Goldman and United Capital? Say What?

This United Capital/Goldman deal has got me sitting here stumped for the following reasons.

#1 What is FinLife going to be called now?

Some candidates include:
  • GoldFin
  • GoldLife
  • GoldFinLife
  • LifeSachs
  • FinGold
  • Honorary mentions:
  • Goldfish
  • Goldilocks
  • Goldilocks and the three bear (markets)
  • Goldfinger
  • Fin(d)Gold
  • #2 What is Joe Duran going to do with himself?

    Not that we need to worry, but just for curiosity’s sake, is Joe Duran potentially out of a job? As you may have happened to notice, the world’s iciest, most arrogant Wall Street brand and Duran’s flower child RIA brand couldn’t be more opposite from each other.Not just opposed,diametricallyopposed.Moreover things will be very funny for United Capital now that they have shareholders to answer to. This may be one of those consult-for-a-year-and-then-you’re-fired type deals. In which case he could always just go get a high level job at the SEC which is where the rest of the ex Government Sachs employees end up.Related: How to Leverage Your CFA® Designation to Grow Your AUM

    #3 Why didn’t Goldman buy Betterment?

    The cheerleaders (aka media) all say this is a great move by Goldman for the long term. I think there may have been better cards to play if that’s what they wanted.Think about where clients are in the lifecycle when they come to United Capital.
  • Already have established checking and savings accounts (rules out GS’s Marcus).
  • Already have brokerage accounts established at other places (rules out Institutional Services which made them 12BB in 2017 and is 37% of their revenue according to Goldman’s 2017 Form 10-K)
  • Already have a mortgage.
  • Moreover, think about thedecisionsthey’ve made. The clients of United Capital went to United Capital (over Goldman) because they didn’t want to pay 4% fees for Goldman’ equity linked notes. And that’s why the United Capital advisors set up their shop there, too.Is anyone really going to be happy with Goldman shoving their IPOs down their throats? Remember Goldman makes 7BB a year from doing this in their Investing and Lending division, around the same amount that they make from their investment management business (Goldman, 2018)The best bet to gain the most clients for thelongterm is to capture them across all spheres, from private to consumer banking. And for that, a better play would have been Betterment or Wealthfront.Betterment, for example, has a private label division serving investment advisors and their practices. Although these investors may not have the bigger portfolios, it would be an excellent incubator for the next 20-30 years of high net worth clients.I heard the line about the amazing “synergies” (one of my favorite investment banking cliché words) with Ayco, their investment service for GS executives. True, but there’s no real incremental revenue. You’re just poaching your own clients. An Ayco client already has a GS advisor. Was GS that in love with FinLife? Is it really that much better than what Ayco clients were already getting? Either way Goldman wins as I must admit it was a smart idea to recapture the salary money you pay out in management fees.This was potentially a very “synergistic” deal in the sense that there is now another distribution channel for Goldman private real estate funds, customized notes and all the other junk. No need to be afraid of next quarter’s earning report – Goldman’s stock price will be okay.This is no long term play.Remember, all Wall Street firms think about is next quarter’s profit! They don’t care about 20 years from now. Don’t you recall how Wall Street created the financial crisis by selling everyone subprime mortgages? That was a long term focused kind of strategy? They’d do it all over again trust me.

    #4 What does this mean for the industry?

    In the grand scheme of things, it means nothing.Although FinLife offers a different way of serving clients, it doesn’t fundamentally change the system, the industry at large. That is because it doesn’t universally change advisors’ incentives for the decisions they make.What will?The Almighty Paycheck makes people change.In a podcast I recently had about supporting female advisors, I was happy to learn of that Buckingham Strategic Wealth pays some advisors on salary rather than commission. Cool.Nowthat’sdifferent.So, for example, if someone has a child right after she starts building per practice, she doesn’t have to pressure sell just to pay the bills. Wow, this mayactuallylead to truly objective advice! Just like it says on everyone’s website!In a podcastI had with Hugh Massie of DNA Behavior, he talked about serving clients with a team-based approach when personality conflicts arise. This solves the problem of discovering you have a communication problem with your client, and you can’t control or understand his or her behavior.Team arrangements presumably would bring about fee sharing, an unheard of idea in the industry.Split your revenue with an advisor at your firm (kind of a bummer), but avoid having the client fire/sue you (way bigger bummer). Win for the client, win for you, win for the firm. And since every advisor has that one problem client who doesn’t “get it”, this could be a very widespread practice.Nowthat’sdifferent.Changes like this would cause real change, not just same old same old which is what this deal is doing.

    Sara’s Upshot

    I’d love to know what you think.Sources: The Goldman Sachs Group. (23 February 2018). 2017 Form 10-K. Retrieved from