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Citizens Bank hits speed bump as it builds out wealth management business

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Citizens Bank is doing all the right things to expand the wealth management business but substantive revenue growth is likely to take time, the bank's CEO Bruce Van Saun told analysts at the Goldman Sachs U.S. Financial Services conference on Wednesday.

The sales mix for the wealth management business is shifting from commission-based to more fee-based products, which hurts revenue in the short term, he said.
"Fee-based products are great for the future but they don't help you in the near term because if you're selling commission-based products, like different kinds of annuities, you'd get the commission upfront," Saun said.

While the business isn't getting much of a "revenue lift," he expects that to change in 2017. "The hiring has been good, the team is good and the investment sales are good," he said.

The bank recruited John Bahnken, the former head of Bank of the West Wealth Management, in October 2015 to ramp up the business. Since his arrival, Bahnken has significantly expanded the corps of financial consultants, bringing the total to about 350. He has also hired scores of new licensed bankers as well as what he calls "relationship managers," bankers who work with financial consultants to serve affluent clients with $500,000 to $2 million in investable assets.

Wealth management revenue has been off because "clients are moving more into managed money solutions," Bahnken told Bank Investment Consultant earlier this year. "Clients are reluctant to pay larger upfront commissions on things where the ultimate outcomes are less known," he said.

The bank's commission-based business, too, has taken a hit due to low interest rates, Bahnken noted. Retail investors are more inclined to "sit on the sidelines" and put money into shorter-term annuities and other investment products, which have lower spreads, he said.

In the third quarter, Citizens generated $37 million in revenue from trust and investment services, down 10% year-over-year, according the bank's latest earnings release. For the first nine months of the year, revenue was off 5% year-over-year.

As part of its effort to jumpstart the business, the bank announced that it will launch a digital investing platform next year aimed primarily at mass-affluent and affluent clients. The platform, however, is expected to appeal to many different types of individuals, "up to and including the high-net-worth," Bahnken said.

It is part of a "bundled product offering" for its "Platinum," mass-affluent clients and its "Premier," affluent clients, Bahnken added.

Bahnken did not know how much the bank will be charging for the platform, saying that the details are still being worked out. "It will be consistent with and competitive with other digital providers out there, probably in the 40 to 70 basis points range," he said.

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