Ameriprise Financial, Inc. (NYSE:AMP) Q3 2022 Earnings Conference Call October 26, 2022 9:00 AM ET
Company Participants
Alicia Charity – Senior Vice President, Investor Relations
Jim Cracchiolo – Chairman and Chief Executive Officer
Walter Berman – Executive Vice President and Chief Financial Officer
Conference Call Participants
Ryan Krueger – KBW
Brennan Hawken – UBS
Suneet Kamath – Jefferies
Alex Blostein – Goldman Sachs
Andrew Kligerman – Credit Suisse
Craig Siegenthaler – Bank of America
Kenneth Lee – RBC Capital Markets
Thomas Gallagher – Evercore ISI
Steven Chubak – Wolfe Research
John Barnidge – Piper Sandler
Erik Bass – Autonomous Research
Operator
Welcome to the Third Quarter 2022 Earnings Call. My name is Lisa, and I will be your operator for today’s call. At this, all participants are in a listen-only mode. [Operator Instructions] As a reminder this conference is being recorded.
I would now turn the call over to Alicia Charity. You may begin.
Alicia Charity
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’d 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. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials and on our website.
Some statements that we make on this call may be forward-looking, reflecting management’s 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 third quarter 2022 earnings release, our 2021 annual report to shareholders and our 2021 10-K report. We make no obligation to publicly update or revise these forward-looking statements.
On slide 3, you see our GAAP financial results at the top of the page for the third quarter. Below that you’ll see our adjusted operating results, followed by operating results excluding unlocking which management believes enhances the understanding of our business. By reflecting the underlying performance of our core operations, and facilitates a more meaningful trend analysis. We completed our annual unlocking in the third quarter. Many of the comments that management makes on the call today will focus on adjusted operating results.
And with that, we’ll turn it over to Jim.
Jim Cracchiolo
Good morning and welcome to our third quarter earnings call. What I’d like to do is give you my perspective on the environment and how Ameriprise is performing. Then Walter will cover the financials. In terms of the market environment both equity and fixed income markets continued to decline in the third quarter both here and in Europe. Inflation remains high and sticky and geopolitical risk is elevated. This is causing a high level of volatility keeping investors on the sidelines a bit more. With that short-term interest rates were up 300 basis points so far this year with 150 basis points raised just in the third quarter. I believe that the Fed and other central banks have been playing catch up, and that they will have to continue in increasing rates to get inflation under control.
Having said that, it will lead to a slowing of the US and European economies and at this juncture, it looks more like we’re heading for a mild recession. Therefore, I expect there will be more volatility ahead. So for Ameriprise the diversity and strength are our business allows us to deliver good outcomes even in challenging times. And you certainly saw that in our results this quarter. We continue to remain in strong client inflows and wealth management and the rise in interest rates, the growth of the bank and the stability of the retirement protection businesses helped to more than offset the effect of depreciating markets and foreign exchange that impacted our asset management business. The investments we made in our business over the years in our technology, client service, product solutions and advice value proposition are paying dividends as we continue our strong focus on our clients and helping our advisors navigate a difficult environment.
Now I like to discuss our third quarter results in more detail. Total assets under management administration were $1.1 trillion, which is down 9% from a year ago, assets were impacted by the steep decline in both equity and fixed income markets and the strength of the dollar, which affected the foreign exchange rate and our European business. In terms of adjusted operating financials excluding unlocking revenues were $3.5 billion up 1%. With that earnings per share were up 9% to $6.43. And the return on equity was strong at 47.9%, which is consistent with this time last year. Now let’s talk a bit more about our businesses. Our stock with advice and wealth management where we continue to deliver strong results. Despite the environment we had good client flows as clients remained engaged. Total client flows were up 11% in the quarter to more than $11 billion. The mix about flows reflect the environment we’re in. We saw strong growth and brokerage cash, certificates and other products. As we expected cash balances continued to be up sharply to more than $46 billion, compared to more than $40 billion just a year ago. We’re seeing good growth across our cash offerings. Very importantly, our advisor productivity remained strong as we continue to reinforce a personal relationship in the value of advice. It was up 7% to $819,000 per advisor. We recently met with our top advisors to recognize their success and discuss growth opportunities at Ameriprise. Engagement was terrific, advisors are highly satisfied with the firm and the support we provide. And they liked the technology and the capabilities we’ve added which is helping them grow. Which brings me to recruiting. We had another very good quarter adding 89 highly productive advisors. Advisor consistently tell us they recognize the strength of our value proposition, our brand, and the stability of the firm. It’s a competitive marketplace, and I feel good about our pipeline.
In the third quarter, as we have all year, we continue to invest steadily in the business. We continue to release additional tools, capabilities and enhancements that help our advisors engage and meet with clients, deliver actionable advice, and improve efficiency of their practices. As part of our investment agenda, we’ve been very much focused on expanding our cash offering and growing our bank. The bank provides important flexibility in this rising interest rate environment, and will continue to be a good opportunity for us to further engage and deepen our relationships with clients. We continue to move cash to the bank adding $3.1 billion in the third quarter. And with that we’ve been able to invest appropriately to garner additional spread. Today, our bank has grown to nearly $19 billion. We also continue to see good growth in our pledge loan business, and we’ll be launching more products in the bank as we move forward. Overall, the advice and wealth management business continue to generate strong profitable growth and margins reached 27.8%, up 540 basis points.
