Purchasing mutual funds and 529 plans through Ameriprise Financial
Ameriprise Financial Services has agreements with more than 160 mutual fund firms, which allows us to offer clients a broad range of more than 2,200 mutual funds. The financial advisor’s goal is to select appropriate investments that help clients achieve their financial goals. The following sections describe important information relating to the availability of mutual funds offered through Ameriprise Financial Services and factors that may influence the mutual funds financial advisors recommend.
Payments from product companies
Our affiliate American Enterprise Investment Services (AEIS) performs, for the benefit of Ameriprise Financial Services, its financial advisors and clients, certain services, including but not limited to, distribution, marketing, administration and shareholder servicing support, applicable product due diligence, training and education, and other support related functions such as trading systems, websites and mobile applications (collectively, “cost reimbursement services”).
AEIS receives a variety of payments for cost reimbursement services from products sponsored or managed by affiliated investment advisers and by non-proprietary product companies, which reimburse the costs of client beneficial services provided by Ameriprise Financial Services and/or AEIS. The most significant of these payments are reimbursement for marketing support received from the product companies. If Ameriprise Financial Services and/or AEIS did not receive this compensation, Ameriprise Financial Services would likely charge higher fees or other charges to clients for the services provided.
Mutual fund and 529 plan marketing support payments
Mutual fund and 529 plan marketing and sales support payments are received from certain mutual fund firms (described below as “Full Participation” firms) within the more than 160 mutual fund firms (“firms”) Ameriprise Financial Services offers.
The goal at Ameriprise is to offer a wide range of mutual funds using the following criteria:
- Product breadth and strong-performing funds
- Financial strength of the firm
- Marketing and sales support payments paid to our affiliate AEIS to support cost reimbursement services
- Ability to provide wholesaling and training to our financial advisors
- Tax benefits offered by individual states (specific to 529 Plans)
- Overall quality of the 529 plan (specific to 529 Plans)
While Ameriprise financial advisors may offer, and clients are free to choose, mutual funds from any of the firms, certain aspects of the Full Participation firm program may create a conflict of interest or incentive if Ameriprise Financial Services promotes, or financial advisors recommend, the mutual funds offered by a firm participating in the Program vs. mutual funds offered by nonparticipating firms. In addition, among firms participating in the Program, financial advisors generally have a greater incentive to offer mutual funds from Full Participation firms. As further described below, these conflicts and incentives may arise from the cost reimbursement support provided to our financial advisors by, as well as the payments Ameriprise Financial Services and/or AEIS receives from, firms participating in the Program, and with other relationships with firms, including Columbia Threadneedle Investments, in addition to other fund brands (the “Affiliated Columbia Funds”) — see the section titled “Affiliated mutual funds” below.
To be included in the Program, firms have agreed to pay AEIS a portion of the revenue generated from the sale and/or management of mutual fund shares. Full Participation firms make cost reimbursement payments at a higher level than firms with other financial relationships. Each year a client holds shares of a particular mutual fund, the mutual fund’s financial advisor or distributor may pay to AEIS an amount based on the value of the collective mutual fund shares held in clients’ accounts (asset-based payment). In addition, a mutual fund’s financial advisor or distributor may pay a fee to AEIS for cost reimbursement services provided for the mutual fund shares purchased during a given period (sales- based payment). As of January 2017, asset-based payments (up to 0.20% per year for mutual funds and 0.17% per year for 529 Plans) on some or all of Ameriprise clients’ assets managed by the participating firms and a sales-based payment up to 0.20% for certain mutual funds and 529 Plans) on some or all of the participating firms’ gross sales made through Ameriprise.
AEIS receives up to 0.42% of money fund deposits for its money market fund sweep program. The amount that AEIS receives may be reduced based on fee waivers that are imposed by the money market fund firm.
Specific cost reimbursements are detailed below. These arrangements vary between firms and may be subject to change or renegotiation at any time. If a firm ceases to make cost reimbursement payments, AEIS may remove the firm from the Program and may cease to offer mutual fund shares and/or the 529 Plan(s).
