The New York giant’s investment robot may someday provide industrial strength day-trading side bets but, for now, is being sold as a child-proof Marcus bank bolt-on tool.
Brooke’s Note: Goldman Sachs may be too little too late to even catch a lot of crumbs in the world of robo-advice. However, to his credit, he makes no claims about it. Instead, it frames the launch of Marcus Invest in terms of completing the offering of Marcus, its digital bank, where it really competes. But my ears perked up when Goldman’s Stephanie Cohen proclaimed that Marcus’ next article could be swapped. Hi, Robinhood. A source in this article, Damon Deru, points out, in fact, that the Goldman-Marcus brand is the latest albatross to pursue “Robinhood” investors. Point taken! But when Marcus has a trading app, those inscrutable millennials may have a different world view. Not only is Robinhood shaken for acting too fatherly about stock purchases like GameStop, but perhaps by something more pernicious: a holier Robinhood. Public.com, the social investment site, just raised $ 220 million in a Series D funding round, valued at $ 1.2 billion with major investors such as Tiger Global, a major owner of Wealthfront, Orientation Dreamers VC from YouTube actor Will Smith, Accel, Greycroft, Lakestar and Phil DeFranco. The public agrees not to sell the order flow. Sentiment can get to the point where Goldman can impress with something he has always had a core competency in.
Goldman Sachs is facing another wake-up call to complete its digital bank, but its long game still seems to be focused on its core strength: trading.
Its latest game, Marcus Invest, launched on February 17th, will automatically invest in stocks and bonds. The robo advisor will be integrated into Goldman’s existing Marcus app and website.
But Marcus Invest “is not going to significantly change the landscape,” says David Goldstone, head of research for Martinsville, NJ, Backend Benchmarking analysts via email.
“Most individual investors probably have a digital advisory product available,” he explains.
However, it is seen as a necessary addition to Marcus and Goldman’s quest to build the world’s largest retail digital bank.
“Our goal [is] be the leading digital bank for consumers, “says Stephanie Cohen, co-head of consumer and asset management at Goldman in a LinkedIn post.
The digital retail bank of New York City giant Marcus of Goldman Sachs holds approximately $ 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 functionality to his robo-advisor – a glowing category in the GameStop era – during a Interview with the Wall Street Journal (WSJ) Tuesday (February 18),
“We love trading at Goldman,” Cohen said. “It just wasn’t first on the list.”
Count on its likelihood, says Lex Sokolin, co-head of global fintech at New York City-based blockchain software firm ConsenSys, via email.
“There shouldn’t be any difference in functionality in the long run between Robinhood or Schwab or Goldman Sachs Marcus,” he says. “Every single B2C fintech experience is on its way to payments, banking, loans, trading and investments.”
“You can also see it with the PayPal, Google Pay and Square plans,” he adds.
Dominate Wall Street
In fact, Robinhood just demonstrated the growing popularity of day trading in the COVID-19 era and Goldman’s potential appeal.
The online trading app last week boasted that more than 1 million investors downloaded its app over a two-day period. He refused to say how many brought goods into the process.
That said, Goldman has long been dominant on Wall Street. His trade division generated $ 4.55 billion in revenue in the third quarter of 2020 alone, a 29% increase over the previous year.
But that same Wall Street hit could make its entry into retail a non-starter with the Robinhood crowd, according to Damon Deru, principal of AdvisorPeak.
“If Goldman is looking 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 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, such as bank accounts and personal loans.
Marcus grossed $ 1.2 billion in consumer banking revenue last year, a 40% year-over-year increase. At the end of the year, its loan balances exceeded $ 8 billion and deposits reached $ 97 billion.
However, Marcus only accounted for 2.7% of Goldman’s $ 44.56 billion in annual revenues.
Marcus Invest theoretically brings Marcus closer to the goal of being more like Bank of America less buildings, people and ATMs.
“We have gotten to the point where we can be someone’s primary banking relationship,” Cohen, Marcus’ former head of strategy, told The Journal.
It’s all part of the famous “vampire squid” trying to bring its image closer to a pet goldfish while keeping jugular veins on the menu.
Yet the tension in forging a new identity is evident, writes Bloomberg columnist Matt Levine, a former vice president of Goldman.
“There is a competition 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, due to the relatively high interest yields he pays on cash deposits.
It currently pays 0.5%, which compares favorably with the 0.02% offered by JP Morgan Chase and 0.04% to Citibank, among others.
But bank auditor Bankrate.com argues that the rates alone are not enough for the best billing.
Goldman could significantly improve its service by adding more basic banking capabilities, writes Bankrate reporter Liz Hund.
“One of the biggest pitfalls is the fact that the app doesn’t support mobile check deposits,” he says.
“Instead, all deposits must be transferred electronically or come from automated deposits. This is a shame as Marcus doesn’t even offer access to branches or ATMs.”
That said, Goldman will soon address the issue by adding a retail checking account, according to The Journal.
Apples to apples
Goldman is lagging behind in the robot business compared to its peers. Charles Schwab & Co. launched a similar service in 2015. Morgan Stanley followed in 2017, followed by JP Morgan Chase in 2019 and Vanguard Group in 2020.
Early pioneers like Betterment and Wealthfront both launched in 2008.
Wealthfront, in particular, has also shown a great deal of interest in digital banking over the past year.
Marcus Invest carries a 35 basis points (bps) fee on a minimum investment of $ 1,000, which is equivalent to other wirehouse robots, although Goldman reimburses any fund management fees.
Wealthfront and Betterment charge 25 bps, Vanguard, 20 and Schwab is free. To see: By breaking down a “wall,” Betterment will make RIA custody its “biggest business” as the Schwab / TDA merger opens doors and the glut of robo advice deepens.
Each competes for market share in a crowded robotics consulting industry, which will manage a total of $ 449 billion by the end of 2021, according to Boston-based consulting firm Cerulli Associates.
The robo-advisor comes after several false starts, including Goldman’s 2016 acquisition of the 401 (k) online savings robot, Honest Dollar, for an estimated $ 20 million.
In 2018, Goldman also acquired budgeting software provider, Clarity Money, which will close in March, replacing it with an internal equivalent, Marcus Insights. To see: Robo-deal catapults Goldman Sachs into a defined contribution business that is as low-market as possible.
“It was a bumpy road … and Goldman fell behind,” says Goldstone.
Former Goldman CEO Lloyd Blankfein laid the foundation for this pivot away from the company’s previously exclusive focus on institutional and ultra-high net-worth investors. He also oversaw the launch of Marcus in 2016.
Lloyd Blankfein’s successor David Solomon pushed the strategy forward. To see: Goldman Sach partners for 2020 list less homogeneous, even “augmentative” of women.
“Shareholders attribute a higher multiple to consumer stable recurring revenue than volatile trading profits, so Goldman is giving them what they want,” Levine says.
Goldman’s first retail robo advisor is also a big hit for Dallas-based digital custodian Apex Clearing.
Goldman plans to launch its own RIA custody service at some point this year. To see: Goldman Sachs aims to launch the case in early 2021.