Ameriprise Financial, Inc.
Q2 2016 Earnings Call Transcript

Published: 27 Jul 2016

[Operator:]

Welcome to Q2 2016 Earning Call. My name is Paulette, and I will 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 that this conference is being recorded. I will now turn the call over to Alicia Charity. Ms. Charity, you may begin.

[Alicia A. Charity:]

Thank you, and good morning. Welcome to Ameriprise Financial's second quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, our Chief Financial Officer. Following their remarks, we will be happy to take your questions. Slide two of the earnings presentation materials available on our website includes the discussion of forward-looking statements, specifically that during the call you will hear reference to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2015 Annual Report to shareholders, our 2015 10-K Report, and the first quarter 2016 10-Q Report. We take no obligation to update publicly or revise these forward-looking statements. Turning to slide three, you see our GAAP financial results for the second quarter. Below that, you see our operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations, and facilitates a more meaningful trend analysis. The comments that management make on the call today will focus on operating financial results. And with that, I will turn it over to Jim.

[James M. Cracchiolo:]

Good morning, and thank you for joining us for our second-quarter earnings call. I'll provide my perspective on the business. Walter will discuss the financials, and then we'll answer your questions. Domestic equity markets improved in the quarter; however, internationally, markets remained quite weak year-over-year. Volatility spiked in June, which was reflected in slower client activity. Post Brexit, the British pound weakened significantly and created a difficult foreign exchange translation. Our internally-weighted equity index, which aligns to our domestic and international assets under management characteristics, was down 5% on average year-over-year. We ended the quarter with $777 billion in assets under management and administration, which was down a bit year-over-year. And as you're well aware, the low interest rate environment remains a persistent headwind. These are external factors that we can't control. That said, we're focused on what we can control

[Walter S. Berman:]

Thanks, Jim. Ameriprise continues to navigate the macro conditions well, delivering solid financial results in the quarter. Given the revenue challenges related to the macro environment, we are selectively investing for growth, while managing expenses tightly. We believe our stock continues to be undervalued. The valuation combined with our strong balance sheet and free cash flow generation allowed us to be opportunistic in the quarter in our share repurchase. Let's turn to consolidated results beginning on slide six. Macro conditions impacted revenue in a few ways. Our weighted equity index, our proxy for equity market movements on AUM, declined 5% on average year-over-year, but was up 6% on average, sequentially. This affected average AUM and fees, which are collected based on average daily assets. The dislocation over the past few quarters has muted client activity and contributed to Asset Management outflows. Low interest rates remained a headwind for our insurance and annuity businesses. And the pound fell at the end of the quarter, following the UK referendum to leave the European Union, so the foreign exchange translation impacted ending asset levels. With that as a backdrop, you can see how this macro-environment impacted operating net revenue, which were down 4% year-over-year. Lower average equity markets reduced revenue by approximately $50 million and also suppressed client transactional activity. On a sequential basis, we saw revenues improve in the quarter, up 2%, reflecting improvement in the market index. Let's turn to slide seven. Ameriprise delivered good underlying business performance and EPS in a challenging revenue environment, demonstrating our ability to navigate through business cycles. We are tightly managing expenses, while making the right investments to adjust to regulatory and geopolitical changes and support future growth. We're seeing the results of our targeted re-engineering initiatives, which we expect to be realized more in the second half of the year. Pre-tax earnings declined, substantially driven by market dislocation; however, EPS was only down 4%, reflecting effective tax planning and our significant share repurchase program. Our business model generated significant free cash flow, and our valuation provided a good opportunity to repurchase shares at a discounted level. In the quarter, we delivered a strong 23.9% return on equity. Let's turn to segment performance. Starting on slide eight; first, the Advice & Wealth Management business continues to perform very well, delivering solid results in the face of the challenging environment. Jim spoke about the strong leading indicators we're seeing in this business, excellent EAR recruiting, strong advisor and client retention and record client asset levels. Financial results are also good in this context. While operating net revenue was down about 2% from last year to $1.3 billion in the quarter, it was driven by lower average equity markets and slower transactional activity. These dynamics impacted PTI as well, but PTI was also benefited from our discipline expense management. It should be noted that earnings in this segment improved sequentially due to better equity markets and transactional activity levels, which drove revenue up 4% and earnings up 8%. Operating margin in the quarter was strong at 17.7%, up 40 basis points from last year and up 60 basis points sequentially. Outside of significant market disruption, we expect future margin expansion to continue over time. Let's turn to slide nine on Asset Management. Clearly, we faced external headwinds in the quarter. The average WEI was down 5% year-over-year, which impacted both revenue and pre-tax operating earnings. Operating net revenue was down 11% to $739 million, with approximately a quarter of the decline related to markets. The other primary driver of revenue decline was the cumulative impact of net flows. Pre-tax operating earnings were down 25% to $148 million, which was impacted by markets, outflows as well as the preannounced resolution of a legal matter. I'd like to note that foreign exchange translation impact from Brexit was minimal in the quarter. We're prudently managing expenses with overall expenses down 7% and G&A down 5%. Looking ahead, we see an opportunity to improve margins as we move to more normalized markets. Turning to Annuities on slide 10, the segment is performing in line with our expectations. Variable annuity pre-tax operating earnings was $118 million, down slightly from $120 million a year ago. This business was also impacted by market dislocation in the terms of the direct impact on account values and lower asset earning rates. The underlying business is solid and the risks are well-managed. Fixed annuity pre-tax operating earnings declined to $28 million due to elevated lapses over the past year as the block has been running off. The earnings in the quarter were a bit better than anticipated due to higher mortality experience among income annuity contract holders. Given the current interest rate environment, there are limited new sales and, as a result, this book is expected to gradually run off and earnings will trend down during the year. Turning to the Protection segment on slide 11, pre-tax operating earnings were $37 million in the quarter. Let's focus on Life and Health first. Pre-tax operating earnings were down from last year, largely due to an $18 million long-term care reserve release in the prior period. Also, long-term care claims were elevated in the current year, but remained within expected ranges. Auto & Home had an operating loss in the quarter due to preannounced cat losses of $37 million. The combined ratio was 118% in the quarter, which included 14% from cat losses. Underlying results reflect the booking of accident year 2016 incurred losses at a level consistent with the end of 2015. Management has taken action to enhance underwriting, pricing and claims practices, which are driving improvement in frequency and severity trends in both short- and long-tailed coverages. As these business trends continue to emerge, we anticipate that they will begin to be reflected in the financial results. Let's turn to the balance sheet on slide 12. As we have told you before, Ameriprise maintains a strong balance sheet that we would use opportunistically. We have approximately $2 billion of excess capital and our estimated RBC ratio remains above 500%. Our hedging program continues to work well, and the investment portfolio is diversified. We returned approximately 150% of operating earnings to shareholders through dividends and share repurchase, again, this quarter, well above our baseline of 90% to 100% of earnings. We repurchased 4.7 million shares in the quarter, up significantly from a year ago. With that, we will take your questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. And our first question comes from Nigel Dally from Morgan Stanley. Please go ahead.

