Ameriprise 2011 Annual Report Download - page 64

of certain items. In the event that the ultimate tax treatment of items differs from our estimates, we may be required to
significantly change the provision for income taxes recorded in our Consolidated Financial Statements.
In connection with the provision for income taxes, our 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.
We are required to establish a valuation allowance for any portion of our 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 our ability
to realize our deferred tax assets and avoid the establishment of a valuation allowance with respect to such assets.
Management believes it is more likely than not that we 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.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results
of operations and financial condition, see Note 2 to our Consolidated Financial Statements.
We adopted new accounting rules for the deferral of insurance and annuity acquisition costs on January 1, 2012 on a
retrospective basis. The change reduced our DAC asset by $2.0 billion, which decreased retained earnings by $1.4 billion
after-tax. The retrospective adoption increased our return on equity from continuing operations excluding accumulated other
comprehensive income by 2.4% for the twelve months ended December 31, 2011. The adoption will not impact our strong
excess capital position or cash flow. We estimate that the adoption will have a marginal impact to operating earnings in
2012.
Sources of Revenues and Expenses
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.
Our management fees are generally accrued daily and collected monthly. A significant portion of our management fees are
calculated as a percentage of the fair value of our managed assets. The substantial majority of our managed assets are
valued by third party pricing services vendors based upon observable market data. The selection of our 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 our 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 our domestic mutual funds during 2011. We recognized PIA revenue monthly on
a 12 month rolling performance basis. We may also receive performance-based incentive fees from hedge funds,
Threadneedle Open Ended Investment Companies (‘‘OEICs’’), or other structured investments that we manage. 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 and
approximately 1% of managed assets as of December 31, 2011 are subject to ‘‘high water marks’’ whereby we will not
earn incentive fees even if the fund has positive returns until it surpasses the previous high water mark. Employee benefit
plan and institutional investment management and administration services fees are negotiated and are also generally
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