Alicia A. Charity - Senior Vice President-Investor Relations James M. Cracchiolo - Chairman & Chief Executive Officer Walter S. Berman - Chief Financial Officer & Executive Vice President.

Suneet L. Kamath - UBS Securities LLC Yaron J. Kinar - Deutsche Bank Securities, Inc. Erik J. Bass - Citigroup Global Markets, Inc. (Broker) Eric N. Berg - RBC Capital Markets LLC Alexander V. Blostein - Goldman Sachs & Co. Thomas George Gallagher - Credit Suisse Securities (USA) LLC (Broker) John M. Nadel - Piper Jaffray & Co (Broker) Ryan J.

Krueger - Keefe, Bruyette & Woods, Inc..

Welcome to the Third Quarter 2015 Earnings Call. My name is Ellen, 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..

Thank you, 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 will be happy to take your questions.

During the call, you will hear references 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 that are available on our website.

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 2014 annual report to shareholders and our 2014 10-K report. We take no obligation to update publicly or revise these forward-looking statements.

And with that, I will turn it over to Jim..

Consumers who are accumulating assets and those who are transitioning to retirement. I believe our firm and advisors are well positioned to help clients and prospects in every stage of their lives. During the quarter, we launched an extension of our successful Confident Retirement approach for those who are still building their wealth.

Wealth builders, as we call them, represent more than half of our target market. Consumers with $500,000 to $5 million in investable assets. They value our financial planning relationship, so this is a real opportunity for us going forward as we introduce it to our entire field force over the coming months.

In a recent external study showed that 89% of generation X, 92% of baby boomers and 87% of millennials surveyed want to work with an advisor who will meet them personally. This research reinforces the growth opportunity we have as people continue to value working with a financial advisor.

And the importance of that human perspective for saving, investing and retirement planning. Helping advisors serve client needs, deliver strong service and operate efficiently has always been a priority. And we continue to get good uptake from the advisor capabilities we're investing in.

At the end of the quarter, we launched a new mobile capability that integrates functionality from our highest-use advisor capabilities into one simplified experience that's accessible on any type of device. We're seeing good initial results. It's freeing up advisors' time to focus on serving their existing clients more comprehensively.

In September, we unveiled the next evolution of our story to the U.S. marketplace with our new Be Brilliant brand and advertising platform. It illustrates the benefits of working with Ameriprise advisors and how comprehensive financial planning and the right advisor can help people achieve their personal goals today and in retirement.

The campaign tests very well with our target market, and our advisors are taking great pride in the ads, as they bring to life what they do every day on behalf of their clients. We're working closely with the field to take advantage of the campaign in their local markets.

As a result of our efforts, our advisors continue to grow productivity, which increased 6% year-over-year to a new record of $514,000 over a 12-month basis. This resulted in solid revenue and profitability growth in the quarter.

Therefore, on a relative basis, considering the significant market pullback and volatility in the quarter, the business performed strongly. Let me now turn to Annuities and Protection. I'll focus more on the underlying business, and Walter will cover the financials, including the impact of unlocking.

In terms of Annuities, we continue to see nice sales from the introduction of new living benefit riders earlier in the year as well as products without living benefits. New sales within our channel look good, which has helped offset some of the pressure from lower-equity markets on account balances.

And there's no real change in the fixed annuity trajectory given where we are with rates. In Protection, Life & Health, insurance sales remain muted overall, and while Life claims were higher, we do expect it to normalize. We have a good book built to serve Ameriprise clients and planning relationships.

Around the business, we are focusing on supporting our advisors to serve clients' protection needs. We continue to see more of an interest in our IUL products than VUL, and I expect that will continue in the near term, given the market volatility we're experiencing.

We recognize that the volatile market environment creates challenges for these longer-term products, but at the same time this environment reinforces the importance of guaranteed retirement income and protecting what matters most to clients.

In Auto & Home, we experienced higher collisions, in part due to the increase in the number of miles driven, as others in the industry have noted. We continue to invest in our capabilities as we adjust pricing, tighten underwriting as well as improve claims management.

This work has begun to take hold, but it takes time for these enhancements to work through the book. As we said last quarter, we do expect to see some benefits next year and beyond. The enhancements we're making are to restore the business to its historic performance.

In terms of our client experience, we continue to maintain strong client satisfaction and retention. Auto & Home has a good client base and good distribution. Now let's move to Asset Management. This was clearly a tougher quarter in terms of assets under management.

