Goldman Sachs CEO calls United Capital debacle 'lesson learned,' amid RIA exodus, and operating losses

David Solomon finally signaled to Wall Street his “acceptance” of the company's future in wealth management based on its very recent faceplant with a middle-market RIA.

Solomon also made a personal sacrifice by agreeing to forgo the “distraction” of his side-gig, moonlighting as a disc jockey in tiki bars in the Bahamas, at Lollapalooza and in downtown Manhattan.

“Our focus is on ultra-high-net-worth management where we have a leading franchise,” the Goldman Sachs CEO said on the company's third quarter earnings call.

“I just highlight that ultra-high net worth management,,, is still a very fragmented business. And while we have a leading franchise, a leading franchise is kind of a mid-single-digit share.”

He added: “We think that's a better returning business and something we're very confident that we can continue to execute on.”

Goldman spoke of his company's ‘United Capital’' unit – which his firm still owns – in the past tense, calling it a “lesson learned,” after the company went through a number of stages of remorse before he uttered such a reflective message.

Denis Coleman, chief financial officer of Goldman Sachs, also disclosed on the call that ‘United Capital,’ also known as Goldman Sachs Personal Financial Management [PFM] is running in the red.

“We highlight modest ongoing losses in connection with our residual markets portfolio and operating the PFM business.” See: Goldman Sachs' sweeping legal effort to crush 'United Capital' advisor exodus may prove largely meaningless -- with little chilling effect on flood of defections

Exodus continues

The traditional stages of grief are:denial, anger, bargaining, depression and acceptance. Goldman seemed to experience them all, acquiring United Capital for $750 million in 2019, plowing more capital into it, then trying to sell the $29-billion RIA to Peter Mallouk's Creative Planning this summer. 

The two firms have reached an agreement in principal, while gads of advisors and advisor teams – presented with a choice of Creative Planning or United Capital 2.0 – chose none-of-the-above and simply bolted to their RIA of choice. See: Goldman Sachs-Creative Planning deal is bleeding defectors -- 16 more last week, report says -- auguring a 'potential disaster,' analysts warn

Only yesterday, Citywire reported Greg Blake, Andrew Schiff, Will Sterling, Peter Halbrook and Jonathan Rosner of Bethesda, Md., registered as advisors with TritonPoint Wealth. The RIA is backed by Dynasty Financial Partners.

Citywire pegged the firm's book of business at $2 billion, based on an unnamed source.

Comfort zone

Solomon's reflective mood may also reflect Goldman Sachs share price. It closed at $300 today (Oct. 20), a level it hasn't seen since the early days of 2021 and just a buck and change off its 52-week low of $298.10. 

The irony is that Goldman Sachs thought the consumer market in banking and wealth would afford it a higher P/E ratio associated with those industry sub-segments. Goldman's price-to-earnings ratio is currently at about 12-times.

JMP Securities Analyst Devin Ryan evoked Solomon's “lesson learned” comment with a no-wiggle-room question: 

“I know that the sale of Personal Financial Management is a small business. But just if you can remind us how and where you want to compete in Wealth Management moving forward?” 

Solomon's resolve to go back to the future of untra-high-net-worth (UHNW) investors reflects the types of staffers it is comfortable managing as much as the net worth of the clients themselves, says an RIA executive who declined to comment because he does business with Goldman Sachs,

"They want to stay upmarket and sell their high-end, high-margin products to large clients with advisors that clearly are ‘employed’ by the firm and do as they are told.  Smaller, more independent advisors are simply not a fit." 

No bones

Goldman Sachs, for now, seems willing to keep its Ayco RIA in Albany, NY, which straddles both the high-net-worth and ultra-high-net-worth markets.

Ayco is a horse of a different color, the RIA executive says, because clients are CEOs of Fortune 500 companies, relationships worth cultivating to win big corporate finance gigs.

“Think core to investment banking with connection to executives,” the person says.

Goldman Sachs is making no bones that it'll stick to core workouts.

“We laid out a clear set of goals to narrow our strategic focus, and we have made significant progress on these priorities," Solomon said on the call.

"Most recently, we announced the sale of GreenSky. We also announced the sale of Personal Financial Management [United Capital] this summer,” 

“We sold substantially all of our markets loan portfolio. We have reduced our historical principal investments by $9 billion this year. We are confident that the work we're doing now provides us a stronger platform for 2024 and beyond.”