Citibank (NYSE: C) has sold a significant portion of its brokerage businesses across the world and now plans on reforming what’s left of its North American brokerage business.
Citibank’s reform will involve making it so that financial advisers will charge service-fees for advice rather than earning commissions from sales on stocks, bonds, mutual funds and other investments. In a recent statement, Citibank said that their goal is to “eliminate commission-based compensation” by 2011.
Citibank says that their “strategic shift” will begin immediately, with the assignment of 600 branched-based-brokers to teams, which were not included in the recent sale of Morgan Stanley. Customers that would like to pay on a transaction basis can continue to do so by calling the company’s National Investor Center located in San Antonio.
The move will undoubtedly be welcomed by most of Citibank’s customers. Having fee-only financial advisors will align the values of the customers and the investment advisor. Citibank’s brokers will no longer have the incentive to sell products with higher commissions, even if they are not appropriate for their customers. Advocates of fee-based accounts state that clients are much more likely to get better, unbiased advice.
Most other brokerage firms, including Morgan Stanley Smith Barney, and Merrill Lynch Wealth Management, still charge commissions.
