Welcome to the Third Quarter 2017 Earnings Call. My name is Jason, and I will be your operator. [Operator Instructions] Also please note this conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, operator, and good morning. Welcome to Ameriprise Financial's third 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 two of the earnings presentation materials that are available on our website, you will see a discussion of forward-looking statements. Specifically during the call, you will hear reference to various non-GAAP financial measures which we believe provide insight into the company's operations. Reconciliations 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 our third quarter 2017 earnings release, our 2016 annual report to shareholders, and our 2016 10-K report. We make no obligation to update publicly or revise these forward-looking statements. Turning to slide three, you see our GAAP financial results at the top of the page for the third quarter. 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. Additionally, we completed our annual non-cash unlocking in the third quarter. We have included operating results excluding unlocking for transparency as well. The comments that management makes on the call today will focus on operating results as well as results excluding unlocking. And with that I'll turn it over to Jim.

Good morning. Thank you for joining today's earnings call. I'll provide my perspective on the business. Walter will follow with our detailed financial results, then we'll answer your questions. Let's begin. With favorable equity markets, low volatility and a slightly better interest rate environment, our clients continue to put their money to work. I'm pleased to share it was an excellent quarter for Ameriprise, continuing the trend we set in the first half of the year. In terms of operating numbers, excluding unlocking, we set record results. Both earnings and EPS grew significantly from a year ago. Earnings were $484 million, up 27%, and EPS of $3.12 represented a 36% increase. We also achieved a new high for return on equity at nearly 30%, which is one of the strongest returns in financial services. And assets under management and administration also reached a new high of $869 billion, up 9%. We continue to grow our lower capital fee-based businesses of wealth management and asset management to be a larger part of the overall company, complemented by our protection and annuity businesses. From an overall company perspective, I feel very good about Ameriprise. We continue to set ourselves apart by the way we work with our clients. We're growing assets, serving more clients and delivering strong returns. Let's move to our Advice & Wealth Management business, where we had an outstanding quarter. Ameriprise is a leader in advice. The importance of what we do for our clients and how we do it continues to differentiate us in the industry. We're rated number one in customer service, number one in forgiveness, number two in trust, a top performer in serving clients' best interests, and we're also ranked first for likelihood to recommend the firm to friends or colleagues. And we're very focused…

Thank you, Jim. Ameriprise delivered another quarter of excellent financial performance across our business segments. Top-line growth was over 6% and our operating EPS was up 36%. Advice & Wealth Management continues to be our primary growth driver, representing almost half of our total operating revenue, and over 40% of our operating earnings excluding corporate. Our other businesses have also performed well. Asset Management delivered strong earnings growth and margin expansion, and our Annuities and Protection results were consistent with what we would have expected in this market environment. Our balance sheet remains strong. We are generating strong free cash flow, which we are using to consistently return capital to shareholders and to make selective acquisition for future growth. Turning to slide six. Ameriprise delivered solid top-line performance. Ameriprise operating net revenue was up 6%, normalizing for our annual unlocking and the net impact of 12b-1 fee changes. Top line growth was driven by our wealth management business, which was up 14% from a pickup in activity levels, and strong growth in client assets. This was coupled with good growth in Asset Management revenues. Turning to slide seven, we had an excellent EPS growth of 36% to $3.12 and a record return on equity of almost 30% normalizing for unlocking. In addition to the solid revenue growth, we demonstrated good expanse discipline across the firm. G&A expenses were up 3% year over year, which was primarily driven by the timing of performance-related compensation accruals. Also, results in the quarter included the benefit of $0.16 per share from changes to share-based accounting made earlier this year. In addition, we also booked a premium deficiency reserve for long-term care that resulted from updating our morbidity assumptions which negatively impacted our EPS by $0.24. Supporting our strong operating earnings, we returned $462 million…

[Operator Instructions] And our first question comes from Nigel Dally from Morgan Stanley.

Great, thanks. Good morning. Walter, I'm hoping you can provide a little more detail about the long-term care reserve charge. I think investors, when it comes to long-term care, are concerned that any charges could just be the tip of the iceberg. So anything you can share with us with regards to the nature of the charge that would allay that concern would be helpful.

Sure. Basically during the quarter, we basically assessed that the active claims were increasing, and we, the actuaries basically analyzed it, and we took a level of reserves that we felt was appropriate to basically deal with the experience we're seeing. Again, the experience we're seeing is in younger vintages coming in and we just basically prudently booked the amount of money that we felt was appropriate.

