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Ameriprise Financial Inc (AMP -0.52%)
Q2Â 2019 Earnings Call
Jul 25, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
My name is Sylvia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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 A. Charity -- Senior Vice President, Investor Relations
Thank you, operator, and good morning. Welcome to Ameriprise Financials second 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 two, you'll see a discussion of forward-looking statements. Specifically, during the call, you will hear references 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 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 second quarter 2019 earnings release, our 2018 Annual Report to Shareholders and our 2018 10-K report. We make no obligation to update publicly or revise these forward-looking statements.
On slide three, you see our GAAP financial results at the top of the page for the second quarter. Below that, you see our adjusted operating results, which management believes 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 adjusted operating results.
And with that, I'll turn it over to Jim.
James M. Cracchiolo -- Chairman and Chief Executive Officer
Thank you, Alicia. And good morning, everyone. Thanks for joining us. As you saw in our earnings release, Ameriprise continues to perform well. We've delivered another strong quarter, completing a good first half of the year.
Today, I'll discuss a few important themes. First, our wealth management business is leading the way. It's the front end of Ameriprise and our growth engine. Second, our high-quality asset management insurance and annuity businesses complement our leadership in the growing wealth management space. They deliver both competitive profitability and strong free cash flow. And third, we have an excellent financial foundation, which provides important capital generation and flexibility. We continue to take steps to free up capital and invest to accelerate our growth and generate shareholder value, while returning significant amounts of capital to shareholders.
Turning to the operating environment. The economy continues to improve. Equity markets have recovered nicely from the pullback in the fourth quarter. Long-term interest rates have come down in the first half and it also looks as though the Fed may cut short-term rates in the near term. During the quarter, we achieved some new milestones. Assets under management and administration reached an all time high of $916 billion. And advice and wealth management retail client assets grew 7% to more than $600 billion, also a new record.
Additionally, we delivered double-digit EPS growth of 14%, building on our track record. We have long maintained industry leading ROE and have taken it even higher to 37%, an increase of 670 basis points over last year.
Let's start with Wealth Management, which is driving our growth. Our comprehensive advice based approach is highly relevant, effective and uniquely Ameriprise. Our approach is supported by a broad suite of solutions and [Indecipherable] it in strong personal relationships to meet clients evolving needs. Importantly, assets remain in Ameriprise through clients life stages as their needs evolve from asset growth to preservation, income generation and a state planning.
In fact, a recent report by Research from Hodson wallets [Indecipherable] found that Ameriprise is a top performer in terms of average share of wallet across customers of all ages. This is an important distinction at a time when many investors are choosing to work with multiple financial service providers. We not only serve our clients full range of needs, we also derive consistent revenues for the business across market cycles.
This recognition reinforces how we operate and serve clients. It complements our Timken credentials, where across the investment industry Ameriprise is number one in trust, number one in customer service and number one in consumer forgiveness. And we're number one for customer loyalty. Our advisors are also standing out in the industry. So far this year, 335 Ameriprise advisors have earned prominent industry recognition, including top rankings in Barron's, The Financial Times and Forbes.
I'm proud to see our advisors recognized in the marketplace for their excellent client service and practice success. In terms of financials, we are delivering meaningful revenue and earnings growth, while we invest for the future. In fact, AWM generates nearly 80% of firm wide revenue when you include contributions from our complementary businesses. Our AWM margin remained strong at nearly 23%, which is among the best in Wealth Management.
One of our key growth drivers is fee-based advisory. Assets were up 13% to nearly $300 billion. In fact, we had $4.8 billion of net new inflows in advisory. Our ninth consecutive quarter of more than $4 billion. Another important metric is advisor productivity, where we delivered a new record high. Strong client flows, coupled with the extensive support Ameriprise provides help drive a 6% increase. We delivered excellent productivity growth quarter after quarter.
Regarding advisor recruiting, we welcomed 72 experienced advisors. As a group, they are 19% more productive than advisors we brought in this time last year. This continues our track record of bringing in larger producers who appreciate the Ameriprise brand and our advice value proposition.
I feel good about our results and the ability to grow. We see a significant opportunity to serve more clients with advice, especially those with $500,000 to $5 million in investable assets who value an advice relationship, backed by strong capabilities in a trusted firm. We're also investing significantly in our client experience. These investments include enhancing our advice experience with new digital capabilities. In early spring we began rolling them out along with extensive training. Advisors are sharing success stories with me about the differences it makes in their clients' lives and for their practices.
We're also in the early stages and advisor uptake and looking forward to building on this initial success. Another key investment we will discuss with you is our new customer relationship management platform that we're rolling out through the fall. This integrated system help advisors to find and manage context, consolidate client better and track client progress. This will make it even easier for advisors to engage clients through personalized contact. We are also taking steps to fully integrate our investment advisory platform, later this year we're introducing our customer advisory relationship program, moving from multiple different programs to one cohesive program, where our various strategies can work better together, freeing up time and effort for advisors to serve clients.
