Goldman Sachs’ Joe Duran on Fixing America’s Retirement Savings Crisis

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

Hello and welcome to Barron's The Way Forward. I'm Greg Bartolis, and my guest today is Joe Duran, head of Goldman Sachs Personal Financial Management. Joe founded the RIA United Capital in 2005, and Goldman Sachs acquired it in 2019 for $750 million. Today we'll discuss how that integration is going, but we're going to begin by talking about retirement and the challenges people are facing in saving enough for it.. And we'll also discuss how retirees are struggling to generate enough income to offset falling asset prices, high inflation, and expected healthcare expenses. With that, welcome, Joe.

It's great to be here. Thank you for having me.

Let's talk about a recent study. It's, well, yeah, actually it's Goldman's Asset Management Annual Retirement Survey Insights Report. There's a lot to unpack there. Would you mind getting the ball rolling, telling me about a couple of the high-level findings and we can dig into that a little?

Well, I think the most interesting part is really in regards to baby boomers and Gen Xers that over half of them are behind in their retirement savings. And we're interviewing people all across the wealth spectrum, but what you find is that at least half of the people don't feel like they are where they need to be and they are right at retirement age. And that's quite a concerning thing. I mean, there's good reason for it and we'll get into that in a second. The other that I thought was interesting is only 1 in 10 baby boomers and Gen Xers, so all over 50 years old, feel very confident about meeting their retirement goals. So, that means 90% of people, many of whom, by the way, work with an advisor, do not feel very confident about their retirement goals and being able to reach them. So, that speaks to what we call the vortex, which is that a lot of these people are finding themselves in very different circumstances than they imagined they'd be in at this point in their lives.

Yeah, I think that specifically was the most attention-getting and dispiriting statistic. I mean, that again, 11% of working baby boomers, 12% of Gen Xers are very confident in meeting their goals. And, you know, these aren't exactly young people we're talking about. So I was pretty shocked by that number.

Yeah, and again, really concerning that a lot of these people actually work with an advisor, you know, so What does that say? I would suggest something. There are two things that have happened in the last year that have really shifted things, but one in particular. Obviously, inflation has a huge impact on how people can perceive retirement. And this generation, this group of people owned a lot of bonds. Interest rates have gone up, which is great if you're about to retire and now want to put money in bonds. But these folks have been invested fixed income. And what we've experienced in the last— in this year alone, which is to have bonds going down almost as much as equities, that's a 3% of the history of the economic world event. The last time we had this level of decline in bonds and in equities was the 1930s. It's very, very rare that, you know, 97% of the time fixed income is a buffer against equity declines. And so, it's almost no one in our lifetime has experienced what we're experiencing right now. And that can be very, very scary. And then, the second big wave that's happened in this context is in the last 30 years when I joined the industry in the '90s, almost everyone had a pension plan, certainly if you worked in corporate America. And therefore, your savings were really for extra spending, nicer vacations, passing on to your kids. But now we're all living on our own assets completely. And so 401(k)s are very, very different than pension plans. And the responsibility, I don't think people have been trained in the way to think about it. And of course, they're not being managed the way a pension plan is with much longer life or really an evergreen life expectancy. And the choices are not made by a calm, rational group of trustees. It's made by an individual who's watching their net worth decline by 20% and panicking about what that means for their retirement. And so, you're dealing with a set of circumstances on the investment side of the equation that are challenging. And then secondly, a set of life circumstances which people didn't envision. And one of the biggest examples of that what I call the sandwich generation. And these are the folks who knew that they would have to support their kids and probably saved enough to help support them in college. But they have mortgages and all kinds of other costs. But the unforeseen expense was they also have to take care of their parents because in many cases, their parents are now in their 70s and 80s. Maybe they have really high healthcare costs. Maybe they don't have the mental acuity they used to have. And that comes with a set of responsibilities they didn't expect. So, you know, we all, when we have children, kind of map that into our thinking. We don't always think of what I'll call the off-balance sheet liabilities, whether it's your brother or sister that suddenly needs financial support or your parents that need help and guidance and support. And so this is an area where, again, if you are the beast of burden for your family, if you're the one who's meant to provide, there are many off-balance sheet liabilities you didn't consider. And so, the sandwich generation is really being caught by the aging parents that they have to now look after as well as their own children and their own retirement. So, it's creating a lot of pinches to people who are in this vortex as they enter retirement.

