James Cracchiolo - Chairman and CEO
Walter Berman - EVP and CFO
Alexander Blostein - Goldman Sachs & Co.
Ameriprise Financial, Inc. (AMP) Goldman Sachs US Financial Services Conference 2011 December 7, 2011 10:50 AM ET
Alexander Blostein - Goldman Sachs & Co.
Get going here. With our next presenter – next up, I would like to welcome Ameriprise Financial. With us today are the company’s CEO Jim Cracchiolo, as well as Walter Berman, the company’s CFO.
Ameriprise continues to be a bit of a unique company in our coverage universe. The firm has successfully transitioned itself from pretty much an insurance company into a better balanced business with financial advisory, asset management, annuities and insurance now comprising about a quarter of the business each.
That said, it still feels like the stock hasn’t found its home from investor coverage perspective which we continue to think creates an opportunity for investors.
Meanwhile the business mix continues to enable Ameriprise to pursue a significant return of capital. I think we saw some of that today with the company increasing its dividend by 22%. If you look on a year-to-date basis, Ameriprise is able to return 12% of its daily average market cap this year and this is probably going to be one of the largest among financial services. And if we’re looking out into next year, the significant free cash flow and the capital generation will probably enable Ameriprise to do something similar looking out into next year.
So, with that, I want to turn over to Jim for a few opening remarks. But we’ll try to keep the presentation more on a fireside format. So plenty of room for questions.
Thank you, Alex. What I’d like to do is, Alex would like me to spend little more time on (indiscernible) Q&A. We just held our financial community meeting and there is a documents that you will find on the web, if you weren’t at the meeting. What we try to do is put a little condensed version just to introduce some people that might not have seen it, to give you a little better overview so that we can actually talk to some of the things that you might be interested in once you have a little more context for it.
So let me begin, and let me just say you can read our disclosure statements. I really want to introduce that there are a few things that we’re thinking about as we move forward. And it’s really based on the strategy we put in place when we became a public company.
We executed, as Alex said, a major transformation from how our company generated our earnings to where we are today. And it’s pretty significant, and I’ll talk to that in a few moments. But very important as we move forward, we think we can continue to build upon that foundation and very critically, there are a few number of significant things occurring beyond what we see today. So we have a very difficult political climate, very difficult market climate and understanding that we might be in a slow growth environment today.
But if you look past that, you can see some very significant secular growth trends occurring that we are right at the center of that we can actually capitalize on. And our model is, I think, much more valuable than people are thinking at this point. Because if we look at some of the segments and I think we’re unvalued from that perspective. But if you look at this, the totality of the company as a significant retail player in this particular center of space, I think there is a lot of opportunity for the company to be revalued.
With that, I think there is an opportunity for us to continue to create the type of value that we created since we became public. So if you look at the company today, we are a diversified retail financial services player. We really focus on the mass affluent population that continues to grow.
We have established a brand out there in the marketplace that is trusted today and going through the financial crisis, the growing awareness of our company and the way we actually navigated that crisis, and how we’re actually appealing to the consumer today is very strong and one that can continue to take ground.
We also have a very strong growing wealth management business. And I will give you some of the stats but as a public company really focused on this business, we’re one of the few players out there that have the ability to continue to take ground and actually as an independent company should be looked at as a key asset for someone to invest in.
We also have transformed ourselves now into a large global asset manager, very different than the past through the combination of acquisitions and re-establishing us as a more integrated company today. And our annuity and protection business, unlike other players in this market, we only sell and develop that product for our retail client that has very good consumer behaviour, very good planning for retirement type of behaviour. So our assets stay with us longer. We have a better risk profile and the behaviour of the clients is much stronger and so we can generate very strong returns there.
And overall the company is stronger than ever before. As Alex mentioned to you, we’ve been able to return a good amount of capital to our shareholders, raise our dividend. We have a good free cash flow that’s continuing to grow. And we have the ability and flexibility both to navigate as well as further invest.
