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Ameriprise Financial (NYSE:AMP)
Q4 2018 Earnings Conference Call
Jan. 31, 2019 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome to the fourth-quarter 2018 earnings call. My name is Sylvia, and I'll 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 Alicia Charity.

Alicia, you may begin.

Alicia Charity -- Senior Vice President Investor Relations

Thank you, operator, and good morning. Welcome to Ameriprise Financial's fourth-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.

Turning to our earnings presentation materials that are available on our website, on Slide 2 you'll see a discussion of forward-looking statements. Specifically, during the call, you will hear reference to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall 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 our fourth quarter 2018 earnings release, our 2017 Annual Report to Shareholders and our 2017 10-K report. We make no obligation to update publicly or revise these forward-looking statements. On Slide 3, you'll see our GAAP financial results at the top of the page for the fourth quarter.

As you are aware, the year-over-year comparison of results was impacted by the Tax Cuts and Job Act in the prior year, as well as mean reversion-related impacts and unlocking in both years. As such, we have provided our adjusted operating results excluding these items. Management believes this enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on operating financial results adjusted for the Tax Act, unlocking and mean reversion-related impacts.

And with that, I'll turn it over to Jim.

Jim Cracchiolo -- Chairman and Chief Executive Officer

Hello, and thanks for joining our earnings call. This morning, we'll discuss our fourth-quarter results. And I'll update you on the business and our priorities in a much more dynamic operating environment. Really, markets were quite volatile in the quarter, particularly, in December in the U.S.

with significant declines across asset classes. And while they have come back a bit, we're managing the business in light of this uncertain backdrop. Overall for the year, we continued our track record of delivering excellent results for the company, and generated good profitability and returns. And we also continued to invest for long-term value creation and business growth.

In wealth management, we delivered strong Ameriprise client flows in advisor productivity. As we've demonstrated in prior cycles, a volatile environment reinforces the importance of the personal advice, investment perspective and solutions that we offer. Our asset management business was more directly affected by the market decline and heightened volatility. That said, our impacts were in line with the industry in terms of asset declines and accelerated outflows.

And in variable annuities, the market environment resulted in a non-cash impact that Walter will cover in more detail. Our assets under management and administration were down 8% to $823 billion, reflecting a 14% sequential market decline, which was mitigated by continued strength in Ameriprise client net inflows. In terms of adjusted operating results and excluding the items we highlighted, revenues remained steady at $3.2 billion, earnings increased 12% to $544 million, earnings per diluted share were up 21% to $3.80. Return on equity excluding AOCI and unlocking was a strong 37.8%.

During the quarter and the year, we continued to invest in growth initiatives that will help sustain the business for the future. In addition to growth investments, based on our earnings and capital position and with our strong cash flow, we accelerated our share repurchases given the market decline and our discounted share price. For the year, we committed more than $2 billion to shareholders by increasing our dividend, and repurchasing 11 million shares. This reduced our shares outstanding by 7%.

And represents a truly differentiated level of capital return. And we continue to maintain $1.5 billion in excess capital. We also continue to shift our earnings mix to less capital-intensive business lines. Something we've done consistently over the years.

And this generated significant free cash flow. Looking at the last four years, as we've grown our earnings with increased percentage of contributions from advice and wealth management and asset management from 66% in 2015 to 74% in 2018. Looking ahead, we see additional opportunity to take this number even further. With regard to our financial advisory business, Ameriprise client assets held strong at $539 million, down just 4% even with the volatility and steep market declines.

A key growth platform for Ameriprise is our fee-based investment advisory wrap business. It's one of the largest and best run in the industry at $251 billion at the end of the fourth quarter. Net inflows remain robust at $4.5 billion. This marks the seventh consecutive quarter where we've had wrap net inflows above $4 billion.

Sequentially, wrap flows declined a bit as clients took a more defensive posture and moved more into cash. And we're earning competitive returns on our $28 billion of brokerage cash balances, which were up 6%, an all-time high. As a diversified financial services firm, the combination of the breadth of our product suite and financial planning expertise helps us retain assets. We continue to bring in clients and we're helping them rebalance their assets based on changing market dynamics.

With good client flows, increased client activity and traction from our investments, we continue to grow our advisor productivity nicely. On a trailing 12-month basis, it's up 9% to $620,000. This builds on many years of strong productivity gains, and we continue to earn high client and advisor satisfaction. Recruiting is an important complement to retaining our top people.

Experienced productive advisors are consistently attracted to Ameriprise because of our excellent support, reputation and track record of investing to help advisors grow. In the quarter, 93 advisors joined the firm. And for 2018, overall, we brought on 335 new experienced advisors. We're also investing to convert our national trust bank to a federal savings bank.

Things are going well and we expect to hear from regulators this quarter. With a clear focus on our clients and growth, Ameriprise and our value proposition are directly aligned with the significant Wealth Management opportunity in the U.S. Consumer researcher firms that the mass affluent, and affluent want to work in a personal advice-based relationship with a trusted advisor. In fact, trust remains the most important aspect of working with a financial advisor.

Ameriprise is both the long-standing leader in advice, and we're ranked No. 1 in trust across the investment industry by Temkin. We're very focused on advice and delivering what our clients and consumers want. Across the firm, we're making additional investments to continue to deliver an excellent client experience and help advisors grow productivity.