[Nigel P. Dally:]

Great. Thanks and good morning, everyone. So given the UK referendum, hopefully, you can provide some more color on the various plans you're executing, especially around your Luxembourg operations to continue to distribute your funds throughout the EU and the amount of AUM, which was potentially impacted there?

[James M. Cracchiolo:]

Okay. Nigel, we already have operation formally set up out of Luxembourg. We already have a reasonable portion of our fund lineup on the CCAP format that is distributed throughout Europe. So, what we're going to do, we have a process already in place for what we've established so far, that we'll just build out that line to be a full complement to the line that we offer in the OEICs, and that's already going to be underway. So, we'll have plenty of time and ability, depending on what the final outcome is of the referendum and the decisions made between the UK and the EU, for our clients to move into the new format, if that's the most appropriate for them as they move forward. And so, we've done it before. We actually have that in operation already, so it's not something that we have to newly establish.

[Nigel P. Dally:]

Great. Thanks. And then second question on Asset Management adjusted margins. We've had a couple quarters now where it's declined on a core basis into the mid-30%s. Is that the new normal, or is the high-30%s, which I think was the previous guidance, still an achievable goal?

[Walter S. Berman:]

It's Walter. The range that we have, 35% to 40%, is still in effect. Obviously, this quarter hit the 35%, but certainly we see the 35% to 40% is the range that we think is appropriate.

[Nigel P. Dally:]

Great. Thank you.

[Operator:]

Our next question comes from Yaron Kinar from Deutsche Bank. Please go ahead.

[Yaron J. Kinar:]

Good morning and thank you. Wanted to follow up on Nigel's question regarding the OEICs, and maybe you could give a little color on what percentage of your AUM in Europe – or retail AUM in Europe comes from that platform today?