So if you look at our performance just over the last number of years since we became public through the financial crisis, our revenue has grown significantly, our earnings has grown significantly, up 94% over that period. Our ROE today stands at 13.4%, and that’s in a very difficult interest rate environment. And our assets under management and administration is up over $600 billion.
Now if you look at that on a performance basis, we performed probably on a total to shareholder return of plus 43% versus a negative 47% for diversified financials and a negative 15% for life index and negative 10% against the asset management index. And we outstripped the S&P index, which was roughly a 15% positive during this period of time.
Now when I mentioned the growth that’s occurring beyond what we see today in the public markets, it’s really around the retirement opportunity. There is a significant wave of people moving to retirement. That wave is increasing. In fact, today you have the first baby boomers in retirement, and that’s going to continue to shift the asset flow in this area.
And so if you look at this over the next 10 years, you’re going to see a significant increase in retirement type of assets and people accumulating for retirement. In addition, the mass affluent and mass population continues to accumulate wealth even in this cycle. And they will continue; it’s looked to expand by about 6% on a compounded annual growth rate.
And as you research this and speak to particular clients and prospects, they have a significant desire for advice. And the reason for that is we live in a complex world. The level of volatility today is even greater. There are significant number of products and services. The question is: how do you put them together to a get a retirement check?
And so not only are two-thirds of the population seeking advice, 73% actually feel they’re unprepared for retirement and over 54% of that population actually would like to work with a financial advisor. So we are right at the center of that. We go to market only two ways. And so this is where, even though we have a segment approach as we came out public, people needed to understand how our business is made up.
We only approach the market two ways: one as a wealth management and retirement market server, and the other as an asset manager. And so all of the products and services we offer, either that we manufacture or we network, is against our client base in the wealth management space, annuities, protection. We have one of the largest wrap businesses. We actually serve clients through a whole range of – to satisfy a whole range of their needs. But this is the growing part of our business.
And in the asset management, this is the only place where we manufacture product that we sell through third-parties outside of affinity P&C business. And this now has transformed itself into more of a global asset manager and I’ll go over a little of the stats there.
So if you look at our wealth management business and how we serve client needs, this is a retail branded proposition. Over 2 million plus clients, we are the leader in financial planning and advice in the industry. We have one of the highest client satisfaction and retention rates in the industry. Over 9,700 financial advisors that we have grown over many years. Number five in branded advisor force. More CFPs, certified financial planners than anyone. And we serve a full range and needs.
We also have one of the largest wrap programs. If you look at that in combination to our financial planning business, two-thirds of our business is fee-based. So it’s more like an asset management in that regard.
In addition to that, we have about – we’re top 10 in some of the insurance and annuity areas that we choose to play in, like variable universal life. And it's made for mainly our clients and that gives us a better risk profile and return profile.
We’re also a leader in retirement space. We’re one of the top five planners for retirement and advice and at the same time in the IRA market. So that’s really our make-up and that’s how we go to market. And that’s how our revenue is generated in a diversified way.
If you look at the growth just on the advice and wealth management as a segment, it’s also substantial and actually you will see it mirrored any of the actual public venues out there. And so in that regard, our operating revenue per advisor continues to grow. We have double-digit improvements in productivity over the last decade. Every year as you look at it, except for the year of the financial crisis, the advice and wealth management operating earnings continues to grow nicely and our margin improvement is also strong at 11.5% now.
Now, remember all of the revenue that we would – the earnings that we would generate from the cash side of that business, we’re in a very difficult market with all-time low in interest rates. So that is not factored in here, into the earnings stream. And if you put it there you would find that margins would expand even further.
But not only what we established on the size and scope and what we in place which is a key asset and one that you can’t recreate today is also the idea that we can grow that business as we have been, by deepening relationships, by adding more mass affluent and affluent clients. That’s where we have been growing.
And our advisor force is starting to grow again. We went through a major transformation of our employee network to really make it more of a productive channel. We have been adding experienced people and we’re continuing to focus to do to actually start to grow the financial advisor network over the next number of years and continue the growth that we have in productivity in expanding our margins.