Full participation firms
Twenty-eight firms fully participate in the Program. These fund firms include Columbia Threadneedle Investments, Allianz Global Investors, American Century, BlackRock, Delaware Investments, Dreyfus, Deutsche Asset Management, Eaton Vance, Federated, Fidelity, Goldman Sachs, Invesco, Ivy, Janus Henderson, John Hancock, JP Morgan, Legg Mason, Lord Abbett, MainStay, MFS, Neuberger Berman, Nuveen, OppenheimerFunds, Principal, PGIM Investments, Putnam, Virtus and Wells Fargo Advantage Funds. These firms are “Full Participation” firms.
We offer 529 Plans from 22 firms. Of those firms, 14 are also Full Participation firms. These fund firms include Allianz Global Investors, American Century, BlackRock, Columbia Threadneedle Investments, Deutsche Asset Management, Fidelity, Ivy, John Hancock, J.P. Morgan, Legg Mason, MFS, Nuveen, Oppenheimer and Putnam.
Education, training, seminar reimbursement and noncash compensation
Full Participation firms provide Ameriprise financial advisors, and in some cases their clients, education, training and support services relating to the funds they offer. These firms may reimburse Ameriprise Financial Services and Ameriprise Financial Services may subsequently reimburse the financial advisors for client/prospect education events and financial advisor sales meetings, seminars and training events consistent with Ameriprise policies. Ameriprise Financial Services and the financial advisors may also receive nominal noncash benefits from time to time. As a result, Ameriprise financial advisors may have a greater familiarity with and an incentive to sell funds and 529 Plans of Full Participation firms.
Mutual Fund & ETF recommended list (the “Starting Point List”)
Ameriprise financial advisors may make mutual fund recommendations based on a group of funds that appear on the Starting Point List. The Starting Point List is developed by the Ameriprise Investment Research Group (IRG). Approximately 2,200 mutual funds are eligible for inclusion on the Starting Point List, which includes all mutual funds available for sale at Ameriprise, including Full Participation firms in the Program described above. When two similar mutual funds are equally recommendable for inclusion on the Starting Point List, IRG generally recommends, and therefore prefers, the mutual fund from a Full Participation firm.
In developing the Starting Point List, the IRG applies a quantitative and qualitative evaluation process that includes an analysis of a fund’s returns, risk and expenses, the tenure of its portfolio managers and the consistency of its performance and style. Certain mutual funds that would have otherwise been included on the Starting Point List were excluded due to their high investment minimums or expenses. The funds on the Starting Point List are subject to change periodically; however, changes to the Starting Point List should not be the sole reason to prompt trading.
This Starting Point List is developed by evaluating the performance characteristics of each fund’s A share class; the analysis is ultimately intended to apply at the mutual fund level. However, Managed Account clients may be unable to purchase a fund on the Starting Point List if that fund does not offer an advisory share class. In addition, the Starting Point List was developed using those funds currently available through SPS Advantage, SPS Advisor or Ameriprise® brokerage. As a result, clients may not be able to purchase a fund on the Starting Point List if that fund is not available through other Managed Account services in which the client invests.
AEIS receives payments for the cost-reimbursement services it provides to the Full Participation Firms (including Columbia Management Investment Advisers (CMIA)) and to other funds available for sale through Ameriprise Financial Services. The amount of any fees AEIS receives from funds eligible for inclusion on the Starting Point List is not considered in the selection process for inclusion on the Starting Point List, and no fund pays AEIS to be on the Starting Point List. Clients may choose to follow the recommendations provided by the Ameriprise financial advisor or may select from any of the other funds offered through Ameriprise Financial Services, regardless of whether that fund appears on the Starting Point List.
Distribution support relationships
AEIS also has cost reimbursement arrangements with firms for distribution support services. These firms make cost reimbursement payments to AEIS of up to and 0.10% on assets for these services, which support the distribution of the fund’s shares and 529 Plans by making them available on one or more of Ameriprise Financial Services platforms. These mutual fund firms do not provide marketing and sales support such as those provided by Full Participation firms to Ameriprise financial advisors.
