Q2 2025 Earnings Call Transcript

Welcome to the Q2 2025 Earnings Call. My name is Julianne, and I will be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Stephanie Rabe. Stephanie, you may begin.

Thank you, operator, and good morning. Welcome to Ameriprise Financial's 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'd be happy to take your questions.

Turning to our earnings presentation materials that are available on our website. On Slide 2, you will 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. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website at www.ir.ameriprise.com.

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 second quarter 2025 earnings release, our 2024 annual report to shareholders and our 2024 10- K report. We make no obligation to publicly update or revise these forward-looking statements.

On Slide 3, 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 today's call will focus on adjusted operating results. And with that, I'll turn it over to Jim.

Good morning, everyone, and thanks for joining our call. As we shared in our release, Ameriprise had another good quarter and first half of 2025, continuing our record of generating strong results over many years in market environments. We feel very good about the strategic direction and competitive strengths of our business. And importantly, our ability to help clients achieve their long-term goals.

Reflecting externally, equity markets moved around quite a bit in the quarter and investors paused and kept more cash on the sidelines. That said, markets proved to be remarkably resilient given ongoing trade dynamics. As we saw economic conditions were on a firm footing in the first half. However, questions remain around the next steps and impact of tariffs.

With that backdrop, our assets under management, administration and advisement grew to a new high of $1.6 trillion. And in terms of financials, adjusted operating results were also good. Total revenues increased 4% from asset growth and strong transactional activity. Earnings per share increased another 7% and our return on equity remains among the industry's best at a very strong 52%.

Across the business, we continue to implement a significant investment agenda. That includes investments in our leading client experience, technology, digital capabilities, advanced analytics and AI. And this is made possible by our consistent expense discipline and ongoing transformation efforts across the firm. On the wealth side, we're delivering strong value through our quality client adviser engagement centered on our goal-based advice experience.

And we see this reflected in the excellent client satisfaction that we consistently earn of 4.9 out of 5. We had strong client engagement and client assets grew nicely again in the quarter to a new record of $1.1 trillion was up 11%. Total wrap assets were also up, increasing 15%. Wrap net inflows were $5.4 billion and reflected the higher market uncertainty and seasonal impact of client tax payments and transactional activity was also good. Client total cash holdings increased in the quarter and remained very high as we would expect based on the market situation and near-term rates and these assets on the sideline represent a future growth opportunity.

We continue to provide exceptional support and capabilities to our advisers and teams. They're staying closely connected with clients and benefiting from the investments we're making. For example, our intelligence dashboards provide in-depth analysis of key areas of advisers' practice like client contact, prospects and acquisition. We're also using automation analytics to drive efficiency. help advisers enhance personalization based on client needs and identify opportunities for deepening and engagement.

And in June, we made a significant addition to our wealth management capabilities with the launch of Signature Wealth which we feel will help advisers to manage client assets even more holistically and efficiently. It brings the best of our current advisory platform into a flexible unified management account and frees up capacity for our advisers to further focus on client engagement and practice growth. With the excellent platform we've built and the integrated support we provide our advisers continue to be highly productive and engaged and productivity grew another 11% to $1.1 million per adviser.

Regarding recruiting, we continue to bring in good recruits. Another 73 experienced advisers joining Ameriprise in the quarter, and we feel good about our pipeline as well as our differentiated adviser value proposition. These advisers appreciate our reputable brand, practice support and financial strength and stability. We're also hearing how their clients feel overwhelmingly positive about moving to Ameriprise, which is terrific.

The bank is also doing well. Total assets were up 6%, and we're earning good spread. Loan growth at the bank is also good, driven by pledge. As we've shared, we're launching new products like our new CD that came out in the second quarter.

And in the coming months, we'll be bringing out HELOCs and checking accounts to add to our product offering. And I would highlight that our wealth business consistently delivers best-in-class margin. It was 29% for the quarter. As part of our larger solution set, our retirement income and protection products helped serve clients' full financial picture.

