Ameriprise Financial

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Ameriprise Financial, Inc. (NYSE: AMP) is a company offering financial advice and products. It is the successor to American Express Financial Advisors (AEFA), which was a subsidiary of the American Express Company. In 2005, American Express launched the spin-off of AEFA as an independent company. The new name came into effect August 1 2005, and the transaction closed on September 30 2005. James Cracchiolo is the chairman and chief executive officer of Ameriprise. The company's headquarters are in Minneapolis, Minnesota.

History

Ameriprise Financial's predecessor was founded in 1894 as "Investors Syndicate" by John Tappan. In 1949, the company changed its name to "Investors Diversified Services." In 1984, American Express bought the company and, in 1994, began using the "American Express Financial Advisors" name exclusively. On October 1, 2005, American Express spun-off AEFA, which then became "Ameriprise Financial," a completely separate publicly traded company. Ameriprise Financial was the 6th largest spinoff in history.

Ameriprise Financial is the 4th largest financial advisory firm in the US. The company has over 12,000 finacial advisors and 2.8 million clients. The company has more Certified Financial Planners than any other company, according to the CFP Board of Standards. Ameriprise ranked 10th '(below industry average)' in overall client satisfaction in a 2006 JD Powers & Associates survey of full service financial advisory firms.

SEC settlements

Ameriprise has 34 regulatory actions against it as listed on NASD. A complete listing of these actions, resolutions and fines can be found on NASD's Broker Check.

Ameriprise was, as of the close of 2005, a top recipient of fines from NASD and SEC regulators. The State of New Hampshire also levied the largest fine in its history against the company, $7.4 million, in early 2005, based on the charge that the company utilized its financial plan fraudulently -- as a vehicle to sell its propriety products, which were often inappropriate, overpriced and underperforming -- in breach of its fiduciary duties to clients. The Wall Street Journal published an article on the company's financial planning methods on February 9, 2004.

On Dec 2, 2005, Ameriprise Financial entered into a $15 million settlement with the SEC for charges of market timing. The settlement addressed practices between January 2002 and August 2003. The SEC accused the company of failing to prevent market-timing -- even after amending its prospectus to include explicit prohibitions against the practice. Market-timing is arguably detrimental to long-term shareholders because of the trading costs the fund incurs when it redeems holdings, the extra cash it needs to hold for redemptions, and other factors. The SEC alleged that after January 2002, when American Express Financial Corporation banned market-timing, the funds still allowed shareholders to rapidly trade the funds, and that some employees rapidly traded through their 401(k) plans. As part of the settlement, Ameriprise is required to make annual presentations to its board of directors about its policies and procedures to prevent market timing.

Ameriprise did not disclose this incident to the shareholders of its funds, now marketed under the name Riversource. American Express made a disclosure in its regulatory filings, but these are seen only by American Express stockholders. Ameriprise, now a separate company, has also not revealed which funds were timed, or the names of the people involved and the exact nature of the disciplinary action taken. Morningstar, Inc., has expressed dismay at the Ameriprise's lack of transparency. Morningstar publishes stewardship grades for mutual funds, indicating the quality of their corporate governance, and it has temporarily reduced the grade for Ameriprise's funds.

On December 2, 2005, The Minneapolis/St. Paul Business Journal reported that State and federal regulators assessed $57.3 million in fines on Ameriprise Financial Services for inappropriate mutual fund sales trading practices. Ameriprise paid the Securities and Exchange Commission $45 million for inappropriate mutual fund sales trading practices. The National Association of Securities Dealers fined Ameriprise an additional $12.3 million and the Minnesota Department of Commerce levied an additional $2 million in fines for similar violations. In settling with the NASD, Ameriprise (NYSE: AMP) neither admitted nor denied the allegations, but consented to the entry of the findings.

According to the Minnesota Department of Commerce, Ameriprise has already taken steps to address the issues.

"We are pleased to resolve these matters," Ameriprise said in a statement. "Over the past few years, we have proactively enhanced our compliance policies to address them."

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The fines stem from several wrongful practices at Ameriprise, including the practice of favoring the sale of shares of particular mutual funds, or the "Select Group" of funds which offered reduced expenses to the firm by the firm and inappropriate sales of 529 college savings plans.

On May 18th, 2006, The Associated Press reported that Ameriprise had lost one of the largest arbitration cases to date. The securities-industry arbitration panel awarded $22 million to a group of Exxon Mobil Corp. retirees who accused brokerage firm Securities America Inc. of improperly steering them into high-risk investments between 1996 and mid-2003. The panel awarded the claimants $22 million, including almost $3.5 million in punitive damages. While the alleged offenses occurred between 1996 and mid-2003, the bulk of them took place in 1997-98, according to attorneys representing the employees. Securities America was acquired by Ameriprise Financial in 1998; its brokers are said to operate as independent business people.

Commissions and Referral Fees

Ameriprise charges clients a flat fee for a personal financial plan, which typically ranges from $500 - $1,200. Ameriprise and its advisors also receive commissions when they direct their clients into mutual funds, annuities, insurance, and various other investment products. The commissions are openly disclosed to clients in the related prospectus. Additionally, the financial analyses are comprehensive and offer advice on areas such as retirement planning, tax reduction, portfolio mangement, property/casualty coverage, basic estate planning applications (ownership options, beneficiary selection, etc), cash flow and debt structuring.

The commissions vary on each product and are typically lower than many broker-dealers.

Commissions on mutual funds:

Ameriprise advisors receive commissions and referral fees when they recommend funds, as do any other investment representatives who sell funds. In its prospectus, Ameriprise describes this conflict of interest as follows:

"certain aspects of our relationship with the [fund group] firms create conflicts of interest or incentives for Ameriprise Financial to promote, and for an advisor to recommend, one fund over another fund. Generally, we have a greater incentive to offer Select Group funds than other funds. As further described below, these conflicts and incentives arise from the marketing and sales support provided to our financial advisors by fund families, revenue sharing payments we receive, our other relationships with fund families, the transaction charges financial advisors pay, and our interest in the sale of RiverSource Investments family of funds."

References:

*Case No. 02-2255-PHX-PGR (Class action lawsuit complaint, US District Court for Arizona)
*Wall Street Journal article 2/18/05 C1: "American Express's Advisory Unit Faces Fraud Charges"
*Reuters News Release dated 5/16/06 C1: "NASD Panel Awards Exxon Workers $22 Million"
*Ameriprise 10-K filing (2005): p25 - "Our best-selling life insurance products are variable universal life insurance policies. ..."

How fees and commissions are divided between Ameriprise and its advisors

Advisor payout rate: Ameriprise advisors are either employees or franchisees. Franchisees generally receive 79% to 91%, whereas employees financial advisors receive 40% to 55% of the advisory service fees and product commissions the firm receives (the "advisor payout rate"). [1]

Refund Policies

Clients who are not sastified with their "financial plan" may receive a planning fee refund at any time before their plan is delivered to them, and within 90 days after it is delivered.

If clients purchase a variable universal life insurance policy through Ameriprise or annuity, they are allowed a free-look period based on their state laws, after the receipt of the insurance or annuity contract.

In some cases, Ameriprise will use an account called a Strategic Portfolio Service (SPS) Advantage account, which may hold most mutual funds, stocks, options, ETF's, bonds, UIT's. etc with an asset management fee, rather than commission or load structured fee. If the client transfer the funds to another firm, Ameriprise will charge a $250 termination or transfer fee, similar to Merrill Lynch or Schwab.

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