The market environment I've discussed was particularly difficult, with foreign exchange driving a large piece of the assets under management decline. In addition, we had outflows from two large clients in strong performing funds where asset allocation or geopolitical and liquidity concerns drove their decision to sell.

As we finish the year, we're likely to see some additional pressure here. Outflows in low-fee former parent affiliated assets this quarter were elevated. In terms of fourth quarter, we expect these will continue with additional outflows in low-fee collective trust funds, given U.S.

Trust's decision to manage some of these fixed income products in-house. In terms of Acorn, outflows have persisted, and while investment performance has improved year-to-date from the enhancements we put in place, in the near-term we expect that outflows may continue.

In terms of underlying flows, the market dropped in August and September and related volatility dampened retail activity globally. With regard to U.S. retail, our gross sales were up compared to last year.

We have some improvements in sales share over the last few quarters and our wholesaling productivity has improved reflecting the steps we've taken to better align our sales strategy. In Europe, retail also slowed, but we feel good about our positioning, and flows could turn as conditions improve and clients become more comfortable.

Overall, our investment teams are generating strong performance across equities and fixed income and in solutions. The volatility is helping to demonstrate the benefits of active management. We have added new talent to our sales leadership in both the U.S. retail market and U.K. institutional, complementing the teams in place.

We also continue to strengthen our retail product line, including the recent launch of the Colombia global unconstrained bond fund. In Institutional, we were impacted by the client moves we discussed. That said, we are building on the business.

We have good strategies with competitive track records in both the traditional and solutions space, and aligned sales in a service organization. Our pipeline remains strong as we look to the end of the year.

In terms of financials, we continue to deliver solid earnings given our ongoing commitment to effective expense management as we focus on executing our strategy and delivering for our clients. From the perspective of the overall company, we're consistently generating an excellent return.

Our balance sheet and capital position are strong, and our investment portfolio remains high quality. That allows us to return more to shareholders, and on a year-to-date basis we've increased our buyback significantly. And combined with our dividend, we have returned $1.6 billion this year alone.

Our capital position also provides flexibility as we look to drive organic growth and consider inorganic opportunities in both Wealth Management and Asset Management. To that end, earlier this month, we officially marked our 10-year anniversary as an independent publicly-traded company.

As I reflect on the last decade, we successfully executed one of the largest spinoffs in U.S. history. We navigated the financial crisis better than most, and that was without government support. Ameriprise emerged stronger because we had our own financial plan in place, made good decisions, and managed risk well.

We stood by our clients, delivered appropriate products and solutions to satisfy their long-term goals. At the same time, we invested in our business and the right capabilities and set the stage for our future. Ten years in, Ameriprise is one of the strongest financial services firms in the business.

When we look at our brand and reputation, it is one of the best in financial services. I believe, over that time, we've earned an excellent track record of growth and return and for making thoughtful decisions in the interest of our clients, advisors, employees and shareholders.

Though markets have recently become more challenging, we remain focused on navigating the environment while we look to continue to generate good returns over time. With that, I'd like to hand things over to Walter to review the numbers..

Thank you, Jim. Ameriprise delivered another solid quarter of financial results in a volatile market environment. The S&P 500 had substantial volatility in the quarter, ranging from 1,868 to 2,128 and VIX ranged from a low of 12 to a high of 41.

In the quarter, we generated operating net revenue of $2.9 billion, down 1% from last year and down 4% sequentially. This was obviously driven by the impact of market movement in the quarter on asset levels and the associated fee generation.

Assets under management administration was $766 billion, a 4% decline year-over-year with a more pronounced 7% decline in asset management, where geopolitical concerns, equity markets and unfavorable foreign exchange reduced asset level and fee-based revenue. Our top-line growth was impacted by the environment.

We continue to manage expenses tightly and use lower valuation levels to repurchase additional shares in the quarter. And we benefited from effective tax planning. These actions drove strong 12% growth in EPS, and resulted in achieving a new record return on equity in the quarter of 24%, up almost 200 basis points year-over-year.

Let's look more closely at capital on page four. Our ability to return capital to shareholders at this level reflects our strong balance sheet fundamentals. Our investment portfolio is well diversified and low risk. Our hedge program is effective.

Our risk-based capital ratio is estimated to be over 625%, and we have approximately $2.5 billion of excess capital. Given the share price in the quarter and our current valuation, we accelerated the level of share repurchase. We returned $571 million to shareholders through share repurchase and dividends, which is our highest quarterly level.

This equates to 133% of operating earnings. We are confident in our continued ability to generate free cash flow, return capital to shareholders and bring down our excess capital prudently over time. Turning to segment performance, starting with AWM on slide five.

