Here’s How Goldman Sachs Plans to Go After the Global Not-So-Rich by Reuters @FortuneMagazine May 2, 2016, 6:13 AM EDT E-mail Tweet Facebook Linkedin Share icons Goldman Sachs Group, the banking gold standard for the world’s elite, sees a future in less prosperous investors. A creative strategy taking shape inside the bank calls for it to partner with small brokerages and wealth management firms to lend money to their clients, many of whom have far less wealth than what’s in the typical Goldman private bank account. The idea is for Goldman gs to reach a big set of borrowers, in the U.S. and possibly abroad, without having to acquire them through a merger or build relationships one by one, people familiar with the initiative said. The plan is still in very early stages and may not be active until next year, the people added. The strategy is unusual not just for Goldman, but across Wall Street, since most banks simply lend to their own customers. It also carries more risk because it may be harder to vet borrowers or the assets they post as collateral. The bank is looking to earn money from a broader borrower base as profits from traditional businesses like bond trading have slowed down. In April, Goldman completed a deal to buy $17 billion worth of online deposits from GE Capital Bank to expand its reach on Main Street. “Growing the lending business to a broader client base helps to offset some of the pain that has been happening on the trading side,” said Steven Chubak, an analyst with Nomura. Bankers involved with the Goldman plan say they are not upending its business model of catering to the uber wealthy. The typical client in Goldman’s U.S. private wealth unit has an average account size of around $50 million. Those customers are where Goldman remains primarily focused, said the bankers, who were not authorized to speak publicly. Lending to wealthy individuals and corporate clients represented less than half of the balance sheet within Goldman’s investing and lending business segment at the end of 2010, but that percentage is now more than 75%. The new strategy will target clientele who are lower on the economic totem pole. Sources would not detail a wealth threshold for borrowers Goldman will reach through third parties, but said they are likely to be “mass affluent” – which is broadly defined as those with less than $1 million in investable assets. They declined to give details on how its partnerships with brokerages will work in terms of fees, underwriting or collateral. Goldman already has relationships with outside investment managers where it sells its own mutual funds, structured notes and alternative investments. Loans would be an additional offering, people involved in the strategy said. A Goldman spokesman declined to comment. Hunt for Profits Goldman reported a 6.4% annualized return-on-equity in the first quarter, the lowest level since the second quarter of 2012 when adjusting for one-time items. In its heyday, Goldman produced returns above 30%. The measurement is important, because it shows how well the bank uses shareholder capital to produce profits. Goldman’s return has slumped because businesses like trading are struggling to generate the type of earnings they once did. That’s partly because of weak markets, but also because financial regulations introduced since the financial crisis limit the businesses banks can engage in, and require them to hold much more capital. These new rules are pushing Goldman and its closest rival, Morgan Stanley ms to move further into traditional lending. It is still a relatively new concept for the two, which became bank holding companies at the height of the financial crisis in 2008, and have only focused on lending in recent years. In addition to the third-party initiative, Goldman also wants to wants to do more “margin lending,” which allows clients to borrow against a percentage of their assets, and do more lending abroad. Later this year, it plans to offer consumer loans online through a new effort led by former Discover Financial Services’ executive Harit Talwar. Goldman’s moves mimic Morgan Stanley’s in that both are trying to lend more, mostly through the wealth channel, and that many of the loans are backed by investment portfolios of stocks and bonds. But their strategies differ in that Morgan Stanley is lending to its own clients, after having bought the Smith Barney brokerage business from Citigroup c years ago in a transformational deal. Goldman does not currently have ambitions to acquire any kind of large brokerage or depository bank, sources said, and hence it is pursuing loan growth through third-parties. Goldman has already tripled loans to its own private wealth management and corporate clients over the last three years, according to regulatory filings. It had $45 billion in loans altogether at the end of 2015. That loan book soaked about half of the deposits it had at the end of 2015. The GE deal added another $16 billion in deposits, likely depressing that ratio. By comparison, Morgan Stanley lends out around 55% of its deposits and has said publicly it was targeting to grow that percentage to 70%. There is danger in being too aggressive in expanding a loan book when there is tough competition for good borrowers, as there is today. Goldman’s strategy may carry additional risk: because borrowers are not in-house, the bank may have to rely on other firms to vet credit histories and assess asset values. It is unclear how Goldman plans to manage those risks.