[James M. Cracchiolo:]

So, we probably have about 25%, that would be the non-UK. But of that already, we have almost 60% already in the non-UK, the CCAP format. So, it's really the difference. So, we're probably talking about $5 billion, that's more in – that could be moved to the CCAP, if that's what was necessary.

[Yaron J. Kinar:]

Okay. That's helpful. And then, turning to the Advice & Wealth Management segment, we've seen, I think, one or two management teams already talk about stopping the sale of Class A mutual fund shares through advisors and not allowing the receipt of the 12b-1 fees in wrap (25

[James M. Cracchiolo:]

So, we are moving to – as we highlighted previously, we're moving to institutional share classes; where there aren't any, it will be a load wave of A Class. But in that regard, we'll have that orchestrated as we move to a complete new account structure, and those share classes are more introduced across the industry. Now that will take place, probably we're looking at, towards the first part of next year. And so, that would eliminate some of the 12b-1s that are currently collected. Most of – as we do, we pass on those 12b-1s to the advisors. The advisors will be now adjusting their business model appropriately so, to look at their services rendered and other things. And so, that's a decision we've made and we're moving towards that, and we're helping our advisors through that transition over the course of the year.

[Yaron J. Kinar:]

And do you envision – or what do you envision that impact to be on Ameriprise's earnings?

[James M. Cracchiolo:]

Well, on our revenue – of course, the revenue will be adjusted for the 12b-1s going away. We only get a haircut on that. Most of that's passed to the advisors, similar to our distribution arrangements, particularly in our franchise channel. And so with that, there will be an impact to earnings, but we are focused very much on offsetting that through other adjustments that we're making in our business model, as well as on a cost basis. And so, we think that will have a minimal impact as we phase through (27

[Yaron J. Kinar:]

Thank you.

[Operator:]

And our next question comes from Ryan Krueger from KBW.

[Ryan Krueger:]

Hi. I just had, first, a follow-up. On the 12b-1 fees, are you only going to eliminate the receipt of 12b-1 fees in the advisory platform, or across the entire platform as well?

[James M. Cracchiolo:]

So, when you say across the entire platform, we will be eliminating them across both qualified and non-qualified, so across the complete of the advisory-type platforms. In regard to brokerage, brokerage is a little different. 12b-1s are still able to be collected there. We're looking at what is the appropriate share class and appropriate distribution arrangements there, and that we'll make a decision on that subsequent. But we feel that that can still operate appropriately under the exemptions of the BIC.

[Ryan Krueger:]

Okay. And then, I guess, somewhat related question on revenue sharing payments and platform fees. Do you see any changes necessary regarding the new DOL rule on that aspect of the business?

[James M. Cracchiolo:]

What we see right now is that you're still very appropriately allowed to get cost reimbursements for the services rendered. We'll, of course, make some adjustments and tighten some various things. Having said that, we think that the bulk of what we do, and how the service is provided, and the reimbursement we get, will be able to be continued.

[Ryan Krueger:]

Okay. And then just one last clarification, as a follow up, is the $5 billion number, you referenced the amount of non, I guess – or EU investors that are invested in UCITS types of products that could potentially have to move to CCAP (29

[James M. Cracchiolo:]

Yes. And with that, again, there's nothing that's come out formally that says they do have to move at this point in the time. If they do, we'll have the like product set up in just the CCAP format. And there are ways that we're reviewing right now for that transfer to be made appropriately from a client perspective, if necessary.

[Ryan Krueger:]

Okay. Thank you.

[Operator:]

And our next question comes from Alex Blostein from Goldman Sachs. Please go ahead.

[Alexander Blostein:]

Hey, guys. Good morning. So, I guess, first, just a follow up on the discussion around potential changes you guys could still make on the Advice & Wealth Management platform to kind of offset some of the revenue pressures. One of the areas we've been hearing a little more about is just what the brokerage firms charge just for access and essentially the platform fees, given the size of your platform with, obviously, a lot of financial advisors and a lot of assets. Can you talk about two things? I guess; A, your plans to rationalize any shelf space, kind of what it means for the number of products you're offering there? And two, what you are contemplating in terms of charging the manufacturers to be on your platform?

