Bank of America downgrades Ameriprise over the cost of retention bonuses

Ameriprise Financial is paying bonuses and waiving fees for its own advisors after losing a fourth $1-billion-plus team to Schwab this year. A Bank of America analyst report attached to a downgrade finds the program costly on margin and doubtful as retention, according to RIABiz, which cited the BofA note and a Barron's article based on it.

The shares closed at $480.41 on Oct. 19, down $20.39, or 4.07%, from $500.80. Citywire first reported the bonus and fee-waiver program on Sept. 24, according to RIABiz, when the shares fell $17.64, or 3.51%, to $485.15 around 1 p.m. ET; the Oct. 19 close was about 1% below that level.

The BofA note describes the economics of RIA ownership as "attractive" and Ameriprise's disadvantage as one that cannot be easily remedied, according to RIABiz. It says the Minneapolis firm, with about $1.5 trillion in assets under management and advisement, is bidding against a compensation model rather than against a rival's checkbook.

RIABiz's account is that Ameriprise historically waited out these departures and is now defending actively, with bonuses and fee waivers aimed at its own advisors. The coverage does not put a dollar figure on the bonuses or waived fees.

The margin complaint is simpler: cash paid to keep an advisor lands in the year it is paid, while the revenue it protects arrives over whatever tenure the advisor actually serves.

The durability complaint is that Ameriprise can least afford to lose the billion-dollar teams and, on the analysts' reading, is least able to hold them with a check. RIABiz's earlier coverage identifies one of the four teams that went to Schwab this year as an $8 billion business, and RIABiz describes what those advisors are seeking as the freedom and equity that come with owning an RIA. Equity in a business is a different instrument from a bonus, and the BofA note's conclusion that the gap cannot be easily closed follows from that difference rather than from anything Ameriprise did wrong this quarter.

PWD's records show Orchard Financial Group, an 11-person team in Los Angeles managing $580 million, joined Wells Fargo's FiNet on Oct. 8. That is an employee channel, not an RIA launch; Ameriprise's retention problem runs through that channel and the custody channel at once.

Schwab Advisor Services added $120.1 billion in net new advisor assets in the third quarter, per our Oct. 15 report. A platform gathering assets at that rate is the counterparty Ameriprise is now paying cash to fend off.