The win is 'huge' and affirming of NetX360 because the account is big, branded and exclusive, analysts say

December 16, 2010 — 1:55 PM UTC by Brooke Southall


In a surprise move, Citigroup has chosen Pershing LLC as its clearing agent and the backbone of its RIA business.

The New York-based money center bank will use the Jersey City, N.J.-based clearing and custody company to replace Smith Barney in 2011 after its merger with Morgan Stanley. Fidelity had originally been named as the front-runner for the deal that appears to involve tens of billions in assets now and potentially much more in the future. Boston-based Fidelity declined comment.

Pershing Advisor Solutions, the RIA custody arm of the clearing firm, will support a referral network that’s been much anticipated in the advisory community. The plan was first laid out in October 2009 by Deborah McWhinney, Citi’s president of personal banking and wealth management.

She said Citi plans to refer high net worth customers on the banking side to RIAs that Citi Personal Banking and Wealth Management chooses. (McWhinney, 55, has moved to another position within CitiGroup since then and no replacement has been named.)

Leg up?

Because Pershing is managing the referral network, it may have a leg up in getting its advisors named as recipients of the mega-bank’s leads, according to an analyst.

McWhinney’s move is designed to ramp up the capacity of her company to serve affluent clients. Smith Barney’s merger meant that Citi lost its big sales force. In October of 2009, when McWhinney disclosed the plan, Citi had only 600 branch brokers and $30 billion of assets under advisement which is not nearly enough manpower or expertise to handle the volume — and in some cases sophisticated needs — of a potential avalanche of leads. See:Citigroup puts RIAs at the center of its strategy to retain banking clients

In June, the company said that after attrition, layoffs of low producers and new hires, Citi would have even fewer advisors: 450, according to an article by Jed Horowitz in InvestmentNews. The attrition related in part to the imposition of fee-based compensation in place of transactional-based pay. Citi said it would charge a flat annual 20% of an RIA’s fee on the referred assets, according to the InvestmentNews article. This information was from an anonymous source in the article. See: Citi advisors seek potential suitors after McWhinney’s tectonic pay shift

Citigroup had not responded to email and phone requests for an interview by the time of publication (though if we hear today, we’ll add the company’s thoughts). Pershing Advisor Solutions, which has about $80 billion of assets in custody, also declined requests for an interview. But Pershing’s spokeswoman Barbara Gallo issued a statement to RIABiz confirming the deal and what her company’s role will be in it.

“Pershing is delighted to have the opportunity to expand its relationship with Citi…by supporting its global Private Bank and Wealth Management businesses as they transition from self clearing to a fully disclosed relationship with Pershing,” she says. “Pershing will be supporting aspects of Citi’s global brokerage, advisory and corporate RIA services. Pershing Advisor Solutions will support the referral network planned for its RIAs.

“We look forward to delivering our comprehensive breadth of investment product choices, services and technology solutions to help their private bankers continue to serve their diverse client base well and grow their businesses.”


The deal is a watershed for Pershing and Citi, according to two consultants.

“Because it’s an exclusive arrangement, it’s a big brand and a big asset base at Citi, it’s a huge win for Pershing,” says Timothy Welsh, president of Nexus Strategy of Larkspur, Calif.

The deal is a major affirmation of all the work that Pershing has done to create a multi-faceted platform (encompassing NetX360) for fee and transactional business, according to Philip Palaveev, president of Fusion Advisor Network. Looking ahead, it’s potentially even bigger because it adds a new dimension to Pershing as it seeks to attract RIAs to its own platform, he added.

“It should generate opportunities for Pershing to attract RIAs who want to be recipients of referrals. Advisors went to Schwab, Fidelity and TD Ameritrade for referrals (from their retail branches).”

NetX360 is the platform technology that Pershing is using as part of its efforts to show that it can handle the holistic needs of broker-dealers who need RIA capabilities. Suresh Kumar, Pershing’s managing director, chief information officer and a member of the executive committee heads the effort. See:Pershing believes its case for NetX360 as the Apple equivalent for advisors is solid

In an earlier interview, McWhinney had named Fidelity as having the inside track on winning the Citi clearing and custody account because it could couple its offering with National Financial Services. At the time, Charles Goldman, who worked under McWhinney at Schwab, was head of the custody unit at Fidelity. He left there in March.

McWhinney and Tibergien ties

McWhinney is also very close personally with Mark Tibergien, CEO of Pershing Advisor Solutions, so it’s not surprising that Pershing would also be a comfortable choice for her, Welsh said. The two executives knew each other when McWhinney was head of Schwab’s RIA custody business until 2007 and Tibergien headed Moss Adams’ practice management consulting business. See: Mark Tibergien is making Pershing an industrial strength custodian with an RIA service touch

Citi is building the referral bridge to RIAs because its trust department and a private banking unit is geared to the ultra-affluent — not the merely high net worth investor, according to what Alex Samuelson, spokesman for Citi, said in an interview last Fall.

At the time McWhinney declined to specify how many RIAs would join in the referral program but Citi said that the company was 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 McWhinney

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

Still Palaveev cautions that McWhinney is trying to pull off a referral scheme that has been oft attempted and met with limited success.

“It’s going to be challenging as Schwab, TD and Fidelity have shown but they have an ambitious business plan and we can all keep our fingers crossed,” he said.

Mentioned in this article:

Nexus Strategy
Consulting Firm
Top Executive: Timothy D. Welsh

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