We're driving good sales in our targeted areas like variable universal life variable annuities without living benefit riders and structured annuities. In fact, we saw a nice pickup of 25% from the first quarter within our structured solutions. Advisers appreciate having these strong consistent offerings on the platform that have been developed and seamlessly integrated with our client experience, and we're working closely to support them to engage clients to meet more of their needs. It was another strong quarter for RPS.

The business consistently generates good returns for the company and strong free cash flow. The RPS business is one of the most profitable insurance businesses in the industry. Turning to asset management. We continue to deliver attractive earnings and drive operational efficiencies.

Total assets under management and administration increased to $690 billion, up 2% year-over-year and 5% sequentially. Our investment performance continues to be strong across both equity and fixed income. We had excellent long-term performance. More than 70% of our funds were above the median on an asset-weighted basis for the 5-year period and more than 80% over 10 years.

Regarding the 1 year, equity performance slipped a bit. However, short-term fixed income performance is very strong at more than 80% above the median and 99 of our funds were rated 4 or 5 stars by Morningstar. Regarding flows, we had $8.7 billion of outflows in the quarter, largely driven by higher institutional impacts. In Global Retail, gross sales increased about 10% year-over-year but like others, we had higher underlying redemptions.

April was especially tough for the industry given the markets. Looking at a flow rate in the U.S. versus active peers, we're a bit ahead in terms of equities and a bit below in fixed income. But we've narrowed the gap. And in EMEA retail, higher redemptions were also a fact that it drove outflows in the quarter, although we did see a nice pickup in U.K. multi-asset strategies.

On the retail product front, we're adding to our active research enhanced index ETF lineup in the U.S. and gaining flows. And in coming months, we will be extending this capability in EMEA with the launch of a series of active ETFs in the U.K. and Europe. In terms of the institutional business, we have some higher redemptions that included the previously announced Lionstone outflow. As we move forward, we're adding more CLOs and earning key equity fixed income and hedge fund mandates across regions as we had some good results in terms of cross-sell and deepening relationships with current clients.

In Asset Management, we continue to manage expenses extremely well. We're driving efforts to realign resources, streamline systems and enhance our processes in the U.S. and globally. We're significantly transforming the business while at the same time maintaining our fee rate. Asset Management margin was 39% in the quarter, at the top end of our target range, up nicely from our expense discipline.

For Ameriprise overall, our complement of businesses has enabled us to perform very well over different environments and market cycles. Overall, we continue to generate very strong free cash flow, and we have one of the highest returns on equity at more than 50%. We're also having a good balance of share buybacks and dividends and we continue to return to shareholders in a significant way, and we'll be looking to increase and targeting an 85% payout ratio for the balance of the year. I'd highlight that Ameriprise received some new recognition that adds to the portfolio of accolades that we've earned.

We were recently recognized in 2025 by Kiplinger's Readers Choice Award for outstanding overall satisfaction, quality of advice, trustworthy advisers and for being the most recommended among wealth managers. And second, Ameriprise was also named one of America's Most Innovative Companies 2025 by Fortune. Looking forward, we feel very good about our ability to continue to manage and adjust for the environment. We're staying focused on our strategic priorities and generating good returns for the business.

Now Walter will provide additional color on our financials. Walter?

Thank you, Jim. Ameriprise delivered continued solid performance with exceptional balance sheet strength in a volatile and uncertain environment. Adjusted operating EPS increased 7% to $9.11 with a strong margin of 27%. Adjusted operating net revenues increased 4% to $4.3 billion from asset growth while absorbing the market and rate impacts across our businesses.

Expense discipline remains strong from our ongoing firm-wide transformation initiatives. Year-to-date G&A expenses improved 3%, and we will maintain G&A expenses at this level for the remainder of the year. It was a solid quarter across our businesses, and we'll get into the details of our segment results on the upcoming slides. As we exited the quarter, our balance sheet fundamentals remain very strong, and we are well positioned to navigate potential volatility going forward.