And we launched the Bank in the second quarter. And in June, brough more than $2 billion of money market cash sweep balances on our balance sheet. Later this year and in 2020 we'll add new deposit based products, credit cards, mortgages, as well as quite [Phonetic] lending. Ameriprise is a well-established advice leader with an excellent reputation. I'm energized about what we have today and what we're doing to further strengthen our position as a leading wealth manager.
Now I'll turn to asset management, where we continue to deliver competitive profitability and focus on targeted growth opportunities. Overall, we have a high performing lineup across equities, fixed income and asset allocation strategies. And where we had pockets of underperformance, we've seen good improvement this year which bodes well. Our overall investment track records remain competitive and strong.
In terms of flows, we're seen an improvement in the level of outflows that we experienced from the last two quarters. Our market share in North America improved at several of our top intermediary firms with good flows into strategies, where we're placing more emphasis, such as our dividend income, strategic Income, mortgage opportunities and municipal income.
In fact, we saw a meaningful reduction in our outflows each month of the quarter. We think we can gain even more traction in fixed income, both in the strategies I've mentioned, and a number of others where we have good investment performance. We're beginning to position these strategies even more prominently. The risk of trade in Europe and the ongoing uncertainty of Brexit impacted outflows. That said, outflows have stabilized with improvement in the UK, Benelux, Italy and Spain. You may have also seen that we won a $2 billion UK equities mandate, with the majority of the funding occurring in the third quarter.
In institutional, we were in net outflows reflecting the market environment where investors were a bit more cautious. That said, we're making progress in our Global Investment Solutions business that we've invested in. We're building a good pipeline and we won some mandates in the quarter. We're also working to grow our SMA model delivery business, where the fee levels are in line with institutional mandates. We now have more than $10 billion in assets under advisement. In addition we won a new $800 million mandate in the quarter. And as you know, these mandates are not included in our flows.
These are a few areas where we're seeing good progress. And as you know, industry headwinds for active managers continue. Despite these pressures, earnings overall for Columbia Threadneedle remained strong and we ended the quarter with $468 billion in assets under management.
Our net adjusted operating margin in this business of 37.1% remains very competitive and within our targeted range. We're investing where we see long-term growth opportunities and benefiting from our reengineering to help offset higher Brexit and regulatory expenses that we and others are experiencing in the UK and Europe.
Keep in mind, we run this business as part of Ameriprise with a long-term perspective. With regard to insurance and annuities, these are well managed books. These businesses provide earnings diversification and stability. They are seasons books of businesses that replenish with client flows, generating strong free cash flows for our company.
With regard to the quarter, our variable annuity flows were down from last year. And while VUL and UL sales were down year-over-year, we saw improvement from the first quarter, driven by a pickup in VUL. Given the environment, these results are what we would expect. We've built the business to serve Ameriprise clients and therefore have differentiated risk characteristics. We effectively hedged variable annuity guarantees. In fact, our net amount that risk as a percent of account value is one of the lowest among major variable annuity riders.
With regard to our long-term care business. We continue to be proactive in managing our book. In fact, this current year, we saw a greater rate increases and benefit adjustments than we did in past years. The Auto and Home business continues to show improved results and we're on track to close the transaction in the fourth quarter. That brings me to our capital strength and flexibility. Both are clear differentiators. We're generating substantial free cash flow that we reinvest for growth and return to shareholders.
You can expect us to continue to build on our track record of strong capital management. As we've grown, we've consistently returned about 100% of our adjusted operating earnings to shareholders through steadily increasing dividends and buybacks annually. In this last quarter, based on freeing up additional capital, we began to take up our buyback consistent with what we shared with you. We are in an excellent position to continue to generate shareholder value. Our priorities on the capital fronts are clear. Continue investing in the business, evaluating inorganic opportunities and maintaining a return to capital shareholders at attractive levels.
Lastly, I'm pleased to share that in June, Ameriprise reached 125th anniversary. Very few public companies in the US has reached this milestone. We are proud to have doing business for more than a century. And I believe, it's because we've always put clients' needs first and have constantly evolved. As we look to the future, we're energized about the growth opportunity ahead, the strength of our business and our financial foundation.
Now, Walter will take you through the numbers.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Thank you, Jim. Ameriprise achieved another solid quarter of financial results, with earnings per diluted share, up 14% even with marginal equity market appreciation compared to a year ago. This was led by strong performance in Advice and Wealth Management and continued stable results in our other businesses.
We delivered an industry-leading return on equity of 37%, which reflects a 670 basis point improvement. We are generating substantial free cash flow and maintaining excellent balance sheet fundamentals to underpin our businesses. With excess capital of $1.9 billion through the end of the quarter. I will take you through the details beginning on slide six.
First, I like to note that our weighted equity index was up only 3% versus last year, much lower than the growth seen in the S&P 500 year-over-year. Typically, our WEI trends similarly to the S&P 500. And the disconnect at 4% this quarter is much larger than usual, primarily due to underperformance of European indices.
