Goldman Targets 20% Growth in U.S. Advisors
(Story updated with details of Goldman’s push into lower-tier wealth sectors.)
Goldman Sachs has made headlines with plans to build a consumer bank and broaden its wealth management services to the mass affluent, but in the shorter term it expects to grow its small franchise for very wealthy clients, executives said on Wednesday.
The investment bank lists 13 private wealth management offices in the U.S. and one in Brazil on its wealth unit’s website.
Goldman employs 800 private wealth advisors, who primarily serve families and individuals with more than $10 million of investable assets, according to a presentation slide, but the workforce number includes “non-self-sustaining advisors,” presumably a reference to registered associates and analysts. Sources at the firm and recruiters have said the U.S. advisor count is around 475 “self-sustaining” producers.
Goldman, which imposes minimum three-month non-compete restrictions on advisors who leave, said the average tenure of its brokers is 14 years (including “non-self-sustainers”), while its average self-sustaining broker produces more than $4 million annually. That is well above industry averages.
A Goldman spokesman did not respond to a request for comment on the advisor metrics.
The wealth management build is part of Goldman’s effort to generate more predictable revenue from businesses that are less volatile and capital-intensive than its core trading and investment banking franchises.
The bank’s traditional private wealth managers have captured about 3% of the global market among the very rich, and 7% in the U.S., according to the presentation slides, but has plans to work more closely with Goldman’s investment bankers for referrals. (Investment banking head Gregg Lemkau trumpeted in his presentation that “more than half a dozen” former and current executives of Spotify, which Goldman took public last April, are wealth management clients.)
“We’re a leader, but even leaders…have meaningful opportunities to grow in this incredible franchise,” said Eric Lane, head of Goldman’s consumer & wealth management division.
The “ultra-wealth” sector accounts for $475 billion of the wealth management unit’s $560 billion of total customer assets under administration, and produces $3.5 billion of annual revenue, but Goldman also pushed into the mere “high-net-worth” sector of people with $1-to-$10 million of investable assets last summer with its purchase of United Capital Financial Advisors.
The 600-advisor RIA, renamed Goldman Sachs Personal Financial Management, has $85 billion of assets under supervision from 40,000 clients. That’s less than 1% of the high-net-worth market, according to a McKinsey study cited by Goldman. Lane said his unit is prioritizing “high-net-worth” and “mass affluent” market-share growth, in part by having it work more closely with its Ayco business that sells investment and retirement savings advice and products to corporate executives and their employees. It defines mass affluent as consumer $100,000 to $1 million of investable assets or income.
Goldman expects a “complete integration” of United Capital within five years, according to the presentation slides. It also set a goal of adding 30 corporate Ayco clients and 300,000 workplace employees annually within five years. Ayco currently works with 435 companies and 300,000 employees, according to the presentation.
Goldman created its consumer & wealth management division this year to illustrate the growing importance of the sector. The private wealth business had been part of its investment management division (renamed asset management in the recent reorganization.)
On a pro forma basis, the new consumer & wealth division, which includes Goldman’s Marcus consumer and digital banking unit, had a return on equity last year of just 5%. That trails the 18% and 14% returns of its investment banking and asset management divisions, reflecting the big investments the company is making to diversify into the retail investor markets, according to Goldman chief financial officer Stephen Scherr.
The company forecast that the ROE number for the division will triple to about 15% within three years, and top 20% once the consumer & wealth division reaches “scale” in about five years.