Ameriprise Again Leans Heavily on Wealth Unit
(Corrects third paragraph to show Ameriprise’s target market as households with $500,000 to $2 million of assets, not $50,000 to $2 million, and adjusts advisory flow growth percentages in seventh paragraph.)
Ameriprise Financial Inc. on Wednesday credited its Advice & Wealth Management unit’s almost 10,000 brokers with driving 46% of the financial conglomerate’s operating earnings in the third quarter, citing higher per-broker productivity.
Retail client assets rose 9% from a year earlier to $588 billion at the Minneapolis-based company on the back of market appreciation and new money that helped average per-broker production rise 11% on a trailing 12-month basis to $613,000 from a year earlier. (Ameriprise advisors were averaging $486,000 of production three years earlier.)
Ameriprise brokers target a less-lucrative market of “mass-affluent through affluent” households with $500,000 to $5 million of assets than do so-called wirehouses such as Morgan Stanley, Merrill Lynch and UBS, whose brokers generate an average of about $1 million of annual fees and commissions. But Ameriprise is betting that the lower-tier households are eager for advice, and is spending recruiting dollars on that bet.
“We’re attracting productive advisers with larger practices who serve the affluent market,” Ameriprise Chairman and Chief Executive Jim Cracchiolo told analysts on a conference call to discuss the third-quarter earnings report that the company released on Tuesday after the market closed.
Broker productivity, he said, is growing “faster than many industry peers,” citing the firm’s hiring of 87 “experienced” brokers during the quarter who service wealthier clients than its average broker. The new recruits’ revenue is almost 20% higher than those who joined 12 months ago, according to Cracchiolo, who said he sees “good organic growth” with customers who have at least $1 million of assets.
Ameriprise Financial reported an overall 13% jump in adjusted quarterly operating earnings from a year ago to $594 million, with $355 million of that coming from the wealth unit. Shares of the company, however, were down 6.3%, or $8.30, in early afternoon trading on Wednesday.
Like other large retail brokerage firms, the company has been urging brokers to move customers to fee-based accounts that generate revenue regardless of whether they buy and sell investments. Ameriprise attracted $5.7 billion of advisory account assets in the quarter—down 8% from a year ago when new assets were bulked by an acquisition, but up 14% from this year’s second quarter. Total “wrap program” assets as of September 30 were $272 billion.
The firm and its brokers forsook $40 million of 12b-1 payments from asset management firms during the quarter as a result of transitioning customers to mutual fund classes in advisory accounts, the company said, and did not include the revenue in production calculations. The total of lost 12b-1 fees is down from $111 million in last year’s third quarter and from $279 million in the third quarter of 2015.
Pretax profit in the Advice & Wealth division rose 19%. As in other recent quarters, Cracchiolo emphasized that the retail advisory emphasis is offsetting challenges in the company’s more capital-intensive insurance businesses.
The company’s advisor count inched up by a net 27 during the quarter, and by 43 from a year earlier, to 9,933. About 22%, or 2,174, are Ameriprise employees. The bulk of its brokers are independent contractors who the firm refers to as “franchise” employees.
The franchise channel, which is less lucrative for Ameriprise because of higher payouts to the brokers, continues to grow faster. It added a net 29 brokers in the quarter and 78 since September 2017, while the employee channel lost a net 35 brokers in both the quarter and the past 12 months. (Ameriprise includes about 200 brokers who work at banks and credit unions in its employee channel count.)
The company retained almost 92% of its employee advisors and just under 94% of its independent contractors, up by an average 1% from 12 months earlier, it said in its earnings release.