Goldman Sachs, a prominent Wall Street firm, announced on Monday that it is currently evaluating possibilities for its personal-financial-management business. This decision comes during a particularly challenging time for the bank. Due to a decline in deal-making, Goldman Sachs fell short of profit forecasts in its most recent quarter. Additionally, there have been media reports raising questions about the leadership of the company's CEO, David Solomon.
The bank's personal-financial-management business was initially established as part of its efforts to cater to a larger base of mass-affluent consumers. In 2019, Goldman Sachs expanded in this area through the acquisition of United Capital for $750 million. Regulatory filings indicate that as of the end of 2022, this unit had approximately $29 billion in assets under supervision.
In contrast, Goldman Sachs' wealth-management business serves ultra-high-net-worth clients and oversees $1 trillion in assets under supervision across 16,000 clients. While the firm plans to continue investing in wealth management, it intends to adopt a more strategic and focused approach.
Goldman Sachs emphasized that its proprietary RIA business, known as Personal Financial Management (PFM), is a relatively small component of its overall wealth franchise. In seeking alternatives for this division, the firm aims to find an outcome that benefits both its clients and advisors.
Goldman's Strategic Shift: Selling and Winding Down Business Lines
Goldman Sachs, a renowned banking institution, is making significant strides in redefining its business strategy. In a series of recent moves, the bank plans to sell GreenSky, an online lending platform acquired in 2021, and wind down Marcus, its online consumer-banking business established in 2016. These decisions are part of Goldman's concerted effort to streamline and refocus its operations.
The bank initially ventured into consumer lending and financial planning for the mass affluent with the belief that there was an untapped market opportunity. Additionally, these new business segments were expected to provide a more durable source of revenue during periods when trading and deal making, Goldman's traditional strengths, were weaker. However, critics both inside and outside the organization questioned the compatibility of these new ventures with Goldman's core strengths and culture.
The critics' concerns seemed validated as Goldman's consumer-lending business incurred a loss of over $3 billion since 2020. This loss has led the bank to reassess its strategic focus. Consequently, Goldman stated that personal financial management (PFM) would now be considered a "very small component" of its wealth business. While the bank recognizes ongoing investment opportunities in PFM, it acknowledges that these endeavors will have less strategic impact moving forward.
These strategic decisions have garnered attention from investors who hope to see Goldman Sachs return to its former glory. As the bank charts a new course, it will be interesting to observe the outcomes of these divestments and the subsequent redirection of its business efforts.
