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Ameriprise Financial Inc (AMP) Q1 2019 Earnings Call Transcript

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Ameriprise Financial Inc  (NYSE: AMP)
Q1 2019 Earnings Call
April 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Q1 2019 Earnings Call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) Please note that this conference is being recorded.

And I will now turn the call over to Alicia Charity. Alicia Charity, you may begin.

Alicia A. Charity -- Senior Vice President, Investor Relations

Thank you, operator, and good morning. Welcome to Ameriprise Financials first quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on Slide 2 you'll see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the Company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward-looking, reflecting management expectations about future events and overall 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 our first quarter 2019 earnings release, our 2018 Annual Report to Shareholders and our 2018 10-K report. We make no obligation to update publicly or revise these forward-looking statements. On Slide 3, you'll see our GAAP financial results at the top of the page for the fourth quarter.

As you are aware, we changed our definition of adjusted operating results beginning in the first quarter, which now excludes mean reversion related impacts. Management believes this enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitate more meaningful trend analysis. Many of the comments that Management makes on the call today will focus on adjusted operating results. Additionally, we announced in April that we have signed a definitive agreement with American Family Insurance to sell our auto and home operations. This transaction is expected to occur later this year. However, effective immediately, we have moved our Auto and Home business out of the Protection segment and into our corporate and other segment. All prior periods have been restated for both of these changes.

And with that I will turn it over to Jim

James M. Cracchiolo -- Chairman and Chief Executive Officer

Thank you, Alicia and good morning, everyone. As I believe many of you are aware, we had an active and successful quarter. We took some critical steps to focus on our core business strategies, further optimize our capital, reduce our risk profile, and increase capital flexibility. And I will come back to this in more detail. But first, I will take you through our quarterly results. In terms of the operating environment, clearly, the impact of the market dislocation from the fourth quarter carried over to beginning of 2019. The decline in consumer sentiment combined with lower markets affected client activity in the US and Europe. And this impacted our average assets and associated fees in the first quarter.

So how did this translate to our financial performance. Well, it was quite solid. In terms of our adjusted operating results, revenues were flat. Normalizing for taxes and a one-time vendor payment a year ago. EPS was up 8% and return on equity, excluding AOCI was up 790 basis points from a year ago to more than 36%. Assets under management and administration was steady compared to a year ago, even though our average weighted equity index was down 3%.

Let's talk about wealth management, which is the growth driver of Ameriprise and continues to be a great story for us. We did well in the quarter and delivered a 11% growth in earnings in AWM, with margin increasing to 22.5%. And even though the quarter get off to a toughest start client flows were strong, total client assets increased another 6% year-over-year with more than $4 billion of net inflows moving into wrap. This is an important growth platform for us and one of the largest in the industry. Client acquisition, overall fees, and client activity were muted to start the year, but gradually improved during the quarter and are coming back to more normalized run rates. And even with the lag, advisor productivity remains strong up 6%.

Regarding recruiting, we had a terrific recruiting quarter, hoping quantity and quality, with the average productivity of recruits reaching a new high. And our pipeline for the second quarter also looks good. Experienced advisors are attracted to our client advisor value proposition and appreciate the investments we are making, and this means for their future growth potential at Ameriprise. Now AWM segment now generates half of the earnings of the Company and contributes even more to the total firm. The investments we are making and the way we work with clients also results in excellent client satisfaction. We earned 4.9 at a 5 stars consistently since we rolled out our online survey. And that's translating into top industry recognition for us.

Lastly, complementing our other recognition, we learned that Ameriprise earned Hearts & Wallets' Top Performer recognition in three important categories; unbiased and puts my interests first, explains things in understandable terms, and understands me and shares my values. These are very important attributes to be known for and they help set us apart as a leader in advice. However, we are not resting on our laurels. We are investing in our end-to-end client experience to take it to the next level of engagement and help advisors grow productivity.

Let me touch on a few of the key areas. First, we continue to invest in our digital capabilities. We digitally enabling our goal based advice capabilities to make it even easier for advisors to fully engage clients and deliver the value and service they are seeking. We just begun to roll out this training in the field and are pleased with the initial results. I'm already receiving advisor updates and client stories and they're very positive. Many clients feel more engaged and confident and have shared that these are some of the best conversations they've had with their advisor and they're beginning to move more money and assets to Ameriprise.

Second, we're implementing a new customer relationship management platform and we are on track to deliver it this year. Third, with further developing our investment advisory platform to provide a streamlined and customized experience for clients and advisors to help in the management of their investments. And fourth, we're investing to expand our banking solutions and I'll share an update on our bank investment in a moment.

Given these growth investments you saw we had higher expenses in the quarter. While we're making these investments, we will continue to reengineer and reduce expenses so that the incremental expense is very manageable. We are dedicated to delivering a comprehensive best-in-class Ameriprise client experience more fully and to more consumers who seek it. As a leading wealth manager, we're building an even stronger position and we feel very good about the significant opportunity before us.

Now I move to our Insurance, Annuities and Asset Management businesses. In INA, we're providing good value in generating free cash flow with strong books supported by excellent risk management. These solutions complement our third-party offerings and help address clients retirement income protection needs and they're part of a high quality experience we known for. With regard to the quarter, sales were slower in January, but they started to come back nicely and we're getting back to a more normal run rate.

