Ameriprise Financial, Inc.
Q3 2019 Earnings Call Transcript

Published: 24 Oct 2019

[Operator:]

Welcome to the Q3 2019 Earnings Call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note the conference is being recorded. And I will now turn the call over to Alicia Charity.

[Alicia Charity:]

Thank you, operator and good morning. Welcome to Ameriprise Financial's Third Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions.

[Jim Cracchiolo:]

Good morning and thank you for joining us. As you saw yesterday, Ameriprise delivered another strong quarter. We're executing well investing for growth and are well positioned to capture larger share of the need for advice and solutions. This morning, I'll give you my perspective on the operating environment. Then I'll highlight our results and the traction we're getting across the business. Turning to the markets. Volatility increased given slower global growth and uncertainty around trade policy, the Fed cut short-term rates again and long-term rates remain volatile. And U.S. and European equity markets have been mixed. So our average weighted equity index was relatively unchanged. Next, let's review our business results in the quarter. I'll start by reinforcing three key areas of focus. First, our Wealth Management business continues to stand out producing strong results quarter after quarter. In today's climate, our advice value proposition is more relevant than ever before, and we're innovating to serve more of our clients and advisors needs and strengthening our position further.

[Walter Berman:]

Thank you, Jim. Ameriprise achieved another solid quarter of financial results. Ameriprise's adjusted operating net revenue was up 3% to $3.3 billion with limited equity market appreciation of only 1% year-over-year and year-to-date. Revenue growth was driven by strong 8% revenue growth in Advice & Wealth Management from an increase in wrap assets and improved transactional activity.

[Operator:]

Thank you. We will now begin the question-and-answer session. And our first question is from Andrew Kligerman from Credit Suisse.

[Andrew Kligerman:]

Maybe just starting off on capital. So, you ended the quarter at $1.8 billion, on October 1st you received another roughly $700 million of capital freed up from the Auto and Home sale. So, basically $2.5 billion of re-deployable capital, do you think you might go above the 110% target in terms of repurchases in the fourth quarter, you did 120% this quarter, or do you see any attractive potential acquisitions out there that might be available and of interest, maybe you could give a little color on that?

[Jim Cracchiolo:]

Okay. Thank you, Andrew. As you saw, we did pick up a buyback in the third quarter and that was 120% of earnings. We actually picked up over 4 million shares because of the price volatility. We are continuing to think favorably, our stock values, we think, undervalued against any of those metrics we look at or a competitive frame. So we think there's good value there. And as you said, we do have the capital. So I think one of the things that we will definitely be focused on is returning at a good rate to shareholders over time. If we go to acquisitions, we feel like we got a pretty good hand now, and we think that in time there may be some opportunities that come along, but we're not in any rush to use the capital that way unless there is something that really fits nicely and that we can get a really good return appropriate to our strategy. So, that's the way we're playing it right now, and we think we're in a good position because we have a very solid balance sheet, we're hedged really well, we've got really good liquidity, a good cash flow and it's a good thing to have right now.

[Andrew Kligerman:]

And then maybe a little color on the Bank that you started up. I understand there were $8 million of expenses. Could you tell us what the incremental earnings were in the quarter, where you think they'll be in 2020? And maybe, is there a way to mitigate potential Fed fund rate cuts into that Promontory account that you have, the big sweep accounts that's the $24 billion. Can you move some of those assets out your bank and maybe mitigate any spread pressures that we might be anticipating?

[Walter Berman:]

Okay. Andrew, it's Walter. In the quarter as we -- we had about $3 million of incremental profitability. But now, if you looked at our basic stat supplement, you would see that it's in the certificate aligned with the bank, so certificate went down but that was about the profitability we had there. Going forward, we do anticipate the Bank's profitability will be increasing as we get into the full year, the rate environment is a bit challenging, but you're correct. By bringing it on to our balance sheet, we can certainly take up our spread on that as we go forward.

[Andrew Kligerman:]

And Walter there is an opportunity to move a significant portion of the $24 billion?

[Walter Berman:]

Well, yes. As we indicated previously, we will be moving portions of it and we will evaluate the trade-off of doing that, but there is clearly an opportunity to move that and profitably into the bank and use this spread capability. It's a tough environment, but we will certainly be able to do that.

[Jim Cracchiolo:]

And Andrew, as we've mentioned, we do have -- and the reason the profitability isn't there yet, but it will be growing nicely, is because of the ramp-up expenses that we bring on the resources, the platforms and do the launches of the various initiatives and products, et cetera. So that's well under way and very much appropriate to the plan we've put in place.

