Welcome to the Q4 2016 Earnings Call. My name is Silvia and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being record. I will now turn the call over to Alicia Charity. Alicia, 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, our Chief Financial Officer. Following their remarks, we’ll be happy to take your questions. On Slide 2 of the earnings presentation materials that are available on our website, you will see discussion of forward-looking statements. Specifically, that during the call, you will hear reference to various non-GAAP financial measures, which we believe provide insight into the company’s operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials. Some statements that we make on this call may be forward-looking, reflecting Management’s expectations about future events and overall 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 2015 annual report to shareholders, our 2015 10-K report, and the first and second quarter of 2016 10-Q reports. We make no obligation to update publicly or revise these forward-looking statements. Turning to Slide 3 and 4, you see our GAAP financial results at the top of the page for the fourth quarter and the full year respectively. Below that, you see our operating results, which Management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. The comments that Management makes on our call today will focus on operating financial results. And with that, I’ll turn it over to Jim.

Good morning and thank you for joining today’s earnings call. I’ll provide my perspective on the business, and Walter will focus on the numbers, and we will be happy to take your questions. Let’s get started. I feel good about Ameriprise and our position. We had a strong quarter capping off a solid year. Across the firm we remain as focused as ever on serving our clients and advisors while we execute our strategy for growth and long-term value creation. We’re gaining good traction in Advice & Wealth Management and sustaining competitive results across the firm. Meanwhile, the operating environment has been challenging with continued low interest rates and lingering geopolitical unease, although equity markets have rallied post-election and we had a small lift in interest rates at year end. Ameriprise navigated the environment well and we make good progress across the business which I’ll review. Our focus was on executing our strategy while continuing to prepare the business and our advisors to comply with the Department of Labor rule. At the same time Ameriprise delivered solid earnings and very good overall return. We managed the expenses well as we continue to invest in the business to deliver an even more compelling experience for our clients and advisors. As we begin 2017, equity markets are off to a good start and we may also see further improvements in interest rates. In terms of our financial results for the quarter operating net revenues were solid, given headwinds from low rates and foreign exchange. We saw particularly strong revenue growth in AWM. Clearly this is a growth engine for the company and now represents close to 45% of Ameriprise’s total revenue. Operating earnings per diluted share was strong up 11%. We have significant scale, assets under management and administration grew to $787…

Good Morning. Ameriprise delivered a very strong quarter with operating EPS of $2.73, and a return on equity above our targeted range at almost 25% excluding unlocking. Advice & Wealth Management continues to be our primary growth driver with improved wrap net inflows, strong experience advisor recruiting, and excellent margin expansion. Asset Management provided a strong contribution to profitability and sustained very competitive margins through tight expense management during the period of outflows. Annuities and life and health insurance underlying earnings remain within expectations in light of the low rate environment. Auto & Home was profitable in the quarter, reflecting the enhancements we’ve made to pricing and operations. Finally, our balance sheet remains strong, enabling us to return over 150% of operating earnings to shareholders in 2016. Excluding unlocking, we returned over 135%. Let’s turn to Slide 7. Ameriprise delivered EPS of $2.73, up a 11% from the prior year. Advice & Wealth Management delivered 21% growth in earnings and Auto & Home had a substantial turnaround in results. G&A expenses remain well managed. We continue to invest in targeted growth areas and overall remained disciplined. G&A declined 4% even with elevated corporate segment expenses including a $11 million of DOL project costs and $12 million in severance costs. As Jim said, we are monitoring and evolving situation as it relates to the DOL. A substantial number of projects were well underway in anticipation of the April deadline. So this level of DOL expense will continue in quarter one. Beyond that, the level of expense will be fluid until there is more clarity. We returned the substantial amount to shareholders through dividends and share repurchase with $523 million returned in the quarter and $2.2 billion for the full year. And ROE reached 24.6% for the year, excluding AOCI and unlocking.…

Thank you. We will now being the question-and-answer session. [Operator Instructions] Our first question comes from Suneet Kamath from Citi.