The Advice & Wealth Management business continues to perform well across all dimensions to deliver solid financial results. Operating net revenue was $1.2 billion in the quarter, up 3% from last year and down 2% sequentially.

Our revenue growth slowed due to the impact of market movement on asset levels and its associated fee generation, but still compares favorably to others in the industry. Wrap net flows were good at $3 billion, despite the deterioration in the markets. While total expenses increased 2% year-over-year, it was driven by higher distribution expense.

G&A expenses improved 1% year-over-year while still investing in key business growth initiatives, including more productive experience advisor recruits, advisory platform product expansion, and investments to improve the ease of doing business for advisors and clients.

This resulted in earnings of $219 million, up 7% and a record high-margin of 17.6%. Results were achieved without the benefits of increasing short interest rates. We have $21 billion of brokerage cash balances that earned 23 basis points in the quarter. This is a substantial upside opportunity when rates rise.

Asset Management continues to provide a solid contribution to our revenue and earnings as you will see on slide six. As I previously discussed, both equity marks and foreign exchange translation impacted asset levels in the quarter.

Combined with elevated net outflows due to geopolitical concerns and the timing and performance fees, it resulted in a 7% decline and operating net revenue to $782 million. We remain committed to managing expenses tightly, with G&A down 3%. Pre-tax operating earnings were $180 million down 13% from last year.

Again, this represents the low markets and timing of performance fees. Let's turn to slide seven. Before I focus on the underlying business results and Annuities and Protection, I want to review the annual unlocking completed this quarter. Overall, unlocking provided a $42 million favorable impact.

Variable annuities had a $64 million of favorable unlocking this year. While continued low interest rates negatively impacted our unlocking, it was more than offset by favorable net persistency, withdrawal utilization and model updates. Fixed annuity unlocking was only a $2 million favorable impact.

The benefit of clients' lapsing was largely offset by the impact of continued low rates. For insurance, the primary driver of $24 million unfavorable unlocking was low interest rates. In long-term care, we conducted the gross premium valuation and did not have loss recognition despite low interest rates.

While low interest rates impacted the assessment negatively, we have received approval of more premium increases than we had anticipated, and the benefit of these future rate increases more than offset the impact from low interest rates. Turning to Annuities on slide eight.

I will focus on underlying results that exclude the impact from unlocking and mean reversion. Underlying variable annuity pre-tax earnings declined $3 million from a year ago to $116 million. This decline was driven by lower account values from markets and from the runoff of the closed-block distributed through third parties.

Underlying fixed annuity pre-tax earnings declined $23 million due to elevated lapses of the blocks running off as it comes out of the surrender charge period. Given the current interest environment, there are limited new sales and as a result, this book is expected to gradually run-off and earnings will trend down.

Turning to Protection on the next slide. I will focus on underlying earnings. Protection pre-tax operating earnings were $49 million in the quarter, excluding the unusual items noted for the quarter. This is down $38 million from last year with the impact essentially split between our Life and Health business and our Auto & Home business.

Let's focus on Life and Health first. Underlying pre-tax operating earnings were impacted by higher claims activity and the lower-interest rate environment. Life claims were elevated in the quarter as we had four large, later duration VUL claims that had a much higher retention level than our more recent policy years.

Year-over-year, gross claims increased $19 million compared to a very favorable quarter a year ago. As you can see, we did not see a corresponding increase in the benefit from reinsurance. The Auto & Home business generated a pre-tax operating loss in the quarter.

First, we experienced deterioration in collision results from an increase in miles driven and lower salvage values which is consistent with many in the industry. Second, we had a loss associated with Travel Accident program, a small program we piloted, but did not meet our profitability targets.

Therefore, we are in the process of exiting this business. Third, we had some prior year CAT development associated with hailstorms from last year. Finally, we had higher expenses this year as we continue to enhance our operation and staffing levels.

The operational improvements we have made this year are beginning to show across our product lines of event collision. Unfortunately, that has been masked by some of the unusual items in the quarter. Our activities are on-track and we anticipate marked improvement next year.

To wrap, Ameriprise delivered another solid quarter of financial results despite some revenue pressure related to market volatility. We will continue to actively manage the levers within our control like expenses, balance sheet strength, and capital return to drive consistent, solid financial performance. With that, I will open it up to questions..

Thank you. We will now begin the question-and-answer session. The first question is from Suneet Kamath with UBS Financial..