[Andrew Kligerman:]

Excellent, thanks.

[Operator:]

Our next question is from Erik Bass from Autonomous Research.

[Erik Bass:]

It's for Advice & Wealth Management. What is your expectation for G&A expense going forward given some of the investments you've talked about and the continued ramp of the bank? Are there any seasonal impacts we should factor in for the fourth quarter?

[Walter Berman:]

Sure, it's Walter. Yes, as you indicated, we are completing the initiatives of growth and certainly as we plan for the year and as you saw G&A declined sequentially. We do expect the expenses will come back to historic levels. But -- and seasonally in the fourth quarter, we do have higher expenses, but we do expect that in the season excluding that factor, it will return to that level.

[Erik Bass:]

And when you said that level, you mean the historic level of growth in G&A kind of on a year-over-year basis?

[Walter Berman:]

Yes, that's correct.

[Erik Bass:]

And the fourth quarter, I think there is maybe some comp expense, is there a way to think about what size that spend historically?

[Walter Berman:]

Not yet. But historically, I think last year I think it was about $10 million, but this year -- again, it changes, but that's the sort of seasonality, and we do have some year-end expenses of it in comp, but it's seasonally and it will be in that range.

[Erik Bass:]

And maybe a bigger picture question. Recently a number of brokers and wealth managers have announced some fee changes, including reducing or eliminating trading commissions, non bundling advisory fees from investment fees for our separately managed accounts. Do you see this having any impact on your business, either from revenue or competitive standpoint and more broadly, are you seeing any pressure on wrap. Is there any move to unbundle the Advice and Asset Management components for route?

[Jim Cracchiolo:]

At this point -- so first of all, what people have done is moved to zero fees in online trading, but if you recollect, it's gone from 20 to 16 to 11 to whatever it is, to 9 to 4 to 0, we really have not seen any impacts over the years ago. We're not really in the online trading, that's very minor activity for us, for our clients. From our perspective, some others have said they're reducing some trading transaction fees and advisory accounts. We don't have any transaction fees to our advisors or trading fees in our advisory accounts and even the more recent one I think UBS came out with something. We are unclear of what exactly it means so if we do have discretionary accounts, Columbia funds we don't charge a management fee for today, but SMEs are a small part of our activity as well. So we feel very good. As you heard in my opening remarks, we are very much focused on the value we provide against the holistic services we deliver rather than trading for stock or a transaction. That's not why clients come to us. It's not what we ask our advisors to do. So we feel very comfortable with that and the more that we can get our advisors to serve the clients more fully around the advice value, we feel like we can sustain a very good level of fee revenue and even though if fees adjust over time, we feel like the services we provide can really counteract that in a sense of what more we can do for clients. So, I feel good about what we're doing and where we're investing so that we can sustain the type of business model that we have, but we're not in the trading for no transaction fees or doing that to get people to just give us deposits to compete with the banking community. So we're focused on really what we do well, and I think that's why you can see the investments that we continue to make.

[Operator:]

Our next question is from Humphrey Lee from Dowling & Partners.

[Humphrey Lee:]

A question for Asset Management, like you've mentioned, the flows have been improving this quarter and then you called out in the press release that in North America, the retail flows were notably better. I believe your fixed income products continue to get traction and you've also got some new shelf space and at a distribution were kind of some of the key factors. Do you expect more expansion of shelf space and distribution relationship in the near-term?

[Jim Cracchiolo:]

Yes. So first of all you've said that back very well and understanding what we did say and we have been gaining good traction particularly in the larger firms that we're serving, we are getting more product on their platform as an example of some of the ones I've mentioned like our dividend income, our strategic income, munis, mortgage opportunities et cetera are actually gaining share and prominence, which is good because we weren't really known for on the fixed income side that much, but we have excellent products and excellent performance. So, these are the areas we want to continue to penetrate and get more of a share that we think we can for the types of products and performance that we have. So we are hard at work there. The other offset benefit is, in the past, some of our good performing funds underperformed a little bit in the period last year and now the performance is back, and that will help us because we experienced a bit more attrition in some of those things that now that attrition or redemptions have come down, which is good. So the combination of those factors we feel good about. Listen, it's a very competitive frame out there and depending on what happens in markets and volatility, but for the underlying we're making good progress, but we're going to keep at it. This is not a one event or a one inning so we just got to keep it up for nine innings here.

