Goldman Hints (Again) at Adding Muscle in Wealth Management
After swerving into consumer finance with its fast-growing “Marcus” lending unit, Goldman Sachs Group is looking at expanding its financial planning services for corporate executives and at potential acquisitions in retail wealth management.
Wealth management remains a mere mote amid Goldman’s trading and investment banking corpus, but the company’s chief financial officer, unusually, made several references to its “differentiated private wealth management franchise” and corollary businesses in discussing the company’s robust first-quarter earnings with analysts on Tuesday.
“We are further diversifying our global franchise across the client suite,” said Chief Financial Officer Martin Chavez, highlighting in particular the $3 billion increase in retail deposits taken in through its two-year-old online deposit platform but also noting other expansion plans. “We are evaluating credit cards, we are looking at wealth management, we are looking at retirement products, we are looking at personal finance.”
Goldman’s private wealth management unit includes just about 700 high-net-worth advisors who are part of its investment management division, but company CEO Lloyd Blankfein said in February that he hopes to grow brokerage count by about 30%.
The asset management unit also includes Goldman’s Ayco financial planning unit for corporate executives, which Chavez said is being expanded through digital tools and platforms to “more people inside” Ayco’s corporate clients, an apparent reference to a more mass-market approach. About one-third of the $1 billion of technology investments that Goldman made last year in investment management related to Ayco, Chavez said.
Goldman’s investment management division generated $1.77 billion of revenue in the first quarter, or 18% of the company’s total. That matched the contribution of its investment banking business, though was well below the 43% contributed by its storied trading and related institutional client services activities.
The company doesn’t break out private wealth results, but one metric hints at some significant growth in the unit. Transaction revenues, representing “commissions and net spreads for facilitating transactional activity in high-net-worth client accounts,” rose 33% from the first quarter of 2017 and 28% from last year’s fourth quarter to $212 million in the first three months of 2018, Goldman said. Fees, primarily representing asset management activities for institutional and retail investors, were up 10% from a year ago and down 2% from the fourth quarter to $1.34 billion.
Goldman is pleased with the rapid but controlled growth of its unsecured lending business at Marcus, Chavez said on the call with analysts. But like Morgan Stanley and other competitors who are rapidly expanding their retail banking activities, Goldman also is eager to raise inexpensive consumer deposits to fund its growth. Its retail deposit base has more than doubled to over $20 billion since buying GE Capital Bank’s $9 billion of online deposits in April 2016, he said.
Goldman has paid up for deposits—”rates are in the top bunch of the pack but not at the top,” Chavez said—but it also is eyeing less expensive service expansion.
“We are exploring all sorts of way to grow the deposit base through different products and geographies,” he said.
He also insisted that Goldman is being conservative on the unsecured lending side as it monitors its credit exposure.
“We’re not approving large numbers of applications. We could approve more but we’re choosing not to,” he said of Marcus’s $12 billion balance sheet. “We are very sensitive to where we are in credit cycle, and we will proceed with this methodical growth.”
Last month, Goldman said that it has signed up with LPL Financial to offer loans to customers of its independent brokers. Goldman now distributes its “Private Bank Select” loans through 40 small broker-dealers.
Two years go, Goldman’s investment management division bought Honest Dollar, a Texas-based web and mobile-based platform for offering individual retirement account programs to people who do not have employer-sponsored retirement plans.