Thanks. Good morning. I wanted to start with advice and wealth, just as we think about trending this over the course of 2017. In that 19% margin in the fourth quarter was there anything sort of that we need to think about as being particularly favorable in the quarter or was that a pretty clean result?

It’s Walter. You should look at it as a pretty clean result.

Okay. And then as we think about that shift that you talked about from 12b-1 to advisory, what sort of impact is that going to have on the margin? I think the earnings are probably going to be fairly stable and maybe revenue is lower. So I would think that would improve the margin, but just any color on that.

Yes, it will improve the margin. But again there’s fundamentals that are going to substantially increase the margin also. So, yes, there will be some lift because of the revenue adjustment as it comes through, but again, we don’t know exactly how much is being repriced right now which would offset that – from a margin standpoint. But clearly there we see the margin improving even beside that.

Okay. And then just on Asset Management, I think Jim you had mentioned that I think what you call the funded pipeline and institutional is the largest ever. Can you give us a sense of how big that pipeline is?

Well, it is the biggest ever that we’ve had. We don’t really put out numbers at this point, but I would probably say it continued to sort of build – we were – the extra delays that we experienced in the fourth quarter we’re hoping it will carry over and we’re still getting some more wins that we expect in the first quarter. So I would probably just say on a relative basis it’s the highest we’ve ever had.

Okay. And then just a last one from me. Back in December, Jim, you talked about at a conference the earnings mix of the company over time and I think the slide said 75% plus from the cumulation businesses near-term, which I’m assuming is two or three years. Did that contemplate any acquisitions or divestitures or is that kind of what you think you can do organically?

No, that was organically. That was – it did not contemplate acquisitions or divestitures.

Okay. Great. Thanks.

Our next question comes from Nigel Dally from Morgan Stanley.

Great. Thanks, good morning. Had a question about the DOL. I know a lot of what you’re doing would remain unchanged, but how would your strategy change at all if it was delayed and would there be any earnings impact from a delay?

So as I mentioned before there are certain things we’re continuing with like the move away from 12b-1s and advisory shares, putting that in place, institutional share classes et cetera that we’re going to continue down that road. But if there was a delay and the administration is reevaluating, we’ll participate in that, but what that would mean is that part of the activities relating to the big exemption and the activity changes there would probably be put on hold across the industry for revision or review further. So we would probably hold on that activity level and what we would do there until there is some clarity about what would be appropriate or what the industry will move towards with new regulation.

Okay. Then just on recruiting, you also spoke to recruiting strengths in a certain pipeline, but the number of advisors shrunk down a little. So I guess provide a color as to what was driving that.

Yes. So there are two things. One is we continued to sort of wean out a lower produces in our employee channel and so in that regard we’re bringing in higher productive advisors. And so as people are hitting thresholds, are not hitting thresholds, they’re starting to reevaluate whether they should be in the channel there. The second thing is we experienced a little higher turnover in our franchisee with some of their assistance as they continue to make adjustments based upon the environment and the regulation and what they needed to do there for their own areas. So we don’t see anything significant in a sense of a pickup. We had some additional retirees where they transferred their book internal to our succession planning before the new regulations have come out, but nothing out of normal and it was more in the lower producer end, if anything.

Very helpful. Thanks.

Our next question comes from Doug Mewhirter from SunTrust.

Hi, good morning. This is actually Nancy Rosenberg on for Doug Mewhirter. Thank you for taking my question. In Asset Management your mutual fund outflow seem to be high aside from FX and conditions in the European market. Is there anything else driving those outflows and then are you seeing those trends moderate into the first quarter?

