Goldman Is Hunting Mass Affluent Investors — and Advisors to Serve Them

Q&A July 18, 2022 at 03:24 PM

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Can one of the world's largest, most powerful — and often controversial — investment banks serving institutions reshape part of itself into a wealth management business attracting mass affluent investors?

Goldman Sachs is in the process of doing just that.

The initial thrust came with its acquisition of the RIA United Capital in 2019. Rebranded as Personal Financial Management, the segment is now doubling down to serve consumers with between $1 million and $10 million in investable assets.

Whether boutiques, the wirehouses or other banks, "we're competing with whoever has relationships that are deeper than the ones we currently have," David Fox, a Goldman Sachs partner and head of advisors for PFM, tells ThinkAdvisor in an interview.

In March, he was promoted from running Goldman's Private Wealth Management's Southwest region to the newly created PFM position.

There are more than 250 financial advisors and 80 branch offices in the PFM segment now and no shortage of enthusiasm on the part of Fox, 51, to hire more.

"We're going to grow an advisor at a time," he says. "My goal isn't to go out and hire a bunch of people and see what happens."

The Fox hunt for financial planning-focused advisors runs the gamut from recruiting recent college grads and new advisors — who will be "shaped and molded" — to those running their own practices.

Not on his list are "people who want to cash out of their business and retire here," he stresses.

Why the focus on the mass affluent? Fox explains: "Historically, we've been more of an institutional firm. Over the past five to 10 years, we've been broadening our footprint and launched our consumer business."

An Olympic Gold Medal winner for competitive swimming before stepping into financial services, Fox has spent his entire business career at Goldman, starting as a Private Wealth Advisor in 1999 in Philadelphia.

ThinkAdvisor recently interviewed Fox, who was speaking by phone from his Dallas office. Here are highlights of our interview:

THINKADVISOR: Is Goldman Sachs' Personal Financial Management focused on client households with $1 million to $10 million in investable assets?

DAVID FOX: It is. But we get clients from a number of sources. One of them is through our corporate relationship. Sometimes that means taking on an executive at a company with a very small amount of liquidity but a high salary and a complex benefits package and maybe some stock.

They need advice and planning help. We'll do that for them today knowing that if we do a good job, they'll grow with us in the future.

You were quoted as saying that over the next five years, PFM plans to "exceed 1,000 advisors." Is that what you told the reporter?

That quote was a little off. I was asked for a number. We didn't have a plan, and in fact, still don't.

What I said was that I'm ambitious to grow this business and that if I had my way, we would have as many as 1,000 advisors in five-plus years.

The actuality is that we're going to grow an advisor at a time.

My goal isn't to go out and hire a bunch of people and see what happens. What we're trying to do is establish enough referral flow from our growth programs to put pressure on the business so that we need to hire more people to take care of those clients' needs. That's going to drive how many advisors we have.

We can also work on our organic growth capabilities, which will happen naturally, as we have [a number of] advisors that are more experienced.

Can you reveal how many FAs you plan to hire this year?

We have over 250 advisors in our Personal Financial Management business now. We're in the process, over the next couple of months, to formulate our 2023-and-beyond strategy, which will include advisor growth.

So I don't have a number to give you, but we've made some healthy moves in growth this year. I expect that to accelerate in the years ahead.

What's your ideal new-hire advisor?

We're looking at both sides of the spectrum, really filling out the business with the consistent message that the financial planning-led advisor who is a fiduciary wants to make sure they're bringing the best resources, the best platform, the best risk management capabilities to their clients.

And they see that they can do it here [at Goldman Sachs].

Please elaborate on your plan to seek FAs at both ends of the spectrum.

We're hiring advisors across the tenure spectrum, including those who have a planning-based background. They may have their CFP or want to get it.

Or they may have been an accountant and don't want to work in that field [any longer].

They may have graduated with a degree in financial planning or worked at an organization where they've put in five years or so.

We have a robust training effort to get them all the licenses we want them to have and make sure their skill set is up to par before they start working with clients.