Okay. Helpful. And then second, on advice, clearly very strong increases in the level of activity in wrap flows. I know market conditions were favorable, but with also some positive impact from the delay of the fiduciary standards, I know it's impossible to quantify, but do you think, in your views, that was perhaps a factor helping your results as well?

Nigel could you repeat that? I'm sorry. You broke up a little.

Sure, just the activity that we've seen in advice, clearly very strong. Was that in part a reflection of the delay of the fiduciary standards?

No. This is Jim. We're continuing to see our advisors get back focused on their businesses and books, and we had implemented a lot of the changes necessary due to the fiduciary standard that was put in place in June. There's still more activity underway there, but people are back focused on serving their clients and getting back to activity. And so we feel that it's getting back to more normalized focus that we had.

That's great. Thanks a lot.

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

Hey, good morning everybody. So, Jim, I wanted to follow up on a point you made in your prepared remarks just related to largest wealth transfer from the next several years, obviously from baby boomers to millennials. Can you spend a minute, I guess, on like how are you guys positioning Ameriprise to make sure you retain these assets and perhaps capture an incremental share of wallet? And I guess as a follow-up to that, what are you guys doing with respect to potentially segmenting your customer base for more of a full advice versus a digital offering, versus come form of a combination of the two and a kind of a hybrid offering?

Yeah. So there are two aspects very clearly that we have our advisors focused on. One is as there is a transition of wealth to retirement, and how do they actually develop appropriate levels of income checks for their clients over time, our advisors are very much focused on helping the client do that transition and ensure that they can live successfully 30 years in retirement or more. With that, we use our Confident Retirement approaches, which is having tremendous success in looking at the client's complete life. In addition, we're also focused on the people continuing to accumulate and not necessarily ready for that transition, but starting to prepare themselves for the ultimate retirement, and therefore our Wealth Builder approach is also having a nice effect there in focusing our advisors on the asset accumulation, which is really the core of what the old IDS company used to do. And so we're getting back a little more to our roots there. Regarding digital versus non-digital or robo, what we find for our clients – and this is millennials, this is generation X, this is baby boomers – that people want to be served fully, but they want to be served when, where and how they would like. So therefore, the enablement of the digital capabilities to our personal advice relationships is the way we're proceeding. We're enhancing our websites, the mobile capabilities, the ability for our advisors to serve their client through secured messaging and Skyping and various other methods by which they can be in constant contact to their clients. Now, it doesn't mean that we won't further digitally automate. So right now we're working on digital advice, in which case the advisor with the client could even do more things more fully digital, or even through our AAC or remote operations, work digitally with the clients in a more self-serve environment. So those things are underway, but what we find is across our house, if we can digitally enable our activities even more fully with our advisors, that's the way for us to go with our clients.

Got it, that's helpful. And that actually feeds into my next question around just the investing G&A and the margins. So Walter, for you, I guess spend a minute on the operating margin expansion opportunities at AWM. From here, clearly very strong recruiting dynamic, organic growth is very good. But I'm just kind of trying to dissect what the incremental operating margin expansion would be from here assuming kind of like flat market, flat rates, just trying to get a better sense of operating leverage on the organic basis from the kind of current 21%-ish pre-tax margin in the segment. Thanks.

Okay, so with your restrictions, I'll try and answer that. We do have productivity capability both from the vintaging and certainly based upon the years and the basic legacy advisors. As Jim indicated, we are certainly penetrating our client base, so I certainly feel that will expand, and also our management of expenses prudently and investing on that will give us the opportunity to certainly increase under your condition sets. I do believe we have that capability. Jim, I don't know if you want to add something.

No, I think I'm.

Okay. Got it. Thanks, guys.

Thank you, and our next question comes from Humphrey Lee from Dowling & Partners.

Good morning, and thank you for taking my question. First off, very nice results, knocking it out of the park. Just to follow up on Alex's question earlier in terms of A&WM, definitely margin continue to be strong. And I hear it's loud and clear in terms of the productivity and the expense management. But looking at some, comparing to some of your peers, like their operating margins are in the mid to high 20s, so kind of structurally speaking, any reason why Ameriprise can't get to a similar level at some point? So any kind of potential levers that would get you there?