Yes. So we did experience two things. We did experience a bit of a slowdown and some increase redemptions out of our UK activities, Europe in particular due to the Brexit. But after the Brexit, some of the election and some of the unknown, I think you’ve seen across Europe there’s been a bit of a pullback, whereas the U.S. has actually seen more of an inflow. We’re starting to see that stabilize as we move into the New Year which is good. In the U.S. we saw some additional pickup in redemptions. I think that the industry also experienced more in the latter part of November, December. It was actually doing pretty well in October. So there was some adjustment there. We’re hoping that again that starts to stabilize to come back in the New Year. So we’re seeing some stabilization there as well. But those are the things that we saw a bit of a pickup that was probably more than we expected.

Okay. And then in Advice & Wealth Management, you touched on this earlier. But is your lower distribution and G&A expense, is that mainly a function of turnover or are you also seeing like benefits from new policies from the fiduciary rule?

Well, what we’ve been doing is we do modulate the amount of expense that we have within – across the company as you saw our G&A is down. We’ve tightened up on our expenses. We’re trying to get greater level of productivity from the activities that we have on the way. We have invested well in our technology and enablement. That is also giving us some good benefits. So that’s what we’ve continued to sort of focus on knowing that the environment was a bit softer last year with both the markets on average were down, as well as just the idea that the increased regulation might have had some effect on activity. So, but we’re seeing – manage and continue to manage expenses quite well so that we can use that as an offset to any pressure on the revenue side.

Okay, thank you. That’s all I have for now.

Our next question comes from Ryan Krueger from KBW.

Hi, thanks. Good morning. I want to follow-up on Suneet’s question on the AWM margin. I guess Walter, is the takeaway from your comment that you think the fourth quarter margin is sustainable as we move into 2017 that’s kind of a starting point before any impacts of potential short-term rate increases?

So the issue is our average rate for the year was 18.1% and you get seasonality as it comes through, but we do see that will be depreciating in obviously within that they will get some benefit from the interest rate. But we do see a base level of increase.

Okay. So think about the full year margin as a starting point with upside from there.

Yes. Absolutely.

Okay. And then just on the tax rate. Can you give us a rough sense of what you’d expect in 2017 at this point?

Yes. Again, looking at in, looking at the mix of business and everything and assuming obviously no benefit being derived, but based on what people are saying from the stack discussion going on in Washington, I would think 24% to 25% is probably a range, but it’s fluid, but it’s based upon the mix we’ve seen in the business, I mean, it’s a good number, good range.

Okay. Thank you.

Our next question comes from Thomas Gallagher from Evercore ISI.

Good morning. First just a bigger picture question on Advice & Wealth Management. Jim or Walter, if you just look at some high level statistics your AWM revenue yield or higher than peers, by a considerable margin depending on which peers you’re looking at. So certainly one of the better cases on your company is that your fee levels are quite high, over time they’re going to have to come down meaningfully. Now I think there are some pretty significant differences in your business versus those peers. But can you address that broad question and is there a movement for you as you’re growing assets now to move that down or are there pretty significant differences? How would you address that issue?

So I would say is that I think there are differences particularly we have a very strong fee-based business around our financial planning and advice that renders a lot of services to the clients on this full life planning, full retirement, everything from a state to children’s education et cetera, so all of that is part of our fee-based model that is a great value to our clients. In addition to that when you look at, when you say the fees on an average client basis et cetera based on assets et cetera, it’s very much in line based on asset levels et cetera, when you look at a competitive frame. So of course fee rates for people who have a significant amount of wealth will be always lower than the people who might be in the mass affluent account based on size and effort for their services rendered. So there are differences there as well. So it’s hard for me to do a compare on a just an absolute basis as you got to look at some. But the financial planning basic foundation and the services rendered there is part of our fee basis. I would tell you that we generate very strong value in client, I mean, our net grows like I said was right at the top, and all of our ratings for client satisfaction for the services rendered. In fact the more we do the financial planning even though there’s a fee for it the more the clients are satisfied. So we feel very comfortable with that as we continue to move forward and we’d like more of our advisors to actually embrace that model more fully across their client base.

