Financial Results

Goldman’s RIA Sale: Can Mallouk Succeed Where Solomon Failed?

Charles Paikert US Correspondent New York August 29, 2023

Goldman’s RIA Sale: Can Mallouk Succeed Where Solomon Failed?

Goldman Sachs said yesterday that it is selling its Goldman Sachs Financial Planning business to Creative Planning for an undisclosed sum. Given its past move on United Capital Financial Advisers back in 2019, our US correspondent reflects on what this says about Goldmans' mass-affluent wealth strategy.

Can Creative Planning CEO Peter Mallouk thrive where David Solomon, his counterpart at Goldman Sachs, flopped so spectacularly? 

As part of Goldman’s ill-fated foray into the mass affluent market, Solomon oversaw the purchase of Joe Duran’s RIA, United Capital Financial Advisers, for approximately $750 million in mid-2019.

The acquisition did not go well.

“It was a bad fit from the get-go,” said Brian Lauzon, managing director for investment bankers InCap Group. One of Duran’s top lieutenants, who requested anonymity so he could he could speak freely, described the sale as a “massive mistake. It was a failure by us. It should be a case study in how a deal can go wrong.”

For starters, the timing was bad. The pandemic hit the following year and Goldman was struggling to integrate its new mass market businesses, including consumer banking and credit cards, into a corporate culture defined by trading, investment banking and catering to ultra-high net worth investors.

Goldman "killed everything"
The Wall Street Goliath rebranded United as its “Personal Financial Management” unit, but never unleashed a marketing campaign to back it up. “Goldman killed everything the firm stood for,” Cary Carbonaro, a former top United advisor told Wealth Management last week. “They put so many restrictions around people that they couldn’t walk, they couldn’t move, they couldn’t breathe, they couldn’t function.”

Not surprisingly, advisors began to bail. The exact number is not known but the former United executive told Family Wealth Report that advisors “were leaving by the dozens.” Top executives, including United CIO Kara Murphy, also peeled off. Duran, who was co-head of the unit and had been named a Goldman partner, departed in February.

Earlier this month, Kathleen Grace and Tabitha LeTourneau Meyerer, two PFM advisors who reportedly managed half a billion dollars in client assets, left to form their own firm, Fiduciary Family Office in Boca Raton, Florida.

"Too big a jerk?"
Meanwhile, Solomon was facing intense pressure both inside and outside the firm. 

According to the New York Times, Lloyd Blankfein, his predecessor and one of Goldman’s biggest shareholders, called in mid-June to complain about $50 million he had lost since January as a result of the bank’s sinking stock price. Unflattering stories speculating on Solomon’s job security sprouted in the media, the most damaging appearing in New York Magazine earlier this month under the headline “Is David Solomon Too Big a Jerk to Run Goldman Sachs?”

Other than his abrasive personality, the failed mass-affluent strategy was universally cited as Solomon’s biggest vulnerability and yesterday he ripped off the band-aid, selling off Goldman Sachs Personal Financial Management to Creative Planning. The deal is expected to close in the fourth quarter and financial terms were not disclosed.

"It is margin accretive to asset and wealth management and allows us to focus on the execution of our premier ultra-high net worth wealth management and workplace growth strategy and to serve HNW investors through RIA and other wealth management clients, such as Creative Planning," Marc Nachmann, Goldman Sachs global head of asset and wealth management, said in Goldmans' statement yesterday. (The firm announced its second-quarter financial results here.) 

Creative’s gamble
Buying the remains of United Capital catapults Creative Planning into the front ranks of RIAs aggressively competing to become the first truly national independent advisory firm.

Mallouk picks up around 300 new advisors spread across 70 offices and approximately $29 billion in assets, a hefty increase from the $110 billion owned by private clients and the $135 billion Creative Planning manages for retirement plans and institutional clients. 

That boost clearly puts Mallouk closer to his long-stated goal of becoming “the leading national wealth management firm.”

But whether Mallouk can turn what didn’t work for Goldman into a winner for Creative remains “an open question,” according to Lauzon. 

Deal terms key
“It all depends on the terms of the deal, especially the contingent consideration, which has to be more than average,” Lauzon said. “It’s an asset that’s been through a lot, and client and advisor attrition will be key considerations.”

Terms are key, agreed Mark Tibergien, a management consultant and the former CEO of Pershing Advisor Services. The acquisition “may make sense if it was an asset sale,” Tibergien said. “It doesn’t seem to justify conventional enterprise valuation based on last assets and no growth.”

The deal should “further strengthen Creative's core business,” said David DeVoe, principal of San Francisco-based RIA consultancy DeVoe & Co. “The firm has a strong franchise in the mass affluent and high net worth segments. And although any transaction has its unique set of risks, an acquisition which is fully aligned with the current business characteristics and client base is less risky than a deal that serves as an entry point into a new market.”

At the very least, United’s legacy advisors should breathe easier – and stop looking for an exit.
“The Goldman acquisition of United Capital was a head scratcher from the beginning,” said industry consultant Mike Papedis, CEO of Fusion Financial Partners. “The independent advisor’s many reasons for being independent simply do not conform going back to a wirehouse. Creative Planning offers an interesting new home for the advisors and a better fit than Goldman Sachs’ attempt to serve the mass affluent.”

In July 2023 Creative entered into a strategic custody relationship with Goldman Sachs Advisor Solutions.

Register for FamilyWealthReport today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes