Ameriprise 2011 Annual Report Download - page 128

uncertain tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment
of certain items.
In connection with the provision for income taxes, the Consolidated Financial Statements reflect certain amounts related to
deferred tax assets and liabilities, which result from temporary differences between the assets and liabilities measured for
financial statement purposes versus the assets and liabilities measured for tax return purposes. Included in deferred tax
assets are significant capital losses that have been recognized for financial statement purposes but not yet for tax return
purposes as well as future deductible capital losses realized for tax return purposes. Under current U.S. federal income tax
law, capital losses generally must be used against capital gain income within five years of the year in which the capital
losses are recognized for tax purposes.
The Company is required to establish a valuation allowance for any portion of its deferred tax assets that management
believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established
and the amount of such allowance if required. Factors used in making this determination include estimates relating to the
performance of the business including the ability to generate capital gains. Consideration is given to, among other things in
making this determination: (i) future taxable income exclusive of reversing temporary differences and carryforwards;
(ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax
planning strategies. Management may need to identify and implement appropriate planning strategies to ensure its ability
to realize deferred tax assets and avoid the establishment of a valuation allowance with respect to such assets. In the
opinion of management, it is currently more likely than not that the Company will not realize the full benefit of certain state
net operating losses and therefore a valuation allowance of $5 million has been established as of December 31, 2011.
Sources of Revenue
The Company generates revenue from a wide range of investment and insurance products. Principal sources of revenue
include management and financial advice fees, distribution fees, net investment income and premiums.
Management and Financial Advice Fees
Management and financial advice fees relate primarily to fees earned from managing mutual funds, separate account and
wrap account assets and institutional investments, as well as fees earned from providing financial advice and
administrative services (including transfer agent, administration and custodial fees earned from providing services to retail
mutual funds). Management and financial advice fees also include mortality and expense risk fees earned on separate
account assets.
The Company’s management fees are generally accrued daily and collected monthly. A significant portion of the Company’s
management fees are calculated as a percentage of the fair value of its managed assets. The substantial majority of the
Company’s managed assets are valued by third party pricing services vendors based upon observable market data. The
selection of the Company’s third party pricing services vendors and the reliability of their prices are subject to certain
governance procedures, such as exception reporting, subsequent transaction testing, and annual due diligence of our
vendors, which includes assessing the vendor’s valuation qualifications, control environment, analysis of asset-class
specific valuation methodologies and understanding of sources of market observable assumptions.
Several of the Company’s mutual funds had a performance incentive adjustment (‘‘PIA’’). The PIA increased or decreased
the level of management fees received based on the specific fund’s relative performance as measured against a
designated external index. We discontinued the PIA earned by the Company’s domestic mutual funds during 2011. The
Company recognized PIA revenue monthly on a 12 month rolling performance basis. The Company may also receive
performance-based incentive fees from hedge funds or other structured investments that it manages. The annual
performance fees for structured investments are recognized as revenue at the time the performance fee is finalized or no
longer subject to adjustment. All other performance fees are based on a full contract year and are final at the end of the
contract year. Any performance fees received are not subject to repayment or any other clawback provisions. Employee
benefit plan and institutional investment management and administration services fees are negotiated and are also
generally based on underlying asset values. Fees from financial planning and advice services are recognized when the
financial plan is delivered.
Distribution Fees
Distribution fees primarily include point-of-sale fees (such as mutual fund front-end sales loads) and asset-based fees
(such as 12b-1 distribution and shareholder service fees) that are generally based on a contractual percentage of assets
and recognized when earned. Distribution fees also include amounts received under marketing support arrangements for
sales of mutual funds and other companies’ products, such as through the Company’s wrap accounts, as well as surrender
charges on fixed and variable universal life insurance and annuities.
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