So, Jim, you don’t see anything structurally that you need to change whether it’s in terms of your typical structure moving far more aggressively into passives or just broader changes to level of fees based on your offerings, you don’t see any real need to change in lieu of where things are going in the environment?

Well, the big change is removing the 12b-1s as there are more institutional share classes and where there aren’t going to start to rebate. But moving that is a reduction in fee to the client for the cause as well as you move into institutional share classes across our range. The second thing very clearly there is as we look at our business model as anyone else, there is always the move to more fee-based. Our advisors are already factoring in their model portfolios and what they do passive ETFs. Having said that, it’s not as still active doesn’t make sense as a component of that based on a combination of factors including volatility and risk management and diversity of assets against the market conditions. So we’re helping our advisors to actually build more full fledged portfolios taking into account the combination of factors so that they can manage against the needs and the goals of the client, not just against the benchmark and we think that’s very critical for the long-term achievement of what the client needs to do with less risk

Got you. And then finally, you’ve previously said the change from 12b-1 to advisory shares shouldn’t have any meaningful impact to your bottom line, because most of that was a pass through to the advisor. Now I assume you’re closer along since it’s now being – it has been implemented. Is that still the case or is that has that changed at all?

No. I mean, we’ve always had when we said we always have a piece of what the 12b-1s that we would get based on the grid, and whereas having said that we also said that we would work to offset that through a combination of expense management and other arrangements and that’s what we’re doing. So if you just took it as a direct, would there be a piece hit to it? The answer is yes. But as we said we are working to offset that as you’ve seen that we’ve been continuing to do in combination of expenses as well as ensuring that for services rendered and what our advisers start to actually do in certain cases, different than what they did in the past. So it will have that effect, but we’re looking to offset that, and we think we have things on the way that would help that along. Just like our advisors we’ll make adjustments in their practices as they look at what they need to do. As I said, they’ve tightened up their expenses as well in some instances.

That’s helpful. So the margin benefit, I assume some of the significant expense improvement you saw in the margin this quarter, some of that’s going to come – be given back in 1Q as you transition or is that –?

Yes. So that’s why we don’t look at the 12b-1 just as a margin adjustment, because we would have gotten a cut at that will probably looking at it as a piece anyway. But what we’re doing is what we just saw in the fourth quarter based on the expenses that we tightened and now we want that to roll in. So last year we had a full year margin of 18.1%. You can look at the various quarters based on your activity and expenses that pickup in certain times. But we’re looking for that to increase from 18.1% on an annual basis and that would also help to offset anything that would be the reduction in the 12b-1 from a revenue perspective to translate in so that’s why we also said the 2019 is what we’re shooting for as we go forward and continuing to roll on a full year basis.

Got you. Thank you.

Our next question comes from Erik Bass from Autonomous.

Hi. Thank you. I had a question about the recent FCA review of the Asset Management business in the UK. And what you see as the potential implications for Threadneedle if there’s any impact you would expect on sales or margins?

Yes. As you’re aware the FCA has published an interim Asset Management Market study which they’re inviting comment. The focus is on regulated funds and delivering value for the investor. We’re currently engaging with the FCA through a series of industry roundtables as well as the industry bodies on how that recommendations and the markets study can best be taken forward. So I mean it just recently come out. We’re looking at that across and within the industry and we’ll be working to get back with the FCA and give our comments and understand what they might want to move forward with. So it’s a little early yet to talk about it.

Okay. And then maybe a follow-up to think sort of what Tom was asking. Can you just discuss the average wrap account fees and if there’s been sort of any changes in those over time and do you anticipate any pressure on wrap fees as the discount brokers continue to both reduce commissions and index fund costs?

