Ameriprise Financial, Inc. (NYSE:AMP) Q2 2024 Earnings Call Transcript

Ameriprise Financial, Inc. (NYSE:AMP) Q2 2024 Earnings Call Transcript July 25, 2024

Operator: Welcome to the Q2 2024 Earnings Call. My name is Briana, and I will be your operator for today’s call. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Alicia Charity: Thank you, operator, and good morning. Welcome to Ameriprise Financial’s Second Quarter Earnings Call. On the call with me to Jim Cracchiolo, Chairman and CEO, and Walter Berman Chief Financial Officer. Following their remarks, we’d be happy to take questions. Turning to our earnings presentation materials that are available on our website. On Slide 2, 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. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials and on our website. 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 second quarter 2024 earnings release, our 2023 annual report to shareholders, and our 2023 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the second quarter. Below that, you see our adjusted 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.

Any of the management makes on the call today will focus on adjusted operating results. And with that, I’ll turn it over to Jim.

Jim Cracchiolo: Good morning, everyone. As you saw in our release, Ameriprise delivered another strong quarter and first half of the year, continuing our record of delivering strong operating results over many years in operating environments. Looking at the external landscape in the quarter, markets continue to be good with the expectation that there will be a soft landing. While inflation remains sticky, people assume that it’s going to come down. However, that could take longer than expected. And there is also the ongoing geopolitical instability and the upcoming U.S. election. So all of this is top of mind for our clients. With that as a backdrop, our second quarter results were excellent. In terms of our operating results, revenues were up 9% from positive business results in markets and in fact, reached a new record of $4.2 billion.

Earnings were also excellent with EPS, excluding disclosed severance costs increasing 17% to $8.72. This is also a new high. We also generated free cash flow of 90% and returned another $693 million to shareholders, and our return on equity was nearly 50% and continues to be best-in-class. Our assets under management administration were $1.4 trillion, up 12% year-over-year with good client net inflows and market appreciation. We have also been adept at maintaining a significant investment agenda that is complemented by our strong reengineering discipline for reinvestment. We freed up additional resources, which is why you’re seeing some additional severance costs in the quarter that we will benefit from through the year. In fact, G&A was down 2%, excluding those onetime costs.

In wealth management, we’re building on what we know works, quality engagement centered on advise and delivered through the Ameriprise client experience. Client satisfaction remains excellent at 4.9 out of 5 stars, and we continue to receive important industry accolades. Total client assets in wealth management was strong at $972 billion, up 17%. We’re also attracting new clients in the $500,000 to $5 million range. Our most recent research underscores that our premium client value proposition continues to appeal to people who want to work with a trusted advisor and a trusted firm like Ameriprise and advise relationship. For the quarter, total client wrap assets reached $535 billion, an increase of 18%. Wrap flows also grew nicely, up 34% year-over-year to $7.5 billion, and transactional activity was also up, increasing 19% from a year ago.

Cash balances though still at a higher level, are beginning to ship back to wrap and other products, which represent a future growth opportunity for us. We continue to provide exceptional support and capabilities for our advisers, both satisfaction and growth remain excellent. Productivity increased another 11% to $968,000 in the quarter. We’re focused on leveraging our integrated and effective CRM engagement tools and digital capabilities for client deepening and acquisition to complement in-person interactions. We’re also using automation and analytics to drive efficiency, helping advisors enhance personalization based on client needs and identifying new growth opportunities. Our advisor force grew to nearly 10,400 in the quarter. We added another 52 experienced advisers, and we feel good about our pipeline as well as our differentiated value proposition.

At Ameriprise, total assets were up year-over-year, and we closed the quarter at $23 billion. Strong contributions from bank earnings drove a nice increase in net investment income. We continue to have good advisor and client interest in lending with notable growth in pledge loan volumes as our advisors engage their clients in our banking solutions. During the quarter, I’ve spent time with the top 10% of our advisor force at our largest recognition conference. They appreciate what we built together and that Ameriprise is not just another firm or a group of practices, but that we have a supportive and caring culture that helps them have highly successful practices. And our retirement protection businesses are consistent contributor to our positive results.