In Asset Management, it's clearly a tough environment and there are real industry pressures for all active managers, which we're also feeling. However, our Asset Management business is part of our larger enterprise and supported by the strength of the Ameriprise rather than a stand-alone active manager. We're investing in the business while making trade-offs to manage expense levels. Our margin in Asset Management is competitive what was clearly pressured in the quarter and you've seen this with others.

In terms of assets under management, we ended the quarter with $459 billion, which was down from a year ago, but up 7% sequentially. After a tougher fourth quarter last year, short-term equity investment performance improved in the United States in many of our strategies. And longer-term performance also remains quite good. In addition short and long term taxable and tax exempt fixed income performance continues to be strong. In EMEA, our short-term performance in UK equities weakened, however, European equities bounced back nicely and long term equity and fixed income track records continue to be good.

Moving to our flow picture though we remain in net outflows the team is very focused on gaining traction and we have some improvement when compared to fourth quarter last year. Here are the key themes for the first quarter when compared to a year ago. Former parent outflows were better year-over-year. Global Institutional outflows were higher due to clients asset allocation calls some performance challenges and a slowdown in mandate fundings. However, recently in the areas where we had some strategies under performing we saw improvement.

In US retail, we remain in net outflows, but are beginning to benefit from our investments in data analytics and our segmentation strategy. We did improve in the broker deal and independent channel, we were positive in five of our top seven fronts. Equity fund flows improved somewhat from the fourth quarter though we still experienced outflows. In fixed income flows, we're essentially flat as we didn't get as much of a boost as the industry in ultra short and short duration products where we are not a big player in this tight margin asset class .

In the UK and European retail, the ongoing uncertainty about Brexit and slower economic backdrop in Europe created flow challenges. With regard to Brexit in particular, the team has been supporting clients and taking actions to prepare the business. During the quarter, we completed a transfer of EU client assets from OEIC funds into Lux domiciled SICAV products. Well this pressured sales and increased expenses, it will be beneficial to gaining flows on the continent going forward. Quarter-after-quarter we've been very proactive in expense management, while we invest for the long-term including in our data capabilities, operating platform solutions and expanding in Europe. As I said at the beginning of the year, we recognize the ongoing challenges we in the industry face and we will continue to make the changes necessary to compete.

Now when I opened, I indicated some additional strategic actions would take into drive future growth and value creation. First, as many of you have acknowledged Ameriprise has a strong record of returning capital at a differentiated level and we're adding to it again. In the quarter, Ameriprise returned $482 million to share repurchases and dividends, which is consistent what we've been returning. We also announced a new $2.5 billion share repurchase authorization. And yesterday, we declared another increase to our quarterly dividend another 8%, which will bring our capital return even higher. In fact, this is our 12th increase over the past 10 years something we are very proud of.

Second, as many of you know, we've always focused on enhancing our capital flexibility and risk profile and that was punctuated at quarter end with the culmination of our strategic review of Ameriprise Auto and Home and decision to sell the business. We had four priorities as we executed the deal, continued to deliver outstanding service to policyholders, find the right firm to help Auto and Home grow, provide the potential for a great future for our team there, and earn an appropriate return. I'm very confident that we found the right partner in American Family Insurance they plan to grow and expand on what we've built. We're pleased with this outcome and as we do in all transactions we will work to ensure a seamless transition over the next few quarters. The sale of Auto and Home will generate $950 million of net proceeds when we close the deal later this year.

Third, in addition to the Auto and Home sale, we announced our first fixed annuity reinsurance transaction. We've reinsured about 20% of our block, which freed up about $200 million in capital for us. Importantly, it positions us to explore additional transactions for the approximately $1 billion of capital that backs our remaining block. Fourth, last week we gained final approval from the Fed to convert our National Trust Bank into a Federal Savings Bank allowing us to further expand our product suite. We plan to launch the bank in the latter part of the quarter. This is a long-term growth opportunity for Ameriprise and I feel good about the future contributions it will bring.

As you can tell, we made significant progress in the quarter executing some important strategic actions. We're freeing up capital, further enhancing our risk profile and capital flexibility. I know you may have questions about our plans to deploy the additional capital that we're freeing up that will grow to above $2 billion when Auto and Home sale closes later this year. On that front, you can expect us to continue to build on our long-standing record of managing our capital just as well as we have for many years. We'll evaluate a number of alternatives such as investing in our bank, looking at other opportunities to add to our Wealth Management business. We'll continue to look at adding capabilities for asset management and further derisking our long tail businesses.

Finally, we will look to further increase our return of capital to shareholders. In that regard, we plan to increase our share repurchase rate in 2019. As you can see, we're in a very strong position with serving client needs, building on our advise value proposition while generating strong returns.

Now I'll turn things over to Walter.

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Thank you, Jim. Ameriprise achieved another solid quarter financial results. While proactively executing several strategies to optimize our capital and risk profile, positioning the Company to drive continued shareholder value creation. On a normalized basis, EPS grew 8% and I'll go into the details on the next page. Financial results were led by Advice & Wealth Management, which delivered 11% earnings growth and continued strong metric trends in the face of market headwinds and volatility as we entered the year. Our other businesses are generating good, stable financial results that were in line with our expectations.

Let me take you through the details beginning on Slide 6. In total, adjusted operating EPS was $3.75, up 2% which understates the underlying financial performance in the quarter. To understand the underlying results, you must consider both a previously disclosed one-time vendor settlement last year, as well as the tax rate. The tax rate in the quarter was 17.3% higher than last year and above our expectations of 16% for the full year, primarily due to share based accounting changes and timing. Normalizing for these items, EPS was up 8% and better reflects growth in the quarter.

