Q4 2025 Earnings Call Transcript

Welcome to the Q4 2025 Earnings Call. My name is Tina, and I will be your operator for today's call. [Operator Instructions] As a reminder, the 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 Fourth Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'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 these factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our fourth 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 fourth quarter. Below that, you see our adjusted operating results, which management believes enhances our understanding of the 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.

Good morning, everyone, and thanks for joining our call. I'll begin with an overview of the business and our progress, and then Walter will discuss our financials in more detail. Ameriprise delivered a strong fourth quarter to complete a very good year in 2025, reflecting the strength of our business effective strategy and excellent client experience. Looking externally, equity markets performed well in the quarter, supported by resilient U.S. economic growth and the overall environment remains quite positive.

With that backdrop, Ameriprise delivered new all-time records across the board in the fourth quarter. On an adjusted operating basis, revenue grew 10% to $4.9 billion driven by strong organic client flows and markets. We also had double-digit growth in our earnings, up 10% to over $1 billion as well as an earnings per share which increased 16% to $10.83. And Ameriprise return on equity was again excellent, increasing over 100 basis points to 53.2% our highest ever. We completed 2025 with assets under management, administration and advisement at $1.7 trillion, up 11% and another new high.

Across the firm, we're leveraging the strength of our businesses and capabilities to deliver good results while investing in organic growth opportunities and innovation. Supported by our strong financial foundation, we're making key investments across the company in top-tier technology, digital capabilities, AI and cloud infrastructure. We're also bringing out new product solutions in each of our businesses to further serve more investment needs and deepen relationships. These investments help further enhance our client and adviser experience and drive organic growth.

These investments extend to Advice & Wealth Management, where our leading adviser value proposition and integrated technology continue to drive excellent client satisfaction as well as strong organic flows and adviser productivity. Total client assets reached a new record of $1.2 trillion at year-end, up 13% from our focused action to drive flows as well as from positive markets. Total client inflows were $13.3 billion, up 18%, which is one of our best quarters for flows. These results reflect the strength of our legacy flows from our adviser engagement, client acquisition in the target market and our recruiting success.

Our Wrap business also grew strongly. Assets increased 17% to $670 billion with meaningful growth in flows. This included good flow momentum in our new Signature Wealth unified management account which we launched at midyear in 2025. It's been one of our most successful rollouts and early adviser feedback has been very positive. We continue to build on these early results as more advisers integrate the new platform into their practices.

Advisers are seeing real value in the enhanced personalization, automated portfolio monitoring, rebalancing, reporting and centralized trading. We're also adding new capabilities and strategies through our Signature Wealth platform as we move forward. In addition, we continue to have good transaction activity, up 5% year-over-year. Our bank products complement the business nicely with assets up to $25.3 billion.

We're rolling out and testing new offerings, including expanding our lending book where we saw good growth led by pledge and nice initial uptake in mortgage loans. After our initial launch of HELOC we're seeing strong early interest. We just launched checking accounts, which rounds out our complete bank offering and will be important to enable greater uptake of savings and lending products and adviser practices going forward. Adviser productivity continues to increase nicely, as I mentioned, up 8% to $1.1 million per adviser in the quarter.

Our proven adviser value proposition helps them achieve this level of productivity. This includes our interconnected systems and capabilities, anchored by our strong digital advice, CRM and extensive practice management resources. As we shared, we're also innovating with AI and automation to help advisers identify meaningful client insights and growth opportunities while reducing time-consuming tests. Also key our integrated capabilities drive strong system reliability, efficiency and resiliency.

Our best-in-class service is another competitive advantage. This year J.D. Power recognized Ameriprise for the seventh consecutive time for delivering an outstanding customer service experience to advisers for our phone support. And for the second straight year, we earned J.D.

Power's certification for our client phone support as well, which is terrific. We're known for our commitment to client and adviser success. Experience advisers continue to choose Ameriprise. We've added 91 quality advisers building on a strong momentum in the third quarter.