As our advisors provide more advice, they’re appropriately incorporating annuity insurance solutions to serve clients’ complex needs. We’re driving good sales in our targeted areas. For example, structured annuity sales were up 60% from a year ago, and in insurance, VUL sales were up 24%. RPS continues to add nicely to our overall earnings and free cash flow, and we continue to feel very good about our product mix and position. In asset management, clearly, the active industry remains dynamic. Our team remains focused on client needs and generate an attractive investment performance. Total assets under management increased 4% to $642 billion as market appreciation more than offset net outflows. We continue to have good investment performance across asset classes and time periods.

Globally, 68% of our funds are above the median for the 3-year period on an asset-weighted basis with nearly 80% for 5 years and 90% for 10 years. We also have 114 4- and 5-star Morningstar-rated funds globally. Turning to flows. Total outflows were $4 billion, improving $1.3 billion from a year ago. Excluding the legacy insurance partner asset transfer, which came through both in retail and institutional channels. In retail, overall, we had improvement in gross sales up $1 billion from last year with a slight improvement in redemptions. Though we’re in net outflows, our equity results are outpacing the industry, and we see an opportunity to gain more flows in fixed income. Institutional flows were slightly positive in the quarter, driven primarily from wins in the APAC region.

And we’re putting additional emphasis on models, SMAs and ETFs are beginning to gain traction. We continue to focus on transforming our global asset management business to gain greater operational efficiencies, leveraging resources and technology globally. You saw that our G&A expenses decreased 6% in the quarter, and we have a number of additional actions underway to further derive benefits throughout the year. In Asset Management, we’re maintaining good fee levels and good margins. At Ameriprise, our model and overall firm has enabled us to perform very well over market and environmental cycles. We continue to leverage our global capabilities as well as steadily invest in technology, digital, analytics, AI, products and solutions across our complementary businesses.

And in June, we efficiently recognized our 130th anniversary and we’re one of a select number of public companies with this legacy of success and performance. Our ROE of 50% is consistently among the best. Ameriprise has been the #1 performer for TSR, among the S&P 500 Financials since our spin-off in 2005 and we continue to deliver excellent returns and returns to shareholders in a significant way. Looking forward, we have the right strategic focus, growth investments, a talented team and a meaningful opportunity to drive greater growth. Now Walter will provide additional color on our financials. Walter?

Walter Berman: Thank you, Jim. Adjusted operating EPS grew 17% to $8.72, adjusted for $0.19 of severance expense associated with the company’s reengineering initiatives, reflecting earnings growth across all of our businesses. The diversified nature of our businesses drive our consistent financial performance across market cycles and sets us apart from most new financial services industry. Assets under management and administration increased 12% to $1.4 trillion, benefiting from strong client flows over the past year and equity market appreciation. This has resulted in strong 9% revenue growth across our businesses. As you know, we continue to manage expenses tightly to maintain strong margins. G&A expenses were down 2%, excluding severance expenses, demonstrating our continued focus on reengineering and operational transformation.

We continue to selectively invest in areas that will drive future business growth, particularly in wealth management. We will maintain our expense discipline in 2024 to achieve growth and shareholder objectives. Our returns remained strong with a consolidated margin of 27.4%, excluding severance expenses and a best-in-class return of equity of 50%. Balance sheet fundamentals, including excess capital and liquidity remain very strong. Our diversified business model benefits from significant and stable 90% free cash flow contribution across all business segments. We returned $693 million of capital to shareholders in the quarter. In 2024, we continue to expect to return 80% of operating earnings to shareholders. On Slide 6, you’ll see the strong results from Wealth Management.

