able to measure revenues — not earnings. “To run a business, you need strong financial reporting systems. If you can't measure your product line profitability, then how do you know you're managing your products profitability?” he asks.

Then there's that pesky industry perception that Ameriprise reps are just your average Joes doing little more than “free-lunch” seminars, and are relatively unsophisticated financially. Heck, pop “Ameriprise” into the Google search box, and the fourth link that comes up takes you to a Website called, which rants about how bad Ameriprise is, and lists lawsuits that the company is facing.

“It wasn't that long ago that I was on a different side of the street recruiting from Ameriprise. I had the same feelings about the level of sophistication about the advisors here,” says Barnash. “But during my due diligence when searching for a new position, I found advisors here that are as good as any I've ever met in my 30 years in the business. My answer to those who think we have unsophisticated advisors is, ‘Come with me and let me show you what's behind the curtain.’”

2004 2005 2006 2007(E*)
Asset Accumulation and Income
Management, financial advice & service fees $1,986 $2,316 $2,706 $3,086
Distribution Fees 784 1,041 1,186? 1,488
Total Revenue 4,670 5,308 5,888 6,322
Pretax Operating Income 718 674 851 1,062
Pretax Margin 15.4% 12.7% 14.5% 16.8%
Management, financial advice & service fees 58 64 80 94
Distribution Fees 105 106 111 115
Total Revenue 1,923 1,800 1,959 2,051
Pretax Operating Income 507 361 413 415
Pretax Margin 26.4% 20.1% 21.1% 20.2%
E = Estimate
Source: Colin Devine, Citigroup
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