And the pipeline for experienced recruits across channels remains attractive. And by the way, our total adviser count is up 1% year-over-year. Ameriprise advisers continue to stand out industry-wide for exceptional service, growth and high-quality practices. We had a record 478 teams named to the Forbes Best-in-State wealth management teams 2025 ranking.

Earlier this month, I attended the AWM field leader kick-off for the year. Our AWM team is made up of strong cadre of field leaders who help advisers leverage our value proposition and client experience to build even more successful practices. Our Retirement and Protection Solutions are also contributing nicely to transactional activity, organic growth and deeper share of wallet. Structured annuity sales were up 7% in the quarter and Life & Health sales grew 14%, with most of the focus on accumulation-focused variable universal life.

Our overall portfolio continues to perform very well. Here again, we're investing in product enhancements and leveraging AI and digital to increase efficiencies in underwriting and overall service. In Asset Management, we're delivering meaningful financial results as we leverage our global capabilities for greater efficiency and future growth. Assets under management and advisement reached $721 billion for the quarter, up 6%.

We had continued strong investment performance with 103 4- and 5-star Morningstar rated funds at year-end. Nearly 70% of our funds globally were above the median for the 1-year time frame on an asset-weighted basis and stronger for long-term time frames with 80% of our funds above the median for 3- and 10-year performance periods. Regarding flows, we generated $1.9 billion in net inflows in the quarter, which included higher reinvested dividends. Overall, we had net inflows and model delivery strategies and improvement in institutional growth sales.

We continue to invest to further broaden out our investment capabilities to meet evolving market demand. That includes expanding our active ETF lineup and further building out our SMA model delivery and alternatives offering. During the quarter, we launched 6 new active managed and research enhanced ETFs in the U.S. along with our initial launch of ETFs in EMEA. Across asset management, we're leveraging our global footprint to generate additional operational efficiencies.

Our back-office transformation and data foundation work will continue to increase the cost effectiveness of data delivery and help ensure our solutions are scalable. Reflecting on Ameriprise overall, our business and financial results remain strong with record revenue, earnings, EPS and return on equity as well as a differentiated level of capital return. As you saw, we increased our capital return to more than 100% in the quarter. We were opportunistic with a discount in the share price and the size of the buyback brought our total capital return for the year to nearly 90%, one of our highest levels in recent years.

We've also consistently maintained a healthy and resilient balance sheet. 2025 was another terrific year for us, our 20th as a public company. In just 2 decades, we've established Ameriprise as a premier brand built on helping millions of clients achieve their most important financial goals and we're continually innovated and transformed how we go to market, earning best-in-class recognition and results across a wide range of environments. Equally important, we earned a highly respected reputation over the years for who we are and how we operate the firm. In fact, Ameriprise was just named one of America's most iconic companies by TIME.

We rank among the top 50 across industries and we're also the leading diversified financial services firm on the list. And this award adds to many others. We were again included on the Wall Street Journal's list of Best Managed Companies for 2025 and America's most responsible companies 2026 list from Newsweek as well as Ameriprise is one of America's best companies 2026 according to Forbes. In closing, we feel very good about the business and how we're positioned as we look to 2026. We're executing our clear, consistent strategy and driving innovation and using operating leverage where we see opportunity.

With that, Walter will discuss the numbers in more detail, and then we'll take your questions.

Thank you, Jim. Ameriprise delivered excellent financial and metric performance in the quarter with adjusted operating earnings per share up 16% to $10.83 and a strong operating margin of 27%. We had record assets of $1.7 trillion, up 11%, which coupled with strong client engagement, drove record revenues of $4.9 billion. We continue to make good investments for growth, particularly within Wealth Management.

We are optimistic with share repurchase in 2025, given share price and accelerated our capital return. In the quarter, we returned over 100% of operating earnings to shareholders. Our balance sheet remained exceptionally strong with excess capital of approximately $2.1 billion and holding company available liquidity of $2.2 billion. Let's turn to Slide 6. Performance metrics in Wealth Management were strong across all measures, notably with client and wrap flow rates in our historic ranges.

