More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Ameriprise said that its first-quarter net income was $241 million, or $0.94 a share, vs. net income of $226 million, or $0.85 a share, a year ago. These results, which represent a 6% gain in net income and an 11% jump in EPS, include an after-tax charge of $77 million, or $0.30 a share, for a previously disclosed legal matter at Securities America.
Excluding the charge, the company had EPS of $1.35. Analysts had expected the company to earn $1.33 per share on sales of $2.7 billion. The company’s actual revenue grew 22% to $2.6 billion in the first quarter of 2011 from $2.1 billion last year.
In disclosing this after-tax charge, management at Ameriprise also said it “has decided to identify an appropriate buyer for [Securities America]. A sale would allow SA to focus on growth opportunities in the independent channel and would allow Ameriprise to devote its resources to the Ameriprise branded-advisor business.”
The sale of Securities America came down to a decision to eliminate “excessive risk” that did not bring the company enough “related reward,” said Chip Roame, head of Tiburon Strategic Advisors in Northern California, in an interview. “Ameriprise is a large company primarily involved in three businesses … all of which have far higher margins than an independent broker-dealer,” he explained.
On April 15, 2011, SAI and its holding company, Securities America Financial Corp., entered into settlement agreements related to the sale of private placement securities issued by Medical Capital and Provident Royalties that resulted in a $118 million pre-tax charge in the first quarter of 2011, according to Ameriprise. The $118 million charge was made in addition to a $40 million pre-tax charge in the fourth quarter of 2010.
“The [Ameriprise] sale process will not affect management's commitment to completion of the settlement on its current terms,” the company said in its first-quarter earnings release.
“We appreciate the many years Ameriprise has committed to our independent business model. Their willingness to provide the financial means for the Medical Capital and Provident Royalties settlement leaves Securities America in a strong financial position to continue operations with no disruptions,” said Janine Wertheim, spokeswoman and chief marketing officer for Securities America, in a statement.
“We believe there are many options that will afford enhanced opportunities and benefits to our advisors and employees,” Werthein added. “Our record first-quarter results make this an opportune time for an ownership change.”
Total branded retail client assets in the company’s advice-and-wealth-management unit grew 13% year-over-year to $315 billion, reflecting market appreciation and strong retail client net inflows, Ameriprise said. AUM per advisor is roughly $32.6 million.
Net client inflows totalled $2.75 billion in the first quarter of 2011 or $285,000 per rep.
Ameriprise advisor productivity, measured as operating net revenue per advisor, was $95,000 in the quarter, a 23% increase compared to a year ago. This represents about $380,000 in annualized fees and commissions.
“Growth was primarily driven by improved client activity and increased assets under management from market appreciation and retail client net inflows,” the company said in a statement.
The number of advisors declined 3% from a year ago “reflecting the departure of lower-producing advisors, offset by experienced advisor recruiting and strong advisor retention." Total branded client wrap assets grew 20% from a year ago to $103 billion, including $2.8 billion in net inflows in the quarter.
Starting in the first quarter of 2011, the company began reporting Securities America’s results as part of its corporate and other segment – not in its wealth-management results.
“Management believes it will meet all required criteria to present SA as discontinued operations beginning in the second quarter of 2011 and for prior periods,” Ameriprise said in its first-quarter earnings release.
The unit’s revenue grew 19% to $914 million in the first quarter of 2011, while its pre-tax income grew 94% to $100 million.
According to a supplemental report, Ameriprise has 9,653 advisors, down slightly from 9,656 in the previous quarter and a drop of about 280 from 9,931 a year ago.
About 7,500 Ameriprise FAs are franchisees or independent advisors, and the remaining 2,150 or so are employee advisors.
Securities America Results
Securities America had sales of $122 million in the first quarter vs. $114 million a year ago, an increase of 7%. It had a loss of $115 million this period vs. a gain of $3 million in the first quarter of 2010.
Its total financial-advisor headcount stood at 1,846 at the end of the first quarter, a decline of 50 FAs – or 3% -- from 1,906 a year ago.
The company says that it had 1,826 Securities America reps as of Dec. 31, 2010.
Total assets for SA were $26.3 billion as of March 31, and the broker-dealer had net client inflows of $63 million in the most recent period.
Per advisor, SA reps have an average of about $14 million in client assets under management each, or a total of $26.3 billion, vs. $13 million in AUM per rep, or $24.4 billion in total assets, a year ago.
Production per advisor was roughly $66,000 in the first quarter, or $264,000 on a 12-month basis.
For more information on earnings read AdvisorOne’s 2011 Q1 Earnings Calendar for the Financial Sector.