In a strategic move, Goldman Sachs has announced its contemplation of divesting a segment of its wealth business, redirecting its focus towards catering to ultra-high-net-worth individuals while stepping away from serving high-net-worth clients in mass markets. The financial giant’s deliberations center around its registered investment adviser (RIA) division, known as Personal Financial Management (PFM), which presently manages approximately $29 billion in assets.
This transformation follows a restructuring initiative implemented by CEO David Solomon last year, which involved the reorganization of the firm into three distinct units. This shift is intended to refine the company’s operations, with a specific emphasis on serving its core clientele comprising ultra-wealthy individuals.
A Strategic Reassessment
The prospective divestment of the RIA unit underscores Goldman’s strategic reassessment of its business portfolio. This unit, operating under the PFM brand, has faced challenges in terms of profitability and scalability. The RIA previously targeted high-net-worth individuals within mass markets beyond Goldman’s traditional ultra-wealthy client base. According to Stephen Biggar, an analyst at Argus Research, this realignment aligns with the broader objective of restoring Goldman Sachs to its foundational strengths.
Goldman Sachs has refrained from disclosing the financial performance details of its PFM unit. However, the bank’s shares experienced a marginal decline of 0.6% during afternoon trading, a contrast to the 0.2% rise seen in the S&P index of bank stocks.
Goldman’s strategic shift is not limited to its wealth business. The company is also actively pursuing the sale of its fintech entity, GreenSky, and has already divested a substantial portion of its unsecured consumer loans following the cessation of this lending activity last year.
An ongoing process
The ongoing transformation traces back to Goldman Sachs’ acquisition of the RIA, previously known as United Capital Financial Partners, for $750 million in 2019. The acquisition aimed to diversify the bank’s client roster beyond the ultra-rich. However, the RIA unit has retained a relatively modest role within Goldman’s broader wealth management framework.
In contrast to its RIA segment, Goldman Sachs’ private wealth arm currently oversees an impressive $1 trillion in assets, primarily catering to ultra-high-net-worth clients possessing $60 million or more in investable assets. This strategic realignment intends to bolster this core business, which is expected to generate more consistent and stable revenues compared to the volatile nature of Wall Street operations, such as investment banking and trading.
Moving Toward Resurgence
CEO David Solomon, who has been under pressure to reinvigorate Goldman’s financial performance, is striving to steer the bank toward a trajectory of resurgence. This imperative was underscored when the bank’s profits plummeted by 60% in the second quarter, attributed to write-downs on consumer businesses and real estate investments.
As part of its long-term strategy, Goldman Sachs intends to amplify its core wealth business, reaffirming its aspirations set forth during its investor day in late February. This includes initiatives such as workplace financial planning through Ayco and the Marcus savings platform.