This includes enhancing our digital and financial planning capabilities as well as upgrading to an advanced CRM system later this year, to enable our advisors to work in an even more goal-based and integrated way with their clients. As we discussed last quarter, we've been testing these enhanced capabilities in the field and are pleased with the initial results. Advisors have reported clients are more engaged and confident, when advisors are having goal-based conversations and using these new capabilities. So we feel there's a compelling opportunity to expand this across the entire client base.

In addition, we continue to invest in the Ameriprise brand, which is strong in the marketplace with awareness near our highest levels. We introduced the next chapter of our Be Brilliant platform earlier this month with new ads that highlight the personalized differentiated experience we deliver to clients to help them achieve their goals. Overall, in advice and wealth management, we generated excellent results, double-digit earnings growth and strong margins above 23% in the quarter. With regard to protection and annuities, the books are performing well in this rate environment.

Sales over the course of the year held up with some slowing in the fourth quarter. Variable annuity sales were up 6% to $4.5 billion for the year, right in line with the consistent $4 billion to $5 billion sales range we have seen historically. We continue to generate an appropriate level of sales and returns in these businesses. Let's move to asset management.

The fourth quarter was a tough market environment with substantial industrywide outflows across asset classes, styles and geographies as you've seen with other asset managers who have already reported. In the U.S., it was the most difficult quarter for long-term mutual fund flows in the industry dating back to 2007. Investors moved to de-risk given significant market declines in December, year-end tax selling and higher volatility. And in Europe, key indices were down sharply in October, spiking higher outflows across Europe.

How did that affect us in the fourth quarter? Like others, we felt that pressure and assets under management declined, which included net outflows of $4.7 billion with reinvested dividends. In the U.S., our rate of mutual fund outflows was in line with the industry. And in Europe, we suffered a level of outflows consistent with our peers. In past market disruptions, European investors tend to react quickly to market dynamics whether that's positively or negatively.

So far in January, with improved markets, we're seeing better mutual fund flow rates in the U.S. and Europe and we hope that will continue. From a revenue standpoint in the quarter, the decline reflected a drop in assets under management as well as the unwinding of a couple of our CLOs and higher performance fees last year. To gain flows, we're working to deliver relevant quality solutions and service to our retail and institutional clients and consistent competitive investment performance.

Our one-year investment performance was impacted by an unusual, but not unheard of, price dislocation that took place in the fourth quarter. In the few occasions where this has previously occurred, those securities with positive ratings from our proprietary research, subsequently performed well on average, which is what we're already seeing for January. This impacted our three-year numbers as well. But we expect they will improve in 2019 after dropping of a similar underperformance in our U.S.

portfolios that occurred in the first quarter of 2016. We're also sharply focused on maintaining our excellent expense discipline and we'll continue to be thoughtful moving forward given the current climate. In the quarter, expenses and asset management went down nicely. We also had to absorb additional Brexit-related cost due to the transfer of EU client assets from our OEIC funds into Lux domiciled SICAV products, which we are in the process of completing.

As we look forward, we'll focus on gaining traction where we see growth opportunities. This includes our efforts to enhance and further introduce our data-driven distribution work in the U.S. that will help drive improvement in gross sales and market share in many of our top intermediary firms. We're building on our strength in the U.K.

and continue expanding in Europe with a focus on Germany, Italy and Spain, now that we've established a more comprehensive SICAV lineup of funds. And we want to continue to grow Columbia Threadneedle brand awareness in consideration. Given the scope of our capabilities, we see opportunity to capture market share in our core markets. Overall in Asset Management, it was a tough quarter for the industry and for us.

We're managing headwinds as part of Ameriprise and competing for share in a very competitive marketplace. In closing, we delivered a good quarter in a volatile market environment, completing what was a good year for Ameriprise. We have a consistent record of delivering long-term value, investing for growth and returning capital to shareholders at attractive levels. We continue to transform the business and focus on areas of opportunity that will generate a strong return with wealth management driving our growth.

At the same time, we'll focus on continuing to tightly control expenses in 2019. As we look at the year ahead, I'm confident in our ability to serve clients well and navigate a very fluid environment. Walter?

Walter Berman -- Chief Financial Officer

Thank you, Jim. Turning to Page 5. Ameriprise delivered strong results in 2018. We continue to make significant progress in delivering our long-term shareholder objectives.

As demonstrated by 4% growth in revenue, around 27% growth in EPS and 38% return on equity. Let me take you through the details beginning on Slide 6. Overall, Ameriprise delivered 4% revenue growth for the year, despite being flat in the fourth quarter from market dislocation. Through first three quarters of 2018, revenue growth was 6%.

Advice and wealth management absorbed the pressure from the substantial drop in markets through continued good client flows and higher earnings on cash balances. Asset management and annuities were more impacted, which is what we would expect in this environment. Let's turn to earnings on Slide 7. Full-year earnings increased 20%.

With the challenging revenue environment, we remain keenly focused on expense management. Expenses continue to be well-managed across the firm, with G&A down 5% in the fourth quarter and flat for the full year. This remains a critical area of focus and a key lever as we navigate the environment in 2019. The effective tax rate came in as expected at 17.3%.

And I'd like to take a moment to remind you of a few dynamics that will impact the results in the first quarter. First, there are only 90-fee days in the first quarter, which impacted advice and wealth management, assets management and annuities. Second, we have some seasonality in our expenses that we have discussed in the path related to payroll taxes. This impacts all business segments with the largest impacts in the advice and wealth management and asset management area.