Client and wrap assets increased 17% and 18%, respectively, from strong net flows and market appreciation over the past year. Wrap flows were strong in the quarter, at $7.5 billion or a 6% annualized flow rate. In the quarter, adjusted operating net revenues increased 13% to $2.6 billion from growth in client assets increased transactional activity and 11% increase in net investment income in the bank. This drove revenue per advisor to a new high of $968,000, up 11% from a year ago. Total cash balances, including third-party money market funds and brokered CDs were $81.9 billion, which was over 8% of clients’ assets. As clients remain heavily concentrated in yield-oriented products with highly liquid products like money market funds being more in favor than term products like certificates and brokered CDs. We are beginning to see clients put money back to work and wrap and other products on our platform, and we expect this to continue over time as markets and rates normalize, which creates a significant opportunity.

Cash balances, excluding money market funds and brokered CDs, were $40.6 billion driven by normal seasonal tax patterns and the transition of cash related to Comerica partnership in other products. Underlying cash sweep was stable in the quarter as expected, and that trend continues in July. I want to provide some additional perspective on sweep cash. Our cash sweep is a transaction account for money in motion that is in between investments or for cash to pay fees, which is similar to a bank checking account. Cash sweep is not meant to be an investment option for significant cash balances over extended periods. We have a broad range of higher-yielding products available for clients seeking to hold cash over extended periods, which is where a large portion of the excess cash has gone.

As a result, our clients generally have very low cash rebalances, which are now approximately $6,000 on average. At this point, we do not anticipate any changes in our approach to cash sweep. Adjusted operating expenses in the quarter increased 13%, with distribution expenses of 17%, reflecting business growth, including Comerica and increased transactional activity. G&A expenses were flat at $409 million, reflecting investments for business growth, offset by reengineering initiatives. This combination of revenue growth and well-managed expenses resulted in a business sustaining an operating margin of 31%. Turning to Asset Management on Slide 7. Financial results were very strong in the quarter, and we continue to manage the business well through a challenging environment for active Asset Management.

Total AUM increased 4% to $642 billion, primarily from higher equity market appreciation, partially offset by net outflows. In the quarter, operating earnings increased 35% to $218 million as a result of equity market appreciation and disciplined expense management, which more than offset the cumulative impact of net outflows and margin was 38%, reflecting strong market appreciation and expense discipline. Adjusted operating expenses decreased 2% with general and administrative expenses down 6% from a year ago, reflecting the benefits from comprehensive expense management initiatives taken to date. We are looking globally, especially in EMEA, to enhance operating efficiency and manage expenses so we are well positioned going forward. Let’s turn to Slide 8.

Retirement & Protection Solutions continued to deliver good earnings and free cash flow generation, reflecting the high quality of the business that has been built over a long period of time. Pretax adjusted operating earnings in the quarter increased 4% to $196 million, reflecting the benefit from strong markets and higher interest rates, partially offset by higher distribution expenses associated with strong sales levels. Overall, Retirement & Protection Solutions sales improved in the quarter, with protection sales up 21% to $93 million, primarily in higher-margin VUL products Variable annuity sales grew 45% to $1.4 billion, with strong momentum in our structured products. Turning to the balance sheet on Slide 9. Balance sheet fundamentals and free cash flow generation remains strong with growth in excess capital to $1.7 billion.

We have diverse sources of dividends from all our businesses enabled by strong underlying fundamentals. This supports our ability to consistently return capital to shareholders and invest for future business growth. In the last year, we returned $2.6 billion of capital to shareholders, including $693 million in the quarter. Ameriprise consistent capital return drives long-term shareholder value. Now let’s finish with Slide 10. Ameriprise delivered excellent growth in the second quarter which is a continuation of our long track record across market cycles and our commitment to profitable growth. Over the last 12 months, revenues grew 10%, earnings per share increased 15% and ROE grew 90 basis points, excluding unlocking, and we returned $2.6 billion of capital to shareholders.

We had similar growth trends over the past 5 years with $0.07 revenue growth, 16% EPS compounded annual growth, return on equity improvement nearly 13 percentage points, and we returned $11.9 billion of capital to shareholders. These trends are consistent over the longer term as well. Compared to most financial services companies, this differentiated performance across multiple cycles speaks to the complementary nature of our business mix as well as our focus on profitable growth. With that, we’ll take your questions.