Revenue growth reflected continued strong wrap net inflows offset by lower average markets, Asset Management outflows and slower transactional activity early in the quarter. Expenses continued to be well managed across the firm, with G&A up only 2%. We are continuing to make important growth investments in Advice & Wealth Management, while executing on our expense reengineering objectives across the business. And we returned over 90% of earnings to shareholders through buyback and dividends, a continuation of our track record of differentiated return. Lastly, we have increased access capital to $1.8 billion, while achieving a 36% return on equity up 790 basis points.

We have seen strong growth trends in Advice & Wealth Management, which you can see on Slide 7. Total client assets were up 6% year-over-year demonstrating a nice recovery after the pullback in the fourth quarter and continued strong $4.3 billion of inflows into wrap accounts. Brokerage cash balances of $25.3 billion are consistent with last year. On a sequential basis, we saw balances come down in line with historic patterns. We are benefiting from short rates getting back to more normal historic levels and we earned 212 basis points, up from 132 basis points a year ago. Based on recent Fed announcements, we do not anticipate additional rate increases this year and remain committed to being competitive in our client rates.

Finally, advisor productivity also continues to improve, reaching $628,000 on a trailing 12 month basis in the face of market and activity headwinds. We continue to see strong productivity gains and are seeing good payback from our investments, as well as from the strength of the experienced advisor recruits that we've been bringing in. The 90 experienced advisors we brought in, in the first quarter has record productivity, which will support continued productivity growth over time.

Let's turn to financials on Slide 8. Advice & Wealth Management is continuing to deliver consistent strong financial performance over time. I thought it would be helpful to provide a detailed description of revenue this quarter because there are a number of dynamics at play. First, management and financial advice fees grew 4%. Unlike previous quarters with good wrap inflows have been supplemented by market depreciation. This quarter, the benefit from good inflows was partially offset by the impact of lower average markets. So the growth rate lagged a bit. However, as we exited the quarter, markets have recovered up 13% point to point and wrap flows improved in February and March after a slower January. As a result, we expect improved growth in management fees as we move through 2019.

Next, distribution fees were up only marginally. We had meaningful benefits from the spread earned on brokerage sweep balances. However, market sentiment following the fourth quarter disruption resulted in lower client activity levels early in the quarter. This improved throughout the quarter. In April activity levels have returned to good historic levels. So again, we would expect to improved growth and distribution fees in 2019. Lastly, net investment income is up 43% from both a higher certificate asset earning rate and higher balances. Overall, both markets and activity levels have recovered well and this should lead to more robust revenue growth going forward.

General and administrative expenses were up 6% for the quarter, but we believe they continue to be well managed. As Jim discussed, we are making substantial investments for future growth in this business. And the level and timing of those expenses was more heavily weighted in the beginning of the year. We remain committed to effective expense discipline and will continue to execute on our reengineering initiatives that will benefit the remainder of the year. Finally, pre-tax operating earnings were up 11% and margins were strong at 22.5%.

Let's turn to asset management on Page 9, where financial performance was clearly impacted by substantial headwinds, including average equity markets down 3% and unfavorable foreign exchange translation. Additionally, the cumulative impact of net flows hurt results, as did a previously disclosed prior year onetime item. This resulted in a decline in revenues of 11% and a decline of PTI of 25%. G&A expenses were down 4% demonstrating our continued commitment to expense discipline. However, a significant portion of our expense base is fixed, so it will be difficult to adjust quickly to this challenging revenue environment. Margins in the quarter decreased to 34% and given the challenging revenue environment we'd expect margins to remain pressured.

Let's turn to Annuities and Protections on Slide 10. In the quarter, variable annuities earnings were $115 million, up 5% from last year. Variable annuities continued to be in outflows though at a slower pace than last year. Variable annuities sales slowed similar to the overall slowdown we saw in client activity. It should be noted that our net amount at risk declined 2.8% of account value with living benefits and 0.2% of account value with death benefits from improvement in markets. Fixed annuity pre-tax adjusted operating earnings declined $3 million reflecting the continued impact of lapses and interest rates. The previously announced reinsurance transaction had a small impact on fixed annuity results, but it is earnings neutral across the firm for the year.

Importantly, the transaction generated $200 million of excess capital, and established the platform for future reinsurance transactions. The remaining block of fixed annuities is backed by about $1 billion of capital. In Life and Health, earnings were within expectations at $74 million, up 14% from last year. Claims remain within expected ranges though favorable relative to the prior year period.

Let's move to the balance sheet on Slide 11. Our balance sheet fundamentals remained strong. Our excess capital increased to $1.8 billion, which benefited from the fixed annuity reinsurance transaction and incremental debt from our recent issuance, Our hedge program has been quite effective with weighted managed hedged effectiveness at 97% in the quarter. The investment portfolio has high credit quality and is well diversified and free cash flow generation remains excellent. We return nearly $500 million of capital to shareholders through dividends and share repurchase in the quarter. And we recently announced a new share repurchase authorization and an 8% dividend increase. Continued capital return will be supported by both free cash flow, as well as the execution of capital optimization strategies.

Let's turn to Slide 12. As Jim discussed, we have announced the variety of proactive actions this year to optimize our capital structure and risk profile. Over the past several years, we have spoken with you about the initiatives under way to improve the underlying performance of our Auto and Home business and we saw the intended results. We completed strategic review, which resulted in our decision to sell the business. When this transaction closes later this year, cash proceeds will be $950 million. The majority of which we additive to our excess capital position. As I mentioned, the reinsurance of a portion of our fixed annuity block freed up substantial capital without an earnings impact to the firm and the framework is now in place to execute additional reinsurance transactions as appropriate. And we issued $500 million of senior notes, part of which is being used to prefund an upcoming maturity and reposition our debt ladder.