Ameriprise Financial Services sells 529 Plans from eight firms that do not pay marketing or distribution support. Moreover, plans offered by these firms are available for sale to in-state residents only. Those firms are: American Funds, Ascensus, First National Bank of Omaha, Hartford, Invesco, NorthStar Financial, Union Bank & Trust and Voya. Certain 529 Plans may pay Ameriprise Financial Services a fee of up to 1% assets for net asset value (NAV) rollovers.
The total amount received from all distribution support firms in 2016 was $11,377,023. The firms that paid more than $500,000 were:
- First Eagle Funds ($2,071,685)
- Natixis Global Asset Management ($882,226)
- THORNBURG Funds ($792,735)
- AMG Funds ($593,597)
- Sun America Funds ($577,590)
- Hartford Funds ($542,821)
- Catalyst Funds ($510,943)
The remaining firms paid amounts ranging from $1 to $440,070.
Other financial relationships
The mutual fund’s distributor or affiliate may also make payments to AEIS for networking and/or omnibus support and other client services and account maintenance activities.
Ameriprise Financial Services also provides clients with access to mutual funds offered by other firms through the relationship AEIS has with Charles Schwab & Co., Inc. (“Schwab”), and Schwab’s mutual fund program. AEIS receives an asset based fee of up to 0.40% per year on some or all of Ameriprise Financial Services clients’ assets managed by participating mutual fund firms.
AEIS and its affiliates may have other relationships with firms whose mutual funds Ameriprise Financial Services offers. These relationships may include affiliates of firms acting as a sub-adviser to CMIA, CMIA acting as a sub-adviser to a third-party firm, or affiliates of a firm managing an investment portfolio within another Ameriprise or affiliated product, such as a RiverSource variable annuity. Firms may use CMIA to manage an underlying investment option in products offered through the Program.
AEIS has a marketing support agreement with BlackRock Advisors, LLC with respect to mutual fund positions held by Ameriprise Financial Services customers. BlackRock, Inc. owns more than five percent of the outstanding shares of Ameriprise Financial, Inc. stock.
Ameriprise financial advisors pay charges on mutual fund sales, purchases and exchanges (“transaction charges”). Transaction charges are determined using a variety of factors such as: the type of transaction, processing methodology (e.g., online, telephone, systematic arrangements), account type (fee-based SPS Advantage account/transaction-based brokerage account), and, in one case, the firm.
Ameriprise financial advisors pay the same mutual fund transaction rate for orders entered by phone for all mutual fund firms.
AEIS and other affiliates provide certain administrative and transfer agent services to the Columbia Threadneedle Funds.
Ameriprise Financial Services may enter into strategic alliances with companies that offer products or services that Ameriprise Financial Services and its financial advisors do not sell. In some of those alliances, Ameriprise financial advisors may receive gifts and offers from the other companies. Ameriprise Financial Services and its affiliates generally receive more revenue from sales of affiliated mutual funds than from sales of other mutual funds. Employee compensation and operating goals at all levels of the company are tied to the company’s success. Certain employees may receive higher compensation and other benefits based, in part, on assets invested in affiliated mutual funds.