Ameriprises' adjusted operating net revenue was up 3% to $3.2 billion, driven by revenue growth in Advice and Wealth Management. The impact from marginal market appreciation was offset by strong growth in wrap assets and improved transactional activity. Asset management revenue was on target, given the cumulative impact of net outflows, as well as lower market depreciation than we've seen in recent quarters
And Annuities and Protection are stable businesses with limited revenue growth. We continue to manage expenses well across the firm, with total expenses up only 2%. And we returned over 100% of adjusted operating earnings to shareholders through increased share repurchase and dividends. This results in very strong EPS growth of 14% and ROE of 37%, as I mentioned.
Turning to slide seven. You can see that our business mix continues to evolve with Advice and Wealth Management generating over half of the company's earnings, up from 36% just three years ago. We've seen a consistent trend over the past few years, and it should continue as we focus substantial growth investments on areas where we've seen an opportunity within the Wealth Management business. Additionally, Wealth Management sources the majority of the company's revenue 80% over the past 12 months.
Let's turn to Advice and Wealth Management beginning on slide eight. AWM continues to perform well across all dimensions. Advice and Wealth Management adjusted operating net revenue and pre-tax adjusted operating earnings grew 7%. This growth rate was impacted by the marginal growth in the WEI from last year. That said, the quarter benefited from underlying organic growth that was quite strong with wrap assets up 13%, with net inflows of $4.8 billion in the quarter and 6% improvement in transactional activity sequentially, higher interest earnings on brokerage sweep balances and expenses were well controlled.
In addition, we launched a Bank in the quarter and continued strong advisor recruiting, both of which benefit revenue and earnings going forward. Expenses remain well managed when you factor in the following. We had higher volume related expenses due to the increased transactional activity I mentioned. We continue to make substantial investments for growth, including the Bank. There was a mark-to-market impact on our advisor deferred compensation program and there was an additional payroll day on a sequential basis. We anticipate expenses will remain in this range for the remainder of the year. Finally, our margin remained very strong at 22.7%.
As I indicated, we have strong organic growth trends in Advice and Wealth Management that you can see on slide nine. Total client assets were up 7% to $608 billion, with wrap assets of 13%. Both of which have benefited from the solid trend of continued wrap net inflows over many quarters. Advisor productivity continues to trend upward, reaching 638,000 per advisor on a trailing 12 month basis. Strong experienced advisor recruiting, new digital tools and capabilities and serving more of our target client market are key drivers of this trend.
Lastly, brokerage cash balances came down $1 billion sequentially to $24 billion. We earned 210 basis points, up 157 basis points from a year ago, but down a couple of basis points sequentially. As other firms have mentioned, we too are monitoring potential Fed announcements and intend to pass along a portion of our Fed rate cut to our clients, while remaining competitive.
Let's turn to asset management on page 10. Revenue and pre-tax adjusted operating earnings performed well, similar to AWM. We had a marginal benefit from equity market depreciation. In addition, the year-over-year growth rate was impacted by cumulative outflows and unfavorable foreign exchange translation, which was offset by the timing of performance fees. Additionally, Jim mentioned several recent mandates won and the benefits from those will be seen in future quarters. We remain focused on tightly manage expenses, while making targeted investments in appropriate areas for future growth and managing required regulatory changes. Margin in the quarter increased to 37% returning to our targeted range of between 35% to 39%.
Turning to page 11. Results in Annuities and Protection are solid. Annuities earnings were up 6% to $129 million, primarily from lower sales and higher living benefit rider fees. While sales remain down year-over-year, we saw a 19% increase in variable annuity sales sequentially. Which supported the improved transactional activity I described in Advice and Wealth Management. Protection earnings were up 3% to $65 million. Claims continue to be within our expected ranges and the underlying business is performing well. Clearly, interest rates remain a headwind for these businesses. We are currently completing our unlocking review and we'll discuss the outcome of the review in the third quarter.It is likely that interest rates will have a negative impact on our unlocking. However, there are numerous factors that contribute to our unlocking.
Let's move to the balance sheet on slide 12. We continue to generate substantial free cash flow and our balance sheet fundamentals are excellent. Our excess capital reached $1.9 billion and we expect this to grow further when we close the sale of our Auto and Home business later this year. Our investment portfolio is well positioned, diversified and high quality. Our hedging program remained extremely effective. These factors, combined with strong financial performance across our businesses support a differentiated return of capital to shareholders. In the quarter, we returned $570 million to shareholders through buyback and dividends, which was 102% of operating earnings. We expect to have nearly $2.5 billion of excess capital at year-end 2019, while targeting to return 110% of operating earnings to shareholders for the full year.
With that, we'll take your questions.
Questions and Answers:
Operator
Thank you . We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Erik Bass from Autonomous Research.
Erik Bass -- Autonomous Research -- Analyst
Hi. Thank you. Can you talk about the outlook for Advice and Wealth margins, especially if short term interest rates do you move to being a headwind? And related, how much were expenses elevated this quarter due to the investments you're making in higher comp? I mean, can you talk about how you see the investments flowing through to the bottom line over time?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Sure. This is Walter. From a margin standpoint, again, assuming the Fed does cut off [Indecipherable] affect them, but we still believe that the margins will stay in the approximate range. But again, it's -- we have good revenue growth and good profitability coming through. So it's difficult to take the full --exact estimate. But certainly, we believe that the margins will remain in this range. As it relates to the investment, investment spending is a large portion of the expense increase. And as we indicated, we continue to expect that we can factor through for the remainder of the year. And they are generating good returns. I don't have the quantification of that, but they certainly are giving is the paybacks as we see strong revenue growth.