Total client assets grew 13% to a record high of $1.2 trillion with strong client flows of $13.3 billion, representing a 4.7% annualized flow rate. Wrap assets increased 17% to a record high of $670 billion with $12.1 billion of net inflows in the quarter, representing a 7.4% annualized flow rate. These are near record levels of flows and we saw both our client and wrap flow rates built each month of the quarter. The improvement in both client and wrap flows was a result of continued strong core flows, higher adviser recruiting in the back half of the year and very strong retention levels.

In addition, transactional activity remained strong, increasing 5% compared to the prior year, primarily from growth in annuity products and brokerage. Cash sweep balances increased to $29.9 billion compared to $27.1 billion in the third quarter, which is consistent with the normal seasonal trend we typically see near the end of the fourth quarter. Our adviser trends remain solid as well. Retention was good across all channels, and we saw a strong momentum in our experienced adviser recruiting with 91 advisers joining us in the quarter.

Our value proposition resonates with advisers, and we remain focused on ensuring our transition packages are attractive to experienced advisers that share our values and commitment to the client experience. In total, our adviser productivity continues to grow, reaching a new high of $1.1 million. Let's turn to Wealth Management financial results on Slide 7. Adjusted operating net revenues increased 12% to $3.2 billion. The core business is performing very well given the value of our planning model and the multiple touch points we have with the client to meet their needs holistically.

Our fee-based and transaction revenues were quite strong, increasing in the low-teen percentage range benefiting from higher client assets and activity levels. Our cash revenues, which include net investment income, distribution fees related to all balance sheet cash and banking and deposit interest expense increased modestly despite the impact from the Fed funds rate reduction since September of 2024. Adjusted operating expenses in the quarter increased 11%, with distribution expenses up 12%. I would note that adviser compensation within distribution expense increased in line with the revenues advisers generate.

Distribution expenses in the quarter was 65.8% of total management and financial advice fees and total distribution fees, excluding off-balance sheet sweep cash, which is consistent with the 66% level we have guided to. Full year G&A expenses were up 4.5%, primarily driven by volume and growth-related expenses, including investments in Signature Wealth and banking products. This level was consistent with the guidance we provided. Pretax adjusted operating earnings increased 13% to $926 million with continued strong contribution from both core and cash earnings.

Our core earnings grew in the mid-20% range, benefiting from higher client assets and advisory fees as well as strong activity levels. The strong level of core earnings that we generate is unique and demonstrates our focus on profitable growth. Cash earnings increased modestly despite the impact from the Fed funds rate reduction since September of 2024. Our strategy of leveraging Ameriprise Bank has been important in minimizing the impact from Fed funds effective rate reductions on our AWM business. In fact, net investment income in the bank was flat for the year.

We continue to take actions to build the bank investment portfolio a way that supports stable earnings contributions going forward. The overall bank portfolio has a yield of 4.6% with a 3.8-year duration with now less than 9% of the portfolio in floating rate securities. In the quarter, new purchases at the bank were $2.7 billion at a yield of 5% with a 4.3-year duration. Last, our margins remained excellent at 29.3%.

Turning to Asset Management on Slide 8. Financial results were strong in the quarter. Operating earnings increased 17% to $293 million. Results reflected asset growth, higher performance fees and the positive impact from transformation initiative. Total assets under management and advisement increased to $721 billion up both year-over-year and sequentially from higher ending market levels.

Revenues increased 12% to $1 billion, benefiting from higher performance fee revenue than a year ago. Performance fees are an important revenue stream for the asset management business and this quarter were recognized due to very strong performance in our hedge fund. Expenses increased 10% in total, with distribution expenses up 5%. In the quarter, general and administrative expenses were up 13% as a result of higher performance fee compensation and foreign exchange translation.

Margins reached 40% in the quarter, which is above our target range. Let's turn to Slide 9. Retirement and Protective 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 were $200 million, in line with our target range. This business has excellent risk-adjusted returns and continues to be an important part of the AWM client value proposition.

