Citi Personal Wealth Management's plan to build a fee-only investment advisory business, announced on Oct. 5, is a bold move into the RIA space. But as the banking giant attempts to attract high-net-worth investors with a ramped-up service offering, many observers wonder whether the firm can elbow into this already crowded market.

Chief among these questions are how many registered independent advisors Citi will be able to bring into the fold. Second, after having built its reputation serving predominantly mass-market clients, observers wonder whether Citi will be able to attract the high-net-worth investors most fee-based advisors target. Most important, and perhaps trickiest of all, will a large retail bank that's already struggling to reestablish itself as a healthy institution also be able to rebrand itself as a stable and reliable independent advisory firm?

The plan is in the hands of Deborah McWhinney, the new chief executive officer of Citi Personal Wealth Management, who plans to transform the bank's leading reps into fiduciary, fee-based advisory teams. She has also pledged to eliminate all commission-based business by 2011. In addition, Citi will build a network of RIAs to which it will refer clients in exchange for a 25 basis-point annual fee.

Of course, even as Citi takes a big step into a brave new world, the bank is still grappling with its reputation as one of the biggest losers of last year's meltdown. The U.S. government still owns a 36% stake in the company, courtesy of a $45 billion bailout. While Citi is starting to show signs of recovery through increased revenues, on Oct. 15 it announced roughly $9.4 billion in consumer losses for the third quarter of 2009.

OLD AND NEW

Despite the myriad obstacles before her, many believe if anyone can turn Citi's new model into a success, it's McWhinney, the former president of Schwab Institutional. "I know Debbie inside and out, and what she will do is take a successful playbook and execute," says Timothy Welsh, president and founder of Nexus Strategy, a wealth management consulting firm in San Francisco, who used to work under McWhinney at Schwab. "She has a platform to do that."

Welsh and others point to McWhinney's seven years at Schwab as laying the foundation for her plans at Citi. Schwab, with roughly 6,000 advisors on its roster, is considered the standard bearer for independent custodians. The firm grabbed $60 billion of the $100 billion growth in the RIA business last year, while adding 154 teams that went independent with $13 billion under management.

"I think the model for the financial services world is going to look pretty close to what Schwab has, and that means in order for people to be successful, they're going to have to follow a model like this," says Norman Boone, president and founder of Mosaic Financial Partners in San Francisco, who knows McWhinney through his affiliation with Schwab.

Welsh contends that McWhinney can grow the business incrementally by taking market share away from Schwab and competitor Fidelity Investments. "Debbie's got the Schwab playbook," he says.

But McWhinney scoffs when asked whether she is bringing her game plan over from Schwab, insisting that she is doing what is best for Citi clients. McWhinney also points out that she worked for 17 years at Bank of America, about a decade longer than she worked at Schwab.

"This is a Citi playbook," she says. "I think everybody who comes into a new job brings their success and lack of success [from previous jobs]. We also talked to a lot of our [advisors] in the branches, figuring out what will work. You can't just say that I'm going to do the same thing I did at another organization. It just doesn't work that way."

Citi began shifting its top advisors into the fee-based model in October. McWhinney says the bank will be training advisors in stages, a process that began under the auspices of Smith Barney, she notes. The training includes professional development, compliance, trust and estates and becoming qualified to offer advisory services. The goal now is to help advisors better understand the fiduciary model, which is, of course, subject to renewed focus. Citi is also concentrating on team-building and practice management. In other words, advisors are learning how to act more like entrepreneurs.

As this article went to press, McWhinney was in discussions with several RIAs to join both Citi's teams, the in-house group and the affiliated external advisors-and was expected to announce agreements in select markets soon. Citi is reportedly looking for firms that are managing at least $250 million in client assets and working with households that have at least $500,000 to invest. Firms also need to have at least two principals, one of whom has at least 15 years in the business, according to McWhinney.