To reach the top in boxing and investment banking you need three things: a big ego, a dislike of losing and the killer instinct. Both are worlds that are fiercely competitive and the rewards vast for the winners.
They also have their divisions, and mastery in one area does not always mean you can succeed in another. There is a reporter who made this point very well. His name is A.J. Liebling and he had the ability to write gracefully about anything he turned his pen to.
Liebling wrote for The New Yorker from 1935 until his death at the age of 59. Along the way he produced classics of long-form journalism on food, the press and war. Yet it was his boxing reportage from the 1950s that holds a special place in my pantheon.
Liebling once authored an essay about light heavyweight champion Archie Moore’s failed attempt to win the world heavyweight championship. Moore – nicknamed the ‘Old Mongoose’- due to his boxing acumen believed he could outsmart the champion Rocky Marciano. He managed that in the first half of the fight until Marciano’s youth, size and power got him.
The lesson of the story is: don’t bite off more than you can chew. And the news Goldman Sachs has agreed to sell part of its wealth management division fits that bill. On Monday (28 August) the Wall Street giant announced it would offload the financial advice arm to Creative Planning. This is part of Goldman Sachs’s wealth offer that caters to the mass market, not the super-rich.
Regarding the deal, Marc Nachmann, Goldman Sachs global head of asset & wealth management, said: “[It] allows us to focus on the execution of our premier ultra-high net worth wealth management and workplace growth strategy and to serve high net worth investors.”
The quotation is significant for what it says about the investment bank’s business model but also the wider financial system. The current chief executive David Solomon has attempted to push the firm into consumer finance with the charge led by its online retail banking business: Marcus. This has been accompanied by the related strategy of boosting its retail advice credentials.
So in 2019 Goldman Sachs acquired United Capital for $750m (£594m) that was the foundation for its retail advice business: Goldman Sachs Personal Financial Management. The idea of Marcus and the personal advice arm was to diversify the customer base, increase revenues and make profit sources more stable.
While the core traditional businesses of investment banking and trading are where Goldman Sachs is strongest, these can be volatile. That is down to the cyclical rhythm of these two sectors. And they have simply become less lucrative due to the 2008 financial crisis where tougher regulations and scrutiny have made these activities less attractive. There is also the issue of investors and markets that remember the banking sector being the source of so much grief many years ago.
The effort to build a consumer bank was right as it tried to improve the market reputation of the overall firm that would then increase the share price. And it was thought consumer deposits would be a source of cheap funding for Goldman Sachs overall. Fixing on a wealth management angle to Marcus was a no brainer.
Yet these laudable attempts failed as it turned out to be unexpectedly expensive to develop a consumer franchise. Also, staff in Goldman Sachs’s core businesses saw it as a diversion and waste of time.
The lessons from the failure over in the US are it is very hard for even a global brand with massive resources to succeed in a new market. Veterans of the UK advice space know this all too well where banks retreated from providing advice due to the Retail Distribution Review. This banned commission in 2012 and the banks were in retreat after the financial crisis anyway.
In the 2010s, there was hype around robo-advice but Barclays and UBS pulled the plug on their offerings here in 2018.
Still these difficulties do not stop large banks from trying in the retail advice space. JP Morgan made a retail push with the acquisition of Nutmeg in 2021. The future direction is uncertain though. In August its boss Sanjiv Somani resigned from the business and its parent company JP Morgan Europe.
According to a Companies House filing the date of Somani’s termination was 6 August.
Somani was JP Morgan Chase managing director and took responsibility for Nutmeg in June 2022 after Neil Ross Alexander left.
Other finance companies are entering and exiting right now too.
Challenger bank Monzo is moving into the pensions market as it on the hunt for a project manager to run its new savings team. Meanwhile the building society Nationwide is heading in the opposite direction. Aegon UK is taking the building society’s existing financial planning service over the coming months.
The transfer is expected to be completed in early 2024, at which point the ongoing financial planning needs of around 90,000 customers will move to Aegon UK.
What the failed project from Goldman Sachs and other banking behemoths shows is that getting into retail advice is easier said than done. That will not stop others from trying though. Bankers with big money like to do big things.
