Goldman’s pressure to keep RIA begins – finally

As part of its ongoing diversified efforts to work with and deepen business relationships with financial advisors, Goldman Sachs Group Inc. enters the depositary services market for registered investment advisors, a market that has long been dominated by discount brokers such as Charles Schwab Corp. Fidelity and the former TD Ameritrade Holding Corp., while Schwab is the largest player in the $8 trillion custody services industry.

Goldman Sachs, like many of Wall Street’s most elite banks and money managers, has historically focused on institutional investors, not RIAs. Institutions such as pension funds and endowments have hundreds of billions of assets, while RIAs typically have hundreds of millions, so the ability to earn commissions from institutions has always outweighed the risks at the bottom of the asset management market.

But that has changed. Faced with a lack of growth opportunities in pension funds and the fact that some of these clients are questioning fees for hedge funds and other esoteric investments, big institutional-focused firms like Goldman Sachs as well as private equity giants Blackstone Inc. and KKR & Co. . Inc., have been selling products and services to RIA, the fastest growing segment of the financial advisory market, for the past decade.

“There are definitely bigger players in this space, and they have certainly done a great job,” said Jeremy Eisenstein, co-head of custody sales at RIA at Goldman Sachs, in an interview in January. “As for us, I would not say that we are late. Custody space is a bit farther in terms of innings, but it’s certainly still early and needs more picking.

“You will see much more from us soon,” Eisenstein said. “At the end of the day, we want to be transparent.” He added that the goal was to expedite the migration of so-called breakaway financial advisers leaving wire services to open independent RIAs.

Custodians earn income from RIA cash, which means that higher interest rates work in favor of such businesses. They may also charge RIAs for various services that RIAs use for their clients.

Eisenstein said Goldman will charge a platform fee for RIA’s custodial services, but will offer alternative investment, lending and structured products that other custodians don’t have.

Goldman bought online custodian Folio Investing in 2020 for an undisclosed amount. In October, three former Merrill Lynch financial advisors with $1 billion under management opened Beverly Hills Private Wealth, RIA, and brought in Goldman Sachs Advisor Solutions as the firm’s custodian. In January, Fiori Financial Group, a new firm formerly part of Raymond James Financial Inc., said it had selected Goldman Sachs Advisor Solutions as its custody service provider.

“In evaluating our options, we found that Goldman Sachs Advisor Solutions included everything we were looking for in a custodial relationship,” said CEO Margot Fiori. “We will have access to some of Wall Street’s most sophisticated wealth management solutions on an open architecture digital platform.”

“BUILD FURIOUSLY”

It wasn’t all of Goldman’s victories for storage. In June 2021, Steward Partners Investment Advisory, with $13.2 billion in client assets, said it had signed an agreement to use Goldman Sachs to provide clearing and custody. But more than a year later, according to documents filed with the Securities and Exchange Commission, he still did not include Goldman, but remained with Raymond James.

“They’re not ready today, they’re building furiously,” Jim Gold, CEO and co-founder of Steward Partners, told The New York Times last August. InvestmentNews Podcast. “We literally talk to our team at Goldman Sachs, if not daily, then five times a day, and sometimes not two or three days. We are kept informed of what is happening there. Much has been done, much remains to be done. Goldman has made a big commitment.”

Gold did not return a call in January seeking to comment on his comment from the summer.

Eisenstein declined to specifically comment on specific RIAs or clients, but added that the firm will always continue to build custody services and add RIA teams.

Meanwhile, Goldman’s rival in RIA, Charles Schwab, recently dealt a blow to a relative newcomer to the custody market by pointing out extremely low margins for custodians.

“Goldman talked about wanting to go into the custody business. Not sure if they’re out there anymore,” said Bernie Clark, managing director and head of advisory services at Charles Schwab, during the company’s winter business review on Friday. “This is a business that needs to be loved in order to stay in it. I say it [Schwab CEO Walt Bettinger] all the time: “Can we love business? This is a nine basis point business; nine basis points net. And we are, and we do, but it’s a hard business. And this is a business that has taken us two decades to build.”

A spokesman for Goldman Sachs did not comment on Clark’s statement.

Eisenstein said Goldman Sachs has been working with RIA for many years to offer products and services. According to him, the acquisition of Folio Financial by the bank gave an impetus to the development of Goldman RIA, calling Folio Financial “the diamond of the platform.”

Eisenstein said Goldman Sachs Advisor Solutions wants to provide better services to high and ultra-high net worth clients, and notes the limited advisory options and lack of innovation among today’s custodians.

Goldman’s custody business is also currently working with a group of financial advisors who will move to the bank within a year, he said. “We will not be everything to everyone, but we will be everything to the right client.”

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