Q&A Session

Operator: [Operator Instructions]. Suneet Kamath from Jefferies is online with your first question.

Suneet Kamath: I wanted to start with the cash sweep commentary, Walter. So it doesn’t sound like you’re planning on making any big changes, but I know in the past, you’ve said that’s always subject to the competitive environment. Obviously, we’ve seen a handful of companies take some actions on their cash sweep rate. So I guess the question is I’m trying to reconcile those 2. Is it that the moves that those peers are making are sort of catching up to you? Or is your sort of client account size different that you’re just not experiencing the same need to make those changes?

Walter Berman: Okay. And I guess let me start — as you know, we operate within regulatory and fiduciary standards. I — and therefore, we feel certainly looking at sweep in its transactional aspect of cash and motion, it’s totally appropriate and aligned. I can’t really comment on what is — what’s taking place with the wirehouses. I don’t understand it. I really — I think we — all I know is what we do from that standpoint and all the actions we have taken to ensure that the money is in sweep is really for transactional purposes, and it’s at the levels you know that we — the majority of it is in under 100,000 — account balances are under $6,000. Our rates are competitive, and we keep the appropriate level of cash that we think is necessary to operate. So that is the focus of us, and we feel very comfortable with that. And obviously, we’ll evaluate things as it goes, but we — looking at what we have today, we think it’s totally appropriate.

Suneet Kamath: Got it. Okay. And then just another one on the bank. So I think maybe at the fourth quarter call, Walter, you said you expected bank NII would be higher in ’24 than ’23, which seems to be the case year-to-date. But then you also made a comment about ’25. Just wondering if you think that you could continue to see bank NII growth as we move into ’25 over ’24, and maybe unpack some of the underlying drivers.

Walter Berman: As I remember what I said, clearly, ’24 over ’23, but I still believe it was slow, but yes, but the net interest income should be higher. That statement I think it’s still valid.

Suneet Kamath: And the drivers there.

Walter Berman: Well, the driver is, obviously, we’re investing over 6%. And so we feel that as maturities and our short duration, that it will give us that momentum. And we are adding, but we’ll obviously be measured, but we’re adding.

Operator: Ryan Krueger with KBW is on with your next question.

Ryan Krueger: First one was just, can you disclose how much of your client cash is specifically held in your wrap advisory accounts?

Walter Berman: It’s about $12 billion.

Ryan Krueger: Got it. Okay. Great. And then I guess another question was just on recruiting. Your experience recruits have slowed down a bit year-to-date. Can you comment on what you’re seeing from a competitive environment for hiring experienced advisors? And just kind of any thoughts on why the slowdown, and your expectations for the rest of the year.

Jim Cracchiolo: Yes. We sort of, again, a bit of a slowdown as into the second quarter. We can’t tell you exactly why it looks like people would stay in put a little bit based on markets, et cetera, and moving into the — I guess, into the seasonal. We see a good pickup in our pipeline again. And so we think that will improve as we go forward. But other than that, speaking to the team, that’s really what they saw. .

Operator: Alex Blostein from Goldman Sachs.

Alexander Blostein: So I wanted to go back to your comments regarding clients starting to put capital to work and money to work. In wrap. we saw those net flows pick up a little bit. Can you talk a little bit about where the cash is coming from? Is it ultimately coming out of the kind of $40 billion, $41 billion balance that currently sits in sweep and your certificates business or is this coming out from other sources kind of like money market funds that sit off balance sheet or outside of the sweep program? And maybe just remind us how much cash ultimately still on the sidelines outside of that $40 billion, $41 billion number.

