Ameriprise Financial, Inc. (AMP) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the first quarter 2013 earnings call. My name is Lorraine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Alicia Charity. Ms. Charity, you may begin.

Thank you, and good morning. Welcome to Ameriprise Financial's first quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. During the call, you will hear various references to non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today’s materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management’s expectations about future events and 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 today’s earnings release, our 2012 annual report to shareholders, and our 2012 10-K report. We take no obligation to update publicly or revise these forward-looking statements. And with that, I will turn it over to Jim.

Good morning, and thanks for joining us today. I'm going to provide my perspective on the business. Walter will follow my remarks with a review of our results, and then we'll take your questions. Yesterday afternoon, we reported good first quarter earnings. Overall, Ameriprise is performing well. Assets are up across the firm and we're generating very strong results in our Wealth Management business. We're executing on our strategy, investing in our growth areas and strengthening our position in our core businesses. In terms of the economic environment, I feel better than I did a year ago. Equity markets are stronger in the United States, and the economy is on a more stable ground and growing slowly. Across Europe, the markets are a bit weaker, consistent with the economic environment there. However, we're managing the headwinds caused by very low interest rates, although this pressure has been offset by gains in the equity markets. Walter will take you through the numbers in detail, but our financial results reflect a good start to the year. On an operating basis, net revenues grew to $2.6 billion, due to strong growth in our fee-based businesses, offsetting the negative impact from rates in the loss of the bank-related revenues. Our earnings were $338 million, with earnings per share of $1.59. And return on equity increased to 16.4%, which is an all-time high for us. We expect to see ROE continue to improve over the next few quarters. In addition, our assets under management and administration grew to a record high of $708 billion. We're maintaining our strong capital position, generating good free cash flow and increasing our capital return to shareholders. During the quarter, we returned $454 million to shareholders, including repurchasing $360 million of our common stock. As we've said, we intend to return the majority of our earnings to our shareholders annually, including the capital freed up from the bank. And we plan to do so in a balanced way, based on the environment and the share price. As you saw in the earnings release, we announced that we're increasing our dividend another 15%. With regard to capital, we're focused on our core businesses and returning capital to shareholders in a prudent manner. We often look at acquisition opportunities and how they can complement our business. But at this point, we don't see any large properties in the marketplace that meet our acquisition criteria. With that, let me turn to the business. Our highlights for the first quarter reflect our progress, opportunities for further growth and our continued focus on areas of improvement. Advice & Wealth Management is producing excellent results as we continue our growth from 2012 into the first quarter. Operating net revenues increased 7% to $1 billion, driven by record retail client net inflows and market appreciation. Operating net revenues increased 10%, excluding former banking operations, and operating PTI increased 39%, and adjusted for the bank, it would have been 66%. Operating margin increased to 12.9% due to the increase in productivity, our effective expense management and savings we targeted from our reduced technology spend. In fact, the 12.9% number included both the impact of lower interest rates on cash balances from a year ago, as well as the loss of the bank. Ameriprise advisor client assets grew by 11% to $372 billion, driven by strong net inflows and equity market appreciation. Client activity continue to pick up with exceptionally strong wrap net inflows, growing to $4.1 billion, which is 41% higher than a year ago. Productivity is also up nicely, with operating net revenue per advisor, excluding former bank operations, growing 9%. Importantly, our advisor force remains strong, retention and satisfaction rates are high. We continue to recruit good, productive and experienced advisors. Because of better markets in the year-end tax season, recruiting has slowed in the first quarter, which is consistent with others in the industry. We do, however, see a good opportunity to continue to bring in more quality advisors this year. We're investing in our growth areas, building our brand through advertising, and increasing efficiency through the tools and technologies we provide advisors. The Ameriprise name was highly visible in the first quarter. We launched the next phase of our national advertising campaign, with spots airing during high-profile sports and entertainment programming and online video ads. In fact, our ad awareness has doubled with our campaign, so we're seeing terrific results there. We also released our latest retirement survey, a continuation of our Retirement Check-In series to provide research and support to our advisors and demonstrate our position as a retirement thought leader in the industry. With regard to our technology platform, which includes our new brokerage platform, as well as all of our online capabilities, we're now focused on helping advisors leverage the benefits of the full suite. This is a priority for us over the next 18 to 24 months. We invested in this system because we believe it can help our advisors grow productivity, and when utilized fully, it will lower costs and enhance our overall client and advisor experience. One of our largest opportunities for growth is in the retirement space, where we're already a leader. We're focused on serving the consumers' overall retirement goals. In fact, we brought out a more consumer-friendly approach to enhance our go-to-market positioning. We call it our Confident Retirement approach. It has tested very well with our advisors and consumers, and we've just begun to roll it out across our system. Advisors who are using it are finding it to be a very effective way of deepening current relationships and developing new ones. We're putting a concerted effort towards implementing this more broadly over the next 2 years. Overall, it was a very good quarter for Advice & Wealth Management, and we're pleased with the progress we're making in the business. With good flows in productivity, as well as our continued expense management efforts and even with the headwinds from low interest rates, margin is expanding nicely. In Asset Management, we're building on our 2 strong footholds in the United States and Europe, and establishing a strong global Asset Management business. We're delivering good financial performance while managing a period of outflows, which I'll discuss further in a moment. Our assets under management were up 2% sequentially to $466 billion, driven by market appreciation. However, that included the negative impact of foreign exchange, which was sizable in the quarter. Operating PTI increased 10%, reflecting market appreciation and the benefits we're realizing from our revenue and expense reengineering efforts. And the adjusted net pretax operating margin grew to 34.6%, from 33.3% a year ago. We have a good product platform in Asset Management, which we're continuing to invest in and grow, in particular within global equities and asset allocation products. Meanwhile, we're maintaining consistent competitive investment performance, which remains a priority for us. Regarding flows, Walt will cover the numbers for the quarter. But I wanted to take a moment to explain how we think about Asset Management, the overall strategy we're executing and what you can expect from a business perspective. Both of our major acquisitions, Threadneedle and Columbia, gave us asset managers with meaningful portions of assets under management, which included mandates from their former parents. That created unique flow characteristics that we continue to manage today. Threadneedle is part of Zurich and it manages a significant level of insurance-affiliated assets. Our objective was to leverage Threadneedle's investment platform and asset base to build strong, third-party related distribution in both retail and institutional capabilities to grow higher fee business while managing legacy assets. We've been successful in doing this. Today, legacy insurance mandates represent a much smaller percentage of Threadneedle's assets under management. This relationship is important but we do expect to experience approximately $3 billion to $4 billion in outflows of these assets annually, given the nature of the book. That said, as we look at the business overall and invest to grow, Threadneedle inflows are higher fee and we're seeing that dynamic come through in the P&L. Like Threadneedle, Columbia had a level of assets directly associated with its former parent, as well as assets that were influenced by relationships with the bank or its affiliates. We approached the transaction in a similar manner to Threadneedle, to build on the existing asset and client base, leverage strong investment performance and product offerings and expand third-party and institutional distribution relationships. While outflows of assets directly associated with the bank's pension and institutional area are largely behind us, we continue to experience several billion of ongoing outflows annually from our relationship with the bank and bank-affiliated distribution. In addition, we expect some level of outflows from a key subadvisor. The core of the Columbia business is strong. We're beginning to make good progress on growing in third-party and institutional. We have good traction in our focus funds and we are working to expand this more broadly across our intermediary platforms. As well as we're building a broader institutional pipeline and beginning to win more institutional mandates. Looking ahead, we expect flows to improve gradually this year. Here's what you can expect from an overall business perspective. Both Threadneedle and Columbia will experience outflows from assets that were directly or indirectly affiliated with the former parent companies, the majority being lower-fee business. We'll leverage our platforms to build flows through third-party distribution in both the retail and the institutional channels. We're organizing the efforts of Columbia and Threadneedle to use the strengths of the investment teams to better compete in the global marketplace with high demand products such as emerging markets, asset allocation and global. We're always focused on generating consistently strong investment performance, building on the product portfolio of 118 4- and 5-star funds. In fact, Columbia won 5 new Lipper Awards in the quarter. Reengineering remains a priority to maintain good profitability and margins as our flows evolve. And finally, we will make decisions to drive profitable net inflows. For example, we are executing our plan to align share classes with certain distribution channels. In the case of our RIA changes, it may impact flows in the near term in exchange for improved earnings. Overall, I'm optimistic about this business and what we can do with this business. We have talented people, good investment processes, solid performance and expanding distribution. We're focused on gaining flows and building from the strong foundation we have in place over the medium term. Let's move to Annuities and insurance. In Annuities, our business is strong and performing well. We're generating good returns on a business that has a good risk profile with strong hedging. Our flows are improving in our new volatility control product. In addition, we're building out the product line by launching 3 new managed volatility funds to help serve an even broader range of client and advisor needs. As we move forward, we'll also emphasize variable annuities without a living benefit rider to add to our already strong book. We're launching 21 new investment options, including more advice embedded solutions, new asset classes like alternatives and commodities, and more funds and asset classes where tax deferral is valuable. This is a good business for us and we're looking to grow this book again. With regard to fixed annuities, they continue to be in net outflows due to the effects of the interest rate climate and the reduced client appetite for these products. As we look to 2014, we'll be able to reprice a portion of the book that will take some of the pressure from this product line off our margins. In Protection, our insurance business is also performing well with good profitability in the quarter. We have a diversified portfolio that is mostly comprised of variable universal life, cash value-focused universal life, disability insurance and term products that are not significantly impacted by the interest rate environment. We're beginning to see a nice pickup in sales of life products, with cash sales growing 12% year-over-year. We're also pleased to see sales grow in our variable universal life product, as well as continued steady growth in our indexed universal life. In Ameriprise Auto and Home, we had solid policy growth of 9% from our affinity partners and within the Ameriprise channel, resulting in premiums growing nicely, up 7%. Expenses were well managed; however, momentum was affected by increased reserves for an auto liability loss development. Client satisfaction retention for Auto and Home remains strong. To summarize, we had a good quarter. We continue to execute the strategy we laid out for you in November and we're making good progress. We're investing to maintain good capabilities, while maintaining tight control of expenses. Now I'd like to hand things over to Walter for a detailed review of the numbers.

