Many of the practices that made Goldman Sachs and other banks the infectious scourge of the securities industry will likely be imported to the RIA channel. That is not a good development for investors. Unfortunately, this is likely the beginning of banks and brokerage firms infecting RIAs. We’ve seen this movie before, and we know how it ends. 

I call it the “brokerization” of the RIA business. A bank or brokerage firm like Goldman Sachs sees a pot of gold in these investment advisors and a way to fast growth revenue and profits. It’s like a drunken sailor has stumbled into a religious boarding school. The same sort of chicanery will ensue. Someone has to pay for this fast growth and that’s the RIA clients. I expect Goldman to import its growth and sales quotas to United Capital and its clients, and that is a bad thing. The United Capital clients are accustomed to the fiduciary model and the conduct that governs it. Now you truly have the barbarian at the gate. The 800-pound gorilla who paid a fat premium on these accounts and now Goldman will likely try to layer on additional fees and expenses which is anathema to the RIA channel to pay for its acquisition. This is a bad development for United Capital clients and RIA clients as other banks and brokerage firms will likely take Goldman’s lead. 

“Just when I thought I was out...they pull me back in.” - Michael Corleone, “The Godfather Part III”

The acquisition of United Capital by Goldman Sachs may be seen as a watershed moment of credibility for the independent channel, with some calling it the pinnacle of the RIA market. But this deal should put advisors on notice; not every door is a guaranteed continuation of the journey on independence that they signed up for. Some advisors may have thought they would retire at an independent platform only to find themselves sold to private equity or be reacquired by a wirehouse. The outcome of this deal should be a wake-up call for advisors that are planning to make a move to independence.

Joe Duran often says, “United Capital is a one of the largest independent financial life management companies in the U.S.” FinLife is a fintech idea, a blueprint of culturally enabled technology that guides wealth management operations. Goldman bought a fintech company at a wealth management valuation. No doubt Duran will have access to deeper technology resources than ever before, but those tools are only productivity enhancers for advisors; they do not replace the advisors themselves.

An independent wealth management firm is sold as a fintech opportunity when the real assets of the acquired firm, the advisors, previously ran away from firms like Goldman Sachs. And Goldman thinks they bought a proprietary product, foie-gras farm, when in reality they bought a season pass to an exclusive nature preserve and some flashy user experience technology. Independent RIAs do not do well when told what to do or what to sell. Just like Sam Zell in real estate, if Duran is a seller of RIA businesses, I would say it’s a good time to exit the RIA business. Valuations and deal activity are at all-time highs, but like all M&A, integration plans are critical.

While Goldman’s overture towards the retail and the mass affluent markets may seem like a surprise, it is just reflecting the smartest financial services growth strategy available. Whereas the finance incumbents—wirehouses and broker/dealers—used to be primarily about manufacturing investment products and selling them to the wealthiest clientele, the nature of finance is changing. Today, tech-intermediated services are growing in power. In Asia, that means that your messaging app is also your payments, banking, lending, and investment app. In Europe, the fastest-growing banks are those that live in your phone. In the U.S., the smartest institutional money is buying up millions of customers that were previously “uneconomic” to the financial advisor to have a footprint across industry and generations. Goldman is merely following the winds.

In the past, the firm's incumbent businesses—ultra-high-net-worth money management, capital markets, investment banking—saw downmarket clients with derision and hostility. This was a cultural tenet. And yet, here we are. The firm’s technology, products, and capital will now touch millions of regular Americans in their credit cards, personal budgeting, credit decisions, and fiduciary financial advice. 

So why is Goldman putting all these pieces together at such high price tags? I do not think it is just about helping existing wealth and asset management businesses be more productive. Put another way, it is hard to imagine an incumbent division justifying 3% on assets under management for a business making around 25 basis points in revenue at a 10-15 times revenue fintech multiple—unless there is an existential, strategic reason. Instead, this is about building a full fintech bundle for the American mass-affluent consumer in the smartphone. It is about all the data on each one of us in a Goldman data center, driving advanced signals about market conditions, consumer sentiment, and the economy. It is about millions of people getting to taste the mana of high-finance for nearly free and becoming Goldman’s defenders and promoters. It is about the future.

