Citi Whitepaper Addresses Issues Facing Financial Advisors in Meeting Recommended Fiduciary Standard

Citi today announced it has released a whitepaper on the top issues that financial advisors will likely face in the wake of potential new rules recommended in an SEC Staff study on uniform fiduciary standards for both broker-dealers (BDs) and registered investment advisors (RIAs), entitled “Broker-Dealers as Fiduciaries? How the SEC Staff’s Study Could Raise the Bar for Investment Advice”.

Although new rules have not yet been issued, an SEC staff study recommended adopting a uniform fiduciary standard (the standard now applied to RIAs) for RIAs and BDs providing investment advice to retail customers. The paper cites improved wealth management technology as not only vital for BDs to bridge the gap between their current suitability standard and fiduciary principles, but also for RIAs to effectively deliver services in their clients’ best interests.

Interestingly, it’s not just wealth managers who recognize the importance of technology. George Magera, a Partner in Reed Smith LLP’s Investment Management Group, noted the following to Citi: “Both the SEC and FINRA have recently explored using technology to assist in conducting examinations, and the SEC recognized in the Study on Investment Advisers and Broker-Dealers that BDs may incur on-going costs in developing or acquiring technology,” should the broker-dealer exclusion from the definition of investment adviser be eliminated.1

The paper highlights that many aspects of a BD’s and RIA’s day-to-day activities -- from creating investor proposals to account on-boarding, suitability assessments, fee arrangements, initial portfolio implementation and portfolio rebalancing -- may be significantly impacted.

“Financial advisors can expect significant technological and operational challenges to adhere to any new fiduciary standards,” said Andrew Clipper, Head of Wealth Management Services in North America, Citi’s Securities and Fund Services, and one of the white paper’s authors. “Financial advisors and their firms can stay ahead of the tide of regulatory change by leveraging the latest technologies that provide automation and holistic management.”

The paper also points out that BDs as well as RIAs may need improvements in the following areas:

• Automatic linkage from front-to-back of an investor’s information, risk profile, restrictions, proposed portfolio and portfolio execution
• Access across all investment vehicle types within and across multiple accounts in the household
• Household reporting and rebalancing across multiple account types (e.g., brokerage, retirement, trust)
• Tax optimization at the individual investor (tax return) level and across the household

“Broker-Dealers as Fiduciaries? How the SEC Staff’s Study Could Raise the Bar for Investment Advice”, provides a detailed analysis of the issues facing both BDs and RIAs in delivering services to meet recommended changes to fiduciary requirements. Parties interested in obtaining a copy of this white paper should contact us at openwealthinfo@citi.com or 877 682 2278.

“These potential regulatory changes present new challenges to the industry,” said Chandresh Iyer, Global Head of Investment Administration Services and Custody, with Citi’s Securities and Fund Services. “Through our market Intelligence white papers and solutions like OpenWealth, we strive to help our clients not only understand these events, but also identify opportunities and solutions to succeed in changing times.”

Citi Wealth Management Services is a leading provider of Wealth Management platforms and services to banks, BDs, insurance companies and RIAs through OpenWealth, with the following industry leading capabilities:

• Automated household rebalancing with tax and cash flow optimization
• Administration of multiple securities within and across the accounts in a household
• Performance reporting at the household, portfolio, account and sleeve level
• Aggregated reporting of assets from brokerage, trust and assets held away
• Pre-trade compliant Rep-as-PM tools for any managed account product, including UMA/UMH

Citi OpenInvestorSM is the investment services solution for today’s diversified investor, combining specialized expertise, comprehensive capabilities and the power of Citi’s global network to help its clients meet their performance objectives across asset classes, strategies and geographies. Citi OpenInvestor provides complete investment services for institutional, alternative and wealth managers, delivering middle office, fund services, custody, and investing and financing solutions that are focused on its clients’ specific challenges and customized to their individual needs.

Global Transaction Services, a division of Citi’s Institutional Clients Group, offers integrated cash management, trade, and securities and fund services to multinational corporations, financial institutions and public sector organizations around the world. With a network that spans more than 95 countries, Citi’s Global Transaction Services supports over 65,000 clients. As of the fourth quarter of 2011, it held on average $368 billion in liability balances and $12.5 trillion in assets under custody.

About Citi:

Citi, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Additional information may be found at www.citigroup.com | Twitter: @Citi | YouTube: www.youtube.com/citi | Blog: http://new.citi.com | LinkedIn: www.linkedin.com/company/citi

1See SEC Study on Enhancing Investment Adviser Examinations (pp. 15, 26, 27) and Study on Investment Advisers and Broker-Dealers; see also March 1, 2010 FINRA letter (http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p121004.pdf).