Now let’s turn to retirement and protection solutions. Starting with variable annuities, we have narrowed our focus to concentrate on products that are good for clients in this environment and for the firm. And with that strategy in place, we have continued to generate solid sales and variable annuities without living benefits, as well as our structured products. As we have shifted away from annuities with guarantees. Therefore, our sales are down but in line with the industry. We also made a shift in protection away from fixed insurance to focus on VUL and DI products. Live sales will also down give the climate but again, results were in line with the industry. Based on what we’ve done to appropriately risk adjust these businesses. They continue to generate good earnings, stability, and solid returns in cash flow as a complement to our other businesses.
Now we’ll cover asset management. As you’ve seen across the industry markets have impacted asset levels from an equity and fixed income perspective. As a global asset manager with sizable presence in Europe, we were also affected by the appreciation of the Sterling and the Euro versus the Dollar. Assets under management were down 6% to $546 billion given the equity and fixed income markets and the FX impact I’ve mentioned more than offsetting the BMO acquisition. Consistent with what you’ve seen in the industry, investors have more of a risk off perspective and you have a level of tax loss harvesting taking place based on market depreciation. Very critically in this environment, we are maintaining good investment performance and we’re continuing to maintain good three-, five- and 10-year track records. While there’s been a lot of volatility over the course of the year, over 70% of our funds are above meaning on an asset weighted basis. Our short-term performance has been impacted in some of our fixed income strategies based on the spike in interest rates. And in Europe, some of our equity strategies were impacted because of quality growth positioning.
Let’s turn to flows; in the quarter, we had outflows of $2.4 billion, that included $1 billion of legacy insurance partner outflows, positive flows and institutional were more than offset by the ongoing pressure we’ve seen in retail. In retail, overall, we’re in net outflows, but it improved a bit from a toughest second quarter for us in the industry. We ended the third quarter with lower gross sales and higher redemptions than a year ago given the markets. This resulted in $5.3 billion of net outflows driven by weak conditions. In US retail, equity outflows remain generally in line with the industry and fixed income results were behind given our product mix. In EMEA, the retail flows remained under pressure, we did see some improvements in continental Europe, and overall flows were a bit better than the industry for the quarter.
Turning to global institutional, excluding legacy insurance partners, net inflows with $3.9 billion and we’ve seen fundings get extended given the markets and some asset allocation calls. In asset management, we expect the environment will remain challenging. However, we think there will be opportunities as markets settle down over time and interest rates stabilize. At the same time, BMO EMEA business, and that’s going well. We continue to make good investments in the business overall, ensuring that we have the right focus to move forward in distribution, as well as servicing and platform capabilities. But we also have a very strong eye towards managing expenses in this market, and adjusted for the BMO EMEA acquisition, we brought G&A expenses down by 7% and we’ll continue to be very focused there. As I look ahead for Ameriprise, I believe we will continue to be operating in these markets for a while. So as you expect from us, we’re very much focused on what we can control. That includes continuing our strong engagement with clients and advisors, as well as leveraging our investments as we continue to manage our expenses tightly moving forward. Importantly, I feel like the strength of our businesses and the growth of the bank will allow us to navigate these markets very well and generate a consistent level of free cash flow and good returns for our shareholders. And what’s very important and critical for the firm. And what we deliver is the engagement of our people and advisors. I feel very good about the team. We just conducted our employee and advisor surveys and we continue to see high levels of engagement and satisfaction industry leading. And we know how important this is going through a challenging environment to keep our focus on our clients. In total, I feel really good about the mix of our business, the flexibility we have and how we are positioned for both the challenges and the opportunities ahead.
Now I’ll turn it over to Walter and then I’ll take your questions.
Walter Berman
Thank you. As Jim said results this quarter continued to demonstrate the strength of the Ameriprise value proposition as adjusted EPS excluding unlocking increased 9% to $6.43 in a challenging market environment. Both management business momentum, higher interest rate environment and expense discipline more than offset equity and fixed income market appreciation, coupled with significant weakening of the pound and the euro in the quarter. We continue to benefit from strong growth in wealth management, which represented 60% of adjusted operating earnings in the quarter, up from 49% a year ago. Across the firm, we continue to manage expenses tightly relative to the revenue opportunity within each segment. As a result, we’ve continued to make investments in the bank and other growth initiatives, particularly in wealth management, while prudently managing overall firm wide expenses.
On year-to-date basis, G&A expenses are flat excluding BMO. We expect that for the year G&A will be down 1%. Our balance sheet fundamentals remain strong despite continued market depreciation in a quarter and we returned $632 million of capital to shareholders. For the full year, we remain on track to return approximately 90% of adjusted operating earnings to shareholders. Let’s turn to slide 6. Assets under management administration ended the quarter at $1.1 trillion down 9%. While AUM/A benefited from strong client flows and the addition of BMO late last year, we experienced significant market impacts. Equity and fixed markets were down 19% and 14%, respectively. In addition, Asset Management AUM levels were substantially impacted by significant weakening of the pound and the euro, with the AUM of non- US businesses down to approximately 35% of total.
Overall, pretax earnings remain strong in this environment, up 6% from last year, excluding unlocking. With meaningful benefits from interest rates and strong client flows more than offsetting significant negative equity and fixed income markets and foreign exchange impacts that largely occurred in September.
