Ameriprise: Increasing Our Fair Value Estimate to $379 from $358, Shares Moderately Undervalued

Sector Director

Michael Wong

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An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

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Ameriprise Financial has transformed itself into an investment management powerhouse, with about $1.3 trillion in total assets under management and advisement and around 10,000 financial advisors at the end of the second quarter of 2023. The firm continues to shift away from insurance and to place more emphasis on asset and wealth management operations. In 2019, the company closed the sale of its auto and home insurance business, and in 2020 it discontinued the sale of its proprietary fixed annuities. Columbia Threadneedle Investments, the firm's global asset-management business, turned Ameriprise into a contender in the global asset management industry. Recently about 80% of revenue comes from the company's wealth and asset management segments that should help the company generate operating margins consistently in the low- to mid-20s compared with midteens to low-20s historically.

We expect Ameriprise to weather potential economic turmoil relatively well. Many life insurance companies significantly "derisked" after the global financial crisis and became more conservative with their guaranteed benefit contracts. At the end of 2022, Ameriprise had several billion dollars of capital above regulatory requirements, about 98% of the fixed income securities on its balance sheet were investment-grade with about 75% rated AA or higher, and an estimated 100% of the deposits in its bank subsidiary were within FDIC limits.

In addition to returning most of its operating earnings to shareholders with dividends and share repurchases, the company is funding incremental growth investments. Ameriprise recently increased its presence in investment management with the acquisition of Bank of Montreal's EMEA asset management business in 2021, which increased assets under management by roughly 20%. Ameriprise is also using its capital to support the growth of its bank. Wealth management firms have been able to increase their profits by housing client cash as deposits in their banks and offering loan products, such as securities-based loans.

Business Strategy & Outlook

Wealth management moats are a result of switching costs with some contribution from intangible assets. A typical client stays with their financial advisor for 10 years or more. Wealth management is about trust, and clients are often attracted to the trusted brand of a financial institution and form attachments with their financial advisor. While there may be financial advisors that choose to go to another wealth management firm or start their own independent practice, many financial advisors choose to stay with their current firm, as there are operational difficulties with setting up or learning a new wealth management technology system and significant uncertainties regarding how many of their clients would move with them if they switch firms. Industry data from Cerulli estimates that the average client assets attrition rate is around 30% when an advisor switches.

We believe Ameriprise has built a moat surrounding its asset-management and wealth management businesses. Although the switching costs might not be explicitly large, the benefits of switching from one asset manager or wealth manager to another are at times so uncertain that many clients simply stay where they are. As a result, money that flows into asset and wealth management firms tends to stay there, creating significant asset stickiness.

In our view, Ameriprise has a Morningstar Economic Moat Rating of narrow around its asset-management and wealth management operations. With one of the largest agent channels in the industry, there is no question that Ameriprise has scale. Since its 2005 spinoff from American Express, Ameriprise has gradually moved up the value chain to provide customized services and financial planning solutions to the mass affluent and affluent client groups. Ameriprise’s focus on personal relationships helps the firm build on its switching-cost advantage. The company's retention rate for advisors is over 90%, and the industry retention rate for financial advisors of their retail clients is also around 90%. By positioning itself as a one-stop shop for baby boomers, offering advice in financial planning, fund investment, and insurance purchase, the firm makes it that much harder for boomers to switch to another provider. The size and scale of its operations, the strength of its brands, and the diversity of its AUM by asset class, distribution channel, and geographic reach also provide Ameriprise with a leg up over competitors.

In general, insurers do not benefit from favorable competitive positions. They are in the business of selling commodified insurance products to consumers who attribute very little value to brand. Industry competition is fierce, and there is a high degree of cost uncertainty. Because of the long duration attached to many of the products they sell, insurers do not necessarily know their cost of goods sold for a number of years, allowing them to underprice policies without knowing it. Firms have a large incentive to chase growth without regard for profitability, a cycle that repeats itself as competitors are forced to match artificially low prices or risk losing business.

