|Username||Post: The Daily Warren Buffett Stock is AMP. Berkshire Hathaway owns 661,742 sha|
03-26-08 08:38 AM - Post#242
The Daily Warren Buffett Stock is AMP. Berkshire Hathaway owns 661,742 shares. As of Dec 31,2007, this represents 0.05 percent of portfolio.
Ameriprise Financial, Inc. is a holding company incorporated in Delaware primarily engaged in business through its subsidiaries. Accordingly, references below to "we," "us" and "our" may refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies or to one or more of our subsidiaries. Our headquarters are located at 55 Ameriprise Financial Center, Minneapolis, Minnesota 55474. We also maintain executive offices in New York City.
We are engaged in providing financial planning, products and services that are designed to be utilized as solutions for our clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. As of December 31, 2007, we had approximately 2.8 million individual, business and institutional clients and a network of more than 11,800 financial advisors and registered representatives ("affiliated financial advisors"). Our asset management, annuity, and auto and home protection products are also distributed outside of our affiliated financial advisors, through third party advisors and affinity relationships.
We strive to deliver solutions to our clients through an approach focused on building long term personal relationships. We offer financial planning and advice that aims to be responsive to our clients' evolving needs and helps them achieve their identified financial goals by recommending clients' actions and a range of product "solutions" consisting of investment, annuities, insurance, banking and other financial products that position our clients to realize a positive return or form of protection while accepting what they determine to be an appropriate range and level of risk. The financial product solutions we offer through our affiliated advisors include both our own products and services and products of other companies. Our financial planning and advisory process is designed to provide comprehensive advice, when appropriate, to address our clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. We believe that our focus on personal relationships, together with our strengths in financial planning and product development, allows us to better address our clients' financial needs, including the financial needs of our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. This focus also puts us in a strong position to capitalize on significant demographic and market trends, which we believe will continue to drive increased demand for our financial planning and other financial services.
Our multi-platform network of affiliated financial advisors is the means by which we develop personal relationships with clients. We refer to the affiliated financial advisors who use our brand name (who numbered more than 10,200 at December 31, 2007) as our branded advisors, and those who do not use our brand name but who are affiliated as registered representatives of ours as our unbranded advisors (who numbered over 1,600 at December 31, 2007). Our branded advisor network is also the primary distribution channel through which we offer our investment products and services, as well as a range of banking and protection products. We offer our branded advisors training, tools, leadership, marketing programs and other field and centralized support to assist them in delivering product solutions to clients. We believe our approach not only improves the products and services we provide to clients, but also allows us to reinvest in enhanced services for clients and support available to our affiliated financial advisors. This integrated model also affords us a better understanding of our client base, which allows us to better manage the risk profile of our businesses. We believe our focus on meeting clients' needs through personal financial planning results in more satisfied clients with deeper, longer lasting relationships with our company and higher retention of experienced financial advisors.
During the fourth quarter of 2007, we completed the implementation of an enhanced transfer pricing methodology and expanded the presentation of our financial results from three to five segments to align with the way we view our businesses. All previously reported financial information relating to these segments as reflected herein has been restated to reflect the composition of each new segment.
Our five operating segments are:
Advice & Wealth Management;
Corporate & Other.
Our Advice & Wealth Management segment provides financial planning and advice, as well as full service brokerage and banking services, primarily to retail clients, through our affiliated financial advisors. Our affiliated advisors utilize a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs.
Our Asset Management segment provides investment advice and investment products to retail and institutional clients. Our domestic U.S. retail investment products are distributed primarily through our Advice & Wealth Management segment and through a growing number of third party distributors.
Our Annuities segment provides RiverSource Life variable and fixed annuity products to our retail clients primarily through our Advice & Wealth Management segment and to the retail clients of unaffiliated advisors through third-party distribution.
Our Protection segment provides a variety of protection products to address the identified protection and risk management needs of our retail clients including life, disability income and property-casualty insurance.
Our Corporate & Other segment consists of net investment income on corporate level assets, including excess capital held in RiverSource Life and other unallocated equity and other revenues from various investments as well as unallocated corporate expenses. This segment also included non-recurring costs in 2007, 2006 and 2005 associated with our separation from American Express Company ("American Express"), the last elements of which were expensed in the fourth quarter of 2007.
Following is a brief description of the business conducted by each subsidiary noted above, as well as the segment or segments in which it primarily operates.