A stable 90% free cash flow generation across our segments, combined with our strong balance sheet fundamentals enabled us to return 81% of operating earnings to shareholders in the quarter. We remain committed to returning capital to shareholders at a differentiated pace and plan to increase our payout ratio to 85% for the second half of the year. On Slide 6, you'll see the EPS growth of 7% was impacted by the market dynamics in the quarter. Assets under management, administration and advisement increased to a record high of $1.6 trillion, benefiting from strong wealth management client flows over the past year in equity market appreciation.

We delivered strong profitability with a consolidated margin of 27% from 4% revenue growth and continued expense discipline. We continue to generate a best-in-class return on equity of 52%. On Slide 7, you see the solid metric results from wealth management, given the elevated market volatility and normal seasonal tax payment trends. Revenue per adviser grew 11% to a new high of $1.1 million.

This resulted from 11% increase in client assets to $1.1 trillion with client net inflows of $34 billion over the past year. Wrap assets were up 15% to $615 billion, with wrap flows of $33 billion over the past year, representing a 6% annualized flow rate consistent with the prior year. With the volatility in the early part of the quarter and tax season in April, we saw slower flows in the second quarter following a strong first quarter. In total this year, wrap flows have been $14 billion, consistent with the prior year.

In addition, transactional activity levels remain strong. Cash sweep balances were in line with expectations at $27.4 billion compared to $28.6 billion in the prior quarter, reflecting normal seasonal tax payments. We are seeing nice momentum in our experience adviser recruiting. Being affiliated with a firm that has an excellent reputation and strong balance sheet fundamentals is attractive to advisers, particularly in the volatility and uncertain environments we've seen this year.

Advisers find our value proposition to be compelling, and we are focused on making sure our transition packages are attractive to experienced advisers that share our values and commitment to the client experience. On Slide 8, you'll see strong financial results from wealth management. Adjusted operating net revenues increased 6% to $2.8 billion. Revenue growth benefited from strong cumulative wrap net inflows and market appreciation over the past year, which more than offset lower spread revenues and the impact from unfavorable markets within the quarter.

Adjusted operating expenses in the quarter increased 9%, with distribution expenses up 10%, reflecting growth in adviser productivity. G&A expenses increased 6% to $435 million in the quarter, which was a result from higher growth investments and volume-related expenses due to business growth. However, for the year, we expect low to mid-single-digit growth in G&A. Pretax adjusted operating earnings were $812 million, which included the impact on wrap assets from the dip in equity markets in April.

However, we saw a substantial recovery in the equity markets by the end of June, which positions us well as we enter the third quarter. In fact, advisory wrap assets on June 30 were 6% higher than the average for the second quarter. We saw a continued strong contribution from both core and cash earnings in the quarter. Our core earnings grew in the low to mid-single-digit range after absorbing the market impact in the quarter.

Cash earnings saw a high single-digit decline from the impact of the Fed funds effective rate reduction since the latter part of 2024. Our strategy leveraging Ameriprise Bank has been important in minimizing the impact from Fed funds effective rate reductions on our AWM business. In fact, we continue to see a modest increase in net investment income in the bank this quarter. Margins remained best-in-class at 29%. Turning to Asset Management on Slide 9. Financial results were solid in the quarter.

Operating earnings increased 2% to $222 million. This strong quarter reflected equity market appreciation and the positive impact from expense management actions, partially offset by the impact of net outflows. Total assets under management and advisement increased to $690 billion, up both for year-over-year and sequentially from higher ending market levels. Revenues were $830 million with a stable fee rate of 46 basis points.

Adjusted operating expenses improved 3% and importantly, G&A expenses improved 5%. As Jim said, we are proactively driving operational transformation across our global footprint, including leveraging capabilities across Ameriprise and the benefits from these initiatives is evidenced in our G&A expense reductions. Margins reached 39% in the quarter, which is at the high end of our target range. Let's turn to Slide 10. Retirement and Protection Solutions continued to deliver strong earnings and free cash flow generation, reflecting the high quality of the business that was built over a long period of time.

Pretax adjusted operating earnings in the quarter increased 9% to $214 million. The strong and consistent performance of the business reflects the benefits from favorable life claims, strong interest earnings and higher equity markets. These high-quality books of business continue to generate strong free cash flow with excellent risk-adjusted returns and continue to be an important contributor to the diversified business model. Overall, Retirement and Protection Solutions sales were solid at $1.4 billion.

