Quiver Quantitative - Goldman Sachs (NYSE:GS) is reportedly contemplating the sale of a segment of its wealth business, specifically the registered investment adviser (RIA) unit termed Personal Financial Management (PFM). This unit, which manages roughly $29 billion, was acquired by Goldman in 2019 under the name United Capital Financial Partners for $750 million. The acquisition was part of a broader strategy to serve a clientele beyond the ultra-affluent; however, PFM has since remained a minor component of the bank's overarching wealth business. This decision to potentially sell comes in tandem with Goldman's strategic shift from consumer operations, which registered a $3 billion loss over the past three years and coincides with its move to divest its fintech enterprise, GreenSky.
The reevaluation of the RIA unit's role within the bank is part of a larger restructuring initiated by Goldman's CEO, David Solomon. Last year, Solomon revamped the bank into three primary units and reduced the scale of its consumer business, which had been struggling to find profitability. This adjustment aimed to bring the firm back to its foundational strength in serving the ultra-rich, a segment where Goldman's private wealth division manages a whopping $1 trillion in assets.
Despite these efforts, Goldman's wealth business has underperformed compared to its competitors. For instance, Morgan Stanley (NYSE:MS), under the leadership of CEO James Gorman, expanded its wealth management sector through multiple acquisitions, thereby ensuring a consistent inflow of fee-based income. The pressure is now on Solomon to rejuvenate Goldman's standing, especially after a 60% plunge in profits during the second quarter. This dip in earnings was primarily due to markdowns in the bank's consumer businesses and real estate investments.
To address this challenge, Goldman Sachs is reaffirming its commitment to catering to its core client base of ultra-high net worth individuals. The bank aims to expand services such as workplace financial planning via Ayco and Marcus savings. Serving this elite clientele offers banks the advantage of more consistent revenue streams, in contrast to the unpredictable income from Wall Street functions like investment banking and trading, which fluctuate based on economic conditions.
This article was originally published on Quiver Quantitative