Thank you, Jim. Ameriprise delivered strong financial results, particularly in our key areas of growth: Advice & Wealth Management and Asset Management. These 2 segments represent 60% of our total revenues and grew 8% on a combined basis when you normalize for exiting the bank. In Protection and Annuities, revenues grew in line with our expectations, particularly in light of continued low interest rates. Let's turn to earnings on Slide 4. Pretax earnings from Advice & Wealth Management and Asset Management together increased over 30%, excluding bank earnings in the 2012 quarter. Similar to the revenue picture, we are seeing the same trend for operating pretax earnings in these segments. Let's turn to EPS on Slide 5. Excluding the bank, we had a solid 13% growth in operating EPS to $1.59 per share. As we said, we plan to return 100% plus of earnings to shareholders this year, plus the $375 million freed up from exiting the bank. The return of capital associated with the bank will effectively offset the lost bank earnings from an EPS perspective by year end. However, because of timing, earnings per share was impacted $0.04 on a year-over-year basis. Return on equity hit an all-time high in the quarter at 16.4%. And we see an opportunity for further ROE expansion in 2013 and over the longer term. Moving to the segment discussions. In Advice & Wealth Management, the strong year-over-year PTI growth trends were driven by underlying fundamentals of the business. Client assets grew 11% to $372 billion, and we had record wrap net inflows of $4.1 billion. Advisor metrics were strong. We continue to recruit high-quality experienced advisors with continued high retention rates. Advisor productivity reached a record high of 104,000. In the quarter, low interest rate had a negative impact of $10 million on our earnings year-over-year. The impact of low rates will be approximately $10 million per quarter for the balance of the year. As Jim said, we remain focused on managing expenses. Excluding the bank, G&A expenses were down 3%, primarily from the wind-down of the brokerage platform conversion expense. Year-over-year, new brokerage platform related expenses declined $8 million, though a nominal amount of training expense will remain for the next quarter or 2. We'll continue to invest in business growth initiatives, but we do not see any projects of this magnitude in the near term. One of the most compelling results in the quarter is the AWM margin, which on a reported basis, was 12.9%, up 300 basis points. Good results in their own right. If we exclude the bank from the prior quarter, margins would've expanded 430 basis points over the prior year. Turning to Asset Management. We had solid earnings of $144 million, up 10% over last year. We're able to deliver earnings growth, despite being in outflows, by reengineering our revenue and expense bases. In the quarter, we had 1 less fee day, which impacted revenue growth and profitability. Overall operating expenses were up 4%, primarily from the impact of market appreciation on distribution fees, and G&A expenses remain well-controlled. As always, we will continue to focus on both revenue and expense reengineering opportunities to maintain solid profitability and margins, make the necessary choices particularly around fee levels to ensure our flows are profitable, and execute the strategies necessary to achieve positive flows. Let's turn to flows in more detail on the next slide. In the quarter, we had a total of $5.7 billion of outflows. This was higher than anticipated, but consistent with prior patterns of outflows in a few specific areas. For retail, overall flows were flat, with a strong $1.7 billion of inflows at Threadneedle. This was driven by strong consumer confidence and good sales in a few key products, particularly in Europe. We recognize that U.S. retail flows remained a challenge. First, a large distribution partner continued to rebalance asset concentrations. Second, we had continued outflows from a third-party subadvisor. As we mentioned last quarter, we're also taking actions to improve the profitability of flows by changing the share class that we are offering in the RIA channel. This resulted in outflows this quarter and we expect to see more over the next few quarters. For institutional, outflows were high at $5.5 billion, though primarily from low fee assets. At Threadneedle, $2.2 billion of the outflows were largely from normal outflows from legacy insurance assets, and also included $1 billion from a mandate in Japan that we've previously disclosed. For institutional at Columbia, there were approximately $1 billion of outflows from low basis point assets, including Balboa. In addition, several clients took money off the table in both investment-grade and high-yield credit mandates, given strong performance in these asset classes. Turning to Annuities. Operating pretax earnings was $156 million, which was in line with our expectation. Variable annuity operating pretax earnings were $109 million, down 18% from the prior year period. First quarter results were impacted by a $7 million higher DAC amortization and benefits expense related to our third quarter 2012 unlocking, which we had discussed last quarter. And additionally, there was $10 million less favorable mean reversion compared to a year ago. And the prior year period included a $20 million favorable actuarial model adjustment. In fixed annuities, operating pretax earnings declined $9 million. The pressure from low interest rates continued to impact the fixed annuity block. In the first quarter, the impact from low interest rates was $17 million on a gross basis. Partially offsetting this was a benefit to investment income from the accretion associated with assets transferred from the bank in the fourth quarter. We expect the pretax earnings impact of low interest rates to be $15 million to $20 million per quarter for fixed annuities. By year end, we will begin lowering our interest rate exposure by resetting rates on a large 5-year guarantee block of fixed annuities. As previously mentioned, we adopted a new methodology for allocating equity to our product lines in the quarter. The new methodology reflects the higher requirements of rating agencies or regulators, and also allocates contingent capital for stress scenarios, mainly to support our variable annuity book. This quarter, the Annuity segment's return on equity was a strong 16.2%. Moving to Protection on Slide 10. Operating pretax earnings were in line with our expectations at $110 million. The continued strong results in our Life & Health businesses were offset by lower earnings for Auto and Home. Life & Health earnings were strong in the quarter from favorable disability and long-term care claims experience. It was a good quarter for sales. Both variable universal life and indexed universal life sales were up after refreshing our product last year. Auto and Home has continued strong new policy sales growth across market segments, primarily from our affinity relationships with Costco and Progressive. However, earnings were a bit lower as we built reserves related to prior year loss development. The Protection segment generated a strong 16.7% operating return on allocated equity in the period. Let's turn to capital on the next slide. We returned $454 million to shareholders through dividends and share repurchase in the first quarter. We have been able to consistently return more than 100% of earnings to shareholders due to our business mix shift, risk management capabilities and strong balance sheet fundamentals. For the rest of 2013, we anticipate that our capital actions will drive continued ROE expansion and will neutralize the EPS impact of exiting the bank by the year end. As Jim said, we announced that our board of directors has approved an increase to our quarterly dividend to $0.52 per share after our regular annual dividend review. This dividend brings us to a 2.9% dividend yield, and is in line with our strategy to move towards a greater portion of our capital returned in the form of shareholder dividends. With that, we will take your questions.

