The public spotlight on Goldman Sachs is making things uncomfortable for the secretive bank's wealth managers and may crack open the door for rivals looking to lure business away.

The bank with the Midas touch has seen its reputation tarnished after regulators accused it of fraud in connection with the design and marketing of a subprime mortgage security in which investors lost about $1 billion. Lawmakers questioned its business practices and portrayed Goldman as a firm that favors its own interests over those of its clients.

So far, Goldman's Private Wealth Management advisers have largely stayed put. Still, the episode has given wealthy clients pause and made some of the firm's roughly 350 U.S. advisers more open to considering a move, recruiters and industry rivals said.

We are talking to a lot of their advisers. They are all saying that their relationships are strong but that every client is asking about the accusations of conflicts (of interest) . It's a little draining, said Mindy Diamond, whose recruiting firm, Diamond Consultants, has worked with Goldman advisers.

Goldman formed its private wealth business to help retain some of the windfalls reaped by investment bank clients. The unit's 25,000 accounts also generate business for Goldman's trading desks and invest in its buyout, real estate and hedge funds.

Yet these clients -- individuals with at least $10 million of assets as well as some family offices and foundations -- are sensitive to conflicts of interest.

Goldman has scrambled to reassure customers that it is committed to their interests. Chief Executive Lloyd Blankfein recently spoke to private wealth clients in a rare conference call, promising the firm would analyze what we did and how we got ourselves into this place.

Goldman spokeswoman Melissa Daly declined to comment.

LONG SHADOW

Goldman has denied the fraud charges. Still, competitors are using the Securities and Exchange Commission allegations and the broader scrutiny of the bank's ethics to lure away some of Goldman's deep-pocketed clients.

This case definitely casts a long shadow with clients, said a senior executive at a national high-net-worth adviser. It makes clients wonder about the differences in objectivity.

Some Goldman clients are making inquiries about moving parts of their holdings out of Goldman, said an executive who runs a high-net-worth firm in the U.S. Southeast.

The door's more open now because (Goldman's) image is somewhat tarnished. It's creating a tough market obstacle for them to overcome, the executive said.

Attracting new clients and assets has become difficult in this environment, according to Goldman rivals and recruiters.

The bank pushes advisers to constantly bring in clients, and conducts weekly meetings where advisers must report their efforts to bring in new assets, a former Goldman broker said.

Boutique advisory firms contend Goldman's business model stresses the sale of investment products, many of which are manufactured by Goldman. That is hardly unique among Wall Street brokers, but clients sometimes can suffer.

They made money. I didn't, said one financial industry executive who was a former Goldman client.

That said, it is not easy to lure Goldman brokers away. Historically, the bank has kept a strong hold on its brokers, recruiters said, since many clients were loyal to the firm rather than the individual adviser.

Clients also find it difficult to move accounts that hold Goldman investments that cannot be quickly sold or moved.

CHAGRINED

Tight-lipped Goldman is especially secretive about its wealth management unit. The bank does not disclose the unit's performance and makes no mention of it in quarterly filings.

In its latest 10-K filing, Goldman said it managed $231 billion for individuals at the end of 2009, up more than 7 percent from a year earlier. The Standard & Poor's 500 index rose 23 percent last year, and hedge funds rose 20 percent.

Goldman's asset management division, which includes private wealth management, had $39 billion of first-quarter outflows as it grappled with a spate of money-losing funds.

For now, there has been little movement among advisers.

Goldman people are a little chagrined by all the visibility, to put it mildly, but so far advisers are staying put, said recruiter Courtney Raymond of Houston-based Courtney Raymond Consultants.

There have been a few departures this year. Credit Suisse Group's U.S. private bank in February poached seven Goldman advisers in Atlanta. Citigroup's Citi Private Bank a few weeks ago hired Goldman's Rudolf Hitsch in China.

The former Goldman broker estimates more than 10 teams have left the bank over the past two years.

Still, many recruiters said Goldman's public relations disaster will have to persist for quite a bit longer, and hit brokers in their wallets, before the industry sees major defections.

I don't see advisers going out the door at this point. It's wait and see, said Michael King of Michael King Associates. I do think that this puts a chink in their armor.

(Reporting by Joseph A. Giannone and Joe Rauch; editing by John Wallace)

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