Ameriprise Financial Services, Inc. ("AFSI") is our primary financial planning and retail distribution subsidiary, which operates under our Ameriprise Financial brand name. Its results of operations are included in our Advice & Wealth Management segment.
American Enterprise Investment Services Inc. ("AEIS") is our registered clearing broker-dealer subsidiary. Brokerage transactions for accounts introduced by AFSI are executed and cleared through AEIS. Its results of operations are included in our Advice & Wealth Management segment.
RiverSource Investments, LLC ("RiverSource Investments") serves as investment advisor to our RiverSource ® family of mutual funds and to institutional accounts. Its results of operations are included in our Asset Management and Corporate & Other segments.
RiverSource Life Insurance Company ("RiverSource Life") conducts its insurance and annuity business in states other than New York. Its results of operations for our annuities business are included primarily in the Annuities segment, and its results of operations with respect to other products it manufactures are reflected primarily in the Protection segment. Investment income on excess capital is reported in the Corporate & Other segment.
RiverSource Life Insurance Co. of New York ("RiverSource Life of NY") conducts its insurance and annuity business in the State of New York. Its results of operations for our annuities business are included primarily in the Annuities segment, and its results of operations with respect to other products it manufactures are reflected primarily in the Protection segment. Investment income on excess capital is reported in the Corporate & Other segment. RiverSource Life of NY is a wholly owned subsidiary of RiverSource Life. We refer to RiverSource Life and RiverSource Life of NY as the "RiverSource Life companies."
Ameriprise Certificate Company issues a variety of face-amount certificates, which are a type of investment product. Its results of operations are included in the Advice & Wealth Management segment.
Ameriprise Bank, FSB ("Ameriprise Bank") offers a variety of consumer banking and lending products and personal trust and related services. Its results of operations are included in the Advice & Wealth Management segment.
Ameriprise Trust Company provides trust services to individuals and businesses. It also acts as custodian for the majority of the RiverSource mutual funds. Its results of operations are included in the Asset Management segment.
RiverSource Distributors, Inc. ("RiverSource Distributors") is a broker-dealer subsidiary organized to serve as the principal underwriter and distributor for our RiverSource mutual funds, annuities and insurance products sold through AFSI, and our wholly owned subsidiary Securities America, Inc. ("SAI") as well as through third-party channels such as banks and broker-dealer networks. Its results of operations are included in our Asset Management, Annuities and Protection segments.
RiverSource Service Corporation is a transfer agent that processes client transactions for our RiverSource mutual funds and Ameriprise face-amount certificates. Its results of operations are included in our Asset Management segment.
IDS Property Casualty Insurance Company ("IDS Property Casualty" or "Ameriprise Auto & Home") provides personal auto, home and excess liability insurance products. Ameriprise Insurance Company is also licensed to provide these products. The results of operations of these companies are included in the Protection segment.
Securities America Financial Corporation is a holding company for SAI, our retail distribution subsidiary which provides a platform for our unbranded advisors. Its results of operations are included in our Advice & Wealth Management segment.
Threadneedle Asset Management Holdings Limited is a holding company for the London-based Threadneedle group of companies ("Threadneedle" or "Threadneedle Investments"), which provide investment management products and services on a basis primarily independent from our other affiliates. Operating under its own brand name, management organization and operating and technology infrastructure, Threadneedle's results of operations are included in our Asset Management segment.
We believe we are positioned to be the provider of choice for financial planning products and services to a growing base of mass affluent and affluent consumers, particularly as many of them reach retirement. These strengths include our:
Strong position in the financial services industry. Over our more than 110-year history, we have established ourselves as a leading provider of financial planning and advice, as well as product solutions designed to help clients plan for and achieve their financial objectives, built on a foundation of personal relationships. As of December 31, 2007, we had $480.2 billion in owned, managed and administered assets and a sales force of more than 11,800 affiliated financial advisors. For the nine months ended September 30, 2007, our variable annuity
products ranked ninth in new sales of variable annuities (according to Morningstar Annuity Research Center). For the nine months ended September 30, 2007, our variable universal life insurance ranked fourth in sales based on total premiums (according to Tillinghast-Towers Perrin's Value™ survey) and our individual disability income insurance (non-cancellable) ranked seventh in sales based on total premiums (according to LIMRA International®).