Erik Bass -- Autonomous Research -- Analyst
Got it. I think you had mentioned a couple of higher comp expense items as well. Are those things that could recur or are those more one-off expenses in the quarter?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
The comp -- if you talking about in AWM?
Erik Bass -- Autonomous Research -- Analyst
Yes.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
In AWM that was really on deferred comp and it is related to -- basically we had portions, in some portions we can hedge and that was the differentials that impact us. So it's really subject to markets, but -- and we are certainly mitigating some of them.
Erik Bass -- Autonomous Research -- Analyst
Got it. And then finally, can you provide an update on your targets for the Bank and the timeline for bringing on the credit card portfolio and other products you've talked about?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
The credit card portfolio will come on balance -- latter half of this year. And the rest of the products will start coming through in -- beginning in 2020 going through the year. But the credit card will come on in, probably, the third or beginning of fourth quarter.
Erik Bass -- Autonomous Research -- Analyst
Got it. Is there any way we should think about the earnings kind of building from here. I think it's probably neutral to a slight drag this quarter, and you've talked about being profitable by the end of the year, but with those products coming on, how should we think about the build out?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Okay. Well, what you're going to see for -- the bank came on in basically in June. And so the very little of the sweep balance that was moved over was impacted of the profitability. You will see that, obviously, impact the third and fourth quarter. And we're targeting with -- certainly with change in interest rate we will probably be a small positive for the year as it relates to us, we're building out the bank and the credit card portfolio would really be a slower build on that from -- in 2019 and start building in '20.
Erik Bass -- Autonomous Research -- Analyst
Okay. Thank you.
Operator
Our next question comes from Humphrey Lee from Dowling & Partners.
Humphrey Lee -- Dowling & Partners -- Analyst
Good morning, and thank you for taking my questions. Walter, just to follow-up on the cash sweep. How should we think about the difference in terms of economics between sweeping to a third-parties versus keeping them on your balance sheet?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Sure. Okay. As related to the initial funds that we moved over. That was -- basically, that full benefit will -- it was being realized by us, [Indecipherable] just came out of them, basically, in money markets on that basis. So that is a full benefit to us, picking up majority of that from the investment of less the amount that we are creating to the client. As we go into the transferring additional sweep balances, obviously, from that standpoint the differential becomes much less, because it's the investment trade off of the sweep accounts versus what we then GAAP on to the balance sheet. But there will be a positive element of incremental earnings relating to monies that are moved over. In this environment, we just have to gauge the impact of it, obviously, the interest rates where they are.
Humphrey Lee -- Dowling & Partners -- Analyst
Okay, got it. And then you talked about both the Feb cuts -- all potential rate cuts, you will be looking to pass along some of the impact to clients. How fast can you pass along that or is there kind of like anything that's preventing you to move the impact directly to the clients?
James M. Cracchiolo -- Chairman and Chief Executive Officer
So, this is Jim. If it's one rate cut, let's say, 25 basis points, we'll be able to pass along the piece of that, just like we took a piece and gave it to the client as the rate came in. As the rate -- if the Fed cuts more than that rate. Okay. We will again adjust, but the bulk of that will just be absorbed by the firm, similar to what we did on the uptake. So what I would say is, the first cut, part observes by a client, part observed by the firm and we will be able to handle that as we continue to make our adjustments of shift with the bank, etc. But it depends on the number of rate cuts, just like we increased our margin because of the rate cuts. The margin will be adjusted down to some extent based on it in the short term.
Now, aside from the margin increase in our margin -- from interest rates, we've gotten nice margin improvements from the core business. So we till -- still expect us to continue on that path. But remember, when we moved from the high teens into the 20's, part of that was due to the increases in the Fed rate and therefore some of it will come back down in a similar fashion.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
It's Walter. Let me just amplify one thing as the question frequency. It's fairly quick because majority of the money is invested in the Fed funds and so the crediting rates are adjusted and so our earning rate.
Humphrey Lee -- Dowling & Partners -- Analyst
Got it. Thank you.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Welcome.
Operator
Our following question comes from John Nadel from UBS.
John Nadel -- UBS -- Analyst
Hey, good morning. I have a couple of questions. But, Walter, I wanted to come back to a statement. I think it was in your -- one of your final slides, thinking about the capital return. I think you mentioned that you're targeting 110% of operating income for the full year, not just for the second half of the year. So if I'm calculating it correct, I think you're running it just south of 100% in the first half of the year, it seems -- I think what you're indicating to us is that, the pace in the back half of the year is going to be substantially above the 110% to get to a full year 110 [Indecipherable]. I just wanted to make sure I have that right?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
You do have it correct. Obviously, it's [Indecipherable] but that's our intention right now, that we will certainly have to increase their substantially to get to the 110 for the full year, approximately.