[Operator Instructions] And our first question comes from Erik Bass from Citigroup.

I was hoping you could talk a little bit more about the environment for recruiting new advisors, and whether you view the slowdown in hiring this quarter as a blip or is it becoming more difficult to attract the advisors you're targeting? And I guess related to that, do you expect any impact if new disclosure rules for compensation packages offered to advisors or advisor recruits go into effect?

Well, what we've seen is we've started to experience a little slowdown at the end of the year and the first part of this year. And we think that's consistent -- and you probably heard this from some others, because the market did pick up, there were a lot of changes at the end of the year because of fiscal policy and tax policy, and there's a number of things that I think, because of dividends and reinvestments, that people were much more focused on how they're going to manage their portfolios. So we saw that a bit more this year than we did in previous years. I think that's across the industry. Having said that, we still have a good pipeline that's starting to rebuild as people come out of this period. And we think that we will be able to ramp it up a bit as we go through the following quarters. We've also been focused a bit more on higher productive people, and so that area is always a bit more competitive. But we've been really attracting some quality people into our franchise. Regarding the new disclosure rules, depending on what they ultimately decide, it will initially have some effects, I would think, as people start to think about how they would disclose information in regard to their clients and what that would mean to them. Having said that, I think it could actually work as a benefit over time, in a sense that there's a lot of -- people move between wirehouses, and there's a question of why do they do that? Are they doing it just for compensation or for a change in environment? In our case, as we attract people over, we're attracting people who are actually coming over to work in a little different model, with a bit more advice proposition. And we think we can probably help them explain to their clients what we would provide them that would actually help them work with their clients even more fully. So it would be a change. I think any change always has an effect. Having said that, I think there are some good things that we could highlight that would explain why those people are making the change to move. So we'll see where it goes as far as what the regulator ultimately decides. But we are preparing ourselves to deal with that effectively.

Okay. That's helpful. And then, if I could just ask one quick one on the Asset Management side. You talk about a lot of the outflows being in the low-margin assets. I was just hoping you could give us a sense of the margin difference between, kind of, what you're seeing on the institutional outflows; and then, on the retail assets where you are seeing inflows? So just kind of a rough margin differential between the 2.