Walter Berman: So the — if I understand, Alex, your question about — I think our total cash is about $80 billion to $81 billion. And so therefore, in money markets and in third-party CDs is about $40-some-odd billion. And we are seeing that certainly money is still coming into, I would say — money markets, they’re probably — money markets and — but it’s and slowed a little on the CD side. And so from that standpoint, there is — we are seeing less in CDs and there is a shift. People are staying shorter from that standpoint as they’re trying to take advantage of the yield curve. That’s the trend that we’re seeing about now.

Alexander Blostein: Got you. I guess what I’m trying to get to is clients rerisk and extend duration and put capital to work, which you capture those economics in your wrap program, which is great. But should we expect that to put any pressure on the $40 billion balance across sort of sweep in your certificates business? Or could that remain fairly stable as money comes out of other forms of kind of cash options?

Walter Berman: Good question. We do anticipate because, obviously, from an economic standpoint, that would be beneficial to us. We’ve had new money go in there. And yes, as it gets redeployed, that would be beneficial, and we think that was — certainly, will be a source of the repositioning.

Alexander Blostein: Okay. Got you. And then a quick follow-up. So G&A really well managed. I think if you look at this quarter, excluding severance, I think you’re at like $910 million or something like that for Q2. How should you sort of think about G&A evolving through the rest of the year? And I know you highlighted a number of some kind of savings programs that you continue to sort of find. So maybe any sort of early thoughts on your 2025 G&A outlook would be helpful.

Walter Berman: On ’25, I can say that we feel certainly we’re — the expenses are being well managed. And certainly, as we reposition and look at our process changes and other efficiencies that we’re getting there. So I think I feel confident as we said for ’24. ’25, we certainly will continue. We’re going to be investing in the business. So I would say you should see well-managed expenses, but we are going to be investing for growth. So I think it caught up the way you certainly have seen we’ve operated in prior years and certainly, especially in ’24, it’s — we manage our expenses in a portion to our revenue and manage our margin.

Operator: Brennan Hawken with UBS is online with your next question.

Brennan Hawken: Curious to drill down a little bit on the $12 billion of sweep within advisory accounts. So do you know what portion of that $12 billion would include Ameriprise as a fiduciary or investment advisor. So a little more specifically, what portion of that $12 billion would be in the employee channel and in any portfolios where Ameriprise with centrally managed or central models where Ameriprise is the advisor.

Jim Cracchiolo: A lot of our central models are really run by outside managers, institutional and oversight is there. So — and again, even in those type of models, it’s roughly around 2% or so. And even in our advisor discretion, it’s actually less than on the institutional models. So I would probably say as you look at it. Now we haven’t broken that out between employee, nonemployee, et cetera, because these models are all run in certain ways. But it is, as Walter said, a very low balance. It’s what 2% or so, and there is constant trading activities, fees being pulled, the foreign taxes being paid, things like that. So it’s not as though this — and a lot of the actual cash, if there’s any higher balance, whether institutional or otherwise, they are moved into money markets and other short-duration products as well.

So that’s how we look at it and manage it, and that has been appropriate. We disclosed that very clearly. And from a clients and a legal perspective, we feel very comfortable with what that is.

Brennan Hawken: Great. And then you spoke to increased engagement in your banking offering. And we’ve heard some firms, some competitor firms of yours note that we may be seeing the beginning of improvement in pledge loan growth. So curious whether you’re seeing that or perhaps even just early signs of that?

Jim Cracchiolo: Yes. So we saw nice increases in our pledge loan as we, again, go through the year. We will be launching another rate one, which we know has been popular out in the industry. So that will be coming on board over the next quarter or so. We’ve also seen some increase as we started to put some direct CDs and savings programs and for cash to come in externally from that from our clients. Again, we’re just starting that up. But no, we think that as we launch these other products in the bank, advisors are looking for them, and we feel like they will, over time, gone or built assets as well as we can then deal with some of the lending activities appropriate.

Brennan Hawken: Okay. But no specific pickup in the pledge run yet?

Jim Cracchiolo: Yes, we saw a nice pickup. I don’t have it in front of me. Do you — we can get it for you, but we saw a nice pickup in the quarter.

Operator: Steven Chubak with Wolfe Research is online with your next question.