Let’s turn to individual segment performance beginning with wealth management on slide 7, wealth management client assets declined 12% to $711 billion as a result of significant market depreciation over the past year, partially offset by our strong organic growth. Total client net flows remain strong $11.2 billion, up 11% from last year, with $6.4 billion of flows into wrap accounts, and $4.8 billion into non-advisory accounts, specifically certificates and retail brokerage, as anticipated in this environment. Revenue per advisor reached to $819,000 in the quarter, up 7% from the prior year from continue to enhance productivity and business growth. On slide 8, you can see wealth management profitability increased 30% in the quarter, with the significant benefit from interest rates and strong organic growth exceeding negative impacts from market depreciation and lower transactional activity. Pretax operating margin reached nearly 28%, up over 500 basis points year-over-year and up 390 basis points sequentially. Adjusted operating expense declined 3% with distribution expenses down 7% reflecting lower transactional activity in asset balances. G&A is up 12% in the quarter and up 7% on a year-to-date basis. The higher-than-normal year-over-year increase in the third quarter was driven by unusually low prior year expenses relating to staffing levels and T&E, timing of expenses in the current year, and continued expenses associated with higher volumes and continued investments in the bank and other growth initiatives.
We anticipate that the full year will be in line with the 7% year-to-date growth pace, we expect the higher interest rate pattern to drive a substantial and sustainable benefit in the fourth quarter of ’22 as well as 2023. Let’s discuss the components in more detail. First, cash balances remain high at $46 billion this quarter. With multiple products available to meet client needs, including brokerage cash, bank and certificates. The majority of our brokerage cash is in working cash accounts for our clients with over half of the balance is less than $100,000. And our client crediting rates have continuously benchmark and remain competitive. As a result, we have not experienced cash sorting issues to the extent of others in the industry. Our certificate products offer another solution for clients looking to ladder their liquidity and garner some additional rate upside in the multiple product offerings.
Second, the bank provides flexibility to optimize the benefits from higher rates by investing in high quality, longer duration securities, creating sustainability of interest earnings, our bank reached nearly $19 billion in the quarter, up from $10 billion a year ago. In 2023, we plan to grow the bank to the $22 billion range. In the quarter, the pickup from investments in the bank is approximately 150 – 200 basis points above the spreads from wrap balance sheet cash. Over the past several years, our total client cash balances have been consistently 5% to 6% of total client assets. This positions us well to capture the opportunity from rising rates and lock-in those benefits over the medium term. In 2022, spread earnings will increase by over $600 million versus the prior year and we expect this trend to continue into 2023.
Let’s turn to asset management on slide 9. We’re managing the business well through a challenging market. Total assets under management declined 6% to $546 billion primarily from equity and fixed income market depreciation and unexpected significant negative pound and Euro foreign exchange impact, as I mentioned, the BMO acquisition broaden our geographic diversification with about 35% of the assets in EMEA. However, this diversification increased our foreign exchange transaction exposure. As mantra like the industry was an out flow in the quarter, continuous strength in our global institutional business offset a meaningful portion of retail outflows. Like others, we experienced pressures from global market volatility, a risk off investor sentiment and geopolitical strain in EMEA, marching the quarter declined to 35.6%, which is slightly above our target range of 31% to 35%. Decline versus last year is attributable to broad markets appreciation and foreign exchange impacts. Given the material market depreciation and foreign currency weakening in September, we expect additional margin erosion next quarter. On slide 10, you can see asset management financial results reflect the market environment. Earnings declined to $191 million reflecting double digit market depreciation, significant foreign exchange weakening and outflows. Importantly, we continue to manage the years we can control. Expenses remain well mannered, excluding BMO total expenses were down 13% aided by a 7% decline in G&A. We continue to make market driven trade-offs and discretionary spend and remain committed to managing expenses very tightly in the current revenue environment, and the fee rate remained stable in the quarter at 48 basis points.
Let’s turn to slide 11. Retirement and protection solutions continuing to deliver stable earnings and free cash flow generation, clear result of a differentiated risk profile. Pretax adjusted operating earnings excluding unlocking were $203 million. In the quarter, we completed our annual actuarial assumption update, which resulted in unfavorable pretax impact of $172 million. Sales in the quarter similar to the industry declined as a result of the volatile market environment, as well as management action to discontinue sales of variable annuities with limited benefits to reduce the risk profile of the business. Protection sales remain concentrated in higher margin asset accumulation VUL, which now represents one third of total insurance inforce assets. Annuity sales in the quarter were in lower risk products without guarantees and structured variable annuities. These products represent over 40% of our total VA account value. We have begun to reposition our investment portfolio to capture the interest rate opportunity. We have remained short on duration in this portfolio given the low-rate environment over the past several years, we now have the opportunity to enhance yield by extending asset duration and changing the mix in business without increasing credit risk.
Now let’s move to the balance sheet on slide 12. Our balance sheet fundamentals remain strong and our diversified high quality investment portfolio remains well positioned. In total, the average credit rating of the portfolio is AA with only 1.6% of the portfolio in below investment grade securities. Despite significant market dislocation in the quarter, VA hedge effectiveness remain very strong in the quarter at 97%. Our diversified business model benefits from significant stable free cash flow contributions from all business segments. This supports that consistent and differentiated level of capital return to shareholders, even during periods of market depreciation like we experienced this quarter. During the quarter, we returned $632 million to shareholders in excess capital and holding company liquidity remains strong. We are on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022.