Well, I think we could break it down to just 1 or 2 components in institutional that Walter mentioned. So -- and I'll separate the Threadneedle from Columbia, just for a moment. Clearly, we still have the $2.2 billion of outflows from Zurich-related assets. One was a mandate that we recognized, a little incremental from our normal flow picture. But on an ongoing basis, these are closed books, et cetera. And there is always a drawdown of assets. We have explained in the past that the fee basis, even though it's a good level for us to generate profitability, is much lower than new institutional mandates that we do win in the international marketplace. And therefore, the flow picture always looks, whether even if it's a breakeven at a point, it's a real positive for us if we're bringing that in through the new mandates through the third-party institutions. Columbia is a little similar in that regard. There were bank-related like Balboa that they sold off that insurance book, there were bank-related affiliate distribution related to their institutional activities that also have very low basis points. And those, compared to new institutional mandates, are significantly different. Now the one thing we did get affected in the first quarter that was of higher fee to us were some mandates that we had in the credit area, not because we didn't have good performance, we have excellent performance, but because there was a rotation out of some of that area at the very beginning of the year, when everyone thought rates would start to back up, et cetera. And so we experienced that rebalancing. Now the good news is, from what was freed up, including some capacity in these areas, we do have wins that will be funded in the second quarter, it just didn't time correctly. And you can never count on the timing of those things. So we do see some improvement in that regard from what I would call the third-party institutional. It doesn't mean that we won't continue to get affected by what I would call the ex-parent stuff, including here with Columbia. And that's an effect. And the retail distribution, as you know, retail always has different fee structures than the institutional. However, some of those fee structures for outflows are again, through bank relationships, as well as through subadvisor. And so their fee adjustments will be slightly different than it would be if we're winning a new third-party that doesn't have some of those fee structures attached to it. And the last point was -- Walter made on the RIA. RIA, we were selling the wrong share class when we actually took this over. And even though we will experience outflows as we did in the first quarter, over time, this will actually be a better business for us. But we felt appropriate to make those changes. So there's a confluence of events that really hit in the first quarter. Having said that, we're continuing to be very focused on building flows in what we would call more profitable businesses, as well as expanding the distribution through the third-party retail and institutional. But we will still experience outflows from the ex-parent. Now having said that, we've got a good base, we continue to reengineer to offset some of those losses. And at the end of the day, I think we can get back into a growing business, but yes, right now it's going to take a little time, particularly if you look at the overall flow picture.

And our next question comes from Nigel Dally from Morgan Stanley.

First question, with the improvement in advisor productivity. Can you discuss whether that -- whether you expect that to be sustained or -- with some of the client activity, perhaps a little abnormal, given the fiscal cliff and then the rush to push -- to put cash back to work in the past couple of quarters?

What we saw, again, is -- let me start with a little longer-term, and then, what we saw in the quarter. What we saw longer-term is that we've been getting very good strong inflows into the company from a client perspective over the last year. And we've also seen some strong inflows consistently into our wrap business. I think the first quarter this year was exceptionally strong. Now 2 things, a little to even out sort of that trend a little bit. We did see a pickup in cash, holding cash at the end of the year as dividends were more significant, as well as people maintaining some of their cash to see what happens at the end of the year. But if you looked at our balances, our cash balances are very high, still, and they only went down about a $1 billion that rotated back in through the wrap business. So I would say, overall, we still see a good trend of new business coming in, they're going into the wrap fee-based area. And our cash balances are still at an -- abnormally high, even though they've come down a little from the end of the year. So as long as markets don't ratchet tremendously, we don't see a fundamental change in that at this point in time. In regard to some of the current period activity, it's picked up a little on a transaction, but there, it's not at a high level yet. And so again, I think as people feel more confident and start thinking about longer term, we may see a further pickup there. But again, that all depends on environment, as well as market conditions. But I would say, what we're experienced in productivity from the fourth quarter to the first quarter, I don't see a fundamental change. I can't predict. Summer months always slow down a little bit. But that's as we look further out.

Okay. Second, just going back to the issue with regards to flows. As you mentioned in your comments, most of the outflows continue to rate to BofA, Balboa, Moscow [ph] and Zurich. So out of your $430 billion-or-so of assets under management, is it possible to get details as to how much of the AUM relates to those buckets? If not in isolation, at least, in aggregate?

Okay. I think we could probably -- we'll actually see if we can -- what we can put together. I think we disclosed now we're separating out and giving you a line item to talk about Zurich. I think we don't like to break out sensitivity on client per se. But I think what we could do is probably give you at least a perspective on some of these affiliated type areas. But let me check with the group and see what we can do to provide some information. What we did try to say to you, clearly in this quarter, is what Zurich will continue to mean to us. So don't get me wrong, there's replenishment in a sense of what that basis of assets and as it appreciate, et cetera. But there will be an ongoing -- it's consistent from the day we bought Zurich -- Threadneedle from Zurich. So I don't see that fundamentally changing as long as we have that mandate, which is a good relationship. In Columbia, I think it's going to be similar. You have some of these low fee type of institutional businesses that were part of bank relationships. And I think that has come down a lot, but there are still billions left there. But they're at very low fee basis points like Balboa. And then, there are the ongoing relationships, including things like the U.S. Trust that will be a good relationship that we want to continue to focus on and invest in. But just based on the starting point of that being a primary asset manager for the business, we will have experienced normal outflows as that business continues to diversify a bit. So we'll see what we can provide you moving forward. But I wanted to be clear upfront here, that on an ongoing basis, for both of those, it will be a few billion each. But we believe that we could manage that, and we believe that as we continue to redeploy our focus and resources for building, that we'll offset that, particularly on a fee basis moving forward.

And our next question comes from Alex Blostein from Goldman Sachs.

Jim, thanks for the update on your appetite for deals, I think it's helpful. But I guess, broadly, it may be helpful to kind of revisit how you guys think about excess capital with respect to deals as you kind of continue to look for, maybe, other opportunities. So, I mean, Walter, I think you highlighted $2 billion of excess capital. I think you guys removed the ploy [ph], but I don't know if it's intentionally or not. But can we think about the $2 billion again, if it's available for deals, you guys will look at everything, but over time, if there are no deals, you'll continue to return kind of 100% of earnings, plus over time we'll be dipping into the $2 billion cushion?

I think you said that very well. So, yes, that is exactly how we're thinking about it. It doesn't mean that we won't look. But as I said, unless there's something that we feel is really appropriate for us that will further strategically add value and that we can get a good return for shareholders, our primary will be continuing to return to shareholders through buyback and dividend, as we've been doing. So no change in that direction. Walter?

Yes. The only thing I would add, Alex -- excuse me, it's Walter -- is that even as we go to add -- return more to, we have the ability to accumulate a lot. So if something does come up, we have the ability also to engage there.

Got it, helpful. And I just want to go back for a second to AWM, on margins. I remember, a couple of years ago, you guys were hoping to get to 12%. And now, you're clearly at 13% with still a decent amount of headwinds in the business. Can you give us a sense where the employee margins are versus the franchisee margins? And can't we think about the target margin in that whole segment closer to mid-teens versus, I guess, what you guys used to target?