Steven Chubak: Wanted to ask about the competitive landscape and just net new asset trends more broadly, Rep flows, as you noted, were quite strong in the quarter, certainly an encouraging sign, but consolidated flows were a bit weaker I know on the last quarter’s call, you alluded to some irrational actors, just more aggressive pay packages, potentially impacting the pace of organic growth just hoping we can get some sort of mark-to-market any update in terms of what you’re seeing on the outlook for moment.

Walter Berman: So certainly, as you indicated, wrap was quite strong on the client, they were — we saw both in certificates and annuities, some lapsing and that impacted it. And our — we look at our growth rates, and we certainly feel that they’re aligned with the industry. So from that standpoint, we are getting traction, we feel comfortable with it. And so we see that trajectory. Basically, we feel comfortable.

Jim Cracchiolo: Yes. I mean we looked at — there was a little bit of a slowing, to your point, in the second quarter overall. And we did look and say, okay, is there any in particular. Outside of the usual activities, people just didn’t add as much advisors, I guess, with the market and everything. And very clearly, it looked the same way as we looked at some of the — across the industry. So it wasn’t like we’re an outlier.

Steven Chubak: That’s helpful. And then just for my follow-up on the Asset Management margin, despite the pressure on fees, the operating margins continue to run above target. So certainly encouraging to see I was hoping you could speak to the margin outlook over the next few quarters, whether you believe you can sustainably run above the longer-term target of 31% to 35%, barring any negative or exogenous market shocks.

Jim Cracchiolo: Well, as you saw, we’re maintaining a consistent stable fee levels. Yes, we had some additional outflows with a very low fee basis. And we are adjusting our model and expense base, leveraging the technology, leveraging our global resources, et cetera, that we continue to do that helps to offset any pressure that we received from a flow basis. Again, barring changes in market conditions, we think that we can maintain sort of a good margin for the business based on what we’re doing. We are investing. So we’re not cutting from areas that we want to grow in. As I mentioned, we gained flows, even though it’s not in the numbers we discussed to you with models, so more money has gone in there. We’re starting to gain traction as well in SMAs, which we think will be good and as well in ETFs. And we will be looking as we even pursue some active ETFs as we go forward.

So there are things that we are doing. At the same time, we are trying to free up expenses and resources based on the investments we’ve made and use our resources globally to get more efficiencies.

Operator: Wilma Burdis from Raymond James is online with your next question.

Wilma Burdis: I know you talked a little bit about the margin, but do you think there’s a lot more we on expenses in the segment in Asset Management?

Jim Cracchiolo: So yes, we feel like — as we continue, as you saw, there was additional severance we took in the second quarter. Part of that was in the Asset Management business. And there are continued changes that we’re looking to make and improving and tightening the way we operate with our processes and efficiencies and freeing up resources and things that aren’t generating the value that we need. And so we are actually pursuing those things as well, and there will be some further adjustments as we move forward.

Wilma Burdis: I know you guys don’t get asked too much about the insurance business anymore, but the margins seem pretty good there. It seems like you grew a little bit in the quarter. Is that more interesting to grow at this time? Or how are you guys thinking about that?

Jim Cracchiolo: Yes. So there’s good growth in the insurance and annuities, the structured instrument and the VUL products, which are both very good products for us. And actually, the reason there wasn’t more earnings for one is because when you first book that you got the distribution expense upfront that you’re — is the cost. So over time, that increase in volumes will also add to the earnings mix. We also got very good rates now as we reinvested on the investment side and the spreads there. So I think the business will be a good, strong, consistent contributor and a lot of that is free cash flow that we utilize for buyback. So we feel very good. And you also saw in the quarter, again, even in the LTC business that we had nice earnings there as we continue to make adjustments, take rate invest appropriately and invest out. So we’re feeling very good about how that will add to the total of the company.

Operator: Thomas Gallagher from Evercore ISI is online with your next question.