[James M. Cracchiolo:]

So, what we're doing, of course, and we do this on an ongoing basis, is we review various products and services offered on our platform. We make sure that there is a level of appropriate due diligence around them, in the offering as well as with that, the appropriate lineups for our advisors so that they have a full opportunity to review all the appropriate investments for their clients. We'll go through that review as we are now, consistent with any changes necessary required by the Department in that – under the exemption, et cetera. So we might tighten a range a little bit. We might tighten things more formally against the entire platform. But we don't see a radical shift at this point in time for what we're offering, because we already put those products and services through a level of due diligence appropriate. We may look to things and ensure that they're more equalized than any other offerings and some of the services rendered and the commission structure on them. That's what we're reviewing right now. As far as the platform fees, again, we will look to make sure that that is very consistent and within tight ranges appropriate so that there is no differences that would in any way influence even from an objective view in the offering. And so, those are the things that we're working on right now. But we don't see a dramatic shift for what we've been doing.

[Alexander Blostein:]

Got it. So to paraphrase a little bit, it doesn't sound like you guys think the distributors will have much of a pricing power over the manufacturers to get their products in the platform?

[James M. Cracchiolo:]

Listen, I think there is always a balance between the manufacturer and the distributor now. And I think, if anything, the distributor, at least in the our case, looks for cost reimbursement against the services that are rendered for the products offered, and that's what we're going to continue to do.

[Alexander Blostein:]

Got it. Great. And then, question just around capital management for you guys. Obviously, very consistent level of buybacks over the last couple of years. But if we think about the level of payout and if we get into an environment where the equity markets are a little bit tougher and, obviously, the interest rate dynamic is not particularly helpful, what's the appetite, I guess, to continue to maybe dip into the excess capital, $2 billion number, to maintain the level of, call it, around $450 million of buyback?

[Walter S. Berman:]

Well, I'm not going to talk about the $450 million, but I'll talk about the ability, as you've see, we have dipped in to the excess and we've dropped it, and it's decreased, and we just had to call on some debt also. But we have the capacity to do that and certainly we'll evaluate the opportunity to best return to the shareholders as we look forward and look at the environment in which it's in. So we have the capacity, and it's just the matter of assessing what is the best way to return to shareholders as we look over the remainder of the year.

[Alexander Blostein:]

Understood. Thank you very much.

[Operator:]

And our next question comes from Thomas Gallagher from Evercore ISI. Please go ahead.

[Thomas Gallagher:]

Thanks. Jim, just a few follow-up DOL questions. So, from your response to Ryan's question, it sounds like you expect to be able to retain all of your marketing and support fees in terms of that revenue piece. And if that's the case, do you – just thinking about how you're transitioning and what risk that represents, and how we should think about that, is it you're going to be operating under the BIC, and that would carry some legal liability risk associated with it that would be higher instead of being a level fee fiduciary? Is that the right way to think about it?

[James M. Cracchiolo:]

Well, I think with – a part of our business, as we said, there's a part of the business that will be operating under the BIC, where necessary and appropriate for the sale of commission-based products, such as an annuity and certain things, including individual funds, where it wouldn't be appropriate necessarily to put them into a advisory or a wrap fee basis, particularly based on SCC (35

[Thomas Gallagher:]

Would you agree, though, I'm thinking about it the right way, you're thinking about the fees that you continue to make from marketing and support fees? And really the trade-off here is that – I presume there's some higher level of legal liability risks associated with using the BIC versus level fee fiduciary. Is that a fair way to think about it? Or would you disagree with that?

[James M. Cracchiolo:]

Under the BIC exemption, okay, there is allowance for cost reimbursement for certain services rendered that are not necessarily – they are permissible and we will ensure that we meet those requirements so that we would be able to appropriately offer various products and get reimbursement for the services rendered.

[Thomas Gallagher:]

Okay. And then just shifting to – I just want to better understand, as you eliminate 12b-1 fees and move to institutional share classes, what that means exactly? So that would be for all of your wrap accounts this would be occurring? Or maybe a better way to put it is, can you dimension what percent of your wrap accounts have 12b-1 fees, where you would be moving clients to the institutional share classes?

[James M. Cracchiolo:]

So, we will be moving to institutional classes where they're offered for all of our accounts. And as I said, we'll move to a no-load A share – waived A share, where we – a load-waived A share, where we wouldn't have an institutional account available for the client at this point in time. In that regard, it will be across all of our advisory businesses and that will occur over the course of the beginning of next year. And with that, that to me – I'm not sure what your question is fully.

[Thomas Gallagher:]

Well, just thinking about, is this going to happen, this move to institutional share classes this new structure.

[James M. Cracchiolo:]

Right.

