Thursday’s news that Goldman Sachs is buying fintech platform and custodian Folio Financial seems to bring a major new player into the RIA space.
The move has implications for the RIA custodial business — including the planned but not yet approved $26 billion Charles Schwab-TD Ameritrade merger — and for direct indexing, according to Joel Bruckenstein, publisher of the T3 Technology Hub: “There’s lots going on, and it all ties together.”
“The Department of Justice still is sniffing around the Schwab-TD situation,” Bruckenstein said. “And, … if you can argue that Goldman Sachs will compete here, and that’s not a foregone conclusion, this does strengthen Schwab’s position.”
Plus, the Goldman-Folio news comes as RIA custodian Interactive Brokers is partnering with TradingFront on a white-label platform for RIAs that aims to attract advisors frustrated, or at least concerned about, consolidation and other issues.
“Schwab can say that Goldman Sachs is trying to get into” the custodial space, and Interactive Brokers is pushing along, too, according to Bruckenstein, who produces the T3 fintech events.
After adding Folio, which works with about $11 billion in RIA assets, does Goldman Sachs have the tech resources needed to immediately compete with Schwab as a major custodian? “No, but [the Folio deal] chips away slowly at the argument that there is no competition” if Schwab is allowed to merge with TD Ameritrade, he added.
(Another recent deal in the space — Morgan Stanley’s purchase of E-Trade — also muddied the waters. But E-Trade “has a small RIA presence” and “custodial work was not ever its DNA,” Dynasty Financial Partners CEO Sherl Penney said in February.)
Another Big Player
The elephant in the room of the RIA custodial space: LPL Financial, according to Bruckenstein, “which really could pursue it and has been quietly talking about it for about a year.”
The self-clearing independent broker-dealer — which just said it’s opening a tech hub in Austin — bought the Fortigent platform in 2012. “They dipped a toe or two into the business, but it didn’t work out,” he said.
If the government lets the Schwab-TD Ameritrade deal go through, “It opens the door, so there’s room for another [major RIA] custodian and a sense of other opportunities,” the fintech guru said.
“I’d be shocked if we don’t hear anything from LPL about this by year-end or early next year,” Bruckenstein added.
It’s likely that with the COVID-19 crisis, LPL may have slowed down such an effort and/or is waiting for the right moment to announce it, he says.