Last, in the fourth quarter, we absorbed a significant percentage of market decline impact. As the current market level sustain, a portion of the carryover impact will be mitigated. Next, on Slide 8, you will see excellent EPS growth of 21% in the quarter and 27% for the full year. In total, adjusted operating EPS was $3.80 for the quarter, and $14.94 for the full year.

You'll buy advice and wealth management, which now makes up about half of our pre-tax adjusted operating earnings. In 2018, we continued our track record of differentiated capital return with $2.1 billion return through buyback and dividends, including a 50% increase in share repurchases in the fourth quarter. Buying back 3.6 million shares given the particularly attracted value. Lastly, we have maintained excellent balance sheet fundamentals with $1.5 billion of excess capital and excellent liquidity.

Let's turn to Slide 9. For the year, advice and wealth management represented nearly half of the company's pre-tax adjusted operating earnings, administrating a significant upward trend from 44% in 2017 and 40% in 2016. We have diversified sources of free cash flow from our businesses, with advice and wealth management driving much of our growth complemented by asset management, annuities and protection. Our fee-based businesses of wealth management and asset management now make up nearly three quarters of our earnings.

Our distribution of earnings continues to diversify, with AWM and asset management generating approximately 65% of our free cash flow in the near term. We have seen strong growth trends in advice and wealth management, which you can see on Slide 10. Total client assets were pressured by equity market declines, down 4% to $539 billion despite very strong client net inflows throughout 2018, including in the fourth quarter. Through the first three quarters of 2018, our client assets benefited from a combination of solid flows and market appreciation, with our client's assets reaching $588 billion at the end of the third quarter.

Client assets were negatively impacted from the 14% drop in equity markets point to point in the fourth quarter. A portion of this impact will be offset by the improvements so far this year. Brokerage cash balances grew to $27.7 billion in the fourth quarter. In the first part of the year, when markets were less volatile, we saw our clients putting money to work and cash balances declining.

Given the volatile environment in the fourth quarter, clients reversed course and kept additional cash as we expected. It is important to note that we retained assets on our platform by meeting client's needs in all environments. We are benefiting from short rates getting back to more normal historic levels. While we have retained a high percentage of the rise in short rates today, we have recently increased the client crediting rate based on market changes.

We are closely monitoring crediting rates to remain competitive with peers. Finally, organic advisor productivity also continues to improve, reaching $620,000 on a trailing 12 months basis for the quarter. This level has grown steadily throughout the year. Let's turn to Slide 11.

Advice and wealth management is delivering consistent strong financial performance over time, that is underpinned by sustainable business fundamentals that I just discussed. Overall, AWM had been delivering a substantial 22% earnings growth trend through September. And market dislocation in the fourth quarter reduced the trend, but AWM still delivered 30% growth for the quarter, and an excellent 19% growth rate for the full year. Trends were consistent for revenues.

We have been on a growth trajectory of 12% through September, driven by wrap net inflows and higher transactional activity levels, as well as the benefit of higher short-term rates on cash sweep balances. Fourth-quarter market declines reduced fees and slowed the growth rate to 5% for the quarter, resulting in a full-year revenue growth of 10%. Markets have come back in January, which should help. Expenses were very well controlled with G&A up only 2% for the quarter compared to a full-year increase of 6%.

We are diligently managing G&A while investing to improve the client experience and ease of doing business. We are making investments where we see the best payback. And margins reached a record 23.3% in the quarter and 22.4% for the full year. Let's turn to asset management on Page 12, where financial performance was clearly impacted by substantial industry headwinds.

Positive earnings trends from asset management were disrupted by the market dislocation in the fourth quarter. Earnings down 27% year over year, and 22% sequentially to $153 million. Let me explain the year-over-year change first. Of the $57 million decline, approximately 40% was related to the $28 million benefit on performance fees and CLO unwinds in the year-ago period compared to just $5 million in this quarter.

And the business absorbed $8 million of additional expenses associated with the development and implementation of our Brexit strategy. The remainder of the decline was primarily due to outflows. On a sequential basis, earnings declined to $44 million, of which approximately 35% was related to a lower performance fees and a one-time expenses associated with Brexit. Normalizing for these two items, earnings were down 16% primarily from markets.

Revenues of $706 million also reflecting the impact of markets and lower performance fees. The fee rate in the quarter declined to just under 52 basis points, demonstrating the fee pressure the industry is facing. Expenses continue to be prudently managed by generating operating efficiencies and reengineering, which is funding growth investments and higher regulatory cost in Europe. Excluding the one-time Brexit expenses in the quarter, and the lower performance the compensation, G&A expenses were down 6%, demonstrating our commitment to expense discipline in the challenging revenue environment.

We anticipate adjusting our ongoing expense base in light of the markets, while ensuring we continue to invest for future growth. In addition, given the factors I just described, we delivered a 35% margin in the quarter. Let's turn to annuities on Slide 13. In the quarter, variable annuities earnings were $115 million, which is essentially flat to last year.

After excluding mean reversion-related impacts. In the quarter, there was a $68 million unfavorable mean reversion-related impact from the 14% drop in equity markets point to point. Based on the outside impact and volatility from market declines, we are evaluating changing our definition of adjusted operating earnings to exclude mean reversion related impacts, consistent with others in the industry. Variable annuities continue to be in outflows, though, at a slower pace than last year.

