Citi advisors seek potential suitors after McWhinney's tectonic pay shift

Editor’s Note: There is irony here. Citi Personal Banking and Wealth Management is looking to take its largely transactional branch advisors and convert them to fee-only business. It’s a fee-only RIA, Beacon Pointe Advisors, that is stepping up with a platform that allows the Citi’s advisors to remain transactional.

Just a week after Deborah D. McWhinney’s decision to make Citi’s financial advisors fee-only was made public, some of them are actively testing the waters at other firms.

One Citi Personal Banking and Wealth Management team has already visited the offices of Beacon Pointe Wealth Advisors of Newport Beach, Calif. and two more teams are scheduled to be interviewed there during the next few days, according to Matthew Cooper, Beacon’s president.

The timing couldn’t have been better for Beacon Pointe Wealth, which was launched last month as an entity for bringing aboard [mostly] smaller financial advisors looking for a place to continue as W-2 employees and to do commission and fee business. The new aggregating company is owned by Beacon Pointe Advisors, a fee-only RIA than manages about $4 billion.

Yesterday Cooper met a team of two Citi advisors from Orange County, and he’s meeting another Orange County-based Citi advisor today. On Thursday, he’s meeting the third Citi advisor from Los Angeles, he says.

These Citi advisors are seeking more information about working with Beacon Pointe after McWhinney announced last week that she was taking all 600 advisors working in Citi branches to a fee-only structure.

These advisors will stay on the Smith Barney platform temporarily but will be eventually moved to a pure RIA custody platform – most likely at Fidelity Institutional Wealth Management — in 2011.

The meeting with the two-man Citi team gave Cooper a good indication of why these advisors are acting with such urgency to explore their options.

Debby McWhinney’s next challenge is to
devise pay plan that appeases Citi
advisors

“They’re worried about what the ultimate consequences will be to the compensation package”’ because they fear that the change will reduce their paycheck, he says. “These guys are hyper-sensitive to changes in the grid.”

No upfront cash

Unlike other roll-up type efforts Beacon is not paying upfront cash to the brokers it recruits from competitors. Instead, it promises to become a haven for smaller wirehouse advisors that receive payouts as low as 27% of their total production.

“That’s our niche,” Cooper says. “We’re looking to help the smaller guy.” He did not specify how he defined “smaller guy” but he mentioned advisors with assets under management of $30 million and $50 million.

Beacon Pointe plans to give these brokers a payout of up to 50% initially and as much as 70% over the long term, Cooper says. On a case-by-case basis, his company will also offer equity participation to some brokerage teams, he adds.

Beacon Pointe is consulting with Patrick Kelly, managing director of Willis Consulting Inc. in Scottsdale, Ariz.., a firm that recruits financial professionals. He says that there are two kinds of Citi advisors that might give Beacon Pointe a good look.

The most likely recruits are the branch brokers who have operated their entire careers in a commission-paying environment and may not have the “skill-set” to succeed in a fee-only environment, Kelly says.

The second group includes Citi advisors that were moved to the Smith Barney platform four years ago and built fee-based practices.

Tough nuts to crack

These advisors are energized to “kick the tires” but will be much tougher to sign on, Kelly says.

“[Such an advisor] is not going to run out the door until he truly understands what he can get at his current location,” he adds. “He’s not going to pull the trigger until he sees what Citi can do.”

Citi is still working to formulate its pay grid for its bank branch advisors, according to Alex Samuelson, spokesman for the company.

But Kelly can see why the Citi advisors would be drawn to Beacon Pointe. “They’ve been able to attract $4 billion,” he says. “It’s a little bit special.”

In addition, Beacon Pointe will —unlike Citi — facilitate both fee and commission business, Cooper says.

Still, McWhinney holds a major trump card in the tug of war for talented advisors, Kelly says.

“Bank brokers like the referrals” that flow from CitiGroup, he says.

Cooper says that he has also reached out to McWhinney [without success] in an attempt to get his RIA, Beacon Pointe Advisors, considered by her for Citi referrals.

In addition to shifting advisors to a fee-based platform, Citi also announced last week that it will be establishing relationships with outside RIAs. “We’re absolutely trying to get ahold of her,” he says.

In fact, if McWhinney were to ask his firm to back off on its overtures to Citi advisors, it would consider complying with her wish.

“We would stop [recruiting] if we felt the referral business was more valuable,” he says.