[Thomas Gallagher:]

Is this happening to all of your wrap accounts or is this just some fraction of (38

[James M. Cracchiolo:]

Well, some of our wrap accounts are already on some and as we introduced the new classification on some of our wrap over the last year have moved to institution, and that's what we're moving all as we convert our account structures and we get larger groups of offerings. Because not all offerings are out there on the institutional share class today. So as that occurs and we move our account structure, which we're hard at work at, we'll go into a one broad account structure that will occur by the beginning part of next year.

[Thomas Gallagher:]

And if I think about that kind of large movement, beyond the elimination of 12b-1 fees, will that also reduce fees overall? Like, just the movement in the retail institution...

[James M. Cracchiolo:]

Well, 12b-1 fees will go away from revenue, at the end of the day. But advisors will be looking at their various accounts and services rendered and other services that they can offer the various clients, when necessary, if they need to. And from our perspective, our haircut from that will go away. And we're making adjustments in our business model so that we can offset that or remedy that in certain circumstances.

[Thomas Gallagher:]

Okay. Thanks. And then, one last one, if I could. Walter, I know you mentioned you see opportunity to improve margins in Asset Management. But if we look at asset earning rates, they've been coming down for the last few quarters. Just broadly, based on what's happening with DOL, there's clearly a movement afoot here to move certainly qualified investors into lower fee type structures. Do you really think this is a trend that's going to reverse or stabilize in terms of asset earning rates that have been declining here?

[Walter S. Berman:]

Well, our fee rates have been consistent and looking – and certainly with the – in the first quarter when you saw the drop, where you could not adjust your expense base, based on revenue. So we actually do see the 35% to 40% as reasonable ranges, and we've not seen the behavioral pattern that you're talking about take shape yet. So, the business model has the capacity to generate the 35% to 40%.

[Thomas Gallagher:]

Okay. Thanks.

[Operator:]

And our next question comes from Doug Mewhirter from SunTrust. Please go ahead.

[Doug R. Mewhirter:]

Hi. Good morning. I had two questions. First, just a clarification on the Asset Management segment on some of the flow data. You cited a couple billion of outflows from, you characterized, a former parent company relationship, and that's happened on and off over the past couple quarters. So, how big is sort of the potential for outflows from that particular category, or is that sort of pipeline, as it were, almost empty?

[James M. Cracchiolo:]

So, what we had experienced a bit more was some greater level – we always mention that there will be a normal outflow from our arrangements with Zurich and U.S. Trust over time, just as Zurich is a closed book, we constantly get a level of outflows. Having said that, the book has been relatively stable, with reinvestments and other things, and appreciation, where we still manage roughly equivalent levels of assets over time, but we always have to book that outflow as it comes true, and it always looks like a negative. In U.S. Trust, as an example, there is always a level of that, just because there is – as new sales come into U.S. Trust, or as their level of sales may have gone down. When we purchased it, it was a larger base of their assets, and so there is always a little difference between a level of redemption and a level of new sales, and we expected that. And that's normally what occurred. What occurred over the last number of quarters was that U.S. Trust decided to take some of their separate account fixed-income business back in-house. And in that regard, we suffered a little higher level of outflows from some of the dedicated activities we did for them. That looks like it now has slowed through the end of the second quarter, and we think that will go back to a more normalized number. But those are the reasons that we had some oversized flows that we experienced there.

[Doug R. Mewhirter:]

Okay. Thanks for that. And my second question, more of a conceptual question. How was, I guess, the feedback or the questions you're getting, or the conversations you're having with your advisory force, regarding variable annuities? I know that they've been in the spotlight in terms of the DOL rule. I know there has been some uncertainty around how they can sell them, or is there sort of still a willingness to sell these to an extent? Is there more of a replacement where more of them will say, no, I don't want to do this, I'm just going to put them into a wrap account? Just if you could just describe, conceptually, the conversations you're having with your advisors about that?

[James M. Cracchiolo:]

