Goldman Sachs overhauls strategy by selling a part of wealth-advisory unit to focus on ultra-rich clients

Goldman Sachs has announced that it has reached an agreement to sell a portion of its wealth-advisory business unit to an independent wealth manager as part of a strategic overhaul. This move comes as the bank proceeds to exit certain business segments to focus its wealth offerings on catering to super-rich clients, as per a report.

The financial services company has decided to sell part of its wealth business to independent money manager Creative Planning currently overseeing $240 billion as part of a refreshed strategic shift to focus on targeting the ultra-rich. Goldman’s wealth business has lagged behind rivals, including Morgan Stanley, where CEO James Gorman built the wealth management arm through a series of acquisitions that generate steady income from fees.

Creative Planning LLC is run by Peter Mallouk, who has also written several investing self-help books. Those include a couple with motivational speaker Tony Robbins, who was once the “chief of investor psychology” at Mallouk’s firm. Creative Planning already had a custody deal with the Wall Street giant, and “an expanded partnership with Goldman Sachs is a natural, strategic fit,” Mallouk said in the statement. Goldman will also seek to boost its offerings to third-party registered investment advisers with products from its asset-management unit.

The Wall Street bank did not disclose the sale price but stated that the transaction with Creative Planning LLC is expected to be finalised in the fourth quarter and is likely to result in a gain. The sale is in line with a shift in strategy that came into force after Goldman’s CEO David Solomon reorganized the firm into three units last year and scaled down its aspirations for consumer business, which had incurred losses of $3 billion over the past three years.

Goldman Sachs was also exploring various options for its Registered Investment Adviser (RIA) unit, known as Personal Financial Management (PFM), which manages assets totaling around $29 billion. Goldman refused to comment on PFM’s earnings.

History of acquisition of the wealth business

Goldman Sachs had acquired the Registered Investment Adviser (RIA), previously known as United Capital Financial Partners, for a sum of $750 million in 2019 when it managed approximately $25 billion in funds with an aim to diversify the bank’s clientele beyond the ultra-rich. It gained an instant connection with about 22,000 clients who had a little over $1 million each with the platform. However, the RIA business unit remained a small part of the bank’s wealth business and was relatively modest in size as compared to Goldman’s core business, which primarily serves ultra-high net-worth clients. Goldman Sachs can continue to serve its high net-worth investors through the RIA and other wealth management clients, such as Creative Planning, according to the bank. Creative Planning currently has a workforce of over 2,100 employees across its affiliates and manages combined assets under management and advisory totalling $245 billion.

While Goldman is selling its United Capital unit to a firm run by a prolific financial advice writer, it also purchased that business from another investor who’s dabbled as an author, Joe Duran, who wrote a book called Start It, Sell It & Make a Mint in 2004, years before he sold his business to Goldman Sachs.

Goldman’s revamped strategy

Goldman’s private wealth division oversees $1 trillion in assets for its ultra-high net worth clients, individuals with $60 million or more in investable assets. High net-worth individuals, who fall within the business segment Goldman is contemplating selling, typically have investable assets ranging from about $1 million to $10 million. 

Marc Nachmann, Goldman Sachs’ Global Head of Asset & Wealth Management, informed that the current strategy involves investing more in core businesses, such as ultra-high net worth and workplace growth strategies, using the proceeds from the sale, a report said. The investment bank’s other core wealth businesses include workplace financial planning through Ayco and Marcus savings. “This transaction is progress toward executing the goals and targets we outlined,” Nachmann, said in a statement. The deal is margin accretive and allows the firm “to focus on the execution of our premier ultra-high-net-worth wealth-management and workplace growth strategy.”

Goldman Sachs & Co LLC is serving as the financial advisor, and Weil, Gotshal & Manages LLP is serving as legal counsel to Goldman Sachs. Goldman is also proceeding with the sale of its fintech business, GreenSky, at a steep discount just over a year after it completed the takeover and has divested the majority of its unsecured consumer loans after discontinuing this type of lending last year.

“This is part of the overall restructuring of the firm, back toward its roots,” stated Stephen Biggar, an analyst at Argus Research. “They’ve been unable to carve a path of profitability and scale” for the RIA, which catered to high-net-worth individuals in mass markets outside of Goldman’s core, ultra-wealthy clientele, Biggar added.

CEO Solomon has been under pressure to turn around Goldman’s fortunes after its profit plunged 60% in the second quarter dragged by writedowns on its consumer businesses and real estate investments. Its wealth business has been a laggard and an underperformer against its rivals.

U.S. banks compete to serve ultra-wealthy clients by providing brokerage, mortgage, and other services, as well as estate and tax planning. These activities tend to generate more stable revenues than the volatile Wall Street operations, such as investment banking and trading, which are strongly linked to the economic activity of a country. : India forecasted to leapfrog US to become world’s second largest economy by 2075, projects Goldman Sachs