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, 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.
