Goldman Q2 Wealth Revenue Jumps from 2019, Falls from Q1
Goldman Sachs Group reported a stronger-than-expected second quarter on Wednesday on the back of strong trading profits and capital-raising for corporations, while its expanding wealth management businesses posted mixed results.
Net revenue in wealth management generated by Goldman’s approximately 475 “private wealth” brokers serving upper-high-net-worth clients and 240 RIAs targeting lower-income investors rose 7% from the second quarter of 2019 to $1.10 billion.
Goldman’s purchase last year of the 100-office registered investment advisory firm United Capital Management to diversify its customer base helped increase assets, combining with market appreciation to produce higher wealth management fees, the company said. It has rebranded the RIA as Goldman Sachs Personal Financial Management.
Client assets under supervision in the Consumer & Wealth Management division rose 14% from the year-earlier quarter and 10% from this year’s first quarter to $558 billion. That contrasts with a 20% increase in the S&P 500 and other major U.S. stock indices in the April-June period.
Goldman’s new RIAs have referred more than 400 prospects to traditional private wealth brokers, presenting a more than $1 billion “opportunity,” Goldman Chief Executive David Solomon said on a conference call with analysts. Closing on them, however, has been tough because of the work-from-home pandemic constraints.
“Establishing new wealth management client relationships in the current environment with only virtual communications is challenging,” Solomon said, adding that Goldman expects progress when normal circumstances return.
The Wall Street bank reported $2.42 billion of companywide profit, exceeding analysts’ consensus earnings-per-share estimates by more than 60%. Its total revenue of $13.3 billion, the second highest quarter in Goldman’s history, beat the consensus forecast of $9.75 billion.
Goldman’s Consumer & Wealth division, formed in January when it shifted private wealth brokers from its asset management sector, recorded a loss of $131 million in the quarter. The new division, the only one of Goldman’s four that was not profitable, produced 10% of the company’s total quarterly net revenue (with just $258 million coming from consumer banking and the remainder from the wealth businesses).
Goldman attributed the division’s loss to a “significantly higher” year-over-year addition of $317 million to the company’s credit loss reserves, reflecting downwardly revised forecasts for the consumer lending portfolio in light of the pandemic economy.
Goldman also has made significant investments in the wealth sector as it plows deeper into financing planning and builds from scratch new consumer banking, lending and credit card products. It is in the process of buying Folio Financial to attract young and “mass affluent” investors who use the firm’s robo-like advisory products. Folio also custodies client assets for RIAs, and Goldman plans to house the business in its asset management unit.
Client money in Goldman’s asset management and wealth management coffers grew by $239 billion during the second quarter, with $100 billion coming from market appreciation and $133 billion from money into short-term “liquidity” products, such as money-market funds.
Clients have given Goldman advisers and money managers just $7 billion of new money for more highly coveted long-term investments in the first half of 2020, an annualized rate well off the $37 billion and $36 billion they invested in 2019 and 2018, the company said.
Consumer & Wealth division head Eric Lane in January said Goldman plans to add 250 private wealth advisors globally over the next three years to increase its share of money from the very wealthy, but in May the company said it would slow hiring plans. The company did not give an update on Wednesday, and continues to list 13 private wealth offices on its website.
(Story corrected to indicate earnings were reported on Wednesday, not Tuesday.)