Structured annuity sales remained strong, but were down relative to a very strong level in the prior year. Turning to the balance sheet on Slide 11. Balance sheet fundamentals and free cash flow generation remains strong. We have an excellent excess capital position of $2.3 billion above regulatory requirements, and we have $2.1 billion of available liquidity and our investment portfolio is diversified and high quality. We have diversified sources of dividends from all of our businesses, enabled by strong underlying fundamentals.

This supports our ability to consistently return capital to shareholders and invest for future business growth. Ameriprise's consistent capital return strategy drives long-term shareholder value. In summary, on Slide 12, Ameriprise delivered solid results in the second quarter, which is a continuation of our long track record, navigating various market environments. Over the last 12 months, revenues grew 8%, adjusted EPS increased 13%, return on equity grew 240 basis points and we returned $3 billion of capital to shareholders.

We had similar growth trends over the past 5 years with 8% compounded annual revenue growth, 17% compounded annual EPS growth, return on equity improving 16 percentage points, and we returned over $12 billion of capital to shareholders. These trends are consistent over the long term as well. This differentiated performance across multiple cycles speaks to the complementary nature of our business mix as well as our focus on profitable growth. With that, we'll take your questions.

[Operator Instructions] Our first question comes from Steven Chubak from Wolfe Research.

So Jim, it's encouraging to hear your commentary on the recruitment backlog improving. I was hoping you could speak to some of the drivers of the software flows in 2Q recognizing a lot of that related to the Liberation Day law. And are you seeing any indications of M&A reaccelerating back to that more normal mid-single-digit growth rate?

Yes. So really at the beginning part of the quarter between the combination of the tax payments, but also Liberation Day, the flows you had the tax payments out, but then the flows did not bounce back because of the Liberation and people a bit more on the sidelines. That started to recover as you got later in the quarter, but we're still seeing that pick up a little bit more as we get into July. There was also some lumpiness between the net inflow from some of the recruiting coming in versus some of the terms.

I think there are some big checks that were a little irrational given. So it impacted a little lumpiness there for some of the outs that we had. Overall, we feel good about the overall positioning. The core client base continues to do well.

But our base doesn't react so quickly to the markets. And so it's more of an on average over time, and we'll see that recover.

That's great. And since you alluded, Jim, to some of the irrational behavior in this space, as I look at distribution expense within AWM that has steadily crept higher year-on-year. At the same time, one of your peers had alluded to some indications that there's some more rational behavior on TA, maybe less aggressive recruitment packages, at least from some of the sponsor-backed firms in particular. Just curious if that's consistent with what you're seeing in the marketplace?

And how should we be thinking about the year-on-year trajectory for the AWM distribution expense line in particular?

Yes. So I think it's a combination. So let me explain the distribution, and then I'll get to the recruiting. On the distribution, when we look at the average gross production that we have at the adviser base, it's up 9%, and that's what they get compensated on.

And so if you look at that, that's up 9% versus the idea of total revenue being up 6% and because you got the cash business, et cetera. When you look at the production, that matches and then you had a little more increase because people move to higher production levels, so their payout rates go up a bit. And so that's the difference. So regarding the packages itself that only had a small incremental piece of it year-over-year.

It's a little bit, but it's not to the extent of what you're looking at as the total. Most of that's production-based. And regarding to the recruitment package, you're right that there are some rationally, but there's still some people irrational particular for certain advisers that unless you have a perfect market going forward and high short-term rates, et cetera, the economics got to look a little iffy. But sometimes people will take a huge check, particularly if it's way above what the normal economics will call for.

Our next question comes from Wilma Burdis from Raymond James.

Just a follow-up on the last question. Can you just talk a little bit more about the recruiting strategy going forward, how you're seeing the market, how you expect to grow there?

Yes. So the pipeline looks like it's increased again nicely going through the low periods that we had [indiscernible]. And we are really focused on selling our total value proposition, which is helping advisers grow their productivity. We have on average higher productivity from our core adviser base than most that just associate advisers out there and say, providing network services.

