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)--Lionheart Wealth Management, an advisory practice managing nearly $200 million in client assets, joined the independent channel of Ameriprise Financial, Inc. (NYSE: AMP) from AXA Advisors in New York, New York. Financial advisor Anthony DeAngelo leads the team, which includes advisors Frank D'Erasmo and Samuel Dicocco, and executive assistant Aneta Szatkowski. The team found Ameriprise was the best fit to provide the digital experience they wanted for their clients

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) recently hosted its 4th annual Women Advisor Summit, gathering women advisors, field leaders and staff in recognition and celebration of their work on behalf of clients and to support their success through informative content and collaborative sessions. The two-day summit, held April 29-30, included engaging presentations from Ameriprise executives, compelling panel discussions featuring top women advisors, and insightful market and

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial (NYSE: AMP) today announced it has again received high marks in an annual customer satisfaction survey conducted by independent research and benchmarking firm Hearts & Wallets. Survey participants named Ameriprise a top performer in key categories, with clients saying the company is “unbiased,” puts their “interests first,” and offers investment ideas that are “knowledgeable, timely and tactical.”1 The 2021 “Wants & Pricing Report” is b

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MINNEAPOLIS--(BUSINESS WIRE)--Crosstown Financial Advisors, a wealth management practice managing $192 million in client assets, joined the independent channel of Ameriprise Financial, LLC (NYSE: AMP) from Waddell & Reed. The team, which operates two office locations in Sugar Grove, Illinois and Lisle, Illinois, includes financial advisors Christopher Forbes, CFP®, Thomas Morrissy, CFP®, Kathleen Morrissy, CFP® and David Servatius. When the sale of Waddell & Reed was announced in late 2

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BOSTON--(BUSINESS WIRE)--Columbia Threadneedle Investments today announced its Return to Normal Index rose to 72% as of May 1, 2021, reflecting a meaningful rise from 58% at the beginning of the year. The index tracks and measures activity data in the U.S. including travel, return to work and school, brick-and-mortar shopping and eating out, relative to pre-pandemic levels. It is constructed by the firm's data scientists and fundamental research analysts to help augment investment decision maki

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MINNEAPOLIS--(BUSINESS WIRE)--UDB Financial, a wealth management practice located in Alexandria, Louisiana, recently celebrated two years with Ameriprise Financial, Inc. (NYSE: AMP) after leaving LPL Financial in 2019. Financial advisors Michael Upton, AAMS®, Jeff Draughon, AAMS®, and Joey Bollinger, MBA, AAMS® lead the team and believe the switch to Ameriprise's branch channel helped them capitalize on market performance and accelerated growth for their practice, while delivering an outstandin

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Ameriprise Financial, Inc. (AMP) CEO Jim Cracchiolo on Q1 2021 Results - Earnings Call Transcript

Solid top-line growth and improvement in AUM & AUA aid Ameriprise Financial's (AMP) Q1 results significantly, while mounting expenses play spoilsport to some extent.

Ameriprise Financial (AMP) Q1 Earnings Beat, Revenues Rise Y/Y

Shares of Ameriprise Financial (NYSE:AMP) increased 2% in after-market trading after the company reported Q1 results. Quarterly Results Earnings per share rose 0.37% over the past year to $5.43, which beat the estimate of $4.69.

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MINNEAPOLIS--(BUSINESS WIRE)--Ameriprise Financial, Inc. (NYSE: AMP): Earnings Per Diluted Share   Return on Equity, ex AOCI (1)   Q1 2021     Q1 2021 GAAP $3.58   GAAP (1.1)% Adjusted Operating $5.43   Adjusted Operating 29.9% Ameriprise increased its quarterly dividend 9 percent to $1.13 per share First quarter adjusted operating earnings per diluted share was $5.43. The prior year period included a tax benefit from a projected net operating loss (NOL) of $1.12 per diluted share. Excluding th

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Ameriprise Financial to purchase BMO's EMEA asset management business Transaction supports BMO's goals to optimize efficiency and to focus capital and investment in areas where it has an advantaged market position, including its North American Wealth Management business BMO Wealth Management to enter into strategic relationship with Columbia Threadneedle Investments, the global asset management business of Ameriprise, giving its North American Wealth clients opportunities to access a wide range of Columbia Threadneedle's leading investment management solutions BMO Capital Markets maintains active international presence TORONTO, April 12, 2021 /PRNewswire/ - BMO Financial Group (TSX: BMO) (NYSE: BMO) announced today that it has reached a definitive agreement with Ameriprise Financial, Inc. (NYSE: AMP) to sell the entities that represent its EMEA Asset Management business. Under terms of the agreement, Ameriprise Financial will purchase BMO's EMEA asset management business for £615 million or approximately CAD $1,089 million, in an all-cash transaction, subject to regulatory approvals, and other customary closing conditions.

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