More details emerge about Citigroup’s RIA referral program

In a much-anticipated move, Citi Personal Wealth Management, the last vestige of retail brokerage at Citigroup Inc. following its spinoff of Smith Barney last June, aims to launch a referral program to outside registered investment advisers this summer.
Details about the program, which is being spearheaded by Deborah McWhinnney — the personal wealth unit’s boss and former head of The Charles Schwab Corp.’s institutional brokerage division for independent investment advisers — are now becoming clearer.
The pricing scheme for Citi’s program will be different than the one Ms. McWhinney oversaw at Schwab, substituting a flat 20% of an RIA’s fee on the referred assets for the 0.25% of assets that Schwab collects on accounts referred to advisers, according to a person briefed on the details, who asked not to be identified. Schwab’s fee drops as advisers’ referred assets increase.
Citi plans to initiate the program with “a handful of highly qualified RIA firms” in New York and San Francisco within the next several months and expand the program into 2011, bank spokesman Samuel Wang wrote in an e-mail.
RIAs will be required to use Pershing Advisor Solutions LLC as the custodian for most assets of referred clients, said Tim Williams, director of field operations for Citi Personal Wealth Management.
The referral initiative is part of a strategic shift that Ms. McWhinney announced last October after Smith Barney and its 13,000 financial advisers were folded into a Morgan Stanley-controlled joint venture. She said that she would gradually eliminate commission-based compensation for the remaining branch-based advisers, transforming them into fee-based investment advisory representatives for wealthier clients, while shuttling self-directed investors or those with minimal investible assets to call centers.
Recognizing that wealthy bank clients could no longer be steered to some of the upper-level services and products of Smith Barney and that many of them would be uncomfortable with the déclassé image of branch-based brokers, Ms. McWhinney — who is also head of Citi’s personal-banking activities — said that referrals to outside RIAs would complement in-house expertise and broaden geographic coverage.
Whether there will be many assets to refer is subject to debate.
“I’m not sure it’s going to get much traction,” said Richard Stone, chief executive of Private Ocean, an RIA with about $658 million in assets. “Banks have enough trouble trying to cross-sell among their own departments, let alone go external.”
Some advisers who expect to participate in the program said that they are confident that Citi is structuring it to all but ensure that clients with $2 million or more will be given the opportunity to pick an outside RIA. The key is that referrals will be made not by in-house brokers but by about 150 salaried “investment consultants,” who will guide bank clients and prospects to the call center, in-house advisers or external RIAs.
RIAs briefed on the program said that Ms. McWhinney expects that clients or prospects with between $300,000 and $2.5 million in investible assets will be sent to in-house brokers, those with about $2.5 million to $20 million to RIAs and those with more than $20 million to Citi’s private bank.
“Asset tier thresholds are only a component of determining the right fit between a prospective client and an investment adviser,” Mr. Wang said.