In a strategic shift to refocus on its core client base, Goldman Sachs (GS) announced on Monday that it has agreed to sell its $29 billion Personal Financial Management (PFM) unit to Creative Planning, a prominent Kansas-based Registered Investment Advisor (RIA). The PFM unit, originally a spinoff from United Capital, was acquired by Goldman in May 2019 for $750 million as part of a plan to expand its client base beyond the ultra-rich. However, the move did not significantly affect the firm’s long-term strategy, as Goldman continued to predominantly cater to ultra-high net worth individuals.

The sale, which is expected to be finalized in the fourth quarter, is anticipated to bolster the wealth division’s finances and enhance its profit margin. Despite targeting high-net worth market, Goldman only managed to secure 1% of this demographic, prompting the shift back to its main clientele of ultra-high net worth individuals, who typically possess investable funds exceeding $60 million. Goldman’s private wealth arm currently manages more than $1 trillion in assets from approximately 16,000 clients.

Goldman Sachs Set to Sell its $29 Billion Personal Financial Management Unit

Goldman Sachs, the leading Wall Street investment bank, has reached an agreement to sell off its $29 billion Personal Financial Management (PFM) unit to Creative Planning. This Kansas-based firm is a reputable Registered Investment Advisor (RIA) and one of the largest private investment advisors in America.

A Strategic Move for Goldman Sachs

The decision to sell is part of Goldman Sachs’ efforts to reorient its business strategy back to its core client base, the ultra-high net worth individuals. This is a market segment where Goldman Sachs has traditionally held a dominant position. The PFM unit being sold is an offshoot of United Capital, an advisory firm that Goldman acquired in May 2019 for a hefty $750 million. The acquisition was part of then-CEO David Solomon’s strategy to broaden Goldman’s client base beyond the ultra-rich.

PFM Unit: A Mismatch in Goldman’s Portfolio

However, the PFM unit’s focus on individuals with lesser affluence seems to have clashed with Goldman’s long-term strategy. As of February, Goldman was catering to a mere 1% of the high-net worth market, defined as individuals with between $1 million and $10 million to invest. In contrast, Goldman’s primary client base, the ultra-high net worth individuals, typically possess investable funds upwards of $60 million.

The Sale: A Positive Impact on Goldman Sachs’ Finances

The sale of the PFM unit, scheduled to close in the fourth quarter, is expected to positively affect the wealth division’s finances and boost its profit margin. Marc Nachmann, Goldman Sachs Global Head of Asset and Wealth Management, stated this transaction is a step forward in achieving the goals set during their investor day in February.

Creative Planning: The New Potential Home for PFM Unit

With over 2,000 employees and $245 billion in combined assets under management (AUM), Creative Planning could be the ideal buyer for Goldman’s PFM unit. Following the announcement, Goldman Sachs’ shares rose by over 1% in afternoon trading on Monday, despite a 5% decline year-to-date, underperforming the broader S&P 500 Financial Sector.

Key Takeaways

This move by Goldman Sachs reflects a prioritization of their ultra-high net worth clientele and a shift away from broader market segments. The transaction is expected to enhance profitability in their wealth division. The big winner, apart from Goldman Sachs, could be Creative Planning, who stand to significantly expand their asset base with this acquisition.