With that, we’ll take your questions.
Question-and-Answer Session
Operator
[Operator Instructions]
We’ll take our first question from Ryan Krueger with KBW
Ryan Krueger
Hi, thanks. Good morning. My first question is could you give us an update on your excess capital position and any moving parts from the quarter?
Walter Berman
Sure. I’ll take that. The number is $1.3 billion. And it’s down $300 million from last quarter and the main drivers on that is the market dislocation and the growth in the bank and the remainder is coming from the unlocking.
Ryan Krueger
Got it. Thank you. And then separately in retirement and protections, our earnings are over $200 million this quarter ex unlocking they’d previously been running more than $180 million to $190 million range. Can you help us think about the run rate earnings in that business going forward? And also how the portfolio repositioning will impact that?
Walter Berman
Yes, I would say that yes, it did increase a little bit. But I think the run rate you are talking about between 180 range is certainly one two, that’s we anticipate going forward. And yes, the interest rates, we’ll take that up again, as we do it, because we are reinvesting out. As we looked at the portfolio and the opportunities because we basically say short duration now, we’re taking advantages we move out. But it will go off, but I would say I would start with 180 ranks.
Operator
We’ll take our next question from Brennan Hawken with UBS Financials.
Brennan Hawken
Good morning, Jim and Walter, thanks for taking my question. I’d love to start with some of the comments on the bank. I believe you indicated that you’d be moving about $3 billion in balances in 2023. Why not accelerate that we saw more than that move in 2022, rate environment is certainly attractive. And it seems like a good place to utilize some of that capital. So that’s number one.
And then number two, when you think about the pledge loan book within the bank, are you seeing any change in demand or growth as a result of higher rates where maybe the demand is eased up.
Jim Cracchiolo
So as relates to ’23, we, I indicated that the, it’s probably better to say it was at least two, we would add $3 billion next year, we obviously will gauge the situation, we certainly have the capacity to do more, both from the availability of liabilities and capital. And we will assess it and the key element associated with that is also the availability of investments that meet our standards, both from a quality standpoint and diversification standpoint, that will be a factor in that. We feel very comfortable with the balances we have that will be the source of that. So I would probably modify and say at least $3 billion.
Brennan Hawken
Okay, thanks for that clarification, and then pledge loans. Have you seen any shifts in demand with higher rates? Or is those continued to grow?
Jim Cracchiolo
On the pledge loans —
Walter Berman
On the pledge, I am sorry, I didn’t hear, in pledge loan is actually, right now it’s adjusting with markets, but it’s growing steadily. And we feel very comfortable with it. And from that standpoint, it’s a total of that is an over the $1 billion range for total standpoint with our program. So we feel very comfortable with it.
Brennan Hawken
Great, thanks for that. And then in wealth — in the wealth business. You guys do a great job of returning capital to shareholders, and have a long track record there. And I think it’s appreciated. But have you considered maybe shifting and having an allocation to [Inaudible] capital and using some of your excess capital to actually continue to build on the recent success that you’ve had in adding advisors, and generating that really steady net new assets in the mid-single digits and maybe even pushing that a little higher? Have you considered any of that? Or is that you’re just sort of comfortable with the recruiting approach that you’ve taken so far?
Jim Cracchiolo
Yes, we, so we’re very much focused on continuing to bring in quality recruits, we just don’t want to associate people to us and have been a processing platform per se. As you can see, we have a very good strong client value proposition. That’s very important. That’s why we generate good returns good margins, good retention of assets, we ensure that we have an excellent client experience, keeping our client satisfaction really high. And we really focus on helping good quality advisors grow their practices, and retain and build. So we’re going to continue to look and attract good advisors in. We’re spending a bit more time on bringing in some younger people again, and building succession in their practices and helping advisors extend their teams. And we’re also building out our IPI group which is our institutional business and we’re winning some nice accounts there and grow in the advisor force. And we’re also doing some work on our remote channels and expanding that activity that we think will also be a compliment. So along those lines, we are putting money to work we are investing et cetera. So it’s not so much about the use of capital, it’s more about continuing to drive in the areas that areas that we think we can generate both good returns, but more importantly, continue to build out against our value proposition.
Operator
We’ll take our next question from Suneet Kamath with Jefferies.
Suneet Kamath
Great, thanks. Just wanted to go back to the bank, if I could. I guess in addition to adding more deposits, we’re thinking another lever you guys have is to reinvest some assets that are maturing that the deposits are currently supporting. So can you frame maybe how much of those assets are rolling off in 2023? And if possible, what the yield was on those assets relative to where you’re able to invest your money today.
Walter Berman
Yes, so let me take an approximate, this is Walter, approximately because we’re short duration, if you look at it, where duration is tad over three, that you should expect over $3 billion to mature in the year. And I don’t have the exact numbers on yield, but you should imagine that it’s we’re going to pick up at least 300 or 400 basis points versus what’s mature. And I can have Alicia, get back to you on that.
Suneet Kamath
Okay, that’s helpful. Thanks. And then I guess for Jim, towards as the quarter progressed, we’re getting quite a few questions on LDI in the UK, and what’s going on there? And what any impact on your UK asset management business there could be? So could you maybe frame that out? Well, how you’re thinking about that, as an opportunity or where the risks are, just want to make sure that it’s clear in terms of where your exposure is, if possible. Thanks.
