Ameriprise Financial, Inc. (AMP) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter and Full Year 2014 Earnings Conference Call. My name is Lorraine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Alicia Charity. Ms. Charity, you may begin.

Thank you, and good morning. Welcome to Ameriprise Financial's Fourth Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. During the call, you will hear references to various non-GAAP financial measures, which we believe provide insights into the company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2013 annual report to shareholders and our 2013 10-K report. We take no obligation to update publicly or revise these forward-looking statements. And with that, I'll turn it over to Jim.

Good morning, and thank you for joining us for today's earnings call. I'll spend my time discussing what I'm seeing in the business. Walter will talk to the numbers, and then we'll be happy to take your questions. In terms of the quarter and 2014 overall, I feel good about Ameriprise and our position. The fourth quarter we delivered was a continuation of a strong year. We're executing our strategy well and generating good results. For the fourth quarter, operating net revenues continued to grow, up 5% with good growth in operating earnings, up 16%, and operating earnings per diluted share, up a very strong 23%. For the full year 2014, operating net revenues grew 7% with good movement in operating earnings of 14% and operating EPS, up a very strong 21%. We also had solid growth in assets under management and administration, which increased 5% to $806 billion. This was driven by continued good advisor/client flows and market appreciation. Our strong growth in earnings allows us to generate significant free cash, so we're able to consistently deliver differentiated shareholder return while maintaining our financial strength, all while investing in the business. In the fourth quarter, we returned $444 million to shareholders. And for the full year, we returned $1.8 billion to shareholders, which is 109% of our operating earnings. In fact, 2014 marked 4 consecutive years that we have returned more than 100% of our operating earnings to shareholders. We expect to continue to return strongly to shareholders and have targeted a 90% to 100% range annually, and we will evaluate based on circumstances. With strong business results and significant capital return, operating return on equity reached another high. Excluding AOCI, we ended the year at 23%, up from 19.7% at the end of 2013. Very few financial services companies are generating this level and growth of ROE and capital return. We've consistently grown these measures at a meaningful rate. Let's move to the business, starting with Advice & Wealth Management, where we had another terrific quarter in terms of financial results in executing our strategy for continued growth and margin expansion. We had strong growth in our key measures. Revenues, earnings, client assets, inflows and advisor productivity were all up nicely. Operating net revenue increased 11% to $1.2 billion, reflecting our strong fundamentals and positive markets. We're seeing good levels of client activity. Total client assets grew 9% to $444 billion, with continued strong net inflows of over $3 billion into our investment advisory programs. Our total RAP program is one of the largest in the industry at $175 billion, growing 14% for the year. With good revenue growth, we've also increased profitability in AWM, up 33%, and we've also significantly expanded operating margin to 17% for the quarter, and we delivered this with interest rates at all-time lows. In AWM, we continue to focus on growing the business and delivering an excellent client experience and we feel good about our ability to help our advisors build productive practices. With millions of boomers moving to retirement, we're at the heart of the opportunity with our Confident Retirement approach. You've seen it in our commercials which we just brought to market in early 2014. Confident Retirement works well for the mass affluent and it resonates well with the affluent. We think there's a terrific opportunity for us to serve even more affluent investors as we move forward. Another opportunity that we're focused on is around accumulators. We're expanding Confident Retirement to use for clients in the accumulation stage. In addition to the affluent and to those who are closer to retirement, the Gen Xs and Ys who are building their wealth also fit within our sweet spot. We continue to invest significantly in our brand and our leading capabilities to help our advisors grow their practices and increase efficiency. As we ended the year, brand awareness reached an all-time high. In fact, we were recently awarded the Gold Midas Award in Financial Services Retirement Category for our, "Real Questions, Real Answers," advertising campaign that is currently in the market. The campaign includes commercials, digital advertising, social media, and the 3-minute Confident Retirement digital experience. With that in mind, we continue to invest significantly in our brand and the leading capabilities that help our advisors grow their practices. And we're helping our advisors to ensure they fully benefit from the investments we've made, especially in our brokerage platform, online and mobile capabilities. As we help advisors take advantage of these capabilities even more with greater uptake, our advisors can grow productively and serve more clients. Our advisors who have taken advantage of our technology platform find that it helps them save time, increase efficiency and productivity. At the company level, we're realizing operating cost efficiencies from our technology investments and upgrades made over the past several years. Because we're providing good value and service, client satisfaction with Ameriprise is at an all-time high in the 90s. And with that, Ameriprise was rated #1 in customer experience across investment firms in The 2014 Forrester Customer Experience index. We also have strong relationships with our advisors. Our culture of support in helping them achieve good growth in their practices has led to good engagement and retention that is very high; on average, in the Mid-90s. I spent time at the start of the month with all of our field leaders, and they're feeling motivated about helping our advisors to continue to grow. The Ameriprise value proposition and culture is attractive in the industry. In terms of recruiting experienced advisors, we brought in another 73 in the quarter. The productivity of the advisors we're attracting continues to grow and our recruiting pipeline for 2015 looks good. As a result of the actions we're focused on to drive growth, advisor productivity, a metric we've consistently grown, continues to increase. Compared to a year ago, it's up 13% on a trailing 12-month basis to $496,000 per advisor. Overall, it was another terrific quarter and year for AWM. We have deep relationships with our clients and advisors and excellent satisfaction. We're focused on continuing to drive client engagement and serve more people, especially in the affluent space. This leads to strong results. We're delivering nice growth and profitability with the ability to continue. And the business consistently delivers the results we're targeting, and we feel good about our opportunity for future