When Stephen A. Cone joined Citigroup Inc. last February, he and his colleagues in the investment management group faced a sticky challenge: to find a way to capitalize on four different fund families with varying reputations in the market and no clear leader among them.

The 1998 merger of Citicorp and Travelers Group had brought the disparate fund groups — the relatively small CitiFunds family and Travelers’ Salomon Brothers portfolios, Primerica Financial Services’ Concert funds, and the Smith Barney Funds — under one roof.

Mr. Cone, the global head of marketing, retail and retirement services for SSB Citi Asset Management Group, had the challenge of forging both a more cogent brand identity for the funds and a retailing strategy that would take advantage of Citi’s vast distribution network.

And now, though some industry-watchers have expressed doubts, Mr. Cone says his plan is coming together.

In February, he and his colleagues began drafting a three-pronged strategy: expand Citigroup’s mutual fund distribution, create an external branding campaign, and beef up internal marketing and sales support.

By spring they were putting it into place — virtually all at once. In May Mr. Cone, who had previously helped create memorable ads for Boston-based Fidelity Investments, launched an advertising campaign featuring Smith Barney fund managers. Its tag line — “Your serious money. Professionally managed.” — echoed old Smith Barney brokerage ads in which actor John Houseman declared: “We make money the old-fashioned way. We earn it.”

In early June, brokers and financial consultants in Citibank branches began selling the Smith Barney mutual funds for the first time. Third-party broker-dealers and independent financial advisers continued to sell Salomon Brothers Funds. And Citi began creating a new group of no-load index funds designed for Internet sales, called Citi funds, which went on sale through Cititrade, the company’s online investment service, in November.

Also in the fall Citi merged the CitiFunds family, which it had been selling in its bank branches, and Primerica Financial Services’ Concert Funds, into the Smith Barney fund group. The Smith Barney ads got attention for the funds and gave Citi’s internal wholesalers, as well as its brokers, something familiar to point clients to, Mr. Cone said. “The financial counselors feel like they’re not the first person to tell the consumer the story,” he said. “Despite the fact that we haven’t spent a lot of money on it” — about $9 million in 2000 — “it seems to get a lot of consumer awareness.”

Meanwhile, Citi had begun promoting sales of the proprietary funds throughout its branch network.

“Our internal sales force goes out to the Citi bankers on a regular basis and reminds them of the offerings we have through Smith Barney. Their own management also tells them they should think of the Smith Barney brand as an alternative to our competitors’ brands,” he said.

Mr. Cone said Citi does not pressure its brokers to sell proprietary products. “All things being equal, they should suggest to the customer that he look more closely at ours, and I think that’s what’s been occurring,” Mr. Cone said. “Brokers will suggest the house brand if they have confidence in it.”

Fund managers have also played an important role in the internal marketing blitz, he said. “Fund managers make themselves available to talk to Citibank advisers and financial counselors,” through regular meetings and by telephone. Bank salespeople therefore have ready access to information about the funds, he said, and are better able — and probably more inclined — to recommend them to individual clients.

And in the first three months of 2001, Mr. Cone said, fund managers will take part in a 23-city tour of Citibank locations to make presentations and meet bank salespeople.

Working closely with fund managers, and having a strong ad campaign to point to, makes bank salespeople feel good about selling Citi products, Mr. Cone said.

But have these strategies borne any fruit besides good feelings? According to Citi, yes.

“Since the merger it’s been an educational effort in all the sales channels — Citibank people did not know the Smith Barney funds,” an SSB Citi spokesman said. “But it’s been an unqualified success since this year’s launch,” he said.

Total proprietary mutual fund sales in Citibank’s North American branches were $2.6 billion in 1999. Between January and November 2000, that figure was $3.9 billion, Citi said. Citi declined to say what its total mutual fund sales, including those of competitors’ funds, were.