Variable annuities sales slowed a bit from the market volatility in the quarter, but remained up 6% for the full year, which is above the industry. And nearly 30% of our VA sales are in products without living benefit riders. It should be noted that our net amount at risk was 1.7% of the account value with living benefits, and 1.6% of account value with death benefits. This was up sequentially due to the change in the markets, but we believe this remains at best-in-class levels.

Fixed annuities pre-tax, adjusted operating earnings declined to $4 million. Reflecting the continued impact of lapses and interest rates, as well as lower mortality for income annuity policy holders. Turning to protection on Slide 14. Life and health pre-tax adjusted operating earnings were $67 million, reflecting lower portfolio yields and claims in line with expectations.

In the auto and home business, pre-tax adjusted operating earnings were $15 million, excluding net cat losses. Gross cat losses were $62 million, primarily from California wildfires. Net cat losses were only $12 million, reflecting substantial benefit from our reinsurance programs. Let's turn to the balance sheet on Slide 15.

Our balance sheet fundamentals remain strong. Our excess capital was approximately $1.5 billion, with an estimate RBC ratio of approximately 500%. Our hedging program has been quite effective, with weighted managed hedge effectiveness at 98% in the quarter. The investment portfolio remains strong and diversified.

And free cash flow generation remains excellent. We returned $2.1 billion of capital to shareholders through dividends and share repurchases in 2018. As we enter 2019, we are still targeting to return 90% to 100% of operating earnings to shareholders as a baseline. But we will adjust that as we assess market conditions in our evaluation.

In closing, Ameriprise delivered another strong year of financial results in organic growth, with strong client flows and productivity gains in advice and wealth management. We are focused on expense management and have the ability to adjust our expense base this year based on the revenue environment. Finally, our balance sheet is strong and our business model generates significant free cash flow that will sustain our differentiated capital return. Now we will take your questions. 

Questions and Answers:

Operator

[Operator instructions] And our first question comes from Ryan Krueger from KBW.

Ryan Krueger -- KBW -- Analyst

Hi, thanks. Good morning. AWM client activity, appeared to hold up presumably well considering the tough market backdrop. Can you give us some more perspective on what you saw? And then how you're seeing customers behave so far in the new year?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. So what we saw in the fourth quarter was a continuation of good engagement between the advisor and the client. And very clearly what we're focused on doing is helping the client sort of navigate this as a sort of a blip rather than an idea that they need to change what they are planning for. So we try to keep them on target, on focus of what their longer-term goals are, knowing that the markets will be volatile.

But we also try to work with them very clearly on their asset allocations, rebalancing and diversifications that they have. And so that's what we continue to see. As you saw, there was a bit more pick up of cash in the quarter, not necessarily from people selling out per se, but from new cash coming in that's been hold on sidelines a bit. And as we work through the first quarter, we continue to see that engagement rebalancing occurring, etc., which we think is healthy and good.

But we are very much focused on keeping them focused on what their ultimate goals are rather than just the market volatility that's currently here.

Ryan Krueger -- KBW -- Analyst

And then within asset management, you've talked about a 35% to 39% margin. In the past, you were at 35% in the quarter. Do you feel like you can maintain at least the low end of that range given the tough backdrop?

Jim Cracchiolo -- Chairman and Chief Executive Officer

So we did experience in the quarter, as you saw, the market's depreciated a lot. And of course, as that occurs, your fee revenue, particularly, from your equity product goes down a bit more as it had occurred. We also experienced some increase even though we've actually reduced expenses a lot, our margins in Europe went down mainly because of what we had to do in transferring the assets for Brexit, and the number of the expenses that we had to fund there. So yes, we're still focused on maintaining those margin levels through a combination of things that we're working on.

But it would be at the lower end of those ranges at this point in time as we start to see hopefully as the markets recover a bit.

Ryan Krueger -- KBW -- Analyst

Undestood.

Operator

Our following -- your line is now open.

Unknown Analyst

Good morning, and thank you for taking my questions. Regarding the broker -- the brokerage cash in AWM, I think in your prepared remarks, you talked about you've passed along some of the economics to your clients. I was just wondering can you talk a little bit more about the competitive pressure that you're seeing from your competitors. And then some of the actions that you're looking to take given there's definitely a greater competition for deposits nowadays in the market?

Walter Berman -- Chief Financial Officer

Yes. This is Walter. We monitor this as we indicate on a weekly basis, how group appears, to ensure that we stay competitive along the different segments of the dollar amounts of the sweep accounts. And we have passed on, certainly, some of that as we saw it from the September 1.

But we are remaining competitive. And candidly, we are actually seeing -- right now, there is less competitive pressure in the areas of focus. And so -- but we'll continue to monitor it. And certainly as appropriate, pass that on.

Unknown Analyst

So you talked about raising the crediting rates in the fourth quarter. Can you talk about like how much did you raise your crediting rate?

Walter Berman -- Chief Financial Officer

We raised it at the upper end of it. That's where we saw a lower gap. And it was -- I don't have the exact numbers. But it was, certainly, a couple of basis points that's basically passed on to allow us to be in the alignment with our peers.

Unknown Analyst

Got it. And then regarding the application of converting your trust bank to your federal savings bank. So in your remarks, you talked about you should hear back from the regulators this quarter. Then, I guess, what would be the next step? And once you get the approval, how soon can you be operational?

Walter Berman -- Chief Financial Officer

Well. Right now, again, we are checking. And we've indicated that in a couple of weeks that we hope to have the approvals from both regulators, the OCC and the Fed. And once that occurs, assuming that occurs, we -- hopefully, we'll be operational in the beginning of the first quarter or the end of -- in beginning of the second quarter or the end of the first quarter.