growth. Now let's move to Asset Management, where we have generated good earnings growth and continued to build our positions in the U.S., the U.K. and Europe. Net revenues were up 1% year-over-year with pretax operating earnings up a solid 6% and adjusted net pretax operating margin increased to a strong 40%. Assets under management were up slightly to $506 billion as market appreciation offset net outflows over the past year. In institutional, we're seeing good growth and making good progress in third party with $1.7 billion in net inflows in the quarter. We continue to win key mandates from clients in North America, Europe and Asia, including in certain strategies, like Contrarian Core and investment grade debt. We have a solid pipeline and we feel good about our capabilities as well as our global growth opportunity. However, some of our growth was offset by the regular outflows from Zürich, and our ex-parent relationships. Excluding these previously disclosed items, we would have had stronger net inflows. For the quarter, we reported retail net inflows that result to strong reinvested dividends. However, we still experienced a level of outflows in one of our large funds in the DCIO channel as well as former parent company affiliated distribution and a sub-advisor. We have seen some traction in a number of our retail channels and we know can make further progress this year. We're focused on a number of enhancements that we're making in retail distribution. As an example, we installed a new leadership team and we're revamping our wholesaling. And we're making greater use of business intelligence and our improved segmentation strategy. At Threadneedle, we experienced retail net outflows of about $0.5 billion, largely from a single client who is a frequent asset allocator. That said, the underlying rate improved from the last quarter. The recent ECB action should be a catalyst for European investors to see opportunities in the market and would expect to benefit as investors put money to work. You may have also seen our announcement from a few weeks ago that Columbia and Threadneedle are rebranding in the spring to Columbia Threadneedle Investments. The teams have been working together to increase the depth of our offering for the benefit of our clients and the business. Introducing our global brand is a natural next step for the business. The new global brand will represent the global capabilities, resources and reach of these 2 well-established investment firms. We're focused on expanding our distribution and global presence and continuing to add high-performing products to our mix. Together, Columbia and Threadneedle have 118 4- and 5-star Morningstar-rated funds. We delivered another good quarter of investment performance as many of our equity and fixed income funds were positioned with a quality bias, which helped as equity markets were volatile in the quarter. In terms of product, we're looking to build off our strength in traditional products and we're investing in a number of areas, including in multi-asset solutions. We just recently launched the Columbia Adaptive Risk Allocation Fund, one of our key new products, and I'm pleased with the response it's getting in both retail and institutional channels. In fact, Jeff Knight and his team were recognized recently with an innovation award. We think that, over time, we can gain good traction that would further add to our flows and complement our core business as we build our track record and awareness of these products and capabilities. Another example is Columbia's Adaptive Alternatives Fund, which we launched yesterday. It's an innovative collaboration with Blackstone Alternative Asset Management, an example of the steps we're taking to broaden our solutions. Overall, we have good talent, an expanding distribution footprint and a growing product line. We're very focused on gaining traction in these key areas. Let's move to Annuities and Protection, which are important to our Confident Retirement approach, helping to protect our clients' wealth and generating retirement income. We're achieving good returns in our annuity business with lower risk and volatility as we continue to grow at the moderate pace we want. In variable annuities, client account balance were up slightly to $77 billion due to market appreciation, and sales were $1.2 billion. As we work with clients to help ensure their retirement lifestyle through tax management and protection, we're selling more variable annuities without living benefits. In December, RiverSource annuities launched Income Guide, a new income monitoring program for clients with a variable annuity without a living benefit. This complements sales with living benefits is a way for clients to cover essential living expenses. In fact, sales of our variable annuities without living benefits increased to 28% of total variable annuity sales in the quarter. In fixed annuities, underlying results were solid as the rate actions we undertook in 2014 have improved spread income. As we've stated, our focus remains on the overall profitability of the book, while the size of the book will gradually shrink given the overall sales environment. Overall, we're focused on making it easier for clients and advisors to understand the benefits that annuities can provide in terms of reliable retirement income. In life insurance, VUL/UL sales picked up a bit year-over-year with our RiverSource TrioSource product. VUL/UL ending account balances were up 3% largely from the markets. TrioSource is an interesting UL product that combines a tax-qualified long-term care rider that sits well within our financial planning approach. In Auto & Home, we're seeing steady growth. However, Auto & Home has been experiencing higher claims that resulted in us adding $60 million to reserves in the quarter. Walter will cover this area in more detail. However, I did want to mention that we've been taking action throughout 2014 and into this year in the areas that have increased our loss ratios and cost exposures, so we're working to further enhance claim processing, underwriting and pricing to improve performance. This remains a very strong business model. We're seeing steady growth in policies from our focus on affinity channels and reputation for excellent service. Our Auto & Home business was rated one of the best firms for client satisfaction in 2014. Overall, Ameriprise had another strong quarter with good financial results adding to a strong year overall. I believe we're positioned well for the year ahead. We continue to have a very strong financial foundation that will give us the flexibility to navigate the markets ahead. We are very focused on delivering the strategy we've discussed with you. We continue to invest and generate good returns. And we've set Ameriprise apart in terms of the strength and the consistency of our results. We're focused on continuing the strong growth we've had in AWM. And we're addressing areas where we can gain traction, improve our flows and asset Management. Our ability to generate significant free cash flow enables us to continue to return to shareholders as we have and maintain our excellent financial foundation. As I mentioned at the start, we delivered record return on equity and we think we can take it even higher. With that, I'd like to hand things over to Walter for a detailed review of the numbers.