Yeah, absolutely. I mean, just to begin with your first point about the bond market, This is, yes, roughly the worst bond market we've seen in 90-some-odd years, and we've always been taught or told it's basically a buffer, right? And the magnitude of the drop is probably arguably a bigger story than the stock market fall because we've had bear markets in equities of a larger magnitude far more often. And I think this just caught so many people absolutely flat-footed. Now, given if you read the directions on bonds, if you will, right? Rates go up, bonds go down. We get that. But I still think despite this environment, it's just kind of stunning, frankly, and really, really caught a lot of people off guard. And then as to your second point about the pension plans being gone, yeah, I mean, people are kind of largely on their own and having more technology and products can be a great thing, but there's also lots of temptation, lack of discipline, greed, and fear kicking in at precisely the wrong times. So that in and of itself is also potentially problematic. And then per the sandwich generation of caring for parents, even when people do save for the proverbial rainy day, when they do the math and tally up the numbers, you know, typically they don't account for things like that. It might just be like my mortgage, other expenses, insurance, college savings, etc.

And just to go back to the first point about this impact of bonds, it's hurt the people who can least afford it. You know, you think about who's been most impacted by this decline in bonds, It's the people who have the most allocated to bonds. So that hurts two categories of person. The people who are already retired because they have the highest allocation to fixed income. And second, the people who have the least amount of money because they own bond mutual funds, which tend to be longer in maturity and have no guarantee of going back to their original value. If you own the underlying bond itself, even a treasury, while you might have a notional decline in its value because your interest coupons could be in invested at higher rates, you know at least that the principal will come back to par. Even if today you see a temporary decline in value, you know you're going to get your principal back because the US Treasury will pay you back. But if you're on a bond fund where you might see net redemptions, the maturity and the return of capital is not insured in quite the same way. And I'm using insured with an E, not with an I. And so it's impacting people who are the most vulnerable in the worst way. So interestingly, you know, if you have $5 million, you probably own individual bonds from these states and the government, which means that while they decline notionally in value temporarily, you'll get your money back at the end. Yeah. But if you have less money, $500,000, and you put $100,000 in a bond fund, You don't know exactly what changes are going to happen to that portfolio to ensure that you get back to par. And that is a dilemma that I think has hit a lot of people quite in a very difficult way.

Yeah, and we haven't really even touched on equities. I mean, even retirees have typically have X amount allocated to them, so they're also feeling pain there. So there have been precious few places to hide. I mean, I suppose cash, cash equivalents fared well, but then you could even say in the context of high inflation, it's perhaps not that great, but of course, it beats the alternative. It beats the alternative, right?

Yeah, precisely. The one thing that has happened that is why equities hurt more when you're in retirement is that we as a profession have shown people to think about their entire portfolio in its entirety, including the equity appreciation they should have. As what to live on. And what does that mean? It means that when equities are going up, it feels great. When they're going down, your whole nest egg is going down because we're viewing their retirement pool like a pension plan. And often, it doesn't generate, especially when rates were as low as they were, it never generated enough income to survive on. And so, you basically lived on both the equity appreciation, which you would sell the next year's proceeds that you needed to live on, And that works fine as long as equities go up. It doesn't work as well when equities go down. And so the good news with rates where they are now at 4+% is you can now go back to the old world of thinking like, hey, your bond portfolio is going to generate your income and your equity portfolio will generate your future growth.

Yeah, yeah.

To hedge against inflation. But of course, many people have already retired. They're already allocated to fixed income and equity, and so they don't they're going to pay the price for rates going up now, you know, in the last 9 months.

