Ameriprise Sees Columbia Giving Brokerage Operations A Boost
September 30 2009 - 3:47PM
Dow Jones News
Ameriprise Financial Inc. (AMP) is betting that its deal to
acquire part of Bank of America Corp.'s (BAC) Columbia Management
will give its brokerage a bigger piece of the high-net-worth
market.
Over the past year, Ameriprise has been beefing up its wealth
management group through acquisitions such as H&R Block &
Co.'s (HRB) advisory business and by recruiting financial advisers
from major brokerages. Both measures have primarily boosted the
company's focus on mass-affluent clients, or those that have
between $100,000 and $1 million in investable assets.
The Columbia deal, however, could help Ameriprise raise that bar
and allow its brokers to manage more money for the wealthiest of
clients, boosting its standing among brokerage firms. The deal also
expands the company's more stable asset management revenue.
In an interview with Dow Jones Newswires, Ameriprise Chairman
and Chief Executive Jim Cracchiolo said, "we think some of the
capabilities that Columbia has can actually be brought to our
retail clients as well as to complement what we already
provide."
Ameriprise, a former division of American Express, offers wealth
management and asset management services, life insurance and
annuities, and home and auto insurance. Its wealth management and
asset management segments both reported second-quarter losses
driven by falling asset-based fees and reduced customer
activity.
Ameriprise raised capital through an equity offering earlier in
the year to prepare for an acquisition in the asset management and
retail distribution businesses, Cracchiolo said in the company's
second-quarter earnings call in July.
Once the Columbia deal closes in the spring, Ameriprise will
have global assets under management of nearly $400 billion. During
a conference call with analysts, the company projected that 64% of
Columbia's equity assets are sold through a third-party provider,
while roughly 30% are sold the same way on the fixed-income side.
Bank of America affiliates, notably Merrill Lynch, accounted for
36% and 71%, respectively.
Gaining access to these clients could give Ameriprise an
opportunity to reach investors its own advisers previously
couldn't.
The average broker at Ameriprise produces about $270,000 in fees
and commissions, while those from H&R Block are slightly
higher, with $300,000 in annual production. By comparison, the
averagefinancial adviser has between $500,000 and $600,000 in
production.
"Maybe it's a decent environment to think about going more
up-market," said Sterne Agee & Leach analyst John Nadel. "The
competition has suffered there and maybe (such a move) won't cost
as much as a few years ago."
Not everyone is convinced that the transaction will attract the
desired audience. Bob Ellis, principal at research and consulting
firm Novarica, expressed some concerns that rich investors won't be
motivated to switch to a brand with less name recognition.
"I can take my Volkswagen Beetle and put a Rolls Royce grill on
the front, but it's not fooling anyone," he said.
Even after the acquisition closes, Ameriprise will have $1
billion in excess capital, Cracchiolo said.
Nagel said this financial strength could be a marketing
advantage in reaching out to high net worth clients. "They just
don't have the cachet and the track record in the high net worth
space, but they can show prospective clients things that folks who
have been active in that market can't - a lot of stability (and) no
near-death experience."
-Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
(Lavonne Luykendall in Chicago and Jessica Papini in New York
contributed to this report.)