Ameriprise Crows About Retail Brokerage, Waddell Restructures
When Ameriprise Financial Chief Executive Jim Cracchiolo was assessing the potential effects of the DOL Fiduciary Rule on his company’s growing brokerage businesses 18 months ago, he said that big firms like Ameriprise would endure and likely pick up market share while smaller independent broker deals were likely to struggle and be purchased.
The third-quarter earnings reports Tuesday and Wednesday from Ameriprise and the smaller Waddell and Reed appear to be validating his forecast.
Minneapolis-based Ameriprise said that the almost 10,000 brokers in its employee and independent contractor businesses were the primary drivers behind its 53% jump in quarterly profit from a year earlier. Revenue in the advice and wealth group grew 14% as client assets in fee-based wrap accounts doubled, while advisor production on a trailing 12-month basis jumped 12% to an average of $541,000.
While such productivity trails the near-million-dollar average of wirehouse brokers, it represents Ameriprise’s tilt toward hiring advisors with books of wealthier clients than its traditional mass-affluent market and is more than twice the productivity of independent broker-dealers, Cracchiolo said on a conference call with analysts on Wednesday.
Ameriprise, whose insurance and annuities businesses have been in decline, ended the third quarter on September 30 with 143 more brokers than 12 months earlier, but the net additions reflected its purchase in July of Investment Professionals, Inc., an independent broker-dealer based whose 215 brokers work out of bank and credit union branches.
Retention of brokers in Ameriprise’s independent brokerage channel inched down to 92.7% from 93.1% in the year-earlier third quarter, leaving the firm with 7,681 independent contractors. Retention within the firm’s more profitable employee-broker channel, which has 1,994 brokers, edged up 100 basis points to 90.7%. Total client assets grew 13% from a year earlier to $538.7 billion as of September 30, on market gains as well as recruiting of higher-level advisors, Ameriprise said.
While Cracchiolo boasted about the wealth division’s record pretax operating margin that rose more than 3 percentage points to 21.5%, he was asked by an analyst why it wasn’t at the mid- to high-20% level that Morgan Stanley and Merrill Lynch reported for the third quarter.
“They incorporate…a lot more on the banking and the lending activities,” he said, referring to the emphasis the bank-owned broker-dealers are putting on selling mortgages, securities-backed loans and other credit products to their brokerage customers. “On a relative margin basis ours are very competitive to (their) wealth management activities.”
At Waddell & Reed, whose primary business is asset management business through its proprietary Ivy Funds, executives were subdued on their Tuesday earnings call conference.
The Overland, Kansas-based company ended the quarter on September 30 with 1,481 independent brokers, 100 fewer than three months earlier and off by 315 from a year earlier. The average advisor’s productivity rose to $69,000 (or $280,000 annualized) during the quarter from $59,000 in the year-earlier period.
The headcount decline was concentrated among lowest-tier producers, representing 75% of the exodus, executives told analysts, explaining that the firm is on a cost-cutting crusade that curtailed its historic policy of bulking up the salesforce by hiring people new to the securities industry.
As part of the revamp undertaken by Chief Executive Philip Sanders, Waddell has shifted compensation for brokerage division managers to salary and bonus from commissions and branch-profitability overrides, Sanders said.
The company also froze its defined pension plan last month in an attempt to save $12 million annually and on Tuesday announced that it is cutting its dividend to shareholders by more than 45% amid a 29.5% decline in third-quarter earnings on fund redemptions and lower asset management fee revenue across the company. The company’s assets under management fell 5% from a year earlier to $80.9 billion while net outflows inits funds fell to $2.8 billion from $4.9 billion in the third quarter of 2016.