In his first year on the job, Citi wealth head Andy Sieg has grown fond of saying his firm could one day be the biggest global wealth manager.
Speaking in June at the Morgan Stanley U.S. Financials, Payments & CRE Conference in New York, Sieg made it clear he's not in the business of dreaming small.
"You can't take this seat I'm in without, in my view, setting a very high bar in terms of what success should look like," according to a transcript of Sieg's remarks. "I mean, this should be the No. 1 wealth management business in the world over time."
But by almost any meaningful measurement, Citi has a very long way to go if it's to even come close to knocking firms like Morgan Stanley and Merrill off their vaunted pedestals. In its recently ended third quarter, Citi reported $580 billion in client investment assets, including assets under management, held in trust and in custody.
Morgan Stanley, by contrast, had nearly $6 trillion in client assets under management. Merrill had $3.5 trillion.
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Citi's $580 billion in investment assets puts it more on par with RBC Wealth Management, a U.S. subsidiary of Royal Bank of Canada. RBC wealth reported $648 billion in assets under administration in the third quarter of its fiscal year.
But there is a big difference between the two firms: RBC regularly trumpets big recruiting coups from its industry rivals. Citi, by contrast, tends to make recruiting headlines for losing advisors rather than bringing new ones aboard.
Citi officials recently announced a policy aimed at changing that.
Banking on the bank
In playing catchup, Citi executives are largely looking across their firm toward its large banking business. A new recruiting policy introduced last month for the firm's Citigold unit, which works with clients with $200,000 or more in assets, is meant specifically to appeal to advisors at wirehouses and independent firms who might consider wealth management positions in bank branches.
Citi is now aiming a recruiment deal at advisors or teams producing from $1 million to $2 million in annual revenue. Now they'll be able to receive anywhere from 100% to 250%, some of it as an upfront loan and some as a deferred loan tied to asset growth. Advisors who sign on have to agree to stay with Citi for nine years.
The deal is being offered in what Citi considers six key U.S. markets: New York, Miami, San Francisco, Chicago, Washington, D.C. and Los Angeles. The goal is to eventually have advisors in 75% of Citi's 641 "high opportunity" branches by 2026, up from 50% now.
David Poole, head of Citigold and Citigold Private Client in North America, acknowledged in a recent interview that payouts running as high as 250% of 12-month trailing revenue still won't rival some recruiting offers available from Citi's competitors. Many wirehouses and other large firms are dangling deals in the 300% to 400% range.
But recruits who come to one of Citi's branches will have the distinct advantage of being able to find clients through client referrals from its legions of bankers, Poole said. Poole said Citigold has a group of employees known as relationship managers now working with large books of client bank deposits.
Over time, these managers have been turning these deposit-only customers into wealth management clients. Citi has seen relationship managers make roughly 50,000 wealth referrals so far this year, Poole said, a figure up 50% year over year.
Those client-building prospects, rather than large recruiting deals, are what Poole thinks distinguishes Citi from its rivals. He and his team want to bring on advisors who, say, want to turn their $1.5 million in annual revenue production into $3 million in three to five years' time.
"We want the person that is not looking for just that big payout up front but looking for a career, a substantial time frame to come in and really be a part of Citi and that branch market, that market, and grow the book accordingly," Poole said.
'Well, what about Citi?'
Citi also estimates its clients have about $5 trillion in assets held with other institutions. Those are likewise viewed as an unmined vein of AUM by Citi executives.
Industry recruiters generally agree that Citi's niche in the wealth management industry is having bank-based advisors. That would make it more a natural rival of JPMorgan's or Wells Fargo's branch-housed wealth management businesses, rather than wirehouse titans like Morgan Stanley, UBS and Merrill.
Ron Edde, a recruiter and the president and CEO of Millennium Career Advisors, acknowledged the appeal of bank-based positions for advisors who are good at financial planning but maybe not at building books of business on their own. For such people, referrals are perhaps the best means available of bringing in new clients.
Still, whenever Edde talks to recruiting prospects about a possible bank-based position at a new firm, he has never heard one say, "Well, what about Citi?"
Edde said bank-based wealth managers notoriously have a harder time than other sorts of advisors moving their clients with them when they go from one firm to another. Their customers' multiple touchpoints with a firm — through both banking and wealth management accounts — tend to be more difficult to unravel than simple advisory relationships.
So recruiting bank-based advisors is likely to prove a slow way to build AUM.
"You can raise the bar all you want," Edde said. "But pulling bank-based brokers out of a position and expecting them to transition as many of their clients or assets under management as a wirehouse advisor or an independent advisor would is just delusional."
Jason Diamond, an executive vice president at the recruiting firm Diamond Consultants, said he thinks the offering for bank-based advisors is building up to bigger deals for standalone wirehouse or independent wealth managers. But if Sieg really wants Citi to rival some of the biggest industry incumbents, Diamond said, it may have to buy an advisory practice.