Turning to the balance sheet on Slide 10. And Balance sheet fundamentals and free cash flow generation remain strong, which is a core to our ability to invest for growth on a sustainable basis while also continuing to return capital to shareholders. We have an excellent excess capital position of $2.1 billion. We have $2.2 billion of available liquidity. Our assets and liabilities are well matched and our investment portfolio is diversified and high quality.

Ameriprise consistent capital return strategy is a key element of our ability to consistently generate strong long-term shareholder value. As I mentioned, we were opportunistic in the second half of 2025 and accelerated our share buyback. In fact, we increased our capital return 37% year-over-year to $1.1 billion in the fourth quarter, which is 101% of operating earnings. For the full year, we returned $3.4 billion of capital, which was 88% of operating earnings.

As we enter 2026, our strong foundation, coupled with our ERM capabilities and decisioning framework position us well to continue investing for growth in a targeted way and return capital to shareholders at a differentiated pace. In summary, on Slide 11, Ameriprise delivered solid results in the fourth quarter to conclude a strong 2025. In 2025, revenues grew 6%. Adjusted EPS increased 12%, and Return on equity grew 60 basis points, and we returned $3.4 billion of capital to shareholders. We have an excellent foundation and capacity moving forward that enables consistent and sustainable profitable growth.

With that, we will take your questions.

[Operator Instructions] Our first question comes from the line of Steven Chubak with Wolfe Research.

So I wanted to start off on organic growth. The 4Q acceleration was quite impressive, especially in light of a tougher recruiting backdrop cited by some of your peers. You also spoke of maintaining competitive TA rates as part of your recruiting packages. And I was hoping you could help us reconcile the acceleration in net new flows that we saw in the quarter with the lower distribution expense ratio?

And can you speak to the outlook for both organic flows and distribution expense in the coming year?

So I'll start, and then I'll ask Walter to handle more on the expense side. First of all, I want to apologize for the delay. We were having some technical difficulties. Our flows in the fourth quarter were very strong.

It was both organic growth, new clients added flows from current clients as well as, as you saw a pickup in the recruiting as we head towards the latter part of the year. Retention was very good. So we feel good about the underlying flow picture, as we said, we thought that would be something that you would start to see coming back. We were a little delayed from some of our peers in that regard from a quarterly basis.

From an overall perspective, we feel good about how we're moving into 2026. From an expense perspective, it's very much in line with the productivity increases that our advisers generated and the volume of what they generated. Walter, I'll ask you to cover the expense side.

Yes. On the distribution expense side, we certainly see it's in line where we've seen with the revenue growth. So on that basis, we see that will be in the ranges that you've seen, and we feel comfortable with it. Obviously, there -- as we talked about, we are competing.

So you could see some increase in distribution, but it is certainly within the ranges that we feel very comfortable and the revenue generation associated with it.

It's helpful color. And maybe switching gears to the expense side. Given a number of areas on the investment front that were cited in the prepared remarks, I was hoping you could provide preliminary guidance on for '26 growth in firm-wide OpEx as well as G&A growth within AWM, just given higher percentage of investment likely being allocated on the wealth side.

Okay. Let me just start what we have and we continue to invest aggressively in technology capabilities, AI, product solutions and services. We've rolled out a good number of them including some of the stuff we mentioned for the bank, expanding some of our product services, our Signature Wealth, et cetera. So we feel good, and we got a good agenda to continue.

But having said that, we continue to reengineer and transform and free up and get some productivity improvements from things like AI and intelligent automation, et cetera, as well as where we locate our resources. So I'll turn it over to Walter.

Yes. So as it relates to -- and the key point is what Jim said is while we continue to invest, we also are basically transforming our expense base by constantly evaluating and improving the way we operate. So the net effect of that should be, as you look at the company, staying within the ranges that you saw, again, based on volume and up, but certainly seeing a small increase versus last year and on -- as it relates to AWM, with that combination of investing and then and streamlining and through transformation, probably in the same range of mid-single digits. That's probably.

But again, there's investments in there being offset.