Jim Cracchiolo
Sure, Suneet. So I think as everyone is aware this is a very large market, it’s over $1.3 trillion in the UK, depends on the day. And it’s really used by almost all the pension funds, they’re supported by the regulatory authorities. The long-term gilt and European interest rates increased dramatically in September. And that resulted in clients having to post additional collateral to maintain their LDI coverage ratio ratios. The volatility was something that wasn’t necessarily seen in the past, it was in the 15, to 18, standard deviation type event, which is really abnormal, and so that volatility affecting the bond markets, interest rates going up, et cetera. So clients have maintained their LDI positions, as you would expect the systems. And we think this will normalize over time, but they had to post more collateral and then free up some assets to do it. This market will come back around and a sense of the stabilization and the reverting back to the mean. So we feel like the market will continue to be very important there. And the pension funds will continue to utilize that for the way they have to manage their assets going forward to get the returns. But we do expect some adjustments in the market going forward. Some players would have to reduce leverage a bit, there may be some more operational adjustments to make sure that the markets can flow a bit more easily as you get these types of dislocations. And with us, you, of course saw asset level decline, meaning from the depreciation of the market, but we really haven’t seen major outflows in any fashion. And in fact, there’s some new business that came in. So we feel like this market will recover. And we feel like we can still do a good business there and it won’t have a significant long-term effect.
Suneet Kamath
So just to summarize, near term more of a kind of AUM, potentially earnings issue, as opposed to anything more significant than that.
Jim Cracchiolo
Yes, exactly.
Operator
We’ll take our next question from Alex Blostein with Goldman Sachs.
Alex Blostein
Great, good morning. Thank you for the question. First, just around some of the cash dynamics and advice over and advice and wealth, and kind of how that’s trending. So clearly great to see the positive beta is still very low at this point in the cycle, as you look forward, I guess, how do you think that will progress? And part b to that curious if you seeing any incremental demand from third party bank sweep, and whether the spread is starting to improve in that channel as well?
Walter Berman
So as far as third-party demand, certainly we have an extensive program, and we do not have an issue on the placement of the funds from that standpoint. And we also, again the bank allows us to capability as I talked about growing and certainly reinvesting more directly with our bank institution. As far as the deposit beta, look, we do a competitive scan each week, we certainly evaluated certain as rates go up and we look at the competitive elements, because you look at the per account compensation or client crediting rates, they will change and I’m sure they will be going up as relates to this. Of course, our main focus is to ensure that our clients are getting appropriate rates that are competitive.
Alex Blostein
Got it and Walter, just to make sure that I understood the, are you saying you’re seeing an improvement in demand from third party banks — or no real change in terms of what we’ve seen over the last couple quarter.
Walter Berman
I would say this is a healthy environment, but it’s a healthy environment. And certainly we saw back a couple of months ago from that standpoint. Absolutely.
Alex Blostein
Got it. Understood. And then Jim, one for you. There’s been a couple of articles talking about some potential asset management platforms for sale. In the past, you guys have obviously been very opportunistic when I kind of think about the Columbia acquisition from Bank of America. As the environment gets potentially or remains, I guess kind of dicey here. How do you think about opportunities for incremental M&A for Ameriprise on the asset management side of the house?
Jim Cracchiolo
So, again, I think markets going through a level of dislocation right now and some pressure from as you can see the appreciation of the market and flows, we are very much focused on really the business that we have right now. We’re integrating the BMO and international and that’s going well, and that’s consuming in some time and attention. At the same time, we know that this is a time for us to really engage our clients and maintain it. And we have a lot of good new stuff going on in some of the areas and disciplines that we’ve been investing in from ESG to some of the institutional and OCIO and et cetera, et cetera and some alternatives. So we feel good about the hand, we don’t know that down the road, if there’s more significant dislocation, and it makes some sense. Maybe we’ll play but right now it’s not as something we have on the plate.
Operator
We’ll take our next question from Andrew Kligerman with Credit Suisse.
Andrew Kligerman
Hey, good morning. Maybe staying on the topic of M&A but on the divestiture end, the markets been pretty volatile. And just in general, locked transactions of insurance assets have not been as robust as we would have thought. And I had some optimism that maybe Ameriprise would do some transactions? Could you give a little coloron types of talks you’re having about long-term care, variable annuities and life insurance blocks respectively, and the potential to divest?
Jim Cracchiolo
Sure, Andrew. So as we said, we wanted to survey the markets to potential and what the opportunity may be just to evaluate. And in so doing, what we found, most importantly, is that there aren’t a lot of market participates — participants that have transacted or interested in more what I would call high quality books. In a sense, they’ve been much more focused on general count assets so that they can invest with using their various structures and capital situations. So we don’t think the market has sufficiently evolved to look at the type of business that we have, and the type of value that we realize from that business. And so at this juncture, we actually feel very good about holding business, we actually de-risk the business tremendously, we move out of a lot of types of businesses that have a bit more of that volatility or long-term tail on mix of business, including our variable annuities without living benefits as a significant part of our portfolio. The other portfolio with the living benefits that’s closed at this point, was actually done in the right way with the right benefits and the right hedging. And so we get good cash flow from these businesses and good stability. I think you’ve even saw in the current quarter; this has been a nice stability for us as you get appreciating markets on the equity side. And now wealth is able to even invest out longer and get higher yields on the book, which is good. In our long-term care book, you could see the quality of that even over the current years, a number of years. And so here again, there might be some opportunities, as people start to get more informed on this over time that we’ll see. And I think we’re starting to, but I think at this juncture, we’re very comfortable with the hand we have what we’re doing the type of businesses we maintain and type of businesses, we invest in, the type of businesses that we move up and handle the book to manage. And so we actually think it’s a great compliment, particular an environment like this.