Thank you, Jim. Ameriprise delivered strong results at the aggregate level in the fourth quarter, with solid underlying performance in our Advice & Wealth Management, Asset Management, Annuities and Life and Health businesses. We had double-digit growth in earnings and EPS in the quarter. Though Auto & Home reserve increased and the significant business-driven tax benefit were largely neutralized on an EPS basis, we continued to strengthen our balance sheet fundamentals. Our investment portfolio is solid, hedging is effective and we have $2.5 billion of excess capital and strong liquidity. Let's turn to Slide 4. Ameriprise had strong aggregate shareholder performance. Top line performance was good with operating net revenue up 5% to $3 billion. Operating net revenue without investment income was up 7%, which is very strong. Overall, operating EPS was up 23% to $2.30, and our strong earnings, free cash flow generation and capital return drove an operating return on equity of 23%, which is at the upper end of our target range. The operating effective tax rate was 20.3% in the quarter, which is lower than we had anticipated for a couple of business-driven reasons. About half of the benefit was related to the dividends received deduction being higher than expected. The other half of the benefit was state taxes being lower, which reflected a shift in the states where business activities are occurring. Going forward, we expect the higher DRD benefit and lower state taxes to continue, but the impact would be spread across the year rather than being recognized all in 1 quarter. Looking into 2015, we expect taxes to be in the 26% to 28% range, up from 25.4% in 2014. As you can see on Slide 5, the strong financial performance we had in the fourth quarter was consistent with the excellent year in 2014. Operating net revenue grew 7% to $11.6 billion, well within our target range of 6% to 8% on average over time. Without net investment income, operating net revenue was up 9%. Operating earnings were $1.7 billion, up 14%, and operating EPS was up 21% to $8.52 for the year. Turning to Slide 6. Our business mix shift is a direct result of the strategy we are executing. Advice & Wealth Management and Asset Management represent 68% of pretax operating earnings this quarter. The mix was impacted by the Auto & Home reserve increase, but without that, AWM and asset management are still over 62% of the total. Going forward, the mix shift will continue and should reach 70% from these businesses. We continue to expand margins in Advice & Wealth Management, reaching 17% this quarter. As we bring in experienced advisors and help transfer their books, their productivity ramps up over time. This benefit combined with the improving productivity of our legacy advisor base is driving margin expansion and profitability improvement. Margins in the employee channel were approximately 10% in the quarter and were almost 19% in the franchise channel. We feel good about the improvement we're seeing across this business to drive profitability even higher. Asset management margins were a solid 40% in the quarter on an adjusted basis, up from 38.8% a year ago. I'll get into the segment results in detail now beginning on Slide 7 with AWM. The business is performing extremely well, leading and lagging indicators as well as financials. Client assets are up 9%, as we've seen good flows in our wrap platform, new accounts acquired and market lift. Our experienced advisor recruiting is on target with 73 hires in the quarter, and productivity is at an all-time high of 496,000 for the trailing 12 months. Revenue is up 11% to $1.2 billion on strong sales and flows as well as markets. We kept G&A expenses flat year-over-year. This resulted in earnings of $212 million, up 33% and margins of 17%, up from 14.2% last year. It should be noted that we had over $20 billion of brokerage cash that was earning 20 basis points, which is still near all-time lows. Overall, the business continues to deliver consistent good results, demonstrating the strength of our business model. We continue to invest for our future growth, building on our brand and adding capabilities to support our clients and advisors. Turning to Asset Management on Slide 8. Revenue increased 1% to $830 million, primarily from market appreciation, which was essentially offset by the cumulative impact of outflows and lower performance fees. During the first 3 quarters of 2014, we enjoyed the benefit of robust equity markets, which more than offset the cumulative impact of net outflows on revenues. In the fourth quarter, markets pulled back, especially in Europe. As a result, the lift we enjoyed from equity markets decreased and provided less of an offset to the impact of net outflows as it relates to revenue growth. In the quarter, earnings were up 6% to $198 million, which was impacted by the market pullback, lower performance fees and additional expenses for rebranding Columbia Threadneedle Investments and relocating Threadneedle to a new office space. G&A was very well-managed. This is reflected in the margins at 40%, up from 38.8% last year. Turning to flows on the next slide. We had net inflows of $5.7 billion in the quarter, with inflows across retail, institutional and alternative. Retail inflows of $4.9 billion benefit from reinvestment dividends. However, Columbia had outflows in a number of areas we have previously discussed, namely the former parent-affiliated distribution, the RIA channel, a sub-advisor and one of our large funds in the DCIO channel. Threadneedle had retail outflows as a result of the industry-wide slowdown from geopolitical and economic concerns in Europe as well as a mandate that shifted from retail to the institutional channel. The global institutional business is performing well with $300 million of net inflows. We had outflows in the form of parent-related mandates at both Columbia and Threadneedle that partially offset the strong third-party inflows. We continue winning global mandates and have a good pipeline as we move into 2015. We have also launched a new CLO in the quarter resulting in $500 million of net inflows in alternatives. Turning to Annuities on Slide 10. Annuities pretax operating earnings were $159 million, down 8% from last year. However, the prior year results included a significant benefit from clients moving to our managed volatility funds as well as a higher mean reversion benefit last year. Without these items, underlying annuities earnings were up 15%. Variable annuity pretax operating earnings grew 5% from a year ago to $114 million, without the benefit of clients moving to managed volatility funds and mean reversions in both periods. This was driven by higher account values. Fixed annuity pretax operating earnings increased 71% to $36 million. This reflects the repricing of our 5-year guarantee block earlier in the year, and our lapse rate was in line with expectations. Let's turn to Protection segment on Slide 11. Protection pretax operating earnings were $30 million in the quarter, impacted by a $60 million reserve strengthening at Auto & Home. Underlying earnings are in line with prior periods and our expectations. The Life and Health business is performing well, with cash sales up 3% over the prior year and insurance in-force of $196 billion. We saw marginally higher life claims than we have in recent quarters, though still within expected ranges. Earnings were also impacted by an unfavorable DAC model correction. As a reminder, we reinsure half of our long-term care block to Genworth, and they process and pay all of our claims. We carefully monitor and evaluate the information and processes. However, based upon recent events, we have begun a more detailed, non-routine review. We feel good about our block, particularly the risk characteristics from selling it only within our channel and the pricing actions we have taken since the mid-2000s. As I mentioned, we are increasing Auto & Home reserves by $60 million this quarter, of which 96% is related to several products in our Auto book. There are a couple of key drivers of the reserve increase: first, we had an additional frequency and severity experience on book years 2012 and prior, representing approximately 15% of the reserve increase. These are based on estimated ultimate losses but now have a higher probability of being realized as there are fewer outstanding cases and they are more vintaged; second, the remainder of the reserve increase was for 2013 and 2014 order books, which are strongly influenced by 2012 prior year's experience as well as preliminary 2013 and '14 trends. We have minimal to moderate claims experience for these accident years and patterns are still developing. The reserve analysis was complicated by changes associated with claims reengineering and unusual climate patterns this year. Earlier this year, we engaged outside consultants to review our processes. Now we are phasing in changes to our pricing-to-risk modeling, which will be rolled out fully by early 2016. Additionally, we are making modifications to underwriting, claims and operations, and we have made a variety of staffing change, including bringing in a new LFO, a new Head of Claims and new actuaries. Let's turn to the balance sheet on Slide 12. Our balance sheet remained strong with approximately $2.5 billion of excess capital. Our risk-based capital ratio is estimated to be 600%, up from 450% last year due to an increase in the unrealized gains on our hedges from lower interest rates and higher volatility. We continue to return over 100% of operating earnings to shareholders, with $444 million distributed through dividends and a share repurchase in the quarter. For the year, we returned $1.8 billion to shareholders, which was 109% of operating earnings. This is down from the level returned in 2013, which did include the return of capital associated with exiting bank operations. Looking into 2015, we plan to return 90% to 100% of earnings to shareholders as a baseline. With that, we will take your questions.

