Ameriprise is readying itself for the Labor Department's forthcoming fiduciary rule, CEO Jim Cracchiolo says.
"We expect to have to make some adjustments in the commission-based business," Cracchiolo said during an earnings call. He also fielded analysts' questions about the firm's weak fourth quarter results and how market volatility and regulatory changes could affect future earnings.
During recent earnings calls industrywide analysts have been asking CEOs about the rule's potential impact. Those questions have picked up pace as the Labor Department is moving to get the proposal in place before President Obama's term draws to a close.
Today, it was Ameriprise's turn as analysts peppered Cracchiolo with questions about how his firm would respond to potential restrictions.
"There are a number of things that are going to be affected. But they also said that some business will be allowed under a best interest standard. Depending on what they finalize there, that will determine whether a lot of the business that you are doing today can still be done," he said.
Cracchiolo added that "If the final rule says you can't do certain business or at certain rates, well, then there will have to be adjustments on the part of the advisor and on the part of the firm."
"If they are truly giving you the ability to do commission business, then we can work with that," Cracchiolo said. "If they say, no, we want to move away from that towards fee-based business, well, that is something else that we can work with."
Cracchiolo said that he is less concerned about impacts on selling certain products, such as REITs, because his advisors have pulled back from that business already. But the rule, which will affect advisors and firms providing certain kinds of retirement advice to clients, such as IRA rollovers, could make it too cumbersome to serve smaller clients or provide certain kinds of services, critics have charged.
VOLATILE TIMES, STAGNANT PROFITS
The fiduciary rule may land just as recent market volatility has dampened profits at wealth management firms.
Profits for Ameriprise's wealth management unit slipped 1%, dropping to $210 million for the quarter from $212 million for the year-ago period, the firm reported on Wednesday.
Expenses grew slightly faster than revenue due to market volatility and an advertising campaign to promote Ameriprise's brand, executive said. Costs rose 2% to reach $1.06 billion, while revenues grew only 1% to reach $1.27 billion.
Ameriprise's rivals have also recently reported falling profits. Net income for Bank of America's wealth management unit, which includes Merrill Lynch and U.S. Trust, dropped about 13% year-over-year to $614 million. Meanwhile, Raymond James profits fell 17%, leading CEO Paul Reilly to call his firm's results "disappointing."
At Ameriprise, the wealth management unit's pretax margin also fell to 16.6% from 17.6% for the prior quarter and 17% for the year-ago period.
Analysts asked Cracchiolo if continued market volatility combined with the DOL's fiduciary rule would prevent Ameriprise from pushing margins back up. Cracchiolo said the firm could, and noted that volatile markets reinforce the value of the professional advice that the firm's advisors give. But he acknowledged that headwinds may persist.
"If the markets are off, then it is going to impact our business because we run a fee-based business. We can of course adjust expenses, but only going out. You can't change what you spent today," he said.
The firm's wrap account assets increased 3% year-over-year, rising to $180 billion from $174 billion for the year-ago period. However, net flows slowed, dropping to $2 billion from $2.9 billion for the prior quarter.
Ameriprise's advior ranks thinned slightly, dropping to 9,789 independent and employee advisors from 9,814 for the prior quarter.
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