From our perspective, insurance and annuities are very mature, and insurance products are mostly commodities that can be replicated by a competitor fairly easily. In fact, most companies lose money on underwriting, and they rely heavily on investment income to make up for underwriting losses. Since the typical life insurer is operationally leveraged to the state of the capital markets, over which the company has no direct control, we think it is difficult for most life insurance companies to generate consistent excess returns, a requirement for an economic moat.

Narrow

Economic Moat

Ameriprise Financial

Ameriprise Financial, Inc. operates as a holding company. The firm provides financial planning, asset management and insurance services to individuals, businesses and institutions. It operates through the following business segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. The Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage and banking services, primarily to retail clients through the company's financial advisors. The Asset Management segment provides investment advice and investment products to retail and institutional clients. It also provides products and services on a global scale through two complementary asset management businesses: Columbia Management and Threadneedle. The Columbia Management business primarily provides U.S. domestic products and services and Threadneedle primarily provides international investment products and services. Its international retail products are primarily provided through third-party financial institutions. The segments retail products include mutual funds and variable product funds underlying insurance and annuity separate accounts. The Retirement & Protection Solutions segment offers a variety of protection products to address the protection and risk management needs of the company's retail clients, including life, DI, and property-casualty insurance. The Corporate & Other segment consists of net investment income on corporate level assets, including excess capital held in the company's subsidiaries and other unallocated equity and other revenues from various investments as well as unallocated corporate expenses. The company was founded by John Tappan in 1894 and is headquartered in Minneapolis, MN.

Earnings data Q1 2024

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) today announced that North Island Credit Union, a division of California Credit Union, has moved its investment program to the Ameriprise Financial Institutions Group (AFIG). Serving more than 165,000 members with 25 branches, the credit union selected the Ameriprise Financial platform to enhance and expand its investment solutions offering for its members. With 11 financial advisors across Southern California, the investment progra

North Island Credit Union Partners with Ameriprise Financial to Expand and Enhance its Investment Solutions

MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) today announced that California Credit Union has moved its investment program to the Ameriprise Financial Institutions Group (AFIG). Serving more than 165,000 members with 25 branches across Southern California, California Credit Union selected the Ameriprise Financial platform to enhance and expand its investment solutions offering for its members. With 11 financial advisors located in San Diego and Los Angeles, the investment prog

California Credit Union Partners with Ameriprise Financial to Expand and Enhance its Investment Solutions

MINNEAPOLIS--(BUSINESS WIRE)--Financial advisor Kim Latimer, CFP® recently joined the branch channel of Ameriprise Financial (NYSE: AMP) from Merrill Lynch in Houston, Texas with $211 million in client assets. Latimer was attracted to Ameriprise's commitment to supporting women, and the depth of the resources the firm provides to serve her clients well. Ameriprise branch manager Britt Kornmann supports the team. Latimer started considering a move two years ago. She interviewed nine different fi

Ameriprise's Commitment to Supporting Women Attracts Advisor with Over $200 Million in Client Assets

Ameriprise Financial, Inc. (AMP) CEO James Cracchiolo on Q2 2021 Results - Earnings Call Transcript

Ameriprise (AMP) delivered earnings and revenue surprises of 0.76% and 0.30%, respectively, for the quarter ended June 2021. Do the numbers hold clues to what lies ahead for the stock?

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial, Inc. (NYSE: AMP):   Earnings Per Diluted Share   Return on Equity, ex AOCI (1)   Q2 2021 Q2 2021 GAAP $4.88   GAAP 19.5% Adjusted Operating $5.27   Adjusted Operating 37.5%   Second quarter adjusted operating earnings per diluted share was $5.27. Adjusted operating EPS increased 39 percent from the prior year excluding a negative prior year period tax impact of $1.14 per diluted share, reflecting strong business growth.   Perspective from Jim

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Improved advisor productivity is expected to have supported Ameriprise's (AMP) asset growth to some extent in the second quarter of 2021.