In the asset management world, this has gone through a major transformation. If you look at our asset management business five years ago, you would find that it was more focused as a proprietary support that we’re expanding through third parties. Today the mix, the make-up, the global nature of it, you can see 25% roughly of our assets are in the international markets. With Columbia together, that's over $400 billion of assets that makes us one of the largest asset managers both here and around the world.
We have a nice make-up between fixed and equity and some alternative. We have a very strong platform on the retail side, a growing platform on institutional side. So it makes us one of the largest players. Number seven in long term funds, number four in the UK. We have over 100 four and five star funds between our domestic business and the Threadneedle business that are rated funds in the UK and Europe, and broad retail and institutional distribution which we never had before.
If you look at the size and scope from an earnings power and revenue, you can see revenue is up nicely, $2.2 billion for the three quarters, earnings to $400 million for the three quarters, and our operating margin on an adjusted basis is 33.7%. Now that’s where we are today and we are in a difficult market. We have to re-establish ourselves, get our brand out there, integrate our networks, integrate our back-office, integrate our investment professionals. But we’ve just established today.
We have strong investment performance that we know we can leverage. We’ve also re-established and we’re beginning to grow our distribution so that we can expand and get into good net inflows over time. We can capture some global growth opportunities. We’re already looking to bring the resources of both Threadneedle and Columbia together to attack the market. We’ve already set up operations in Asia, and we think we can continue to expand our margins as we have been in the past.
The results of the company overall, when you put that together, has shown good bottom line and top line growth. And again, if you measure this on a basis from 2009 to 2011, you will find that against any one of the separate indices, asset management, insurance, or the wealth, you will find that we are as strong, if not stronger, and on a consolidated basis, we’re probably -- again on a consolidated basis in the top.
If you look at our ability to generate returns, you can see, again, in a more difficult market with higher capital requirements, we continue to improve our overall return on equity 13.4%. In that return, we already have a very strong capital base and an excess capital base.
90% of our earnings gives us the ability to do something with, return to shareholders, buy companies, further invest in the company if we wanted to. We’ve increased our dividends twice this year, declaring a second one today, so over 50% increase in dividends.
Since we became public, we’ve increased our dividend ever year except 2009 through the financial crisis. And we repurchased $1.2 billion in shares year to date. And if you look at that, when we started our buyback program, started it up again a year ago, you will find that continues to be quite significant, and as Alex said, one of the most significant across the industry let alone in the marketplace.
And our balance – we’re looking to continue that balanced approach, how do we continue to look at dividends, buybacks as well as have some flexibility for potential acquisitions.
Now where are we going with that? I can’t dictate every year because of our markets. We saw what the fed did in the third quarter and how that affected little bit of our DAC unlocking, impacting a bit of our current period of earnings. You know what happened in the markets just based on what’s happened in the Europe.
But overall I think what I said to you five and half years ago when we became public, these are sort of my focus on revenue growth, earnings per share growth. I’ve raised the return on equity here, to 15% to 18%. We will be above 15% next year.
Now with that, I think this company with a strong capital position, good flexibility to continue to grow can be in that higher range. And I don’t think you’re going to find many financial services companies, as Fortune, separate S&P 500 company, that will be here in financial services, because of the capital requirements and the changes that have occurred from a regulatory perspective.
So I believe this is a very good strong business, has the ability to continue to grow, is in the right space based on what’s happening beyond the current environment that you see. And even today, even with the environment, I will say that we are undervalued.
If you look at the make-up of our company, if you just did it purely on an earnings stream, rather than how we generate the earnings, the better profile we have because of the deep relationships, even on this basis, you can see that we are properly at 7.8 P/E. But a good part of our business, a growing part of our business is in the wealth management and asset management space. And you can look at the P/Es there and we can stand up and if you look at us on those segment basis against the competitors, in that space that have these P/Es, you will find that we are growing as strongly, if not stronger, and in many cases, have the capabilities and the performance that would merit those type of P/Es.
