Goldman Sachs issues its first wealth management revenue total

Goldman Sachs issues its first wealth management revenue total
At $4.4 billion, its financial advice business is small compared to brokerage giants
JAN 15, 2020

When the world’s wealthy look for a bank to entrust with their personal fortunes, Goldman Sachs isn’t necessarily on their speed dial.

For the first time in its history, Goldman Sachs Group Inc. broke out results for private banking and wealth management as part of its fourth-quarter report on Wednesday. With $4.4 billion of revenue for 2019, the business is small compared with the brokerage behemoths at Morgan Stanley and Bank of America Corp., and almost 40% smaller than the similar division at JPMorgan Chase & Co.

That scale disadvantage underscores one of the many challenges facing Chief Executive Officer David Solomon as he tries to reshape Wall Street’s most storied investment bank. Goldman’s new focus on wealth management and consumer banking is part of his effort to make it less reliant on trading revenue and more responsive to financial trends such as the boom in alternative assets.

It didn’t take long for Goldman’s new segment, Consumer & Wealth Management, to draw scrutiny. One analyst on the firm’s earnings conference call questioned why profit margins appear low. Mr. Solomon responded that investments in consumer banking are weighing down profitability and more disclosures will be made at Goldman’s first-ever investor day on Jan. 29.

“Our intent is not to leave you in the dark,” he said.

As a business, wealth management grew out of old-school stock brokerage to encompass not just financial advice and lending, but also products such as estate planning and insurance for clients willing to pay a fixed fee on their assets, typically about 1%. Goldman’s tally for wealth management includes both management and incentive fees, as well as private banking and lending revenue.

While Mr. Solomon has made progress, increasing assets under supervision in wealth management by almost a quarter to $561 billion, he has a long way to go. Bank of America, by comparison, reported $19.5 billion of 2019 revenue and more than $3 trillion of client balances in a unit that includes its Merrill Lynch Global Wealth Management and private bank businesses.

The contrast is especially stark at Morgan Stanley, which, unlike Goldman, made expanding in wealth management its top priority in the years following the financial crisis. Under CEO James Gorman, the firm bought out its joint venture with Citigroup Inc. in 2013, creating what was then the second-largest brokerage on Wall Street. Morgan Stanley now vies for that title with Bank of America’s Merrill Lynch.

To be sure, not everyone defines rich the same way. Credit Suisse Group AG estimated in its 2019 Global Wealth Report that the world has some 41 million people with $1 million to $5 million of wealth, 1.8 million people with $10 million to $50 million and 168,030 with more than $50 million.

While Morgan Stanley and Merrill Lynch have for decades pursued a wide range of wealthy clients, Goldman traditionally focused its private-banking efforts on the ultra-high-net-worth set -- financial parlance for individuals with tens of millions of dollars in assets.

Under Mr. Solomon, Goldman is now looking to capture those with considerably less. That paved the way for its biggest acquisition in years, United Capital, a Newport Beach, California, firm that caters to the so-called mass affluent. Another Goldman business, Ayco, tends wealth for corporate executives.

In the race to lock up more of the world’s rich as clients, Goldman is looking outside the U.S. Last week, President John Waldron said in an interview he considers wealth management the “biggest opportunity in China.”

Later this month, Goldman will host its debut investor day, where it will offer additional details of plans to further expand efforts to do business with the masses after spending almost all of its 150 years catering to the largest corporations, investment firms and governments.

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