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Would You Trust Goldman With Your 401(k)?

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Goldman Sachs (NYSE: GS  ) has had its hands in a lot of purses lately: $10 billion from TARP; $12.9 billion from the AIG bailout; $5 billion from Warren Buffett.

Now, Goldman wants a piece of your 401(k) money as well.

Running your retirement
Bloomberg recently reported that Goldman's asset-management division is seeking to grab a bigger piece of the $2.7 trillion market for employer-sponsored retirement plans. Although the company already has roughly $17.5 billion under management, that pales in comparison with much larger figures from retirement-management giants such as Fidelity.

Goldman's move may seem ludicrous, given the company's current troubles and negative public perception. Yet in some ways, moving more toward working directly with ordinary people may give Goldman an image that's far different from that of a Wall Street behemoth far removed from the troubles of Main Street and the average worker.

To be clear, Goldman would be operating under a completely different set of rules as a retirement-plan money manager from those who work on the securities-trading side of the business, which is at the center of current fraud allegations from the SEC. As Goldman's own personnel see it, when an investment manager takes on a company's retirement assets, the manager has a fiduciary duty to the plan sponsor and, by extension, the employees whose money is in the retirement plan.

But seeking to build the asset-management side of the business back up is probably one major reason behind moving more heavily into 401(k)s. Whereas asset management made up almost a quarter of Goldman's overall business 10 years ago, it brought in less than 9% of the company's total revenue in 2009. Rebalancing Goldman's revenue stream would go a long way toward insulating the company and its shareholders from the hit-or-miss volatility of securities trading.

Are you kidding me?
What you might find most surprising about this, however, is that employers are actually signing up with Goldman to have the financial company manage retirement-plan assets. Bloomberg cites big employers such as Intel (Nasdaq: INTC  ) , Oracle's (Nasdaq: ORCL  ) Sun Microsystems unit, and Sysco (NYSE: SYY  ) that are offering Goldman funds.

Despite its partial success, Goldman may face an uphill battle gathering assets. Wal-Mart (NYSE: WMT  ) and Ford Motor (NYSE: F  ) are just a couple of the dozens of companies that have already faced a rash of lawsuits related to allegations of pension irregularities and breaches of fiduciary duty. The last thing a plan sponsor would want is to have to justify why it chose Goldman over many other equally worthy competitors.

Moreover, even if the company succeeds in attracting more assets, the move may backfire from a PR perspective. If the current correction blossoms into a renewal of the bear market, then Goldman may once again find itself linked with a crisis in which millions of people see their 401(k) balances fall in value. Moreover, it would again have to justify how the company could reap profits even at the expense of workers suffering losses.

Moving forward
Still, Goldman can't afford to let the potential for disaster stop it from seeking out potentially lucrative business opportunities. The funds that Goldman offers aren't as cheap as index funds, but some have performed quite well over the long run. Its Mid-Cap Value Fund (GSMCX), for instance, finished in the top 10% of its peer group over the past decade, with an annualized return of close to 10%, even with its institutional shares bearing annual expenses of 0.79%.

Of course, offering 401(k) plan options won't net Goldman a dime if workers don't choose its funds when investing their retirement money. How successful Goldman proves to be in attracting workers' 401(k) money depends largely on how fickle workers are with their scorn of the controversy-ridden investment company.

If average investors forgive and forget in search of strong returns, then Goldman may do well. But in all likelihood, after the big money grabs that Goldman has made from the government and others, many workers won't feel inclined to trust the giant with their life savings.

Forget about Goldman. Anand Chokkavelu has found a stock that blows the Wall Street firm out of the water.

Fool contributor Dan Caplinger trusted his CAPS rating to Goldman and hasn't been happy with the results. He doesn't own shares of the companies mentioned in this article. Intel, Sysco, and Wal-Mart are Motley Fool Inside Value choices. Ford Motor is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Sysco, which is a Motley Fool Income Investor recommendation. The Fool has also created a covered strangle position on Intel, and it owns shares of and has written puts on Oracle. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy trusts that Goldman will do what's best for Goldman.


Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2010, at 2:44 PM, plange01 wrote:

    goldman is a disgrace and the people behind it will be sent to jail.there wont be any deals made here...

  • Report this Comment On May 28, 2010, at 4:31 PM, LaLola3 wrote:

    I will not trust them with a 10 foot pole, I never like markets, they are manipulated. Most likely your 401k will end in the hands of the maffia thugs. They have to be paid for intimidating and getting votes for doing nothing. I remember that to carry a box that I could carry myself and I am a petite woman, the needed 3 brutes but I was forced to use them in New York during trade shows.

  • Report this Comment On May 28, 2010, at 5:26 PM, Swimdude wrote:

    Oh, come on now, these are just a bunch of George Bush cronies, look how much George Bush did for our coutry when he was President. Come on, Trust Them! Trust Them! You know you want to!

  • Report this Comment On May 28, 2010, at 7:44 PM, seconexmarketing wrote:

    Would you trust Corzine with ur pension or for that matter ......

  • Report this Comment On May 29, 2010, at 5:22 AM, mikempp wrote:

    that is like trusting the republicans with bringing americans jobs, STUPID!!!!!!!! How are all these so called "free trade agreements" doing for us all? the republicans gave away the middle class and now they think we are going to trust them? FAT CHANCE!!!!!!!!!!!

  • Report this Comment On May 29, 2010, at 6:54 AM, jambs wrote:

    I wouldn't trust Goldman Sacks or any of their subsidiaries with a toothpick. The humor/comedy has left Hollywood and the film industry almost entirely as a result of desceit. Intelligence is humor; but intelligence misapplied, greed, guise, leaves no one smiling. Stone faces and cold hearts, your game will not last and will not live on.

  • Report this Comment On May 29, 2010, at 3:15 PM, noblepaladin wrote:

    If you don't trust Goldman Sachs, think about why you should trust the other guys who is running the 401k and pension plans. They are in the same game too. Except that they are dumber and more likely to purchase something stupid like one of those toxic CDOs.

    Stick with a vanilla index fund in the 401k. If you want exposure to other stuff like emerging markets, bonds, commodities, etc, do that yourself outside of the 401k (which typically does not give you many good options), perhaps in an IRA.

  • Report this Comment On June 01, 2010, at 12:56 PM, BMFPitt wrote:

    What kind of person would want Goldman to act as their fiduciary? That's like having Michael Jackson babysit your kids.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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