Goldman's Robo Underwhelms
Fintechs & Financial Health, Americans' Shadow Financial Lives, FDIC Names CIO
Hey all, Jason here.
It’s the last day of February and, here in the Netherlands, spring has sprung. This is strange for me, as I’m from Chicago, and it’s not uncommon for winter to last until May. After a couple “deep dive” weeks, this issue is more of a news grab bag, including a strategic analysis of Goldman’s recent roboadvisor launch.
Ran out of time to include everything, but honorable mentions to Varo’s credit builder card announcement (basically the same as Chime’s product), Affirm’s BNPL card announcement (conspicuously lacking details on bank partner or card network affiliation), and Brex’s application for a Utah ILC bank charter.
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Goldman’s Roboadvisor Underwhelms — But Wider Strategy May Add Up
In mid-February, Goldman Sachs’ retail offering, Marcus, launched an investment offering in the form of a roboadvisor product, Marcus Invest.
Global Co-head of Consumer and Wealth Management, Stephanie Cohen, did an interview with American Banker that provides wider context of how Marcus Invest fits into Goldman’s two-pronged consumer strategy: to win consumers’ primary banking relationship with a direct, digitally distributed product; and to develop platform distribution strategies, as evidenced by partnerships like the Apple Card, GM credit card, JetBlue (and, I’d add, Walmart and Amazon on the SMB lending side and TxB APIs/Stripe Treasury).
What Marcus Invest Offers
The Marcus Invest offering itself feels pretty MVP (minimum viable product).
This shouldn’t necessarily come as a surprise; if you stop to reflect on existing Marcus offerings (lending, savings) — these are simple products with good execution, but they don’t offer much differentiation vs. others in the market beyond having Goldman’s name attached.
The account opening flow for Marcus Invest asks some simple questions to confirm your suitability and determine your risk tolerance and investing time horizon; these inputs are used to determine a stock/bond split, which appears to vary from 100% bonds to 100% stocks.
Once a user has completed the risk tolerance questionnaire, the user selects one of three portfolio strategies — Core, which seeks to match market performance; Impact, an ESG-focused option; or Smart Beta, which attempts to beat market benchmarks (and is the only option that uses Goldman’s GSAM ETFs).
Notably, all of the ETFs used across the three investment strategies (including Goldman’s ActiveBeta ETFs) are widely available through other brokerages.
Who’s the Target Market?
With a $1,000 minimum, 0.35% AUM fee, and no active trading, Goldman certainly isn’t going after the Robinhood / GameStop / Cash App “stonks” crowd with this offering.
That said, Marcus Invest’s feature set and cost don’t compare favorably to others in the category. At 0.35%, it’s the most expensive next to Personal Capital, which is trying to carve out a premium offering niche serving clients with more investable assets by offering a hybrid robo-human approach.
It’s not immediately clear to me who is willing to pay 35 bps to have Goldman buy readily available iShares and Vanguard ETFs for them.
What Goldman Has That Others Don’t
All that said, there is a wider strategic picture. If you zoom out and look at Goldman’s other offerings and business units, Marcus Invest begins to make more sense.
Full Spectrum Wealth Management
Goldman has long been known as the premier wealth manager for ultra high net worth individuals. Through its Private Wealth Management unit, it caters to individuals with a minimum of $10 million in investable assets.
Through its acquisition of United Capital Advisors, rebranded as Goldman Sachs Personal Financial Management, Goldman added those with $1 - $10 million in investable assets.
By filling the sub-$1 million gap with Marcus Invest, Goldman can capture clients earlier in their wealth-and-investing lifecycle (presumably with lower CAC) — and grow with them, handing them off to more hands-on (and more expensive) wealth managers over time.
Goldman also acquired Ayco in 2003; offered via employers and now branded as Ayco Personal Financial Management, it provides financial counseling and investment management services. This likely overlaps with the $1 - $10 million segment served by Goldman Sachs Personal Financial Management, and I imagine the Ayco brand will be folded into it in the near future.
GSAM ETFs
In addition to the 0.35% portfolio management fee, investments in Goldman’s ActiveBeta ETFs include expense ratios from 0.09% - 0.45%. While peanuts compared to Goldman’s traditional business lines, this is a unit economics advantage vs. roboadvisors placing client funds only in outside investments, and aligns with the firm’s wider strategy of diversifying into stable, non-cyclical sources of revenue (even if low margin).
Marcus Savings
Perhaps the most significant difference vs. competitors is the $97 billion in idle cash sitting in users’ Marcus savings accounts and certificates of deposits. As the Fed has cut rates, the rate Marcus offers on savings as declined to a paltry 0.50% APY - which presents an interesting opportunity to market Marcus Invest to yield-starved customers with idle cash.
Growing Beyond Marcus Invest MVP
If we take Goldman’s strategy at face value (and we have no reason not to), expect to see Marcus Invest’s functionality expand over time.
Obvious expansions include expanding from robo/ETFs only into a full-featured brokerage and offering portfolio-based lending, the latter of which would drive revenue and leverages Marcus’ consumer lending expertise.
FICO + Cornerstone Report on “Americans’ Shadow Financial Lives”
This is a phenomenal (and free!) report; I already sang its praises on Twitter (apologies again for tagging the wrong Cornerstone Advisors!)
My biggest takeaways: consumer account usage, management habits, and motivations are varied and complex; as a result, “challenger banks” (whether Chime, SoFI, or Marcus) will have a harder time cross-selling their way to profitability than they may like to believe.
FDIC (Finally) Fills Chief Innovation Officer Role
The FDIC named Sultan Meghji as its first Chief Innovation Officer — a role created as part of the newly formed Office of Innovation in 2018 but just now filled.
Meghji’s focus areas will include leveraging technology to improve access and inclusion for un/underbanked and helping community banks to survive and stay relevant.
In the announcement, FDIC Chair Jelena Williams said:
“Under his leadership, I am confident we will find innovative ways to utilize technology to modernize our bank supervision, enable community banks to adopt technological solutions, and bring more underserved people into the financial fabric of our nation.”
Are Fintechs Really Here to Fix Users’ Finances?
Last week, I had the opportunity to write a guest post for my friends at 11:fs, the UK-based fintech and banking consultancy. I shared my “unfiltered” point of view on fintech’s impacts on user financial education and financial health.
You can check it out here, and subscribe to the various 11:fs newsletters while you’re there!
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