wants to be your friend. Early this year, the firm launched its first-ever investor day, where it unveiled a new path for the bank, placing a greater emphasis on consumer banking and wealth management, ahead of the bank’s historic strength in trading and deal-making.
Goldman’s long-term vision hasn’t changed since late January, but the world certainly has. Much of the bank is now working from home as the coronavirus pandemic has upended the economy. Trading, which had been declining in the years since the financial crisis, has proved to be a boon for the bank amid volatile markets.
Goldman (ticker: GS) still plans to hire 250 advisors—a 30% jump—over the next three years, though its execution has slowed as the firm grapples with the logistics of on-boarding them into the Goldman way while working from home. It has been building up Marcus, its consumer banking platform, and is continuing its integration of United Capital, the wealth management firm it acquired for $750 million last May, which serves the mass affluent and has since been rebranded as Personal Financial Management. At the time, the move to bring on lower-net-worth clients appeared out of step with the storied investment bank, but it’s beginning to seem a more natural fit. The bank is trying to break into the $13 trillion mass-affluent market—measured by households with investible assets of less than $1 million. Goldman already has 7% of the $10 trillion ultrahigh-net-worth market and 1% of the $18 trillion high-net-worth market.
Tucker York, Goldman’s global head of wealth management, has been with the bank for 34 years. Eight years ago, York told Penta that Goldman aims to have the “best-in-breed, highest quality advisors.” Barron’s caught up with York to see where the firm is now, and where it’s headed. Our conversation has been edited for clarity.
Barron’s: It has been a tumultuous time. What are your clients most concerned about now?
Tucker York: There’s a long list. Clients turning on the news [and seeing things] that don’t equate with the market being at or near all-time highs. The coronavirus pandemic, deep-seated social issues, and wounds that have come up over the past couple of months. Trade wars. The political discourse. Concerns around the economy.
It must have been tough for clients to stay invested in March.
There was way more conversation than there was activity. A lot of it was, “We’ve talked about this before. There are scenarios where markets could be down.” No one predicted the pandemic, per se, but we absolutely said there could be volatility. If you’re nervous about reasonable drawdowns in the market, then we ought to take some action—either buy insurance through options, or sell some risk assets. But the time to do that is not once the action has already happened.
What is the advice you’ve given clients with a time horizon that is longer than quarter to quarter?
You say quarter to quarter; it’s really year to year, or even decade to decade. The advice we have given for multiple years has been—in spite of the 10-year-plus bull market—that people stay invested in equities. The risk of being out of the market outweighs the risk of staying in the market. It’s very expensive to be out of markets, especially if you’re a U.S. taxpayer. Getting out means you have to pay tax and then figure out the time to get back into the market.
What sort of alternative investments do Goldman’s clients use?
Primarily private equity. With the dislocations in markets now, giving money to managers to take advantage of those opportunities is timely.
Why private equity?
Over time, returns on private equity are better, as they should be, than public equity. What [investors] give up is liquidity. So it’s constantly juggling between those two [returns and liquidity] to make sure you have that in the right proportion. But the healthy allocation of private equity is one that we recommend, generally.
Investors seem to be talking more about environmental and social-justice matters. How do your clients think about these issues?
Clients are asking about opportunities to invest with Black and Latinx entrepreneurs. We also have programs where [we help clients] think about how to allocate capital to diverse enterprises, and how we include them as part of the Goldman Sachs network. For instance, broadening the businesses’ opportunities to connect with other people so that their products and services could be marketed across a wider net, or how they could get more efficient in terms of supply chain, etc. That sort of micro economy opportunity is one that’s also interesting for both ourselves and our clients.
There’s a real lack of diversity in financial services, including wealth management. What is Goldman doing to hire and nurture diverse talent?
We have been focused on that for a long time, but it takes a long time. The best people in our business are folks who have been here for more than 20 years. It’s just the nature of the advice and perspective. It takes a while for you to get to that level in your career. So we’ve got to make sure that we’re hiring now, and spending time with people who will frankly be here for a longer period of time.
There’s a culture of giving back to more junior people [at Goldman]. We’re hiring newer classes of more diverse people, and therefore our diversity is disproportionately junior. So how do we bring that group along? There’s a group that gets together [called Partner Wealth Advisors]. I have met with them for a decade to make sure there are opportunities for management to connect with people directly in various groups. The meetings are overwhelmingly focused on developing business, i.e., “How can we be more commercially successful?”
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It has been a little over a year since Goldman acquired United Capital, a registered investment advisor, or RIA, with $25 billion in assets under management—a drop in the bucket for Goldman. How has that transition been?
[United Capital founder and CEO] Joe Duran has been terrific to work with. United uses a lot more technology in their client interface. This video conferencing back-and-forth with clients is not a new thing for them. They were a smaller company, growing rapidly, and were forced to utilize more technology than our approach.
When you get people that come in from the outside, they know other work cultures. As long as there is a sincere desire to throw in with us and have the same goals and ideals—and that’s what we found with United Capital—it actually enhances our culture.
United caters to the mass affluent, vastly different than the typical Goldman Sachs client. Why did this deal make sense?
We recognized that we left behind high-net-worth clients, which is a very good business. We had been looking for clients with a net worth above $10 million, but really above $25 million. When you’re out looking for those clients, you’re going to find a lot of people who have less than $10 million. Before United Capital, we really didn’t have an option for them. Now we do.
What are the differences between ultrahigh net worth and high net worth in terms of what you offer clients?
It’s different advice that you give to somebody with generational wealth, [versus] advice to someone who is wealthy. There are different concerns. “What am I going to leave to future generations and to charity” is a different question than, “How am I going to think about real-life trade-offs, like buying a second home versus paying for college?” Both are important questions, but they require different skills.
How does United Capital fit into Goldman Sachs?
They see the advantages of frankly being part of a large firm. The pandemic was not part of our prediction about what was going to happen this year, and being part of Goldman Sachs and the resiliency we had built into all of our systems was certainly a welcome thing for them. Also, with a better-capitalized model, we’re able to still think about the next five years instead of the next five months.
How are you further integrating Ayco, which provides corporate-sponsored financial counseling, into Goldman’s wealth and consumer business?
Ayco started helping out the senior executives of Corporate America. Increasingly, our client there, who’s a chief human resource officer, said to us. “I want options for how I take care of all of my employees. What can you do there?” So, in addition to executive counseling, there’s a planning function, and a coaching opportunity that utilizes online tools. That is also an opportunity for our Personal Financial Management/United business.
Can we expect any more acquisitions?
Given the fragmented [wealth management] industry, it would be borderline irresponsible not to be cognizant of acquisitions. If you asked me for a prediction, among the opportunities that we see, I predict that organic growth is going to be key for us. We’ve shown through Personal Financial Management, and then, years before that, Ayco, that we’re absolutely open to the right kinds of things.
If we saw something else that fit, we would do it. But right now, we see a lot of stuff on our plate that we can execute in a way that contributes a lot of growth over the next few years.
Given the growth opportunities we see internally, we will more than likely continue to hire more people—mostly at the entry level, bring them into our system, grow them up through our long-standing training programs, and grow the business that way.
Thank you, Tucker.
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