McWhinney's custody plan for RIAs may reunite her with Charles Goldman

October 6, 2009 — 5:49 AM UTC by Brooke Southall


With its mighty Smith Barney sales force gone, Citicorp is taking a page from the Charles Schwab & Co. playbook and co-opting RIAs to manage the advisory accounts of its high net worth clients.

The money center bank will funnel referrals from its branches not only to members of its own advisory staff but to select registered investment advisors around the country.

The decision to take Citi in this new direction comes from than Deborah D. McWhinney, former head of Schwab Institutional in her new role as head of Citi Personal Banking and Wealth Management. (McWhinney, 55, has now left this position and as of Feb. 16, 2011, it remains unfilled)

“You kind of get the best of both worlds” of independence and association with a giant bank, she says of the opportunity for financial advisors who affiliate with Citi.

McWhinney’s move is designed to rapidly ramp up the capacity of her company to serve affluent clients after Citi was left with only 600 branch brokers and $30 billion of assets under advisement in the wake of Smith Barney’s merger with Morgan Stanley.

“Even with 600 [advisors] around the country and all the potential clients, we really don’t have enough teams to serve the market,” McWhinney says.

Though the company has a trust department and a private banking unit, those advisory teams are not suitable to absorb many referrals because they typically only handle the accounts of the ultra-affluent, explains Alex Samuelson, spokesman for Citi.

Referral hotline

McWhinney declined to specify how many RIAs would join in the referral program but a Citi press release says that the company is in “advanced discussions” with top RIA firms around the United States. The two test markets for these referrals are likely to be New York and San Francisco, according to sources.

“We’ll see how many we need,” she says.

As part of yesterday’s announcement, Citi is also inviting brokers to break away from wirehouses to its platform. [To apply to receive referrals or to affiliate with Citi, advisors can call 877 357 3399 and talk to Greg Byrne (

“We will recruit interested advisors from [wirehouses] to either join a Citi Personal Banking and Wealth Management team or become an investment consultant,” Samuelson says.

These investment consultants are a new class of employees at Citi whose duty it will be to make sure that clients and prospects get assigned to RIA or Citi staff advisor who best suits their needs.

“The investment consultant will present to a client/prospect two or three investment advisor team choices,” Samuelson adds. “This list may be a mix of inside CPWM teams and/or outside RIA. There is no hard-fast rule as to which, but rather who is the best match for the client will dictate referral.”

Those breakaway advisers will initially keep their assets on the Smith Barney platform but Citi will move them to an RIA custodian by 2010.

Citi’s marriage to independent advisors just might form a powerful combo, according to T.J. Gilsenan, principal of Advisor Web Strategies who formerly marketed RIA custody services for Schwab and Pershing.

“Debby McWhinney has a banking background, knows how RIAs operate, and probably picked up a thing or two about running investment branches while at Schwab,” he says. “If they can execute, Citi has the marketing muscle to tell the story and the bricks and mortar to support it.”

For now, Citi will use the Smith Barney brokerage platform to custody the assets of independent advisors but it plans to phase it out by 2011 and to utilize a true RIA custody platform.

Fidelity is frontrunner

McWhinney pointed to Fidelity Institutional Wealth Management as a front-runner to become Citi’s outsourced custody partner because it works hand-in-hand with National Financial Services.

These dual capabilities of clearing and custody are important to Citi. Though its staff advisors and RIA clients will engage strictly in fee-based business, Citi needs clearing capabilities to give its self-directed investors the ability to buy securities through brokerage transactions.

The necessity of facilitating both pay structures eliminates Schwab from contention as custody partner, McWhinney adds.

The executive who oversees both National Financial and Fidelity’s RIA custody unit is Charles Goldman. He reported directly to McWhinney at Schwab before heading its custody unit himself. Ms. McWhinney left Schwab in early 2007, after overseeing Schwab Institutional for five years and joined Citi in April.

Bigger implications

Citi’s strategy to use RIAs has bigger implications for its franchise than merely competing in the advice market, says Matt McGinness, principal with Best Practice Research in San Diego and former RIA researcher with Cerulli Associates.

The risk for Citi is that if it fails to refer its high net worth clients to capable advisors that it potentially loses control over other aspects of the banking relationship, he says.
“Rather than having them go over to a competitor, they’re better off creating a referral network,” McGinness adds.

As part of her sweeping changes, McWhinney is also converting Citi’s 600 branch brokers from a commission-based compensation system to one based on fees in 2010.

This move is likely to result in better care of clients because it will likely entail greater use of wrap accounts,McGinness says. More careful attention will likely be paid to the management and rebalancing of these accounts, he contends.

The difficulty for Citi will be to make these accounts profitable under the new advisory pricing scheme, he adds. That’s because accounts at bank branches tend to be smaller ones with only $50,000 to $100,000 of assets.

“The economics of wrap accounts don’t work for a hands-on advisor” because the revenues aren’t high enough to pay for the labor,, McGinness says. “It needs to be fully packaged and hands-off” to be profitable.

Editor’s query: Will this move by Citi into the RIA business have big consequences for the industry? Please leave a comment.

Share your thoughts and opinions with the author or other readers.


Stephen Winks said:

October 7, 2009 — 5:35 PM UTC

Is this the end of Wirehouse Recruiting bonuses that require major Wall Street firms to compete on the basis of who provides the biggest bonuses for advisors to bring their assets to another firm?

McWhinney doesn’t want any part of this.

Rather, than throwing money around like wirehouses and trying to manage outsized egos, McWhinney is saying why not use the industry’s most accomplished RIAs and compete on the basis of the depth and breadth of the counsel provided. These RIAs are at least as productive as top brokers and do not cost a penny. She avoids the risk of loosing RIAs to the top bidder as RIAs are more committed as they already own their own business, and offer a level of service not possible in brokerage formate.

McWhinney gets an A-Plus for visionary leadership. This is cheaper, easy to manage and more effective for the consumer. Why get caught up in the unecessary hassels?

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Donald Campbell said:

October 4, 2016 — 9:50 PM UTC

I can see paying for advise but with so many Bernie Madolf out there to give up control of your money is like giving a power of attorney to a random bum on the street. BoA has brought investment to the little guy and as always his responsibilty to ensure his own future

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