Yes. I would say -- listen, we've been able to overcome significant headwinds. As Walter outlined, just year-over-year, where we're already at low rates, as various Bernanke made the latest adjustment back in August. That's another $10 million in the quarter lower than it was just last year, and we know how low that was. And we've been able to offset that from improvements through productivity and expense management. And then we took the bank out, which also really compressed margins by, well, just add 130 basis points on top of that. So if you put those 2 back in, you're close to 15% today based on what we said to you previously that we wanted to get to 12%. And the 12% included interest rates coming back at the time. So we've more than offset the interest rate headwinds and it's actually gone far beyond that. In regard to your next question regarding the 2 channels, the employee channel is not at the margins we want them to be at, as we continue to build the capacity and get the productivity where we want that to be, as we have invested in that area. So we're probably around the breakeven point right now. And so, as we continue to add productivity there, advisors, et cetera, we can definitely get that into the type of margins that we're talking across the business, which gets you, again, that boost that you've mentioned.

And our next question comes from Suneet Kamath from UBS.

Just a couple questions on the flows. First, Jim, you had mentioned the RIA share class change and that it had an impact on the flows, that you would expect that impact to continue going forward. Can you just give us a sense of order of magnitude, how much of an impact on the flows that had in the quarter?

In the first quarter, that was roughly about $600 million. And that was what normally would have been an inflow that we would have experienced to turn that into about a $600 million outflow, so that the change was probably a bit more significant than $600 million. Now again, that was a repricing which closed out an old share class. So there are some effects to that, that people make a decision on. We think we still have a good business there. We think that a good number of people are staying in as the share class shifts. Having said that, it was an effect in the retail flows in the first quarter, probably closer to the 6-plus hundred million that would've been slightly positive, let's say, or a little positive to a negative.

Okay, got it. And about -- is that about the rate that we should expect kind of going forward?

I think in the second quarter, it might be a bit higher, only because it was fully enacted by the end of March, February and March. So again, we don't know exactly. But I would just say, second quarter would be a sort of a -- the bigger quarter possibly for it. And again, I think even after that's over, economically, we'll be better off.

Right, understood. Turning to Institutional at Columbia. In the past, you guys have talked about a building pipeline. It was probably the biggest pipeline it's been, I think is the way you characterized it at some point in recent quarters. And my understanding is that pipeline, in terms of mandates filling or funding, has been delayed a little bit. So I was wondering if, a, you could talk about that? And then b, can you give us a sense of order of magnitude of what that pipeline is? In other words, if everything just magically funded today, is it $1 billion? Is it $5 billion? I mean, just some sense of what we could expect if those mandates eventually fund?

Okay. So if we just look back over the number of periods, remember, we had to rebuild this. We were on hold with consultants, et cetera. We got off hold beginning part of the last year. And so since those points, our pipeline is the highest it's ever been and it continues to grow. We have -- I don't want to give actual numbers here, but it's significantly up from where it was 2 years ago, and even nice strongly up from where it was a year ago. And we're in a lot of pending finals. And we usually have very good win rates, ultimately. So once we can get in the door. Now having said that, it's taken a little time to get a broader, what I would call, a broader set of funds to be considered. And I think we're finally getting there. We -- as an example, I'll give you this out. We have wins to be funded of $1.4 billion. Now again, you can't exactly time that. We thought some of that would come in, in the first quarter, it didn't. But we know, based on a year ago, that a lot of what does win does get funded, but it does sometimes take a bit more than a quarter to do that. So I would just say that the pipeline is building. I'll ask the team what we feel comfortable with as we go forward. But there are billions in the pipeline and billions in the finals. And so, what we already won is another billion-plus. So I think, unfortunately, what we got hit in the first quarter is winnings didn't fund as quickly and people rotated out of some very good mandates because of what they thought were going to happen in the fixed income market. And it was unfortunate that the -- it compounded what that looked like. Having said that, our team feels good about what they got in the pipeline. It doesn't mean we won't lose some low-basis-point stuff from the bank-affiliated type things that are very low margin that goes into those numbers. But we'll try to clearly identify that for you moving forward. Listen, we're not declaring success here. We're declaring that we're hard at work. We've got to build and we've got to keep on getting out to the market and expanding. But we do believe we're gaining traction. It's just for you, and I can fully understand, it's hard to see when you see these substantial outflows from -- of these categories.

That's very helpful. Just a final -- my last question is on Columbia. So I think we're about 3 years after the close. And I think pretty much every year, we've been in outflows. And I understand that there's been some cyclical headwinds and the former parent stuff, and I get all that stuff. But I guess my question is, as we think back to over the past couple of years, what, if anything, have you learned from the experience with Columbia that you would take to, say, another acquisition that you might decide to pursue down the road? Were there any lessons learned that you could share with us?

There's always a lot of lessons to be learned. So I would say things always take a bit longer than you always think. For instance, you think some of the stuff -- let's say, we're talking about flows. Some of that stuff would either wash out quickly or adjustments would be made or you can be clear on what that is, and it's not always easy to do that. I would say, even when you integrate and merge, you may have a very clear plan and roadmap. Having said that, the execution of it takes a lot of parties, whether they be internal, external, providers, boards, et cetera, that always take a bit longer. You also, even in a deal, you've learned some things as you dig under the covers more and whether you peel the onion in regard to what's really from a parent perspective or an economic or a distribution. Having said all of that, and if I had to retrace steps, I think we did an excellent deal. I think we're providing a tremendous transformation for what we had. I think we bought a good business. I think we worked with a good partner in Bank of America and to orchestrate this and do this. And I think if you go back to where we were and where we are today and you look at our total Asset Management business combined, where we're generating over $0.5 billion of PTI, even with these outflows, could they -- would you have liked that to be done so the optics are different, absolutely. But for just like I did Threadneedle, I've got optics of outflows, but I've created a wonderful business in Threadneedle with a diversified, strong asset management company, #4 in the U.K. market and expanding. So I would just say, the flows are an optic thing right now, but look at the profitability, look at the makeup, look at the positioning we have as one of the larger providers that we can build upon. And we've learned a lot. So if I had to do another deal, I'll know a lot more about what I would do and say and how do I orchestrate it. But I also would say, if you look beyond the quarter or you look at beyond the one indicator and look at the total, and you can go back quarter to quarter and go back to the past, we've created a very large, successful -- we think will be very successful over time but it's going to take more work -- asset manager that's generating very strong profitability, I would compare it against anything in the industry, has a good product lineup, has good investment performance and expanding distribution. So I know it's hard, Suneet, as you look at the period and say, "Well, why aren't the flows turning around?" But even if I suffer continued outflows from ex-parent perspective but I'm building a stronger business with stronger profitability, I think that's fine. If I did another deal, let's say, and you buy it from somebody else, you're going to experience outflows in a consistent, particularly if it was a parent-owned entity. But if you can derive good value from it, then I think we have to explain that a bit better than we've been able to.