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BOSTON--(BUSINESS WIRE)--Columbia Threadneedle Investments today announced that, as part of a planned transition, Melda Mergen, Deputy Global Head of Equities, will succeed William Davies as Global Head of Equities on October 1, 2021. As previously announced, Mr. Davies will assume the role of Global Chief Investment Officer in January 2022 when current Global CIO Colin Moore retires from the firm. Ms. Mergen will continue to report to Mr. Davies when she assumes her new role. Ms. Mergen has ma

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) today announced it has been named a “Best Place to Work for Disability Inclusion” by the American Association of People with Disabilities and Disability:IN. The firm earned this distinction as a result of receiving a high score of 90 percent on the Disability Equality Index® (DEI), which is regarded as the most comprehensive benchmarking tool for disability inclusion in the workplace. “At Ameriprise, we embrace the unique contributi

Ameriprise Financial Named a “Best Place to Work” on the Disability Equality Index® for the Second Consecutive Year

MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial, Inc. (NYSE: AMP) plans to announce its second quarter financial results on Monday, July 26, 2021 after the close of the New York Stock Exchange. The company will host a conference call to discuss the results on Tuesday, July 27, 2021 at approximately 9:00 a.m. (ET). Live audio of the conference call, presentation slides and an audio replay will be available on the Ameriprise Financial Investor Relations website at ir.ameriprise.com. At Ameripr

Ameriprise Financial Announces Schedule for Second Quarter 2021 Investor Conference Call

MINNEAPOLIS--(BUSINESS WIRE)--Ryan Thompson, MBA, CFP®, a financial advisor managing $110 million in client assets, joined Ameriprise Financial from Morgan Stanley.

Advisor Joins Ameriprise for More Control to Build His Practice and Deliver Exceptional Client Service

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Let's see if Ameriprise Financial, Inc. (AMP) stock is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks.

Is Ameriprise (AMP) Stock a Suitable Pick for Value Investors?

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial, Inc. (NYSE: AMP) (“the company”) announced today that its insurance subsidiaries, RiverSource Life Insurance Company (“RiverSource Life”) and RiverSource Life Insurance Co. of New York (“RiverSource Life of New York” and together with RiverSource Life, “RiverSource”), have entered into an agreement with Global Atlantic Financial Group's subsidiaries Commonwealth Annuity and Life Insurance Company and First Allmerica Financial Life Insurance Co

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial today announced that seven of the firm's financial advisors were named to Barron's list of the “Top 100 Women Financial Advisors” in the country. Barron's magazine recognizes the industry's top women advisors based on several factors, which include levels of professionalism and success in the business. The rankings are based on data provided by more than 4,000 of the nation's most productive women advisors. “It's an honor to have these talented

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BOSTON--(BUSINESS WIRE)--Columbia Threadneedle Investments, a leading global asset manager, today announced that it will again sponsor Boston's only triathlon. Now in its 12th year, the Columbia Threadneedle Investments Boston Triathlon is a weekend-long event that will bring together athletes of all ages and abilities to compete in Olympic and sprint distance triathlons. Additional information on the race, including COVID-19 protocols, is available at BostonTri.com. Columbia Threadneedle Inves

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP), a pioneer and longstanding leader in financial planning, today announced it has won a Digital Wealth Management Impact Innovation Award for Digital Client Engagement from the Aite Group, a global research and advisory firm. Aite Group's annual award program honors wealth management firms that are advancing and leading the industry with innovative products, capabilities, or levels of automation. A panel of experts recognized Ameripr

Ameriprise Financial Earns 2021 Digital Wealth Management Impact Innovation Award for Digital Client Engagement from the Aite Group

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) today announced it has signed an agreement with Randolph-Brooks Federal Credit Union (RBFCU) to provide their members with financial planning services. RBFCU is expected to fully transition its investment program, RBFCU Investments Group, to the Ameriprise Financial Institutions (AFIG) platform from CUNA Mutual by the end of the year. Headquartered in Live Oak, Texas, RBFCU serves more than 950,000 members and has 61 branch location

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News for Ameriprise Financial Stock (AMP)