Longstanding and deep client relationships. We believe that our branded advisors' financial planning approach helps to meet our clients' financial needs and fosters deep and long-term client relationships. We estimate that, of those clients who have received a financial plan or who have entered into an agreement to receive and have paid for a financial plan from our branded advisors, over 75% have been with us for three or more years, with an attrition rate of less than 1% per year. Our branded advisor clients with more than $100,000 in assets with us have been with us, on average, more than twelve years. More than 67% of these clients have received a financial plan or have entered into an agreement to receive and have paid for a financial plan and these clients hold an average of more than four products. We believe the depth of our branded advisor client relationships and portion of a client's liquid or investable assets (excluding 401(k) assets, employee stock plans and real estate) is leading in the industry.
Personal financial planning and investment advisory approach targeted to the fast-growing mass affluent and affluent market segment. Our branded advisors offer our clients financial planning and other advisory services as well as certain banking and brokerage services. Our branded advisor network included the largest number of CERTIFIED FINANCIAL PLANNER® professionals of any retail advisory force (based on data filed at adviserinfo.sec.gov and documented by the Certified Financial Planner Board of Standards, Inc. as of December 31, 2006). Ameriprise is America's largest financial planning company. We believe our focus on financial planning positions us well to capitalize on the demographic trends in our target segment, particularly as they prepare for retirement. The mass affluent and affluent market segment accounts for about 90% of the $21 trillion of U.S. investable assets (according to the MacroMonitor 2006-2007 consumer survey prepared by SRI Consulting Business Intelligence). We have found that more than 58% of consumers in our target segment are willing to pay a knowledgeable advisor for financial advice to address their immediate and long-term needs in the context of their entire financial situation (MacroMonitor 2006-2007 survey prepared by SRI Consulting Business Intelligence). We believe the financial planning process not only helps us to develop more tailored solutions designed to address our clients' financial needs, but also helps us develop a better understanding of the demographics and trends among our clients. We believe our approach results in increased client satisfaction, longer-term relationships with our clients and better risk profiles in our Protection segment. Our experience has shown that by helping our clients in their efforts to meet their financial needs through our financial planning approach, clients with an implemented financial planning relationship hold approximately three times more invested assets with our company than clients without a financial plan.
Large, well-trained sales force with a nationwide presence. At December 31, 2007, we had a nationwide network that included more than 10,200 branded advisors and more than 1,600 unbranded advisors. According to Investment News' 2008 Broker-Dealer Profile, our branded advisor force was determined to be the third largest sales force in the United States in 2007 based on the number of our registered representatives. We offer training designed to instill knowledge of varied product and service offerings and our personalized client focus. We provide tools necessary to help deliver a consistent, disciplined financial planning experience to clients. We believe that the grounding of our branded advisors in our financial planning
model, as well as the resources that our integrated business model offers them, enhances our ability to hire, offer franchises to, and retain financial advisors.
Broad product development capability and diversified range of products and services. We develop and manage a broad range of asset accumulation, income and insurance products under the RiverSource and Threadneedle brands. In addition to our RiverSource and Threadneedle families of funds, we are a leading underwriter of variable annuity and life insurance products, and we also underwrite fixed annuities and other products such as disability income and personal auto and home insurance. Under the Ameriprise Brand, we offer certificates, and banking, brokerage and investment advisor/wrap products and services. Complementing our product offerings, we also provide access to a wide range of other companies' products and securities and offer a number of financial planning, banking and related services to help our clients achieve their financial goals. The diversity among our product and service offerings not only assists our affiliated financial advisor network in addressing the varied needs of our clients, but also provides our company with diversification among its sources of revenues and earnings.
Strong balance sheet and ratings and comprehensive risk management process. We believe our size, ratings and capital strength provide us with a sound basis for competing in the marketplace. Our strong balance sheet, sound risk management and financial discipline have helped us maintain strong ratings, as well as client and financial advisor confidence in our business. We have a high quality investment portfolio, with only 6% of our invested assets rated below investment grade as of December 31, 2007. In addition, we apply risk management tools to prudently manage our company's risk profile.
Experienced management team with sound business and decision-making capabilities. Our senior management team has an average of over 23 years of experience in the financial services industry. We emphasize a performance- and execution-oriented corporate culture. We utilize a consistent decision-making framework to evaluate our existing products and businesses, as well as to prioritize growth opportunities and the associated trade-offs for our company. This framework takes into account four key elements: client needs and behavior, competitor positioning and strategies, our capabilities and risk-return financial metrics.