We do a lot in capabilities that we provided, the new technology, AI support, et cetera, in addition to the coaching, training support we provide. So we feel good about that. And we do look to track certain types of advisers. We're not just looking to associate anyone by giving them a big check.

And so we do have to -- we have to raise our packages a bit to be based on the competitive frame, but that's where we bring in alignment with how we can help people really grow and become more successful.

And can you talk a little bit more about what clients are thinking right now? I know you talked a little bit about annuities being popular. How are they kind of positioning themselves? And are you seeing them wanting to deploy?

Yes. So it's on the annuity business, what we see is a continuation of people being interested in the structured annuities as well as annuities because of the -- just the overall tax environment, et cetera, in annuities without living benefits. And those are the only 2 that we really have in the marketplace right now. We're not playing in the fixed annuity area.

I know that might have been an area. We have other people on the shelf that we sell. But in that regard, we are focused on just those 2 areas, and they are complementary as people look at their retirement and long-term income that they're looking to achieve.

Our next question comes from Jeffrey Schmitt from William Blair.

With top line growth slowing in wealth management, is there an opportunity to maybe get more aggressive on some of the outsourcing deals or to do larger outsourcing deals or even just get more aggressive on recruiting in general? How do you think about that?

Yes. So I think -- what I would say is we are focused on the recruiting channel. And as I said, we have increased the competitive packages, et cetera, that we put in the marketplace just because of the competitive frame. In regard to -- I don't know if you meant outsourcing, I'm not exactly sure.

I mean as far as the institutional business, that continues to do well, and we're continuing to focus there as well as incremental. We are focused on also some of our centralized channel business where we could work with clients beyond the locales of our current advisers and that we're starting to increase our activity there. And so those are the areas we're focused on. We have not looked at just rolling up adviser networks, et cetera, like others because we want to continue to maintain a very strong focus on how do we deliver a very good client experience, associate people who actually want to use the advice value proposition appropriately, et cetera, et cetera.

Okay. That's helpful. And then on share buybacks, you mentioned you're targeting a payout ratio of 85% in the second half. Historically, it's actually moved higher than that in certain years, probably closer to 90%. I mean should we expect it to stay up at that level or maybe even move higher if top line weakness sort of continues next year?

So it's Walter. So as we indicated, our target is the 85%, we certainly have the capacity to, and we'll evaluate that on an opportunistic basis and see what's in the best interest of shareholders. But that is the current target that we have elevated for the second half.

Our next question comes from Tom Gallagher from Evercore ISI.

Jim, just coming back to the competitive environment in AWM, would you -- just considering what's going on with competition and how -- it sounds like you think there's some irrationality to it. Would you expect to shrink overall advisers in the next year or so? Or would you still expect to be able to grow.

Yes. I mean, even now, Tom, we are growing. I mean, we're not reporting like others don't report, but our net adviser count is actually up. That's not a concern that we have per se.

I think what I would probably say is, listen, people will put out more to buy up what they would call people putting on the system. We look at it as a long time. We have a very strong business over time. I have 10,000 advisers that I look to really help them grow and keep their productivity strong through all market environments.

We have good profitability of what we do where the adviser does well, the firm does well, et cetera, in a very consistent balance proposition, and we deliver very strong value. That's what we're looking for. We're not just looking to like add people because we can show you short-term top line growth and then suffer the consequences later on or have some issues with the type of people being associated. So I mean, others have different philosophies.

I'm not saying their philosophy is incorrect. I'm just saying that's where we are. We always stick to this knitting. In the past, we never even recruited externally.

We always developed internally. We're still doing that. But we do now a combination of both, and that's the way we look to maintain ourselves. And again, we'll be very competitive, but when people get a little over the top they can do that and maybe it works for them, but we don't look at it that way.

Okay. That's helpful. And then just a follow-up on RPS. The results in the quarter looked quite strong.

I guess, net investment income was up a lot sequentially. Anything in particular going on there? It looks like mortality was favorable on the life insurance side. Just curious what you're seeing there.