Summaries of 2016 mutual fund firms’ marketing support follow, segmented by mutual fund or 529 products:
Mutual fund marketing support arrangements by fund firms (Jan. 1, 2016 to Dec. 31, 2016)1
|Fund family||Marketing support payments from fund firms in 20162||Source of payment|
|AllianceBernstein||$795,918.79||AllianceBernstein Investment Research and Management, Inc.|
|Allianz Global Investors||$1,379,310.04||Allianz Global Investors Distributors, LLC|
|American Century||$5,782,167.92||American Century Investment Services, Inc.|
|Blackrock||$15,968,000.13||BlackRock Advisors, LLC|
|Calvert||$1,420,993.63||Calvert Distributors, Inc.|
|Columbia Threadneedle Investments||$55,635,579.04||Columbia Management Distributors, Inc.|
|Deutsche Asset & Wealth Management||$4,468,929.93||DeAWM Distributors, Inc.|
|Dreyfus Funds||$3,669,708.01||The Dreyfus Corporation and/or Dreyfus Service Corporation|
|Eaton Vance||$5,858,186.60||Eaton Vance Distributors, Inc.|
|Federated||$3,698,818.60||Federated Securities Corp.|
|Fidelity||$10,942,737.24||Fidelity Distributors Corporation|
|Franklin Templeton||$4,552,659.64||Franklin Templeton Distributors, Inc.|
|Goldman Sachs||$6,915,785.01||Goldman, Sachs & Co.|
|Invesco||$9,529,756.02||Invesco Aim Distributors, Inc.|
|IVY Funds||$4,482,099.36||Ivy Funds Distributor, Inc.|
|Janus Advisor||$3,099,173.70||Janus Capital Management, LLC|
|John Hancock||$9,639,878.66||John Hancock Funds, LLC|
|J.P. Morgan||$10,665,098.00||J.P. Morgan Distribution Services, Inc.|
|Legg Mason||$5,576,738.81||Legg Mason & Co., LLC|
|Lord Abbett||$4,120,479.97||Lord Abbett Distributor LLC|
|Mainstay||$2,478,015.97||New York Life Investment Management, LLC|
|MFS||$22,838,670.47||MFS Fund Distributors, Inc.|
|Neuberger Berman||$1,265,496.55||Neuberger Berman LLC|
|Oppenheimer||$14,387,455.49||Oppenheimer Funds Distributor, Inc.|
|PIMCO||$2,227,252.86||PIMCO Investments, LLC|
|Principal||$1,884,392.35||Principal Financial Services, Inc.|
|Prudential||$8,131,528.65||Prudential Investments, LLC|
|Putnam||$4,612,396.81||Putnam Retail Management Limited Partnership|
|Virtus||$6,488,955.32||Virtus Investment Partners, Inc.|
|Wells Fargo||$13,562,762.06||Wells Fargo Funds Distributor, LLC|
|Total marketing support payments from fund firms in 20162:||$254,016,580.00|
529 plan marketing support arrangements by fund firms (Jan. 1, 2016 to Dec. 31, 2016)
Summaries of 2016 mutual fund firms’ marketing support follow, segmented by mutual fund or 529 plan products:
|Fund firm||Marketing support payments from fund firms in 20163||Source of payment|
|AllianceBernstein||$36,904.38||AllianceBernstein Investment Research and Management, Inc.|
|Allianz||$11,355.46||Allianz Global Investors Distributors, LLC|
|American Century||$97,085.28||American Century Investment Services, Inc.|
|Blackrock4||$50,000.00||BlackRock Advisors, LLC|
|Calvert||$4,254.80||Calvert Distributors, Inc.|
|Columbia||$311,456.86||Colombia Management Distributors, Inc.|
|Fidelity||$837,172.91||Fidelity Distributors Corporation|
|Franklin Templeton||$39,117.17||Franklin Templeton Distributors, Inc.|
|Hartford||$33,047.08||Hartford Securities Distribution Co., Inc.|
|IVY Funds||$10,380.82||Ivy Funds Distributors, Inc.|
|John Hancock||$404,463.78||John Hancock Funds, LLC|
|JP Morgan||$324,645.46||J.P. Morgan Distribution Services, Inc.|
|Legg Mason||$112,088.65||Legg Mason & Co., LLC|
|MFS||$143,860.00||MFS Fund Distributors, Inc.|
|Oppenheimer||$314,702.08||Oppenheimer Funds Distributor, Inc.|
|Putnam||$41,973.38||Putnam Retail Management Limited Partnership|
|Voya||$373,082.33||Voya Investment Distributors, LLC|
|Total marketing support payments from fund firms in 20163:||$3,145,585.00|
1 Marketing and sales support was paid to AFSI through 2016. Effective, Jan. 1, 2017, payments are delivered to AEIS.
2 “Marketing support payments” represents amounts recognized as revenue by Ameriprise Financial Services, Inc. for the billing period from January 1, 2016, through December 31, 2016, on retail mutual fund sales and assets. These figures also include amounts pertaining to participation in Ameriprise-organized conferences.
3 “Marketing support payments” represents amounts recognized as revenue by Ameriprise Financial Services, Inc. for the billing period from January 1, 2016, through December 31, 2016, on 529 plan sales and assets. These figures also include amounts pertaining to participation in Ameriprise-organized conferences.
4 A flat-fee amount paid in lieu of sales- or asset-based marketing support.