In aggregate, these actions will enable us to increase the level of capital that we will return to shareholders this year by accelerating our share repurchase. We plan to return approximate 110% of adjusted operating earnings to shareholders through buyback and dividends, and we will fund the anticipated bank capital requirement. We're completing a review of our capital structure and evaluating potential uses of excess capital.

In summary, Ameriprise is well situated to drive continued growth in Advice & Wealth Management and continues to generate substantial shareholder value.

With that, we will take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Ryan Krueger. Please go ahead.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Hi. Thanks. Good morning. My first question was on capital management, appreciate the guidance for 2019. It looks like after that you'd still have a fairly substantial amount of excess capital. So I guess as we move past 2019 into 2020, would you anticipate they'll be in position to continue returning similar levels of capital in 2020 as well or are you contemplating I guess other potential uses for the excess capital outside of share purchase?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Well, as I just said, we will be looking at another level of opportunity. So number one is, yes, we still think we can strongly return capital and will to shareholders. We will also look at opportunities to further grow and invest in our wealth management business, maybe there are some add on capabilities that might be nice to continue to growth there that we'll be looking at, as well as we said looking at continuing to improve our overall capital structure. And therefore, that in itself we think we will create some additional shareholder value that will either return or from a prospective invest for growth.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Thanks. And then just click on the tax rate of 16% for this year. Is there anything unusual about that or is that a different level to assume over the intermediate term as well?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

No, no. It's actually, it's totally in line with really the earnings we will have and with the tax rate and the items that we normally have is basically adjustments to it. It's totally lined with last year and this year.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Okay. Thank you.

Operator

Our next question is from Alex Blostein. Please go ahead.

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Great. Good morning, everybody. Hey, guys. I was wondering if you could comment on the pace and the process of the bill down of the bank from here. So clearly, you've got the approval assuming you can move some deposits fairly quickly, so maybe walk us through what that will require in terms of both expenses and initial capital utilization and kind of how you expect the bank growth to start kind of ramp up from here?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Okay. This is Walter. Let me start with that Alex. Once we have approval and then we will target out operationalizing the bank before the end of the quarter. We will be transferring about $2 billion, $2.5 billion worth of sweep accounts that we will go in and those would be invested and that would be the primary focus. And the next activity would be our credit card transfer over. And then will be a series of other products that we will be working on, but that's where the focus is going to be. As we anticipate for the year, the bank will be accretive from an earnings standpoint and we'll start incurring expenses obviously from an operating standpoint as starting -- we started now and obviously ramp up during the year, but we will be positive accretion from an earnings standpoint.

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Got it. I guess on that point, so I guess when we look at the G&A growth and expenses for AWM, it sounded like it's a little bit heavier on the investment side at the beginning of the year so maybe just give us an update, would you guys expect G&A cost to be and advice and wealth for the year kind on a year-over-year growth perspective as again contemplating the bank and what would that will take?

James M. Cracchiolo -- Chairman and Chief Executive Officer

As we indicated that there are substantial level and timing of investments in the first quarter and as we look toward the year where -- we're a range probably, it will be in the 4% range on excluding the bank as I -- but the bank will be accretive. And also let me just add on I forgot to answer one part of your question. We'll put it initially around $200 million into the bank as capitalization.

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Got it. Great.

James M. Cracchiolo -- Chairman and Chief Executive Officer

Alex, regarding the expenses, but the investments per se in advice and wealth, we're actually managing expenses really well and will continue actually probably reduce some expenses since that regard as we move through the next few quarters. But we are investing heavily ramping up and bringing of a good recruits that as you know there's always the first year expenses from that and we have very good pipeline etc. And for the things I mentioned previously, we're making some really good investments investing in our advisors, investing in the ability for them to actually grow even more of their productivity. So that expense incremental we think will give us very good paybacks in that regard. Client assets, client productivity and result in fee revenue. So that's the way I would look at it.

I wouldn't look at it as an increase in G&A in a sense of overhead expense. I'd look at it as investments for growth. And on a relative basis with where we're reducing expenses as an offset that incremental that Walter mentioned roughly around 4% or so excluding the bank, I think should be thought about that way otherwise I think it would be relatively flat. And the bank, the expense incremental will be offset by the revenue as we ramp up the bank. But again with starting this mid-year, and then that will get into a much better run rate next year.

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Great. Awesome. If I could just sneak in one more, when you guys talk about the opportunities to deploy the excess capital which obviously is going to go up at the end of the year and it sounds like there's going to be opportunities to further rationalize the (inaudible) portfolio which again will probably drive some incremental capital relief. Where does the rationalizing long dated risk whether it's long term care or may be even some of the VA business on your priority list. Is that sort of part of the framework over the near term or that's something that will likely to happen kind o f over time?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Alex, Walter, let me take a shot of that. Obviously, we feel very comfortable with the exposure profile that you mentioned in those areas, but we are continually evaluating options as a come up and if they do, we will then certainly assess, is that in the best interests of shareholders and deploy it that way.

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Got it. Fair enough. Thanks very much.

Operator

Our next question is from Suneet Kamath. Please go ahead.

