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Goldman Becoming RIA Custodians' 'Worst Nightmare'

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(Photo: AP)

Goldman Sachs’ move to sell off Folio Investments’ DIY brokerage business to Interactive Brokers but retain Folio’s RIA clearing and custody business is good news for RIAs. But it’s also bad news for the biggest custodians serving this market, who will likely face some stiff competition from Goldman in the future.

Goldman is becoming the “RIA custodian industry’s worst nightmare,” said Tim Welsh, founder and CEO of Nexus Strategy, a consulting firm for the wealth management industry.

The other major RIA custodians include Fidelity, BNY Mellon Pershing and Charles Schwab, which will be shutting down the recently acquired custody and clearing operations of TD Ameritrade over the next 18 to 36 months.  

“Goldman will become number four,” Welsh said.

Goldman has all the components it needs, according to Welsh: Folio’s technology, key executives poached from Pershing (Tim Dalton) and TD Ameritrade (Darla Sipolt), as well as other seasoned professionals. Plus, it’s a well-known, well-respected brand that’s attractive to high-net-worth investors.

In addition, it has a large potential client space in RIAs who have custodied and cleared with TD Ameritrade but don’t want to make the move to Schwab. There also are RIAs who’ve custodied with E-Trade, just bought by Morgan Stanley, who don’t want to do business with the wirehouse firm.

“No self-respecting advisor wants to custody with Morgan Stanley because of its egregious fees for SMAs and its commission business,” Welsh said. (Morgan Stanley declined to comment on the matter.)

Some RIAs using TD Ameritrade for custody and clearing may not wish to work with Schwab, because it competes directly against them with its Intelligent Portfolios Premium product, said Bill Winterberg, founder of FPPad, a technology consultant for financial professionals.

Winterberg also expects Goldman’s custody business to attract breakaway brokers setting up their own RIAs and to potentially serve as a gateway for advisors who want to offer private wealth services.

The Goldman Menu

Goldman Sachs has what most others RIA custodians don’t, according to industry experts: a breadth of services that include a capital markets presence; an extensive banking business that serves institutions and ultra-high net worth clients, as well as retail clients through its Marcus by Goldman high-yielding online savings bank; lending; asset management; and an RIA business of its own: Goldman Sachs Personal Financial Management, the renamed United Capital operations it bought last year.

On Wednesday, it announced a partnership with Stripe to offer checking accounts and other business-banking services, as did Citigroup.

That arrangement could be a way for RIAs to to receive payment from their clients and for RIAs to offer banking services for their own clients, said Joel Bruckenstein, head of Technology Tools for Today.

Goldman Sachs has made a lot of strategic moves and acquisitions over the last couple of years, Bruckenstein said. “It’s not just getting bigger, but morphing.” 

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