Citigroup Inc. is stepping up its efforts to become a major player in the U.S. wealth management business.
The bank last week hired two veteran brokerage executives to help beef up its Citigold Wealth Management service, which it offers to customers who keep at least $100,000 in their accounts at the bank.
Citigroup also plans to hire 500 additional personal bankers and financial advisers over the next two years, which would boost its ranks to about 800.
“This is not a product proposition; it's a financial services delivery model,” said Venu Krishnamurthy, president of the Citigold Wealth Management division.
“Citigold will combine premium banking services with wealth management to the affluent customer segment,” he said.
The newcomers to the Citigold lineup are former Merrill Lynch executive John Cummings, who will be chief operating officer, and Frank Consalo, a former PNC Investments executive, who will head the adviser sales force.
The high-profile hirings came days before Morgan Stanley said that it will buy another 14% of the Morgan Stanley Smith Barney LLC venture this year. The two firms combined their retail-brokerage operations in 2009 during the depths of the financial crisis.
Citigroup was forced to sell a controlling stake in the venture to Morgan Stanley, which is expected to complete the purchase of the retail brokerage by the middle of 2014.
In the early 2000s, Citigroup attempted unsuccessfully to cross-sell financial services after its mergers with Travelers Insurance and Salomon Smith Barney. Its new strategy, which is intended to integrate wealth management services into bank branches, may have a better shot because it is starting small, industry analyst Scott Smith said.
“Citi building this from the ground up is probably an advantage,” said Mr. Smith, who is an associate director with Cerulli Associates Inc.
“They can hire advisers who are OK with being relationship managers rather than just portfolio managers,” he said. “When you back into it like Bank of America [Corp.] and Merrill Lynch did, there can be a lot of struggles.”
Citigroup, of course, is hardly the only big bank competing in the wealth management arena. JPMorgan Chase & Co. in 2007 unveiled Chase Private Client for customers with $500,000 of assets to invest.
The bank is launching 200 Chase Private Client locations this month and plans to have 1,000 offices and 1,250 bankers and advisers by year-end. That's up from about 250 offices and 500 bankers and advisers at the end of 2011, Chase spokeswoman Melissa Shuffield said.
To date, the Citigold offering in the United States has been focused on banking products, giving customers with account balances of more than $100,000 higher interest rates and various other perks, such as waived fees and discounts on other banking services.
The wealth management side of the offer has been successful in other markets, most notably in Asia.
In the United States, the Citigold program has about $100 billion in total assets, with about $20 billion in investments, according to the company.
Citigold is targeting a huge range of potential customers: those with between $100,000 and $25 million in assets. The program is tiered, with more services offered to customers with more assets at the bank.
“The sweet spot is customers with between a few hundred thousand and several million dollars,” Mr. Krishnamurthy said.
Clients with more than $500,000 have access to a personal relationship manager who can tap other specialists at the bank for investment expertise.
Those with more than $1 million become part of the Citigold Private Client group. They get additional pricing benefits on services, and generally, an adviser will be more involved in the relationship as investments, rather than banking services, become more important.
AFFLUENT, YOUNG CLIENTS
“They're leveraging the strength of the bank and differentiating themselves from, say, a Morgan Stanley that doesn't have the mortgages, the lending and the other banking capabilities that they do,” said Sophie Schmidt, a senior analyst with Aite Group LLC.
She thinks that the offering could be particularly appealing to affluent, young clients who are more apt to consider their bank their primary investment adviser.
“This is trying to provide the holistic offering that the wirehouses don't,” Ms. Schmidt said.
Citigold clients have a choice about how they pay for services and through what channels they interact with their advisers. Those who want to pursue more-self-directed investing can choose a commission-based pricing system, while those who want their assets fully managed can go with a fee-based plan.
To keep account managers' interests aligned with their customers', the Citigold relationship manager is compensated by salary and a bonus, with the incentive pay driven by overall growth in the portfolio.
“We're product-agnostic. We don't compensate them any differently if a customer has $100,000 in deposits or in investments,” Mr. Krishnamurthy said.
The advisers, on the other hand, are paid on a variable compensation model.
“We reward their production but incorporate incentives for them to work with other team members and to align their interests with their clients',” Mr. Krishnamurthy said.
Citigroup's reputation suffered as much as any large financial institution's during the market crisis, and it remains to be seen whether affluent customers will be willing to entrust more of their assets to the bank.
But having cleared the decks of its retail-brokerage operations at Smith Barney, Citigroup may now be better positioned to make it happen, Mr. Smith said.
“The plumbing is all there; it's a matter of commitment and execution,” Mr. Smith said.
“Corporate politics is what always messes things up,” he said. “Everybody needs to be on the bus.”
aosterland@investmentnews.com
