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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.
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.