Goldman Sachs Considers Selling Part of Wealth Business as Part of Broader Strategy Revamp; How Do Elite Banks Train Their Staff To Manage Ultra-Wealthy?

Goldman Sachs revealed its contemplation of selling a portion of its wealth business, signaling a strategic shift towards serving ultra-high-net-worth clients and moving away from high-net-worth customers in mass markets.

According to a statement released by the bank, the financial institution is currently exploring options for its registered investment adviser unit, known as Personal Financial Management, which currently oversees approximately $29 billion in assets.

This change in direction follows the previous year’s reorganization led by CEO David Solomon, who divided the company into three distinct units and curtailed the ambitions of its consumer business segment. Over the past three years, this consumer business had incurred losses of $3 billion.

In conjunction with this shift, Goldman Sachs is also actively pursuing the sale of its fintech subsidiary, GreenSky. Furthermore, the bank has divested a significant portion of its unsecured consumer loans, a move initiated after discontinuing such lending activities the prior year.

Stephen Biggar, an analyst at Argus Research, commented on the matter, stating, “This is part of the overall restructuring of the firm, back toward its roots.” He further highlighted that the decision was driven by the inability to achieve both profitability and scalability for the RIA, which primarily catered to high-net-worth individuals in mass markets outside Goldman’s core ultra-wealthy clientele.

However, Goldman Sachs refrained from providing commentary on the earnings of the Personal Financial Management unit. In afternoon trading, the company’s stock experienced a 0.6% decline, in contrast to the 0.2% increase seen in the S&P index of bank stocks.

The acquisition of RIA, previously named United Capital Financial Partners, had been carried out by Goldman Sachs for $750 million in 2019. The motivation behind the purchase was to diversify the bank’s client base beyond the ultra-rich segment. Nevertheless, the unit’s contribution to the bank’s overall wealth business remained modest.

Goldman Sachs’ private wealth division oversees an impressive $1 trillion in assets for ultra-high-net-worth clients, characterized by individuals possessing $60 million or more in investable assets. High-net-worth individuals, falling within the category of clients Goldman is contemplating selling to, typically have investable assets ranging from $1 million to $10 million.

In comparison to its competitors, Goldman Sachs’ wealth business has lagged behind, particularly in contrast to Morgan Stanley, where CEO James Gorman pursued expansion through a series of acquisitions aimed at generating consistent income from fees.

Facing the challenge of rejuvenating Goldman’s performance after a 60% decline in profits during the second quarter, CEO David Solomon is resolute in advancing the bank’s core wealth business catering to ultra-high-net-worth clients.

This determination reiterates the objectives communicated during the bank’s investor day held in late February. Notably, this core wealth business includes services such as workplace financial planning through Ayco and Marcus savings.

In the U.S., banks are engaged in intense competition to serve the ultra-wealthy client base, offering services like brokerage, mortgages, estate planning, and tax planning. These services tend to provide more stable revenue streams compared to the volatile nature of Wall Street operations, such as investment banking and trading, which are closely tied to economic fluctuations.

Training Next-Generation Wealth Managers at Elite Banks

Major banks like JPMorgan, Morgan Stanley, and Goldman Sachs are vying for the opportunity to cater to America’s wealthiest individuals, many of whom possess assets of at least $10 million. However, the path to becoming a successful wealth manager in these institutions is rigorous and multifaceted.

JPMorgan’s Strategy
Approximately two years ago, JPMorgan unveiled plans to hire up to 1,500 new private bank advisors within the next few years, effectively doubling the current headcount.
Around half of these advisors will be recruited from the bank’s analyst ranks, primarily recent college graduates. These budding analysts are required to complete a comprehensive 250-hour training program spanning three years.

The training comprises a mix of live lessons and self-study sessions covering topics ranging from alternative investments to lending. Although there are no written exams, analysts undergo testing during role-play scenarios with simulated clients. This approach is likened to language labs, emphasizing the importance of becoming conversant in various wealth management aspects.

Morgan Stanley’s Approach
Every wealth management advisor at Morgan Stanley must successfully pass an exam featuring a live case study in order to work with high-net-worth families. The exam pass rate stands at around 60% on the initial attempt, with about 75% eventually succeeding after retakes, sometimes multiple.

There is no fixed number of advisors that need to pass the program; rather, the focus is on ensuring that promoted advisors are suitably equipped to engage with the firm’s most esteemed clients.

During the case study, senior Morgan Stanley employees take on the roles of high-net-worth clients and their respective professionals, such as accountants or attorneys. Advisors are given an hour to interact with the fictional client and an additional three hours to craft comprehensive recommendations.

Goldman Sachs’ Training Regimen
After accumulating three years of experience within Goldman Sachs, approximately 25 to 40 analysts from the bank’s private wealth division are selectively chosen for the advisory program.
The two-year curriculum is centered around honing graduates’ ability to communicate effectively with clients while eschewing technical jargon.

One partner at Goldman, emphasizes that the training aims to cultivate “verbal dexterity.” This is achieved through frequent exercises where trainees must respond to questions posed by hypothetical clients. The program culminates in three case studies that delve into portfolio strategy and estate planning, accompanied by a written and oral examination to assess mastery.

Bank of America’s Training Structure

At Bank of America, analysts partake in four department rotations within the private bank, shadowing senior bankers, trust officers, and portfolio managers. This “apprenticeship model” facilitates graduates in discovering their area of expertise before assuming the role of associates.

Upon completing the two-year program, analysts opt for one of the bank’s 25 specialty groups, such as wealth planning, custom lending, structured credit, philanthropy, or the chief investment office. Case studies serve as a fundamental component of the program, including a capstone case study offering 15 potential outcomes. Notably, analysts engage with real clients during their training period.

In essence, these elite banks are investing considerable effort into training the next generation of wealth managers, ensuring they possess the necessary skills to effectively serve the needs of ultra-rich clients.

Through a combination of comprehensive training programs, role-play scenarios, and case studies, these institutions are equipping their aspiring wealth managers with the expertise and communication skills required for success in the competitive world of high-net-worth wealth management.

The Last Bit, In a world where the financial needs and aspirations of the ultra-wealthy are ever-evolving, elite banks are crafting a new breed of financial professionals.
These institutions are transcending the traditional role of wealth managers, envisioning them as trusted confidants, strategic advisors, and navigators of complex financial landscapes.

Through rigorous training programs that blend technical acumen with interpersonal finesse, banks like JPMorgan, Morgan Stanley, Goldman Sachs, and Bank of America are nurturing a cadre of professionals who can speak the language of wealth while understanding the aspirations, concerns, and intricacies that come with it.

As the financial horizon continues to shift, these newly minted wealth managers will stand ready to guide their clients toward their financial goals, armed not only with expertise but with an unwavering commitment to personalized excellence.