Yes. I think there’s been a lot of talk when you look at it against the industry of just a wrap of an ETF or no support from an advisor and you just have a separate portfolio that’s all automated. And so the real value of what the advisor brings is much more than just putting together a simple allocation of ETFs, and then let the client fend for themselves. So the read real key around the advice value proposition is the advice that’s tangential to that; how to help a client with their behavior, how do you help them make decisions against their various goals and when to adjust, when to add, when to take out, what’s tax beneficial, what’s not and how to manage that volatility through cycle. So I do believe as with anything it’s always a competitive frame and there will always be adjustments, but at the end of the day as I said I think would Ameriprise and our advisors we continue to actually move more upmarket, we continue to gain greater client flows based on the type of client that we’re continuing to bring in based on advisor value proposition. So we’re looking at is there will always be some adjustments when necessary based on services rendered or price in the market. But the value added of the advisor, I think is still very important and very critical and our advisors know when they are – with their clients what is the price and the value that they’re offering for the services rendered. But also I would say we’re going to continue to focus on continuing to move a bit more upmarket so that the asset levels go up in which case prices may on a fee basis on a relative go down, but it will be offset by volume.

Got it. Thank you.

The following question comes from Humphrey Lee from Dowling & Partners.

Good morning and thank you for taking my question. On the brokerage cash balances in AWM it continues to build, I think the $26 billion plus is probably a record high. Just thinking about what the high short-term rate and kind of what you are doing in terms of enhancing productivity at the advisors channel. How should we think about the deployment of those cash balances in terms of the engagement between your advisors and clients and how should we think about the client activities going forward?

Yes. So as we looked at last year, we saw in the beginning part of the year a more of a slowdown in activity. If you remember, the markets were very volatile, they fell a lot, there were a lot of unknowns, then you have Brexit et cetera. And so what we started to see as you saw in the fourth quarter some of our flows in back into wrap business started to pickup again and we continue to see that now as we move into the New Year. So we’ve brought in assets, the cash balances built, the advisors didn’t put as much to work, they started to do that again in the fourth quarter. And if we continue to see – there’s always events and changes, but as we continue to see move forward particularly if there’s some delay in regulation as well, but the market conditions have improved, interest rates are starting to pick up a little bit, economic activity is more positive. So I actually believe that some of those assets will go to work as we move in through 2017. And the good thing is that we – they have the cash on hand to do it and we’re bringing in flows. So that’s the positive. And also as Walter mentioned, there is a pickup of interest rates that have just happened at the end – latter part of December and it looks like a few more rate increases coming that would also get money to work.

Just I guess, more of a generic question regarding to the cash balances. Is there any seasonality based on kind of what you’re suggesting as money putting to work and money into the fourth quarter and maybe a little bit on the sideline and putting more to work in the coming year. So is there something with seasonality with respect to the cash balances?

Yes. There is a small seasonality as it relates to the December build up. But it’s again this is record numbers for us and but there is a small seasonality in the fourth quarter.

Okay. Got it. Thank you.

Next question comes from Yaron Kinar from Deutsche Bank.

Good morning everybody. So you touched on the FCA report. Can you also maybe talk on, about the method too, of regulation in Europe and how you see that impacting your business at Threadneedle? And then what adjustments you may be making?

Well, obviously we are working through it as it relates to it and from that standpoint it is certainly going to have an element of a lot more reporting, a lot more rigor and looking at again to avoid the conflicts similar to the RGR what they did. So we are working through it. We have a teams on it and we will certainly be compliant with the elements within the timeframes that prescribed.

Do you see it as having any impact on flows or profitability?

Not at this stage.

Okay. And then in Advice & Wealth Management, so productivity is up little bit this quarter. Can you remind us where you think this productivity level could move to assuming a gradual improvement in the rate environment and then kind of normalized market appreciation?

