Ameriprise Financial (“AMP”)

Ameriprise Financial combines an independent advisory and brokerage platform with a captive asset manager and insurance/annuity operations. The company serves over 2 million individual, business, and institutional clients and, at year-end, had $1.7 trillion in assets on its platform. It is currently undervalued versus peers despite having one of the most compelling best-in-class growth stories in the wealth management space and a demonstrated commitment to returning capital to shareholders. We purchased Ameriprise in Q1 after the stock sold off on fears around AI disintermediation of financial advisors.

1. Ameriprise is a great business with high returns on equity, minimal need for capital, and a strong, long-tenured management team - Ameriprise generates exceptional returns on equity with an ROE of over 50%. This level of return is nearly unmatched among diversified financial services peers. It reflects the capital-light nature of the wealth management and asset management businesses, which together require minimal incremental equity to grow. The business is run by CEO Jim Cracchiolo, who has led the company since its 2005 spin-off from American Express. His two-decade tenure has produced a compounding machine.

2. Ameriprise trades at the lower end of its historical valuation range – Ameriprise’s valuation is compelling in both absolute and relative terms. Despite consistently compounding earnings at double-digit rates, Ameriprise trades at 10.4x estimated next twelve-month (“NTM”) earnings per share (“EPS”). Historically, Ameriprise has traded between 8x and 16x NTM EPS. Also, Ameriprise trades at a discount to its wirehouse and large independent wealth management peers on a price-to-earnings basis.

3. We think Ameriprise frequently trades at a discount to peers because it is often classified as a Life Insurer – Ameriprise is often covered by sell-side research analysts who also cover life insurance companies. While Ameriprise does own a life insurer, this business accounts for only about 16% of Ameriprise’s earnings, compared with 34% in 2005, when Ameriprise was spun off from American Express. Life insurance stocks trade at low valuations because their businesses are capital-intensive and often earn low returns due to the industry's high competitive intensity. In contrast, wealth management businesses should trade with higher valuations because they are not capital intensive and retain clients for long periods of time due to the trusted advice that financial advisors provide. We note that Ameriprise’s life insurance company avoids the most price competitive areas of the life insurance industry. Ameriprise sells its insurance products through its own salesforce, so it does not compete with other life insurance companies in the most intense segments of the industry. We prefer to use a wealth management set of peers like Morgan Stanley, Raymond James Financial, LPL Financial, and Stifel Financial when evaluating Ameriprise.

4. Signature Wealth provides opportunity for increased share of wallet and reinforces flywheel - In mid-2025, Ameriprise launched its Signature Wealth offering. This product is a unified managed account that allows advisors to select institutional investment models for their clients. This platform allows advisors to offer more sophisticated investment offerings to their clients within a single account, and Ameriprise earns an incremental platform fee on those assets. This product allows Advisors to focus on clients and prospects rather than managing portfolios.

Columbia Threadneedle is the asset management arm of Ameriprise. It is another beneficiary of the Signature Wealth product. Columbia is a quality manager on a standalone basis, generating attractive flows and returns across their strategies. They are also among the investment options that advisors can select through the Signature Wealth offering. Any flows directed to Columbia Threadneedle will benefit Ameriprise through the management fees they earn; this is incremental to the asset-based fees Ameriprise generates from client assets in the advisory business.

This structure is relatively common at wirehouse firms but differentiated within the independent channel. Even independent managers with asset management capabilities are limited in their proprietary offerings compared to what Columbia Threadneedle can offer clients.

5. Compelling organic growth strategy discounted vs peers - Ameriprise has successfully leveraged platform improvements to drive retention and recruiting while also focusing on productivity per advisor. This is in contrast to others in the industry that have approached recruiting primarily through increasingly large economic incentives.

We believe the wealth advisory space will only increase in competitive intensity over time, with improving retention from the wirehouses and continued pressure from financial sponsors further inflating the cost of advisor recruitment. Against this backdrop, we believe the company's focus on organic growth rather than compensation-led broker recruitment will deliver more durable earnings growth relative to peers. Over time, success should contribute to a narrowing valuation gap vs. independent peers.

6. Build out of bank lending was a missing piece that strengthens a holistic offering - Ameriprise has been building out its bank lending capabilities, further expanding into securities-based lending and HELOCs. Bank lending products were something the wirehouses and other independent advisors had had for years, and Ameriprise was missing them. We believe it's a notable upgrade to their existing platform that should bring revenue and help improve advisor retention and recruitment.

7. Cash generative business with a history of capital returns - Ameriprise has a history of strong free cash flow generation and has regularly returned over 80% of operating earnings to shareholders. Management has been able to invest while consistently reducing the share count and paying a healthy dividend. Since Ameriprise was spun off from American Express in 2005, the company has repurchased more than 60% of its original shares outstanding.

8. Franchise value if there is industry consolidation – Although we are not predicting a sale of Ameriprise, we note that there is a limited number of wealth management franchises available with the scale of Ameriprise. We believe both Goldman Sachs and UBS Group are potential acquirers of Ameriprise. Goldman lags Morgan Stanley in its Wealth Management scale. UBS mentioned on its latest earnings call that it is interested in gaining additional scale in its US wealth business.

Key risks

1. AI disintermediation risk - The launch of an AI-powered wealth management tool by Anthropic has stoked fears about the disintermediation of human financial advisors. The concern is that AI could compress advisory fees industrywide, accelerate the shift toward self-directed investing, or erode Ameriprise’s competitive advantage in advisor productivity. Ameriprise acknowledges this risk. We believe the risk is overstated in the near term, with the financial advisor relationship being built on behavioral coaching, trust, and personalized planning that AI does not easily replicate, especially during periods of market volatility. Morgan Stanley’s stock largely recovered from the same fears, yet Ameriprise remains approximately 12% below its early February high.

2. Cash sweep and interest rate sensitivity - Ameriprise earns net investment income on residual cash held in brokerage sweep accounts, both on-balance sheet through the bank and off-balance sheet through money market fund arrangements. These residual cash balances generate meaningful income, which could be at risk if the federal funds rate falls. Beyond rate risk, there is a longer-term structural question about whether clients will increasingly seek higher-yielding alternatives to traditional brokerage cash sweep accounts, such as tokenized money market funds or stablecoin-like instruments, which could reduce aggregate sweep balances over time. Ameriprise is better positioned than most peers, given that its smaller bank subsidiary generates less income on residual cash than its peers.

3. Continued pressure on active management at Columbia Threadneedle - The secular shift from active to passive investing remains a headwind for all asset managers, including Columbia Threadneedle, Ameriprise’s institutional asset management arm.

4. Market level risk - A substantial portion of Ameriprise’s revenues and earnings are directly linked to the level of client invested assets, most prominently through wrap account advisory fees. A meaningful market correction would reduce this AUM base and, by extension, the advisory fees earned on it. While Ameriprise’s diversification across wealth management, asset management, and insurance/annuity businesses provides some offset, the company remains meaningfully exposed to prolonged weakness in the market.

5. Long-term care insurance tail risk - Ameriprise carries a closed block of legacy long-term care (LTC) insurance policies that it stopped underwriting in 2002. LTC is notoriously difficult to price and reserve accurately. The company has taken substantial rate increases and has ceded a significant portion of the risk to reinsurer Genworth, which creates counter-party risk to Genworth. While the block is in run-off and management has been disciplined in addressing the reserve adequacy, the tail risk is real and could surface through adverse annual unlocking charges. We consider this a manageable but structurally unresolvable risk given the policies’ remaining duration.

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