"He's turning the spigot on a little bit here," Diamond said. "And I think if that goes reasonably well, he will most likely move up market. But doing anything meaningful, it will probably have to be done via an acquisition, because too hard with just recruiting single practitioners."
A consultant's take on Citi's wealth business
Of course, recruiting is often only one part of building a world-class wealth management business. Citi executives have repeatedly talked of the unit's importance to the firm's overall goals, but outside analysts and recruiters have so far seen little to cheer.
A study by the consulting firm EY, reported on by Barron's in June, found that Citi's wealth management unit was suffering from "deterioration" in client trust and "cumbersome procedures" for opening new accounts. EY also found that, despite an ongoing plan to reduce by 20,000 employees across all its divisions, Citi is still not running as lean of an operation as most of its rivals.
Citi, like many large financial service firms, is drawn to the wealth management business because of its ability to produce a steady stream of income largely untethered to economic ups and downs. After hiring Sieg away from Merrill in spring 2023, Citi CEO Jane Fraser has again and again made it clear how much stock she's putting in him and his wealth management team.
"This is a time of massive global wealth creation, and our franchise is uniquely positioned for it," Fraser said in the firm's third-quarter earnings call last year, just after bringing Sieg onboard. "Andy will ensure we're at the forefront of what's happening around the world."
Some of the biggest changes Sieg has made have been to the wealth management unit's executive ranks. The results have been mixed.
Don Plaus, a former Merrill colleague of Sieg's who was brought out of retirement with much fanfare to oversee Citi's private bank, left after a mere four months on the job. Citi meanwhile has installed executives pulled from Morgan Stanley and Goldman Sachs, along with others formerly at Merrill, into top positions.
How to measure success
Sieg also has yet to pinpoint exactly by what measurement Citi can eventually become the "No. 1 wealth management business in the world." He did give some indication in his speech at the June Morgan Stanley conference of the numbers he's paying particular attention to. For one, he is seeking improvement in the firm's operating margins, or the percentage of revenue it gets to keep after expenses are subtracted.
Sieg said he wants eventually to have that margin at 30% — a lofty goal on par with one Morgan Stanley has set for its own wealth management unit. A more intermediate target for Citi lies in the 15% to 20% range, executives said in a recent call with analysts.
Still, even without that 30% margin, Citi was able to report a 9% year-over-year increase in its wealth management unit's revenue in the third quarter. That brought the unit's total revenue to just over $2 billion. The bulk of that, about $1.1 billion, came from the firm's Citigold unit. Its Wealth at Work offering, which provides services to law firms and various professionals, had $244 million in revenue, and its private bank, which works with wealthy clients, had $614 million.
For further growth, Sieg believes he knows just where to look.
"After 30 years plus in the wealth management business, I know, as investors know, the litmus test around a wealth franchise is: Are you generating net flows?" he said at the conference in June. "Are your clients bringing in more assets than they are taking away? Are you an asset gatherer?"
Citi did show some progress on that measure in its latest quarter. The firm reported its net asset inflows rose a whopping 267% year over year in its third quarter to $9 billion. Yet, despite the sweeping percentage increase, Citi's haul pales in comparison with its ostensible rivals' inflows in the same quarter. Morgan Stanley, for instance, reported nearly $64 billion in net new assets in the third quarter.
Saying goodbye to Smith Barney
Phil Waxelbaum, the founder of recruiting firm Masada Consulting, said Citi's recruitment troubles go far back beyond the present day. He locates them in Citi's decision to sell a roughly 50% stake in its Smith Barney brokerage unit to Morgan Stanley in 2009.
Morgan Stanley agreed to buy the entire business three years later. Smith Barney then had roughly 17,000 advisors and $1.7 trillion in assets under management.
That deal, initially arranged in the aftermath of the 2008 global market collapse, severed the association between wealth management and Citi in most people's minds, Waxelbaum said. And the firm hasn't come close to regaining its former reputation, he said.
"You can have the best-priced product on Earth. But if your store is in a bad neighborhood and nobody wants to go to it, you're not selling anything," Waxelbaum said. "Citi has no presence in the brokerage community. They don't exist. So how exactly are they suddenly going to come out of the gate in this way?"
In one of those fateful twists of history, Morgan Stanley's purchase of Smith Barney is now widely viewed as perhaps the key step in its path to becoming the top manager of assets in the U.S., if not the world. Waxelbaum and others think it's ludicrous to think Citi could build something so titanic after starting with so little.
But that doesn't mean Citi, with its current banking assets, couldn't turn itself into one of the biggest players in the bank-based wealth management world. JPMorgan CEO Jamie Dimon, after all, was able to build a substantial wealth business on his firm's colossal bank holdings.
So Citi isn't attempting the impossible, Waxelbaum said.
"It's been done before," he said. "They have something that nobody else has. They have the ability to create a referral network to known cash deposits. That's priceless, right? But you have to be able to show people an execution model. And right now, I don't see it."
