Damage Control With Wealth Advisers

Citigroup and UBS are fighting to retain private wealth advisers and clients, amid perceptions that corporate troubles are damaging each firm's brand.

They're also fishing in troubled waters by prying private bankers away from rivals who also suffered varying degrees of damage from blow-ups in fixed-income asset markets, ranging from student loans to exotic credit derivatives. UBS says it poached 119 advisers from competitors in the first quarter, a 17 percent increase from the same period a year ago.

At both banks, wealth management executives are "working overtime on damage control to protect their lucrative franchises," according to Investment News. While most measures are focused on worried or angry clients, placating and retaining financial advisers is a natural corollary. Managements are reaching out to both advisers and clients through personal phone calls and letters, conference calls, webcasts, visits to branch offices and road shows. They're also extending credit to clients whose holdings have become illiquid and, in some cases, bailing out troubled funds.

With investment losses hitting clients across a variety of seemingly safe assets, and with the basic financial strength of large investment and commercial banks coming under question since Bear Stearns collapsed, adviser attrition is likely "to pick up for the entire industry," Charlie Johnston, Citi's global wealth management chief, told Investment News.

UBS and Citi each stand near the top of worldwide rankings both in private client assets under management and cumulative reported losses and write-downs from the credit crunch. UBS's wealth management unit had $743 billion in U.S. client assets at the end of last year, while Citi's private bank managed $225 billion as of March 31.

Each institution has its own source of friction with its adviser force and client base. UBS recently was hit with a class-action suit stemming from its clients' exposure to troubled auction-rate securities, which may run as high as $20 billion. At Citi, the major flash point is losses suffered by clients in a number of funds the bank managed that pursued risky strategies involving municipal bonds and other debt.