[Operator Instructions] And our first question comes from John Nadel from Sterne Agee. John M. Nadel - Sterne Agee & Leach Inc., Research Division: A couple of questions. Maybe to start off, for you, Jim. First, obviously, you've had a lot of pressure in the Auto & Home business over the past year or more, and the results are in stark contrast to what we're seeing from most industry participants, where underwriting results really are among the best in history. So I guess, can you help us understand exactly what you're doing to correct this? Do the -- and do the results of this business alter your view on whether this business should reside as part of Ameriprise or be divested to a more traditional operator?

Okay. Very clearly, we have experienced increase in our reserve positions based on developments that have occurred beginning probably in the 2012 period. We have grown the business tremendously over the last number of years. We have expanded in a number of areas. However, we still feel very good about the front end of the business, the affinity relationships, the ability to bring in good clients in a very cost-effective way, but we had to tighten up a number of various areas from the underwriting to more discipline around some particular areas in pricing, et cetera. So we are making those changes. We think that we have the ability to improve that position over time. But we did take the opportunity here to further increase our reserve positions based on some of those earlier trend lines. We don't have perfect information about them. Having said that, clearly, there are opportunities for us to improve. We think that we can make those improvements. We do believe it is -- it continues to be a good differentiated model. And in the future, we -- once we make those improvements and those changes, we can evaluate the business on a go-forward basis. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. So if we looked out and had to -- and you had to peg when does this business generate an underwriting profit, i.e. a combined ratio under 100%, is that within your visibility next couple of years? Or do you think it takes longer?

No, no. It is definitely within our visibility. And we are looking to see some improvements in 2015 and beyond. Again, it'll be gradual improvements as we make these changes and they flow in. But we really do feel that this is something that we can get back to a good level of profitability. And as I said, we'll evaluate as we go along, but we are aggressively focused on it. It's unfortunate that we have -- some of these things have blipped up, but it's something that we think we can definitely correct. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. That was really helpful. And then just overall, on capital return, the slide this year in your presentation is very similar to last year, that your baseline target of returning and 90% to 100%. And obviously, the last several years, you've done above that. Can you just talk, Jim, maybe to the factors that would influence your decision to bring that down toward the 90% to 100%? Or keep it up somewhere well above that 100% level? I mean, what are the some of the factors? I assume M&A would be -- opportunities would be part of that, share price would be part of that. But can you speak to that in a little bit more depth, please?

Yes. I think to the point you referenced, there are always a number of factors and you go into a year and not knowing exactly what all those factors are and how the environment is. So we -- and which is actually is quite good is that I think very few firms target at the beginning of the year to return 90% to 100% of their earnings. John M. Nadel - Sterne Agee & Leach Inc., Research Division: No doubt.

And so we're doing that, even not knowing exactly how the environment plays out. But as you saw in the past number of years, we've increased that over the year based upon those various circumstances. So if there aren't any real good deals that we want to execute on, we up that buyback. If the market gives us even more opportunity, depending on certain circumstances, we can increase the buyback there as well. So we sort of regulate that. We are still committed to returning strongly to shareholders. We will evaluate again a dividend increase as we always do in the first part of this year. So it's a combination of factors, but I think the positive should be that we're probably one of the highest in targeting that at the beginning of the year based on the total of the earnings, and then we regulate it from there. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Totally appreciate that. And then if I can sneak one more quick one in for Walter. If I look at the annuity segment, I generally see declining account values in both the VA and fixed annuity blocks. So in the face of that headwind, is it reasonable for us to expect any real earnings growth from this segment off of the sort of core 2014 results? I think the core number is about $590 million. It seems spreads are about as wide as we can expect, and with the headwind of lower long-term rates, I'm just wondering, without, of course, Walter, giving any specific guidance, directionally, how should we think about this segment's earnings potential?