Thanks. Good morning. I wanted to start with asset management. Jim, in your color around the flow picture, it seems to me to suggest that there's probably not going to be a turn in 4Q from some of the trends that affected you in 3Q.

So my question is, do you think that 4Q flows could actually be worse than what we saw in third quarter?.

You know, I think as we look at the fourth quarter, I don't think from sort of the core businesses that that will be the case. On the other side, we know that there's a level of volatility in August and September, and we know that that may continue depending on markets.

So we wanted to be clear, particularly in the institutional space, that's a little lumpy. The only area, as I highlighted in my opening remarks, was around one of the ex-parent activities and some of the low-fee as they take a bit of that portfolio back in-house. But we were planning on that and it is very low revenue to us.

But that's the only thing that probably would be higher in the area that we highlighted in the ex-parent activities. But from the retail and institutional, I don't see that at this point in time but, again, I don't know how the rest of the year will go in volatility..

Okay. And then Walter – sorry, go ahead..

No. That was it..

Okay. Sorry. So then, Walter, you had mentioned that performance fees were lower in the quarter. I think you said it was $10 million in the year ago and less than a million this quarter but that some of it was related to timing.

Any sense, based on what you know today, of what that could look like next quarter?.

I think we'll see – normally at fourth quarter is higher – but I think we will see that it will shift into the fourth quarter and basically on the year where it's within our targeted ranges..

And what are those targeted ranges?.

Let me say it's tough to – but now fourth quarter is basically the $10 million that we talked about should be able to flow through. And so it will not be a variance factor except for that $10 million.

And we anticipate that the normal performance fees that we have last year and this year will be in the ranges that won't be of course a variance of that like it did in this quarter..

Okay.

And then just lastly, on the capital, I fully acknowledge the move from $425 million buyback to $450 million, but given where the stock is, which I think is lower today than where you bought back stock in the third quarter, and the excess capital position remains at roughly $2.5 billion, why can't that quarterly run rate of buyback be in excess of $500 million on a quarterly basis?.

Well, it could, but as we demonstrated, as we feel the stock is undervalued, looking at our – that we have purchased 133% of our basically earnings. So we are evaluating that and looking at it, but certainly we are – we talk about our range as 90% to 100%, but we've demonstrated as we see the circumstances – the opportunity that we will buy up.

I don't know if we'll go to $500 million, but certainly we have the capacity to do that and we will evaluate it. But I would imagine you should expect it would be higher than 90% if the current situation continues..

All right. I think – I think you should take the buyback up over $500 million, sell Auto & Home and your stock price will be higher than $111. Thanks..

All right. Okay. So thanks. I wrote that down..

The next question is from Yaron Kinar with Deutsche Bank..

Good morning, everybody. I wanted to start with a question on the advisor hires. It seems like the last two quarters you may be turned a corner there and we're certainly seeing some momentum.

Can you maybe talk about what – has there been any shift in terms of your recruiting strategy, or the efforts or what's leading to the higher advisor recruiting levels?.

Well, first of all, we are bringing in what we think is a good core of new advisors to the firm, has very good productivity. And I think will fit in nicely based on the value proposition that we have and what their interests are to grow their productivity.

And I think it's really over the course of the last year that we've been able to better get out there in the market and tell our story. That – it always takes time to sort of build that sort of pipeline in relationships. And I think people are more interested as they learn more about Ameriprise.

And so, I think it's been a more consistent sort of ramp-up that we've had and the pipeline still looks very good. So we feel good about that. We're seeing good people. And it's all about what makes sense for them. And if it fits with what we're looking to accomplish, then it becomes a win-win..

Got it. And then one follow-up, asset management clearly is coming under pressure, but that also means that valuations for such franchises have compressed as well. I'm just curious as you talk about capital deployment and your thoughts about the future, clearly you've been quite disciplined in terms of deals in the past.

Do you see a pipeline today? Is it more robust? Do you see more opportunities or more serious opportunities from your perspective as you potentially look for deals in asset management?.

Yeah, I do believe that there is a bit more of a reconciliation of people evaluating what the alternatives are. I think there's also an understanding of what would be more of appropriate pricing as we go forward, and I do believe there'll be more opportunities that come about over the next number of quarters.

So, if something interesting does fit the bill, and it strategically makes sense for us and it would be a good complementary, as I said, and Walter said, that we do have the cash on hand and the capital ability to do that and we would be very open to exploring those opportunities.

But as you also said, we're also very disciplined and it has to be appropriate and make sense to get us a little further down the road than where we are..

And could you remind us in that space what would be a good strategic fit from your perspective?.

