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Industry Spotlight > RIAs

Why Goldman Bought, and Sold, United Capital

By John Manganaro

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What You Need to Know

  • Executives of the bank thought they could best serve RIAs by buying one. The reality was not what they expected.
  • Goldman has pivoted to serving RIAs as a custodian and trusted advisor.
  • The firm is not looking to compete with Schwab or Fidelity in the RIA space, President and COO John Waldron says.

Sometimes a significant pivot is necessary, both in life and in business, and though it can be painful to admit a change of direction is required, the end result can be a deepened and renewed sense of purpose.

That was the way John Waldron, president and chief operating officer of The Goldman Sachs Group, described his firm’s experience making acquisitions in the registered investment advisor space — specifically its purchase and eventual sale of United Capital.

The acquisition was intended to extend Goldman’s reach and capabilities in an exciting growth market, Waldron explained during a wide-ranging Q&A held during the firm’s inaugural 2024 RIA professional investor forum in New York.

By purchasing United Capital and onboarding its retail-focused wealth advisors, Goldman could diversify its client base while more broadly delivering access to the deep intellectual capital and specialty investment capabilities of the firm. The reality, though, turned out differently.

“The story really starts six years ago, when we stared thinking more about RIAs — how we could serve them in a more concentrated and coordinated way,” Waldron said. “We were actually astonished by the growth in the [mass affluent] marketplace, and we naturally thought, why don’t we get in there and buy an RIA and build out our own capabilities? And so, we bought United Capital.”

As Waldron recalled, firm leadership knew there would be challenges associated with the acquisition and integration, given that United Capital’s business structure, target market and approach to serving wealth clients differed meaningfully from Goldman’s longstanding focus on serving an elite private banking and asset management clientele. But over time, Waldron said, the process of digesting the business “turned out to be harder than we thought.”

The reasons were varied, but in the end, the decision was made to change course.

“Given our position in the marketplace, it turns out that we actually make these smaller businesses more expensive when we buy them, because we are so heavily regulated,” Waldron said. “We originally thought we could utilize our resources to scale up quickly via M&A. In hindsight, we pretty quickly concluded that couldn’t be our model. We would have to go through the Fed every time we wanted to do a rollup, so we learned and evolved.”

Today, Waldron said, Goldman Sachs has a clear vision of its relationship to the RIA space, thanks in no small part to the United Capital experience.

“We are now secure in our position as a terrific service provider to this growing segment of the financial service industry, and we have attributes that make us a unique and highly valuable partner to RIAs,” Waldron said. Moving ahead, he added, Goldman has no plans to launch its own RIA.

What RIAs Face Now

Waldron said another key lesson the firm has learned over the past decade is that, “if you’ve met one RIA, you’ve met one RIA.” No RIA is exactly the same as another, even if they look similar on paper with respect to size or client niche, and they will each have their own set of challenges and opportunities.

If he had to point to one unifying issue cutting across the RIAs Goldman Sachs supports today, Waldron said it would be “what to do with clients’ cash, and what to do about alternatives.”

“Cash, all of a sudden, is once again an asset class where you can generate a real return, and on the one hand, that’s a good thing,” Waldron said. “On the other hand, though, it means added complexity that people weren’t thinking about when your cash was earning zero return regardless of where you put it. How to get the right yield on cash is a big topic of discussion today with our advisors.”

With respect to alternative investments, Waldron said, a similar trend is playing out. That is, more clients across the wealth spectrum are expressing interest in accessing these types of investments — but that doesn’t mean they are universally relevant.

“We are obviously positioned very deeply in the alternatives world,” Waldron said. “However, I worry a little bit about the question of suitability when it comes to broader and broader distribution of alts and the potential for illiquidity. It’s not the right thing for every client. What I also would say is that RIAs need to be very focused on the question of how their alternatives providers can navigate any emerging challenges.”

Waldron said he worries about what could happen to some unwary mass affluent advisors and investors who have embraced alternatives but haven’t fully considered what could happen in a big market downturn when performance dispersion spikes. In such a scenario, he said, it is important for managers to have experience navigating recovery actions and ensuring their clients are protected from the worst potential outcomes.

“The way the vintage risk is managed really matters, for example, as is the way you deploy your capital,” Waldron said. “I worry that some risks are not being as well articulated or understood as broadly across the system as they should be right now.”

A Word on the Competition

During his presentation, Waldron also stressed that Goldman Sachs is seeking to expand its influence and reach as a trusted asset custodian for growing RIAs, but that doesn’t mean it is striving to replace the most widely used custodial platforms, namely Schwab or Fidelity. Rather, Goldman Sachs aims to be a trusted advisor to RIAs with services that complement their existing approach and fill gaps in the market.

In a decade, Waldron said, Goldman aspires to be thought of by the RIA industry the way Schwab is thought of currently, “where we are solving advisors’ pain points and they wouldn’t consider running their business without us.”

“We are not going to displace Schwab,” Goldman said. “We love Schwab. They are a great partner, but we could be complementary to Schwab or Fidelity — or other people that [RIAs] are doing a lot with.”

Credit: Bloomberg

John Manganaro

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