wealth management operations in the US to focus on advising clients
according to their net worth. The key aim is to make its brokers
more like professional private banking advisers and to quell
feuding between the two sides.
Citigroup Global Wealth Management, rolling out a new management
line-up in North America that puts advisers at its Smith Barney
brokerage and the bank’s private bankers under one roof, is trying
to create seamless teams made up of private bankers and
brokers.
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That will mean trying to wean brokers away from an entrenched
‘stock jockey’ mentality and instead convert them into advisers
able to advise on a wide range of requirements for the high net
worth. The reorganisation is also aimed at snuffing out the feuding
that can break out between brokers and private bankers, with both
sides keen to keep their clients away from the other.
The experiment will be watched closely on Wall Street, where a
number of big firms such as Morgan Stanley and Merrill Lynch have
similarly been moving to upgrade the quality of financial advice
offered by their brokerage work forces.
A number of big banks are looking for synergies between broking and
classic private banking. For example, a client may go to a private
banker for one investment and to the broker for another, with
little or no co-ordination between the two.
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By GlobalDataFour new segments will be created in the Citi reorganisation,
according to an internal memo from Citi Global Wealth Management
head Sallie Krawcheck. The changes are aimed at shifting Citi from
a “silo-first” to a “client-first” organisation, leveraging the
expertise and capabilities across Smith Barney, the Citi Private
Bank and Citi as a whole more effectively to serve different client
segments, she declared.
“One size does not fit all and this is particularly true in wealth
management,” Alois Pirker, senior analyst at US consultancy Aite
Group, commented.
Citi’s organisational structure in wealth management, based on
brands rather than client segments, has left it with a significant
amount of inefficiency and, more importantly, an inconsistent
message to the various client segments, Pirker contends.
One Citi division will be responsible for institutional clients,
one for customers with assets between $500,000 to $25 million, one
for ultra high net worth clients with $25 million and upwards, and
another for ‘emerging affluent clients’ with less than
$500,000.
People movement
Charlie Johnston, now chief executive of Smith Barney, will become
president of global wealth management for the US and Canada. John
Longley will remain head of the US private bank and take over
responsibility for ultra-HNW clients.
Longley will also be the head of Citi’s private bank and Smith
Barney’s Family Office “as we create nothing less than the leading
ultra high net worth offering in the industry”, the Krawcheck memo
said. “I have asked John to lead a group of our top bankers and
advisers to create this important platform, starting immediately.
They will meet regularly over the next couple of months to advise
on the best ways to provide our clients with the depth and quality
of products and services that only Citi can offer.”
Longley’s leadership team will include: Mark Connolly, head of
lending; Dave Corley, chief operating officer; Rich Ditizio, head
of the ultra high net worth bankers; Dan FitzPatrick, head of Citi
Trust; Lori Heinel, head of investments; Deborah Larrison, head of
Citi capital strategies; Kevin Morrison, head of capital markets;
Ed Orazem, head of Citi Family Office; and Lester Pataki, head of
the Law Firm Group.
Deepak Sharma will continue as CEO of Citi GWM International and
oversee the businesses in Asia, Latin America and Europe, Middle
East and Africa. He will also take on added responsibility for
global wealth structuring and structured lending for the
international regions.
The reorganisation is seen as part of the efforts by Vikram Pandit,
who became chief executive of troubled Citigroup in December, to
try to make the bank more efficient and more responsive to
customers.
Ongoing financial concerns
Citi’s stock price has been testing 52-week lows at just above $20
amid further concerns about subprime exposures. Merrill Lynch
analyst Guy Moszkowski has asserted that Citi will still need to
write down $15 billion in subprime mortgage exposure and $3 billion
in leveraged loan and commercial real estate exposures.
Although some analysts have called for the bank to be broken up, or
even for it to divest the wealth management unit, the
reorganisation signals that Citi remains committed to global
wealth. The reorganisation of its wealth management unit should put
an end to the speculation regarding a potential break-up.
Doubts and uncertainties
But some doubts have been expressed over the restructuring, amid
warnings that private banking clients could see some erosion of
service levels. It could lead to a more ‘commoditised’ model, with
private bankers also asked to take on brokerage duties.
In addition, details are awaited of how Citi will compensate staff
in future. Private bankers are typically paid with a fixed salary
plus bonus, while financial advisers get a percentage of the
commissions and fees that they bring to a firm.
Wall Street is also speculating that Citi will continue to develop
its single brand strategy and drop the Smith Barney name
altogether, similar to what UBS did with its PaineWebber brokerage
arm in the US.
In the memo, Krawcheck insisted that this “reorganisation will
allow us to sharpen our focus around our client orientation in a
manner that is meaningfully better than our competitors”.
Benefits of restructuring
Still, Aite’s Pirker believes that the new structure, if it is
implemented well, should allow the company “to consolidate many of
the back-office functions and generate significant cost
savings”.
Additionally, it will allow each of the newly created wealth
management units to sharpen their product offerings and servicing
channels to the particular client segments and to increase
competitiveness in each respective market, Pirker
concludes.
