Goldman Sachs (NYSE:GS) is evaluating strategic options, including a potential sale, for its $29 billion investment adviser business, which it refers to as Personal Financial Management (PFM). Goldman, which is one of the leading investment banks in the U.S., issued a statement saying the PFM unit is a “very small” part of its wealth management business and that it is working on finding an outcome that benefits both its clients and advisors.
Rationale Behind the Possible Sale
Goldman’s PFM business was formed when it acquired United Capital, a California-based investment adviser, for $750 million in 2019. At that time, the investment adviser business managed funds worth $25 billion. The deal was a part of the bank’s plan to reach a broader market, growing beyond its ultra-rich clientele.
However, the investment adviser unit remained a small part of the bank’s wealth business. In comparison, Goldman’s private wealth unit oversees $1 trillion in assets of ultra-high net worth clients, having $60 million or more in investable assets.
Goldman’s move to evaluate the potential sale of the investment adviser business marks a shift in its strategy by focusing again on ultra-rich clients, moving away from the clients in the mass markets. This potential sale would market the second deal executed under CEO David Solomon that Goldman seeks to undo. The bank is moving ahead with the sale of its fintech business GreenSky, which it acquired in 2021.
Goldman’s push into mass-market banking impacted its profitability and put pressure on Solomon, who is now facing internal backlash due to the bank’s underperformance and the departure of several top bankers.
Goldman’s earnings declined by 58% in the second quarter to $1.22 billion or $3.08 per share due to a steep decline in its trading and investment banking businesses, real estate writedowns, and impairments related to GreenSky.
Goldman and several other U.S. banks are focusing on ultra-wealthy customers by offering brokerage, estate and tax planning, and other services, as these activities tend to be more predictable and stable than the volatile investment banking and trading activities that are strongly linked to the economic backdrop.
Is Goldman Sachs Stock a Buy or Sell?
Wall Street’s Moderate Buy consensus rating on Goldman Sachs stock is based on 12 Buys and six Holds. The average price target of $391.81 implies about 22% upside. Shares have declined about 6% year-to-date.
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