Adios United: Goldman renames RIA and unveils new strategy
United Capital, R.I.P.
The pioneering RIA founded 15 years ago by Joe Duran and sold last year to Goldman Sachs for $750 million is being rebranded as Goldman Sachs Personal Financial Management.
The shift is a sign of how Goldman Sachs intends to muscle its way further into wealth management.
“Goldman sees lots of upside in being able to touch all aspects of the financial lives of a broad cross section of the global population,” says Matt Crow, president of Mercer Capital, a Memphis-based consulting firm specializing in the financial advisory industry.
The name change was unveiled as part of Goldman’s first-ever Investor Day. In a bid to shore up Wall Street support and investor confidence, Goldman executives outlined the firm’s strategic direction as it embarks on CEO David Solomon’s mandate to broaden its reach into the consumer market.
With nearly $37 billion in annual net revenues, Goldman is an undisputed Wall Street powerhouse. But it has lagged rivals like JPMorgan Chase in market capitalization and stock gains and has seen its trading business sag in recent years.
“Goldman had an enviable ultrahigh-net-worth franchise, but they didn’t have any footprint in high-net-worth or mass affluent,” Crow says. “United Capital filled in that gap and gave them a place to start growing organically.”
Ayco and the now-renamed United Capital comprise the high-net-worth segment of Goldman’s newly-formed Consumer & Wealth Management division, headed by Eric Lane. The business will target consumers and corporate employees with between $1 million and $10 million in investable assets.
Goldman plans to expand the HNW franchise’s reach by leveraging corporate relationships.
The ultrahigh-net-worth segment will continue to be anchored by what Lane called its “crown jewel,” Goldman Sachs Private Wealth, which focuses on clients with $10 million or more in investable assets.
Marcus, Goldman’s digital consumer bank, will provide a variety of lending and credit products for the mass affluent market for clients with less than $1 million in investable assets.
To date, Ayco has specialized in providing asset management and financial advice to senior level corporate executives. But with the acquisition of United Capital complete, Goldman plans to “expand the HNW franchise’s reach” by “leveraging corporate relationships” beyond just top executives, Lane says.
Through Goldman Sachs Personal Financial Management (GSPFM) and Marcus, Ayco will begin offering “more holistic financial counseling for the entire employee base,” Lane said. Ayco will also use “the technology of United Capital” (presumably its FinLife software) to provide additional offerings to HNW clients, Lane added.
Organic growth for the HNW segment will come from internal referrals from Ayco to GSPFM and expansion of the corporate market, Lane said. Inorganic growth, he added, will come from “adding more teams.”
Goldman's approach is very product driven.
Noting that United Capital had less than a one percent share of the U.S. wealth management market, Goldman’s plans to expand its HNW business represented a “big opportunity,” Lane said.
Providing more comprehensive wealth management offerings to HNW customers means Goldman can “do more for corporate clients with employee groups that want planning and wealth management,” Mercer’s Crow says. “It also gives them more people to plug into their consumer banking division.”
The approach is “very product driven,” Crow says.
“Cross-selling is conflict-ridden and the RIA community was born, in part, out of a desire to serve clients without conflict,” Crow says.
Goldman has made no secret that it wants to “diversify its products and services offered," as its press release for Investor Day states.
Goldman is unlikely to jam product down people’s throats.
However, distributing Goldman products “is a fiduciary issue regardless of Reg BI,” says Dan Bernstein, chief regulatory counsel for MarketCounsel. “That’s because United Capital is an investment advisor and already subject to a fiduciary duty. They need to disclose all material conflicts of interest, which would certainly include the referral, or use, of any affiliated firm or products”
What’s more, disclosure of the conflict is not enough, according to Bernstein. “The referral or use must be in the best interest of the client,” he says. “So if [GSPFM] recommends a Goldman product, that still has to be in the best interest of the client regardless of any conflict disclosures that were made.”
Duran has denied Goldman plans to use United as a conduit for its products. And Glenn Schorr, analyst for Evercore ISI, says Goldman is unlikely “to jam product down people’s throats. They know they have to provide choices.”
But industry executives remain concerned.
Fiduciary RIAs are likely to be wary of a platform “that has inherent conflicts of interest and makes money by selling banking products and trading,” says Brent Brodeski, CEO of Savant Capital Management.
“RIAs are, by nature, fiercely independent,” says Ed Friedman, partner at Morris Brook Consulting and a former HighTower Advisors and Dynasty Financial Partners executive. “If Goldman has purchased United Capital to create a distribution channel to push product, they will be in for a rude awakening.”