You know, we're continuing to look at building out some of our product set around alternatives and solutions and there may be some core product that would be complementary on the global platforms that we have. We're also looking to further expand some of our distribution capabilities – as we continue to build out our global activities.

So again, I think it would – there are a number of things that would fit the bill or can increase our ability to grow even more formally in some of the channels that we're in. So I don't think it's just one thing that we're looking for per se, but there may be other – a broader set of opportunities that would work for us..

Thank you very much..

The next question is from Erik Bass with Citigroup..

Hi. Thank you.

Can you update us on your strategy to accelerate the growth in Colombia's retail channel? I mean, obviously it's a tough environment, but are you seeing progress in terms of getting on distribution platforms or establishing performance track records for new funds or maybe some other initiatives that give you confidence that flows can turn.

And if and when we see a pickup in retail demand?.

Yes. So I did mention that we are seeing some good traction.

I think it's hard to see overall because you get some – we've had some additional redemptions in things like the Acorn Fund, et cetera, but overall our sales activity as we look at external benchmarks like Market Metrics, et cetera, shows that our market share and some of the major channels that we're doing business in some of the major intermediaries has actually improved.

And so that does mean that we're able to expand a bit more. Now that takes time and it does take that you get more fully onto those platforms and the relationships form, but I think we now are making some good progress. We have plans. We just brought in some additional strong leadership in both the platform business over the last year.

We brought in a strong leader overall for the intermediary channel. We just added a new leader to run our wholesaling activities. We have adjusted how we go to market, working between the product and the marketing groups and be able to tell our story a lot better.

We're also putting out new advertising in the marketplace that we'll be launching shortly. We've been a little quiet there as we've worked on a new brand, the Colombia Threadneedle. And so, we feel pretty good that we can continue to gain traction.

But again, it doesn't come overnight and it does get impacted and influenced based on what's happening in the volatility of the markets, but we have some really good products, like a strategic income fund that really suits what the client and the advisor are looking for right now.

So we do believe that we can actually take more space and we have a good group of leadership and people focused on doing that. So that's really what I can say at this point..

Got it. Thank you. That's helpful.

And just quickly on PNC, do the emerging trends you're seeing in auto claims change your view at all as to how much rate is needed and should we anticipate that it will take longer than initially expected to get back to target margin levels?.

This is Walter. Obviously, the collision and the impact on the – which was driven by certainly the drop in salvage voucher which was quite substantial and the frequency of people driving has and we will reflect that, but the other actions that we are taking are, I think are in place but we're going to have to supplement that..

Got it. Thank you..

The next question is from Eric Berg with RBC. Please go ahead..

Thanks very much. First, in the asset management area, Jim, I'm hoping you can build on your comments, your prepared comments that there's been a change in strategy or outlook at U.S. Trust. This is – I believe this is your – the specifics behind your reference to the former parent company relationships.

What has been the nature of the change and sort of how long will it last – how long will the effect last beyond the December quarter?.

So what we were saying, first of all, we have a very good strong relationship with U.S. Trust, multiple dimensions, particularly strong in our fund family, et cetera. And that really hasn't changed. I think what I did mention is, you know, they go through their portfolio allocations, et cetera, they're dealing themselves and where their flow should go.

They're a bit more into how they're looking at their overall lineup. But this is a really -- regarding some of their collected trust areas for some of their clients and fixed income. And they feel that some of those things they can manage in-house and they're looking to do some of that. Now again, it's a low-fee business.

It's something that they think its suited for, at this stage, for them. And so you know, we probably will see a continued outflow from that area but nothing fundamental around the larger relationship has changed..

Next, with respect to the international institutional business where you've had clients outside the United States withdrawing funds for what you call geopolitical reasons.

Can you build on what you mean by geopolitical reasons? Are we talking about the collapse in the price of oil and the effect that that has had on certain sovereign wealth funds or something else?.

Well, I think there are two things just in broad terms, okay? So as you've seen, there's a move away from some of the emerging market and Asians that we have some good portfolios in that some clients reallocate right now from.

The second area is definitely around the price of commodities and other things that have occurred that may affect some of the investments from clients. You've read about that sort of more globally. But it's nothing particularly to Ameriprise. It's nothing against the performance.

And in fact, people just need to raise some once in a while, some liquidity. So we think over time that will settle and actually things will come back into some of those areas because it wasn't a performance issue for where they're pulling some money right now. So – and we're probably affected less than some others out there..