As an integrated financial planning and financial services company with a nationwide presence, a diverse set of cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer products and services, and as the leader in financial planning, we believe we are well positioned to further strengthen our offerings to existing and new clients and deliver profitable growth to our shareholders. Our five strategic objectives are:
Growing our mass affluent and affluent client relationships. We intend to grow our mass affluent and affluent client base by building our brand awareness, deepening existing client relationships and developing new client relationships.
Building brand awareness. We believe having strong Ameriprise brand recognition, built on a consistent message of shaping financial solutions for a lifetime through tailored financial advice, will help us continue to grow. In addition, a strong RiverSource brand will serve to support our product sales efforts through affiliated and unaffiliated advisors. We have invested substantial resources through national advertisers and locally based marketing programs to develop and build awareness of our Ameriprise and RiverSource brands. Our online presence also played a prominent role in the evolution of our advertising for the Ameriprise brand in 2007. New network and cable television advertising drove consumers to our Ameriprise.com website, and reinforced the message that "Today, more people come to Ameriprise for financial planning than any other company." To increase RiverSource brand awareness among investment professionals, in 2007 RiverSource Investments launched its first advertising campaign, which included a series of print and online advertisements in financial trade publications. We also utilize alliance arrangements to expand awareness of our brands, to support financial advisor recruitment and client acquisition efforts, and to define our advantages for prospective new clients and distribution partners. For more information on our alliances, see "Business—Our Segments—Advice & Wealth Management—Brokerage and Investment Advisory Services—Strategic Alliances and Other Marketing Arrangements" and "Business—Our Segments—Protection—Distr ibution and Marketing Channels." As of December 31, 2007, we had total Ameriprise brand awareness of 56%.
Deepening existing client relationships. Our branded financial advisors take a client-centric approach. To help our branded advisors address the changing needs of our clients, we continue to develop methods for advisors to introduce, when appropriate, non-financial plan clients to the financial planning process and to assist financial planning clients to more fully implement plans they have in place. We are also increasing our efforts to assist our advisors in delivering a consistent and compelling client experience. We have created segmented service offerings, such as Ameriprise Gold Advantage and Ameriprise Platinum Advantage, to provide recognition, special benefits and higher levels of service to our mass affluent and affluent clients. In addition, through the information we learn from supporting our branded advisor network and the market research we conduct with our existing client base, we identify opportunities to build deeper relationships with clients by addressing potentially underserved needs. We believe that deeper, longer-term relationships with our clients foster, among other things, increased satisfaction among our clients and branded financial advisors and greater owned, managed and administered assets. We also believe that strong relationships with existing clients foster the acquisition of new clients through referrals, which has long been a leading source of new clients.
Developing new client relationships. We intend to continue to grow our client base, with particular focus on the large and growing mass affluent and affluent market segments. With our tailored approach and diverse range of financial products and services, we believe we are well positioned to address their needs—particularly as they approach retirement, typically a time with heightened needs for a comprehensive financial planning approach. According to the U.S. Census Bureau, between 2000 and 2020, the 45-64 age group—typically the prime financial and asset accumulation years for retirement—is projected to grow by 34%, with most of that growth occurring by 2010. In addition, we provide support to our branded advisors with a wide range of corporate and locally defined client acquisition programs, advisor training, and practice development tools.
Strengthening our lead in comprehensive financial planning. We are America's largest financial planning company, and more people come to Ameriprise for financial planning than any other firm. We are strategically focused on building and strengthening this leadership position. We have a range of strategies to grow our lead and increase the number of our financial planning relationships, leveraging our Dream Book ® guide and our Dream > Plan > Track > ® approach to financial planning and advice. Our approach begins by asking clients to define their dreams and aspirations, then we support them by developing their plan to help them achieve those goals, and we work with them over time to execute against that plan and track their progress in achieving their goals. We have recently invested substantially in a new set of advisor technology applications and training that we believe will enable them to serve even more clients, in a more integrated way.