Our next question comes from the line of Wilma Burdis with Raymond James.

Great results on flows in 4Q '25. Could you give us a little bit more color on what to expect into early '26? I saw 91 advisers recruited in 4Q, which seems to imply a pretty solid result for 1Q. So maybe give us a little more color there.

Yes. So as we talked about, the drivers of that certainly are organic and looking at that and looking at the components of organic recruiting and certainly terms that we believe we were seeing good results, but there is seasonality attached to that. But certainly, as the fundamentals, we do see good results as it relates to those elements of getting the traction. And so it's -- we just feel like we certainly on recruiting and organic, we're certainly there.

And then we certainly are competing on to ensure that we retain our advisers. But there is a seasonality factor attached to it.

And then how should we think about the buyback going forward, a strong result in the quarter? And could you also remind us what you consider the best use of $2.1 billion of excess capital particularly in this environment.

Sure. So the key -- and again, as you saw, we said we will be optimistic and we certainly were as we saw the amount of buyback and dividends in the fourth quarter. And again, that's with investment in the businesses and looking at all aspects of it. So we feel comfortable with the generation as we look into 2026 as certainly an important element to return to shareholders.

And at this point, I would say that the range that you saw for the year was -- we returned 88% with dividends and buyback. That's a pretty good range of 85% to 90% based on what we -- today, with our capabilities and the ability to return to shareholders as a value point.

The next question comes from the line of Craig Siegenthaler with Bank of America.

We have a follow-up on the strong net new assets in wealth management in the quarter. So I heard your response just to Wilma's question that there's a seasonal factor that we should account for. But what about a second factor from elevated financial adviser movement in the quarter due to integration at a peer should we also be adjusting for this going forward?

From our perspective, we know things are happening from an industry perspective. Our recruiting, as we showed you in the fourth quarter, our pipeline in the first quarter was quite strong. So we feel from our perspective that we'll continue to bring on good experienced people. And we continue with all of the resources that we've been applying and the technology focus very much on our advisers generating continued organic growth, and that's the core of our business.

So I don't know if that answers your question. From a recruitment, listen, it's a competitive market out there. We're also very much focused on retaining our advisers. Our retention was quite strong in the fourth quarter.

But we feel very good about where we are. I don't want to comment from an industry perspective from other competitors.

And just a follow-up on client cash, also in Wealth Management. Overall trends are pretty good in the quarter. And -- but we saw some mixing in the underlying balances, especially with off balance sheet. What's going on with that mix?

How should we think about the mix going forward? And seasonality will flip from positive to kind of tougher in 1Q. What are your thoughts on cash sweep growth in the first half of 2026?

Okay. So us, [ score ] that, yes, you saw the seasonality that you would see in the fourth quarter, and we feel very good about it. But we are seeing certainly looking at discrete component, looking at the on-balance sheet and off-balance sheet comfortable with the generation and the management. But we do say with certainly managing that.

Well, in the first quarter, you will see utilization for tax and other reasons. But we do -- we have positive generation. And the other thing as it relates to our strategy, we have certainly minimized the amount of floating certainly within our buffers, but we intend and we are to basically continue to implement our strategy to basically invest out longer so the impact, even if rates come off, that we can absorb that and certainly -- and offset some of that.

Your next question comes from the line of Brennan Hawken with BMO.

I'd love to drill into the bank channel. We see continued consolidation among the regional banks. You guys are intending that yourselves with the Comerica deal. So curious about -- I believe you guys have spoken though, despite that consolidation about a desire to continue to grow.

So how do you manage the risk of consolidation, if you're going to continue to look to grow in that channel? And how is the engagement going with your partners at Comerica as they approach the close of their deal with Fifth Third?

So we continue to see good opportunity in the financial institutions business. So we've been adding a number of institutions through the latter part of the year. We feel the opportunity is really good there for us to continue. We know that consolidation occurs, that can both present opportunities or challenges depending on how that takes place and what the interesting parties may be considering.