Last question. I understand that there is no new fiduciary rule so you can't react to it. I'm not going to ask you to do that. But I would think that you would be doing preparation for the possibility, possibility, not the certainty, that the IRA rollover business could become a lot more difficult to get done in the future than it has in the past.

Would that be a right conclusion to reach, or just what sort of preparation are you doing for possible changes? Thanks..

Well, I think, Eric, as you do understand us here at Ameriprise, you know that we always do our planning and we always look at what may happen. And so, I do have my teams geared up. We look at everything that has come out from the department.

We look at what – based on all the comments and what the department has already said that they need to look at, or possibly change. And we're already gearing up to see what that looks like and what it takes to make those adjustments and already have things underway.

I would be very clear as I've actually even outlined in my opening remarks, whether they're millennials that people sometimes think they just want to work with a Robo or they just want to be self-administered. We clearly know that they want advice. We clearly know that the populations that we're talking to want to work with an advisor.

And we have the best, one of the best advisor forces out there. Our satisfaction is very strong. They like what we have to offer. So, again, I know the department will come up with something. We know that we want to work in the best interest. There's no argument for us on that. We'll see as they make adjustments to their rule that it's more rational.

You can work with people on a reasonable basis with reasonable compensation and try to satisfy their needs consistent with what FINRA and the SEC already look at and regulate. So – but yeah, we are planning for it and we are already looking at things of what may come about from whether it's disclosure or how you operate or a compensation.

But again, I think Ameriprise and what we offer is really the key. And I think if people weren't satisfied today, you wouldn't have those strong personal relationships that we have. But they really want personal advisors and they really want the biggest thing they want help on is their retirement..

Thank you, Jim..

Your next question is from Alex Blostein with Goldman Sachs..

Hi, guys. Good morning. Back to the M&A discussion for a second. Jim, any sense, and I guess, when you're talking about opportunities to deploy capital and inorganic growth, any sense on which way you guys are leaning towards more in the broker side of things.

So similar type of deals we saw you guys do earlier this quarter or last quarter or more on the asset management.

Just kind of try to see given your kind of alluded comments on improvement pipeline and deal flow, which way does that pipeline skew?.

Yeah, I think, Alex, it doesn't have to be an either/or for us. We have the means and the ability to do both. We have the experience to do both and the operating infrastructure to do both.

So, as an example, if there are things that fit in for us in the broker dealer side that would complement the good recruiting we're doing, we're open to entertain that. We have the ability to do that. We do look at things that come along. And the same thing on the asset management side.

It hasn't been that we haven't kicked the tires on a number of things, but whether it's because of a combination of factors, operating factors, people factors, or just the value that people are attributing to some things, we would have passed them that might have passed on some of the things and that really explore them to that depth.

But I think if those things come along again in that light, we have the ability to do both..

Got it. Understood. And then on AWM operating leverage and margins, clearly super strong results with continued margins here, hanging in at record levels.

As you guys look out and think about a more challenging equity market drop, let's say in a flattish equity tape, how much more operating leverage can we still see from just organic initiatives without the help from the market? Just trying to get at the sensitivity in the model..

Yeah, I think – as I think about that, it's – what I would say is that if markets just flatten, it depends on how they flatten in the level of volatility and how that affects client activity. So it's hard to say it's just like driven based on the market, but as you saw in the third quarter, markets actually depreciated.

So we still had good client inflows in. We had cash balances built, but we still put money to work for our clients and in our wrap businesses. So it's hard to predict exactly what the circumstances are. What I would just say is we're operating at pretty good margins. We continue to see productivity lifts from what we've invested in.

But having said that, with flat markets or lower client activity, it depends on what that looks like of whether the margins would accrete from there or stay more consistent. I think I would probably put it in that sort of vantage point that says stay more consistent at this point in time.

We are, again, at one point the Fed will raise interest rates if the economy continues to improve or even maintain at this growth rate. I mean it's hard to see why you're at a 0 interest rate with even a 2% growth rate in the economy. So I think at one point that may kick in that will offset what happens with the equity market pressure..

Yes. I hear you there.

And, Walter, just real quick on seasonality in AWM, should we still expect a similar type of kind of a pickup in G&A in the fourth quarter like we've seen in prior years?.

I'm sorry. Say that again? I didn't pick up the first part of it..

Sorry. The seasonality in expenses in AWM, should we expect to see similar pick up in the fourth quarter in G&A like we've seen it in prior years? I think there's some things around market and things like that..

I think you'll see a normal pattern. But certainly, the expense will remain controlled as we've demonstrated in the first three quarters..

Great. Awesome. Thanks very much..

