Ameriprise Financial (AMP) Q1 2023: Wealth Management Earnings Jump 58% as Deposit Shifts Drive Margin Highs

April 25, 2023 | By EarningsIQ Research

Ameriprise’s record wealth management margin and robust client inflows offset asset management outflows and market headwinds. The firm’s strategic pivot to bank deposit products and disciplined expense control underpin its resilient earnings power, while new institutional partnerships and advisor recruitment signal further growth capacity. Investors should watch Ameriprise’s ability to sustain elevated margins as deposit mix and market conditions evolve.

Summary

• Deposit Migration: Shifting client cash to bank products boosted profitability and margin resilience.
• Advisor Productivity: Technology and recruiting initiatives delivered higher per-advisor revenue and client engagement.
• Margin Sustainability: Wealth management margin reached a new high, but future stability depends on deposit and rate dynamics.

Business Overview

Ameriprise Financial (AMP) is a diversified financial services firm with three major segments: Wealth Management (advice, brokerage, and banking for clients and advisors), Asset Management (investment products and solutions, including Columbia Threadneedle), and Retirement & Protection Solutions (annuities, life, and disability insurance). The company generates revenue through advisory fees, net interest income, asset management fees, and insurance premiums, with wealth management now representing two-thirds of firm earnings.

Performance Analysis

Ameriprise delivered strong earnings growth despite persistent market volatility and industry-wide asset management outflows. Wealth management was the clear engine, with earnings surging and margin reaching a new record, driven by higher net interest income as client cash migrated from sweep accounts to bank and certificate products. The bank’s deposit base grew to $20 billion, and new savings and CD offerings are expected to capture additional client cash, supporting future spread revenue.

Asset management remained pressured by equity and fixed income market declines and negative foreign exchange, leading to lower assets under management and continued net outflows, particularly in U.S. retail. However, institutional flows were positive, especially in fixed income and real estate, partially offsetting retail redemptions. Retirement and protection solutions maintained steady profitability, aided by portfolio repositioning and higher investment yields, even as industry-wide sales slowed.

• Wealth Margin Expansion: Pre-tax operating margin in wealth management reached nearly 31%, up over 900 basis points YoY, reflecting the benefit of deposit migration and disciplined expense control.
• Client Inflows Resilience: Net client flows in wealth management hit $12.3 billion, up 18%, supporting organic growth despite choppy markets.
• Asset Management Pressure: AUM fell 13% YoY to $608 billion, with outflows concentrated in higher-fee retail products, while institutional inflows and expense management provided some offset.

Ameriprise’s diversified model, prudent capital return (80% payout), and stable cash balances position the firm to navigate ongoing market uncertainty.

Executive Commentary

Strategic Positioning

1. Deposit Migration and Spread Revenue

AMP’s strategic focus on shifting client cash from sweep accounts to bank deposits and certificates is unlocking higher net interest income (NII), as the bank can reinvest at attractive yields (6% new money yield in Q1). This lever is driving margin expansion and provides resilience against fee compression in other segments.

2. Advisor Productivity and Technology Enablement

The firm continues to invest in advisor-facing technology (eMeeting, digital tools) and selective recruiting, resulting in higher average revenue per advisor and strong client engagement (4.9/5 satisfaction). The addition of 83 experienced advisors with above-average AUM per recruit underscores the quality-over-quantity approach.

3. Institutional Partnerships and Channel Growth

The Comerica Bank partnership brings 100 advisors and $18 billion in assets, expanding AMP’s footprint in the financial institutions channel. Management sees a robust pipeline for similar deals, which can accelerate AUM growth and diversify revenue streams.

4. Asset Management Efficiency Amid Headwinds

Despite AUM and fee pressure, AMP is tightly managing expenses in asset management, with G&A down 11% and margins rebounding to 31%. The EMEA integration and synergy realization are on track, with incremental benefits expected as technology and back-office consolidation progress.

5. Retirement & Protection: Risk Profile and Product Shift

AMP is de-risking its insurance book, focusing on lower-risk, asset accumulation products (structured annuities, VUL) and discontinuing higher-risk variable annuities with living benefits. This shift aligns with client needs and supports stable earnings and free cash flow.

Key Considerations

This quarter, Ameriprise’s performance underscores the importance of deposit mix management, advisor productivity, and disciplined capital allocation in driving earnings durability through market cycles.

Key Considerations:

• Deposit Beta and Margin Sensitivity: Sustained margin gains depend on AMP’s ability to manage deposit costs as clients seek higher yields and competitive alternatives.
• Organic Growth Momentum: Robust net inflows and advisor recruiting underpin organic growth, but future momentum will hinge on market recovery and continued advisor productivity gains.
• Asset Management Fee Compression: Retail outflows and lower fee rates remain a drag, with stabilization in institutional and EMEA flows offering partial relief.
• Capital Return Flexibility: With payout at 80%, AMP retains balance sheet capacity for opportunistic buybacks, but bank growth may require ongoing capital support.
• Integration Execution: Realizing targeted synergies from EMEA and BMO integrations is critical to maintaining asset management profitability as revenue pressures persist.

Risks

AMP faces risks from rising deposit competition, potential for lower net interest spreads if rates fall, and persistent asset management outflows, especially in higher-fee retail channels. Market volatility, regulatory changes, and integration delays in EMEA could further pressure margins or slow growth. Management’s ability to sustain current margin levels will be tested if client cash migrates to higher-cost or external alternatives.

Forward Outlook

For Q2 2023, Ameriprise expects:

• Continued strong net interest income as deposit migration to the bank persists
• Stable to higher wealth management margins, contingent on deposit mix and market conditions

For full-year 2023, management maintained guidance:

• Retirement & Protection Solutions run-rate of $800 million in pre-tax earnings

Management highlighted several factors that will shape results:

• Additional bank deposit growth and product launches (brokered CDs, high-yield savings) to capture more client cash
• Ongoing focus on expense discipline and incremental synergy realization in asset management

Takeaways

Ameriprise’s Q1 results highlight the power of a diversified business model and agile capital deployment in volatile markets.

• Deposit Strategy Drives Margin: Bank deposit growth and product innovation are the core levers for margin expansion and earnings resilience.
• Advisor and Institutional Channel Growth: High-quality advisor recruitment and institutional partnerships (Comerica) support organic asset growth and revenue diversity.
• Asset Management Stabilization Needed: Retail outflows and fee pressure remain a watchpoint; execution on integration and expense control is key to restoring growth.

Conclusion

Ameriprise’s ability to capture client cash and redeploy at attractive yields is powering record wealth management profitability, even as asset management lags. The firm’s focus on advisor productivity, disciplined expense management, and new institutional partnerships support its long-term growth thesis, but margin durability will depend on successfully navigating evolving rate and client behavior dynamics.

Industry Read-Through

AMP’s results spotlight a sector-wide pivot toward maximizing bank deposit profitability as a counterweight to asset management fee compression and market-driven headwinds. The firm’s experience suggests that diversified financials with integrated banking and advisory platforms are best positioned to capture spread revenue and sustain margins in a rising rate environment. For peers, the playbook of deposit product innovation, advisor enablement, and disciplined capital return is increasingly central to competitive positioning. Asset managers without banking arms may face greater pressure to offset outflows and fee declines, while those able to integrate advice, banking, and asset management will likely see more resilient earnings through cycles.

AMP Financials Wealth Management Asset Management Banking Advisor Productivity Deposit Strategy Margin Expansion