Can Goldman Sachs and Citigroup catch up on hiring advisors?

Both banks have recently signaled their interest in bolstering their wealth management operations, but they can't snap their fingers and conjure financial advisors from thin air.

Two Wall Street giants, Goldman Sachs Group Inc. and Citigroup Inc., which for the most part missed the boom in hiring financial advisors since the 2008 credit crisis, now look as if they’re trying to build their wealth management operations, which means recruiting experienced financial advisors, training youngsters and adding advisors through acquisitions.

Keep in mind, Goldman Sachs and Citigroup are trying to figure out this market as demand for financial advisors is greater — and more crowded — than it’s ever been. Financial advisors enjoy more freedom than ever, and have more and better ways to work and manage their practices than they ever have before.

That all translates into financial advisors demanding the kind of pay, through fees, commissions or salaries, that they want and deserve. It’s a starkly different market than in 2009, when Citigroup dumped its high-tier financial advisor business Smith Barney, which had 17,000 brokers, selling it to rival Morgan Stanley.

Both banks have recently signaled their interest in hiring financial advisors. At the end of March, Citigroup hired Andy Sieg, who had been head of Merrill Lynch Wealth Management and its thousands of financial advisors, to lead Citigroup’s global wealth business.

When asked last month on a conference call with analysts about Sieg’s hiring at Citigroup, CEO Jane Fraser said: “We see a lot of potential for growth in Asia as we fill in the coverage across the full wealth spectrum there. We will be scaling up in the U.S. by building out the investment offering and cross-selling into our existing and new clients across the country.”

And just last week, Goldman Sachs’ president John Waldron made it clear the bank was looking to hire financial advisors to work with very rich clients, or those with more than $10 million in assets.

“The growth opportunities for us relate to hiring more advisors,” Waldron said at an industry meeting last Thursday.

That’s quite a turnaround for each institution. Can Goldman Sachs and Citigroup catch up on hiring financial advisors after mostly sitting on the sidelines for almost a decade and a half?

A Goldman Sachs spokesperson declined to comment. Citigroup did not respond to calls this week to comment.

It’s going to be a thorny patch for both, despite recent indications that both want to have a bigger market share of financial advisors who work with the wealthiest, and therefore the most profitable, clients. Banks can make all the public statements they like, but they can’t snap their fingers and conjure financial advisors from thin air.

Goldman Sachs currently has about 1,000 financial advisors for the wealthy, whom the bank calls “private wealth managers” internally, and is also looking to expand globally or outside the United States.

Meanwhile, Citigroup is focusing on internal or “organic” growth at its wealth management unit, now under Sieg’s control, according to Fraser’s comments.

But it’s tough to grow internally, as any experienced wealth management executive will tell you.

That means that some time in the future, both Goldman Sachs and Citigroup will most likely have to buy large enterprises, and potentially overpay in the process, to be more competitive in the wealth management industry. Goldman Sachs already made such a move in 2019 when it bought the registered investment advisor aggregator United Capital for $750 million in cash, although those financial advisors target clients with fewer assets than the super rich Goldman currently wants.

This isn’t to say that Citigroup and Goldman Sachs will fail in their efforts. But it sounds as if they don’t realize they are currently competing in a market where they have given the competition a 10-to-15-year head start in the race to hire financial advisors.

That includes firms that work with financial advisors to the wealthy, those with $10 million or more in assets, like upstart Rockefeller Capital Management and industry giants like Morgan Stanley and JPMorgan Chase & Co.

And don’t forget hiring juggernauts such as LPL Financial, Raymond James Financial Inc. and Commonwealth Financial Network, whose advisors typically target the less than super rich.

It’s tough to imagine that Citigroup hired Sieg just to shuffle its operations around internally to boost revenue. A big part of Sieg’s legacy at Merrill Lynch is goosing financial advisors by paying them more to chase new households and clients and get them to be customers. His legacy is driving financial advisors’ behavior to increase firm revenue.

Recent hiring at Citigroup and Goldman has been spotty; according to InvestmentNews data, the former had a net gain of 113 financial advisors last year and the latter a net loss of 19. Still, both are indicating that they will compete more vigorously in wealth management.

Good luck hiring the financial advisors who will do the work.