So there was one aspect of the report I found really interesting. We talked about the unexpected cost of caregiving, let's say, for a family member. There's that cost in and of itself. However, it said that 43% of working respondents reported need to take time away from the workforce. Now, granted, some of those might not be of a long duration, but some are. So that kind of compounds the financial distress as well and of course, is another thing most people don't plan for.

This is the power of financial planning and maybe we'll shift a little to talk about how you deal with this. The reality is that we have no control over what interest rates do and no matter how smart we are, we really don't know what the markets are going to do on any given day or any given year. We can use some assessments to have impressions about what could happen. But the reality is we don't know. And we certainly don't know how people's individual lives will transpire and what things might cause them to have to stop working or anything else that might happen in their lives, inherit something, get cancer. You know, things happen in life that you just don't expect. And they happen every day to somebody. The reality is a financial plan plays two very important roles, even though Every financial plan that's ever written is wrong the day it's written because it cannot anticipate accurately how your life will unfold or what will happen in the financial markets to the penny. So, you know it's wrong the day it's written. But it does two things that are very useful. The first, it gives you a good understanding of the things you actually can control. And that's a very finite set of choices. You can control how much you save, how much you spend, the timing of major events like when you buy a house or not. Whether you retire or not, things like that. Mm-hmm. Fourth, the amount of risk that you're willing to take. You can't control the returns, but you can choose how much risk you're gonna take. And then lastly, how much of a safety net or a legacy you wanna leave behind. And when you go through a period like we just have experienced in the markets, let's say you are already retired, you can't do anything about what's happened to people's portfolios. The inclination might be, I want to go completely to cash or move the risk lever to zero. But that locks in a set of outcomes that might be the suboptimal outcome. So, for example, if somebody's already retired, if they reduce their spending by 4 years by 10%, that has the same impact as withstanding a 20% decline. So, you can offset that 20% decline by simply adjusting your spending for a period of time, which will cause you to not make the abrupt move of going straight to cash and locking in those declines forever until, of course, the markets recover, and then it feels good to go back in and you've already missed it. And if you're not yet retired, literally working an extra 18 months can offset that 20% decline. And so, financial planning not only gives you framework by which to make decisions and give you some level of control over the things you can control, but it also gives you some understanding of how you move these 5 levers and trade them off to get to the optimal outcome for you, to allow you to withstand so you don't always use my risk lever, which is the one most people emotionally want to use, like, okay, I got to get out the market. I got to get back in the market, which is the most destructive because as we both know, Your emotions will guide you astray when you're making decisions about investing. Like, you're emotionally not wired to make the right choice unless you're someone like Warren Buffett, maybe. The reality is we like to buy when things are up and we like to sell when things are down, which are the two worst strategies you could have to actually be financially successful. But when people need to do something, which they do, giving them control of choices that they actually can manage that don't impact and harm them in the long term is really powerful. And that's the power of financial planning. And it really reinforces the value of a great advisor to an individual.

During this tough year for investors, what has been the direction in terms of interest in financial planning? I mean, on the one hand, people have less money to spend. On the other hand, the stakes are higher, right? So what have you been seeing?

I'll tell you, you know, one of our biggest growth areas, as you know, myself and Larry are steering my partner run the, what we called, it used to be called ACO. It's now Workplace and Personal Wealth. And we work with corporate America and they're very concerned about the cost of financial anxiety. And so, while individuals feel less willing necessarily to sit down with an advisor, we're still in the denial stage of this decline. Corporate America knows very well the value of giving people a sense of whether they can afford to retire or not and how It's all meant to work out. And so, what we're seeing is actually a huge increase in interest from the workplace, from corporate America, from CHROs who want their employees to not be stressed out and make sure that they can actually make retirement work because they didn't casually leave the pension business. It was a financial decision, but the care for their employees is still there, and they understand that many people are not prepared or maximizing their 401(k) or not doing the things that need to be done in order to get to the right place when they stop working at that corporate. And so, I think there's a big role for planning through the workplace for individuals.

