CitiStreet is using an improved product roster and a veteran sales staff to make inroads in the competitive small-business retirement market, the unit’s chief says.
The joint venture between State Street Corp. and Citigroup Inc., which was started in 2000, is known for its bigger clients, but it also has attracted 6,000 small corporate clients with $20 billion of assets, said Pat Bello, the executive vice president in charge of small corporate sales.
Its roster of small-plan sponsors, with assets of roughly $75 million or less, is expected to grow by 7% a year during the next three to five years, said Mr. Bello, and assets from this group will grow 7% annually as well.
Sales to small businesses rose 21% in the first half of this year, and revenue from these customers rose 14% compared with a year earlier, according to CitiStreet, which is headquartered in Quincy, Mass.
The plan sponsors are evenly dispersed over the East and West coasts and in large cities in between, Mr. Bello said.
Denise Valentine, a senior analyst at the Boston consulting firm Celent LLC, characterized getting 6,000 clients in five years as “fairly impressive.”
Success in retaining sales talent is part of the reason for the improvement, Mr. Bello said. His 17 regional sales directors have average tenures of seven and a half years, which is saying something in a business where talent is poached regularly by competitors, he said. These tenures include time at Citigroup before CitiStreet’s start-up.
Perhaps a more important factor is that the company has fleshed out its product menu, he said. At first CitiStreet offered only a variable annuity product, but it has added solutions for businesses of every size.
The latest addition, aimed at businesses with $15 million to $100 million of plan assets, is Framewor(k), a fully bundled 401(k) program that is sold through financial advisers at Smith Barney.
The small-plan retirement market, which has been underserved because small businesses lack the deep pockets needed to afford coverage, is a busy area these days, Ms. Valentine said. “I think everyone has recognized there is a gap,” she said. “So some of what is going on in the marketplace is heightened awareness.”
To lure small-business clients, CitiStreet and its rivals are offering plans that are essentially free of charge. The asset managers share revenue with the distributors so that the plan sponsors do not have to write a check, Mr. Bello explained.
CitiStreet also uses a best-of-breed approach in choosing outside money managers in order to attract clients, he said. And the partnership has leveraged its scale — the entire enterprise has $200 billion of assets under management — so it can offer small corporations servicing features such as interactive Web tools, he said.
A year and a half ago, for instance, it introduced a function that lets sponsors choose which categories of information they want to extract from their plan, he said.
Still, the small-plan market is challenging because of its high turnover — small businesses are more prone to fail, Mr. Bello said. “It’s also a very predatory marketplace,” he said. “Brokers and more aggressive salespeople operating in that space have a lot more pull.”
The turnover is such that CitiStreet should actually increase its small-corporate assets and plans by 10% or 11% annually but is counting on just 7% growth as customers go out of business, he said.
Small corporate plans account for 10% of CitiStreet’s business, a share that is likely to remain unchanged as the entire business grows, Mr. Bello said.
CitiStreet does all its own distribution in the small end of the market — it has not opened the door to advisers. Mr. Bello said this may change but not soon.
“It’s absolutely on our radar,” he said. “But we don’t think we’re at the tipping point yet.”
CitiStreet still has plenty of room to grow using its current approach, he said. Creating a corps of managers to oversee an adviser channel would make the business less lucrative than CitiStreet’s simply going after the business itself, he explained.