And our next question comes from John Nadel from Sterne Agee. John M. Nadel - Sterne Agee & Leach Inc., Research Division: I have one on Asset Management. Jim or Walter, if I look at the management fees as a percentage of average AUM, in other words, the fee rate, it jumped up this quarter very nicely. And I assume that's reflective of some of the things you've been talking about, a higher proportion of assets coming from retail, some of the lower-fee business outflowing. I guess my question is, can we expect that, that fee rate can continue to move higher from here? And if so, is there any help you can provide us in terms of thinking about at what pace?

I think the observations you have are correct. And I think again, there's a market factor in there and other elements. So I think we can't be that predictive. But it's certainly -- and the 2 fee days left -- less. But [indiscernible] I think we should see that, again, you can't control the market, but certainly the trend line is reasonable.

And I'd also say that we have more work to do regarding various pricing and things that we have with fee waivers and caps and various things to get that orchestrated even more appropriately over time. We did a lot of mergers. We did a lot of movement of funds. And I think that, that has caused some issues for us that we're -- we've started to make some changes with a year ago, that's being factored in there, that we need to continue to focus time and attention on. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. So even the revenue enhancement side of that is not yet fully baked in yet?

No. I think we've got to do more work, including with our fund boards to really go over that, to understand what has changed in the dynamics and why. We do have a good philosophy of giving and having good reasonable fees. Having said that, I think when we did a lot of these merges and caps between 2 fund families, that actually put a bit more of a pressure and burden that I don't think is necessarily appropriate at this point. John M. Nadel - Sterne Agee & Leach Inc., Research Division: All right, that's helpful. And then Jim, sort of right upfront in your prepared remarks, you mentioned that you're not seeing, at least currently, acquisition opportunities that meet your internal criteria. I was just hoping you could put maybe a finer point on that and help us understand, maybe more specifically, what those hurdles are?

Well, I think what I would say, and Walter can complement this, we have a few hurdles. So one would be, we start off with the idea that, does this add value overall to our franchise longer term? Because any deal that you do, you have, just like Suneet asked, what are the learnings, you have a lot to do with integration, you have a lot to do with change in flows and people and talent, et cetera. And so, you always have to look at that to say, "Does 2 and 2 equal something more than 4?" Hopefully, it doesn't give you 3. So the first thing is, does it add or complement the product line? Does it give you enough additional capacity? Can you consolidate, in the right way, to free up resources? And so we go through that, that gives us a financial analysis as well. And economically, does it give us as good a return as if we return to shareholders in a different way. And so there are always opportunities. The question is, can you get them to work for you and do they detract you from the things that you think will build even a stronger business and prevent -- present an opportunity cost or not? And so it's not that we don't look at things. We look at things, and each of those properties have some benefits and some of them that could be detractors or have some issues with them. And I think, as you also asked, we have continued to get smarter based on the learnings of doing Threadneedle, Seligman and Columbia now, so I think we're not naive anymore as we go in. But I think we've done a good job in each of these. And I think we factor in those learnings and our experience as we look at any other opportunity that approaches. So is the world continuing to consolidate at one level? The answer is yes. You'll continue to see transactions out in the marketplace. Will we be able to play in them? I think we do based on our experience and our capacity and free cash that we can utilize. But will we just do it because there's a deal out there? The answer is no. And so those are the things we take into account. Beyond that, I mean, we have a very detailed thing that we go through to analyze whether something adds value or not, so I don't want to disclose that strategically here on a phone call.

Our next question comes from Eric Berg from RBC Capital.

Jim, my question. I just have one that really bridges the Asset Management and the Wealth Management area, the Advice & Wealth management area, and it is this. It's striking to me that you've achieved continuing significant success with your RAP program, and yet the success, I think this would be probably to put it -- would be to put it generously, has been on-again, off-again in retail mutual funds. Contrast the 2 businesses. Why do you think you have been able to be as successful, continuously bringing in net flows in the RAP area, but not in retail funds?

So I think, Eric, I think we are successful because in our RAP area are the funds underneath it that I think, as an example, we continue to do well as Columbia, including in our channel. Having said that, we have an open architecture channel and therefore, we're never going to win the -- all the old business. Now if you think about what we're experiencing for Bank of America and Zurich, again, these were proprietary businesses at one point that they captured a substantial amount of sales within each of those channels, just like we did at Ameriprise many years ago. And it took us years to sort of go through that leveling out as an impact. So part of that is what you may see in the overall fund types. The second part is, to be very clear, now we are going to grow, how, through third-party. And so even though we are maintaining good sale share, let's say, at Ameriprise, and even, let's say, at some of the Bank of America activities as they further diversify, we now have to gain further traction. And when we were RiverSource, remember, we started a third-party business. We were just starting to develop it. At Columbia, they developed the third-party business, and part of what they did at Columbia in establishing that is some of their hotter products that they sold were, unfortunately, in just a few areas. And so as those areas have changed now, some subadvisor and some types of funds where people have moved on and retired, they've been impacted a bit more by outflows. But if we look at our gross sales, our gross sales are still good and strong, and we do a significant amount of tonnage. However, we've been even having a part of a redemption, and what we have to do is grow beyond those proprietary channels even more strongly now into third-party. And so that's really the changeover. And so I would say that we need to work at this a bit longer. We need to -- we took a major organization and merged it together over the last 3 years. And it's only at the end of, let you think, mid-year 212 (sic) that we're over the merger activities. And unfortunately, I think we would've all liked to come out of this a bit stronger, it's requiring a bit more time and effort. But I think we got a lot of the good pieces in place to do that. And we do see signs of success. But having said that, we got a very big fund family today and a very big asset base. We have $450 billion of assets under management. So we've got to get more cylinders firing to offset some of the ex-parents stuff to get into a growth mode when we look at overall flows. I think we may find it a bit easier to do that on a fee basis, rather than in an absolute flow basis. And that's exactly what we experienced when we did Threadneedle with Zurich. Our flows weren't oversized in a positive, but our fees were, over time.

If I could ask just one more question. And you've touched on this, but I'm hoping you can build on your answer. It's clear that you think, at least to me it seems apparent that you believe this acquisition has been a success despite the negative optics of negative flows, which I think have been almost every quarter. If we can get a sharper point on what measures, not the measures that you see, but the measures that we in the public can see, what are the measures that we in the public can see that you would point to, that you would think best speak to the success of this acquisition?

I'll talk a few, and I'll let Walter talk to the economics. First of all, I would say, we have a fund family that we're #8 in the U.S. We, today, have 50-plus 4- and 5-star funds in most categories. We have a more diversified and larger distribution platform than we've ever had before. We have good, talented people that have good performance in a larger areas than we ever had in capability. We are a fund complex to be reckoned with out there. I think you can compare the economics over and the size of scope and the performance and the number of funds against any other fund family out there. And you can see that we are one of the larger, more significant players. That's a few. Walter, why don't you give them the law [ph] on the economics?