Yeah, I could imagine that there is a big opportunity there. I mean, I think for people who have never used an advisor, for some, it may seem daunting. Perhaps intimidating, perhaps they feel there are too many choices, they don't know where to go. I've heard of people who are insecure about asking dumb questions. They don't even know where to begin. So then they're just stymied by indecision and essentially do nothing. Whereas through a workforce, there's really no initiative required of the employee. The company gets the ball rolling. There's handholding, there's a trusted intermediary. So in many ways, it's kind of a it seems to be a very appealing and easy way to get the process going.

And the way we do it, just so you know, is we're partnering. When we partner with a big corporate, we're going on-site to do education. There is an app that is customized to that firm so that the people who are onboarding can go through their own digital experience, but there's always the choice of calling a human, a coach, to help you answer the simple question like, what should I choose in my 401(k)? How do I actually put money in? And it's done via Zoom with experienced CFPs who can actually help answer those episodic questions that you've got. If you decide you need a financial planner, we have planners that can work with you on a local or national level. And so that's very appealing to people. If there's a corporate that knows that they've got a bunch of employees that are retiring or getting offered early retirement packages, to know that we're going to come in and help people assess whether they're ready, whether they should take the package or not, and make sure that— because every corporate really wants to make sure their employees are in good shape, believe it or not. Despite what the media sometimes says or people like to say, the reality is every corporate we work with really cares about the well-being of their employees. And when they offer early retirement packages, they want the people who take them to be in good shape. And so, we come in, We provide a very— a person that you can speak to, but also a digital voyage that can help you do this yourself if you want. And then get comfortable with answering the simple questions, especially in the beginning of your career when you really don't know how anything works and you don't even know who to ask. So, we find that to be really useful. If you can serve everyone in that workplace from the entry-level employee all the way to the C-suite, to the CEO of the firm, that's really valuable. But also know that you you've got to deliver different services to each segment in a scalable way. And so, you know, the CEO, maybe we're doing their tax returns, stock option management, like all kinds of bespoke full-service experiences where somebody who's an entry-level employee, we're just teaching them how to use their 401(k) and maximize the benefits that the corporate is providing.

I'd like to just pivot here now to talk a little about United and how integration is going. And then also just talk about, challenges involved with growing a business in terms of finding talent, succession, et cetera, just to branch out more broadly. This year, it's been now 3 years now. Time kind of flew. I remember when the news broke about the Goldman deal. So just on a high level, how's the integration going culturally and in terms of technology? What can you tell us?

Well, the part that's gone great, honestly, is the cultural fit. Like, I will say when We were negotiating with Goldman prior to getting serious about it. I had an impression about what Goldman was about. And of course, I thought they were really smart people. And of course, I knew that they were really good experts when it came to IPOs and investing and all the rest. I also had the impression that I'd be surrounded by super arrogant people. That's just the way I thought about it. And yet, That could not be further from the truth. It's just been amazing how humble and client-centric every single person I've met is. And so, that very much fit the ethos of our employees. We had 800 folks that joined the Goldman ranks. And I can only compare it to when I sold to General Electric, my prior firm. It was called Centurion Capital. We sold that to GE and how culturally people were very, very different. In this environment, it's been remarkably seamless because the obsession for doing the right thing for clients and really just the humility and how authentic everyone is. So that part's been fantastic. The part that's been quite difficult, and candidly, we're almost done with it, thank goodness. We really didn't do anything for 18 months other than move technology. And then myself, I was made a co-head with Larry of the combined AECO United Capital business, which we called Personal Financial Management Group. And that work, bringing the teams together was remarkably easy, like just super aligned visions and views about how to serve people because we're both planning-centric, planning-led organizations. And we used even the same software. So it was all really easy. The hardest part, honestly, was that we were an independent RIA and now we're part of a global bank with a brokerage division and we're held to the highest standards of every regulator. And so I have to say that part has not been as much fun as I would like, but it's an adjustment.

I'd imagine.

Here's the good news. Yeah, it's there for a reason. It's there to protect clients. It's why Goldman Sachs has been here for 150 years. But for our advisors that we're used to a much more freewheeling, we were always concerned about compliance, but our regulator was the SEC and that's it. And so the standards are high. Now, the good news is that comes with a lot more security for our clients, but that's the That's the tax. The tax of having the Goldman Sachs brand is that we are held to a set of standards that are significantly elevated relative to what it was at United Capital.