In regard to Comerica, we have a very good relationship with them. I know they're going through their acquisition. I know that will be soon closing. So we'll see exactly where the proceed there.

But we have really generated really good value in our partnership with them. Their advisers love our platforming capabilities and to support their clients as well, et cetera. I know, Comerica is very positive on our relationship. But again, that's a decision now for Fifth Third to make as part of whatever deal and arrangement.

I know they already had their own activities in-house, et cetera. So we'll see where that goes, but we still feel very strongly that with the -- what we can provide and what we deliver and the satisfaction that every party who have joined us has with us, both the adviser and the client and the institution, we feel good opportunity for us to continue to move forward.

The only thing I would add to that, as you would imagine, any contractual arrangement that you have contemplates these sort of contingencies and there are protections built into the contract.

Understood. Appreciate it. Following up on Steven's question, you guys spoke to expense outlook. Thanks for that color.

I believe, Walter, when you spoke to some of the growth that you saw in G&A investments were flagged as a driver. Certainly, we've seen some of your competitors in wealth leaning in on expense growth and making investments in the platform. Can you speak to what portion of expense growth we should expect to come from investments? And how long a duration those investments will take in order to finish up and then what you -- sort of to the extent that you are comfortable competitively, what kind of enhancements you're looking to make?

Yes. So what I would say is I think as we continue to proceed, we'll continue to make very good investments. So technology continues to change. Capabilities are continuing to one where we really look to help our advisers really manage their business really highly productively with information and data and the use of analytics and AI.

So I would say our investments are going to continue. It's not like one like tranche, and that's it. Having said that, as you would know from following us is over the years, we continue to transform our business and free up resources from other places. So I would say if we were just doing the investment and not the reengineering, we would have a much higher expense increase every year, but we are very good at what we do and how we do it. so that we offset some of that increase, if it's just purely if you're thinking about investments.

So the largest part of our expense growth really is from volume increase, as you would imagine. But I would say we feel very comfortable. But I will also say, we have a leading technology capability platform out there, I would put against anyone in the industry. And the way it's all integrated and the way the adviser can be productivity on it because when we attract advisers in coming from you name on the house, they are very positive about our capabilities here.

The other thing I would just add is, yes, and with the scope of Ameriprise, we have the ability to leverage across our entire platform to support all the businesses. So that gives us an advantage to really provide that capability in a more efficient and effective way because we can leverage it over a broader base.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to start with Signature Wealth. Can you give an update in terms of what percentage of advisers are using it? And when you roll out these platforms, is there a material difference in terms of utilization for the franchisee advisers relative to the employee advisers?

So Suneet, when we started the initial launch of it back in the mid-summer time frame, it always takes a little time as you then you have to roll out and launch the platform, advise the advisers of how to utilize and train them on it, et cetera, et cetera. So our uptake from the rollouts we've done of previous wrap-type advisory programs is actually one of the best so far. And the amount of assets and number of advisers uptaking it. Having said that, it's more of they start, they sample it and then they start to continue to go down that journey.

And as they get comfortable with it, then they start really picking up their level of activity. We have a reasonable good percentage of accounts opened from advisers, a number of advisers across both channels. So we feel very good about that. But I think this will be something that, as an example, it is a new, more comprehensive platform.

And all of its capabilities the advisers are getting used to from how they do the portfolio construction, et cetera, but they love the idea of the proposals that generates how it monitors the portfolio, how it rebalances the portfolio, how it does more centralized trading for the portfolio, et cetera, and the reporting that they're able to provide the client and the intelligence from it. So -- we think it will be very good. We've recently added managed SMAs to it that will continue to roll out. We're adding other capabilities as we do that.

So over the course of this year, we'll have a full spectrum of all of the various types of subset of programs in it that they can then utilize more comprehensively. So I think we're in good shape with our initial launch, and it's proceeding very well.

So fair to say, we're kind of still in the early innings of this -- and there's a lot more...

Early innings, but very good progress.