Sure. Eric, clearly, it's been transformational from our PE, from our IRR objectives, as we talked about it, it was 30%. It's been north of that. And currently, from every aspect financially, the program of both the capabilities that we now have and really, the potential has really been a major, major shareholder value to the firm. So -- on any measure we have looked at, this has been excellent.

So I think you're asking on excellent question, Eric. I think, as I said, I think I would look at the more absolute dimensions and where we're situated. I mean, the other thing I would just say is this. We're only at the first or second inning of now taking Columbia because we had to focus on integrating Columbia, and putting Threadneedle with Columbia. And now we're really working on some global product, emerging markets, asset allocation. We've just brought in some senior talent there. And we see some good opportunity. We're expanding in Asia. We set up offices out there, and we're winning mandates already. So listen, I think we got more work to do. It's a competitive world. There's a lot of good players in the industry. But we are a player today. Where in the past, we weren't able to compete on a full-scale basis. Now it doesn't mean it's going to be easy, particularly to establish ourselves even more globally, but I think we have a lot of the capabilities and foundation to do so. But we're going to work hard. We've got to get those flows turned. We've got to win more business. We've got to develop some of the more global capabilities that I think we already got some good things that are coming to -- will come to fruition towards the latter part of this year. So listen, we are not satisfied. This is an area that we got to get a bit stronger in and better. But on the other side, we're generating good strong profitability. I think if you put us against a lot of -- outside of the very largest players out there, I think you'll find that we're right in the mix there. And you can look at all the dimensions I've mentioned to you. And I think we compare quite favorably. More to do. There are some areas we can get better. But I think we're in good shape.

And our next question comes from Jeff Schuman from KBW. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: I was hoping we could talk a little bit about the fixed annuity block. Can you give us some sense of what the crediting rate or spread opportunity is when that book matures?

You're talking about -- it's Walter. You're talking about the 5-year book? Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Yes.

Yes. What is going to happen here, if you take a look at this, it has 2 major components. Primarily, there's an outside distribution channel, which has a guaranteed minimum interest rate that's going to be in the 3.5% range, which obviously on that basis, we will on then adjust to it, but that will give you a compression. The balance of it, however, both on the ID channel and some of the OD channel, is in the 1.5% range. And obviously, that would then bring down and prove, as we go into 2014 and start repricing this spread compression that we've had as we rebalance that. Obviously, we have to look at being -- certainly what's available out there from that standpoint and our alternatives to our clients. And -- but it clearly will be -- as we indicated this year, we are -- the bulk of the $115 billion -- $115 million that we're taking an interest rate, that would start in -- basically be mitigated in the area of the annuity as we go into '14 and certainly, in '15. Again, it depends on the environment because I can't say what we're going to price that yet, depends on what the rate is going to be out there. But that -- it certainly gives us that leg in to really readjust that and then be balanced with our shareholders and clients. Okay? Is that okay? Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: [indiscernible] So the outside distributed stuff, the 3.5%, that is still some kind of a floor that would remain in effect. Is that what you're saying?

Yes, absolutely. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. So not so much opportunity there...

For that one. And that's about -- if you talk about the $4 billion, that's about 30% of it there. $1.3 billion, $1.4 billion of it. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And are there other similar blocks of this type of annuity that will come out of the guarantee period in subsequent years? Or is this pretty much the one kind of big block of this nature?

Yes, this is a big block. The other is the 1 year that's been -- a lot of it's been out of surrender. And obviously, they have high guaranteed minimum interest rates. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that's very helpful. And then one other thing, we talked a lot about the share class and the flows on the RIA business, but what is kind of the base of AUM for RIA business?

Right now, I don't have that. For RIA business base it's -- I don't want to guess. So why don't we get back to you on the RIA base because I don't want to give something that's -- it's not at the tip of my hands right now. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just one last question. Just -- we've talked in great detail about the different flow dynamics, but I want to make sure I understood what I thought I heard Jim say in his opening comments. I thought I heard Jim say that, all in, the expectation was that flows might improve over the course of the year. Is that -- did I understand sort of the bottom line correctly that when we factor in all these kind of bottom-up inputs that you still would hope to improve from this level?

Yes. I think again, we can't dictate when some of the lumpiness, some of the mandates change. But what I am saying to you, and again, let me try to be clear, as clear as I can be right now. We will, even after this year, okay? So let's say, we will experience Balboa and some other things happening this year. Even after this year, for some of these lumpy institutional, low-fee type of things, we will still, always -- and so in Threadneedle, the way I would look at it if I was you is this, are we gaining good flows in Threadneedle from retail and institutional through third-party x Zurich? Because Zurich will be in an outflow on an ongoing basis from $3 billion to $4 billion a year. And if the answer is yes, even if flows are at breakeven or negative, but they will offset the negative in flows because of higher-fee business, that's going to be a positive. And so I'm not saying we won't be in inflows in Thread. You can see in periods like including last year, we were in strong inflows in certain periods, but it's always every quarter, there's a $1 billion, $1.5 billion of outflows from Zurich. And you say, "Well, it's not that strong." It's at -- that's a very strong good business of the net of those 2, even if they come to breakeven or positive after offsetting those outflows, or even negative to some extent. We're going to still have some of that for Columbia as well. We believe we can get into positive net inflows in Columbia. Again, similar to what we're doing with Threadneedle. But we're always going to experience some level of outflow from the bank, bank-affiliated distribution, that are good agreements, good relationships, good base of assets. But I will tell you that when you look at the gross gross, you're going to say, "Well, why isn't it possibly stronger?" I would say on the gross side, it will be strong and growing. On the net side, we will have some of those consistent outflows. But that doesn't mean it's a bad thing for us. It means that it was part of the arrangement we made when we purchased this, moving from a proprietary type of relationship to a third-party relationship. But our flows this year, we are targeting them to improve from what we've seen in the first quarter. And we're targeting that we will gain more third-party activities, both in the Institutional and improving in the retail. And so that's what we would say. But we don't have a perfect crystal ball. That's what we and the team are working on. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that's helpful. And I think we all do understand some of these basic dynamics you're talking about. But I would just simply echo Nigel's point, which is, to the extent that you'd give us better transparency, as you did a little bit this quarter with the Zurich outflows -- I mean, if you give us more transparency, it's much easier for us to wrap our hands around it and understand it.

