Behind Citi's distribution machine

Citi’s wealth business in Asia will be transformed over the next three years by technology, says Paul Hodes, head of wealth management for Asia Pacific at the US bank.

To provide exposure that Asian clients prefer, it has added new products to the consumer bank’s offering, including commodity-focused mutual funds and alternative investments.

These would have once been only available to private bank clients, but technology has enabled Citi to find ways to cheaply replicate exposures to hedge funds and private equity for a broader clientele.

By creating institutional-like scale, the bank can access many strategies more cheaply than many competitors. That has led the bank to favour working with fund managers it deems best in class, rather than with fund houses that style themselves as all-weather managers for many products.

“We have more smaller managers, more niche specialists,” Singapore-based Hodes says. “We have given a lot of institutional managers from other parts of the world exposure to Asian investors.”

The bank made strategic shifts in how it does business three years ago, he tells AsianInvestor. This includes introducing smart-beta strategies to give Asian model portfolios exposures beyond market capitalisation, and enhancing the advisory offering to help customers choose among the thousands of products on the bank’s shelf.

Within Citi’s global business, the wealth business in Asia has already become the largest platform for selling mutual funds, accounting for over half of the bank’s open-ended fund sales worldwide.

The consumer bank accounts for around 30% of Citigroup revenues worldwide but closer to 50% in Asia; and within Asia, unlike other parts of the world, wealth management is the biggest part of the retail bank business.

The bank is well placed to benefit from the trend of Asian wealth, particularly among entrepreneurs, given its role in consumer and private banking, Hodes argues. Besides increasing product diversification, it is focusing more on measuring customer satisfaction, finding ways to improve cost efficiency, and improving the career path for relationship managers.

Until recently, banks such as Citi introduced user-friendly platforms to let clients view, understand and transact on their portfolio holdings. But an advisory relationship remains necessary and a competitive advantage, Hodes says.

Now technology is being deployed to understand how Citi relates to its customers. It is using digital technology to generate user feedback. The important question to ask is whether customers would recommend the bank to others, using net promoter scores.

“There is a stronger correlation to high scores and getting more business, and to attracting new customers,” Hodes says. “Do our customers promote us? In what areas? What experience can we provide to them to get them to promote us?”

For example, Citi leverages its global network to ensure wealth management clients have seamless access to credit lines or other services wherever they travel. That sort of thing tends to reinforce customer satisfaction with investments too.

“This will fundamentally shift our business over the next three years,” Hodes says, adding that it is starting to impact the way the bank provides incentives to its relationship managers. “Working with clients is a complete undertaking. Building a wealth portfolio can lead to greater long-term profits even if that means sometimes giving up short-term commissions.”

Digital customer feedback is becoming a major part of how Citi regards advice, product selection and innovation.