Goldman wants to manage the assets of the middling rich
IF THE BEST way to get rich is by managing other people’s money, it helps if your clients control a lot of it. For private-equity firms and hedge funds, that means courting pension-fund managers, investment bankers and the like. For the top wealth managers, the money in question belongs to the super-rich, whom they advise on asset allocation, tax planning and even which artists should adorn their walls.
Now some are starting to tout for the custom of the merely well-heeled. On May 16th Goldman Sachs paid $ 750m in cash for United Capital Financial Advisors, a wealth-management firm based in California that manages $ 25bn-worth of assets for 22,000 clients. It was Goldman’s biggest acquisition in two decades.
It accelerates the firm’s shift of emphasis under David Solomon, who became its boss last year, away from volatile businesses such as trading towards more stable fee-based ones. It also broadens Goldman’s target market for wealth-management services. Until now, the bank’s individual customers were drawn almost entirely from the ranks of those with at least $ 25m in investable assets. United Capital serves those who have $ 1m-5m.
The non-filthy rich used to find it surprisingly hard to get customised help with managing their money. The fees they generated were not fat enough to satisfy full-service wealth advisers at the biggest investment banks. But the mass-market offerings of brokers and retail banks were not sufficient. Into this gap came firms like United Capital, founded in 2005 by Joe Duran, its chief executive (who will join Goldman as a partner). The firm’s platform enables its advisers to manage relationships more efficiently. The client’s age, career status and so on are used to build up a financial profile, and advisers can send video updates about major market moves to those whose portfolios are affected.
The acquisition fits well with Goldman’s evolving thinking about wealth management. In 2003 it acquired Ayco, which specialised in managing the assets of top-ranking company executives. Ayco has since expanded into offering financial-planning services to everyone at the companies it serves, says Larry Restieri, the Goldman partner who runs Ayco. Moreover, uninvested deposits with United Capital can conveniently be funnelled to Goldman’s consumer bank, Marcus.
Competition to serve the mass affluent is heating up. In February Morgan Stanley, which is around the same size as Goldman but makes twice as large a share (40%) of its revenues from wealth management, announced that it would buy Solium for $ 850m. The software company, since rebranded Shareworks by Morgan Stanley, provides a platform for companies to administer shares and stock options paid as part of compensation. The acquisition is appealing in two ways, says Jonathan Pruzan, Morgan Stanley’s chief financial officer. It brings an opportunity to acquire younger customers who may one day be very rich, and it allows the bank to use Shareworks to offer those employees access to Morgan Stanley’s own products.
The mass-affluent market is becoming better served in other ways, too. Online financial advisers such as Betterment, which manages $ 16.4bn in assets, are developing clever new ways to counsel customers on what to do with their savings. Investment banks, it seems, are not alone in deciding that the best way to get rich is not to manage rich people’s money, but to manage everyone’s.