Ameriprise Q1 earnings rise on client cash yields

Ameriprise client cash yields record profit margin

April 26, 2023 12:26 PM

After client cash holdings drove a new high in profit margin for Ameriprise in the first quarter, the firm is eyeing a larger share of some $22 billion in additional accounts outside its platforms.

The Advice and Wealth Management unit of Minneapolis-based Ameriprise directly manages roughly $44 billion out of $66 billion in client cash, CEO Jim Cracchiolo said in an earnings call with analysts on April 25 after the firm released its first-quarter results. The wealth division topped its prior high for profit margin of 29.9% last quarter due to rising interest rates that are linked to cash holdings and an influx of incoming client assets. It's now following rival Raymond James and others in exploring how to bring more of the cash in outside savings and checking accounts, money market funds and certificates of deposit into the firm.

The asset class, no longer boring, is receiving fresh looks from financial firms, depositors and advisors because of those higher interest rates and the recent collapse of two banks. Last month, Ameriprise launched savings accounts at its own bank, Cracchiolo told analysts in response to a question about client cash. Next month, it will offer a CD product for brokerage clients. And it plans to roll out a high-yield savings account later this year.

"In total, there's about $66 billion of cash," Cracchiolo said, according to a transcript by Seeking Alpha. "We have about $44 billion. We actually think by offering the brokered CDs and things like that, that will garner some of that [cash that has] gone out to banking institutions that our clients have put money in, that we feel much more comfortable having them at Ameriprise."

Industry News

Ameriprise nets record 30% margin as interest rates boost profit

January 26, 2023 6:14 PM

To see the key wealth management takeaways from Ameriprise's first-quarter earnings statement, scroll down the slideshow. For coverage of the company's earnings in the fourth quarter, click here. To see the firm's results from the third quarter, follow this link.

Financial advisor headcount

The number of advisors in Ameriprise's independent franchise and employee arms rose by a net 110, or 1%, year over year to 10,259 in the first quarter. Individually, the counts of employee and franchisee advisors each increased by 1% as well, with the independent arm picking up a net 99 to reach 8,160 and the W-2 brokers adding 11 to their ranks. In its recruiting, Ameriprise attracted 83 experienced advisors to join the firm.

Client assets

Despite lower asset values, Ameriprise's wealth unit displayed growth in net new assets and relative stability in client cash holdings that boosted earnings due to higher interest rates. Total client assets ticked down 3% from the year-ago period to $798.7 billion in the first quarter, with advisory holdings falling by 3% as well to $430.1 billion.

On the positive side, net flows jumped 18% to $12.3 billion and cash balances declined just 3% to $44.3 billion. Clients kept about 5.5% of their respective portfolios in cash, which the company and its competitors in wealth management often move into "sweep" accounts that pay the firms higher interest gains than their clients. The average sweep account at Ameriprise has around $7,000, with 60% of them below $100,000, according to the firm.

Expenses

Lower stock and bond values than a year ago helped reduce the expenses that Ameriprise had to pay for advisor compensation tied to client assets. Adjusted operating expenses decreased 2% year over year to $1.6 billion in the quarter, with distribution costs that include advisor pay dropping by 5%.

Bottom line

The "sustainable financial benefits" of profit spreads on client cash holdings drove a record margin for the wealth unit in the quarter, according to the firm, which said in its earnings release that "advisors remained highly engaged with clients throughout the market dislocation in the quarter, driving deep relationships and a referable experience."

Higher interest rates tied to assets in sweep accounts at Ameriprise's banks and outside institutions offset the lower values of stock and bond holdings elsewhere in clients' portfolios. Ameriprise's wealth unit earned pretax adjusted operating earnings of $693 million on net revenue of $2.3 billion, for a margin of 30.6%. Profits soared by 58% year over year, while revenue expanded 11% and the margin jumped by 910 basis points.

Ameriprise derived 66% of its earnings for the period from its wealth unit.

Remark

Asked by an analyst about the group of roughly 100 incoming advisors with $18 billion in client assets from Comerica Bank by the end of the year and other potential opportunities among branch-based advisors, Chief Financial Officer Walter Berman said the firm is "in a good situation" to attract more mega-recruits in the future.

"We bring a lot of good capability. They like our service. They like the ability of what we can do to support their advisors," he said, according to the Seeking Alpha transcript. "This is something we think we can build upon as we move forward. So again, I can't sit here to tell you exactly when deals get orchestrated but we have a good pipeline and we think we'll be adding more business there as we move forward."