John Nadel -- UBS -- Analyst
Got it. Okay. That's helpful. And then maybe one for Jim. I'm just -- I'm thinking about the fixed annuity book and your commentary about accelerating the free up of capital from various portions of the in-force block. After the transaction with Global Atlantic on the first 20% of the block, I think the message was very clear that you're looking to accelerate that free up. How much is the drop in long-term rates since then impacted the potential of moving forward with additional capital raised from the remaining fixed annuity block or from other pieces of the portfolio?
James M. Cracchiolo -- Chairman and Chief Executive Officer
So I'll let Walter cover a little more of the detail, but the way we think about it is. As you would see, we have a good amount of flexibility. So it's not as though in this rate environment, if rates continue to go down that we need to execute a transaction. What was really good about what we did so far and Walter and team is, it set up that capability for us and then we will work appropriately based on the appropriate arrangements and the time frames that we're interested in with the rate environment to execute those transactions. And so, I think that gives us some more flexibility if we want it or need it. And at the same time, we don't necessarily have to do it just based on what circumstances dictate today.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
So, it's Walter, John. Certainly with our excess position we don't have to do it now, but -- and the interest rate will impact, we will evaluate that. But as Jim said, we have the capability in place and certainly are evaluating that. And it's our intention in the right set of circumstance we will then commence the remainder of it.
John Nadel -- UBS -- Analyst
Okay. That's helpful. And then if I can sneak one last one in. On Advice and Wealth Management, if I look at the first half of the year, G&A growth was around 8% but revenue growth of little over 5%. That's the first time in a long time that I can recall that there has been that kind of a differentiation or disparity between G&A growing faster than your revenues. If G&A is going to stay around the same level as the 2Q for the remainder of this year. If we set aside the Fed and its action, should we expect the operating margins going to decline from here?
Alicia A. Charity -- Senior Vice President, Investor Relations
So let me start and then Walter will continue. As you heard in my opening remarks, we're taking the opportunity, first of all, I've mentioned to you about recruiting as an example. We're bringing in much larger books of business, there is cost in doing that, just the transition cost, the people coming on board and ACATS [Phonetic] and all that stuff. Our transaction revenue has gone up, we've had some mark-to-markets on our deferred comp, that's also in those numbers.
The part of the 8% is having to do with some of that. In addition, I've mentioned some of the investments we're making. So I'll give you an example. Putting in a new CRM platform, you got all the implementation costs [Indecipherable] two systems overlap for the year. So there are a number of things like that, but we feel that in this time frame where we see the growth opportunity, the strong margins we have in AWM, as well as our potential for growth. This was a time for us to increase those expenses.
Remember, in the last year I had a cut back a bit of them because of all the deal well expense and the regulatory. So we wanted to shift that back to growth investments. We think those investments will pay us good dividends moving forward, but that's part of the reason why the G&A. So if you ar asking me for the future outside of those investments and some of the things I've mentioned to you [Indecipherable] continue to answer would be no, because we will firmly control our expenses, particularly in a more difficult environment. But we feel right now making those investments even though G&A is up a bit.
Remember, we've been able to hold the line pretty well with a strong growth business. My margins are significantly above some of the other people that you guys look at and track. And my returns are significantly higher and that's fully loaded, that's not EBITDA, that's PTI. So what I would just look at is, the expenses will be higher for this year, but it's based on the things I've mentioned. If for whatever reason the market slows down and other things will climb back on the expenses, but some of that's due to the investments we're make in the overlap and the growth and some of the other things that we covered in the activity levels.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
So John, its Walter. The only thing I'll add to that is [Indecipherable] obviously, we have good revenue trajectory. But one thing is in the second quarter, we only had two weeks of the earnings coming from the bank as it related to the transfer. You'll have the full impact of that starting in the third and fourth quarter.
John Nadel -- UBS -- Analyst
Yeah. That's kind of where I was going. So the bank will be a partial offset. But then if I can paraphrase for you, Jim. It sounds like what you're articulating is, as we turn the page 2020, you'd expect us to be seeing revenue growth exceeding G&A growth?
James M. Cracchiolo -- Chairman and Chief Executive Officer
Absolutely, I mean, that's what we're focused on. What we've been able to deliver, but I just wanted to say to you. I mean, even with the incremental, it's not as significant based on what we've been able to do, but we think this will pay some good dividends for growth in the future. And the expenses will come back in line along those needs.
John Nadel -- UBS -- Analyst
Perfect. Thanks for all the time. Thank you.
Operator
Our following question comes from Andrew Kligerman from Credit Suisse.
Andrew Kligerman -- Credit Suisse -- Analyst
Hey, good morning. I want to follow-up quickly on John's question about the 110%. That would imply buybacks of close to $600 million per quarter for the next two quarters. But I think about the capital position where Ameriprise sits. $1.9 billion excess capital, another 700 plus incremental by the end of the year from Auto and Home and then you talk about these annuity blocks. So would it be fair to consider that perhaps you could ramp up the buyback considerably more even than $600 million a quarter. Where would you be thinking more about acquisitions?