Operator

Our next question comes from Erik Bass from Autonomous.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. You said that valuations for asset managers continue to come down. How does that factor into your strategic view of the business? I guess, are you more inclined to look for growth in other areas and continue to shift the mix away from traditional asset management? Or do you see a disconnect where there may be opportunities to acquire assets or platforms at attractive prices?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Well, we are -- as you see, we actually think if you look at our makeup over 50% now is coming roughly from our advice and wealth management business, which I think would have a differentiated PE from asset managers that I think should be factored more into how we're valued. And as you heard from my opening comments, we're putting a lot of focus on the continued growth there and investment to continue to grow the client base, grow the advisor productivity, add more advisors and even look at other opportunities to enhance our channel mix there by growing our central sites, our AAC, IPI, which is working with community banks, etc. So we have an emphasis there regarding where we're putting a lot of our focus. And then -- and we go out to asset management, as we said, we've done -- we've picked up a few other things, we're launching some other alternatives, infrastructure funds and other things within asset management.

So what we're trying to do in the asset management is more of refine against the core areas that we see good opportunity, good growth that we can achieve good margins, expand in certain sections like in the International arena as well. And really right-size that for what we're seeing in the marketplace regarding the sales and the activities. And we'll try to complement that where necessary and appropriate for areas of opportunity that we can get good returns in the future. So that's the way we're looking at it today.

Erik Bass -- Autonomous Research -- Analyst

And then this quarter, the level of corporate expense looked unusually low. How should we think about the run rate going forward for the corporate loss?

Walter Berman -- Chief Financial Officer

We are -- again, I am not sure, because, I can tell you every time I do, I'm wrong. But it's somewhere in the $65 million, $70 million range. It's something that we've talked about.

Erik Bass -- Autonomous Research -- Analyst

And that is with or without long-term care?

Walter Berman -- Chief Financial Officer

Long term -- that is -- long-term care is a variable. But that -- for this particular purpose, I would include, it's included. It's only several million dollars there.

Operator

Our following question come from Jeff Schmitt from William Blair.

Jeff Schmitt -- William Blair -- Analyst

One of the things I noticed in wealth management that investment income was up 43% from a quarter. I think it was more than 30% on the year. What's driving that high growth?

Walter Berman -- Chief Financial Officer

I'm sorry, can you repeat the question? I'm sorry.

Jeff Schmitt -- William Blair -- Analyst

Yes. The investment income piece in the wealth management segment. It was up around 43% in the quarter and more than 30% on a year. What -- why is growth so high there?

Walter Berman -- Chief Financial Officer

That's from our certs. Certs have been growing, our certs of the product.

Jeff Schmitt -- William Blair -- Analyst

OK. Go ahead.

Jim Cracchiolo -- Chairman and Chief Executive Officer

No. Certificates.

Walter Berman -- Chief Financial Officer

Yes, my abbreviation. He wants to make sure my abbreviation was OK.

Jeff Schmitt -- William Blair -- Analyst

Yes. OK. And then just looking at the pre-tax margin, wealth management jumped from, just looking over two years, 18% to 22%. But G&A expenses were -- are up a lot by 20% over that time period.

So it seems, if that starts to level out again, there is some upside there. Do you have a long-term goal on where you think that margin can get to? I mean, this 25% reasonable over the longer term?

Walter Berman -- Chief Financial Officer

Well, it depends on life services. As you noticed we are enjoying exceptionally strong and continually growing margins. It is slowing, and obviously, it depends on markets. We do generate a lot of productivities.

And certainly the interest rates have improved there. So certainly, we do see opportunity to increase. I can't get too exactly because we're dealing with so many variables on whether we'll get to 25, but certainly we have room to continue to grow there.

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. I would say that some of the things that you heard me speak about during the year and even here in the fourth quarter is that we're continuing to make investments in technology. We're continuing to help our advisors be able to go deeper against their client activities with greater levels of engagement for the digital tools, the capabilities, the planning tools that we're putting in their customer relationship management system, as well as how they're marketing themselves in their own communities. So we're really positive about the effects that, that could continue to have to help drive their productivity.

We do manage expenses well. The increases that you've seen were mainly due to the type of investments that we think will get some good paybacks on as we continue to look to the future. The only other investment we're making beyond what I've mentioned to you is that Walter and I've discussed is really the banking business. But we think the banks -- the banking business will generate a very good margin that could be complementary like some of the other houses.

Jeff Schmitt -- William Blair -- Analyst

OK. Thank you.

Operator

Our next question comes from Suneet Kamath from Citi.

Suneet Kamath -- Sanford Bernstein & Co -- Analyst

Thanks. Good morning. Just wanted to start with the G&A expense. You've mentioned expenses couple of times.

So can you jus give the sense of what your plan is for 2019 in terms of G&A?

Walter Berman -- Chief Financial Officer

Well, Suneet, as you know, we've been quite disciplined and certainly appropriate in managing the business, and therefore, managing the G&A expenses to ensure that we're being quite effective. And -- but still investing for growth and appropriately reinsuring it is streamline. So that is the plan. But we certainly will continue -- we'll plan on continue to prudently manage those expenses.

And certainly evaluate the situation and have the flexibility, again, to make adjustments where appropriate. But again, looking at the market, there are -- we feel, we'll just continue to evaluate.

