Goldman Closes Purchase of RIA Catering to Mass Affluent

Goldman Sachs closed Tuesday on its culture-shifting purchase of financial planning firm aggregator United Capital Financial Advisers, and its chief executive said the investment bank could make further incursions into the “fragmented” wealth management landscape.

“[W]e have a very big infrastructure that we can continue to feed in terms of all the wealth, in terms of all the asset management and wealth management products we have,” CEO David Solomon said during an analyst conference call after Goldman reported a 6% decline in second-quarter profit that  nevertheless beat analysts’ expectations.

Goldman bought Newport Beach, California-based registered investment advisor United Capital for $750 million in cash.  The RIA had $25 billion in assets under management as of the end of April, overseen by 220 advisors in 90 offices nationwide.

United Capital will operate as part of Goldman’s investment management division, which includes some 500 traditional brokers servicing wealthy investors with target account minimums of $10 million, its Ayco unit offering wealth planning to executives and corporate retirement plan participants and its $1.66 trillion asset management business.

Ayco and United Capital together service some $80 billion of customer assets held by the “mass affluent,”  who Solomon defined as households with approximately $1-$5 million of investable assets.

The move downward from its focus on corporations, hedge funds and very wealthy families complements Goldman’s move into consumer finance three years ago when it launched its Marcus lending operation. Goldman in March also issued its first credit card that lets holders manage their accounts through an Apple iPhone app.

Despite its interest in distributing more of its asset management products directly to internal customers, Solomon indicated that Goldman will be more of an opportunistic acquirer of wealth-management firm than an avid pursuer of them.

United Capital “came up for sale, we looked at it, we thought it was a really good fit to accelerate our business, so we decided to act on it,” he said in answer to an analyst’s question on the firm’s appetite for mass-affluent expansion.

If something similar appears to complement the company’s asset management business, “we’ll consider it,” he said.

In the second quarter, the investment management division reported a 14% drop in revenue from the year-earlier period to $1.59 billion. “Significantly lower incentive fees” related to asset management returns and lower transaction revenues accounted for the decline, Goldman said.

Goldman ended the June quarter with $1.66 trillion of assets under supervision in investment management, up 10% from $1.51 trillion one year earlier. The jump reflected net market appreciation of $32 billion, long-term net inflows of $17 billion (due to purchase of a $13-billion manager Rocaton), and money-market net inflows of $12 billion, Goldman said.

Overall, Goldman reported net earnings of $2.42 billion on $9.46 billion in net revenue for the second quarter.

Revenue was down 2% from the year-earlier quarter, but analysts said the bank surprised on the up side with better-than-expected results in investment banking and equity trading (while its fixed income, currency and commodities businesses slightly trailed expectations).