Andrew Kligerman
That’s really helpful. And Jim, maybe just shifting over to asset management for presentations clearly in retail-, three-, five- and 10-year numbers are excellent versus peers. But the one-year numbers seem to have deteriorated in both retail equity and retail fixed income. Could you kind of give a little color on why those figures have deteriorated versus peers, and strategically what you might do to turn around that performance.
Jim Cracchiolo
So again, good question and I think we’ve mentioned that a little higher level. So let me dig a little deeper for you. So overall in across our portfolios, even for the one year, the very good there are a few pockets that where we have some underperformance but it’s not by a lot that really brings the averages down. So some of that’s in our fixed income. So in some of the longest duration, because of the rise, the spike in interest rates as quickly, our teams were much more focused on the credit side, and so the duration was a bit longer. And so that impact now that will come and reverse around as we get further out where the yields will be good and et cetera. But I would probably say that’s where we’ve gotten some of the impact not on the shorter duration on the longer.
And then the second part is in Europe. And it’s not because of underperformance. It’s because in Europe, when they have equities, they don’t break their benchmark into value versus growth, et cetera. And so we have more growth quality-oriented portfolios. And as you wouldn’t have understood value has performed a bit better in this market, even though it’s down, it’s been down less than growth oriented. And so those benchmarks underperform the benchmark, but our clients there understand that that’s why they invested in the portfolios, and they know and feel good about what that is over the longer term. But on a benchmark basis that’s why you got the underperformance.
Operator
We’ll take our next question from Craig Siegenthaler with Bank of America.
Craig Siegenthaler
Thanks. Good morning, everyone. My question is on brokerage, cash sorting. How do you expect sorting activity a trend over the next six to 12 months? And what do you see as the direct impact about money market fund AUM and cash balances.
Jim Cracchiolo
So let me start and if Walter wants to complement. So we already have an in what you’ve seen in the growth of all cash, there’s already had the catch of cash sorting occurring. So the growth of cash itself, if you’d call it in a logic category is higher than $46 billion because money has gone into money markets, and they have gone into shorter duration funds and some brokerage activities. And so with the growth that we have, this is more of the continuation of the growth that’s more in the transactional health of the cash or in our certificate programs. And so we saw some of that cash sorting occur in the third quarter, as you said, we may see some more of it. But the ties of the cash have grown because people have moved money to the sidelines.
Walter Berman
The only thing I’d add there is I think Alicia said yesterday, over 50% of this transitional working cash is less than $100,000 or $100,000 less. So is — its stickiness is there. And certainly we are competitive in what we do. So I think this sorting is less of an issue for us from that standpoint. Because in the higher tiers, we are competitive, and we constantly evaluate, like I said weekly, to ensure that stays. So it’s a different model that we have. And I think it’s demonstrating its stickiness.
Craig Siegenthaler
Thank you, Walter. Then sticking with that brokerage cash, what are your longer-term targets for both off balance sheet cash, and then on balance sheet cash inside of the bank. And I’m thinking when you reach more of an equilibrium in your cash mix as opposed to the bulk transfer effort.
Walter Berman
So let me take a shot. Listen, obviously, we have a growing situation, certainly with the getting additional cash from our current clients and new year is coming. And so we think we see that as growing from that standpoint. And we will gauge it as obviously the impact of looking at alternatives because it is again transitional on where it’s going to go. But that is something from a directional standpoint, very sticky. And we do see certainly potential to grow, but we will then look for, as I indicated the ability to redeploy in our multiple strategies to ensure the stability of our earnings that we have both garnering the higher yield with the certainly the high the low risk profile that we do and to ensure that so I would say that, you’ll see the percentage going over the bank increasing as we’ve progressed as we feel comfortable, it’s all situational driven. And that’s why I said, when I said my top points, $3 billion is probably at least $3 billion because we do see in this case, but we reevaluate that there’s substantial opportunity to use the bank, not just for the investments we’re talking about to grow the capabilities that we have to meet our clients’ needs also with deposit projects and hybrid products that they’re developing at this stage.
Jim Cracchiolo
It will be launched in a number of deposit products in the bank, starting in the first quarter and then high yielding types of deposits and other things that you see in some of the other types of institutions later in the year. So we feel there’s an opportunity to not just transfer money in but to absolutely grow the deposit base.
Operator
We will take our next question from Kenneth Lee with RBC Capital Markets.
Kenneth Lee
Hi, thanks for taking my questions and good morning. Just one on the asset management business in terms of the margins, obviously, above the target range this past quarter wondering if there’s any specific factors driving that any potential benefits that are nonrecurring. And in terms of the outlook for margins, you mentioned potential erosion based on FX. Just wondered, if you could just further expand that. Thanks.