Yeah, so I think when you look at the various margins, I think they do vary. What you're probably referencing, I think the largest wire houses are in the mid 20s. They incorporate, in my understanding, at least from the work that we've seen, incorporate a number of activities, including a lot more on the banking and the lending activities that they do in their client base. And that really has boosted their margins. I think on a relative margin basis, ours are very competitive to their wealth management activities in that regard. In regard to us versus, or the independents, which we also have a very large independent, we're probably double or triple their margins based upon the retention of our clients, the longevity of our advisors and the productivity. Our productivity is more than double or more of what they do. So I actually feel very good about our margins, but to the point of reference, we can continue to help our advisors grow productivity. We can continue to leverage our capabilities and use the investments to continue to increase those margins, but I would also say that we're very competitive, but we continue to focus on what we can do further.

Got it. And then looking at in asset management, just for the expenses associated with the performance fees, you're still pretty much flat year over year and quarter over quarter, even though you are reinvesting into the business. I take that as simply kind of expense reengineering, and also the platform consolidation kind of offsetting the reinvestment expenses. But how much room do you still have in terms of this expense management, or would we see kind of expenses gradually creep up as you continue to reinvest?

Yeah, so we continue to make good investments in the business. I think over the last year or so, we had to focus a bit more energy on the regulatory side of it. That's part of our expense base. But we are now starting to refocus those energies back to the core investments. We always kept the core investments, but we probably used a bit more of we had two of the resources in a period of time. So now we're refocusing the resources back to the growth areas, and the new capabilities that we continue to focus on. And we have some good things underway. And so I think to Walter's point, we constantly look at reengineering as a part of our activities, so we think that expenses will increase on a very low rate, continuing with the growth that we continue to get in the productivity and the revenue side, and we reinvest with that, but we don't see that accelerating as an expense issue for us.

Got it. Thank you.

Thank you. And our next question comes from Erik Bass from Autonomous Research.

Hi. Thank you. Historically, the Advice & Wealth business, I think it's had seasonally higher G&A expense in the fourth quarter, but we didn't really see that last year. As we think about the fourth quarter of this year, should we anticipate a return to more of the normal expense pattern where there's a little bit more advertising or other expense?

It certainly will, as I indicated in my presentation that we anticipate that it's going to go back to the year to date levels, which will average out to around 3%. Right now, it's 3% year to date, so you figure somewhere around, again, it's in that range, but certainly 3%, 4% will be in that range for the fourth quarter.

Got it. That's talking G&A expense year over year?

Yes. Yes, I am.

Okay. And then also in Advice & Wealth, are you seeing any competitive pressures on sweep yields? And I guess how much incremental bottom line benefit do you anticipate from any additional interest rate hikes?

Well, we are certainly today competitive and certainly the lion's share as we indicated, both us and the industry on the sweep accounts have been for the broker/dealer. We do anticipate in looking at the situation going forward that as for the next increase, that will be a larger sharing with the clients as we now reach that 1% minimum we talked about. That would be mostly for us.

Got it and thanks. Final question on that, just as you are seeing more clients put money to work, so with the cash sweep yield now at 111 basis points, is money moving out of cash a net benefit to you from an earnings perspective?

Actually it depends on where it goes, but it is both very profitable and the money, which is varied interest being deployed, but yet money is still, the sweep accounts are staying at pretty high levels. I think it only dropped $400 million this quarter. So the profitability range for us is quite good as they deploy or stay in sweep accounts.

Got it. Okay, thank you.

Our next question comes from John Barnidge from Sandler O'Neill.

Thank you. What's your expectation for impact to your business from implementation of Method 2?

We are certainly going to be complying on 1-1. We believe we are dealing with certainly the reporting requirements. We are certainly – that we feel comfortable with. As it relates to the research, we've already announced that we will basically be absorbing that, and we believe the amount will be manageable, and we're certainly working to make sure we provide the right research to our clients, but also optimize the cost of that.

Okay. And then what was your catastrophe loss load excluding the hurricanes this quarter? Because it seems like there is a trend with property/casualty insurers having hurricane losses, but not much else this quarter, so I wanted to see if the same was the case here. Thank you.

I just want to make sure I understand your question. You're talking about the gross amount or? I'm not sure I understood your questions. Could you repeat it or elaborate a little more?

Yeah, sure. Net of reinsurance, what was your catastrophe losses from cat activity outside of hurricanes this third quarter?

They were mostly, the majority was the hurricanes.

Okay, great. Thank you very much.

Yes, you're welcome.

Thank you. Our next question comes from Kenneth Lee from RBC Capital Markets.

