It seems unlikely that Goldman Sachs intended to own United Capital’s mass affluent business for only four years after its $750 million purchase in 2019.  Especially considering that Goldman went through the trouble of rebranding the business to Personal Financial Management in an effort to offer more products and services to retail investors.  The PFM division has approximately $29 billion in AUM, so this purchase marked a deliberate attempt by Goldman to cater to the mass affluent sector, which accounts for 11% of U.S. households with a total assets base of over $7.5 trillion.

We have no insider knowledge regarding Goldman’s specific intentions or deal pricing, but suspect it came down to economics and refocusing efforts on its core business lines.  The terms of the deal were not disclosed, but Goldman contends that it will “result in a gain.”  Just weeks before Creative Planning purchased PFM from Goldman, CP entered into a custody relationship with Goldman Sachs Advisor Solutions.  GS will likely continue serving Creative’s clients and advisors via investment products from its asset management business.  Goldman will see steady cash flow from these clients for many years, even without their investment management fees.

It appears that the expected profitability from this transaction never materialized, so Goldman decided to sell the PFM unit and move on

Goldman’s Global Head of Asset & Wealth Management, Marc Nachmann, said the transaction was “margin accretive” to his division, which implies that the PFM business wasn’t as profitable as the broader AWM department.  We speculated last time that if the rumored multiple was 18x EBITDA, then United Capital’s margin was likely in the 15-20% range.  Since Goldman’s Asset & Wealth Management group’s reported pre-tax margin averaged 29% in 2021 and 2022, it’s probably reasonable to presume GS believed it could achieve significant margin enhancement, making the pro forma multiple more attractive to its board and shareholders.  It appears that the expected profitability from this transaction never materialized, so Goldman decided to sell the PFM unit and move on.

Mr. Nachmann also said the deal “allows us to focus execution on our premier ultra-high net worth wealth management,” which has roughly $1 trillion in assets under management.  Goldman has considerably more experience serving UHNW clients than mass affluent individuals and is likely much more efficient in managing the former’s assets.  Since the PFM division accounted for less than 3% of these assets, the AWM department heads probably weren’t too keen on reorienting its efforts to serve a different client base.

Creative Planning has always catered to mass affluent so this deal will move the needle much more for its brand than Goldman’s

On the other hand, Creative Planning has always catered to mass affluent (and HNW) clients, and with $250 billion in AUM, this deal will move the needle much more for its brand than Goldman’s.  CP has also been highly acquisitive in recent years, so the integration should be relatively seamless for new clients and advisors.

This acquisition dovetails well with CP’s stated goal of becoming the leading advisor in the independent space and continuing its steady growth trajectory.

The deal may have broader implications for UHNW RIAs looking to expand into the mass affluent space and vice versa.  The fee structures, service offerings, staffing needs, and relationship requirements are drastically different for these two clientele bases, so it’s not a given that your RIA can accommodate both if you’ve never done so before.

What are the broader implications for ultra-high net worth RIAs looking to expand into the mass affluent space and vice versa?

If one of the largest financial institutions in the world gave up on this endeavor after only four years, it’s probably safe to assume that most RIAs would struggle to effectively serve both under one roof.  It doesn’t mean that it can’t be done, but this is why you don’t see many family offices that also serve mass affluent clients.  Catering to one side or the other or a mix of HNW and VHNW is far more typical and will likely remain the standard for the foreseeable future.  We’ll see if Goldman reenters the mass affluent wealth management market any time soon, but we highly doubt it.

About Mercer Capital

We are a valuation firm that is organized according to industry specialization.  Our Investment Management Team provides valuation, transaction, litigation, compensation consulting, and succession planning services to RIAs, asset managers, and trust companies.