I think it's certainly with the headwinds that you talked about, it will be muted, especially if you look at facing the fixed annuities coming out of lapse, coming out of surrender. So you would see that we've made the adjustments on the rate, but we will see increased lapses there. And so I would say, yes, it would certainly be less robust, with the factors you referred to.

And our next question comes from Erik Bass from Citigroup.

Yes, first on Advice & Wealth. You mentioned a 19% margin for the franchisee channel this quarter, which, I think, is higher than even you were talking about at Investor Day of last year. Do you still see additional upside to this margin excluding any benefit from higher interest rates?

Yes. As we talked about, certainly, as we vintage on the employee channel and certainly, productivity and improve that, we do. If you look at the 2 models, certainly, from that standpoint, it would -- we see employee channel increasing, and it has doubled from last year as we look. And we have seen improvement, and I do anticipate some improvement. But again, interest rate is certainly a factor, and certainly market will influence, but we are getting good productivity improvement.

Okay. But you still see from the point that the 19% can stay at this level or move slightly higher even without rates?

Again, yes, I do. As -- again, we're talking environmental and other things, yes. But those into consideration, yes, we are making progress.

And then is there any sensitivity that you can provide for how changes in interest rate assumptions, or if we are in a low for long environment would affect your balance sheet? Know you obviously do the annual review in the third quarter, but kind of any help in terms of sensitivities to your, I guess, long-term rate assumptions would be helpful?

Yes, I think it's from the standpoint, again, on it's not so much the long-term rate. It's going to be the grading. And so it's a start point where you are then the grading from there, which will be the implication. I think the long-term rate, again, we think are -- we're using is appropriate. But we will then have to assess, just like we will now, the start point of where the rate is. And then, what we do anticipate the long-term grading, depending on which product you're looking at. Obviously, the long-term care has a very long window. Others have less. So and -- so that would be the balance sheet impact. The other thing is the reinvestment, returning over, most of about 25% a year. So as we reinvest, that's going to have a bit of a drag on it.

Got it. And can you just remind us what was the change you made in the third quarter of 2014?

The change from what standpoint?

Sorry, for the interest rate assumption that drove kind of the modest charge that you have in the third quarter?

What we did is basically we reset it, obviously, to the June rate. And then we just basically readjusted the grading and slowed it down. We kept the long-term rate the same, but we readjusted down, which, of course, it did not hit the original target we thought that we set in 2013. So we did take that unlocking. And then we just graded it up basically more looking at, from our standpoint, the situation, which was a little slower on grading up.

And our next question comes from Alex Blostein from Goldman Sachs.

Great. Jim, a couple questions on the asset management business, and just a quick follow-up for Walt after. So when I think about the rebranding initiative between Columbia and Threadneedle and you guys will kind of try to go out and market it is one, help me understand, I guess, a little bit what kind of doors does this sort of approach open up relative to what you guys were doing before? What kind of new client pools are you targeting with that? And maybe just some sort of a tangible way to illustrate how maybe 1 plus 1 could equal 3 in that scenario, if that's the case?

So we've made a number of changes over the last 1.5 years or so, really, to put together a number of capabilities between the Threadneedle business and Columbia and put together both core products that are managed by the capabilities of both to how we're even doing asset allocation on a global basis and some of the managed type of activities we're doing and the new solutions that we're launching. So very clearly, there's the underlying activities that already made some changes to what we're doing today and how we're doing it, including the ability to share research, the ability to use some of the capabilities of Threadneedle and Columbia combined to build various portfolios and global products. So the combination of the brand gives us an ability, a further ability, to market our products across borders. So today, we're already selling Columbia funds as part of Threadneedle and Threadneedle as part of Columbia. But particularly, as I think about -- as an example, I'll give you the first one, institutional. To go to market better as a combined firm makes it easier to work with global clients. It gives us the ability to talk about more of those products using our institutional sales force together. It also gives us the ability to use the combined resources for products that we're putting in the market and to talk about that in a much more appropriate way. So we do see good opportunity coming from the combination, but we did a lot of work behind the brand already, and we will do continued more work to really leverage the combined capabilities of the 2 firms. So we will launch this in the market in the spring more formally. Now the underlying for retail distribution in the U.S. or retail distribution in Threadneedle won't be as much severe -- significantly impacted. It'll start more from a global positioning, an institutional basis and then, over time, take shape and form in the retail segments.

Got you. That's helpful. And then the recent product launch you guys announced with Blackstone, internal looks pretty interesting given all the kind of chatter around retail liquid alts in the space. Help us understand, I guess, a little bit how this product will be managed and how it will be marketed to clients. And I guess, how long do you think it requires for us to see some sort of traction from an asset gathering perspective? Is that kind of like you're typical, you seed it and then you market it, and a couple years down the road, so it's going to be a few of years until we see some meaningful progress here? Or could that be done sooner?

Well, we do believe that there is an appetite for this type of product in the retail space today. So it's more of a convenience of a traditional mutual fund with daily liquidity and multiple share classes that will give investors access to Blackstone's Advice multi-strategy perspective that leverage in their underlying hedge fund advisers that they select. And it will combine that with alternative beta strategies and nontraditional assets, including commodities, REITs, inflation linked bonds, private equity managed by Columbia. So the combination, we think, of the types of capabilities that we're bringing to bear put into a wrapper of a retail fund with daily liquidity, we think, will have some appetite as advisors look to diversify their portfolios and get some alternative means based on the market conditions. So I think it gives them a greater access to these alternative type of strategies. It has the combination of benefits of the 2 strong firms and the diversification that they can get from alternatives. So we think it will take shape. We don't think it's something that will wait to see flows over the long period of time. We think there's an appetite there over the course of the year. And hopefully, later in the year, we'll be able to report some of the sales that we're seeing from the product.