Suneet Kamath -- Citi -- Analyst

Thanks. Just first a comment just on the optimization it's clearly good to see, you guys post some of the levers that you have. But on that point, are there things that you're looking at in terms of further optimization beyond the fixed annuity business?

James M. Cracchiolo -- Chairman and Chief Executive Officer

The answer is yes. I think Suneet, we're very thoughtful but we're always looking out and planning and we evaluate the business in a way that says what will be good for us to continue to grow in the areas of opportunity. What can we leverage appropriately, but also what will generate a good return in cash flow and manage a really good business on behalf of our clients. So yes, we have and I mentioned a range of them just before, but that's clearly some of the things that we'll be talking about with my Board, as we go through our planning process, but more importantly that we're focused on even here in the near term.

Suneet Kamath -- Citi -- Analyst

Okay. And then just shifting gears to asset management, I mean you've talked about industry pressures dropping the margin there and some of the challenges that you face, but given our view -- if we take the view that those pressures are not going to subside anytime soon. Is it time to start thinking about something more strategic in terms of that business either building scale or pursuing another strategy to rationalize costs or something along those lines just given these pressures seem to be in front of us for some time?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Right. So we approached this twofold very clearly, as you know, we look to continue to make changes in the business of areas that we can really garner some good activity inflows and fees. That does mean that we adjust and have to prune certain areas which we've been doing, but very clearly we're making some of the core changes and core focus on areas of opportunity, I think this market's been a bit more pressured, the volatility has been high. Brexit and other things have been unfortunate impacting many companies doing business there. But, that's the first and very clear focus we have right now.

But at the same time, we are thinking out and looking out strategically the industry is changing. There continues to be a combination a level of consolidation out there. And there may be some good opportunities with some of the assets and capabilities we have and some of the knowledge we have of what we've been able to do in the past to meet up and look at other capabilities with other firms that are having the same challenges. So it's one of the things, I think we're very open too and but we very clearly focus on what the client needs, what's good for overall for our people, the culture we have, as well as the shareholders. But as you know, Suneet, just like we're very thoughtful and have been will continue to look and explore opportunities.

Suneet Kamath -- Citi -- Analyst

Okay. And then, just lastly on the recruiting in AWM, I think both Jim and Walter referenced the productivity being higher for the new recruits. So if we think about the pace at that $628,000 revenue per advisor. Can you give us a sense of where the new recruits are coming in, I know it's higher but just any quantification on that>

James M. Cracchiolo -- Chairman and Chief Executive Officer

Yes. So I would say, the average recruits we're bringing in now, probably come out on average to roughly where we are in the numbers that we're mentioning. But, what we're finding is, we're starting to really get now more and more larger teams. And so it's been gradually continuing to move up. Of course, there's always the transfer in the periods of them bringing over their book etc. But what I would say is, we have a very good class of people coming in and we feel like, we're actually hitting stride right now and really how Ameriprise can really appeal to people in the industry and people who really can continue to grow their productivity, so we feel very good about it.

Suneet Kamath -- Citi -- Analyst

Okay. Thanks, Jim.

Operator

Our next question is from Nigel Dally. Please go ahead.

Nigel Dally -- Morgan Stanley -- Analyst

Great. Thanks. First question is just on asset management margins. You had been targeting the mid to high 30s, this quarter a dip below that range. Given your comments that, you expect the environment to remain challenging. What should we expect for margins going forward, any guidance there would be helpful?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Yeah. As you look at going forward certainly with the market improving where it ended the quarter, and with as I mentioned are reengineering if it is, I do see over the balance of the year that certainly we could get back into the range or we talked about previously, but it's not without challenges, but we have certainly put in place the reengineering aspects of it and certainly with the market where it is stays that way. We -- it should improve if when we exited the quarter at 33.6%.

Nigel Dally -- Morgan Stanley -- Analyst

Okay. And then just second on the annuities, good to see the Global Atlantic transaction. Any reason why you couldn't free up the remaining capitals putting the remainder with the blocks this year or is it something different with respect to the nature of what's remaining relative to what you insured last quarter?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

No. It's actually we chose -- we basically reinsure the third-party channel or account value. We have looked at and we have the total capability from an operational standpoint. We're just looking at then the environment and other things as we've said this will be, we will continue on that path.

Nigel Dally -- Morgan Stanley -- Analyst

Okay. Very helpful. Thanks.

Operator

Our next question is from John Barnidge. Please go ahead.

John Barnidge -- Sandler O'Neill -- Analyst

Thanks. I know you mentioned the frameworks in place for future reinsurance transactions for fixed annuities, but would you consider a risk transfer for the variable annuity block at all?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

As Jim said, we will evaluate and certainly look at what is in the best interest of shareholders. Again that those have different nuances attached to it, but the answer is we will evaluate for sure.

John Barnidge -- Sandler O'Neill -- Analyst

Okay. And then my follow up, now that we have the first year of tax or returns post reform in the books. Can you talk about how you saw activity change from 1Q '18 to 1Q '19 and maybe what you're seeing so far this quarter from products that demand generally sees a boost from refunds?

James M. Cracchiolo -- Chairman and Chief Executive Officer

No, I mean I think, when you look at client activity, we haven't seen a material I mean I think there's been a bit more of a -- in some investments in tax exempt etc, has gone through if you are looking at the retail client or you are looking at the corporate?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

No I think it's Walter. As we -- I think in (inaudible) because you have to look at, we saw our activity level. Our activity because I think you're driving at the activity level, we're seeing because peoples are not getting refunds. Is that where you were going?