Delivering profitable growth and productivity in our advisor network. We intend to continue to enhance the productivity of our affiliated financial advisor network, including our branded and unbranded platforms, by providing leading technological tools, client acquisition programs and support, generalist and specialist leadership, and a comprehensive set of products and services. With regard to our branded advisors, we offer support to help them build their practices, and we seek to offer franchises to quality individuals, offering a choice of affiliation (employee, franchisee or employee or contractor of a franchisee). We continue to enhance the support available to our branded advisors in areas such as leadership, technology, training, marketing, financial planning and a broad set of products and services. We charge a fee to our franchisee branded advisors for some of these services. We believe this support helps our branded advisors acquire more of our target clients, deliver a more consistent experience and serve clients with a wide range of products and services. We are continuing our focused recruitment efforts by recruiting individuals who are new to the industry, as well as attracting experienced financial advisors through both individual recruitment and practice acquisitions. Our branded advisor network model provides flexibility to our branded advisors in building and managing their individual practices, which we believe leads to better retention. We design our compensation plans, including our equity compensation plans for employee and franchisee branded advisors, to foster, among other things, greater levels of financial advisor productivity and retention. With regard to our unbranded advisors, who are offered a lower level of firm-provided support in exchange for higher levels of compensation, our strategy is to continue to profitably grow this platform.
Ira D. Hall: Age 63, director since September 30, 2005. From 2002 until his retirement in late 2004, Mr. Hall served as President and Chief Executive Officer of Utendahl Capital Management, L.P. From 1998 until 2001, he held leadership roles at Texaco Inc., serving as Treasurer and General Manager of Alliance Management. Prior thereto, he held leadership roles at IBM Corporation and L.F. Rothschild, Unterberg, Towbin, Inc. Mr. Hall also is a member of the boards of directors of The Pepsi Bottling Group, Inc., and Praxair, Inc.
Jeffrey Noddle: Age 61, director since September 30, 2005. Mr. Noddle has served as the President and Chief Executive Officer of SUPERVALU INC. since 2001, and as Chairman of its board of directors since 2002. Prior to his present position, Mr. Noddle held a number of other leadership positions at SUPERVALU, including President and Chief Operating Officer from 2000 to 2001, Corporate Executive Vice President and President and Chief Operating Officer of SUPERVALU's distribution food companies, Corporate Vice President, Merchandising and President of the company's Fargo and former Miami divisions. Mr. Noddle is the immediate past Chairman of the board of directors of The Food Marketing Institute. In addition, he serves as a member of the boards of directors of Donaldson Company, Inc., the Independent Grocers Alliance, Inc., The Food Industry Center at the University of Minnesota and the Academy of Food Marketing at Saint Joseph's University.
Richard F. Powers III: Age 62, director since September 30, 2005. Mr. Powers is retired, having most recently served as an Advisory Director of Morgan Stanley beginning in 2003 and a Trustee of the Van Kampen Funds since 1998. From 2001 to 2002, Mr. Powers was President of the Morgan Stanley Investment Management Client Group, and concurrently served as President and Chief Executive Officer of Van Kampen Investments Inc., a position he held beginning in 1998. Prior to that, he was Executive Vice President and Director of Marketing for the Morgan Stanley Dean Witter brokerage business. Mr. Powers is a member of the board of trustees of Boston College. His past board service includes Dean Witter, Inc., Dean Witter Financial Services Group, Dean Witter Realty Corp., and Nations Securities.
James M. Cracchiolo: Age 49, Chairman and Chief Executive Officer of the Company since September 30, 2005. Prior to our spin-off from the American Express Company, Mr. Cracchiolo was Chairman and Chief Executive Officer of American Express Financial Corporation, which was the previous name of our company, since March 2001; President and Chief Executive Officer of American Express Financial Corporation since November 2000; and Group President, Global Financial Services of American Express since June 2000. He served as Chairman of American Express Bank Ltd. from September 2000 until April 2005 and served as President and Chief Executive Officer of Travel Related Services International from May 1998 through July 2003. Mr. Cracchiolo joined American Express in 1982. He is also currently on the board of advisors of the March of Dimes.
Warren D. Knowlton: Age 61, director since September 28, 2006. Mr. Knowlton currently is the Chairman and Chief Executive Officer of Graham Packaging Company, L.P., a leading international supplier of plastic food and beverage containers. Until mid-2006, Mr. Knowlton was the chief executive officer and board member of The Morgan Crucible Company plc, a U.K.-based building materials company with global operations. Prior to joining The Morgan Crucible Company plc, he held senior leadership positions with Pilkington plc and Owens Corning in both the U.S. and international markets. Mr. Knowlton has been a director on the Smith & Nephew board since 2000, serving as chairman of the global medical technology company's audit committee since 2001.
