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Goldman Sachs adds 'vanilla' robo as Marcus bank topping and -- behold -- a warning shot for taking on Robinhood for retail trades

The New York giant's investing robot may one day provide industrial strength day-trading side bets but, for now, is being soft-peddled as a child-proof Marcus bank bolt-on tool.

Thursday, February 18, 2021 – 6:54 AM by Oisin Breen
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Stephanie Cohen: "We like trading at Goldman. It just wasn't first on the list.'

Brooke's Note: Goldman Sachs may well be too little too late to even capture many crumbs in the robo-advice world. Yet to its credit, it makes zero claims in this regard. Instead, it frames the launch of Marcus Invest in terms of rounding out the offerings of Marcus, its digital bank, where it competes for real. But my ears perked up when Goldman's Stephanie Cohen proclaimed that the next Marcus feature may be trading. Hello, Robinhood. One source in this article, Damon Deru, makes the point, in effect, that the Goldman-Marcus brand is the ultimate albatross to go after 'Robinhood' investors. Point taken! But by the time Marcus has a trading app, those inscrutable millennials may have a different worldview. Not only is Robinhood getting rocked for acting too parental around stock buys like GameStop, but maybe by something more pernicious -- a holier Robinhood. Public.com, the social investing site, just raised $220 million in a Series D funding round, at a valuation of $1.2 billion with notable investors like Tiger Global, a major owner of Wealthfront, Guideline  actor Will Smith’s Dreamers VC, Accel, Greycroft, Lakestar and YouTube’s Phil DeFranco. Public pledges not to sell order flow. Sentiment may swing to where Goldman can make a splash with something it's had a core competency in all along.

Goldman Sachs is tacking on another bell and whistle to round out its digital bank, but its long-game still appears to be focused on its core strength -- trading. 

David Goldstone
David Goldstone: Goldman has lagged behind.

Its latest play, Marcus Invest, launched Feb. 17, will automatically make investments in stocks and bonds. The robo-advisor will be integrated into Goldman’s existing Marcus app and website. 

Alongside the 2019 United Capital acquisition, which provides Goldman with a mass-affluent focused RIA, Marcus Invest -- Apex-reliant, painfully vanilla and a year late -- finally gives Goldman mass-market trading capabilities. See: Goldman Sachs buys Folio to gain an RIA-custody toehold, and gets robo-advisors in the bargain, days after Schwab buys Motif.

But Marcus Invest "will not significantly change the landscape,"  says David Goldstone, head of research for Martinsville, N.J., analysts Backend Benchmarking, via email.

"Most individual investors likely have a digital advice product available to them," he explains.

Still, it's being viewed as a necessary adjunct to Marcus, and Goldman's quest to build the world's largest consumer, retail digital bank. 

"Our goal [is] to be the leading digital bank for consumers," says Goldman co-head of consumer and wealth management, Stephanie Cohen in a LinkedIn post.

The New York City giant's digital retail bank, Marcus by Goldman Sachs, holds an estimated $97 billion in retail deposits. That's about 70% of the $137 billion held by rival Ally Bank, the nation's largest digital-only bank. 

Cohen also refused to rule out adding day-trading capabilities to its robo-advisor -- a white hot category in the GameStop era-- during a Wall Street Journal (WSJ) interview Tuesday (Feb. 18),

"We like trading at Goldman," Cohen said. "It just wasn't first on the list."

Count on its likelihood, says Lex Sokolin, global fintech co-head at New York City blockchain software company, ConsenSys, via email.

"There shouldn't be any feature difference in the long run between Robinhood or Schwab or Goldman Sachs Marcus," he says. "Every single B2C fintech experience is on the path to having payments, banking, borrowing, trading, and investing."

 "You can see that even with the PayPal, Google Pay, and Square plans," he adds.

Dominating Wall Street

Indeed, Robinhood just demonstrated the surging popularity of day-trading in the COVID-19 era -- and the potential allure for Goldman.

Matt Levine
Matt Levine: Marcus is the out-of-character side project.

The online trading app last week boasted that more than 1 million investors downloaded its application in a two-day period. It declined to say how many brought assets in the process.

That said, Goldman has long been dominant on Wall Street. Its trading division generated $4.55 billion in revenue in 2020's third quarter alone, a 29% increase from a year earlier.

But that very Wall Street success may make its entry into retail trading a nonstarter with the Robinhood crowd, according to Damon Deru, principal of AdvisorPeak.

"If Goldman is trying to become the next Robinhood by adding day trading to Marcus, I think they will be fighting a long uphill battle," he says.