So, I think, first of all, there is probably – may be a little difference in the way we look at the sale of the annuity and what we do today versus, in broad terms, the industry. So, we look at the annuity as part of a broader solution set against our overall account and retirement plan for the client. And they're really sold as a solution for a piece of their activities. And we really have educated, and we work with our advisors, to understand where they would provide the essential income as a piece of that income drawdown plan. So, that's the way we've done business for a while. And as you can see, our business has been very stable in the amount of sales that we've done consistently, because they're not sold as just a product out there, but as part of the broader solution. Now with that, every sale of our annuity goes through a pre-approval process and an upfront review compliance, et cetera, to ensure that it is fit and appropriate for that client. And so, that process that we already have in place will be the same process that will be in place as we move forward. There's always a few things and tweaks that we'll make sure are complemented there, based on any other additional sort of thought process necessary. But we believe that the extent of the process we have in the place already goes through that level of due diligence and review, and where it is appropriate, in a qualified account. That's what we review today in a very rigorous way. So, we don't see a fundamental change in the way we do business regarding the sale of that product. Now, could there be adjustment in some of the activity there? The answer is always yes. But that's something we'll see over time, where necessary. But we don't see a fundamental change driven by a change in the fundamental process that we have in place, or review that we currently do. In addition, there may be some move to more of a level load over time, rather than an upfront commission. But again, that will depend on what circumstances, or how the advisor thinks about it. But we're not planning for a fundamental shift in our annuity business.

[Doug R. Mewhirter:]

Okay. Thanks. That's very helpful. That's all my questions.

[Operator:]

And our next question comes from Eric Berg from RBC Capital Markets. Please go ahead. Eric, your line is now open. And we'll move on to our last question. And our last question comes from Suneet Kamath from UBS. Please go ahead.

[Suneet L. Kamath:]

Thanks. Good morning. I wanted to start with Advice & Wealth Management, and just get a sense on client activity. It looks like the distribution fees in that segment have been running kind of $550 million a quarter for the past couple of years and we've had a step-down here for the past few quarters. So just want to get a sense based on the feedback you're getting from your advisors. Are we at kind of a new run rate here in terms of activity, or do you think we can kind of get back to that mid-$550 million – mid-$500 million level, especially as these EARs start to vintage in?

[Walter S. Berman:]

I think, as you saw in these first two quarters, there has been, especially in the first quarter, the impact to the markets and certainly the dislocation associated with – on long-dated. So, it is our expectation that as we work our way through – I can't exactly say where it's going to go back, but we certainly don't see this as a permanent trend and we're working through EARs, as you indicated. We are bringing on board, they are vintaging, and certainly the productivity within the legacy advisors. So, it's going to be a combination as we work through it, Suneet.

[Suneet L. Kamath:]

Okay. Thanks. And then, just related to EARs, the 98 I think that you added in the quarter was maybe the strongest we've seen since back to 2012. So, just a question, do you think this is the early signs of Wealth Management consolidation post DOL? And then relatedly, once the DOL standard goes live, I guess, next year, are you envisioning or expecting any changes to your ability to recruit advisors, particularly as we think about things like transitional compensation?

[James M. Cracchiolo:]

So, Suneet, as we look at the business today and what we're doing to both support our advisors, but also have a strong business model to actually help them serve both the retirement and non-retirement market, particularly to our target market of the $500,000 to $5 million, we're working very closely with what is the level of support our advisors need, the training; what is the level of, what we would call, activities necessary for them to truly serve these people more fully. And we feel like we have a very strong business model in place that can respond to whether it's about the regulatory, but also the consumer dynamics that the consumer is interested in. And the more we speak to the consumer and do research, whether (49

[Suneet L. Kamath:]

Okay. Thanks. And then just one last one, if I could, just on the Asset Management business. Given the focus on margins and some of the pressures that we're seeing in fees across the industry, just wondering if there has been any change to your appetite for M&A, particularly given maybe the scale requirement for that business have gone up given some of these macro pressures? Just wanted to get some thoughts there.

[James M. Cracchiolo:]

No, we continue to feel that, number one, we have globalized our business now and we're continuing to invest to even make that more efficient by having a seamless and consistent way of operating through our front and middle office. We're doing that in how we're sharing research and other things. So, we're continuing to complement what we do and make adjustments, as Walter said, so that we can get both effectiveness and efficiency on a global scale. But with that, we are still very open to look at complementary acquisitions as this world continues to change and if consolidation continues to occur. And I think we have the wherewithal to do that. I think we've shown that we can do that successfully and that we look for other activities or companies that would fit in with what we're trying to orchestrate and find that as an opportunity. So, we're very much open to that as the world continues. And as I said, we still have a very strong capital base. We're not over-leveraged. We have the ability to do that. At the same time, we have the ability to return to shareholders.

[Suneet L. Kamath:]

So size – I mean, you could do a larger transaction, that would be something that would be of interest to you if it came along?

[James M. Cracchiolo:]

Yeah. We have the ability of a range of sizes here based on our capacity, the earnings power, the balance sheet, the debt offering, et cetera, that we can do.

[Suneet L. Kamath:]

All right. Thanks, Jim.

[Operator:]

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