Got you. And just a follow-up to that one, how are the economics in this product work? So what's kind of the fee split or the sub-advisory fee that goes to Blackstone?

Well, I think, again, based on the combination of the fund and the makeup, there is a fee structure for the -- as part of the alternative side that will go to Blackstone, and then, there's a fee for the other part of that managed fund that we share, so that we have. And so there's a sharing, truly, of the fee structure underneath it. Of course, with the combination and being on the alternative side, there is a higher fee for that type of product than the normal mutual fund fee.

That sounds great. And then, Walter, just one for you, quick, on the -- when we think about the currency fluctuations over the course of last quarter and certainly, continued dollar strength so far in '15. When I think about Ameriprise holistically as an enterprise, from a pretax income perspective, is it fair to assume you guys are pretty currency neutral given expenses and revenues from Threadneedle, obviously, and pounds?

Well, I would say, it's current yes [ph] because obviously, we make a profit. So we'll take a translation there, if that's what you're referring. That's with the translation. That is the majority of the exposures in -- is out of the U.K. Obviously, there are some offsets, but it is certainly -- it would impact a PTI asset.

Any sense on the sensitivity if it does? So like if the dollar strengthened [indiscernible]

Well, the dollar strengthening is, again -- the pound is moved from -- last year, it was somewhere in the $1.60s and now it's in the $1.50s. So on that basis, it -- I think we talked about last year, it has impacts that are certainly manageable at this -- it's in the, I would say, on the translation basis, it's probably in the $10 million, $15 million range if you drop the -- when you dropped it down. Actually, on that drop, you're probably talking in, say, around $20 million.

And our next question comes from Ryan Krueger from KBW.

First, I had a follow-up on the rebranding of Colombia and Threadneedle. I certainly understand the long-term rationale and the benefits that they could have. But in the shorter term, should we expect any meaningful costs associated with that rebranding over the next few quarters?

There'll be and there were some incremental cost in the fourth quarter. There'll be some incremental cost in the first quarter this year. But we're not looking at real sizable amounts here. What we are doing is repurposing some of our current marketing and branding costs for the new brand, but there'll be some incremental as you change the various materials and signage and some other aspects of it. So it's something that we think is very manageable, but it will increase, of course, slightly based upon the rebranding. But again, as I said, we think it's the right thing to do that can be leveraged over time.

Got it. Okay. And then, on -- given the, I guess, the lower interest, lower long-term interest rate environment we're in today, do you have any updated sensitivities you can give us in terms of the earnings headwind that, that gives you in the fixed Annuity and Protection businesses?

Sure. So let me break it out. The first one, obviously, is going to be on DAC. And when we set our DAC rates, the rates back down were in the $250 million range. Now you -- the start point is in $170 million as we look at, and we are grading up. So that's going to be one impact we are constantly monitoring and so that will have a noncash impact. When we look at locking in the third quarter or if we see this situation, we have to unlock earlier. As it relates to the long-term book with the fixed annuities, it is more on the -- we reset on the guaranteed minimum rates and so this space is just the earning rate, and the earning rates on both that and life and health would be impacted because of the duration of the situation as we turn it over. So like I said, it's about 20%, 25%. And on that basis, you're talking about 40, 50 basis points in differential as we look at it on average as you go through it. So that's the sort of activity levels they see. The numbers themselves are manageable. It's just we are defensive, and in a defensive posture there, and it will have an impact, but the impact is manageable than the number. But it...

Okay. And then last one on the tax rate. You gave the 26% to 28% tax rate guidance for 2015. As we think about the mix of your earnings shifting over time, specifically your -- seems to have a lower contribution from variable annuities in the DRD benefits that, that provides you. Would you expect your tax rate over a longer period of time to gradually rise as a result of the mix shift?

In the current legislation, that's exactly what happens. We also are deriving the DRD benefits, as you saw. But again, the tax rate's associated with the AWM business and the asset management business don't have some of the benefits that are derived, so therefore, they're at the more marginal, the statutory rate. So yes, it will erode, but again, it's good profitability.

And our next question comes from Yaron Kinar from Deutsche Bank.

I want to go back to the P&C results or the Auto results, specifically. And I guess, one question I still have is, looking at PIS count growth, why are we seeing growth, which I think is above industry average, while there's still turmoil and while you're still kind of trying to clean up the claims experience and the previous legacy premiums?

Okay. So first of all, we did -- we do have good growth. We actually have very strong growth in the home side of it. The Auto side has slowed down a little bit. We've made some adjustments over the course. We'll probably adjust a bit more as we go through and put in some of the tighter underwriting and repricing in certain areas. But we did experience some good growth based upon the expansion on some of our channel activity in the affinity area. So it's one of the things that we're closely monitoring right now. We have slowed down a bit of that growth. We might slow it a little more in certain sections where we have experienced some of the blip-up in the exposure. But we do feel like we can continue to add good new clients based upon the relationships that we have, we just got to be -- we're just going to be a little tighter in that regard.

Okay. And then going back to the Advice & Wealth Management. There was an industry publication, I think, that spoke of Ameriprise as the second largest independent broker by commissions from Alternative Investments sold. I think somebody counted about 20% the segment's total commissions earned coming from Alternative Investments. And just given some of the problems that some of your peers have faced with the high-commission product, I was wondering if you'd be willing to talk about kind of what percentage of the alternative investment commissions come from high-commission products?