Please talk about hiring experienced advisors.

We're open — in the right situations — to very tenured, experienced advisors who may have their own business. But we're not looking for people who want to cash out of their business and retire here.

We're looking for people that want to leverage the Goldman Sachs brand, platform and resources — and accelerate their growth.

This is someone who might have all the skill sets we admire and thinks they can grow faster with our brand and resources.

You're also hiring grads right out of school for a National Advisor Team, as you've named it. Correct?

Right. And we're also looking for people who are early enough in their career that they can be shaped and molded. We're creating an even more rigorous front-end standard.

Any other category of advisor?

We're building a small, rapidly growing group that we can take to our corporate clients and other areas where they expect consistency of advice.

How much emphasis are you putting on diversity in hiring FAs?

It's critically important. We have a commitment for each hiring cycle as we evolve and grow. We want to see increasing levels of diversity.

The firm has targets by population, job function and title. We're going to do our part to adhere to those.

The goal is to bring more diversity into the front end that we can train, nurture and grow through the organization.

Why is diversity significant?

It certainly plays a big role, and not just because diverse teams have proven to be better; we want to reflect the clients that we serve.

Our country is a broad, diverse nation; and we want to look that way too.

What are PFM's assets under management?

To my knowledge, we've not discussed the PFM numbers publicly, so I can't give you the number. But I can tell you that the number on our Form ADV [$17 billion] is incorrect. That's significantly lower than where we are.

Our combined Ayco [corporate-sponsored workplace financial planning unit, which Goldman Sachs acquired] and Personal Financial Management comes to about $115 billion under supervision, and we're [PFM] a meaningful portion of that.

Do you have an AUM growth target for this year?

Not at this time. There was one in place; but with my arrival, we're [revising] all our goals and objectives.

[Head of Personal Financial Management] Joe Duran's team is the largest part of this business still. The growth has been exceptional.

What sort of work arrangement do you have with Mr. Duran?

I work for him! Joe and Larry Restieri are co-heads of the Personal Financial Management Group, which encompasses my business.

I have meetings with each of them every day, all day long. We're very collaborative. We're all partners of the firm working jointly to grow our businesses in tandem.

We each bring different things to the table.

Are you opening branches near clients so they can meet frequently with their advisors?

We have about 80 offices across the country, mainly in larger markets. We're mostly going to invest in a subset of the offices to build some scale on a more regional basis than we currently have.

But expansion geographically isn't going to be dramatic. I don't see us going from 80 to 150 offices over the next five years. We'll add where there's a real compelling reason to do so.

Will you be acquiring small advisory practices?

That's not something we're talking about day-in, day-out. We're just focused on expanding our advisor base and hiring people one person at a time.

If we run across a situation, I'm sure we'd look into it. But it's not a purposeful mission for us to go out and seek acquisitions at this time.

Goldman Sachs has an image and the reality of being a huge, imposing, powerful institution. How does PFM square with that?

If you [described Goldman Sachs that way] 15 years ago, you would have been correct. That's who we were. But over the past five to 10 years, we've been executing a strategy that's broadening our footprint alongside adjacent businesses where we already had strength.

We also realize that some of our competitors are very big. [But] we've got a rapidly growing future ahead of us and the opportunity to do things right and get some real scale.

Do you see your segment competing mainly with the wirehouses?

We're competing with whoever has relationships that are deeper than the ones we currently have.

There are fabulous boutiques, big financial firms — the banks [and so on]. We're competing with all of them.

We have a mindful eye toward the strengths and weaknesses of each as we grow and evolve our business.

What is PFM providing that isn't being fully delivered by other firms?

Historically, we've been more of an institutional firm. [More recently] we launched our consumer business, which has been very successful.

But we had a bit of a gap [at] the mass affluent [investor level] in our wealth management complex. Hence, the acquisition of [Joe Duran's] United Capital. Some other businesses within the firm are combining with that team and growing out the mass-affluent business.

Goldman Sachs' resources can really be leveraged. That's what we're bringing into the marketplace that's different.