[Humphrey Lee:]

That's helpful. Shifting gears to A&WM, the wrap net flows continue to be good, but I think it was a little bit light at this quarter compared to recent quarters. I think that may be related to kind of a little bit of a slowdown in the summer time as opposed to maybe a change in investor sentiment. Looking into the fourth quarter, I know it's still early, but can you talk about kind of your pipeline for the wrap net flows and how you think about the $4 billion marks going forward?

[Jim Cracchiolo:]

Yes. So I think it was exactly what you said, a bit of those seasonality but also a bit of volatility that we all looked at in the markets, where to stay tuned of what sort of is going to happen, and you can see markets pulling back and then recovering. I think right now it feels a little more stable and balanced. So, I feel that it's back on track. But there was a bit more of that volatility we experienced in the third quarter.

[Operator:]

Our next question is from John Nadel from UBS.

[John Nadel:]

I have a couple of unrelated topics that I'm interested in. First, on the assumption review and specifically the interest rate component, Walter, so your ultimate earn rate assumption is unchanged at 5% and I think that's a new disclosure for you guys. But can you tell us how long you're assuming it will take to grade to that level?

[Walter Berman:]

Yes, John. It will take -- we changed every year. It will take 3.5 years, but for -- in 2019, we are not expecting any increase in interest for those two quarters. So it won't grade until we get into the first quarter of 2020.

[John Nadel:]

And what should we be using as a benchmark for that 5%? Is that like a single a 20-year, 30-year corporate or what is that?

[Walter Berman:]

Actually, if you look at our investments and many of our investment, especially in long-term care and others are aware are actually above that, our investment strategy is certainly at that quality. But I -- we don't -- it's mixed across the board. So on that basis, it is really -- it's a 10-year treasury and but our investment strategy and our AER right now is actually in many cases over that.

[John Nadel:]

Okay and then on the long-term care review, you mentioned that there is the benefit from premium rate increase is more than offsetting pressure from morbidity. I was just wondering if you could talk about what you saw in morbidity relative to your last assumption update a year ago. Obviously, it seems like it worsened. I was just wondering if you could maybe speak to order of magnitude there.

[Walter Berman:]

Sure. So what we saw is as you expect -- as this experience continues and we get a more credible experience, an appreciable portion of that was related to that progression. And then we did see some changes taking place, but it was really at that level. Nothing that really surprised us as we look at the sales, looked at other elements we had going up, things going down, but really the thing to center on as this ages through, this will naturally -- you would basically increase that. So on the morbidity side, we're feeling quite comfortable with it. And as I indicated with the strategies that we've put in place and the traction we've gotten on, it was more than, as you can see from the chart, more than offset that.

[John Nadel:]

Yes, no, I'm just thinking about some companies who are still sort of stubbornly assuming that morbidity improves over time and I know you guys are not really assuming that. So, that's what I was getting at, and not really...

[Walter Berman:]

No and John, as we've told you over since we've started this, we have constantly taken -- once we assess the actual experience, we've certainly adjusted for that, but there was nothing here of any surprise whatsoever.

[John Nadel:]

And then the last one for you, I just wanted to follow up on the G&A question within Wealth Management. Maybe I can ask it this way, if we ignored the idea of some seasonally higher expenses related to comp and other, what's a better indication of sort of your underlying expectation for G&A, is it the second quarter level that was closer to $350 million or is it the third quarter level that was more like $35 million?

[Walter Berman:]

That's an interesting question. What we were saying is the expenses are well managed with making the investments, we are indicating that we are certainly feeling comfortable about being at historic levels. And all we're saying is, in the course we're heading out of the third quarter into the fourth, you're going to see the normal increases. So that's what we're trying to manage people's expectation within that element, but we feel quite comfortable with the back and certainly be managed within the historic growth levels.

[John Nadel:]

Okay. I mean the only reason I asked is, I think last quarter you guys indicated the second quarter was what you expect to be a run rate into the back half and obviously you did much better in the third quarter, that's all.

[Walter Berman:]

The only thing -- let me actually, let me just try and reposition that. I think we said that the year would actually wind up because the second quarter was high, we said we wanted to give people expectations at the back half is that if we wind up lower and that the year would wind up about 6% in that range.

[John Nadel:]

Yes. Okay. Thanks for the clarification. I appreciate it. Great quarter.

[Operator:]

Our next question is from Thomas Gallagher from Evercore ISI.