Thomas Gallagher: Walter, just to come back, just a quick 1 on the cash sweep. Based on your answer to Suneet’s question, it sounds like you aren’t very focused on what the big peers are doing competitively on cash sweep crediting rates. Now to me, that just implies you probably don’t really see it as a big issue for Ameriprise, either competitively, regulatory litigation-wise. Is that a fair conclusion? Or maybe you can expand a little more on that?

Walter Berman: Okay. So the question is I don’t understand what the drivers are. We certainly understand their rates, and it is part of an evaluation that we go through. So that was all you should read into what I was saying. Certainly, we evaluated a competitive element as we look at it. But it is — I just can’t comment on some of the drivers or the elements that are creating what [indiscernible] changes for.

Jim Cracchiolo: Yes. And Tom, as we look at it, again, we have very low balance of very low percentage and particularly in the wrap that is there. We do see the money through transactions and fees. You don’t want to go where you don’t have it or selling a security. At the same time, you’re pulling on some of these things or clearing. So we look at institutional accounts, it’s the same thing. So we’re not exactly sure what the change is from the wirehouse, et cetera. But again, until we know anything different, we feel very comfortable. And from a competitive frame, the same way. I mean, this is not money. We have a lot of different places where our advisors move money to and same thing with models. And the money, if it is positional is in those other type of earning assets rather than we keep it in sweep.

Walter Berman: Yes. And 1 proof point, again, which really — we’re under $6,000. And if you look at the industry, there between $10,000 and $15,000. So it plays — we have just less levels there because it strictly used the cash [indiscernible].

Thomas Gallagher: And you don’t see any issues with the new VUL fiduciary standards related to this, nothing on that front that you’re focused on? And then just for a follow-up on the RPS segment. I guess 1 thing that strikes me is your NII has been up a lot, particularly year-over-year in that segment. Even quarter-over-quarter, it’s up a lot. The — and Jim, I heard your point about distribution expenses, and that is true. I mean you could see the numbers, those are higher based on better sales. But if you would have told me a year ago that your NII would be up as much as it would, I would have thought the run rate would be a lot higher in that segment right now. So I guess my question is, what is going on with the other kind of components of your P&L in that business?

Are you seeing higher mortality or disability claims? Is it the annuity earnings that have been a drag? Maybe just a little bit of perspective on kind of what’s really driving the ship here because it — for the strength in NII, it’s a little surprising that we’re not seeing more hitting the bottom line.

Walter Berman: Well, there’s nothing that really out. As you look at it, our disability claims are quite good and actually — and our insurance claims are within expectations. So there is no end point. So I have to guess we are performing where we thought we would. Let me take that away and to see where you’re driving up because I just don’t see it at this stage. It’s a fair point. So let me take a look at it and see what you’re going, and we can get back Okay. How is that?

Thomas Gallagher: That would be great.

Operator: John Barnidge from Piper Sandler is online with your next question.

John Barnidge: You called out the election in your comments. Can you talk about how you’re expecting that to impact operations and planning for such can imagine it can impact some asset management product demand, but do you think it has an impact on advisor recruitment or how you think about marketing expense?

Jim Cracchiolo: No. Well, I think it’s more from a client perspective, right? So clients want to understand a bit better. What does it mean based on who gets in, what policies, how it would affect investments? I think you can hear that even from market funds and speaking in the airwaves. So again, that’s always the top of mind triggered by those types of things that they hear. So we provide market strategies. We look at what the implications of changes in policy may be or what type of investment is appropriate, and so that’s more of where it is. Now how does that work with advisers. It depends on how clients are. They feel like more comfortable, then they’ll put more money to work. And the same thing with the advisor. If they feel a little bit that there will be a change or implications, the hold.

I don’t — at this point, I don’t see fundamentally anything driving it in a major way. But as you get closer to the election and there’s more conversations, I think — and that’s what we usually see before an election. I don’t think it fundamentally changes it. But you do see, based on who gets in and whether policy changes, whether there are impacts as far as what people invest what they rotate out of.

