Strategy

Citi's Wealth Advisors To End Commissions In Major Overhaul

Tom Burroughes, Editor, London, 6 October 2009

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Citi has moved to change how it operates its financial advisory services, scrapping commissions-based advice and instead moving to charge clients a set fee.

The Wall Street banking and wealth management firm, which has moved to spin off its Smith Barney wealth brokerage operations in a joint venture with Morgan Stanley, will charge clients a fee of about 1 per cent of invested assets. Citi’s wealth management business manages about $30 billion on behalf of customers.

The move could be significant for wealth management more broadly in the US and elsewhere. In the UK, for example, financial advisors have been increasingly adopting a fee-based rather than commission-driven remuneration model in a bid to assure clients that advice is genuinely independent and not driven by "product push".

Citi will give clients who want wealth management services through Citibank branches the option of working with Citi's own financial advisors, or of choosing independent advisors with whom Citi will begin to form relationships, and who will pay Citi a fee for the referral.

Citi will also retrain some of its existing brokers to be part of internal teams of fee-based financial consultants as well as helping customers to choose between internal and external advisers. The bank plans to scrap all commission-based compensation by 2011.

The bank is in talks with some of the largest RIA firms in the US and expects to announce deals in certain markets in the near future, Deborah McWhinney, head of personal banking and wealth management, as saying in a statement.

The changes are designed to reassure customers with a service that is less geared to promoting complex financial products. Cit has already moved to shift the focus of its investment banking business away from proprietary trading.

Ms McWhinney joined Citi in April this year, highlighting the relative speed of the changes.

One Citi advisor worried about the impact on his compensation and clients was quoted as saying by the Wall Street Journal: "I am shocked, nobody expected that." He added, "Good luck keeping your reps."

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