The Economist reported in April Goldman Sachs needed to repair its reputation, “Hurt by the bank’s failure to adapt after the global financial crisis.” Why? “Holding shares in the firm since 2010 would have earned Investors just 13% … compared with an average 71% for its bulge bracket peers and 152% for the S&P 500.” In May enter United Capital. Duran, the evangelist for reinventing financial planning through “honest conversations,” innovation and technology delivers an empire with over 200 independent financial advisors.  

Goldman United comes at the dawning of the SEC’s Regulation Best Interest rule, expected June 5. This matters. Both are founded on the new fiduciary virtue and wonder drug of broker regulation: disclosure. In Barron’s, Duran says, “The one thing I have been taken aback by—and obviously I’m paid to say this, but it’s still the truth—is the humility of the people at the top and their culture of service, doing what’s right for their clients.” The impact of Goldman United on wealth management rests largely with the over 200 United advisors—and whether they will salute the Goldman flag, try to transform it or find their independence elsewhere.

The acquisition of United Capital by Goldman Sachs makes a huge statement about the increasing importance of the independent advisor space in the financial services industry. It seems natural for Goldman to try to expand its market beyond its current boundaries and United Capital seems like a logical vehicle for that expansion.

It’s inconceivable that Goldman will be able to resist the temptation to introduce proprietary products through their newly-acquired pipeline. Otherwise, what was the point of the acquisition? How can they offer Goldman products and services through their current wealth management group and not do the same through United Capital? Eventually it will happen.

The question is, how will the United Capital advisors react when it does happen? For some, the power of the Goldman name may be viewed as an overriding positive. For others, the loss of true independence may be hard to overcome. Either way this is an interesting experiment that could serve as a blueprint for future forays into the independent space by other large firms.

I cannot speak on behalf of Goldman Sachs or United Capital and respective strategies, but as someone in the industry, the acquisition opens direct access to the mass-affluent, in a place where they can leverage their core competencies of providing technology, asset, investment, and wealth services to support an even broader network of individuals.

Joe Duran, and his team at United Capital have built an admirable wealth management business, on the back of a platform that allows for flexibility with personal touch. From the outside, United Capital appears to fit uniquely between core focuses of Goldman Sachs, when looking at high-end private wealth on one end, and direct to consumer offerings within Marcus. 

Perhaps it’s most interesting as a fintech company, to think of a vision of marrying all aspects of financial management—from loans and savings, to retirement, to financial planning, to asset management, among others—all with a hyper focus on advanced technology. United Capital, in particular, has built a lot of great software for advisors, and that was undoubtedly a key attraction. And now that Goldman will have greater access to the mass affluent, they can bring this comprehensive suite of tools and services to an expansive audience in a modern and integrated way.

(Disclaimer: Vestwell has had no interaction with Goldman Sachs or United Capital in regards to this acquisition, deal structure, or the joint strategies.)

I think the angle around segmentation (i.e., Goldman Sachs moving into the mass affluent market) has been covered in some depth. Obviously (and correctly), Goldman sees the RIA space as a growth area, one that is highly fragmented and that offers opportunities for future acquisitions.

However, I’m seeing this move as more of an ecosystem play, i.e. an attempt to build a platform that builds on various technology investments that Goldman has made over the years. These range from crypto (BitGo) to thematic robo (Motif) to systems tech like Symphony, which supports enterprise collaboration, and even DevOps platforms like GitHub. Don’t forget investments like Bud, or Honest Dollar, either; apparently, Goldman has taken the algorithms of the latter and wants to deploy it in some kind of hybrid advice model.

In short, United Capital offers a sort of laboratory for integrating and testing out all these technologies. The whole is greater than the sum, since by Goldman standards, United Capital is pretty small change. At the same time, it’s a beachhead into the RIA world that will offer profitability and cash pickings for some time. This kind of runway matters. Let BlackRock try to take over risk and operations via Aladdin. Goldman will be perfectly happy creating a neatly segmented, vertically integrated manufacturing and distribution platform that becomes the face of digital wealth management.