Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong growth in insurance and annuities, particularly in structured instruments and Variable Universal Life (VUL) products, is expected to add to earnings over time and contribute to free cash flow for share buybacks.
- Expansion in Asset Management in the APAC region, gaining traction with institutional clients and leveraging core products in equities and fixed income, presents significant growth opportunities.
- Improved Asset Management margins through leveraging technology and global resources, maintaining stable fee levels, and investing in growth areas like models, Separately Managed Accounts (SMAs), and Exchange-Traded Funds (ETFs), support sustainable profitability.
- Despite increased Net Investment Income, the Retirement & Protection Solutions (RPS) segment's earnings have not increased proportionally, raising concerns about underlying profitability.
- There has been a slowdown in recruiting experienced advisors, which may impact future growth in the Wealth Management business.
- The Asset Management segment is facing challenges, including outflows and additional severance costs due to reengineering initiatives, indicating potential difficulties in maintaining margins.
-
Bank NII Growth Outlook
Q: Will bank NII continue growing into '25?
A: Management expects net interest income to be higher in 2024 over 2023 and believes this trend will continue into 2025, though at a slower pace. The driver is investing over 6% yields, and as short-duration maturities occur, it provides momentum. They are adding investments but being measured. -
Cash Sweep Strategy
Q: How are you responding to peers' cash sweep changes?
A: The company operates within regulatory and fiduciary standards and feels comfortable with its cash sweep approach, used for transactional purposes with account balances typically under $6,000. Their rates are competitive, and they keep appropriate levels of cash. Management is aware of peer actions but can't comment on them. -
Asset Management Margin Outlook
Q: Can you sustain margins above long-term targets?
A: Despite fee pressure, management is maintaining consistent fee levels and adjusting their model and expenses. By leveraging technology and global resources, they offset flow pressure. Unless market conditions change, they believe they can maintain strong margins. -
G&A Expense Outlook
Q: How will G&A expenses evolve through '25?
A: Expenses are well managed, with efficiency gains from process changes. Management is confident about expense management for 2024 and plans to continue investing in growth for 2025. They expect expenses to be well-managed but will invest in the business, consistent with prior years. -
Insurance Business Growth
Q: Is the insurance business more interesting to grow?
A: There is good growth in insurance and annuities, particularly in structured instruments and VUL products. While initial earnings are offset by upfront distribution expenses, increased volumes will enhance earnings over time. They are achieving very good rates on reinvested investments, improving spreads. The business is expected to be a strong, consistent contributor, generating free cash flow for buybacks. -
Asset Management Expenses
Q: Is there room to cut Asset Management expenses?
A: Management believes there is room to continue reducing expenses. They took additional severance charges in Q2 as part of efforts to improve operations, seeking further efficiencies and adjusting resources where needed. -
Net New Asset Trends
Q: Any updates on net new assets amid competition?
A: While wrap flows were strong, consolidated flows were weaker due to lapses in certificates and annuities. Growth rates are aligned with the industry, and they are gaining traction. A slight slowdown in Q2 was seen, but they don't view themselves as outliers. -
Advisor Recruiting Slowdown
Q: Why has experienced advisor recruiting slowed?
A: There was a slowdown in experienced advisor recruiting in Q2, possibly because people are staying put due to market conditions and seasonality. However, the pipeline is improving, and they expect recruiting to pick up moving forward. -
Pledge Loan Growth
Q: Are you seeing a pickup in pledge loan growth?
A: The company saw a nice increase in pledge loans this quarter. They plan to launch another credit product popular in the industry in the next quarter. They've also seen increases from offering direct CDs and savings programs, attracting external client cash. -
RPS Earnings vs. NII Growth
Q: Why isn't NII growth boosting RPS earnings more?
A: Management doesn't see standout issues affecting RPS earnings despite higher net interest income. Disability and insurance claims are within expectations. They will review and provide further details on the components impacting earnings.