Okay. That's helpful. And then just on the organic growth. I know you talked about the seasonality. But can you maybe quantify how much of a benefit that was in the quarter in terms of seasonality? And then just longer-term, do you still think 4% to 5% organic growth in Advice & Wealth is a reasonable bogey for you?

As we said, the seasonality is -- again, it occurs in the fourth quarter, actually, there wasn't that much [ seasonality ], more as it relates to the first and on the quarter. But it -- yes. The range that we're talking about and especially driven by the organic aspect is probably -- is appropriate. You then get the changes as it relates to one-off events of that.

So yes, I think the 4% to 5% is a good measure, and you would have adjustments as seasonality takes place within it, but that's our annual as we think about it on a roll rate basis.

Your next question comes from the line of Alex Blostein with Goldman Sachs.

This is Luke on for Alex. I had just a couple of quick clarifications. So obviously, expenses have been very well maintained for a few years, and you kind of spoke to a similar outlook in 2026. As you think maybe longer-term, it sounds like investments remain a big focus. I'm sure you guys will keep finding ways to reengineer the base.

But do you think that kind of like low single-digit growth is the right way to think about the expense algorithm beyond 2026 at a high level?

Yes. Yes. I think so. I mean you still got a level of inflation and other things.

And even as you look at other services that you actually buy externally, prices have gone up, particularly from various vendors that provide things. So I think, yes, you got to consider that. I mean, I don't know about you, but when you look at inflation still at roughly 3%. You got to deal with that as a factor into.

And technology companies and others, even though there are savings or improvements in the lowering of some costs, other technology services have been charged higher and higher as they invest in their capabilities and AI, et cetera. So...

Yes. And that is one input, but obviously, you're always managing to margin to ensure that you have that relationship of expense revenue. And -- but as you said, we continually invest. So this was -- and we're continuing reengineering. That's been the hallmark of the way we've managed.

Yes, loud and clear. And just one more clarification for me. You mentioned positive cash generation during the quarter in the AWM business. I just wanted to make sure, does that mean like ex seasonality you're still seeing kind of like cash growth on an organic basis?

And then like maybe more high level, how do you think about the pace of cash growth, particularly as we head into potentially in an environment where rates continue to migrate lower?

Yes. Yes. In the fourth quarter, you do see that, but I do see there's an underlying element as it relates to cash generation as it relates to cash coming in from that standpoint, but also new product capabilities, which will generate additional cash for us. The answer is yes.

So again, it is an area of growth for us because it meets our clients' needs, and there's certainly a key element to building the relationship with our clients and providing that product.

Yes. I would also say if rates continue to come down on the short end of the curve, people will continue to start to move more from what their place than money markets, et cetera. So you saw it already move from term type loans, I mean CDs and certificates, et cetera, to money markets. Money markets are still very high.

I think the money markets will then start to continue to move into the market in one way or the other. So I think once that does, it will move into sweep a bit more for more transactional and investment purposes.

Your next question comes from the line of John Barnidge with Piper Sandler.

What does the consolidation opportunity look like for asset management in your opinion?

I would probably -- I mean you've seen consolidation over the many years in asset management. I think with the markets being so good, there's more of a probably a wait and see, so to speak, in some regards. What we've been doing really is really transforming our platform capability in a sense so that we have the good real strong technology capability to add more assets to introduce more products and services more effectively, efficiently and to set up our resources in locations that can lower our cost, including where we might outsource. So we feel good about that.

We've been introducing a number of new products with our active ETFs, growing our SMAs and our model capability and getting that launched as well as expanding some of our alternative acts like our hedge funds and other things like that. So we are in a good organic state of what we're changing around and maintaining the margins and the fee basis even though we are impacted by some of the flow situation in the active. I actually think, over time, active will reassert itself just like it's starting to do in different types of formats like in the active ETFs. I think the consolidation will continue out in the industry.

And I think there's an opportunity in that regard as we think about it, to partner. But right now, we're very much focused on getting our position in a very good state. And I think we are at this point for how we're managing the expense base and investing and I feel really good about that. And our investment performance is quite strong over the track record.