2 years ago, you actually spoke with my colleague Jack Otter. He did a podcast with you. And there were 3 things you mentioned, 3 big changes rather, that you saw COVID accelerating. And I'll bring them up and get your take on them. To provide comprehensive advice beyond investment planning, the digitization of everything except for the final mile of the relationship. And then I guess, which is a perennial, how do you grow organically? Can you speak to any or all of that?

Yeah, absolutely. Well, the first one is absolutely true and it's even more true now after pandemic actually because of what's happening in the markets. The answers are not going to come from investing. They're going to come from financial planning. So So I can tell you we've expanded to now include tax prep facilitation as well. And so we just see that the, the role of the advisor is becoming more expansive. The expectations from clients who are paying you that fee is that they want more from you. They want to be understood better. They want their lives simplified. They want financial anxiety removed from their lives or reduced at least. And that's so the role of advisors has absolutely expanded. More. Second, the digitization of everything, it's absolutely inescapable and it's happening. We've spent hundreds of millions of dollars on our app, on thinking about how we do digital onboarding, on delivering a UMA, and that won't stop. So there is in all these big institutions, including us, a desire to provide to clients in their terms, when they're ready, how they want. And that, of course, means being mobile first, but also being powered by really great advisors who have great digital technology to interact and provide scale to their practice. And on the third one, I mean, honestly, it's not just us. When you see all of the major warehouses, the race to get the corporate market, the workplace market, is quite simple because the cost of getting clients, if you're not doing it through acquisition, and by the way, the pricing on acquisitions is so out of sight that your cost of customer acquisition, you're much better off figuring out how to get into the workplace because you get those people earlier in their careers. You become a partner to that person in a financial context for their entire lives. So, their lifetime value is very, very high. And you can have the biggest impact over the longest period of time. And so the reality is that the organic growth is a requirement. I think it's interesting since I've sold, when we sold, I think on our podcast that we did a couple of years ago, people were like, wow, you reset the price and don't you wish you'd have waited because valuations kept going up. And I said, no, you know, the reality is I would never have had the opportunity to sell to Goldman Sachs a year later. They would have solved this problem with in a different way. And the assumption that was made with a lot of these acquisitive firms is that, well, that's the multiple, everyone will pay that multiple. And so they changed, all the private equity firms changed their exit multiple to reflect what happened with United Capital. So I do think we weren't the only ones, but we did help reset the pricing. Now, something very curious has happened in the last year, and that's with rates going up, The cost of acquisitions should have gone down because the leverage doesn't have as big of an impact. And yet that hasn't really happened. There's still some firms doing quite a lot of acquisitions because there's still enough private equity money. But when you look at the public valuations of any of these firms that were in the acquisitive financial services space, it's quite jarring to see what's happened to valuations. And I certainly Wouldn't want to be United Capital today trying to find somebody who's going to buy the whole business today if we hadn't have been as integrated, tech-heavy, and such an interesting purchase, such a unified and unilaterally cohesive group. I think that makes it very challenging. And so again, I think that part of the market is, it's very interesting to see how that plays out in this higher interest rate environment. And where do a lot of these aggregation firms end up? Like, how do they— the public markets don't appear to be overly kind right now. Again, not that they don't have great businesses, it's just who's gonna— what's the exit for a lot of these private equity firms that have put a lot of money in this segment?

Right. And the tricky thing is, I mean, a lot of this consolidation is, um, yes, it's, it's pointing to increased AUM, but it's in a way papering over a relative dearth of organic growth.

That's correct.

Yeah, my podcasting partner, Steve Sandusky, he wrote a blog post this year based on Schwab's 2022 RIA benchmark study. And the upshot of what he wrote is that in the past 5 years, that the great amount, if not most of the AUM gains are really due to market gains. So you kind of, you know, I don't know, we've had such a long tailwind of what, 10, 14 years of a bull market. That's really helped create a really supportive environment. Now, seems a bit trickier.