In the first quarter of 2000, before Smith Barney funds were being sold in Citibank branches, Citi’s proprietary funds accounted for 59% of the mutual funds sold in the bank branches, the company said. According to Citi, proprietary funds accounted for 73% of total fund sales in its North American bank branches from July through November of this year, reaching 79% of the total for November.

But analysts are still skeptical as to whether Citi will see continued success with Mr. Cone’s approach. Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I., said that the strategy is probably too little, too late.

“You need a theme, a thesis, a package,” to convince people to buy Citi’s funds at a time when the mutual fund industry is in a relative sales plateau, Mr. Bobroff said. “Distribution is not enough to sell funds with less than ‘shoot-the-lights-out’ performance.”

Catherine Hickey, an analyst at Chicago fund tracker Morningstar Inc., said that the performance of some of the Smith Barney products, such as aggressive growth funds, is very strong. Others, such as large-cap value funds, were lackluster in 1999 but are doing much better this year. Still others are “just kind of decent,” she said.

Ms. Hickey said that sales of Citi’s funds have possibly suffered from “an unwieldy set-up,” with much overlap between portfolios in the various groups. Selling different fund groups through wholly different channels might ease some confusion among brokers, she said.

“It might be early in the ball game to call, but they have some strong managers and strong funds,” Ms. Hickey said. “I think if they keep that up and finally do get some attention,” the funds will be successful, she said.

Mr. Cone contends that Citi can maintain the pace if it keeps doing what it has been doing. The challenge, he said, will be to extend that success into other areas.

Citi’s stated goal is to double its total assets under management — including institutional sales, private banking, retirement plans, and the managed accounts business — to $800 billion within the next three years.

Observers said that $800 billion would be a tough number for Citi to reach without making any acquisitions.

“They’ve bitten off an awful lot,” said Raphael Soifer, a financial services consultant in Ridgewood, N.J. “The bank channel is not a particularly effective platform for the marketing of insurance and investment products.”

If anything, Mr. Soifer said, Citi will probably look for asset managers to buy.

“Distribution is their large suit, so they’re less in need of a distribution system than most potential buyers of asset managers,” he said.

Mr. Cone did not rule out that possibility, and noted that Citi is pursuing joint ventures and acquisitions all the time. But Citi also has a lot of relatively untapped distribution sources, he said.

For instance, Citi plans to devote more attention to selling mutual funds and managed accounts through third-party channels such as broker-dealers and independent financial advisers, both in the United States — where Citi has about 400 such relationships — and abroad, Mr. Cone said.

In Europe, Citi is negotiating to sell mutual funds through five or six major financial institutions, and hopes to have agreements in place by the beginning of next year, he said. Citi is negotiating similar arrangements in South America and anticipates talking to third-party distributors in Asia as well, he said.

Overseas, “the Citibank channel is just not enough,” he said.

“Even if we’re ultimately as successful selling investment products through those branches as we are in the United States, in each specific country our market share is so low that we’re never going to get to [$800 billion] if we don’t go outside our channel outside the United States in a reasonably significant way.”

Banks overseas have their own proprietary products, Mr. Cone noted, adding that it will be important to provide both strong products and a recognizable brand that consumers want — much as Fidelity, for instance, has done in America.

Retirement plans, he said, will also be a growth vehicle in the United States and abroad, as will private banking. Citi has just begun promoting the private bank in the United States through a series of print advertisements.

“The private bank is really just beginning to focus on really being a primary provider of investment products to the client as opposed to just a lender. Some of their customers are extremely affluent” and can give Citi a lot of [assets under management], primarily through managed accounts, he said.

Citi is also beginning to sell managed accounts, which it had only offered through Salomon Smith Barney, to its private bank, and is now considering whether to offer them through Citibank and Primerica.

In the end, Mr. Cone said, Citi’s growth will come from a variety of sources.

“I’d like to hit a lot of triples,” he said. “We’re not going to have one grand slam.”


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