Ameriprise, Sticking with 12b-1 Fee Ban, Loses Some Brokers
Even if the Trump administration modifies or abolishes the Department of Labor’s fiduciary rule, Ameriprise Financial will stick with its decision to prohibit sale of mutual funds that pay 12b-1 fees to brokers in retirement and fee-based accounts, the company’s chief executive said on Thursday.
“We’re going to continue down that road,” James Cracchiolo said during an earnings call on the company’s fourth-quarter results.
Other plans to comply with the rule that is aimed at reducing conflicts of interest between a firm, its brokers and clients may be modified if the rule is delayed or abolished, he said. However, some brokers have already left Ameriprise’s employee and independent channels in the face of the rule.
Advisor retention in the employee channel dipped below 90% in the third and fourth quarters, bringing the retention rate to 88.9% for all of 2016 from 91.0% in 2015. In the larger and more profitable independent channel that Ameriprise calls its “franchise,” retention fell to 92.8% from 94.2% in 2015.
“We experienced a little higher turnover in the franchisee channel, with some of their assistants, as they make adjustments based on the environment and regulation,” Cracchiolo said, noting that the reduced headcount also was influenced by brokers who retired in advance of the new regulations.
When the fiduciary rule was first proposed, Ameriprise and other firms with large independent channels said they expected to grow because they would be able to win business from smaller independent firms that would not survive the commission decline engendered by the rule.
Ameriprise’s employee channel fell by 76 brokers during the fourth quarter alone, leaving it with 2,007 brokers. The franchise channel lost a net 38 brokers, ending the year with a salesforce of 7,668.
Ameriprise’s combined brokerage sector generated 64% of its pretax profit in the fourth quarter and 43% of its revenue, in part because of a record recruiting year in both channels among brokers producing $1 million or more, Cracchiolo said.
Average annual production per advisor across both channels was $518,000, up 1% from $514,000 in 2015. Total client assets of $479.2 billion at yearend rose 7% from 12 months earlier, with lucrative wrap-account managed fee assets growing 11% to $201.1 billion.
Fourth-quarter pretax profit at Ameriprise, which also sponsors mutual funds and annuity products, rose 21% to $254 million in the fourth quarter from a year earlier, while operating revenue inched up 4% to $1.32 billion. Pretax operating margin rose to 19.3% in the fourth quarter and 18.1% for all of 2016 from 16.6% and 17.1% respectively.
The firm’s plan to end 12-b1 commissions and upfront-loaded A-share mutual funds in advisory accounts will become effective on April 10, the fiduciary rule’s start date, and are unlikely to have a meaningful effect on earnings, Cracchiolo said.
Morgan Stanley analyst Nigel Dally asked the executive whether the fiduciary rule’s spotlight on client charges will force the company to reduce fees irrespective of the rule’s fate.
“One of the bear cases for your company is that your fee levels are quite high,” and will have to “come down meaningfully” to compete with peers, Dally said.
“We have a strong fee-based business around our financial planning and advice that renders a lot of services to clients, including life planning, retirement and estate to children’s planning,” Cracchiolo responded. “When you look at, say, the fees based on assets, et cetera, it’s very much in line.”