Hi, thanks for taking my question. Just had a question on Advice & Wealth. Looking back several quarters, productivity has been increasing and this is without a huge change in the advisor count. Just wanted to get a better sense of how much of that improvement is due to favorable market conditions versus the impact of the experienced hires that you guys have been getting in or just versus improving efficiencies within the business? Thanks.

So I would say the larger part is due to growth in overall productivity, because we run a very large network. But the year ramp-up continues to be a complement to that, particularly in our employee channel. And the employee channel has actually shown some nice growth in average productivity over the number of years last, you know, one, two, three years, and that continues to actually get good utilization. That also brings up our margin in the employee channel, as we told you before. And so we feel that the year continued recruitment and ramp up is a nice complement, but also when you look at the type of productivity, we're talking about 14% growth in productivity, it has to do with the larger network. Now a piece of that of course is markets where you are managing some of these assets, et cetera, but I would say the larger part of that is really advisors actually continuing to deepen their book and grow their client base activities, and focus on a little more of the clients that are actually bringing in more of the assets at a higher level, as we said, continuing to move up market. So it's a combination of those factors. All of them have contributed, but we also have a very large network. So to get 14% productivity growth, as an example, it takes those type of levers to work.

Okay. Great. And just had one more question. In terms of the performance fees, could you remind us again of the potential seasonality, where there are certain quarters where we should expect some kind of volatility from performance fees? And then going forward, I mean especially with the recent acquisition of the Limestone Investments, should we expect a little bit more impact from performance fees from the Asset Management side? Thanks.

Okay, on the last part of that question, probably not a lot really, certainly as we look into 2018. The seasonality is very difficult to forecast because of the aspects of when these properties actually settle and close. So it is a difficult situation. There's no seasonality pattern that – and that what makes it, from our standpoint, forecasting is difficult. It's there. We earn it. It's good income, but it's the timing of it is challenging.

Okay. Thank you.

Next we have Doug Mewhirter from SunTrust.

Hi, good morning. I had a follow-up on the Method 2 question. Just to confirm, and I know you already, you had disclosed this, will you be implementing Method across your Columbia Threadneedle and, or your Threadneedle and your Columbia, in other words worldwide? Or just your European operations?

Just European.

Okay. And are you willing to disclose what your research budget was for Europe for this year?

We are looking at that right now. I think the level of research that we and others consume is something that we are quantifying on a greater level of detail. But with that, what is necessary and appropriate and what is the rates that are necessary and appropriate for us to pay for it. So a tremendous work is going on right now, and so we'd rather wait until we have that full diagnostic and what we will be doing moving forward, and then we could give you that update.

Okay. Thanks for that. And my last question, Walter, what's your long-term care reserve on the balance sheet as it stands now?

Oh, I don't have that. I will try. I will have to get back to you on that one. I don't have it here

Or I guess maybe to -

Right now -

I'm sorry.

I think, I don't want to guess at it so let me.

Or I guess maybe to reframe the question, the reserve charge you took this quarter, was it like a single digit percentage of your total reserves? Or just trying to get a idea of the magnitude of the reserve charge on a relative basis to the long-term care reserve.

Relative to the portion that's not reinsured, it was under, I would say, it was under, in the single digit range. And again, we looked at this. It's dealing with the future forecasting, so we tried to be as prudent as possible on it.

Okay. Thanks. That's all my questions.

Thank you. Our next question comes from Suneet Kamath from Citi.

Thanks. Good morning. Just wanted to go back to Advice & Wealth margins. It looked like they were basically flat sequentially, even with the June rate hike. Walter, I get your comment about G&A being a little elevated, but it also looked like distribution expenses were a little bit higher, certainly relative to the change in distribution fee. So I'm just wondering if there was anything unusual in the distribution expenses line in the quarter.

No, not really, Suneet. Not really.

Okay. And then related, you had a comment in your prepared comments about expenses associated with recruiting advisors, so can you drill into that a little bit? Is the environment getting more competitive in terms of attracting EARs? And are you still seeing some of these large compensation packages being offered by the various distribution organizations?

Suneet, I think Walter's comment, but he can comment, was more around that over the course of the year, we brought in very good advisors that have larger books and productivity, in which case it's not just the number, but it's the size of the advisors that we're bringing in. So that the upfront cost of that is a bit higher, but the productivity we're bringing in is a bit higher. So that's in combination with how we've adjusted the accruals and also some mark-to-market under the deferred comp based on the market price of the stock, et cetera. So there's a combination of things that were in the expense quarter for the Advice & Wealth Management business. So I hope that clarifies it a little more for you.

