Goldman's push into RIA custody gets going — finally

As part of its continued varied effort to work with and deepen business connections to financial advisors, Goldman Sachs Group Inc. is making its way into the custody market for registered investment advisors, a market long dominated by discount brokers like the Charles Schwab Corp., Fidelity and the former TD Ameritrade Holding Corp., with Schwab the largest player in the $8 trillion custody industry.

Goldman Sachs, like many of Wall Street's most elite banks and money managers, historically has focused on institutional investors rather than RIAs. Institutions like pension funds and endowments have hundreds of billions of assets while RIAs typically have hundreds of millions, so the opportunity to reap fees from institutions has always outweighed the risks of the lower end of the wealth management market.

But that's changed. Faced with a lack of growth opportunities with pension funds and the fact that some of those clients are questioning fees for hedge funds and other esoteric investments, large, institutionally focused firms like Goldman Sachs, along with private equity giants Blackstone Inc. and KKR & Co. Inc., for the past decade have been marketing products and services to RIAs, the fastest-growing segment of the financial advice market.

“There are certainly some larger incumbents in the space, and undoubtedly they’ve done a great job," Jeremy Eisenstein, co-head of RIA custody sales at Goldman Sachs, said in an interview in January. "For us, I wouldn’t say we were late. The custody space is a bit further along in terms of innings, but it’s certainly still early and looking for additional choice.

“You’re going to see a whole lot more from us in the very near term,” Eisenstein said. “At the end of the day, we are looking to be transparent." He added that the goal was to accelerate the movement of so-called breakaway financial advisors leaving wirehouses to open independent RIAs.

Custodians generate revenue from the cash holdings of RIAs, meaning higher interest rates work in favor of such enterprises. They can also charge RIAs fees for the variety of services RIAs use for their clients.

Goldman will charge a platform fee for RIA custody services, Eisenstein said, but will offer alternative investments, lending and structured products that other custodians don't.

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

"When evaluating our options, we found that Goldman Sachs Advisor Solutions encompassed everything we were looking for in a custodial relationship," CEO Margaux Fiori said in a statement. "We will have access to some of Wall Street's most sophisticated wealth management solutions in a digital, open-architecture platform."

'BUILDING FURIOUSLY'

It hasn't been all wins for Goldman's custody effort. In June 2021, Steward Partners Investment Advisory, with $13.2 billion in client assets, said that it had signed up to use Goldman Sachs to provide clearing and custody. But more than a year later, it hadn't flipped the switch on for Goldman and had stayed with Raymond James, according to filings with the Securities and Exchange Commission.

“They are not ready today, they are building furiously," Jim Gold, CEO and co-founder at Steward Partners, said last August in an interview on The InvestmentNews Podcast. "We literally speak to our team at Goldman Sachs if not daily, sometimes five times a day, and sometimes not for two or three days. We’re being kept apprised of what’s going on there. There’s a lot that has been done, there is a lot to do. Goldman has made a big commitment to this.”

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

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

Meanwhile, a Goldman rival for the business of RIAs, Charles Schwab, recently took a swipe at the relative newcomer to the custody market, pointing to the ultra-thin margins for custodians.

"Goldman talked about wanting to be in the custody business. Not so sure they're there any longer," Bernie Clark, managing director and head of advisor services at Charles Schwab, said during the company's winter business update Friday. "This is a business you need to love in order to stay with it. I say that to [Schwab CEO Walt Bettinger] all the time, ‘Can we love a business? It's a nine basis points business; nine basis points net.’ And we are, and we do, but it is a hard business. And it's a business that has taken us two decades to build."

A Goldman Sachs spokesperson had no comment when asked about Clark's statement.

Goldman Sachs has worked with RIAs for many years, offering products and services, Eisenstein said. The bank's acquisition of Folio Financial jump-started Goldman's push with RIAs, he said, calling Folio Financial "a diamond of a platform."

Goldman Sachs Advisor Solutions wants to deliver better services for high-net-worth and ultra-high-net-worth clients and also perceives diminished choices for advisors and a lack of innovation among today’s custodians, Eisenstein said.

Goldman's custody business is also currently working with a pipeline of financial advisor teams that will transition to the bank through the year, he said. "We will not be everything to everyone but we will be everything to the right kind of client."