Citi to rebuild broker ranks, ends RIA plan

NEW YORK (Reuters) - More than two years after selling control of brokerage giant Smith Barney, Citigroup Inc this week abandoned its strategy of referring clients to independent investment advisers.

Citi said in a statement it cut 80 of its personal wealth management investment consultants in the United States as part of the move. The firm instead plans to expand the internal brokerage and wealth advisory services it already offers and, over the next year, add 30 financial advisers to the pool of 270 it already has.

The company will also expand its premium Citigold banking accounts, a program that refers customers to the bank’s financial advisers. Citi also said it will improve financial planning, retirement and insurance offerings, but did not give any details in its statement.

“They’ve been all over the map,” said one brokerage recruiter, who asked to remain anonymous because he sometimes does business with Citi. “It appears they’re going back to a more traditional approach to this business.”

Citi declined to comment beyond the statement.

This is Citi’s latest attempt to build a retail wealth management business since massive credit losses in 2008 sent Citi shares plunging and compelled two government bailouts.

In January 2009, Citi sold its 11,000-broker Smith Barney unit to Morgan Stanley for $2.7 billion in cash and a 49 percent stake in the resulting Morgan Stanley Smith Barney joint venture. Roughly 600 branch-based brokers remained at Citi when the deal was closed in June 2009.

In October of that year, Deborah McWhinney, who joined Citi in March 2009 after seven years heading Charles Schwab Corp’s investment adviser business, shook things up when she said brokers would no longer receive commissions and would become fee-based advisers.

She also introduced a plan to refer sophisticated customers to outside registered investment advisers and encouraged advisers to work in teams.

“The RIA plan was a quick fix,” Aite Group research director Alois Pirker said.

It was designed to help Citi rebuild a wealth management business without a lot of upfront expenses, Pirker added.

The strategy echoed one McWhinney oversaw at Schwab, an online brokerage that also sells custody services to RIAs. Brokerage clients are referred to select RIAs.

Hundreds of Citi brokers left and the wealth management sales force was nearly halved within a year of McWhinney’s arrival. The referral program did not get off the ground, analysts said.

In February, McWhinney left Citi wealth management to head up digital merchant acquiring in the bank’s payments business. Citi had about 400 wealth advisers at that time.

The latest announcement comes on the heels of similar initiatives at rivals such as Bank of America Corp, Wells Fargo & Co and JPMorgan Chase & Co. The banks are beefing up financial advice offerings for branch customers.

“The bank gets to be more strategic about what it wants, now that it has more breathing space,” said Aite’s Pirker, who took issue with Citi’s RIA referral plan. “You don’t want to delegate the advisory role to an external party. That’s where the value in these relationships lies.”

Citi, which has about 1,000 branches in North America, does not have much time to sort out its retail wealth management plans. Morgan Stanley can acquire full control of the brokerage venture from Citi by 2014, according to the agreement.

The bank’s efforts are dwarfed by rivals such as Wells Fargo, which has the third largest retail brokerage and nearly 4,000 branch-based advisers. Bank of America, which employs 16,000 Merrill Lynch brokers, also is expanding Merrill Edge, which offers online brokerage and soon will have more than 1,000 advisers located in branches and call centers.

Reporting by Joe Giannone; editing by Jennifer Merritt and Andre Grenon