Goldman Sachs Group Inc. has joined the growing ranks of brokerages marching into large commercial banks' territory of providing personal trust services to high-net-worth clients.
The New York firm, which has hired Daniel M. FitzPatrick from J.P. Morgan & Co. to spearhead its efforts in personal trust, will start offering the services in several months, a spokeswoman said.
Goldman is joining the fray when bank dominance of the trust business is eroding. The bank trust business grew only 8.7% a year in the 1990s. But the trust business for broker-dealers is growing fast; it rose 41% a year from 1997 to 1999, said Kurt Reisenberg, managing director of VIP Forum, a Washington research firm that focuses on issues related to the high-net-worth market.
And Charles Schwab & Co. stepped into the niche in a big way in January when it announced a deal to acquire U.S. Trust Corp.
"This was the banks' bread and butter, and now the brokerage firms are going after" it, Mr. Reisenberg said.
It is doubtful that Goldman will displace such well-established competitors as J.P. Morgan, Northern Trust Corp., U.S. Trust, and Bessemer Group Inc. right away. But with its strong brand, global reach, wealthy clientele, and financial resources, in time it could become a formidable player, observers said.
Having a personal trust business allows companies to set up trust accounts and act as executors or administrator of wills, among other things.
"Everybody's really trying to tackle how you get to the high-net-worth client. Do you go through the banks or around them?" said Michael D. Fitzgerald, who heads sales of mutual funds through bank trust departments at Massachusetts Financial Services of Boston.
The spokeswoman said Goldman has not determined the investment minimums its personal trust services will carry, but observers said they expect it to stick to the upper echelon of wealthy investors - those with more than $10 million of investable assets.
Sixty-seven thousand households had such assets in 1999, according to Spectrem Group of New York.
Many brokerage firms, including Merrill Lynch & Co. and PaineWebber Inc., however, serve a lower-end market than Goldman is expected to. And some competitors, including J.P. Morgan, have set their sights lower in recent months.
Goldman already provides brokerage services to wealthy individuals and therefore has a large client base to offer its new trust services. Assets of its high-net-worth client assets were $262 billion at the end of fiscal 1999, said Dean Eberling, senior vice president at Keefe, Bruyette & Woods Inc. of New York.
At the time of Goldman Sachs' initial public offering in May 1999, 41% of the Forbes 400 richest Americans were Goldman clients, said Raphael Soifer, a former analyst with Brown Brothers Harriman & Co., who now heads a consulting firm.
Despite its considerable strengths, some observers are skeptical about Goldman's ability to pull personal trust business from banks.
"Unless they make an acquisition," Goldman does not pose an immediate threat to commercial banks, Mr. Eberling said. He added, however, that it could become a viable competitor in three to five years.
"They're not using trust as a means to acquire a client. It's a way for them to close the back door in terms of losing relationships," said William R. White, who heads the affluent-market practice at Spectrem Group.
The trust business is also expensive to break into, Mr. White said. It offers decent profit margins but requires having right menu of products and services as well as scale, he said.
Goldman also faces the challenge of showing it understands and can serve the needs of the affluent, said Stephen D. Gresham, principal of Gresham Co. LLC, a Madison, Conn., consulting firm.
"Wealthy business owners may see Goldman as a capital markets player and a terrific corporate adviser, but will they appoint Goldman Sachs the trustee of their family wealth?" Mr. Gresham said. "It's a different business, and they have to prove their value in the face of entrenched and well-capitalized competition."