John Barnidge -- Sandler O'Neill -- Analyst

Yeah.

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Yeah. So what we started seeing in January, as we said, the activity levels were lower and then in February and March they really came back. So as we are not seeing that impact at all from people getting lower tax refunds or anticipation load to your tax fund, that is not manifest itself yet, if at all.

John Barnidge -- Sandler O'Neill -- Analyst

Okay. Thank you.

Operator

Our next question is from John Nadel. Please go ahead.

John Nadel -- UBS -- Analyst

Good morning. A couple real quick ones. Just a clarification on Slides as well, when you say return capital at 110% of earnings and fund the bank in 2019, I guess, I just wanted to clarify, is the bank part of that 110% or is 110%, isolated to just buybacks and common dividends?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Just buybacks and common dividends.

John Nadel -- UBS -- Analyst

Alright, that's helpful. Thank you. And then just a follow-up on the tax rate, I guess, your original outlook for 2019, Walter, was 17% to 19%. And now we're looking at 16%. So my question is, how should we be thinking about that tax rate beyond 2019? I understand your earnings mix will continue to shift, but I'm just wondering, if we should be thinking about more about that 17% to 19% range beyond 2019 or is there a reason why we stay below that range on a go-forward basis?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

John, I'm don't know -- incorrect. I think we actually think of going's for '19. This is the first time we're actually mentioning it I'll go back and check, but the 16% is totally consistent where we thought it would be. And that is, like I said, it's aligned with what '18 was, I can't really you're right, it's going to change based on mix of earnings and things like that as we go because you had more to the marginal 21%. But the answer is, I think this is a pretty comfortable range.

John Nadel -- UBS -- Analyst

Okay. That's helpful. And then if I could, just on long-term care, I guess, can you tell us, are you willing to tell us, whether you've actually had any formal discussions or due diligence with any counterparties at this point on a the possible risk transfer? Is that something that just hasn't really taken place in any formal way? And then if I could also add to that, as the Genworth-Oceanwide deal has now been extended. I think, it's actually the ninth time they've extended. And it appears no closer to gaining the remaining regulatory approvals. I'm just wondering have you had any discussions with the Genworth around providing more details as to the protections you have in place around your reinsurance agreement with them?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Okay. So, we -- let me answer the question this way is, we are approached all the time for people to explore the opportunity to certainly enter into a reinsurance arrangement with us, there is nothing we have seen, but we keep an open mind about it, based on the way we feel our exposure is as relates to our book of business, if nothing has really risen to the top of this stage to really get us into really considering. But as Jim said, we will always explore options and that's what we do. As it relates to ninth time, the tenth time -- as it relates to Genworth we are not -- I'll say my way we're indifferent. I'll be candid from that standpoint. We repeatedly keep on referring to the fact that we have arrangement with them that it really does protect us and we feel extremely comfortable wherever the sales is there or the sales not there. And that is something that we feel is something that is really without any doubt in our minds we feel we have the protection.

John Nadel -- UBS -- Analyst

And I appreciate that Walter, I -- you guys have the detail, right? I think investors particularly in the event that this deal -- the Genworth Ocean wide deal actually does not gain approvals or is disapproved. I guess, I'm just wondering whether those details will be something that you can provide externally to your investor base to give them the same level of confidence that you guys have internally?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Right, so this is Jim. Let me just take a minute to tell you why we don't think so and importantly why the point of view that has been expressed that -- in solvency if it ever occurred would look could mean billions of exposure to us is not only highly theoretical it's wrong. As previously disclosed in 2016 RiverSource negotiated substantial enhancements to its reinsurance credit protections under its reinsurance arrangement with GLIC. These were intended among other things to protect RiverSource against erosion and GLIC's financial position.

Due to confidentiality obligations, we are not at liberty to disclose the extent or nature of such credit protections, but we hope to provide some additional color that's helpful as to why we continue to believe that our net counterparty credit exposure to GLIC is very different from the gross exposure and is well within our overall risk tolerance. A few points to consider, CLIC is domiciled in Delaware. So any insolvency proceedings will be located there, and governed by Delaware laws. Delaware laws and courts have a long tradition of respecting commercial and financial affairs and the contract sophisticated people enter into corporate law, in trust and in insurance. Similar credit protections to these types we have with GLIC have been tested and ensured insolvency's proceedings in Delaware, and they have been respected by the authorities.

The same holds true elsewhere in the United States. We believe that these protections will be respected even in the unlikely event that GLIC what to eventually become subject to insolvency proceedings in Delaware. While we know no credit productions are perfect, we believe the correct way to think about our counterparty credit exposure to GLIC is not the full amount of any gross liability that GLIC reinsurers, but rather than net exposure to GLIC after taking into account our credit protections, which would be significantly smaller exposure, if it were to exist.

John Nadel -- UBS -- Analyst

I appreciate that response. Thanks Jim.

Operator

Our next question is from Andrew Kligerman. Please go ahead.

Andrew Kligerman -- Credit Suisse -- Analyst

Great. Thank you. Most of my questions have been answered so just maybe some follow-ups on the previous. The derisking of long tail business is clearly, Jim when you mentioned that was the LTC. It sounds to me that there is no sense of urgency to enter into any arrangement. Is that the right read?