Suneet Kamath -- Sanford Bernstein & Co -- Analyst

I mean, should we be thinking about sort of flat G&A like you have this year? Or are the investments going to pull that on -- pull that higher?

Walter Berman -- Chief Financial Officer

Well, we have, again, as Jim just mentioned, the bank and other things and then other growth investments, so it would more on that basis is certainly we continue -- we're going to focus on trying to maintain the expense levels with those investments and other growth investments in this lower range dealing with the revenue situation.

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes, Suneet. So we're going to control expenses across the firm. At the same time, we're not going to stop the investments that we think make sense like the bank, etc. So they may add some incremental, but we'll look to manage all the other expenses tightly along those lines.

But those investments that we're making should give us some good paybacks, like the bank. So that's the way we look at it. And we have maintained a level of flexibility as you've seen in the past.

Suneet Kamath -- Sanford Bernstein & Co -- Analyst

Understood. And then switching to auto and home. I think you talked about year-end 2018 being sort of a time when you reassess that business given the progress that you've made. So I was just hoping if you could give us an update on how you're thinking about it going forward?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. So we're well under way in our reviews there. And so we'll be working through that as we go through the first quarter here. And so we'll be getting back to you in the future.

Suneet Kamath -- Sanford Bernstein & Co -- Analyst

OK. Great. Thanks.

Operator

Our following question comes from Kenneth Lee from RBC Capital Markets.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my question. Wondering if you could provide a little bit more color around the advisory fee revenues within advice and wealth management. And this is a separate from the financial planning and transaction fees, just wondering why the trend's still resilient? I think there's only a slight decline sequentially versus a much steeper decline in the advisory assets in the fourth quarter.

What's driving that resiliency?

Walter Berman -- Chief Financial Officer

Well, again, it's the average. From our standpoint, unlike some of our peers, we separate it on an average basis. So you're getting not the full effects. So some people set -- got the benefit or setting it on October 1.

And candidly, we did have strong inflows. While they are west and they fell off a little, but we have strong inflows. And so it tracked according to our expectations considering the change in the market and the average in them.

Kenneth Lee -- RBC Capital Markets -- Analyst

Gotcha. And then just a little bit of a follow-up on the -- what you mentioned in the prepared remarks on expansion to Germany, Italy, France. Wondering what potential timeframes you're thinking about? And potential milestones before we can see some contribution from that expansion?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. So we've already laid the groundwork. And really what we needed to complete really as you would imagine because of Brexit, and because of the way clients could be affected, we had to wait till we set up our fuller line of SICAV funds and convert our clients in Europe from where they were situated in our OEIC funds in the U.K. over to our Lux-domiciled funds.

And that transition, we did the bulk of it in the fourth quarter. So that actually slowed sales a bit because we couldn't do it as we were transferring client assets, etc. And it was completed actually last weekend, which we feel very good about that will situate us well in a sense that would not cause any harmful effects to our European clients as the Brexit transaction or whatever occurs there in agreement in the future. So now, we'll be able to start to ramp up our activities to drive some more sales activities, and add our resources there to grow activities more in those countries.

Kenneth Lee -- RBC Capital Markets -- Analyst

OK. Great.

Operator

Our following question comes from Alex Blostein from Goldman Sachs.

Alex Blostein -- Goldman Sachs -- Analyst

Hey, guys, good morning. A couple of questions. So first just on client cash balances. So obviously really nice ramp in the quarter, not surprising given the volatility.

Can you give us an update where cash balances stand today? We've seen from others, obviously, you've talked about some of that going back into the market. So just curious where you guys shakeout there? And then Walter, I just want to make sure I understand the -- in Q4, it looks like you guys retained about 80% of the higher rates. Is the implication for Q1 that the number will be a little lower as you kind of played a little catch up? Or you still expect to retain roughly 80% of the December hike?

Walter Berman -- Chief Financial Officer

As it relates to the hike, as I indicated, we are -- we adjusted our rates. And we feel we're evaluating them. So we don't feel we have to go to catch up. We're continuing to evaluate as the changing environment is.

But it looks like right now, there is not a tremendous peer pressure on adjusting rates, and we're competitive within competitive ranges.

Jim Cracchiolo -- Chairman and Chief Executive Officer

And regarding the current cash balances, I don't have the latest numbers here. I would probably say that they probably have come down a bit, but they are still maintaining, higher than they were prior to the fourth quarter. So I think that will gradually seep back in and as you saw. We still had good inflows in the fourth quarter into our wrap business.

But some of that did maintain in cash. So as the clients rebalance, I think you'll see to your point us -- money go back in. It might actually go a little into equities but also some fixed income now that they feel the rates have more stabilized.

Alex Blostein -- Goldman Sachs -- Analyst

Got it, OK. And then just in terms of the growth in the AWM segment. So obviously, you guys talk about the growth in the fee-based business, the wrap accounts. Any way to help us think about the net new asset growth and the franchise as a whole.

And granted, we can sort of back into it based on the market performance and client assets that you disclosed. But anyway you can kind of help frame, where is the total organic growth is from a net new asset perspective for the segment as a whole? And kind of where you see that going over the next year or two given your kind of strong comments around the pipeline from the recruiting perspective?

Walter Berman -- Chief Financial Officer

Obviously, it's difficult for us. But we do see continuous growth in our client asset as we look at the productivity, the new programs we're running. And the ability to actually drive those activities with our advisor base and certainly bring in new advisors. But mostly because of the way we're driving our productivity.

