As part of a massive restructuring of its investment unit, Citibank laid off 75 predominantly lower-producing advisors, mostly in New York and California, according to Citi spokesperson Alexander Samuelson. Citi had 600 advisors before the layoffs.

The bank is implementing a two-tier system, including an automated commission-based service for mass-affluent clients and a registered-investment-advisor style, fee-only service model for high-net-worth customers. Most Citi reps don’t have anywhere near 100% of their assets under management in fee-based business, but the bank is jettisoning those who don’t stand much chance of adapting.

The new system goes into effect in January. To help advisors make the transition to fees, Citi will base their 2010 pay on their 2009 production, according to one advisor who didn’t want to be identified. In 2011, reps will receive 80% of pay based on 2009 production.

Higher-producing reps are starting to accept the new reality, but Citi still faces retention problems. The unnamed advisor concedes that if all of his business is in fees, he would make more money, but he doesn’t believe that all clients are best served by paying fees rather than commissions. Advisors are allowed to use the commission-only platform on clients’ behalf, but those sales don’t get credited to the advisors’ pay grids.

By the end of the year, Citi reps must sign nine-year contracts, according to the advisor, and many may be driven out because the program is rearranging them into teams, where the top producers take their pick, but the middle players will be assigned teams based on geography.

For those advisors who do want to leave, Bank of America’s Merrill Lynch and Morgan Stanley Smith Barney were hiring aggressively in October, signing up 120 and 100 new advisors, respectively, according to research firm Discovery Database. Wells Fargo was a distant third, with 55 new hires; UBS brought on 10 advisors.

The net effect is still a loss for the wirehouses, though. The top four broker-dealers lost a collective 320 advisors in October, down 5% from September. Paul Werlin, principal of Human Capital Resources, projects that the big firms will continue their push to hire every top producer on the market into 2010 although they won’t satisfy their hunger. He expects that they’ll meet only 50% of their hiring goals as most advisors sit out this period of uncertainty and wait for the big signing bonuses to come back.