Citigroup Inc.'s switching to nonproprietary investment products will help Citigroup Trust attract customers, the unit's incoming president says.
"Open architecture is what customers want," said Daniel FitzPatrick, who was hired last week. (He will start Oct. 3.) "I think open architecture is increasingly a must-have in the high-net-worth space, including the trust space. I believe Citi has been and will continue to be a leader in making that a reality."
Citi agreed in June to swap most of its asset management business, including its proprietary investment products, with Legg Mason Inc. of Baltimore for Legg's brokerage business.
Mr. FitzPatrick, who was also named a managing director of Citigroup Trust and the head of the Citigroup trust companies, said last Wednesday that offering more choices will enable the trust operation to deepen existing relationships and acquire new customers.
"What they have done by becoming open-architecture is liberalize the ability of trust officers to reach out and utilize world-class investment products," he said. "Citi is no longer stuck with that perception that they have a conflict; we focus on the client-servicing piece and can pick and choose investment management services from unrelated parties."
Analysts and executives of competing operations are split on whether Citi went too far.
Charles "Chip" Roame, the managing principal at Tiburon Advisors in Belvedere, Calif., said banks need not get rid of all of their own investment products, as Citi has.
"There are too many people saying that banks have to be completely open-architecture, but I don't think that that matters at all," Mr. Roame said. "Banks can be successful with limited open-architecture platforms.
"In-house money management can be a part of customers' portfolio alongside a menu of additional investment products that fulfill other asset classes that the bank lacks," he said. "I think that this is the obvious home-run strategy for banks."
Leonard Reinhart, the chairman and chief executive officer of Lockwood Advisors Inc., a subsidiary of Bank of New York Co., also said open architecture need not be an all-or-nothing proposition.
"I sort of doubt other banks will follow what Citi has done," he said. "Citi had the biggest money-management consulting group in the industry and also had the largest proprietary asset management group. I think they had certain conflicts of interest that no one else faced."
Mr. FitzPatrick established Goldman Sachs' national trust business as chairman, president, and chief executive officer of Goldman Sachs Trust Co. NA. Before that he headed global fiduciary management at J.P. Morgan & Co., where he was responsible for trust and estate administration.
Before he left Goldman, he said, the firm started considering how it could use open architecture in its personal trust business. He said most trust companies want to use nonproprietary products along with their own.
William Huffman, the chief executive officer of Northern Trust Global Advisors, said most banks are choosing to offer third-party products but not abandoning their proprietary products.
Wealthy people want a diverse mix of products to choose from, he said, but that does not mean an asset manager cannot include its own among the choices.
"We have chosen a blended approach," Mr. Huffman said. "Northern is definitely a multiproduct, multi-asset-class organization that selects products from many managers. But we are definitely not Citi."
He added, "By taking a balanced and blended approach in the high-net-worth channel, we will continue to grow our business."
Mr. FitzPatrick said he was drawn to Citi's trust unit because of its open architecture and its steady growth over the past several years. (Citigroup Trust had $17.4 billion of assets under administration as of July 31.)
"The opportunity is there for further penetration with existing clients and building additional relationships," Mr. FitzPatrick said.
In the last several years, he said, many competitors failed to grow or lost business. "A lot of the usual suspects are stressed, for a whole host of reasons, but the need for trust services is not going away."
Trusts have become much more mobile in the past two to three years, Mr. FitzPatrick said.
"It used to be an accepted fact that trusts couldn't move, but courts have become much more receptive to moving trusts," he said. "Customers now have greater flexibility in terms of moving trusts if they find a firm that can offer something bigger and better. Courts are allowing that on a level that no one had ever expected would be the case."
He added: "I saw it firsthand at Goldman: If a client is dissatisfied with service or with a narrow array of investment options, they will take their trust elsewhere."
