Goldman mulls a new standard: $250M to be rich

White-shoe firm refining services

Dec 11, 2000 @ 12:01 am

By Bruce Kelly

Goldman Sachs Group Inc. is considering raising the ante once again for its most exclusive club of investors.

Would you believe $250 million?

Right now, the firm requires a minimum of $100 million in investible assets to join that club and work with its investment management services teams. But the firm is mulling whether to more than double that minimum to $250 million, says a source at the firm.

The move comes as one of the whitest of Wall Street's white-shoe firms continues to tinker with a plan to court new and old money, the rich and the super-rich.

Building on changes made late last year and into this year, Goldman Sachs is moving to cut the market into three pieces for wealthy clients, says the source.

The company is simultaneously looking to capture some of the lower end of the high-net-worth retail market and also raise its minimum for the super-rich.

At the bottom tier, the firm wants current and prospective clients with $1 million to $25 million to conduct business online.

Goldman Sachs has hired Gee Smith, formerly a regional director in Pennsylvania with Prudential Securities Inc., to head the effort. He has not yet hired anyone for his staff, says one source at the company.

"The firm is trying to get smaller clients using technology. How that will be done is still up in the air," the source says.

Mr. Smith did not return phone calls.

The company has been planning to expand its offerings to rich investors over the Internet (InvestmentNews, April 17).

At the current website, clients get access to information about their accounts and research.

The revamped site, which has not yet been named, will have more tools for investors. "This is the next step," says a company spokeswoman.

The new website for investors will roll out sometime this winter, the spokeswoman adds. No specific date has been set.

The company had considered pushing its clients with less than a minimum of $25 million onto an online-only account with no support from a broker or other dedicated investment professionals, observers say.

Some executives of competing Wall Street firms saw the move as an opportunity to sweep up some of those clients and accounts.

But Goldman has decided against completely abandoning those clients to the Internet and intends to add brokers to the mix of services it offers.

The stakes are high. The market for rich investors is too lucrative to serve with only the Internet, observers say.

There are close to 5 million households in the United States with $1 million or more in net worth, says Kurt Reisenberg, a managing director at VIP Forum, a consulting firm in Washington.

Tapping high-tech

Goldman's move signals that it's keeping up with a trend among financial services firms to use high-tech to grab rich investors.

"You'll see more and more private banks go to sophisticated, high-tech channels" to reach a lower tier of investors, says Mr. Reisenberg.

J.P. Morgan, for example, has a target of $25 million for its private-banking clients.

Investors with $10,000 can open an account with Morgan OnLine, its web service.

Among its new services, the company has set up a 24-hour help desk in Salt Lake City to handle investors' questions.

Goldman's second tier, and still the firm's main target, will be for clients with $25 million or more. The company's private-wealth-management teams handle those accounts.

And the last level is for the extraordinarily wealthy, those with $250 million or more to invest.

Goldman has spent the year rethinking its notion of wealth.

Over the protests of some brokers, the firm set a target earlier this year of $25 million for its minimum account size (InvestmentNews, May 1). Between two dozen and three dozen brokers walked at the time, with many going to down-market rival Merrill Lynch & Co. Inc.

Goldman has about 500 brokers.

Now, however, the company has supposedly backed away from exiling clients with less than $25 million to its web service, Goldman Sachs Online.

Instead, Goldman will build a small brokerage staff for the effort. It's looking to hire from three to five brokers to staff offices in Washington and Seattle to work in the group, says Rick Peterson, a recruiter in Houston who is handling the search.

Goldman "wants younger guys whose business is just starting to take off," says Mr. Peterson. "They're looking for asset gatherers."

The Washington office, a completely new space, could open as soon as next month. The brokers in Seattle will share space with investment bankers, he says.

If the company deems the effort a success, it might next look to centers of wealth or technology, such as Minneapolis and Austin, Texas, he says.

The brokers are going to play a key role in courting and supporting online accounts, Mr. Peterson says.

The brokers that Goldman hires will tell the company what middle-market brokers need to service clients with $2 million to $20 million to invest.

Goldman is looking to use the online group to sell similar investment services that wirehouses now offer, he says. That includes 401(k) and other retirement planning as well as accounts with outside money managers, adds Mr. Peterson.

Goldman sells money management by outside managers, but the minimum is $50 million.

The firm has yet to release this year's figure for high-end investor assets, but growth that predated the March market sell-off was staggering.

The company reported $262 billion in assets of wealthy investors in November 1999. A year earlier, it reported $156 billion.


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