Goldman Sachs has no ambition to launch its own RIA business, President and CEO John Waldron told attendees of the firm’s inaugural RIA Professional Investor Forum taking place in New York City on May 9 and 10. It also doesn’t aspire to replace the most widely used custodial platforms, such as Schwab or Fidelity. Instead, the bank would like to become what Waldron called a “trusted advisor” to RIAs with services that complement those offered by other providers and fill gaps in the market, addressing RIAs’ “pain points.”
In five to 10 years' time, Goldman aspires to be thought of by the RIA industry the way Schwab is thought of currently, where advisors wouldn’t consider running their business without it, Waldron said. To do that, it plans to rely on its existing asset and wealth management capabilities, ranging from deal execution market research and education to lending.
“We are not going to displace Schwab. We love Schwab; they are a great partner of ours,” he noted. “But we could be complementary to Schwab as an example, or Fidelity, or other people that you all are doing a lot with.”
According to Waldron, Goldman Sachs has been “astonished” by the growth in the RIA industry in recent years. However, after it acquired RIA United Capital in 2019 in an attempt to enter the RIA business, Goldman executives realized the strategy created more challenges than advantages. For example, because Goldman is highly regulated as a bank, those added constraints made running United Capital more expensive than when it operated independently. In addition, to gain enough market share in the RIA space, Goldman would have to continue on the acquisition path, necessitating the Fed’s approval with every buyout and complicating the strategy, Waldron noted.
As an alternative, Goldman decided to capitalize on growth in the RIA business by focusing on “value-added” products for RIAs.
“If we become a great service provider, that’s actually more of what Goldman Sachs should be good at. And, fundamentally, probably over time, if you think about value creation for us and our shareholders, ultimately it’s better than owning our own RIA,” Waldron said.
The firm has its wealth management division, but it is focused on ultra-high-worth clients. The bulk of the RIA market serves clients with $500,000 to $20 million in net wealth, and that’s where Goldman plans to concentrate its “value-add” for RIAs efforts, according to Padi Raphael, global head of third-party wealth management. Many of the panels during the forum’s first day were dedicated to highlighting the services Goldman Sachs would like to offer advisors. One teased an upcoming product incorporating custom models with public and private investments. Another featured Goldman executives from the fixed-income division. A third discussed investing in real estate debt funds and included Jeff Fine, global head of alternative capital formation.
Growth for growth’s sake?
The forum also devoted some time to discussing the ongoing consolidation in the RIA industry and the challenges that come with it. For example, featured speaker Mark Tibergien, president of Mark Tibergien Insights LLC, advised attendees to focus on achieving scale and critical mass rather than size when evaluating whether to proceed with acquisitions. Unsuccessful growth attempts can lead to firm failure if there aren’t enough resources, staff and integration to support a sufficient presence in the new markets the RIA is expanding into, he noted. In addition, RIAs engaging in mergers and acquisitions should think carefully about their ideal client outside of purely monetary considerations so they can develop the right strategy and hire the right staff to grow within that specific client segment. That way, they would be on the right track to use M&As to achieve market dominance within that client base.
“Once you add a person, you add a cost,” Tibergien said. “We see this case for RIA growth in terms of brand presence. What are you known for? This is probably the biggest issue affecting firms today, this idea of what are you known for? It means—who are you serving?”
Tibergien also expressed his worry that some RIA M&A activity happening today is supplanting the kind of proper succession planning that’s typically practiced in businesses focusing on law and accounting, for example. “Let’s be clear. It’s the absence of succession planning they are solving for. They are exit planning in most cases,” he noted.
In his chat with the audience, Waldron agreed with Tibergien’s assessment that RIAs need the technology, personnel and control structure to execute mergers and acquisitions successfully. “Scale to me is a relative term to—what does it take to be big enough to have the right economics in that area? You can get really, really big but not have a good operating model or margin structure,” he noted.
