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OPINION OF THE WEEK: Goldman Sachs’ Questionable Excuse For RIA Debacle

Charles Paikert US Correspondent New York May 15, 2024

OPINION OF THE WEEK: Goldman Sachs’ Questionable Excuse For RIA Debacle

Our US correspondent looks at the recent argument given by the Wall Street firm as to why its push into the RIA space wasn't a success, and finds it comes up short as an explanation.

There are a lot of reasons why Goldman Sachs’ ill-fated venture into the mass affluent retail RIA business was a resounding failure.

Contrary to the fanciful version being peddled by Goldman executive Marc Nachmann, however, the size of United Capital Financial Advisors, the RIA Goldman bought for $750 million in 2019, was definitely not one of them. 

“United Capital was a decent-sized RIA, but not a big RIA in a consolidating space,” Nachmann, Goldman’s global head of asset and wealth management, told industry executives at Goldman’s New York headquarters last week. “[United] didn’t feel like it was a place where, from a prioritization perspective, it was going to be high up enough to invest a lot in.”

United had approximately $25 billion in assets under management when Goldman bought it five years ago. Among its major roll-up rivals with similar business models at the time, Beacon Pointe had about $10 billion in AuM, Wealth Enhancement Group had around $12 billion, Mercer Advisors and Captrust had some $18 billion and Mariner Wealth had $29 billion.

Only Creative Planning with $43 billion and Hightower Advisors, with $50 billion in assets, had more among United’s direct competition for M&A acquisitions.

Clear path to a national brand
So let’s set the record straight: United was in fact a big RIA in 2019 and, at the time, Goldman chief executive David Solomon did feel it was “high up enough to invest a lot in” – starting with three quarters of a billion dollars at a very rich multiple.

The following year, Solomon told analysts that the United acquisition “accelerated our expansion into high net worth in a meaningful way” and that Goldman was looking to extend that strategy and “accelerate the pace.”

Noting that United had less than 1 per cent of the US wealth management market, Eric Lane, head of the newly-formed consumer and wealth management division, said expanding Goldman’s reach into the $3 trillion high net worth market represented a “big opportunity” for the Wall Street firm.

It sure did. As a new decade began in 2020, Goldman Sachs had a clear path to become the RIA industry’s first true national brand.

Squandering an advantage
While private equity had begun to invest in independent advisory firms, the massive inflow of PE capital that has revolutionized the industry had not yet been fully unleashed. Goldman had what no other RIA had: a sterling brand name, a lot of capital, an array of first-class investment products, and some of the smartest people on Wall Street.

One analyst covering Goldman expected the investment bank to make its new RIA mass affluent business “a lot, lot bigger.” Chip Roame, managing partner of Tiburon Strategic Advisors thought it was “likely” that Goldman would want to buy another $20 billion RIA to dominate the market.

Instead, a combination of shifting corporate priorities, bare-knuckle internal politics and bad timing in the form of the pandemic doomed Goldman’s RIA play.

Revisionist history
In the end, Goldman limped away from the mass affluent RIA business last year, selling off what remained of United Capital to Peter Mallouk’s Creative Planning.

Nachmann’s revisionist history is linked to Goldman’s latest RIA initiative, an attempt to grow its nascent custodial business.

Hey, knock yourself out, but if you couldn’t make any headway against a bunch of savvy but under-capitalized entrepreneurial financial advisors, good luck going up against Charles Schwab, Fidelity and BNY Mellon’s Pershing.

Just don’t tell the world you screwed up the first time because the company you bought wasn’t big enough.

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