[Thomas Gallagher:]

Good morning. Jim, just maybe starting on flows, you had highlighted that the U.S. is seemingly having better traction here, but still some headwinds in EMEA, and it does look like though for the last couple of quarters we've been selected to a better level on flows, do you think we're going to sustain some of the improvement here for a while or when you consider what's going on in Europe, is there more of a chance that will revert to kind of that $6 billion to $8 billion of outflow quarterly level that you had been running at going back a year. Or do you think, you will sustain some of that improvement?

[Jim Cracchiolo:]

No, Tom, I think if I -- and it's hard to know what's going to happen in the market or the political climate. I think what I would say is we have seen, to your point, more consistent improvement, not just the one-time. I mean, we did get an extra win, but it's from a long-term client that we have got wins over the years. It was just a little more lumpy because of something that happened there where they allocated a bit more funds to us in one quarter, but what I would say is, Europe is slower and the same thing with the UK because of the Brexit and because of some of the economic situation there. But if that was to resolve a bit more, I actually think that the gates would open a little more and flows would come back in. So my team in London et cetera, feel good about where they're positioned. But if you look at many firms there, the flow situation has slowed tremendously because of that situation. So I don't think it will get worse. The question is, could it get better if they actually have some movement there. And the answer, we feel, is yes but yes. But again, who knows, that's been going on. It looks like there is some positive movement, but we'll see if that happens. In the U.S., we've made some steady progress. We feel we can continue to make some steady progress. We feel like we've got some good products on the shelves and then more that we think we can get on, and it's really in the U.S. more about volatility and what happens. And but if the markets continue to be relatively in good shape, we think that the traction can maintain.

[Thomas Gallagher:]

Walter, your comment on the cash sweep that you intend to pass on some of potential future Fed cuts to customers and you'd -- I guess it would be kind of a split between how much yield take and how much you'll pass on to customers. Is there going to be a point at which you can't pass any of it on to the customers anymore, just assuming you hit your zero crediting rate, like how far are you away from that scenario or do you still have a decent amount of room left?

[Walter Berman:]

Obviously, let me start -- the thing that governs that is our competitive overview as we look at those rate cuts coming through, and that's what we've done and we've indicated approximately for these cuts that have just occurred that we bore 80% and 20% was passed to the customer. We still have room. We will evaluate it based upon -- again the competitive element within that, but there is still room to certainly have that done -- shared.

[Thomas Gallagher:]

And I just wanted to get clarification on your balance sheet review, the 5% interest rate assumption. Is that a 5% 10-year treasury interest rate assumption that you're using?

[Walter Berman:]

Yes it is.

[Thomas Gallagher:]

Okay. I guess the question on that is, that's a bit above where peers are and well above and what's implied by the forward curve, if it's only a $65 million negative adjustment from lowering that, why not just lower it just because as of right now you're somewhat of an outlier in terms of using that assumption. I don't know if that, that's something that you all have thought about.

[Walter Berman:]

It's a good point. Listen, we have studied this and we -- our actuaries have been through this and we have looked at, and we've been using the 5% and actually we were grading toward it certainly as we exited in 2018. And certainly, as we indicated, the rates were for the last three years grading toward that. So we did feel that this is an anomalous situation and as whether it being an outlier or not, we feel that rate is appropriate looking at the long-term nature of our liabilities and other aspects. So certainly we will continue to evaluate as we go through, but we felt that was appropriate.

[Operator:]

Our next question is from Ryan Krueger from KBW.

[Ryan Krueger:]

As you think about your excess capital position and low interest rates, then you get toward year-end statutory cash flow testing. Would you anticipate much of a negative impact as you go to the statutory review at year-end?

[Walter Berman:]

Again, we're going through review now but my handicapping is no, probably not, but I think at this stage, again, as you all know, it's a complex formula.

[Ryan Krueger:]

And then just a high-level question, I guess you have an Investor Day in about a month. I think it's your first one in quite a few years, just curious if you can give us any kind of high level sense of what your key priorities are for that.

[Jim Cracchiolo:]

Yes, we would like to walk you further through the transformation that we've made at the firm, areas that we've invested in and give you a little better flavor for what that looks like, and how we're operating and what it could mean to us moving forward, and just have a further chat with you. It's always hard to do it in these type of phone calls and so we thought it was time for us to spend a little more time with you.

[Operator:]

Our next question is from Alex Blostein from Goldman Sachs.

[Alex Blostein:]

Couple of follow-up questions on the Bank, I guess, first -- sorry, if I missed it, but how much did the Bank contribute to net interest revenue this quarter and I guess the credit card portfolio, it was only there for about a month, so maybe, Walter, give us a sense of kind of what's the incremental benefit to revenues into Q4. I'm just kind of run rating the full quarter of the credit card portfolio coming over.