Well, right now, it is a small percentage of, obviously, our revenue and profitability. But again, it's coming from REITs, and we've talked about, from our standpoint, it's -- that we have not suffered the same situations, obviously, as certainly looking at the quality and what we bring on and our, basically, compliance processes. So with -- from that standpoint, it is important part of the solution set with our clientele and certainly go through a very elaborate due diligence process to ensure that. And like I said, the revenue contributions is under 5%, it's like 3%. So it's an important solution area and it adds value from that standpoint, and it's about the 3% range.

Yes. And I think if you're talking about, like, the REIT area, it's only a couple percent in our total mix of business across the firm. I mean, of course, we have more alternatives that we offer from hedge funds to other types of activities, commodities, various things like that. But I think if you're referencing more of REITs, it's only a couple percent.

Okay, that's helpful. And quick numbers question. I may have missed it, I apologize. On the $20 billion of brokerage cash balances, can you tell us what the current yield is on those?

Around 20 basis points.

And our next question comes from Suneet Kamath from UBS.

So Walter, in your prepared remarks on Protection, you talked about long-term care and the fact that you're conducting, I think, what you characterize as a non-routine review. Can you just go on to a little more detail in terms of what exactly you will be reviewing? Is it the reserve level? Is it gap versus stat? I mean, just any more color on that would be helpful.

Yes. I think what we're doing right now, we're in contact with Genworth as it relates to their announcements and other things like that because they do all the claims and the administration aspect. They feed the information to us. And obviously, we do -- we're aligned on that information. We certainly are trying to do our own checks on it. But we, based on their reviews, we're cooperating with them to get really the performance aspects they've seen, both from claims and other -- to revalidate. As they looked at what they evaluated for their block, how that is applicable to ours, and so we are working with them just to get the additional information as it allows us to do the actuarial assessment.

Okay. But I guess, how should we be thinking about this in terms of a potential risk to the company? I mean, is it that you might have to boost reserves because Genworth is telling you that they're seeing more aggressive claims or utilization? Or -- I just want to get a sense of what the risk factor is.

Okay. I understand that. Yes, we think the risk factor is actually very contained because, again, it's small overall. But the reality is we have our own checks and we've been looking at it from our standpoint. There's different characteristics of our block versus theirs. So we do believe this is a precautionary element to make sure that we are aligned. Again, they're making a major announcement that they did make some changes to their actual assumptions. We felt it was prudent to work with them to get that applicability to our block. They did not do it. And again, it's our block and their block. It's a shared block. So it is really precautionary, but we believe it's very containable, and it's not a significant amount, if any.

And is that something that we're going to learn about sort of in 1Q results because that'll be after they put out their fourth quarter reserve review?

Yes, we're obviously dependent on their time, effort and everything, but yes, we are hoping to have that within that timeframe.

Okay, got it. And then, I guess, for Jim on the retail flows at Columbia, I mean, you've mentioned that it's work in progress and there's all sorts of -- I think you used the word traction that you're gaining. It's just really hard to see from the upside how the strategy is progressing. So is there any more color that you can give us in terms of what is exactly changing there, what's different this time and why we should have some comfort that the flows can start to turn positive?

Yes, I wouldn't think labeling it to get more comfort. I think what we have been saying and what we've actually been seeing is this: we will continue to have some of the type of outflows from some of the things that we've mentioned to you. So as an example, when we made all the pricing changes in the RIA channel, we experienced more of those outflows. That's starting to slow and turn around, and we're starting to see some pickup in the inflow side. For the ex-parent, we experienced more of that, even in retail, initially as things were changed, and now that starting to slow. It'll still be an outflow, but not as material as it was. And we think we can get some new product out there, hopefully, over time, I think, in regard to the intermediary channels, we're actually seeing some pick-up in a few of the areas as we get better penetration in some of the channels and get on some of the platforms. Having said that, I think it's been lumpy. I mean, we saw nice improvement in October and November. We thought it would actually show positive, and then December was a little rough month, I think, for the industry. From a perspective, we still experienced some additional outflows in a particular large fund that we had in the DCO channel that actually sort of masks some of the improvements for some of the other product across the other channels. So I think with the changes we continue to make with the new leadership we have in there, with how we're revamping the way we go to market with our product, with the wholesaling, with the disciplines we're putting in place, we're hoping that we can gain traction with more of our product across more of the channels in 2015. Of course, there's no guarantee. There's market environment. There's -- it is what the consumer is or the intermediary is looking based on market conditions. But we think we have enough good product. We think that we have a good wholesaling capability and platform that we're applying better. We think that we're going to bring product to the market better to talk about what that is and what the solution is and what we can provide. There are some new solutions. We're coming out, like our CARA Fund that I mentioned to you, which is a risk parity allocation fund that we think can take some space. So I think it's going to be a number of things that we can do to gain. But we're still going to experience some of the outflows from some of the ex-parent ongoing, from some of the sub-advisor, from one of the particular large funds we have that will continue to bleed a little bit until we get that fully -- more fully turned around and get some other product in the channel. So I'm not sitting here to predict quarter-by-quarter, but I do feel that we can gain some greater traction. I think Europe can come back again. I think, again, it was in strong inflows. We got hit with a loss of a PM last year, but that has stemmed the tide there. Actually, the U.K., where we lost the PM, that has actually turned around pretty quickly for us. So I think with the ECB doing what they do, that can sort of turn around people's appetite back in Europe. So we'll see. But I got more high hopes for this year, moving better in the trajectory. I can't predict, but hopefully, we'll apply more time and attention and hopefully, we'll get some better results.