And again, it's going to be dependent -- has some influence on behavioral balance based on markets, right? But, we are seeing good strong client growth.

Alex Blostein -- Goldman Sachs -- Analyst

So net new assets as -- for the firm as whole are still positive, not just throughout the account?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. They were positive nicely in the fourth quarter. And throughout the '18, and we still are looking for them to continue in a positive trend as we are in '19. And that's where we're really focused our advisor attention on growing their net flows, but more importantly engaging their clients so that they can deepen those relationships with them.

Alex Blostein -- Goldman Sachs -- Analyst

Got it, great. Last one for me, if I could just sneak one more in. We've seen a couple of your peers, both public and private, talk about taking on a research payment onto the P&l entirely, not just for MiFID two clients but doing it globally. Where do you guys stand on that front? And do you expect that to impact your G&A outlook for 2019? And, I guess, that would hit the Asset Management segment.

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. So as you are aware and you mentioned, we did take that on fully in '18, because we do have a large U.K./European operation relative to our size in the asset management business, and that was absorbed. Having said that, that did increase the expenses there that we had to figure out how to offset. And luckily based on what we were doing in our global transformation and technology and integration, we were able to offset that rather than -- it's a shame, we can't bring that further to the bottom line because of it.

Having said that, in the U.S., we're monitoring that, looking at that closely. I know one competitor came out and said they're looking to possibly do that. But again, it's a very large industry here. And when that occurs it does fundamentally change what research, the cost of research, how research is charged etc.

as it has occurred in Europe. So I think it's more than just a player saying it, there's a number of other things across our industry that has to occur for that to be something, I think, gets moved forward.

Alex Blostein -- Goldman Sachs -- Analyst

Thanks very much, guys.

Operator

Our following question comes from Andrew Kligerman from Credit Suisse.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey, good morning. First question. Walter, you talked about maintaining flexibility in general and admin. And of course, advice and wealth was only up about 2%, asset management was down 6%.

What I'd like to get the sense of is, can you consistently have these general and admin expenses lag operating revenues? I mean, can you consistently do that? Maybe that would be a good...

Walter Berman -- Chief Financial Officer

OK. So let me try it this way and see if that works. Listen, since we've gone public, we have a focused program on reengineering. We are constantly evaluating, improving our processes and certainly getting payback for our expenses, and gearing that toward -- as a business growth.

This is embedded into way we operate, Andrew. So from that standpoint, yes, I do believe looking at all the elements of investing in the business, the business is usual, the streamlining of those businesses, we have effective track record of us working as a -- with the businesses to drive that effectively and leverage our overall activity. So yes, I feel comfortable that, that will continue.

Andrew Kligerman -- Credit Suisse -- Analyst

Great. And then just a few quick data points. One on the sweep fees. Can you -- where do you see that going from 195 basis points up from 173 in the sequential quarter.

Two, Jim, you mentioned that some of your of one-year numbers got hit pretty hard. I noticed in international equity and taxable fixed income, in particular. How have they done in the past month? And then lastly, your insurance costs in Auto & Home, are they up materially since the reinsurers paid out $50 million?

Jim Cracchiolo -- Chairman and Chief Executive Officer

So in regard to investment performance, as I've mentioned, as we've looked at the various equity markets, when you have some major dislocations. Yes, we get hit with it, and it does cause a material blip, so to speak, in those numbers for the period of the year. As I said, we think that will work through as we go through the next number of quarters. January, looks good already.

The three-year numbers, we think will bounce back because the first quarter '16 happened the same way based on that volatility. That quarter will bounce off, even though the new quarter came on, and so our numbers should bounce back in that regard. European was a little more in a sense of also got hit based on the dislocations that you saw in October time frame and some of the adjustments. And that we think will also work through because we feel good about the investments we have there.

And I think that is something that again, I know the investment teams are very much focused on. We feel pretty good about how each of those portfolios are constructed and the quality including the fixed income, the quality of the credits etc. So that's something that they are going to be focused on, making sure that, that gets back to the improvements and the -- maintaining the levels that they need.

Walter Berman -- Chief Financial Officer

OK. Andrew, as it relates to the spread, I assuming you're referring to the rate that we've already gotten. And [ then how seeing ] that's going to evolve sequentially. OK.

As I indicated, it's a process that we evaluate. Certainly, the competitiveness of our pricing versus peers. And then we have not seen basically changes taking place, but we are certainly prepared. And -- but right now, we're just going to gauge it where it goes and meet and certainly be competitive.

On the reinsurance it was, I guess, from our standpoint, we were quite effective as you saw in the quarter, grow $62 million and $12 million net. And we will be continuing to those programs into 2019. And again, we are constantly improving our product, and certainly maintaining our reinsurance effectiveness.

Andrew Kligerman -- Credit Suisse -- Analyst

But has the cost gone up shortly in the reinsurance because of the payout?

Walter Berman -- Chief Financial Officer

It's a combination, I think costs have gone up somewhat and they have also adjusted churns. But we still feel it's an effective mitigation.

Andrew Kligerman -- Credit Suisse -- Analyst

So maybe double digits up or not?

Walter Berman -- Chief Financial Officer

No. I don't have the exact -- It's not double digit. It was good negotiations. And I think we feel there's been a change, but still a very effective program.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. Thanks so much.

Operator

Our following question comes from John Barnidge from Sandler O'Neill.