We're building a franchise that has what I call "customized scale." It will require scale to be successful.

We're looking across the board where we have competitive edges on advice, resources, offerings and are customizing those to the client.

Will PFM be adding boutique advisory services and offering family office services?

We have all the services we could possibly need under our roof. Whatever you can think of, we're likely already doing it.

Our job is to see what parts of the firm's offerings are applicable to our segment, what things they're not doing that are important to our segment and mesh those together.

Such as?

Right now we're focusing on integrating and expanding the investment platform. That's key.

[Regarding] family offices, our practice is planning-led, and many of our advisors are non-practicing accountants and attorneys.

That's the area we're focused on, adding new resources incrementally: financial plans, tax projections. But we won't be preparing tax returns. We'll have partnerships with other firms that will do that work. And we'll have partnership connectivity on the planning side.

What trends might you be focused on?

Like everyone else, we're looking carefully at technology and its importance to clients and where we need to invest further.

We feel great about our position relative to robo-advisors, digital offerings, commoditized offerings. We have a lot of ability to do those things, backed by Goldman Sachs' resources and the advisor-led engagement that we think is so important to effective planning.

This is part of the strategic planning we're working on now.

Does Marcus by Goldman Sachs have anything to do with PFM?

Not really. That's our consumer digital-led [bank] offering, which to my knowledge is going really well.

Part of our planning discussion is that we're hopeful to define opportunities to have Marcus become another potential referral growth channel for us one day.

What's PFM's approach to acquiring clients?

We have quite a number of growth programs. Our Private Wealth Business refers close to $1 billion a year. We think that can be substantially more.

Those relationships, which have the need for planning-focused advisors, fall into our world.

We're starting to build out our connectivity to some of the other parts of the firm where we'd like to enhance and improve opportunities.

And, when you have a client-focused business, good advisors get referrals from clients. We're looking to enhance our organic growth capabilities alongside those programs.

To what extent are you concentrating on clients' holistic financial wellbeing?

We make sure our advisors are trained to provide comprehensive financial planning and [show] how clients' life and money connect.

[That includes] financial discipline around estate planning, children's education, philanthropic and legacy planning, income and estate-tax planning, succession planning.

It's the broad array of decisions to make around investment planning and also the retirement picture: maximizing the use of various retirement strategies and plans.

In view of the market downturn, uncertain economy and expectation for a recession, what's your approach to helping clients cope right now?

I'll speak [for all] our businesses: When times are rough, we're scheduling more client calls. We're having more events. We're talking to our advisors regularly and making sure they're all on the same page with what our experts and strategists are seeing.

We're also trying to use this communication to be a calming influence. The beginning of the year created an environment that our clients haven't been used to: interest rates going up and their bond portfolios suffering.

They needed data and advice to understand what to do.

In most cases, clients' financial plans are very well formed. So the conversation involves reminding them that we've planned for these kinds of experiences and to execute as [we had] discussed.

In other cases, sometimes when a client experiences volatility in the market, their view changes or their lives change personally or professionally; and we need to [revise] those plans.

Before starting your financial services career at Goldman Sachs in 1999, you were a competitive swimmer and won an Olympic Gold Medal in 1996.

Have your six years on the USA Swimming National team helped you as a business leader?

Yes, in a number of ways. It's helped me certainly succeed at this firm. At a very young age, I experienced failure and victory and everything in between.

Well before I came to the firm, I was conditioned to understand the relationship between hard work and results and the mundane daily activities that it takes to get there — and the fact that you don't always get to see the results in the timeframe you want. But if you put in the right kind of quality work, eventually it shows up.

I have that mindset — trying not to get too high, too low, depending on what's happened. Hopefully, it radiates around me a little bit and affects others the same way.

So, five months in your promotion, how does it feel?

It's a lot of fun. I feel like I'm closer to the ground floor of creation here, whereas when I joined the Private Wealth Business [in 1999], it was already very well formed, especially by the time I got to a leadership position.

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