H. Jay Sarles: Age 63, director since September 30, 2005. Mr. Sarles is retired having most recently served as Vice Chairman of Bank of America Corporation. Prior to that, he served as Vice Chairman and Chief Administrative Officer of FleetBoston Financial with responsibility for administrative functions, technology and operations, treasury services, corporate strategy and mergers and acquisitions. During his 37 years at Fleet, Mr. Sarles oversaw virtually all of Fleet's businesses at one time or another, including, most recently, the company's wholesale banking businesses. These included commercial finance, real estate finance, capital markets, global services, industry banking, middle market and large corporate lending, small business services and investment banking businesses. Mr. Sarles also is a member of the boards of directors of AvalonBay Communities, Inc., Carlyle Capital Corporation Limited, Dental Service of Massachusetts, Inc., and is a trustee of Mount Holyoke College.
Robert F. Sharpe, Jr.: Age 56, director since September 30, 2005. He was appointed Executive Vice President—Legal and External Affairs of ConAgra Foods, Inc. in early 2006 and joined ConAgra in November 2005. From 2002 until joining ConAgra, Mr. Sharpe was a partner at the Brunswick Group LLC, an international financial public relations firm. Prior thereto, he served as Senior Vice President, Public Affairs, Secretary and General Counsel for PepsiCo, Inc. from 1998 to 2002. Previously, Mr. Sharpe was Senior Vice President and General Counsel for RJR Nabisco, Inc.
W. Walker Lewis: Age 63, director since September 30, 2005. Mr. Lewis currently serves as Chairman of Devon Value Advisers, a financial consulting and investment banking firm which he founded in 1997. Prior thereto, he served as a Managing Director of Kidder Peabody, where he was a member of the firm's management committee. From 1991 to 1993, Mr. Lewis was President of Avon Products Inc., North America and a member of the Office of the Chairman of Avon Incorporated.
Siri S. Marshall: Age 59, director since September 30, 2005. Ms. Marshall is the former Senior Vice President, General Counsel and Secretary and Chief Governance and Compliance Officer at General Mills, Inc., having retired from those positions as of January 1, 2008. In addition, Ms. Marshall managed General Mills' Tax function from 1994 to 1999 and its Corporate Affairs group from 1999 to 2005. Prior to joining General Mills in 1994, Ms. Marshall was Senior Vice President, General Counsel and Secretary of Avon Products, Inc. Ms. Marshall also is a director of Equifax, Inc., and the Yale Center for the Study of Corporate Law, a Distinguished Advisor to the Strauss Institute for Dispute Resolution, and a Trustee of the Minneapolis Institute of Arts. She has served as a director of NovaCare, Inc., Jafra Cosmetics International, Snack Ventures Europe, the American Arbitration Association and the Yale Law School Fund. She has also served as a member of The New York Stock Exchange Legal Advisory Committee and the Bank of America Midwest Advisory Council.
William H. Turner: Age 67, director since September 30, 2005. Mr. Turner is currently Chairman of International College. Previously, he was the Founding Dean of the College of Business at Stony Brook University and a Senior Partner at Summus Limited. Prior thereto, Mr. Turner was President and Chief Executive Officer of PNC Bank, New Jersey from 1997 to 2000 and Chairman of PNC Bank, N.A., New Jersey and Northeast Region from 2000 until his retirement in 2002. Before joining PNC, Mr. Turner was President and Co-Chief Executive Officer at Franklin Electronic Publishers, Inc. and Vice Chairman of Chemical Banking Corporation, which merged with The Chase Manhattan Corporation in 1995. Mr. Turner also is a member of the boards of directors of Franklin Electronic Publishers, Inc., Standard Motor Products, Inc., Volt Information Sciences, Inc. and New Jersey Resources, Inc.
Jeffrey Noddle and Robert F. Sharpe, Jr. elected to defer 100% of their cash retainers for 2007 under the Ameriprise Deferred Compensation Plan for Outside Directors. In lieu of cash they each received an aggregate total of 1,436.534 deferred share units in their deferred compensation accounts. That number does not include deemed dividends on those units that were reinvested in additional deferred share units.