John Barnidge -- Sandler O'Neill & Partners, L.P. -- Analyst

Thanks. The combined ratio meaningfully improved for full year in protection, are you considering actions that could unlock value and free up capital committed to that business? And then the second question, how much rate are you currently taking in pushing across the different products in protection after several years of cat losses?

Walter Berman -- Chief Financial Officer

OK. So you're talking on -- from the standpoint on the rate, I guess about...

John Barnidge -- Sandler O'Neill & Partners, L.P. -- Analyst

Yes. For auto and then home.

Walter Berman -- Chief Financial Officer

OK. On auto and home, we have had -- as Jim said, we started from several years ago to take a very effective underwriting and a valuation of our pricing. And certainly, using big data to drive that to a more effectiveness through certainly from a client standpoint, from our standpoint. So we feel quite comfortable with the programs that we are taking and making changes to the product sweep that we feel is appropriate.

And to give us the sort of paybacks that are appropriate. The second question, I'm sorry? Was there another question?

John Barnidge -- Sandler O'Neill & Partners, L.P. -- Analyst

Yes, there was. It's meaningfully improved. Are you considering actions that would unlock value for that business and free up capital to be reallocated to something else?

Walter Berman -- Chief Financial Officer

I think right now, we're committed to -- certainly, we have the right capital ratios. And we're certainly committed to the product. And certainly, when the time is appropriate, as we're indicating, we're getting improvements, we will evaluate reducing capital appropriate and staying within the agency regulatory framework.

Jim Cracchiolo -- Chairman and Chief Executive Officer

So again, we're depending on the reviews as I said that will be more complete as we go through the first quarter.

John Barnidge -- Sandler O'Neill & Partners, L.P. -- Analyst

OK. Thank you.

Operator

Our final question comes from John Nadel from UBS.

John Nadel -- UBS -- Analyst

Good morning. I have a couple. Just wanted to follow up on a discussion earlier in the Q&A about the margin potential for advice and wealth management. The opportunity for further expansion over time.

If we just made a baseline assumption that equity margins were reasonable, and we layered in the benefit of the banking operations over the next few years, isn't it very likely and very reasonable that we should expect the margin to continue to improve from current levels? Or are there investments, Jim, that you think you need to make over the next couple of years to suppress margin expansion?

Jim Cracchiolo -- Chairman and Chief Executive Officer

No, no. Consistent with your -- way you phrased the first question, the answer would be yes. We think they would.

John Nadel -- UBS -- Analyst

You think margins expand?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes.

John Nadel -- UBS -- Analyst

Yes. OK. Secondly, just wanted to get into -- and maybe I would be a little bit more direct on the question around Auto & Home. Setting aside catastrophe losses, and obviously the reinsurance program was very effective.

But underlying, I agree with John's comment earlier, underlying margins are improving very nicely. Jim, you've made it pretty clear that this business is not necessarily a core business on a go-forward basis. So basically that's my take. Are we at the point yet where you can take action?

Jim Cracchiolo -- Chairman and Chief Executive Officer

As I said, we're going through our strategic review here. And we will be complete of that as we go through the first quarter. So why don't we just stay tuned, OK?

John Nadel -- UBS -- Analyst

Gotcha. OK, that's fair. And then lastly, this is may be a little bit more direct question, Jim. Are you satisfied with the leadership and the quality of the management of the asset management business at this point? I recognize that the entire industry is pressured.

But the industry has essentially come back to, Columbia's Threadneedle, in terms of overall performance. It hasn't been the other way around. Are you confident that team you've got in place to be able to manage against this more difficult environment?

Jim Cracchiolo -- Chairman and Chief Executive Officer

Yes. So we've -- over the last number of periods, we've actually added some really good talent to the global Asset Management group. We're making some really good changes both from how we look at the marketplace, how do we attack it from a distribution perspective, the areas of opportunity that we should focus our energy and resources. We've made a lot of changes and investments appropriate in the technology.

We've had to deal similar to others in the industry with a lot of particular regulatory changes, particularly across Europe and the U.K., that we have been managing very well. So again, it's not that we can't continue to improve. I agree 100%. And -- but we are working diligent against it.

And I will continue to look at what are the right resources and talent necessary for us to do that. We will and have extracted very good shareholder returns from this business. I know the flow picture doesn't look that great, but we have transformed from where we were a proprietary shop to a global provider, and generated very strong shareholder returns over the years in doing so. I do believe the industry has gotten extra hit.

And we're part of that as you've seen, but I do believe we have enough capability and ability to transform. The other thing that we have going for us very clearly is our expertise and how we reengineer and integrate pretty well. So I think that's going to be of great benefit going forward, as you see people are starting to feel the pain a bit more. So we're very focused and I appreciate your question, and continue to look to ensure that we continue to generate value here.

John Nadel -- UBS -- Analyst

I appreciate the response to Jim and I've been following your company a long time. I think the resilience of your franchise during the fourth quarter is pretty significant. I really appreciate that.

Jim Cracchiolo -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 63 minutes

Call Participants:

Alicia Charity -- Senior Vice President Investor Relations

Jim Cracchiolo -- Chairman and Chief Executive Officer

Walter Berman -- Chief Financial Officer

Ryan Krueger -- KBW -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Jeff Schmitt -- William Blair -- Analyst

Suneet Kamath -- Sanford Bernstein & Co -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

John Barnidge -- Sandler O'Neill & Partners, L.P. -- Analyst

John Nadel -- UBS -- Analyst

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