Citigroup surprised Wall Street with its first profit in more than a year when it announced first quarter earnings Friday, but the quarterly report also contained some bad news. Among other things, the firm’s global wealth management division shed $66 billion in client assets and 2,582 financial advisors and bankers over the past year.
Global Wealth Management’s total client assets in North America fell to $894 billion in the first quarter, a 30 percent drop versus the first quarter of last year. “It is encouraging indeed that Citi has turned in a quarterly profit for the first time in six quarters. However, looking at the firm’s wealth management numbers – specifically the US$40 billion net client asset outflows [in the first quarter]– gives one plenty of reason to worry,” says Alois Pirker, senior analyst at the Aite Group. “Citi stated that advisors attrition was one of the major drivers of these outflows. These numbers demonstrate the impact breakaway brokers can have on a firm’s asset base and revenues.”
Smith Barney’s total financial advisor headcount dropped to 12,659 FAs and bankers in the first quarter, a 17 percent decrease from last year, and an 8 percent decline versus fourth quarter of last year. “At firms like Citi that have suffered most severely in the recent crisis, financial advisors find it very hard to grow their book of business and ultimately will start looking for alternatives to their current employer,” Pirker says. “If this trend continues at Citi, it will be devastating for the firm’s wealth management operation. Morgan Stanley can only hope that Smith Barney brokers will be happier once this part of Citi has completed the merger with Morgan’s brokerage unit.”
Smith Barney says an overwhelmingly large number of the departing advisors were lower-end producers. Pirker says that is probably the case, but that doesn’t change the fact that those advisors took a lot of assets with them. “If you see $40 billion dropping off the asset base in one quarter, that’s huge no matter what. They may be small producers, but a lot of small producers are with leaving with a lot of money,” he says.
For months, talk about Smith Barney’s advisor attrition problem has been swirling among recruiters and industry consultants. “They haven’t been able to keep brokers there happy. Advisors are, now more than ever, looking for a stable [broker/dealer]. They’re not finding it at Smith Barney right now,” says one recruiter.
In the meantime, competitors are reaping the benefits. Janney Montgomery Scott hired Joe Watson this month. Watson managed about $140 million in client assets at Smith Barney. And RBC Wealth Management hired the Schwarz Group to its Beverly Hills office this month. The team manages more than $400 million in assets. Merrill Lynch also scooped up Michael Bock earlier this month. Bock joined Merrill’s Coral Gables, Fl. office, and at Smith Barney, he managed $135 million in assets with $2.3 million in trailing 12-month production.
But while Smith Barney is losing reps, it also appears to be recruiting heavily. Recruiters say Smith Barney is currently offering biggest deals on the street. “All I know is that Smith Barney is putting on the gas in terms or recruiting deals. They’re still offering 240 percent of trailing 12, where the rest of the industry is sitting around 220 or 225 percent,” says one recruiter. Smith Barney says it has always been competitive in its recruiting efforts but never in the highest range of recruiting packages.