Well, I wrote an article about this and Steve's a great colleague of mine. I've known him for decades and love him. And I shared this insight with him. I wrote about a while ago and I called it the end of the golden age of the independent advisor. And that was around 2016. I got a lot of heat for that. And I said, the reality is that the big Wall Street wirehouses are working to take all of the rollover money before it becomes rollover money. That's what we're doing, right? Like we're working with participants before they roll over and all the easy pickings that the independent firm had, which is that they were open architecture, they delivered financial planning and they did it all for 1% compared to the wirehouses at 2%. That's gone. Like all of the big firms are delivering a financial plan with open architecture, usually with banking included and other services included at usually a price that's incredibly competitive with the independent advisors. So the low-hanging fruit that was there is no longer there. And what's different is the large firms have brands that people know and like. That was not necessarily true after the Wall Street crisis in 2009.

Not at all.

But that's been recouped.

Yeah.

The reality is that today, I can tell you from our own experience, having the Goldman Sachs brand made our existing clients give us more of their money, introduced them to their parents and their friends. We grew more rapidly organically from our existing clients the minute we became Goldman Sachs.

Tell me about the firm's not focusing so much on Gen X, right? It's always talking about the Boomers where there's a lot of money. And then, there's talk about the Millennials. But Gen X is, I mean, not as large, but they're also, you know, I mean, just speak to that. I'm curious.

Well, I'm a Gen Xer and it is the era that I'm most obsessed with.

Yeah, here, here. Count me in as well.

Yeah, yeah. So, the reality is they need our help more than anyone. It's a huge area of focus for our firm, for our division, for Larry and myself. So it is a huge area of focus because those people, 45 to 60, they have the most, the most need for an advisor because the trade-offs are the most difficult. And they have to start making that shift from providing for their kids to providing for themselves. And that is really important work. That an advisor is perfectly suited to. And many of them have not found that person yet, which is why we're leaning in so ambitiously toward the workplace to help those people get the help they need early.

We're close to running out of time, but is there anything else high-level that we didn't touch on that you think is worth bringing up?

No, I think, again, for our group, this is one of the most exciting times because we've passed the really difficult part of integration. The re-documentation, the realignment of technology and all the rest. And so, we think that right now, the opportunity in the workplace that we can bring, that Goldman Sachs can bring, is going to be really great for the consumers and for the clients. And also, something that the independent advisor, which I'm very, very close to, should keep an eye on because the reality is the landscape has shifted. And their competitive advantage. If I was an independent advisor today, I'd be thinking about what can I do that allows me to be competitive with what these big firms are now doing. And many of them have been able to rest on their laurels and they won't lose their existing clients because this segment of clients are very, very loyal and have high inertia because the switching costs are high. But if you want the next generation to participate, you're going to have to figure out how to grow. And How do you get to that growth beyond acquisition? Because acquisitions cost a lot more than you think. It's more than the economics of what you pay.

Well, that's a perfect segue because I was going to ask you for an actionable idea before we wrap up. So is there a piece of advice you can offer on that level of how they can better compete?

I think the first and most important question every advisor should ask themselves is what problem are we solving and for whom are we doing it? It's remarkable how few advisors think calmly and rationally about what problem they exist to solve. Why do they exist? And build a business that clearly articulates who you're helping and how you're helping them and in what ways you're helping them. Because again, if you don't answer that question crisply, it's hard for you to have a competitive advantage because everyone else says, well, we do a financial plan for everyone and we do their investments too. And there's no distinguishing factor. You're lost in a sea of sameness. If you don't have a specific, unique way of categorizing your value to that consumer, it's going to be very hard for you to shine.

Yeah, and it's amazing. I mean, that's just table stakes at this point, and yet you see so many advisors who continue to do that. Thank you so much. I really appreciate it.

Thank you, Greg. It was great to be with you, and we'll chat soon.

My guest was Joe Duran. For more advisor-specific podcasts, please check out barons.com/advisory. Podcast. For The Way Forward, I'm Greg Bartolis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.