In addition, I would also argue that our annuities and protection space since it’s all my clients, and it has very good risk behavior. It’s hedged very well. I reinsure my mortality risk mainly in asset accumulation, protection products. You can also find that I think we deserve a higher P/E than the average of what’s out there in the industry for these businesses.
So I think today, even if you assume that you’re going to go through a difficult climate, we are undervalued.
And so overall, I think we have gone through a major transformation when we first came public to actually reinvest in ourselves. We reinvested over $4 billion into ourselves. We’ve established a strong brand positioning. We are right in the right space that’s going to continue to grow, no matter what happens politically in our environment, or even short term in the markets.
And I think the company is undervalued today just based on some of the parts, let alone the idea that this is one of the few types of companies, really as an independent company with the focus that we have, the size and the scale that we have, and the earnings that we have, and ability to return to shareholders. So I think we can continue to create substantial value moving forward.
So that’s my overview, Alex, and I’ll take any questions.
Alexander Blostein - Goldman Sachs & Co.
Great. Maybe I’ll start off with a few and I’ll hand it over to the audience. So bigger picture for you, Jim, first. Priorities into 2012, so it feels like since the Columbia acquisition, the last year and a half and two years have really been about integrating Columbia, making sure you guys get the fund line up all set. And then you also stepped up your recruiting efforts on the FA side. So given that these things seem to be in place now, what are your top priorities heading into next year?
So top priorities, we’re going to continue that we really want to continue to build in the wealth management space. So we’re going to continue to actually grow our relationships, try to add more clients, build the productivity of our advisor force, actually generate stronger margins in the employee part of our network. We already have very strong margins in our franchisee channel. And now that we are building the scale necessary in making that more productive and bringing in experienced recruits, that still has a lot of upside for us.
And so that’s going to be continuing our focus. We’re going to continue as if you saw – we put a new brand campaign in the market with Tommy Lee Jones. That’s really starting to build awareness again for us. And so that’s where we’re going to invest. We have a new investment in our big brokerage platform adding to the front-end systems. That’s a significant investment this year and next year that will be complete. So a lot of that’s already in our investment plans that continues in the margins we told you. And that will get us over a big hump at the end of next year.
So with those things in mind, I feel good outside of not knowing exactly what will happen in this environment. But we’ve navigated that quite well through the past financial crisis. We don’t think it will be as severe no matter what we’re facing today.
In the asset management space, we spend a lot of time and effort. We put together two very large companies. And we re-established ourselves and people aren’t necessarily thinking about it, is going through a severe climate, we put together two large companies and we’re coming out with a very good company today that has strong investment performance. So it has good product that we can sell. It has good investment processes in place today. It has diversified and significant distribution capabilities, and the performance of both Columbia and Threadneedle together, I think, gives us the platform to further expand.
Now with that, we’re going through the reestablishment, so it took some time and effort. We had to face some outflows, some institutional clients through the change with Bank of America. I think we’re getting over the hump in the beginning part of next year, the first and second quarter, we will complete whatever that implication is from the parent type flows.
But we’ve offset that with new revenue coming in. And so we’re winning bigger mandates, we’re winning better mandates at higher fees. So even though, we face some of the volatility on the flows, the revenue side has been offset. Now the issue we face today is what I think broadly across the industry. We’re all in a bit of outflows. The thing that I can say to you in a positive side is that our outflows from when we did the merger and the integration has not grown. It’s stayed stable when others have gotten worse because of the market climate.
Having said that, I think we have good product and good performance. So as the retail and institutional clients starts to come back as things settle down, I think we’ll be in the right place with established resources to attack the market. And so I do feel good about our make-up. Having said that, I don’t like the idea that we’re in outflows today.
Alexander Blostein - Goldman Sachs & Co.