And then finally, any updates on potential risk transfer. You've had a bunch of peers doing different deals on long-term care of a well-priced variable annuity deal, any updated thoughts there?

This is Walter, Tom. So as it relates to strong fundamentals, as you indicated, we did have an improvement on live claims, which certainly contributed to the increase. So we feel very good about certainly the overall underlying profitability drivers within the business. And as it relates to risk transfer, again, the same thing we talked about is the business is solid.

It really does contribute, and we just haven't seen that bid-ask change at all that really makes any sense from a shareholder standpoint.

And Tom, what I would say is you really study the industry well. And so what I would say is that this is one of the most profitable insurance businesses and protection businesses out in the industry. These are excellent books. They generate great free cash flow.

The returns on equity are really high. The margin is very strong because we built good books over time. We only play in areas that we feel are both appropriate for us to be in, but we have all the other providers in the channel that have all the alternatives that people want to use. And so listen, if there's a good strategic relationship or something that makes sense, we will entertain it.

But right now, I would probably say we generate a very good return on it that only complements the business.

Our next question comes from Alex Blostein from Goldman Sachs.

Two questions for you guys around the bank. It's kind of related. But one, I was hoping you guys can give us a sense of roll-on, roll- off dynamics in the bank securities portfolio right now. Walter as I recall, you guys put this in place in sizable amounts a couple of years ago, spreads were wider.

So curious as that securities portfolio rolls over the next, call it, year or 2, what kind of a spread difference you're seeing and the money you're putting on versus what's coming off? And secondly, I heard you guys on the loan strategy. Obviously, that's an important part of the bank build-out going forward. What's the funding structure for that?

The deposits are running relatively light on balance sheet at this point. So as you're sort of thinking about growing the loan book, how are you guys planning on funding it?

Sure. So on the portfolio, as we see paydowns and maturities taking place, you should see a spread increase as it relates to that. And that is certainly contributing towards a net interest income improvement year-over-year. So we feel comfortable with that, and that was part of our strategy that we talked about that we been executing and certainly, we talked about in the fourth quarter of last year.

As funding for it, we are certainly launching liability products that will fund it, but -- and so we feel very comfortable with our ability to have that increasing and diversification of our liability portfolios that grows and matching off onto the asset strategy that we have.

In the liability product you're launching, is that kind of high-yield savings, CDs, things like that?

Yes, we have -- from that standpoint, yes.

Our next question comes from Craig Siegenthaler from Bank of America.

Jim, my question is on recruiting the wealth management business. And I know you got a few on this topic, but a new source reported that Ameriprise is offering up to 125% of trailing revenue for Commonwealth advisers. So I'm curious if you can comment on Ameriprise's ability to take advantage of current M&A disruption and if we could see a pickup in recruitment from this.

Yes. We don't comment on what comes out from marketplace or what people comment. What we would say is, we continue to recruit out in the environment more broadly. And we offer a relatively appropriate competitive packages.

But as I said, we sell the entire value proposition for people that really want the support, the technology, the capabilities. When advisers join us from the competitors no matter who they are, they rate everything they get from Ameriprise, 9 times out of 10 as being better than where they came from, particularly on our technology suite, the support, et cetera, our availability of technology, the idea of even how to get onboarded and uptake what we do that helps their business. The people we brought on board, their productivity improvements have been tremendous coming to us, so after being here for a few years.

So that's what we would say, and that's what we recruit on.

Just for my follow-up, another wealth management question. But can you update us on your bank and credit union pipeline? I'm just curious if we could get some lumpy wins announcements in the second half?

Yes, the pipeline looks good. I won't comment on any anything in particular, but we feel good about our position in the business there. And we continue to, as I would say, build that pipeline and try to execute and get some deals done.

Next question comes from John Barnidge from Piper Sandler.

My question is around asset management and flow performance. I know there were some comments about higher redemptions even when reflecting the Lionstone AUM that left. Can you maybe talk about large client breakage in the quarter distribution environment, what your outlook is for the pipeline converting?