No, it does. And then just one last one for Walter. On the unlocking, should we expect any kind of run rate impacts going forward from the actions that you took in the third quarter, particularly in the annuity space?

Yes, you will see, as last year when we did it, we announced that with the unlocking that there was a negative that would continue through the SOP and the other elements on a quarterly basis. That's been basically reversed, and it will be substantially less as we move forward between now and the next unlocking. And obviously, the thing that we have to look at is as it relates to VA and others is the markets, where they increase as impact the SOP and the cash [indiscernible].

Can you quantify the degree to which it's going to be less on the SOP?

It's a shift about, yeah I can, around $10 million in the quarter.

$10 million per quarter?

In this quarter, and yeah, it's about that, yeah.

Got it. Okay. Thanks guys.

Thank you. Next we have Tom Gallagher from Evercore ISI.

Thanks. Walter, just a follow-up to Suneet's question. So would you say the annuity earnings normalized $149 million is a good run rate, then? Or would you make any adjustments to that as we think about 4Q and beyond?

Yeah so, Tom, as I indicated, we had that improvement, which is from the unlocking. The bigger factor is on the markets, the equity markets and the interest. And so again, I can't forecast that. And that would – this quarter we had a very good increase which certainly elevated it. If that continues then you have a good run rate. If it doesn't, it will be impacted by that.

Because I think the old, if we look at last quarter, I think you were sort of defining a run rate about $20 million lower than that, assuming market conditions were normal, up 2% a quarter.

[Indiscernible].

Is there after the review, has that been revised higher or?

No, I would say, look here, the number you're talking, $15 million, $20 million is a pretty good number that would be a more normalized run rate off that.

Oh, so take $149 million less $15 million to $20 million?

Yeah.

As a more normal run rate.

Yeah.

Okay. Your comments around capital management, so I know you slowed buyback a little bit and you mentioned considering M&A I think as well. Can you talk a bit about what your thoughts are? Is this a good level of buyback? Would you expect to fade that further, pivoting more into M&A? What are your overall thoughts there?

Well, okay, let me start with and maybe Jim will add to it. We talk about that from the standpoint of 90% to 100%, and certainly we would then be opportunistic about it in looking at different aspects of it. So at this stage, I think we have been fairly consistent with that, and as certainly moving from $85 a year ago to $150. But certainly we have the capacity and the capability and we generate, but it is really just gauging that situation to ensure that we're optimizing shareholder return, both for dividends and for buyback. Jim, I don't know if you wanted to add anything.

No, I think it's fine. And we also did two small acquisitions in complement to that during the quarter. So we'll continue to deploy appropriately. We're still north of 100% in our buyback. And so we're generating good earnings, and we're returning it at a substantial rate, but we're also looking to do some incremental bolt-ons, which we're starting to do here and there. So I think you could take it as we're going to continue to return.

Got it, and then just two other quick details. The long-term care charge, was that GAAP only or was that statutory as well, the $57 million?

That was on both.

It was on both. And then your comment on the sweep cash fees being more sharing, should I take that to mean you'll keep 50% or in that ballpark?

It is obviously going to be based on competitive, but it certainly it would move to a more sharing range. I just, I can't handicap it because it's really going to be based upon competitive situations.

Okay. Thanks.

You should expect we'll be sharing more.

Okay. Thank you.

Next we have Ryan Krueger from Keefe, Bruyette, Woods.

Hi, thanks. Good morning. Walter, I believe you said the Asset Management margin adjusted for the performance fees was 39%. I guess you've talked about historical, kind of more of a range in the 35% to 40% range. I guess with doing what you have done, is it fair to kind of assume more the mid to upper end of the target in the current environment? Do you believe that's sustainable?

Yes. The answer is yeah. I think that's a reasonable assumption certainly in this environment.

Okay thanks. And then just a quick one. I know it's not a huge deal, but just on the Limestone partner, can you give us any sense of should we expect much of a financial impact as that comes into the results, and how have the flows been in that business?

Well, we think it's a very good property that we think we can help them continue to grow, and there's opportunity to add to their book over time. I think with this business, like anything, it's more of a slower build. And so we think that it will accrete for us over time. But there shouldn't be any major impact to the financials over the next year or so.

Okay. Thank you.

This is Walter, I just, we got the answer on the question about the reserves, active and disabled life reserve. It's almost $2 billion.

Thank you. We have no further questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.