And our last question comes from Tom Gallagher from Crédit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: A few questions on your Advice & Wealth business. The -- so I guess, the franchisee advisor story has been a really good one. Just want to understand a little about the outlook as you see it. How is the recruiting environment right now? Are you still -- would you still expect to grow that channel over the next year or so? I noticed a little bit of a tick down there in terms of number of franchisee advisors. That's question #1. And then, I guess, the margin, Walter, I think you had said the margin in that channel for this quarter was 19%, which is obviously a pretty robust number. Can you comment a bit about when you are hiring, making the new hires of the experienced advisors, what is sort of the marginal margin you're seeing there? Is it above or below that 19% level?

So let me start with the overall channel, then we'll talk to the margin. Very clearly, we feel very good about our franchise channel and the growth of the productivity of that channel. Now part of it that you're looking at when you just look at the number per se is there is a level of even consolidation going on in our own channel. As advisors hit a certain points in time, they actually don't want to be running the practice as they continue to age at a certain level. And so what they do is make arrangements with other advisors, they sell their practice and then they transition from an advisor to an assistant and then ultimately retire. And we have some of that going on in our channel across the nation that we sort of help foster and develop. So part of our attrition, or so to speak, that we report is part of that activity going on. The assets don't leave. The clients don't leave. But the number on the headcount does adjust. In addition to that, we also have assistants that advisors bring in as junior players in their practice, licensed practitioners, et cetera. And sometimes there is a higher rotation of those people, just like we do, when we bring in new people that we're training and developing in the employee channel. And so part of that turnover is also in those sort of numbers. But we feel that the productivity remains in the channel. The asset growth is good and strong, and we feel very good about that channel continuing to be a growing part of the total. In addition to that, we do have the employee channel. Again, with that same adjustments that are occurring, we have much more productivity in the channel. We're bringing in good people that have much higher productivity than the people who are leaving or left. And the pipeline, so the first part of your question that you asked, is very good. We saw it over the third and fourth quarter. We're bringing in high-quality people that are actually of higher productivities than even previous quarters. And we see that occurring both in the franchise and the employee channel. So we feel like we can continue to recruit on an ongoing basis and see quality people. Walter?

Yes, on the second question. From the standpoint of the marginal contribution, from a PTI standpoint, for the experienced advisors in the franchise and actually in the employee channel are higher than, obviously, the 19% and our current margin employee channel. So yes, that is accreting on the -- based on the correlated expenses that we associated with that -- with bringing on experienced advisors. Thomas G. Gallagher - Crédit Suisse AG, Research Division: And so, Walter, from just order of magnitude, so -- and Jim pointed out that the new hires in the franchisee channel are actually more productive than the average advisor. What type of margin are you seeing for those new hires, let's say, by the end of the first year? Is it -- if the average for that channel is 19%, is it 25%, is it 30%? I just want to get a sense for the grade-in of that and how -- what kind of earnings pick you get as you hire people?

So Tom, let me correct that. I think we didn't say -- for instance, in the franchise channel, we're bringing in good people but we have good strong margins, very high productivity in the franchise. So the people we're bringing in aren't necessarily of even higher margin than that. I think they're consistent with the type of productivity that we have in the channel. In the employee channel, what I did say is the people we are bringing in have higher productivities and will, over time, add to that margin and will be higher than the average margin. But as Walter said, a year ago, that margin was in the low single digits. We ended last year with it being now about 10% or so. And as we add even more productive people and utilize the capacity we have in the employee channel for better productive people, that margin will continue to accrete. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Understood. So it's really the employer channel that you're saying is higher, okay.

Yes. Right. And then the franchisee channel, just as we continue to bring in good client flows and good productivity and our advisor productivity increases, then that will help with the margin there because that's a very large channel. It's a very productive channel. Most of that will come from the productivity improvements continuing in that channel and the use of some of our capabilities to help them do that. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Understood. And then -- and just one last one on the Property Casualty business. Can you quantify -- based on the changes that you expect to make, can you give us a little bit of quantification what are the levels of rate you're actually submitting for to regulators in that business? So are we looking at double-digit rate? Or some -- any quantification you can give there? And would you expect that book to shrink as you implement the changes?

Number one, if we reinstate [ph], again, depending on both -- as we do the price risk assessment and then you deal with the states that -- within theirs, that we will certainly -- we are looking then to get that ratio. As we have had -- we filed in '14, we had rate increases on Auto of close to 3%. And this is now being evaluated state-by-state. We're using the models that we're bringing up. So the rate increases are going to be a very off. So I couldn't really give you an average as it relates to, because you're getting into weighting again to everything from that standpoint. So the reality on shrinking the book, I don't think the book is going to shrink. I think we're going to more intelligently manage through the application of the sophisticated models and the other things that we do from an operational standpoint and just extract the better pricing risk return from it. So that takes time, as Jim said. It just doesn't -- it takes time to work through, both the analytics as we roll it, the filings and then the realization of it. Thomas G. Gallagher - Crédit Suisse AG, Research Division: I would hope your rate is going to be significantly above 3% if we're thinking about '15 [indiscernible]

I only gave you 2014. I gave you price in '14. I didn't say what was going to happen in '15. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Okay. But no, can you give us any indication? Or is it too early?

It's too -- because they basically just started through rolling the stage now, and those will progress and they're focusing on Auto and then rolling through on Home. So I can't give you, really, the rate increases that will take place because they have to do the analytics for each one and then evaluate it on that basis, both looking at the new and then the existing block.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.