This is a good extension to my next question. I want to spend a couple of minutes on advice and wealth management segment. It feels like the last couple of quarters have seen one of the better organic growth rates you guys had from a headcount perspective. And then October, as it came up at your analyst day, was again one of the better months for recruiting.
Two questions there. Number one, what do you think is driving that? Can you give us a little bit of a few characteristics, maybe from the advisors that you’re currently bringing in? And then the second one is again more from a – probably little more of a secular perspective, what are you seeing from the advisors and wirehouses and their appetite to go independent and how that sort of fits into your business model?
So I think there are two things. There’s one, as you've outlined, what's happening in the broader environment. And then there’s one what’s happening with us. And I say – so let me start with what’s happening with us first. If you go back three years, we really didn’t recruit externally. We built our network internally, organically by bringing new people into the business and helping them build books of business. And as you would know, since we’ve been doing that for many years, we had a machine that did that. We were able to recruit 1000 to 2000 people a year. We had a very large group of management and leadership that helped train and develop. We had a significant marketing resources devoted to helping them to establish books.
Three years ago, particularly through the difficult climate, we said we’re going to change this and make that system more of a productive system rather than a feeder system into our independent network. And in doing so, we acquired H&R Block to re-establish the employee platform, integrated it in, and then we started recruiting. So today, we went through the system of getting rid of many of those novices that would wash out, but not replenishing them, so making them more productive of what remained and then looking to recruit experienced people. And that’s what we’re doing today.
Now having said that, it takes a change, right? You’ve got to get your leadership, your managers et cetera to start thinking about how do you recruit experienced people? How do you on-board those people? How do you get them develop differently in your model than you would for someone home grown? The improvement has been significant from a margin and profitability basis. It’s also been significant in a sense that the people we brought on-board have brought over most of the – able to bring over most of their assets, they’re back to now generating the type of production that they were before we acquired them. And so we’re starting to gain traction and our knowledge and capability, how to on-board, how to recruit, how to get our brand out there, we never advertised in that channel.
First time, we’re putting edge out there to say, hey, we’re in the business, we have an open door now. Come visit us. And so that’s taken some time to develop more on an organic basis rather than just because there was a major avalanche that occurred in 2009. And that’s how we’re sort of building that momentum.
Now in addition, I would say that there is still the idea that people are a bit rattled in the industry. They are looking to say, where do I want to be in the future for a whole bunch of reasons. There are changes that are occurring. There are consolidations that occur. They are looking at where they are today and whether the people and how they think about that business. And so I think we are an alternative. We are a company built around our network. We are a company that has good stability. We are a company that has improved our trust and credibility through a cycle. I think we have a values driven culture. We value people that can produce in the 300,000 to 500,000 range, rather than just million plus.
So I think there is an opportunity for us to continue to grow and recruit. I don’t know if there is going to be what occurred back in 2009. But I do know that things are seemed like they’re opening up again. It seems like more people are interested to think and evaluate the opportunity.
Alexander Blostein - Goldman Sachs & Co.
Okay. And then just staying with the segment for one second. Walter, one for you. A year ago, so you guys laid out 12% pre-tax margin target in that business. It feels like you’re already there and from Jim’s comments, it feels like the advisors you’re bringing in are more productive, their business is stickier. Is 12% still the number, or do we think it’s a little bit conservative now?
As we indicated, the 12% was the target for 2012, and as we’ve talked about at the FCM, we have done that without the benefit of the interest calculations that we thought we would get in the short end (ph). So it appears that certainly that would be a number that over time that we look to. And we haven’t said exactly where it’s going but certainly we have the opportunity to perform at a higher level than 12%.
Alex, I would say if you factor in the opportunity that over time short rates will go up, you will get a big boost there, even off of the 12%. But I would say we still have the ability to increase off the 12% even with interest rates, not by doing the things I just mentioned to you. And so as I said, it’s not as though I am not – I am under-investing right now. I am actually investing a bit more, brand, technology, et cetera for the platform.