James M. Cracchiolo -- Chairman and Chief Executive Officer
So what we would say is, we feel very good about, to your point, the ability to return will be ramping up our buyback and opportunistically continuing to look at that depending on market conditions, but it also gives us a lot of flexibility moving into 2020, both from a -- whether it's a return of capital or it could be based on some incremental acquisitions depending on the market and the climate and the valuations and the type of business opportunities we see.
So what I would say is, it's a good sort of a -- handful [Phonetic] sort of play. But, as Walter said, we will be stepping up a bit toward the end of the year depending on market circumstances. If the opportunity arises, may be more. On the other side of that, it gives us a lot of flexibility moving into 2020, which I think would be a positive in your thought process.
Andrew Kligerman -- Credit Suisse -- Analyst
Great. And, I mean, historically as I've seen Ameriprise, you've acquired when marketing conditions were weak, when others didn't have the capital. I mean, is that still the mentality? Or do you see a lot of opportunities out there that you'd like to take advantage of with this capital?
James M. Cracchiolo -- Chairman and Chief Executive Officer
So there may be some opportunities come along. They are opportunistic depending on strategic and what we think. But having said that, I do favorably believe in the Warren Buffett mentality. And we have a lot of flexibility to do that. As you know, we are actually quite strong in a down market as well.
Andrew Kligerman -- Credit Suisse -- Analyst
Okay. Two quick questions. I thought I heard, Walter, you mentioned a variable annuity unlocking. Could you provide a little more color around that. Is there something coming that would be material.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Okay. Andrew, right now we're going through the process, it's a -- we have not completed it. And so, we will do that at the end of the third quarter. We were just making a statement that the interest rate will have a negative impact. Right now, as you look [Indecipherable] aspects, we're working through. But we don't see anything surprising us yet.
Andrew Kligerman -- Credit Suisse -- Analyst
Got it. So nothing overly material.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
No, nothing we are seeing. No.
Andrew Kligerman -- Credit Suisse -- Analyst
Okay. And then lastly, just --
Walter S. Berman -- Executive Vice President and Chief Financial Officer
[Indecipherable] but nothing we are seeing.
Andrew Kligerman -- Credit Suisse -- Analyst
Okay. So far. Okay. Rate increases in long-term care. You mentioned that you are getting better than what you had anticipated. Could you give any sense of the magnitude there?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
No, right now it's on two fronts. Obviously, we have instituted appropriate, but increased rate increases. But we're also making benefit shifts that we're seeing good percentage take-ups that are higher than we've seen previously. So we have not yet quantified, because that's part of the unlocking also. But we are certainly seeing positive aspects, both on the rate increase side and the benefit shift proposals that we've made, there is more acceptance.
John Nadel -- UBS -- Analyst
Great. Thanks so much.
You are welcome.
Operator
Our next question comes from John Barnett from Sandler O'Neill.
John Barnett -- Sandler O'Neil -- Analyst
Thanks. Given the risk transfer that was completed for the annuity segment, can you talk about a possible reduction in stranded costs going forward for that business?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Are you are talking about the fixed annuities?
John Barnett -- Sandler O'Neil -- Analyst
Yes.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Basically it's been profit neutral. So technically there is no stranded cost implications to us from that standpoint, because it's not large in it's space anyway from that standpoint.
John Barnett -- Sandler O'Neil -- Analyst
Okay. And then now that we're kind of one quarter into the bank launch. Can you talk about maybe lessons learned that you can position the business for growth in the next year or so? I know when you're planning for a launch, you think things are going to go in certain way and it happens and you learn some lessons from it.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Okay. It's interesting, because this is our second launch. So we've had experience in doing it. And I can say that, it's actually been quite smooth from that standpoint. And certainly the -- bringing back to credit card portfolio is moving quite well. And from the transfer of the sweep accounts and then bringing up the infrastructure, we've actually not had a lot of surprises. And like I said, we've done this before. So I think it's moving well.
John Barnett -- Sandler O'Neil -- Analyst
Good. And then my final question. It sounds like there was a nice client win in the quarter for the Asset Management business. Can you talk about maybe where you're seeing opportunities in the market and how you're positioning the company in a fee pressure environment? Thank you.
James M. Cracchiolo -- Chairman and Chief Executive Officer
Yes. So the win was really in the UK in our equities area. As you saw there has been some transition, some fund managers, etc. And we're well thought about. We also see some opportunities. And again, I think all of us are a little surprised, etc, with the Brexit delay and that has caused a little more of people holding back in [Indecipherable] in Europe and the UK for Brexit as well as some of the signs on the European economy. But we're starting to see that stabilize. And we actually think that some of our activity will begin to pick up in Europe and the UK, as well as we move forward. And we're starting to see some more interest come back. And the other thing we're seeing is in our solutions business. Institutionally we're starting to get some mandates. We just got one out at Asia and one or two at Europe. And the pipeline is building, and it takes time for you to really get in front of people with some of your capabilities. But I think that's starting to take hold.