James M. Cracchiolo -- Chairman and Chief Executive Officer

No, what I would say and my read just based on what I've -- and Walter said is this. We feel good about what we have for our own business and what we manage just like we have in place for our reinsurance. We feel that we take appropriate reserves. We look at the experience. We constantly evaluate. We have again taking rate we have got approval for rates that are going into effect. We are adjusting even somewhere at the alternatives that clients have as they move forward.

So with that, don't get me wrong, there can always be some exposure in the future, right, we know things changed, the world evolves. There could be change in some clients, but our book is very aged. Our people have been there for long time. We have very strong claim experience. And so, as we continue to make these things, remember this is a book that we closed in 2002. The age is much higher than average. And our experience levels are very strong and knowledge of what we have. So we're not saying there couldn't be some exposures going forward, but on a relative basis based on the strength of our position, our cash flows, our capital and what necessarily even could change in the near future, next few years, next five years, 10 years, this is immaterial to our ability to handle it.

But I know, people are putting this undo sort of risk out there as an umbrella on us, but it's not going to have an effect that people think in any stretch in imagination. Even, if you said, it was hypothetically a few hundred million dollars, we can easily take that against our access capital position would not even a beat at this point. So the point of reference is, if there is a reasonable transaction even if it's at a discount with a good party and I think people are getting more sophisticated in understanding the differences, I think the transaction could occur, OK. One of the big variables is interest rates. The long-term rates have come down a little more. If they went back to where they were, it'll even be more appetizing. So let me be very clear. We're not opposed to anything like that. We're evaluating. You saw we just started the reinsurance. We told you, it would take a little time for us to get where we wanted in the Auto and Home. Listen, I think we're credible in what we say and what we'll do. We'll make very informed decisions, and we'll evaluate to continue to invest and grow the business.

What I would take away from this today is that we're really excited about the opportunities we have in Ameriprise and Wealth Management business and a generation of cash across the Company. Even with our Asset Management and INA business, INA is really good solid books. And if there are opportunities for someone to get certain based on the structures they have, but keep the real good benefits and the growth and us really growing the opportunity with our clients and working on a good products, we are open to it.

And the same thing with long-term care. But we're going to manage it really well. We're going to make sure that we get appropriate return and cover our risks. And to the extent that there are those little blips that pop up, we're well easily able to cover them. So that's the way I would think about it, but no, we're not opposed to any transaction in LTC, and we think that people are getting more sophisticated in understanding the differences, and maybe there'll be a potential for us in the near future. And we're looking at it. So people are starting to call and we are starting to talk.

Andrew Kligerman -- Credit Suisse -- Analyst

Right. Great. Yeah. And I mean, it is kind of a shame because you've got so many great businesses and trends going on that talking so much time about this is, it just doesn't make a lot of sense. But with that said, and it sounds like you're not going to do anything that would harm your balance sheet given your feeling about the LTC block and the stability of it. Shifting over to two items, one the crediting rate on your sweep fees and Advice & Wealth Management, I think I saw that it came up by 7 basis points in March. Looking out into the second quarter, are the yields pretty stable right now? And do you think -- Walter you mentioned you might need to stay competitive. Is there any impetus to raise crediting rates any further?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

No, what you saw is -- we're constantly evaluating our competitive positioning and we believe we are competitive now. And we will -- we constantly review, but I don't see anything that would be changing going forward. But if it does, we will adjust it.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. And then just lastly on the tax rate, it says in the press release the 16% range. I think that means for the year. So can we assume that given you had 17.3% in the first quarter that it might trend a little bit under 16% for the balance of the three quarters?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Yes.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. Thanks so much.

James M. Cracchiolo -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Erik Bass. Please go ahead.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. How are you thinking about the best options for growing the Advice and Wealth business going forward? Are there meaningful organic investments of capital that could accelerate growth or to pursue M&A, what type of transactions would be of interest?

James M. Cracchiolo -- Chairman and Chief Executive Officer

So what I mentioned before that we are taking the opportunity to make really good investments and enhancing all of our digital capabilities, our advice capabilities, our client engagement systems. We feel good about that. We are actually picking up our pace in recruitment out in the industry as well. I feel good about that and it gives us opportunities. And I do believe there may be some opportunities for us, as I mentioned and in the use of capital to look at some good potential additional add-ons to our wealth management business from an M&A perspective. It's a bit early for me to get into that right now, but at some things that we're going to spend a bit more time exploring. And we think that may be a good use of our capital moving forward.

Erik Bass -- Autonomous Research -- Analyst

Got it. And on that note, it would be similar to some of the transactions you've done recently, where sort of keen lift outs or acquisitions of small independent firms or could it be something bigger than that as well?

James M. Cracchiolo -- Chairman and Chief Executive Officer

I would say it could be both. I -- listen, there are different opportunities in the wealth management space right now that we're thinking about or looking at. So, I don't want to go further than that, but just say listen, this is an area that is our core. We know it well. We understand it. We do believe, we can bring a lot to it. So, it's one of the things that we want to spend a little bit more energy on.

Erik Bass -- Autonomous Research -- Analyst

Got it. And lastly big picture, it sounds like your focus is really to continue to shift enterprise more toward a distribution Company and away from product manufacturing? Would this just be I guess organically growing AWM at a faster rate or could you also see exiting more of your manufacturing businesses?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Well, what I would say is this, as you just saw based on our mix and growth, our distribution business the AWM is over 50% now of our earnings. We still have very good businesses. Our INA business, however, are solutions to our clients and they are very complementary. So, the real good cash flow we get the solid nature of the books is because the part of where my client assets go for products that we manufacture in addition to what we distribute externally. So, I think that's how I think of it.