The dollar amounts in this column show the compensation expense that we recognized with respect to the annual grant of deferred share units, including the special October 31, 2007, grant made as a result of the new compensation program for outside directors that became effective on August 1, 2007. The number of deferred share units credited to a director's account is calculated as follows. The dollar value to be received by the director is divided by the average value of a share of our common stock for the five trading days before the date of the grant. For accounting purposes, we then calculate the compensation expense of those deferred share units back to a dollar amount by multiplying the number of units by the closing price of a share of our common stock on the grant date. We then record the compensation expense of the deferred share units as of the grant date. With respect to Messrs. Noddle and Sharpe, both of whom defer 100% of their cash retainers into deferred share units, we recorded $86,864 of compensation expense for each of them as a result of their deferrals. The compensation expense that we record does not factor in the deemed dividends that will be credited is the deferred share units held in the director's account.
The dollar amount shown in this column is the total of: deemed dividends credited during 2007 to a director's plan account and reinvested in additional deferred share units; charitable matching gifts we made during 2007 to one or more charitable organizations on behalf of the director; and tax gross-up amount on a gift we gave to the director that was includable in the director's income for tax purposes. The aggregate incremental cost of perquisites and personal benefits is less than $10,000 for each director. As a result, the Securities and Exchange Commission does not require us to disclose those costs. All deemed dividends were credited at the same rate as the dividends paid to holders of shares of our common stock.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Consolidated Results of Operations
Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Consolidated net income for the three months ended September 30, 2007 was $198 million, up $24 million, or 14%, from $174 million for the three months ended September 30, 2006. This increase was primarily due to recognizing a $21 million tax benefit resulting from our plan to begin repatriating Threadneedle earnings through dividends. Income before income tax provision was $217 million for both the three months ended September 30, 2007 and 2006. Total revenues for the three months ended September 30, 2007 were $2.2 billion, up $225 million, or 11%, from $2.0 billion for the three months ended September 30, 2006. The increase in total revenues reflected strong growth in fee-based businesses driven by strong net inflows in wrap accounts and annuity variable accounts, market appreciation and continued advisor productivity gains. Net investment income was positively impacted by income from hedges for variable annuity living benefits, partially offset by expected declines in annuity fixed account and certificate balances. The increase in total revenues was offset by an increase in total expenses due to higher benefits, claims, losses and settlement expenses due to market volatility on variable annuity living benefit reserves, higher DAC amortization resulting from our annual detailed review of DAC valuation assumptions (“DAC unlocking”) and higher field compensation. The strong net inflows in wrap accounts and annuity variable accounts and declining annuity fixed account and certificate balances reflect our strategic shift to less capital intensive, fee-based products.
Third quarter results reflect the impact of DAC unlocking. In the third quarter of 2007, DAC unlocking resulted in a $30 million negative impact compared to a $25 million benefit in the prior year period. Income in both the third quarter of 2007 and 2006 was impacted by non-recurring separation costs of $60 million and $87 million, respectively ($39 million and $57 million, respectively, after-tax). Revenues
Management, financial advice and service fees increased $158 million, or 22%, to $878 million for the third quarter of 2007, primarily driven by the growth in our fee-based businesses of our AA&I segment. Our AA&I segment had increases in fees related to brokerage and variable annuities of $64 million and $52 million, respectively. Wrap account assets increased 33% and annuity variable account assets increased 31% over the prior year quarter driven by strong net inflows and market appreciation.
Distribution fees for the three months ended September 30, 2007 were $352 million, up $52 million, or 17%, from the year-ago period, driven by strong advisor cash sales. Total cash sales were up 21% from the year-ago period. Distribution fees were also positively impacted by market appreciation.
Net investment income for the three months ended September 30, 2007 increased $10 million, or 2%, over the year-ago period. Net investment income attributable to hedges for variable annuity living benefits was $57 million in the third quarter of 2007, compared to $3 million in the third quarter of 2006. This increase, in addition to a $23 million decrease in the allowance for loan losses on commercial mortgage loans, was partially offset by lower net investment income due to declining average account balances in annuity fixed accounts and certificates and lower investment income on other trading securities. As expected, annuity fixed accounts and certificate balances are declining as clients choose other products in the current interest rate environment and as we focus on fee-based products. Included in net investment income were net realized investment gains on Available-for-Sale securities of $15 million in the third quarter of 2007 compared to $14 million in the same period of 2006. Net gains on trading securities and equity method investments in hedge funds decreased $14 million from the prior year quarter. Net investment income related to derivatives used to hedge certain expense line items increased $46 million, which included a $54 million increase related to derivatives used to hedge benefits, claims, losses and settlement expenses for variable annuity living benefits and an $8 million decrease related to derivatives used to hedge interest credited expenses for stock market certificates and equity indexed annuities.