[Walter Berman:]

As I indicated on PTI basis it was $3 million. I don't have the exact number now on the net revenue element of that, but again, so, Alex, that started up in May, so I will -- we can get you that number. As the credit card -- the credit card, again it's handicapping the contribution that's going to come from the credit card. It is a $200 million book of business. It is certainly well seasoned and it is going to have good profitability. I just don't have the exact number that we're anticipating at this stage.

[Jim Cracchiolo:]

Yes, and I would just want to reconfirm. As we're ramping up the Bank, there is a lot of expenses including like in the quarter, as you mentioned, the transfer of the credit card portfolio and the launch of that et cetera. So, the judge on profitability, it will ramp up over time. We just got a lot of cost initially until we get the revenue streams ramped up.

[Alex Blostein:]

Yes. Now, I totally get the profitability point for now and that actually going to speak to my next question. As you guys build out the Bank that could be an important shield to lower rates that you will be absorbing on the sweep accounts. So help us understand, I guess, maybe the difference in the spread between the NIM at the bank that you think you can realistically get today given where rates are versus what you are earning currently in the sweep account.

[Walter Berman:]

Sure. Obviously, we're in a yield curve. So again our normal plans that we'd have in non-inverted situations are certainly has to be reevaluated. But by investing out in different instruments, I think we can pick up 50, 60 basis points at least and stay in -- if we stayed in floaters.

[Alex Blostein:]

Got it, got it. Okay. And then when you guys talk about the excess capital think I know the answer to that, but that already takes into account the future capital that you will need to contribute to the Bank as you grow that, I think you moved some deposits over this quarter. I'm assuming, again that will come with some sort of a capital dynamic as well, and maybe help us think through like what are you ultimately managing that to? i think a lot of your peers, kind of could hover around 10-ish% leverage ratio or something like that. Is that a fair way to kind of think about the capital consumption of Bank?

[Walter Berman:]

A little high, but certainly we have contemplated that into our certainly, analysis, as we indicated, growing the Bank from that standpoint. And so the $200 million plus we have in there now, certainly it was contemplated and then that came off with the -- if you just want to look at the reinsurances on fixed annuities from that standpoint, but our excess capital is quite strong and certainly the element of capital that will need for the Bank and the earnings that will be generated from the Bank, certainly not going to cause any issue at all. But you're a little high in the 10 percentage thing.

[Alex Blostein:]

Okay, great. And then, Jim, just one question for you around more strategic angle, the Asset Management trends are clearly getting better, you guys made a lot of investments in the platform. And I think a lot of it's being rolled out next year, which should make you guys more scalable. How important a priority is M&A within that space for you guys, now the multiples have come down quite materially among the public players, maybe less so for the private, but you want to get your -- just check your pulse on the appetite for deals in the Asset Management.

[Jim Cracchiolo:]

Yes. So, Alex, I think we actually feel good about the hand we have and so if something comes along that would really make sense or is appropriate. We can entertain it, but right now, as we said, we're really managing against what we have in place, continuing our transformation, rounding out the house a bit more in that regard. And so it's more, you know, if an opportunity came along that made a lot of sense, we would look, but we're not out there hunting.

[Operator:]

Our next question is from Suneet Kamath from Citi.

[Suneet Kamath:]

Just a question back on the assumption review, should we be thinking about any ongoing impacts in terms of earnings from the actions that you took in the third quarter here?

[Walter Berman:]

No, not in VA and on the LTC it's flattened out, so, we really -- no.

[Suneet Kamath:]

And would the same be true, if you lower that ultimate rate assumption from 5% to, you know, say, something 3% or 4% whatever it is. Would that be a one-time adjustment or would there potentially be some ongoing impact?

[Walter Berman:]

I believe that will be a one-time adjustment.

[Suneet Kamath:]

Thanks. And then on the fixed annuity, I think you had said that you're looking to offload the rest of the block when rates improve. Should we be thinking about more of an environment like the first quarter of this year, would sort of be required to transact there?

[Walter Berman:]

Actually, if you go back to when we did it, the rate was probably in the range between 250%, 270%. So again, then you do your calibration of what impact you want to have on seed. So, yes, that's a reasonable level to think about it, Suneet.