Same thing with our Asset Management business. Columbia manages a good amount of assets both for our retail clients, also as part of our books for our INA business and it's very complementary. And if you go back, many, many years we started as a manufacturer with distribution as a cost center. When I came in, I converted the distribution to the profit center, and wanted to round out my solutions group. I exited third-party in the INA, because of what was happening in the industry.

In the Asset Management, I figured I would complement that by buying some companies to give me more of that third-party distribution as a compliment. I think, we have accomplished that so, to a good regard. And having said that, I still value the solutions part and what we do here. But as I would probably say the growth driver of the coming right now based on industry pressures etc, is in our distribution channel. But we will continue to be a quality provider in the other areas and they will generate some good returns for us.

Erik Bass -- Autonomous Research -- Analyst

Great. Thank you. I appreciate the comments.

Operator

Our next question is from Jeff Schmitt. Please go ahead.

Jeff Schmitt -- William Blair & Company -- Analyst

Hi. Thank you. Good morning. Quick question on management fees in wealth management up 4% in the quarter, but looking at that as a percentage of assets or of average wrap assets. I mean it was down a fair amount to 1.32%. Can you maybe speak to that and give us a sense of where you see that going over the next year or two?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Well, I think in the first quarter just as we saw in the fourth quarter, you had depreciated assets from the level of where you started in December. And so off-loads have been consistently strong fourth quarter, first quarter and they are even getting back to even higher levels as we exited the first quarter. But I think when you look at the fee level, you had equity markets down significantly at the end of the year, just making its way back through the quarter. And so, when you run a very large portfolio like that with a reasonable portion being in equity or a portion of that 50%, 60% that's where you're going to get that fee compression. But to Walters point what he explained would be as we are exiting this quarter with the markets backup, you should probably see it come back to the full level of the type of fee that we had. But the good inflows over the course of the entire last year will complement that as we move forward.

Jeff Schmitt -- William Blair & Company -- Analyst

Okay. Thank you.

Operator

And our last question will be from Humphrey Lee. Please go ahead.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning. Thank you for taking my questions. Just a question related to wrap flows at AWM. So you've talked about, January was a little bit weaker, muted start and it kind of picked back up in February and March. I guess, how much was the impact was January was to the quarter? And do you feel if the kind of going forward to see a more normal activities, do you feel like you can go back to roughly $5 million range of quarter in terms of wrap net flows?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Yeah. So in January, it was substantially down and basically by March it was back at the levels -- at the historic levels and we are -- again, I can't give you an exact number, but certainly we are seeing a pattern that we feel comfortable with as we that -- as the client activities started to coming back. So we feel very good about that trend line and that's continuing in April to a degree.

Humphrey Lee -- Dowling & Partners -- Analyst

Okay. So basically fourth quarter and first quarter was kind of an anomaly, but then we should kind of looking back to get the other -- the rest of the quarters in recent history?

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Yeah, that's what certainly the pattern is saying. And especially as you start at March you just watched January was down and it just progressed it's way right back up in March and it exited and we're seeing that continuing.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. And then in Asset Management, you mentioned that the EMEA flows were weaker, but then you have some of the distribution build out that should hopefully improve the flows activities a little bit better toward the balance of the year. Can you talk about the build-out of the distribution in Continental Europe, and then your expectation for kind of how protective these channels would be in the coming quarters?

James M. Cracchiolo -- Chairman and Chief Executive Officer

Yeah, so this is Jim. What I would say is, first of all, in the first quarter, we completed our transfer of our OEIC assets into SICAVs out of Luxembourg range that we have established last year. So even part of the expense that we have in the P&L was based on completing that, shifting the assets, offsetting some of the expense for our clients etc. Now, when we've done that, we now have a range of the product, the good range of the product and we are adding resources in some of the markets like Italy and Spain and Germany, ramping up with some manpower distribution etc, marketing to start to sell more formally in Europe. We also sold, but we almost sold out of sort of the idea that we are distributing OEIC's and we don't have necessarily all the resources fully on the ground. So we are ramping that up.

Now I would just say activity in Europe and Brexit, if you look at the number of European firms out of the UK in Asset Management, you'll find that activity is pretty weak and redemptions were there. But if that starts to get back as people start to see clarity around Brexit or the idea that the European economy is not slowing, I think you'll see a rebound in that activity and then, with what we're doing to expand in Europe hopefully that will even give us a greater level of upside down the road. I don't think that's going to happen immediately because of the situation across Europe and the UK right now, but it's one of the areas where we have always gone in good flows, we have good product and one where we do believe that there is a benefit as that starts to settle down on the continent and in UK.

Humphrey Lee -- Dowling & Partners -- Analyst

Appreciate the color. Thank you.

James M. Cracchiolo -- Chairman and Chief Executive Officer

Thank you.

Operator

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

Duration: 65 minutes

Call participants:

Alicia A. Charity -- Senior Vice President, Investor Relations

James M. Cracchiolo -- Chairman and Chief Executive Officer

Walter S. Berman -- Executive Vice President and Chief Financial Officer

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Alex Blaustein -- Goldman Sachs & Co. -- Analyst

Suneet Kamath -- Citi -- Analyst

Nigel Dally -- Morgan Stanley -- Analyst

John Barnidge -- Sandler O'Neill -- Analyst

John Nadel -- UBS -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Jeff Schmitt -- William Blair & Company -- Analyst

Humphrey Lee -- Dowling & Partners -- Analyst

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