The other thing we see is, in the US, I mentioned, but from sort of our good capability, strong performance and income-oriented strategies, both from an equity perspective, as well as fixed income, we're seeing a pickup in sales. I actually would say, if you looked at the second quarter from an active equity, we're probably doing pretty well relative to the industry. We're not getting a strong inflow as we should in the fixed income and that's where we're putting more emphasis. We've always been known more of an equity shop and equities have been a little more active on the pressure, but we have really good strategies and fixed income. The sales group and distribution in North America is starting to shift some of their emphasis to include the fixed income more prominently and having more conversations around it. I think we could pick up some greater share there that would help the flow picture in North America in the active space.
So we're feeling good about some of those things. Having said that, the headwinds are still there. We are continuing to shift where our investments going into, things like better in and analytics, to better enable. We're putting emphasis around some of our research capabilities, investing in some of our new solutions and infrastructure and real estate. We're getting some wins starting in the real estate from the firm we bought. So there are some good things on the horizon. Having said that, as you know, this space has been a little more difficult, but we're starting to gain some traction that hopefully will reduce our outflows.
John Barnett -- Sandler O'Neil -- Analyst
Thank you .
Operator
Our next question comes from Ryan Krueger from KBW.
Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst
Hi. Thanks. Good morning. I just had one follow-up on the bank. Can you give us a sense of the spread that you're earning on the $2.2 billion of -- that was moved into the bank?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
That's 250 basis points.
James M. Cracchiolo -- Chairman and Chief Executive Officer
And that's AWM's earning. Okay. Look at it from that way, it's not getting into the transfer pricing discussion. About 250 basis points from the AWM standpoint.
Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst
Okay. 250 basis points. Thanks. And then just how big are the credit card portfolios that you expect to move over the next couple of quarters?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
It's about -- I think it's $200 million, $220 million, something in that range.
Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst
Okay. Great. Thank you.
Operator
Our next question comes from Alex Blaustein from Goldman Sachs.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Hey, guys. Good morning. Just on this last point, and I had a couple of other questions on the bank. But 250 basis points, it's a pretty widespread given where rates were today. Can you tell us where you're investing that, if you look at agency spreads available out there. It seems a little strategy.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Basically, we were investing right now in -- basically, in mortgage floaters and high quality for paper. And what you really seeing is a spread, because candidly it's coming off the money market. So therefore that's where the bulk of the difference is. That is very little earning rate that we would. Okay.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Right.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
It's not so much we're stretching the investments, the investments are all in high quality floaters.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Got you. And then the yield on the credit card portfolio. The $200 million you guys going to transfer in Q4. What is that? And I guess, what does that going to do to net interest margin at the bank in the near term? And then, I guess, bigger picture point, as you kind of look out a couple of years, I know you guys talked about, I believe, pre-tax income within five years getting closer to something about $200 million bucks. How is that going to evolve? So maybe you talk about the size of the bank within five years, kind of aspirationally where you hoping not to be? What are sort of the composition now the book would look like. And within the $200 million target, what are you assuming for credit costs, because you do think largely that's going to be consumer loan portfolio?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
That's a lot of questions. Let me-- I can't really give you [Indecipherable] because that work is now coming over from a third party, where we only get a small portion of the feed. Now we're going to start getting it. So I'd say, actually I don't have the exact amount on the credit card margin. So that one we can get back to you on. The issue as it relates to building the bank is really going to be in the basis. The bank is going to transfer over, as we said, substantial amounts of sweep accounts as we go through the period. And certainly picking up the spread on that as we look at investing differently. So that is really going to be the line share of the benefit that we're going to derive on that basis and getting into probably the range of $5 billion, $6 billion , $7 billion dollars in total. And then the rest is going to come from a [Indecipherable] certainly a higher profitability on the credit card as we have that profitability since we are in the underwriting with one of our partners. And then building up, as Jim said, the pledge loans, the deposit base and the mortgage base as we go through. But the real contribution is going to come from [Indecipherable] use the balance sheet more effectively from -- and garner more earnings versus the sweep.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Got it. Okay. So we will circle back on some of those other ones. Shifting gears a little bit. Just thinking about the rate sensitivity within AWM broadly. I think the brokerage cash sweep revenues are running at around $130 million this quarter. Obviously, it's a pretty clean way to think about the flow down from lower Fed rate cut. So that's pretty straightforward. I was hoping to get a sense on how the other piece of kind of the rate sensitivity in the model. So like that net interest investment income and the net expense against that. I think it's about $65 million a quarter for you guys. How is that going to evolve? I think it's basically you're certificates business with lower rate. Just not so clear on the sensitivity there to Fed cuts.
Walter S. Berman -- Executive Vice President and Chief Financial Officer
The Fed cuts, obviously that one is spread, we will be impacted. But again, we have -- I would -- it would be -- I can't give you an exact amount, because that one is really we manage through a very cautious program of protecting on the liquidity. So the investment impact will be reduced. I just can't give you the exact amount, it's going to be reduced, because that is invested out further with a bell bar effect invested in certificates and different longer-term investments, but it will be impacted less because the investment earnings are -- we have a large portion of that going out right now.