Walter Berman
So on the margins, as you saw certainly as relates to the markets that we looked at last year they are running they’re in their 40s. And we mentioned that we’re certainly getting the benefits from the market appreciation was taking place. And now you’re saying from that standpoint, we’ve already absorbed the lower margin, as we indicated to that associated to BMO business, which is the nature of their business. So this 35.6 is around range is that above, slightly above our target of 31 to 35, that’s been impacted by the markets, primarily, there’s no abnormalities that we see other than the foreign exchange and everything that have impacted that. But as I mentioned, the market basically deprecation substantially took place in the September timeframe. So you will see a carryover of that into the fourth quarter, but there’ll be a market driven situation, we’ll probably move it to the low end of the range.
Jim Cracchiolo
And foreign exchange we have 40% of our assets. And a year ago with the BMO acquisition in Europe, in the UK, and you can see the size of that depreciation of the pound and the euro. And that had a sizable effect. Now, hopefully, that will stabilize and over time because the dollar so strong, maybe start to come back in a fashion that would be a positive. But the combination of that and appreciating markets have really squeezed that a bit.
Kenneth Lee
Got you. Very helpful. And just one follow up by, if I may, just on the annual actuarial review, wondering if you could just share with us some of the key assumption changes driving most of the impact. Thanks.
Walter Berman
Okay, the key elements that drove it from the actuarial net was that we adjusted our mortality tables, and from the standpoint we looked at our experience and so that was one and then we also saw our lower laps is coming in and therefore extending a living benefit only those that are partner. Again, nothing out of pattern. It was just — that was the trendline.
Jim Cracchiolo
And we did not adjust our interest rates where we had lower than a year ago, and you can see the rise in interest rates.
Operator
We’ll take our next question from Tom Gallagher with Evercore ISI.
Thomas Gallagher
Good morning. First question is just how do you think about the ROI difference right now between the build and bank versus the benefit of share repurchase? Thinking about how much you’ve grown the size of that bank and the capital that’s been used to build that up? I assume those are pretty high ROE, but just curious if you can give some perspective on what level are ROE, ROI however you wanted to describe and how that would compare to the return you get from share repurchase?
Walter Berman
Well, it’s interesting, because listen, I think, as you look at the amount of free cash flow, we generate in the amount of excess capital we have, and our ability to does not inhibited in any manner, shape or form our ability to continue to grow and invest in a bank to garner the benefits of both and we constantly are making that evaluation accessing our access as it is the situation and the generation that we have. So I would say the return to the bank are certainly getting to very respectful levels. And the buyback from that standpoint is an element that we look at, certainly our excess, looking at the opportunity to return to shareholders, and then other opportunities, but one of the things that we constantly do is the ability that we are not basically stopping or reducing our impact of investing in the business. And that is a key to us. So I would say they’re not mutually exclusive. We can’t —
Jim Cracchiolo
And I think you’ll also find that the bank now will become a nice complement. And it’s not just for what it is today, but strategically it will actually help us expand our relationships, deepen them with clients, offer a lot of other products and situational for the wealth business. And so we actually think it’s a great diversifier and a great complement, and that capital that was applying will get a very good return on it.
Thomas Gallagher
Okay, thanks. And then just a follow up on the whole cash benefit that you would still expect to see heading into 2023. I just want to make sure I’m thinking about this correctly, or at least directionally correctly. If I add, look at the $46 billion all-in a balance and listen to everything you’ve said so far, on the revenue side, I can and I’m going to compare it to the run rate you had in 3Q to then where this should go to in 2023. But on the revenue side, I can get somewhere in the $300 million to $400 million pretax earnings, revenue pickup headed into 2023. But then it’s a little less clear to me how much of a give up, you would expect to have on cost of crediting, whether that’s 20%, 50% any. So, Walter, curious if you can give me some idea whether I’m in the right directional place on the revenue pickup and then also credit.
Walter Berman
I am — instead of forecasting, Tom, nothing against report because will say, as you see what the trend lines are, and certainly, the elements of potential rate increases and the balances we have, but there’s a lot of variables that go into it. But certainly, we have a very, very strong trend line as we certainly go into the fourth quarter and going into 2023. And we feel with the complement of both the short cash coming out of the sweep accounts and the investments there. And the spreads that we’re picking up in the bank, you can imagine is going to be a positive trend as we move in to the fourth and first in 2023.
Thomas Gallagher
Okay, for Walter, sorry, just a follow up on that anything you can offer, it doesn’t look like you’ve had to give much up on cost of crediting so far. Any sense for how that might change? Do you think that’s still going to be a fairly low impact? Whether you think that might move off, I am just curious.
Jim Cracchiolo
I would say this, what I was saying is there is an increase in crediting rates and they will be as rates continue to be persistent or go up, we will make adjustments again, based on size of accounting, whether it’s really a transactional or not in keeping the cash, but as Water said, some of that could be will be offset based on some of the rollover and assets we have in the bank and how to invest as well as what we transfer. But also if there’s a question is the Fed going to continue to raise rates? I mean, it’s pretty much we think is going to go up again, I know there’s a lot of things that the Fed’s going to pull back next year. But with inflation so persistent, I’m not sure that’s the case. And if it is we have the ability to invest out. So I think we’re feeling very good that what we get from the bank, what we get from the overall business will offset the appreciating markets and give us a nice compliment here.
Operator
We’ll take our next question from Steven Chubak with Wolfe Research.
Steven Chubak
Hey, good morning. So why don’t we start off with a question just on the organic growth drivers in AWM, the 6% organic growth, certainly a good result, given the choppy tape, it looks like you recorded some wins in the financial institutions channel during the quarter, how material was some of those wins from an M&A perspective? And can you help frame the organic growth opportunity that you envisage within that channel?
