April 15, 2019
by AdvisorHub Staff
David Solomon, Goldman Sachs CEO Paul Morigi/Stringer/Getty Images
Goldman Sachs is about midway through completing a blueprint for selling investment products and services to the “mass affluent,” a project that may involve partnerships similar to its recently announced deal to issue credit cards to customers of Apple, executives said Monday.
The New York company that has built its reputation as the investment banker and wealth manager to the top echelon of corporate clients and individual investors also is taking action to expand wealth services through its new Marcus consumer lending business.
“We will pursue partnerships to engage the mass market,” Goldman Chief Executive David Solomon said on a conference call with analysts after the company reported first-quarter results that failed to meet analysts’ revenue expectations. He did not provide specifics of the plan, or the timeframe for completion of the blueprint that Goldman executives first alluded to one year ago. But Solomon noted that partnerships are “critical” to the mass-market growth strategy.
Goldman’s ability to start from near scratch in the consumer area, where it had no “legacy technology” to impede growth, underpins its strategic initiatives, the company said in a presentation accompanying its earnings.
To reach the mass-affluent, which most banks define as people with investable assets of $100,000 to $1 million, Goldman’s key entry point will be through Ayco. The Saratoga, New York-based financial planning business has focused on corporate executives reached through human resources departments, but Ayco is now attempting to lasso a wider swathe of employees who will give Goldman money to manage.
The company is also investing in technology that will give corporate employees tools for signing up for robo-like services as they fill out their financial planning questionnaires, said a person familiar with the strategy.
“This likely will be some sort of mixed approach in terms of technology and human engagement,” Chief Financial Officer Stephen Scherr said on the analyst call, in discussing the expansion of the Ayco service as well as the new wealth component of its Marcus platform. “We are at the midpoint of the development plan.”
Morgan Stanley, Goldman’s long-time competitor in the investment banking and trading trenches of Wall Street, has recently made its own bet on working with corporate human resources departments to source customers. It is paying $900 million to buy Solium Capital, which provides stock award monitoring and tracking programs to about one million employees at 3,000 private and public companies.
In slides accompanying its earnings presentation, Goldman said that its traditional private wealth management business for multi-millionaire families and individuals will be expanding internationally.
Goldman Private Wealth, which has offices in 13 U.S. cities and 500 to 600 advisors, is building in Asia and Europe, the official said. Earlier this year, Goldman promoted Stefan Bollinger, its country coordinator in Switzerland and an investment sales strategy executive, to the post of cohead of private wealth management for Europe, the Middle East and Africa with existing head Chris French.
In a further sign of its plan to diversify the wealth business in order to sell more asset management products, Goldman last year folded its rapidly growing Marcus consumer loan-and-deposit business into the investment management division that also houses its private wealth management business.
“Bringing Marcus together within our investment division had a strategic component to it,” Scherr said when Wells Fargo Securities analyst Mike Mayo questioned how quickly and efficiently Goldman would be able to deliver its “one-firm” strategy for corporations and institutions to consumers. Managing money for high-net-worth individuals is “in our DNA,” Scherr said, and the synergies with mass-affluent servicing are “very real.”
Goldman ended the first quarter with $46 billion of retail bank deposits generated through Marcus, helping to reduce its capital-raising costs.
Revenue in the investment division in the first quarter, however, missed analysts expectations, dropping 12% to $1.56 billion on “significantly lower incentive fees” in asset management and on “lower transaction revenues” in the wealth businesses, Goldman said in its earnings release.
The division ended the quarter with $1.6 trillion of customer assets under supervision, up 7% from a year earlier, primarily due to net market appreciation of $57 billion, Goldman said.
Thirty percent of the division’s assets come from private wealth customers, 31% from asset management products sold through third parties and 39% from institutional sales, Goldman said.
About $20 billion of new customer money was put into long-term investments during the quarter, primarily in fixed-income, but customers withdrew a net $22 billion from short-term “liquidity” investments.
The investment management division fueled 18% of Goldman’s total quarterly revenue of $8.8 billion, compared with 41% from fixed income and equities trading, 21% from private equity and other investments and 20% from investment banking.