James M. Cracchiolo -- Chairman and Chief Executive Officer
It shouldn't be significant.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Yeah. A little more fixed, I think, on the asset side there. All right. And the last one, just a cleanup around some of the G&A discussion. I just want to make sure that I'm getting the message here. So clearly the investment spend makes sense in 2019. As we look out into 2020, G&A in AWM is that essentially going to stabilize at kind of current run rate level and then we should go back to more of a normalized growth, which I think historically has been kind of in mid single-digit range for you guys. So kind of take whatever you guys are running out for 2019 that's in you run rate and then maybe just grows a little bit slower than it was in 2019?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
I think that's a fair estimate. I'd say, that's definitely fair.
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Awesome. Great. Thank you very much guys .
Operator
Our last question will be from Suneet Kamath from Citi.
Suneet Kamath -- Citi -- Analyst
Thanks. Good morning. Just wanted to come back to the AWM margin for a second again, just to make sure I'm understanding what you're communicating. So the idea here is that, the margin may kind of stay in this 22%, 23% range in kind of the rest of the year. You have the bank, but you have some of the things going on in terms of rates. And then it will resume, what has been a kind of a steady climb higher as you move into 2020. Is that a high level commentary that you're giving us?
James M. Cracchiolo -- Chairman and Chief Executive Officer
So, what I would say, Suneet, would be along that lines, but again there is some variables in there depending. So the variables are very clearly how quick does the Fed cut. Right? And you can do those calculations to figure out what that would look like. But let's say, hypothetically, if the Fed only cuts ones then we feel comfortable at the margins we have. And the expense growth that we have incremental over the business activities, advisor growth and stuff like that transaction. We have that extra investments in '19 that -- which sort of come down thereafter. From a relative level of getting business growth that the environment is still as good, we'll start to grow back that revenue growth with the expense being well maintained again. The interest rate is the wild card, so to speak, some we can make up, for some we can't, some we will of offset. As Walter said what we're able to do as we start to move more of our sweep activity into the bank and invest differently to offset some of that spread erosion from the Fed.
But I think it all depends on market and rates and the instruments at the time. So it's hard for us to predict that. But those are some of the things that would be an offset, but if the Fed doesn't cut rates dramatically, then we'll be fine and continue to grow from there. But if they do, we'll try to offset it with the bank activities and as expenses come down from the investments, but some of it will hit the margin as you would well now in the short term.
Suneet Kamath -- Citi -- Analyst
Okay. All right. And then just two quick ones or two on Asset Management. First, I think the former parent outflows have moderated pretty significantly [Indecipherable]. So are we at a point where we're at this kind of a run rate kind of going forward and how big are the underlying assets in that category that you call former parent?
Walter S. Berman -- Executive Vice President and Chief Financial Officer
I don't have the numbers of -- we could get to get back to that. But the balance is there, as we've always said to you, the fee revenue from our relationship with Zurich maintains pretty well, the flows will always be somewhat negative based on just how that happens, but the asset base pretty much has maintained roughly where it's been over the last number of years. There's always some ins and outs if they close a pension or other things, but market has been able to offset that.
The US Trust business, which is the other larger mandate. I think it's stabilized at a certain number. I don't have it in front of me. Elisha [Phonetic] could get back to you with some of that information. But, yeah, the outflows have slowed a bit and with market appreciation and dividend reinvestment, etc, they've maintain certain levels, but Elisha [Phonetic] can give you that.
Suneet Kamath -- Citi -- Analyst
Okay. And then just my last one on asset management. And I appreciate the improvement inflows that you're seeing. But also you've cited numerous pressures facing all companies in that industry. So, I guess, how top of mind is doing something more significant there, be it a sizable acquisition or joint venture? Thanks.
James M. Cracchiolo -- Chairman and Chief Executive Officer
So again, we feel very good about the asset management business that we have and what the team has been able to put together. In some of the areas we feel like we're quite strong enable to continue to proceed well even in this difficult environment. Having said that, we do have capabilities for acquisition, we've proven that, we've been very successful in integrating. So it has to be the right property, we're open for way that we would work with partners and thinking about that. And if something they come along or the market in some way felt it's stressful for others more so than us, we will have the opportunity to work in some fashion. But again it's not something when needing to like have to do and we're really continuing to fine-tune our business, manage expenses, regear our activities to generate a good return in this environment. But I think -- we've proven our capability, we've proven our financial strength and we've proven our ability to look at alternatives in the right way strategically. And that's what we'll try to do.
Suneet Kamath -- Citi -- Analyst
Okay. Thanks.
Operator
[Operator Closing Remarks]
Duration: 57 minutes
Call participants:
Alicia A. Charity -- Senior Vice President, Investor Relations
James M. Cracchiolo -- Chairman and Chief Executive Officer
Walter S. Berman -- Executive Vice President and Chief Financial Officer
Erik Bass -- Autonomous Research -- Analyst
Humphrey Lee -- Dowling & Partners -- Analyst
John Nadel -- UBS -- Analyst
Andrew Kligerman -- Credit Suisse -- Analyst
John Barnett -- Sandler O'Neil -- Analyst
Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst
Alex Blaustein -- Goldman Sachs & Co. -- Analyst
Suneet Kamath -- Citi -- Analyst