So I do believe – now I think there is always one big caveat, right? We manage a lot of assets there. So if the markets depreciate, or if the client activity continues to slow because of major volatility that we experience, yeah, there’s going to be sort of a blip in that. But if things continue the way it is, I think we can continue to make progress.
Alexander Blostein - Goldman Sachs & Co.
Okay. I think we have some time for questions from the group. Yes, Tom?
Yes. On the -- can you define a little bit more precisely who the end market is? I mean, who you really – the mass affluent is pretty big term, right? And number one. And then number two, when someone comes over to you from another firm, can you make a value proposition to them that there is more, because of your vertical integration and product that they can – that there’s just more profit opportunity for them than they could get in a traditional wirehouse model. Is there anything that you can show there?
Yeah, I think first of all, the target segment that is our sort of core -- and again, you always have in any model, in any business sort of that you get the top 5%, 10%, 20% of where you get. So for instance, in our case, our core that we really approach where we’re growing a lot is probably in the average investable asset category of minimum, let’s say, $200,000 to $1 million. Okay.
So our sweet spot -- so when we bring in a client, and on average, we bring them in to start with about $300,000 to $400,000 in assets. Okay. So that’s our sweet spot. As you think about that mix of $100,000, $200,000 minimum to $1 million. Okay.
Now our advisors, of course, will get people $1 million , $2 million, $3 million, but if you said that -- is that – where your bulk of assets and where your bulk of clientele and where you serve the most, that’s it. Okay. So that’s why we say the sort of, the mass affluent leading to the affluent. But we’re not in the higher wealth categories of $10 million plus, okay.
On the other side, as you think about an advisor joining us -- the advisor will join us for a few reasons. Number one, the stability of who we are as a company, how we’re really making the advisor one of the front and center things of our business. We’re not part of a major bank or institution. We are not run from a perspective that investment banking and trading and capital markets is our core in that sense. And so that’s one reason.
Number two is our value proposition around the advice. We’ve invested hundreds of millions of dollars to position ourselves to give us the tools, the capabilities, the training to help people think about a more full-fledged model rather than just managing investment assets. And so people are starting to realize, particularly in the upper echelon that, that's what clients want today, right? It’s not just can I beat an index, it’s the idea that how do I actually navigate markets like this, how do I satisfy the goals I have, the needs I have.
So that’s the other part of the equation that we sell. And I think – and we also have a culture that we are very close – even though we are a large company, I spend personal time with advisors, so does my leadership team. We think about how to make them productive every day. It’s not something that we just want to recruit people and put them in the desks. We’re not a network. We think about it as when we bring someone on-board, there are clients, there are advisors, they are part of the company, how do we make that successful, how does that actually add brand value? And that in itself is a subtle thing but it’s an important thing. And again, it’s not for everyone but having said that, I think there is an awakening that, that’s important again, culturally.
Alexander Blostein - Goldman Sachs & Co.
Within the context of your growth goals, your acquisitions, return of capital, could you just reiterate where your goals are in terms of where your targets are for your credit rating?
Well, today we have not been downgraded through this financial crisis by any one of the rating agencies. And so clearly, we have a strong position. But Walter, I’ll let you respond to that.
Yeah, looking at today and certainly looking at the ratings we have at the holding company and at the operating company, I think those ratings are appropriate to support both the needs of the company from a capital standpoint and also the brand positioning. So I think we’re quite comfortable, and our ranges of where we are within those ratings are conservative. And we feel that those are well positioned. And as Jim said, we’ve managed through that, through the entire dislocation and not had any downgrades. So that’s where we think right now where it works for us and both from a positioning of the company and from the capital markets view of it.
With the delevering in Europe, perhaps some asset management properties might shake loose. Can you remind us what your M&A appetite is, what return hurdles you target and probably, most importantly little bit, would you just touch on how do you evaluate the deals in the context of keeping that robust balance sheet?