[Suneet Kamath:]

And then maybe for Jim at a high level in terms of the wealth management business, I've just noticed it seems like there have been a lot of practices being added to Ameriprise and also leaving Ameriprise. I don't know if there's anything in the environment that's causing acceleration in practices moving around. But can you talk to maybe some of the departures that you've had over the past couple of quarters, I know you've said the pipeline looks pretty good, but I just want to get a handle on what's happening when advisors are leaving you guys.

[Jim Cracchiolo:]

Yes. So, now, we own a net base, listen, there is always going to be recruiting against us and we pull in advisors, et cetera. I think the difference today is that in the past, it's always people who just try to recruit from us. So we do very well recruiting out in the industry. Our net pipeline and net production is quite good coming in, but you're always going to have some advisors leave for whatever reason or people want to pay up a little more. So that's the nature of the, exercise, so to speak, but we feel good about our position. There is nothing that we feel is unusual. I think some players are just trying to pay a little more these days that we don't know how rational it is, but that's what they do. But having said that, our retention is quite strong, you can see it. Year-over-year is very consistent. And our net gain is from really higher producers coming in versus the ones leaving. So we're pretty much on track.

[Operator:]

Our next question is from John Barnidge from Sandler O'Neill.

[John Barnidge:]

This is a question back to the race for zero among online brokers. Could you actually see this as an event that could cause an increase in inbound interest from advisors at those platforms that are now interested in joining AWM platform?

[Jim Cracchiolo:]

Well, what we -- you see, I think the question comes is more of how those firms are thinking about what business they're trying to attract and where they've always played. So to me, when they move from, as I said $9 to $4 is the same as moving from $4 to zero. So they have continued to focus on what type of people they want to attract and some of those firms, one in particular, is probably focused more on deposits. I mean it's a tremendous part of their whole business right now. We're focused on wealth management and advisor planning and and clients around a longer-term wealth management and protection. So in our regard, it hasn't fundamentally changed as far as people are attracted to us, they do come to us. To your point, based on the value proposition, about the more holistic advice rather than a free trade or that they're going to someone who is looking at that activity in that regard or part of a banking activity, more broadly. So to me, it does situate us well and that's the reason we are attracting some good people coming to the firm but also our advisors feel really good about the investments we're making to further support them with this value proposition. So it's an excellent question. But yes, I think it does have some aspect, but fundamentally, the last move they made I think is more to make headlines than anything else.

[John Barnidge:]

And then my follow-up question on the flip side, younger investors generally are more comfortable with robo advisors and index investing and maybe not engaging with wealth management advisors like prior generations have done. What is Ameriprise doing to adjust to that type of environment and bring them in-house now, possibly keep intact advisor client relationship for the next generation? Thank you for your answers.

[Jim Cracchiolo:]

Yes. So I think the question is, we've done a lot of research around this. And actually what we found is, don't get me wrong, just like if you go back a decade, two decades, as the discounters grew, there were some people who really continue to do self-serve or complemented their activities with some self-serve activities and that continue to grow. What's happening now in the robo et cetera, is the people who are actually gaining most of those assets are still the same type of discounters that are there if you look at where the growth is as they switch from the mutual fund supermarket to whatever. So for us in our research we find that actually the millennials are more attracted to working with a trusted advisor, but they want the digital capability, the information flow, the interaction. But they actually say to us that if they're going to entrust their money, they want someone that they can work with that they trust, that they can converse with in some sense, but they definitely want to be surrounded by the digital capabilities and that's why we're doing the investments we're making to round that out in further support. So for the people we go after, we call it the responsible mindset, we feel very good about continuing to appeal to them and your next question, what we're doing is the generational transfer. So, we are trying to tie back their parents and grandparent to the children and grandchildren, a bit more and that's an area that we're very much focused on.

[Operator:]

And our last question is from Nigel Dally from Morgan Stanley.

[Nigel Dally:]

High-level question on the Advice & Wealth Management margins, over the course of this call, you've discussed several of the underlying drivers, some of the things with regards to the banking initiatives, the core underlying trends, what's happening with expenses, but on the negative side we're facing the headwind with Fed rate cuts. Maybe you can pull that all together and discuss how you're thinking about the sustainability of the all-in modules you achieved this year as we look toward 2020 and beyond?

[Walter Berman:]

Again, we -- as you indicated, the areas of strength that we have and the other aspects, there is certainly some headwinds against us, but the margins we believe are certainly sustainable. Obviously, as we look at it, there'll be some impact coming from the interest, but we do see a good trajectory with the growth we're seeing and the productivity and certainly, our ability to manage expenses is a key factor.

[Operator:]

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating and you may now disconnect.