John Barnidge: My follow-up question. Can you talk about some examples of leveraging the global operational efficiencies for the Asset Management business in the way maybe you were not previously doing so?

Jim Cracchiolo: Yes. So when I talk, we’ve spent a lot of time in energy as an example of integrating the BMO acquisition with Threadneedle, but also putting them on global platforms. that we have. Our global trading platform are ensuring that we have the right attribution across, how we’re leveraging research, all those various things. And with that, we feel like we can now move the people and the processes who operate more consistently, get more efficiencies, where we locate the resources, whether we have them in the U.S., we have some in Europe, we have in India, et cetera. So we look at that as well to drive efficiencies. And then with that, we really want to ensure that we are leveraging the technology more fully. And so those are the things that we’re doing as we look across sometimes because of the overlaps, like we had a lot of overlaps because of the BMO acquisition with what we had in place.

We couldn’t really do that until the technology until the legal entities until all of the human resources were dealt with appropriately. And so now there’s another opportunity for us to further streamline that and get some further efficiencies from that. Is that helpful to you?

Operator: Michael Cyprys from Morgan Stanley is online with your next question.

Michael Cyprys: Just wanted to circle back to the cash fee commentary. Just hoping you could clarify for us how and to what extent are advisors compensated on cash sweep balances, and more broadly there, just given some of the industry movements and understand your commentary and views there, but just curious more broadly how you see the scope over time for the way customers pay for services to evolve and potentially over time move away from sweep and that draconian scenario over time plays out where economics and things shift. Just curious how you might be able to continue to capture economics? What are other ways that customers could pay for services?

Jim Cracchiolo: Well, again, as I said, wherever you are, you have transactional activity that you want to settle and you want to — you have to do that timely, right? But you don’t want to put people on margin, you don’t want to through [indiscernible] out of other securities at the wrong time. So there’s always a certain low level of cash. Now what we really do is monitor and if cash is in any account at a larger level, that we really look for it to be moved. And so as you saw, as people move out of some fixed income instruments or where [indiscernible] putting further into the market, they did invest in a lot of cash instruments, money markets, CDs, various other short-term duration fixed. And so we saw that occurring in the reality of it.

And actually, the sweep actually went lower rather than increase. And so that’s the same thing in all of the wrap and institutional. Now within that, if there is more money sitting in that count, we don’t want that cash to be a high balance even if it’s invested out because that’s not the purpose of the wrap account. But in so doing, if there is positional cash and they’re in earning instruments, then the advisors do get paid, et cetera. But again, that’s something that’s monitored and we feel very comfortable with it. So as far as the future is concerned, there’s always adjustments that will occur in pricing and what you would have to do to offset some of the cost of your services that we will constantly look at. But if you’re asking in the near term, we feel very good about where that is right now.

We’re not exactly sure what some of the changes that some people are bringing in about for what reasons. So I’m not sure that was as clear as it maybe to you, but it wasn’t to us.

Michael Cyprys: Great. And then just a follow-up question on the Asset Management business. I was hoping you could elaborate a bit on some of the wins you referenced in the APAC region. And maybe you can elaborate on that and remind us of your footprint in APAC, and where you see some of the best opportunities there as you look out over the next couple of years just in terms of countries there and strategies.

Jim Cracchiolo: Yes. So we mainly — we have a small wholesaling, working with private banks, et cetera, in the region, but a lot of it is more institutional basis. And it’s again, as you would imagine, some of the core products we have, both in Europe, in equities as an example, or in the U.S. and maybe even things like our fixed income, investment-grade various things like that. So we’ve been gaining some traction there. Same thing, a bit more that we’re seeing as potential opportunities in our real estate. So those are the things that we have underway. We recently expanded a little bit in Japan. We’re in Korea and places like that, Singapore, Australia. So there are different places where we are getting it mainly from larger institutions from some pension funds, some sovereign wealth, things like that.

Operator: We have no further questions at this time. This concludes today’s conference. Thank you for participating. You may now disconnect.