So regarding the productivity as I said, I still think there’s a little bit of an overhang depending on the regulatory frame that people will be working on to get compliant if that was to move forward. I think the other things that we brought about in the switch to advisory shares and the changes we’re making there is working its way through. It occurred starting last year, but we’re making the changes as we go into the first quarter. And so the real question then is whether the rule moves forward for full implementation starting in April, in which case, we’ll have activity and training in all activities as we continue to move forward. If that is put on delay then that would actually help with the idea that advisors can be back focused on their book in growing their book. So that’s what we would probably say at this juncture.

Okay. And maybe a little bit differently, in terms of the pivoting from the lower productivity advisors into higher productivity advisors and the hiring of more experienced advisors, where would you say we’re at – what stage in the game are we at today?

Well, we are continuing to bring in now higher producing advisors based on our recruiting. So the GVC is going up where the total of their productivity is going up that we are recruiting in. Now for the people we’ve recruited in and the new people we’re bringing, that continues to ramp up. And you could probably start to see that even more in our P1 channel or employee channel as that continues to go through fruition. So we’re continuing to see that as something that will be part of the equation going forward. And again, it’s sort of a gradual quarter-by-quarter with what people we bring in; they ramp up, et cetera, but the pipeline for our recruits still look very good. We’re even bringing in a lot more million dollar practices that was highest we’ve ever did in 2016 based on our value proposition. So we want to continue along that focus into 2017.

Thank you.

Our final question comes from John Nadel from Credit Suisse.

Good morning. Thanks for getting me in. So I guess I have a couple of quick ones for you. So if we think about the full year 2016 margin for Advice & Wealth Management at 18%. How big is the differential at this point between the margin produced by your franchisee channel and your employee channel?

Okay. As we’ve indicated, we are – the employee channel is building as you get the advisors and they vintage through, so that is actually improving, but that is lower than the franchise channel. But that gap has really narrowed from that standpoint as when we started this journey. So I would say they are certainly moved into the mid-teens and the franchise channel is closer to the high-teens.

Got it. Okay, that’s helpful, Walter. Thank you. And then a couple of years ago at your Investor Day you showed us a hypothetical impact from a 200 basis points rise in the fed funds and that would – all else equal that would drive about a 4 point increase in the pre-tax margin in Advice & Wealth Management. If I think back on that though I think the level of brokerage cash balances was about half than of what it is today. Does that make a significant difference in how we should think about that?

Well, I don’t – I have to go back and reference, but it clearly I think we were probably in the mid-teens back then depending on what year and certainly it has grown. As we assess it, as we talked about it, there is – looking at the environment, we believe for the first 100 basis points we’re going to – as we talked about, 80% range will fall to us, and then as you progress up you would start to stream that depending on competitive situation. So I’d have to go back to the – from that standpoint, but environment’s different, certainly we’ve grown, you’re going to get the volume, and then it’s a matter of getting the rate mix shift. And so I think the math that we told you for sure on the first 100 that we should get the 80, and then we have to go from there and look at the competitive elements as we assess it today.

Okay, that’s helpful. And then the last question I have for you is really more of – it’s a bit of a hypothetical as well. So it’s no secret that you guys were at the late stages of looking at a relatively sizable Asset Management transaction that went in a different direction. But I’m curious, if you did a transaction that was going to cost somewhere between $3 billion and $4 billion, would you need to issue equity as part of that transaction financing?

Hypothetically speaking it was not our intention to issue equity. We really do believe we have the capacity to not do that.

And so maybe another way of thinking about it is how long do you anticipate the buyback would need to be either turned off or curtailed? Would it be a matter of a year or less than a year?

Okay. So that, again, we look at returning to shareholders in a different way, but clearly as we looked at your hypothetical, we certainly feel we’re oppressing, then we have to gauge the circumstances, the buyback, the simulation looking at the agencies and everything, but certainly the capacity is there and we generate a lot of cash. And so it’s transitioning the upper elements, but again, let me go back to your original premise. It was not intended in something of that nature that equity would be the element that we would use, so it would be more from dead or internal cash.

Terrific. Thank you so much.

We have no further questions at this time. Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.