"Goldman is the poster child for traditional Wall Street, which goes against everything this group is fighting for."

It launched Marcus by Goldman Sachs, its online bank, in 2016 to offer consumer-facing products, like bank accounts and personal loans.

Marcus took in $1.2 billion in consumer-banking revenues last year, a 40% year-over-year increase. As the year ended, its loan balances topped $8 billion, and deposits reached $97 billion.

Yet, Marcus accounted for just 2.7% of Goldman's $44.56 billion of annual revenues.

Marcus Invest in theory moves Marcus closer to the goal of being more like Bank of America minus buildings, people and ATMs.

"We get to the point where we can be someone's primary banking relationship," Cohen, formerly Marcus' strategy chief, told The Journal. 

It's all part of the famed "vampire squid" trying move its image closer to a domestic goldfish while keeping jugular veins on the menu.

Split personality

Yet the tension in forging a new identity is apparent, writes Bloomberg columnist Matt Levine, a former Goldman vice president.

David Solomon
David Solomon continues to press ahead with Goldman Sachs' mass market pivot.

"There’s a race between Marcus’s tendency to infect Goldman with boring banking and Goldman’s tendency to infect Marcus with aggressive complexity," he says.

Marcus has grown in popularity, in part, because of the relatively high interest yields it pays out on cash deposits.

It currently pays out 0.5%, which compares favorably with 0.02% offered by JP Morgan Chase, and 0.04% at Citibank, among others.

But banking reviewer Bankrate.com argues that rates alone are insufficient for top billing.

Goldman could improve its service significantly by adding more basic banking capabilities, writes Bankrate reporter, Liz Hund.

"One of the biggest pitfalls is the fact that the application does not support mobile check deposits," she says.

"Instead, all deposits must be electronically transferred or come from automated deposits. This is unfortunate given Marcus also does not offer branch or ATM access."

That said, Goldman will soon address the issue by adding a retail checking account, according to The Journal.

Apples to apples

Goldman is late to the robo business compared to its peers. Charles Schwab & Co. launched a comparable service in 2015. Morgan Stanley followed in 2017, then came JP Morgan Chase in 2019 and Vanguard Group in 2020. 

Liz Hund
Liz Hund: One of the biggest pitfalls is the fact that the [Marcus] application does not support mobile check deposits.

Early pace-setters like Betterment and Wealthfront both launched in 2008.

Wealthfront, in particular, has also shown a big interest in digital banking over the past year.

Marcus Invest carries a 35 basis point (bps) fee on a minimum $1,000 investment, matching other wirehouse robos, although Goldman will rebate any fund management fees.

Wealthfront and Betterment charge 25 bps, Vanguard, 20, and Schwab is free. See: Knocking down a 'wall,' Betterment will make RIA custody its 'biggest business' as Schwab/TDA merger opens door and robo-advice glut deepens.

Each competes for marketshare in a crowded robo-advice industry, which will manage a cumulative $449 billion by year end 2021, according to Boston consultancy Cerulli Associates.

Slow going

Initially targeted for an early 2020 launch, Marcus Invest was delayed for a year by pressure to meet a 2019 deadline to release a joint Goldman-Apple credit card, according to the Journal. See: Goldman Sachs' branding an advice robot leaks out.

Lloyd Blankfein
Lloyd Blankfein began Goldman's move toward the mass market.

The robo-advisor comes after several false starts, including Goldman's 2016 acquisition of online 401(k) savings robo, Honest Dollar, for an estimated $20 million.

In 2018, Goldman also acquired the budgeting software vendor, Clarity Money, which it will close in March, replacing it with an in-house equivalent, Marcus Insights. See: Robo-deal catapults Goldman Sachs into defined contribution business that's as downmarket as it gets.

"It’s been a bumpy road … and Goldman has lagged behind," says Goldstone.

Former Goldman CEO Lloyd Blankfein laid the groundwork for this pivot away from the firm's formerly exclusive focus on ultra-high-net-worth and institutional investors. He also oversaw the launch of Marcus in 2016.

Lloyd Blankfein's successor, David Solomon, has pressed on with the strategy. See: Goldman Sach's 2020 partners list less homogenous -- even 'accretive' of women.

"Shareholders put a higher multiple on stable recurring consumer revenue than they do on volatile trading profits, so Goldman is giving them what they want," says Levine.

Goldman's first retail robo-advisor is also a major coup for Dallas-based digital custodian Apex Clearing.

Goldman expects to launch its own RIA custody service at some point this year. See: Goldman Sachs targets early 2021 custody launch.

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