Financial conglomerates are shrinking before our eyes. American Express executives unleashed a plan to spin off its American Express Financial Advisors unit in a conference call on Tuesday.

Executives made the case that the spin-off would give the unit some breathing room: "As an independent, publicly-owned company, AEFA would not only have direct access to capital markets but it would also have the flexibility and resources to … pursue growth investment opportunities without the constraints of the competing corporate priorities that exist today." Executives added "In short, we expect this transaction to position AEFA to grow at a rate that would not be possible under the American Express umbrella."

AEFA includes a 12,344-strong advising business, asset management and American Express mutual funds, and American Express Retirement Plan Services.

"AEFA is both a more capital- and people- intensive business. Its ROE, while consistent with peer companies, is in the low-to-mid teens ... There are relatively few critical strategic linkages between the two businesses that create a compelling case for keeping them together," they continued.

Jim Cracchiolo will head the new entity, tentatively-named American Express Financial Corporation. Executives expect the transaction to close in the third quarter.

AEFA will be allowed to use the American Express name for a limited period of time. American Express spokesman Paul Johnson declined to indicate what the company will be called after that.

Historically, American Express advisors have not done a tremendous job of selling proprietary mutual funds, so it's not clear what impact the spin-off of both businesses will have on fund distribution, if any.

In the past quarter, AEFA's 12,000 plus advisors sold $8.7 billion in mutual funds, according to a release. Although the company did not break out what portion of total sales were of non-proprietary funds, officials attributed a 12 percent increase in cash sales in part to "strength in non-proprietary mutuals" in an earnings release.

In the second quarter of 2004, Chief executive officer Gary Crittenden reported that the AEFA's proprietary fund sales remained flat, while non-proprietary sales increased "substantially." Total fund sales increased by 19 percent.

AEFA managed $292.7 billion in assets at the end of December. In total, AEFA has 2.5 million clients and administers $413 billion in assets.

The unit acquired Threadneedle, a UK asset manager, for approximately $566.5 million in June of 2003. 

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