Strategically, I will talk about and then Walter can give you sort of the financial metrics around that. Very clearly, we think there will be opportunities that will occur based upon the dislocation that’s occurring in Europe, okay. Whether those opportunities are right for us, we would have to see. But we have the ability, we are looking to further diversify and grow our asset management more globally. As you saw in my pie chart, it roughly represents about 25% of our assets. I would like over time that we truly have that as a global platform being more like 50% of our assets.
And so I think there is that opportunity. We are investing organically internationally and with Columbia to get ourselves scale up in places like Asia, Middle East et cetera, even beyond Europe. So in that regard, I think there are opportunities to look at certain other opportunities that come along. Now as we went through the last acquisitions that we did, you know that we looked number one strategically, can we integrate that well, does it give us a better platform in the end? Number two is, can we do it in a way that generates good return to our shareholders versus the alternatives of buying back and dividend return et cetera?
And so as we evaluate that, we can say that yes, we would be jumping on things that come around. But I will say that we would have an interest and we would evaluate them if they seem appropriate. And we have the flexibility, including against how we are returning to shareholders to do that, because we are sitting with a very strong capital position. And of our earnings coming up again, a lot of it’s going to be ability for us to use.
So we will evaluate some of the opportunities. I can’t say there is anything on the horizon at this moment. But I could say that we will continue to look just like we looked over the last number of years. Walter?
Yeah, creating shareholder values is the key event and we look at over a multiple of measurements that will do that. Clearly we look at it from, if we use equity or if we use cash, and we evaluate it on an individual and then on aggregate basis. And we look to be really as a general rule, to be accretive and looking to synergies taking into consideration that Jim was talking about strategic side, within a two-year period. So those elements that we basically evaluate but the most important thing is preserving the safety and soundness of our balance sheet in conjunction with generating the operating capability within the business. But those are the general plays. But there is a constant evaluation both on individual and aggregate basis as we evaluate it.
Now since I have been running Ameriprise or its predecessor financial advisors, we did four acquisitions. And each one of them has created significant value based on the purchase price and our ability to extract both the synergies as well as give us a better platform. And so I think one of the questions in the past is our credibility around that. I think we have good credibility today. We’ve learned a lot. And I also believe that in a slow growth environment that is an alternative on how we can even grow and expand further.
Alexander Blostein - Goldman Sachs & Co.
Okay. Maybe we’d have a question, one more maybe. Last one from me then. You guys operate one of the largest financial advisory networks in the country. Over the last year, two years, even longer I guess, but we’ve seen massive amount of money going into the fixed income probably closer to a trillion dollars of retail capital. The traditional equity business has been under pressure for the last four years. What are you hearing from your financial advisors from the asset allocation perspective heading into next year? Or people still think that 2% returns in fixed income the way to go or there is some better alternatives that might be creeping up?
I would say, again, our approach from an advisory perspective is that you invest over time and that you make sure that you have reasonable allocations, because again, as you think about retirement et cetera, just investing in fixed income is not going to do it for you. So I think what our models do and what our advisors do is that there is still a good allocation to equities but not as high as it was a number of years ago.
Now having said that, I think the biggest issue we face and have faced and some of it has improved but I think people are not continuing the improvement trend right now is that people are holding more cash. People are, if they’re in equities, they’re not necessarily running for the doors, our advisors aren’t cashing them out. But the new investment has slowed and they are holding a bit more cash, or they are holding it in short term instruments so that they don’t get hit initially with the volatility of investing a lot right now.
Having said that, I would say that our advisors are still deploying that cash into a mix of equities and fixed income. But they’re holding a bit more cash and probably holding a bit more fixed rather than the way it used to be where they would invest a bit more on the equity side. So I haven’t seen a fundamental shift. But I’ve seen more of it was gradually improving back to equities and now it’s a little more on hold based on what you saw it from August. And so hopefully if things settle down again, the migration back will occur. I just think it’s a little more on hold based on what we just saw and the level of volatility through October and now November.
Alexander Blostein - Goldman Sachs & Co.
Okay. Well, appreciate you guys making the time today. Thank you.