Premiums increased $2 million, or 1%, to $246 million for the third quarter of 2007 compared to the same period in 2006. In the third quarter of 2006, a review of our long-term care reinsurance arrangement resulted in an increase to premiums of $15 million. Excluding this impact, premiums increased $17 million, which was primarily driven by premium increases of $11 million in auto and home insurance resulting from increased policy counts.
Other revenues increased $3 million, or 2%, to $174 million for the third quarter of 2007 primarily due to higher fees from variable annuity riders and cost of insurance for variable universal life/universal life (“VUL/UL”) insurance, largely offset by lower revenues on certain consolidated limited partnerships.
Total expenses in the third quarter reflect the impact of DAC unlocking. For the third quarter of 2007, we recorded a net expense from unlocking of $30 million, comprised of $16 million additional DAC amortization expense and a $14 million increase in benefits, claims, losses and settlement expenses. DAC unlocking for the third quarter of 2006 resulted in a $25 million net benefit, comprised of a $38 million benefit in DAC amortization expense, a $12 million increase in benefits, claims, losses and settlement expenses and a $1 million decrease in other revenues.
The DAC unlocking net expense of $30 million for the third quarter of 2007 consisted of a $35 million increase in expense from updating product persistency assumptions, a $13 million decrease in expense from updating assumptions related to separate account fee levels and net variable annuity rider charges and an $8 million increase in expense from updating all other assumptions. The DAC unlocking net benefit of $25 million for the third quarter 2006 consisted of a $25 million benefit from modeling improvements in increased product persistency, a $15 million benefit from modeling improvements in mortality, an $8 million increase from modeling lower variable product fund fee revenue, an $8 million increase from modeling changes related to Variable Life Second to Die insurance and a $1 million benefit from other miscellaneous items.
Compensation and benefits–field increased $94 million, or 22%. The increase primarily reflects higher commissions paid driven by overall business growth and increases in advisor productivity, as reflected by 14% growth in total GDC and higher advisor assets under management.
Interest credited to account values decreased $35 million, or 11%, reflecting a decrease related to annuities of $26 million and a decrease related to certificates of $10 million. The decrease related to annuities was primarily attributable to a continued decline in fixed annuity account balances. The decrease in interest credited to certificates was primarily attributable to declining balances and lower stock market participation costs.
Benefits, claims, losses and settlement expenses increased $150 million, or 64%. In the third quarter of 2007, reserves providing for guaranteed benefits associated with our variable annuity business increased by $132 million primarily due to changes in financial market factors, offset by a $9 million related change in DSIC . The related hedge impact was a $57 million increase to net investment income in the third quarter of 2007. For the three months ended September 30, 2007, benefits, claims, losses and settlement expenses also included $14 million related to DAC unlocking compared to $12 million in the prior year period.
Amortization of DAC increased $41 million, or 47%, primarily due to DAC unlocking. In the third quarter of 2007, DAC unlocking resulted in an increase to amortization of $16 million compared to a decrease to amortization of $38 million in the year-ago period. Underlying increases in DAC amortization driven by business growth were offset by lower DAC amortization resulting from the mark-to-market of variable annuity living benefit riders.
Separation costs incurred in both the third quarter of 2007 and 2006 were primarily associated with separating and reestablishing our technology platforms. We expect to incur approximately $25 million to $30 million in costs in the fourth quarter of 2007, reflecting all remaining costs from the Separation, which was completed as of September 30, 2007.
Other expenses were consistent with the prior year period at $248 million. Decreases in other expenses attributable to certain consolidated limited partnerships were offset by increases in professional and consultant fees related to increased spending on investment initiatives.
Our effective tax rate was 8.8% for the three months ended September 30, 2007, compared to 19.8% for the three months ended September 30, 2006. The effective tax rate for the three months ended September 30, 2007 was impacted by a $21 million tax benefit related to our plan to begin repatriating earnings of certain Threadneedle entities through dividends and a $7 million tax benefit related to the finalization of the prior year tax return. The effective tax rate for the three months ended September 30, 2006 was impacted by a $13 million tax benefit related to the finalization of the prior year tax return. The effective tax rates are also impacted by the levels of pretax income relative to tax advantaged items, including the dividends received deduction, in each period.
On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies and has added the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that we receive. Management believes that it is likely that any such regulations would apply prospectively only. For the nine months ended September 30, 2007, we recorded a benefit of approximately $35 million related to the current year’s separate account DRD.