The tide of opinion is souring on Citigroup’s recently announced restructuring of its wealth management business.

Citi’s plan is to cleave its service delivery into two channels: An electronic self-service brokerage platform with call center support for the mass affluent; and a registered investment advisor style, fee-only platform for the wealthy.

It’s a plan that the strategy’s architect, Deborah McWhinney, head of personal wealth management at Citi, saw work wonders in her previous job as executive vice president of Schwab Institutional.

Kevin Travis, director of Novantas, a consulting firm in New York City, says, “it’s a very good idea to have a multi-channel model because different segments want and need different types of tools and services. If this goes according to plan it could transform the investment delivery model in banks.” What bank wouldn’t want recurring revenue on all its largest investment accounts, while enjoying the cost efficiency of a largely automated delivery system for the mass affluent?

Unfortunately, however, the strategy denies customers the right to choose the service they want, let alone how they prefer to pay for it. “This seems like one more aspirational move executives make without talking to advisors,” says Bob Ellis, principal and leader of wealth management research at Novantas’ Novarica division. “It’s a great strategy on paper, but it could end up killing their business.”

One chief executive officer at a Northeastern bank, who asked not to named, says any real-life solution to increasing fee business has to be flexible. “There is a segment where fees work and others where they don’t,” he says. “We encourage advisors to use fee accounts for new clients as often as possible, but it’s up to the advisor and the client to decide what’s appropriate.”

Then there’s the question of how reps will be paid. According to a former Citi manager, who asked not to be named, even the most advanced Citi advisors are only 30% to 35% fee-based at best. Most Citi reps still primarily sell mutual funds and annuities for which they earn commissions. “In the course of planning this, Citi will probably eliminate 40% to 65% of its reps,” he says. “I think it’ll be a total disaster.”

The CEO at the Northeast bank says some form of retention strategy is imperative to help advisors over the inevitable income slump they’ll experience as they transition from their transaction businesses. But providing the necessary compensation booster could be a problem in itself. “Retention benefits might be the only solution, but they’re politically difficult right now,” he says.

All this is still up in the air. Advisor compensation won’t change for this year, according to Citi spokesperson Alexander Samuelson. The 2010 comp plan is still on the drawing board, but will contain “transitional elements,” he says. No additional retention payments are planned.

It sounds all too familiar to Citi’s former West Coast manager, who experienced at least five major changes of strategy and compensation during his seven-year tenure. He says Citi executives—who usually lack brokerage experience—are infamous internally for tinkering with compensation and delivery strategies, usually at the cost of the investment program.  

The only thing preventing a complete exodus of advisors is that, in this job market, they have nowhere to go. The former manager notes: “Fear, uncertainty and unhappiness don’t make for a successful program.”

Neither does weak brand recognition. The Northeast CEO points out that Fidelity and Schwab are already established in the self-directed space. Ellis, too, doubts that Citi’s brand is strong enough to compete with such well-established peers. “I don’t see people staying loyal to Citi because of the Citi name,” he says.

In fact, Citi is jettisoning the one strong brokerage brand it does have: Smith Barney. “Citi’s average customer doesn’t wake up thinking, ‘I think I’ll go to my branch and buy a mutual fund today,’” the former manager says. Without frontline investment salespeople in branches, potential transaction clients “will migrate elsewhere to where they can talk to a rep about their mutual fund account.” He predicts that Citi will either revert to its current model or ditch brokerage altogether within three years. “I wish them luck,” he says. “But they’re pushing a big rock up hill.”