Back in May, Goldman Sachs announced they were acquiring Folio Financial. The firm provides custody and tech services to RIAs, and while it might not have seemed like a huge event at the time, it does point towards a new stratection direction in the wealth management business.
Goldman has been making moves into the wealth management world for some time now and since the world of zero fees and zero interest has fast gone from warning sign to reality, the question has to be how does the multinational investment bank make money?
Like many things in the RIA world right now, the move is partially about scale. Consolidation and a positive uptick in the M&A market, after a 20 percent drop in the 2nd quarter. Schwab is in the middle of acquiring Ameritrade, Morgan Stanley bought E*Trade, Goldman Sachs is just following in those footsteps and Folio is following suit as they attempt to compete in a world quickly becoming dominated by giants.
While Robinhood may be grabbing all the headlines, plenty of people would rather trust someone in the business to do their investing for them. And being at the backend of that network and offering those RIAs custody and retaining them with other services is quickly becoming one of the hottest ways to gather assets and cash and generate scale.
The RIA market as a whole has been growing faster than traditional wirehouses. According to the Charles Schwab annual RIA Benchmarking Study, the market has grown continuously over the past five years in both AUM and revenue. The number of RIA firms has also grown, by about 4% between 2018 and 2019, according to Aite Group. That’s only expected to jump as the economic downturn encourages some to go out on their own and forces others to leave major wirehouses.
RIA custody has certainly been working for Schwab and will only get bigger with the acquisition of Ameritrade. Now Goldman is climbing into the RIA custody business as well and hopes that it will help keep earnings moving in the right direction during these volatile times.
