Ameriprise Stock is Falling on Retention Concerns
Ameriprise is facing pressure on both sides of the retention equation: losing large advisory teams and potentially spending more to keep others.
On October 19, BofA Securities downgraded Ameriprise Financial to Underperform from Buy and cut its price target about 22% to $445 from $570. The analysts cited large-team departures, competition from independent RIAs and the potential impact of retention spending on profit margins.
For Ameriprise’s 10,000 advisors, the significance extends beyond the stock price. BofA raised core questions about whether Ameriprise could continue to compete as more established teams consider the economics of RIA ownership.
Advisors are left asking themselves: Is the firm still the best long-term home for the businesses that they have built?
Can Retention Checks Solve the Problem?
BofA identified retention offers as another potential source of pressure on Ameriprise’s wealth margins. The firm has reportedly been making offers of 100% of trailing-12-month revenue to discontented teams. That means Ameriprise is paying more to hold on to the same business.
The more teams that depart, the greater the pressure on Ameriprise’s revenue and financial resources, potentially jeopardizing the technology, services and support available to the advisors who remain. At the same time, every retention package adds another layer of expense to the firm, potentially squeezing margins and limiting resources available to the broader advisor population.
In effect, advisors who stay may ultimately bear the financial consequences of both those who leave and those who are paid to remain.
From the advisor’s perspective, an offer to stay can be attractive. Some wavering Ameriprise teams have already chosen to stay. The deal rewards continuity, avoids the disruption of moving and puts money in their pockets short-term. But it may not address the long-term concerns that prompted the advisor to consider a move.
I hear the same concern from advisors at banks industry-wide: “I don’t want to leave and be viewed by clients as chasing a check.”
My response is that staying for a check isn’t necessarily different from leaving for one.
If advisors are unhappy with their firm’s technology, resources, costs or restrictions, a retention award doesn’t make those problems disappear. And if those shortcomings are affecting the client experience, that’s often what matters most.
In evaluating offers to stay, advisors must consider where they envision their practice in five, 10 or 15 years and which home provides the best outcome for clients and the long-term health of their business.
The Competition Has Changed
Ameriprise isn’t alone in facing these challenges, but BofA’s report notes that competitors, including Raymond James and LPL Financial, are outperforming it in key areas. LPL has benefitted from a wider range of affiliation options and an investment in technology, while Raymond James has maintained appeal through consistency and an advisor-friendly culture.
The industry has changed dramatically, and legacy 1099 platforms must adapt to compete with rising RIA valuations and supported independence models.
All legacy independent platforms face increasing pressure as advisors seek greater control over how they operate their practices and the ability to capture full enterprise value of the businesses they have built.
Large, established firms have advantages in scale and support. But they also carry substantial technology, compliance and supervisory burdens infrastructures that are difficult and expensive to change.
Advisors frequently express frustration with:
- Standardized compliance geared toward the “lowest common denominator”
- Legacy technology infrastructures and slow approval processes
- Restrictions on marketing and branding
- Captive custodial investment products
Add an aging advisor population, rising operational costs and increasing expectations around business ownership and succession, and the challenge becomes more complicated.
It’s why some teams who have spent their careers on these legacy 1099 platforms and built billion-dollar businesses are looking elsewhere.
The growth of RIA aggregators, strategic acquirers and private equity investment has created additional ways for independent advisory firms to raise capital, pursue acquisitions and sell minority interest to monetize their business.
These options weren’t nearly as accessible a decade ago. Today, they are a part of the competitive landscape that established firms must contend with.
What Ameriprise Advisors Should Do
The firm is potentially in a vicious cycle: departures create financial pressure, retention payments add costs, and reduced investment in advisor resources could encourage further departures.
No firm, including Ameriprise, can afford a retention deal for all advisors. Even selective offers weigh on profitability. That creates two different challenges for Ameriprise advisors.
The select teams offered a retention deal must decide whether the economics justify committing to the firm for another several years. Those who don’t receive offers have to consider what they are getting in return for their loyalty.
Neither decision should be made in a vacuum. Retention offers should be evaluated against the full cost of staying, including ongoing expenses, contractual commitments, growth opportunities, succession and the ultimate value of the practice.
Will it be harder to leave later as your clients become more tied to the firm through proprietary managed account products or insurance? How do the economics compare with offers from other firms?
BofA’s downgrade doesn’t mean that Ameriprise isn’t an excellent platform for most advisors. For many, its resources, support and business model continue to make it the right choice.
But it does highlight competitive factors that advisors shouldn’t ignore. For some, it will reinforce their decision to stay with a better understanding of their value and what they can negotiate to stay. For others, exercise may reveal opportunities to lower costs, improve client experience or build greater equity.
The real question isn’t who gets paid to stay, but what everyone else will ultimately pay for those who leave—and those who don’t.