The next question is from Tom Gallagher with Credit Suisse..

Good morning.

First question on what drove the big increase in RBC this quarter from the 560% last quarter to 625%? Was that favorable annuity hedging or what was driving that?.

Yes. That is mostly variable annuity hedging and the value of it going up. Yes. That was exactly correct..

Got it.

And then just given the level of increase there, Walter, why wouldn't your excess capital have grown to north of $2.5 billion? Is it holding more RBC for VA?.

No, it's actually – it is the continued buyback that we did in exceeding the level of our earnings. So there is an element within that, and so the net net effect is it has been in the range that we've reported last quarter..

Okay. So bigger drawdown of HoldCo cash offset by an increase in RBC.

Is that the right way to think about it?.

Well, it's in it – yes – because RBC comes into our calculation. We look at the overall excess. Certain things we discount a little bit as we talk about but it is basically – we're feeling very good about the requirement. And we have used more cash, too, for buyback..

Okay. Just shifting gears to M&A. Jim, your earlier response, you mentioned, I believe, products on the asset management side as being some – I think that was the first thing you responded to when asked about M&A, which suggests to me more asset management is of interest.

Can you talk about, would you be interested in doing another pretty sizeable deal or would it just – would it be something smaller to expand product instead of a large AUM-type deal?.

So what I would probably say is that we would look for deals that would be incremental to what we've established would be our primary. It doesn't rule out something else that may be out there or come along if it made strategic sense, or if it really was complementary that was on a larger scale.

But as we think about just the climate and things that come up in the normal course of the year, we think that you can easily, more easily execute more of the smaller, strategic, complementary type things in product and distribution and that would be always the first thing.

But if something came along that made sense larger, and it truly fit with us, there's something we could evaluate but that's not sort of our starting point..

That's helpful. Then next question on your response to the AWM margins trajectory, I presume that doesn't include any increased costs that you would expect if the most likely deal while fiduciary standards proposal goes through; or even if you consider a range of outcomes from that proposal.

Is that the right way to think about it? My point being that if we're in a flattish type market without significant revenue growth, I assume there's going to be incremental costs coming from this new standard..

I think – it's Walter – I think it's a reasonable assumption. Again, we've demonstrated in the past just looking at these sorts of investments that we could have the flexibility to mitigate some of that within the re-engineering base that we look at the business. But certainly, it's a reasonable assumption that it's not included.

We're certainly scenario-ing it, but that's it..

Okay. And then just one other quick one.

The higher frequency in Auto that you mentioned this quarter, did that get worse versus 2Q, 1Q, or is that an elevated frequency level you've been seeing throughout the year?.

On the Auto, I think it's something that is been building and we've been observing it and looking at it and again, trying to – watching certainly in the industry coming back on the Auto. But it's been more of a building element that we've been evaluating than reflecting..

Okay. And if I could just sneak in one last one on long-term care. I know you had the favorable actuarial review, but on a core basis, you still lost money in the business this quarter.

If you continue to lose money, is there still risk of a balance sheet charge here if you fast forward to next year? Or do you feel you've got enough flexibility and cushion where we can start to take that off the table as a serious risk?.

Based on what we're seeing with the price increase is the overall element and certainly the way we – you do know we've exacerbated a little because we've been pretty prudent on our investment strategy and other things at that standpoint but I think you can take it off the table..

Okay. Thank you..

The next question is from John Nadel with Piper Jaffray..

Hey. Good morning, everybody. I've got a couple. If I can just ask maybe a quick housekeeping one first.

I think in the past, Walter, I don't know if it's been every quarter, but you have broken out the margin from the franchisee versus the employee channel for us, and I was wondering if you could do the same for third quarter?.

I think, basically, the streamline has continued as we talked about it. Certainly, from that standpoint we've seen improvement within it. We're also seeing from that standpoint, we are comfortable with the development that's both taking place in the employee channel and with the franchise channel.

I don't know if we've official broken it out but we just – I don't have the number in front of me but it certainly trend line wise, it's – we're feeling comfortable with it..

Okay.

So would it be fair to say that the gap between the two is still closing?.

Again, if you take quarterly the answer is certainly directionally it is closing..

Okay. That's helpful. And then I have a question on variable annuities and their relationship to Advice & Wealth Management revenues. I mean, so really nice, nice growth in sales on a year-over-year basis. I think it was 11%. And I'm sure that had to help the revenues in Advice & Wealth Management channel.