Jim Cracchiolo
Yes, so we are getting some nice wins. And we’re actually have a good pipeline of even some larger size types of deals arrangements. And as those deals occur, the assets usually follow. So in that sense, you have that pipeline that occurs, and then you bring on the advisors, et cetera, to help grow those channels. So we feel it’ll be a nice a growth, business progress, again, based on the size and scale compared to other businesses. It’s not of the scale yet, but we think this will grow in scale over time, and so we feel very good about it. We don’t break out information yet. That’ll be something we’ll look at down the road.
Steven Chubak
Got it. And just a follow up on the earlier discussion relating to cash sorting, you noted that you’ve seen some better cash sorting trends relative to peers. Some of your peers also alluded to a benefit from heavy selling activity in September and was hoping you can just give an update on what you’re seeing in terms of cash balance trends or levels in October, and maybe a little bit more specificity just in terms of where you expect cash balances to settle out once we reach whether it’s terminal Fed funds or just peak sorting activity across the complex.
Jim Cracchiolo
Look, the only thing I mean, what, the way I would position it to you is we’ve always had a certain level that is held in our cash based on how we do asset allocation, how we have it for clients, liquidity needs and emergency or even for cash to reinvest in and balances that ability to allocate. And so if you assume that’s the case, 5%, 6%, you can look at it that way. Of course, cash has built up a bit more, and we saw that and that’s why I said there’s a complement the cash above what we’re holding that has gone into some of these other types of money markets and other things and, and broker CDs, et cetera, et cetera so structured. So I would probably say we are not seeing that there will be a dramatic fall off in the cash that we’re holding, there may be some adjustment because it’s gone up a bit. But we feel very comfortable that within that type of range of percentage to assets. Because again, this is not where people are holding huge amounts of cash just short term, they usually, our advisors usually invest that at one level anyway, even if it’s in a type of cash product or a bond. I think over time fixed income will come back. That bodes well for our asset management businesses well and go to work in a wrap accounts. But I still think that the 5% or 6% would be rational decline as we’ve seen over the past.
Operator
We’ll take our next question from John Barnidge with Piper Sandler.
John Barnidge
Thank you very much. Appreciate it. Can you talk about your outlook for expense reductions and asset management with the BMO acquisition now coming up on a full year? I know the one-year rule is important for European regulators.
Walter Berman
The synergies from the BMO acquisition.
Jim Cracchiolo
Percentages.
Jim Cracchiolo
Synergies from. Synergies, right now actually on track. As we talked about, we gave in when we announced that we are tracking on synergies, obviously, from that standpoint, and the synergies between us –what.
Walter Berman
The next year as well. For 2023 that’s what I would say the bulk of the synergies will be achieved as we go. And we will also then complete our most of our transition expense activities that relate to it. And so we’re on track, and we’re pulling in.
Jim Cracchiolo
And most of what you saw in the reduction expenses wasn’t necessarily from synergies yet in the current periods. So that’s more of tightening up our expenses. As we go in. And the team’s doing a good job of rationalizing what that is, and we’ll look to maintain control of those expenses, we are still making a nice investment in asset management. But I think the synergies will be helpful as well as we go in that will offset some of the compression that we’re seeing in the European markets.
John Barnidge
Thank you. And then my follow up question. Do you think only mortality is the best, strongest or healthiest in 3Q annually. Is that pre-COVID cadence to mortality trends return for the retirement protection solutions life business. Thank you.
Walter Berman
So, look, if you’re doing a mortality table that we addressed it.
John Barnidge
No, I’m just talking about —
Walter Berman
The mortality in our normal life business. Again, our mortality in life is we using basically industry tables right now we are basically saying that our trends are totally consistent with the industry tables that we’ve been that are out there.
Operator
Our last question will come from Erik Bass with Autonomous Research.
Erik Bass
Hi, thank you. May be for wealth management. Just trying to put it all together. It doesn’t sound like there’s anything unusual that benefited margins this quarter, and you’ll still expect to see some benefits from interest rates going forward. So do you see a margin in the 27% range that sustainable near term and something that could potentially even move higher if market stabilized?
Walter Berman
So, listen, our margin the base business is increasing. But really, we are getting a lift from the interest rates and that is an important contributor. And certainly we do see margins from those activities of being a larger element as you look at the bank and you look at the free cash. So yes, the answer is yes, we do see the margins will be increasing based upon the current assumptions that we see.
Erik Bass
Thank you. And then it’s last thing just on the new advisor recruiting outlook. Can you just talk about how market conditions are affecting your ability to recruit advisors because this was a good quarter this quarter, I know things sort of happen on a lag. Are you seeing any change in the pipeline?
John Barnidge
No, we see a good pipeline. We are maintaining sort of our focus on that and the areas of levels that you’ve been seeing. I think we’re finally breaking through as far as what advisors understand about our business. I mean, when we compare what we do our capabilities, our technology, et cetera, I think advisors are very impressed. And we get very good compliments, I mean, nine times out of 10 our advisors, join us say that our capabilities technology support is way beneficial from the former stage joined us from whether they be the independence or the wires et cetera. So we feel very good about what that is as long as we have the conversations.
Operator
And that does conclude today’s presentation. Thank you for your participation and you may now disconnect.
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