Yes. So on the -- if you're referencing a little bit on the institutional, as you know, the institution is always going to be a little lumpy. And we did experience some outflows, as we mentioned from the Lionstone termination of that business, some LDI and things like that. Some move to people repositioning their portfolios, including some that moved a little more to the passive arena.

But we are getting some nice underlying wins in good products, in various equities and portfolios like that. But the redemption increase that we did see in the second quarter sort of outstripped that from some of those other things I just mentioned. Now on the retail side, we did see we've been really good on the gross sales pick up through the first quarter. Again, what happened is through that April period things on the growth slowed down, redemptions picked up.

Now sales have picked up again on the growth side, but the redemptions outstripped that. I think you saw that in the pure active space. I'm not talking about where people have ETFs and stuff like that, that picked up a little quicker because of the trading they do. But we see a pickup there and overall, we feel good about some of the things that we're doing in the market, some of the products we're putting.

We're launching some additional ETFs, even in Europe now. We're going to do that. We're putting out a bit more on CLOs. We just launched an interval fund.

So we're starting to do some more product development than launch in combination and SMAs continues to build for us. So those are the areas, but I would say it was a little more volatile period on the redemption side. And as I looked at the competitive frame, it was no different against the pure actives there.

And my follow-up question, with the focus on the recruitment environment and being competitive and packages that need to come over and clearly, a focus on general and administrative expenses. Can you maybe talk about how the company weighs adding human capital versus automating and AI? Is there an internal process to determine whether you want to add it or it can be automated or using an offshore center of excellence to kind of fund that more competitive recruitment environment?

Yes. It's a good question. What we consistently do is invest in technology and what we try to really do in that regard, like investments in AI and giving our advisers more informed dashboards about their practice, what they can do, where the opportunities may be. We also do intelligent automation for processing and other activities that we do.

We invest in what I would call more in the data and analytics side on the information that we can process and how to bring that information to bear. And so all those things have been adding to our capabilities. As we do that, we've been able to adjust some of our expense base. Some of it is offshore.

Some of it is just where we then use that money for the investments that we've been making. And so our investment base is very strong. We have driven good productivity improvement. We think there's still good opportunities for further improvements as we get our advisers to uptake more of the tools and capabilities more fully and use some of the servicing that we put in place.

So that's the way we look at it. We don't necessarily just do a one-for-one trade-off. But over time, we continue to transform, adjust the business and reinvest.

Our next question comes from Michael Cyprys from Morgan Stanley.

Maybe just circling back on recruiting, so maybe if you could elaborate a little bit on how you're seeing the pipeline, the opportunities set across the different affiliation channels where you operate in the marketplace. How do you see the mix of that business evolving as you look out? And then just related to that, on the distribution expense circling back to Chubak's question. Just that expense -- distribution expense ratio relative to compensable revenues picked up compared to like the low 60s percent years ago, I think it's getting to like high 60s down nearly 67% in the quarter, up 120 basis points or so year-on-year.

Maybe just remind us like what's driving that mix over a multiyear arc of time and how do you see the different contributing factors? And as you look out from here, is this a good run rate to be thinking about? Or what would drive that higher as we move forward?

Okay. So let me -- I'll take the first and part of the second and then Walter can complement that. On the first we have a broad way that we do look to recruit. So a combination of independents, wires, regionals, et cetera.

Both independent and employee type things as well as, as you mentioned, in the AFIG or institutional channel. And so we just look for appropriate advisers that really can really uptake our type of value proposition, want that, want to grow their productivity, and that's what we focus on. We just don't gobble up and roll up people in just associate network or big checks to just put people on, so that's what we do. The pipeline looks very good for the third quarter, and that's proceeding.

And so we feel good about that. In regard to the distribution expense, some of the distribution expense has picked up because of a lot of what you would first of all, managing expenses, so SMAs, other things that we -- the expense for that is in the bottom line. There's a lot more trading activities from all the wrap type activities, all that. So all of that is booked in the volume.

You got FDIC insurance, all that stuff that goes on there. And I'll turn it over to Walter for some of the other stuff.