I agree with you. I actually agree full. So we'll see what we can do appropriate, and that's why we tried to have this conversation. Your questions are right on target. And I can understand, sitting where you are, and sometimes even sitting where I am. It's always easier as you break them down into different buckets. We'll see if we can even get better as we go forward.

And our next question comes from Thomas Gallagher from Crédit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Just to completely beat a dead horse here, just one other question on the flows. The news or the guidance you're giving us on Threadneedle and Zurich assets, pretty consistent with what you've said in the past, so that doesn't sound new. The guidance on Columbia is new though, just in terms of the expectation that you're going to continue to see outflows. And I heard everything you've gone through, but I just want to know from your standpoint because I think, leading up to this quarter, the expectation that you had had was that, we would have more of a near-term end to the legacy flows. So I just want to get a sense for what is it that you've seen behind the scenes? Is it simply just the continued leakage? Is it some new development on the U.S. trust side? I just want to get a little more color for what the change in tone from you is, your management team? Just in terms of what you are seeing now, is there -- has there been a change? Or is it just more -- you've just gotten to the point where you're not willing to draw the line in the sand that this is going to abate? So anyway, that's my one question on the flows.

Yes. I think -- again, a good question, Nigel. I think what it is, is I think what we concentrated initially on was some of the larger buckets that we knew would adjust in the periods right after the acquisition. We knew things like Balboa. We knew that there were low fees, prepaid type accounts and institutional accounts. And a lot of that has occurred as we thought, maybe a little longer it took than we thought. When someone says we sold the insurance block, we figured that would go sooner than later, and it's been a drip, drip, drip. There are some of those institutional relationships that are still there. Again, we're not going to try to move on them. I mean, they're there and they're good to the extent that they're there. But we know, at one point, they will move out. We probably just assumed that some of that would move quicker than it had. A thing that I think is different is, as we sort through all the lumpiness of it, what we also recognize now is there is a -- also a continued large installed base of assets that we have a good relationship with Bank of America or their affiliates. We want to maintain that relationship even beyond whatever the initial contractual period on an ongoing. We think it's good for them. They think it's good for them. We think it's good for us. And so we're working hard to keep that relationship. Having said that, there was a level of concentration in there. There was a level of asset base as they looked to make some changes or they're dealing with how they want to look at their business that we know that we will be affected. Similar to, in a certain sense, not that these are closed-book assets or anything, but similar to the sense of what we dealt with Zurich or even in Ameriprise's proprietary system at one point. And so, now that we have greater optics to that, we understand a little more of what are the dynamics there, we're probably saying, this is what we're beginning to see more as we go further after the first level of the consolidation is over and the lumpiness is out. And so I don't know if we would have known all this initially. We didn't. Having said that, we don't think that it will, in some way, cause us not to be in a good, strong business that we can grow, but it will be an ongoing effect. And we're trying to make it clear to you, so that we -- as your colleagues -- as your peers just asked, we're trying to give you some color for what we're trying to do. And in that regard, we believe that we can do that well. Having said that, we do know the optics of flows is where everyone concentrates on. We're probably saying, you've got to look beyond what the -- just the one flow number is to look at the dynamics of the flow number. And then, what are we doing, as a total picture, to make the changes necessary so that we can be a good competitor. And that's probably what we're trying to bring to light. I don't think we knew all of this previously. So as we knew it and understand it and we continue to lay out our strategy moving forward, I am trying to be clearer to you. When we first did Zurich, we never came out initially, again, not knowing, to say Zurich will be an outflow of $3 billion to $4 billion. It was more of can you maintain that relationship and that agreement and all that stuff. And over time, we learned a bit more as we peeled the onion and we reestablished that relationship in appropriate way. And so, we want that relationship. It's a good relationship. But what we learned and what we continue to tell you every -- now, more formally, every year, is what that will look like so that you can do your math and you can understand the dynamics. And that's all we're trying to do here. I don't think we know everything going into any arrangement, particularly of the size and scope that we were talking about here. Thomas G. Gallagher - Crédit Suisse AG, Research Division: No. That's helpful, Jim. So if I can paraphrase at least the way I'm understanding this is, there's a larger pool of assets now, under which you thought when you initially did the deal, there was a distribution opportunity. Now, as you assess those pool of assets and the distribution opportunity, the distribution opportunity probably isn't there for a larger pool of assets, which means it's more -- there's a larger amount of assets in a closed block that we should be thinking about in more of a closed-block context.

Yes, I wouldn't call it a closed. But what I would say is, it would get into a more normalized overall rate from a sale and a redemption perspective. So over time, I think that will start to mediate, et cetera. But what we're saying to you is, good, strong relationship in a certain area that we're going to maintain and do our best to continue to replenish and build. But just based upon the level that was there already, there's a natural outflow from that because we were pretty significant and, let's say, fixed in municipals. So as there's a diversification, including with more diversified equity and passives and stuff going on to various platforms, we're not going to always garner what that total flow was when it was part of Bank of America entity, or even if it was, let's say, Bank of America would be making changes today, even if that was -- Columbia was still a part of them. So that's all I'm saying is, there's that natural evolution that's occurring there that we're going to be affected by because we were a very large provider in that channel. And that's what we're saying. Now having said that, the world changes. Just like with Ameriprise, we changed and we had to grow other areas of distribution to offset that. That's exactly what's occurring here for Columbia. Is that helpful?

And our last question comes from John Hall from Wells Fargo Securities.

Yes. I'll try to be real tight here. Jim, on the global initiatives, I was just wondering if you could give us a quick progress report and maybe a time frame as to when we might see those take hold?

Okay. So what we're actually seeing right now and doing is, we've actually had some pretty good product in emerging market equity and debt, et cetera. And what we are doing is, we had some good people in Threadneedle, as well as Columbia. We're putting those resources together even more formally. We've already established some reasonably good track records in these areas, and we're going to be able to go to market even more substantially by having a stronger, larger depth of team resources and more track records. And I think we're going to be in market for our first few activities in the second half of this year that we're going to try to actually put in our toolbox to even be more focused on in selling in the institutional channels. We also have made some good headway in sharing things and building the depth of our research for global fixed income, as well as global equities, putting together some of the sub-portfolios that Threadneedle has some excellent results in, in let's say European, and we have here in the U.S. that we manage in certain areas. And so those things are coming together. We also now have put together a more formalized global team in asset allocation. We brought in Jeff Knight, and Jeff is leading our efforts there. We have some good portfolios today in asset allocation. He's building that into a more comprehensive global platform and taking resources that we have that are managing those type of things, both in the U.S. as well as at Threadneedle. So again, we're not standing still there, but these things take a little time. But we will start to put some of those things in the market more formally in the second half and build upon that over the next 18 to 24 months.

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