I guess the question is do you think you're seeing any advisors hold back on VA sales into qualified accounts given any anticipation of some changes there? Or would you say it remains business as usual until a finalized rule is enacted? And then also related to that, I know I'm getting a little long-winded here, but perhaps you could give us a sense for approximately what percentage of Advice & Wealth Management revenues are being driven by VA sales into qualified accounts? I've estimated it's about 5% of revenues but I'm wondering whether you think that's in the ballpark..

First thing I would say is I do not believe that there is any hold back. It's an important solution set within it. And certainly we offer the product. And I think from our standpoint, it's been more of a business as usual. Again, as the percentage, I don't really have that in front of me.

It is certainly an important part of the element, but I think you consider it relatively small, so whether it's 5 or where your range is, it's a relatively small..

It's relatively small. Okay. And then just one other housekeeping one, if my math is reasonable, I think your current remaining buyback authorization or at least as of September 30, your remaining authorization is down to around $500 million, give or take.

I guess the question is, can we expect – the board will re-up the authorization sometime relatively soon.

Is there any reason to expect that the capital deployment strategy you guys have enacted so far would change at all as we look out the next year or more?.

So the answer to your math is correct. And certainly we intend to discuss with the board re-upping..

Yeah, I don't foresee an issue there. It's just the timing issue..

Okay. And then final one is just quick on asset management.

So you've given us some color on what to think about as we look at fourth quarter and a couple of these items that could, in terms of flows, that could continue to impact the numbers in the fourth quarter, but as we turn and look out the 2016 or even a little bit further out than that, Jim, do you feel like you have enough visibility into what's happening underlying some of this noise to say you feel like you're reaching an inflection point on flows, or is it still little bit too soon?.

No, I think, listen, we've worked very closely and had the teams really diagnose and also put their plans in place. We have very clear objectives and initiatives underway against the strategy we have and where we think there are opportunities and how to grow against those opportunities.

And again, it's you run into sort of environmental market, you run into geopolitical of what's happening in China and Asia versus, et cetera, whether you've got a slowing in Europe versus the U.S.

So all those things, if we look and just say, hey, the world will continue to be a bit more adjusting over time, and that's part of the landscape, I do see underlying some really good core improvements, some really good people and focus that we have that we have brought on board or got channeled into the areas that we're focusing on.

And we do have some very good product and people and performance in those product. And so, no, I don't think there is an issue of that we can compete and we can get the flows in the right situation, but I think we're part of seeing what the industry pressures are that you see across.

We've had our own one-offs because of whether it's some ex-parent or a portfolio here or there that might have underperformed or just getting re-established as we've integrated Columbia with RiverSource, with Threadneedle. But I think those things are actually moving forward very nicely, and we're seeing some good positive both energy and synergies.

So, no, I actually think there is growth but I'm not going to sit here with a quarter right now, because that hasn't actually happened based on the environmental and complements some of the internal. But no, I do see a path forward and I feel positive, really positive about the group we have in place..

Excellent. And sort of following up on your ten-year anniversary from the spin-off, I'll leave you with this thought. Your stock, despite some pressure this year is up threefold or more since your spinoff while your former parent is up only about 40%. So I wonder who misses whom. Take care..

Thank you..

And our final question comes from Ryan Krueger with KBW..

Hey. Thanks. Good morning. I had a couple of follow-ups. On the U.S.

Trust change in the relationship in the fourth quarter, can you just quantify the amount of assets that could be impacted by that?.

I don't have a full thing, but we're probably talking a couple of billion, something in that neighborhood..

Okay. Great. And then just going back to the AWM margin, I know you were asked about and you commented that you'd expect flattish margins if the equity market remains fairly flat.

But if we get more normal equity market lift and – but interest rates remain where they are, do you still expect further margin expansion from here over the next few years?.

Yes. Yes, I do. And again, there's a number of moving parts in there. As we said, we see productivity improvements from our advisors, but we're also adding a good number of new advisors, that we have incremental cost initially as they ramp-up. But then all the vintages ramp-up nicely in the productivity.

So it's hard for me to sit here without doing the exact calculations, but if equity markets continue to improve, yeah, we would see a continuing incremental margin over time..

Okay. Great. And then just last one.

Can you just remind us what percentage of Columbia retail sales are distributed through Ameriprise advisors?.

We're talking in the teens from a sales perspective. So we're a good provider in our channel. But we have other good providers, but it is not sort of an overly dominant position, but we have, for good, we have a good sales platform here. But it's one of a good number of another – we have a large number of providers.

So we have good providers in the system as well..

All right. That's it. Thank you..

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