So we're in a good state depending on what the environment is for us to capitalize.

My follow-up question, maybe sticking with that, and I totally acknowledge your comments that with markets being favorable, it's kind of a wait-and-see mode, but you've also really transformed the tech capability. And I know that's like a continual investment type of thing, but what inning do you think we are in, in that initial transformation of the expense base to better position the organization to add additional AUM.

We're probably in the later innings. We're completing -- or we will be doing the work right now, and we'll complete it sometime later this year on the back office part of that. We are really doing more on the front end, we're using AI and intelligent automation and other things like that and leveraging the demographics that we have offshore, et cetera. So we're pretty far along in that regard.

So I feel pretty good. Walter, do you want to comment?

No, no. I think you covered it well.

Your next question comes from the line of Tom Gallagher with Evercore ISI.

First question, where do you see AWM margins going in '26? Do you think you can maintain this 29% to 30% range?

Certainly, if you look at core and as Rabe said, again, we are generating very good strong consistent margins in core. The other thing is going to be on interest, and now we've minimized that also because of the way we invested. So it is in a good range as we look at what the Fed is saying and other things of that nature that it will be in the certain range. And just if there are other third-party elements that we just can't manage like government or changes as it relates to interest.

But as it relates to the core, we feel we're tracking well. And so it's a reasonably good range.

And then I know you mentioned, Jim, you felt good about the pipeline for recruiting FAs for '26. How do you feel about retention of existing advisers? Would you -- any color there?

So I think overall, we feel very good. It doesn't mean you won't lose some people because it depends on what people put out there and offer them. But we're also very good in a sense of where we can -- when that happens to show why we actually help the adviser more over time generate value than the check. So -- but those things will come along.

We got hit with a little last year as you recognize, and others do. So we know that this is something we are dealing with. But -- so what we try to -- help our advisers really achieve and then recruiting people who want to actually have the capability and have a strong focus on their growth and how we can assist them in their growth. We're not looking to just attract anyone here.

We have an excellent platform. We have excellent capabilities. We have excellent leadership that help advisers. I continue to get notes from people who have come to us from the independents, from wirehouses, from RIAs, and they said their only mistake was not coming to us sooner.

And their growth since they got here has been tremendous. And I can name any firm that you mentioned, and I can show you that. So again, now it's a very competitive people say a lot out there. They promise a lot out there.

I think that's all I can say is when they're here, we deliver.

Got you. That's helpful color. And if I could just squeeze one more in. The elevated mortality in RPS this quarter, was that more a large claim volatility or higher frequency of claims?

It is higher claims at this stage. I think it is more frequency. It's you know what, it's a balance. It's nothing really that -- it's in both elements. So it's -- I think it's both actually to contribute on both. Nothing exceptional in either way.

And we don't see it as something that will impact where we -- what we've been seeing over the longer-term.

Yes. It's certainly within the range. So there's nothing there from that standpoint. And it's a -- so I would say it's a balanced situation both. There was nothing that elevated us to even think there was any issue.

And our final question comes from the line of Tyler Mueller with William Blair.

Just one on Asset Management. I know you called out the strong hedge fund performance driving higher performance fees. Were there any other strategies or regions contributing to that? And then can you give any color on the hedge fund performance and outlook there?

Yes. No, we've had some really good flows in and a number of disciplines. So both in equity and retail, if you look at some of our different areas there, the dividend income, contrarian core, things like that. We've had it in institutional, in things like our Japan and other strategies, some of the fixed income.

But I would just say, and we have been getting very good flows into our hedge funds area, et cetera. We picked up some real estate last year in Europe, et cetera, that was very good. So we see really pockets of good growth and consistency there. But as you know, there's also the rotation in some of things like LDI and other things that have impacted us.

So we feel looking into 2026, we're in a good state, and we're hoping that, that will continue to show its improvement. And I think we're doing some of the right things and our performance is quite strong. We just need to pick up a bit more in the fixed income area where our performance was really good. And I think that's where we can pick up a bit more share as we get that identified.

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