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Ameriprise prioritizing CRM and bank rollout — not race to zero

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Ameriprise’s broker-dealer is spending more to make more.

The Minneapolis-based firm is switching its wealth customer relationship management system to Salesforce by the end of 2019, combining its advisory strategies into a single technology platform and ramping up its new bank, CEO Jim Cracchiolo said after Ameriprise reported its third-quarter earnings.

On a call with analysts who cited the elimination of commissions by several discount brokerages, Cracchiolo noted that Ameriprise’s nearly 10,000 financial advisors already make zero-fee transactions. The firm also focuses on “holistic advice rather than a free trade,” he said.

Expenses in the wealth management unit rose 6% year-over-year to $1.29 billion, which the firm attributes to growth investments and advisor compensation from increased client activity. Its operating margin of 23.5% still came in nearly 1 percentage point above the year-ago period.

“Our wealth management business continues to stand out,” Cracchiolo said in prepared remarks. “We’re innovating to serve more of our advisors’ and clients’ needs and strengthening our position further.”

The advice and wealth management segment’s total client assets expanded by 4% year-over-year to a record $612 billion. Productivity — as measured in terms of adjusted operating net revenue per advisor over a year — increased 5% from the year-ago period to $650,000.

Financial advisor headcount remained nearly flat year-over-year, although Cracchiolo pointed out that Ameriprise recruited 96 “top-performing, experienced advisors” during the quarter. Sequentially, the firm lost a net 20 employee advisors and 1 franchise advisor, bringing total headcount down to 9,930.

“We do very well in recruiting out in the industry,” Cracchiolo said. “You’re always going to have some advisors leave for whatever reason and people want to pay up a little more. That’s always the nature of the exercise.”

While advisory wrap assets climbed by 9% year-over-year to $298 billion and 49% of the total wealth management client holdings, the advisory in-flow tumbled by 27% to $4.1 billion. The lower volume was due to seasonal factors and volatility in equities, Cracchiolo said.

One non-recurring cost — the Salesforce conversion — will serve as “an important enabler of the Ameriprise client experience,” according to Cracchiolo. The bank plans to launch a new credit card, mortgages and savings products by next year.

The company expects costs return to their historic level after “completing the initiatives for growth,” CFO Walter Berman said. He noted that the fourth quarter typically brings higher year-end expenses such as production bonuses for advisors.

Ameriprise has asset management and annuities and protection units, but around 80% of its adjusted operating net revenues came from the advice and wealth management segment. The unit — which includes 7,765 independent franchise advisors and 2,165 employee advisors — earned pretax adjusted operating income of $396 million on net revenue of $1.68 billion.

Cracchiolo pointed out that the so-called race to zero has been pushing down trading commission fees at discount and online brokerage firms for years. Such services are “a very minor activity for us, for our clients,” he said.

“We really have not seen any impact over the years,” Cracchiolo said. “We’re focused on what we do well — and you can see the investments that we continue to make.”

Pretax profit surged by 12% year-over-year, while the revenue figure represented an 8% increase over the year-ago period. The parent firm’s non-GAAP earnings per share of $4.24 surpassed analysts’ consensus by 15 cents for the quarter. By the early afternoon, the value of the company’s stock spiked by more than 3% to $148 per share in trading after the earnings call.

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