So basically, it is consistent. And when you -- it is impacted on mark-to-market on the advisory deferred comp, and that's what takes it up and down. But we are staying fairly consistent within that point. The 66% as we indicated you correlated it. So it is consistent, but it does go up and down based on movement on deferred comp.

It sounds like you wouldn't expect that to move meaningfully higher from here from that 66%, 67% level?

It should stay in that range. Definitely, for sure. Again, subject to deferred comp, which we'll take it up or down.

Our last question today will come from Suneet Kamath from Jefferies.

I appreciate all the questions on recruiting on the call. But if I think back to some of your comments in the past, I had always thought that most of the growth in AWM comes from your existing advisers selling business to their existing clients. And then existing advisers finding new clients. And then the third piece was the new advisers.

So I'm not expecting you to give me specific numbers, but is that the right way to think about it in terms of order of magnitude, in terms of what drives the growth? And is there any additional color you can give us on the mix that would be helpful.

Suneet, you're 100% correct. That has not changed. The core growth of our business comes from the organic part of adding new business from our advisers, new clients, flows from current clients, et cetera. The -- on the top of that, you always have some lumpiness of where -- when you add recruits versus where you have some terms, et cetera, where those things happen.

And on that basis, it's always been more positive. What I'm saying in the second quarter you had some undue level of volatility that affected the flow picture because second quarter is usually weaker anyway with the tax payments, et cetera. So you had that plus you had the weakness because of the tariff situation at the beginning of the month as that starts to have an effect. And then on top of that, as I said, we had a little more lumpiness on the competitive frame.

But the underlying consistent -- and if you look at it over quarters, it's been very consistent and strong. So I think as Walter even said, if you look at the first half of the year, it looks fine. When you look at the second quarter, it looks a little lower.

Okay. That makes sense. And then I guess maybe a bigger picture question to end the call. If I think about Ameriprise over time, I mean, I think we're approaching the 20-year anniversary from the spin and notwithstanding today's stock price, I think by all measures, it's been an incredible success.

I guess that question is how is the Board thinking about the next 5 to 10 years? Is the next layer of management sort of identified and in place? Does Ameriprise do any significant strategic pivots in terms of perhaps partnering with a larger organization or joint ventures? Just trying to think about we're at a pivot point here with this 20-year anniversary, does anything dramatically change as we move forward?

No, Suneet, actually, it is our 20th -- in September our 20th year anniversary. And if you think about it, when we came public and all through the financial crisis, et cetera, people really didn't continue to believe that we would be -- and since that time, we've been the #1 best-performing financial out of the S&P financials, 500 financials out of all of them and all the sectors there. Our combination that we always get challenged on the combination of our business has been very successful, higher earnings and lower volatility than any one of these individual segments. So you go through market environments where one business segment does a little better because people hop on it.

But overall, we generate very strong return to shareholders, very strong cash flow we generate. The business itself is very good and strong core against it. We have one of the premium value proposition and premium brands out in the marketplace for the businesses that we're in. We created a global asset manager from a proprietary house.

I mean if you look at it, there's always questions quarter-to-quarter or what the competitor frame, et cetera. But go back all those years, you've been a strong follower of us, and you've had it right for a long time. I would say the Board feels very good about that position that we're in today. We are stronger than we've ever been before.

We're at a $50 billion market cap from being -- coming out at 6 or 8 or whatever the number was at the time. And so a lot of the larger competitors at the time who are much larger are now either smaller than us or not as strong. So I would probably say we're in a great position and that's the way I think both myself and the Board. We do have succession.

We always look at the next levels of talent, not just one level but down. So no, we feel very good. And all the accolades we can get one of the best managed companies, most innovative companies, all these things just prove to our strength. We got rated one of the best wealth managers, again, trust for the advisers, serving our clients well.

All those things that people miss them, that we're focused on whether it's a recruit or this or that for a quarter, but I think if you follow us long term, you'll find that this is a very good, strong company that operates with a high level of focus, integrity, client service and client satisfaction.

Yes. I appreciate that. I mean that's certainly been our view, and it's good to hear you express that.

We have no further questions at this time. This concludes today's conference. Thank you for participating, and you may now disconnect.