This content is from: Wealth Management

‘Committed’ to RIA Custody, Goldman Sachs Acquires Folio Financial

The deal sends proprietary technology to the investment bank and will help the seller scale, Folio Financial CEO Steve Wallman said in a letter.

Goldman Sachs (ticker: GS) has agreed to acquire Folio Financial, a self-clearing broker-dealer and technology company.

The two companies began discussions in 2019 and the deal, subject to regulatory approval, is expected to close in the third quarter of 2020, according to a letter sent to Folio’s retail users Thursday and reviewed by RIA Intel. Specific terms of the deal were not disclosed. 

A Reuters story published Thursday noted that public companies typically disclose the price for acquisitions on deals worth more than $500 million. Goldman Sachs declined to comment on the deal until it has been approved.

“Since its inception 20 years ago, Folio has been at the forefront of financial services innovation - creating, inventing and offering technology and investment solutions that are among the best in the industry. The acquisition of Folio by Goldman Sachs brings together two leading financial services firms for the continuing benefit of our clients and business partners,” Thursday’s letter, addressed from Folio CEO Steve Wallman, said.

Wallman wrote that the deal with Goldman will enhance Folio’s innovation and help scale its business “particularly in the execution, clearing, and custody space.” 

Thursday, before the deal was made public, RIAs that use Folio as a custodian received calls from the company. The company told them nothing would change in the immediate future and that there would be more communication about the deal to come. Folio also told clients that Goldman was “very interested in and committed to RIA custody,” one of the clients told RIA Intel.

McLean, Virginia-based Folio has approximately $11 billion in assets under custody for about 450 RIAs. Folio has 160 employees.

Both companies are also focused on expanding the scope and capabilities of investment solutions related to sustainable, responsible, and impact, or SRI. “The combination of Folio’s patented technologies and services with Goldman Sachs’ investment solutions and access to global resources will create material value for our clients,” Wallman said in his letter.

On May 20, Folio is due to inherit clients — both retail investors and RIAs — from Motif, a portfolio management software company that suddenly announced it was closing. Paula Delaurentis, the Chief Retail Officer at Folio, told RIA Intel in April, that Folio had “all the capabilities and more than what Motif currently has so I think they’re going to be pleasantly surprised.”

Three days after Motif announced it was closing, Goldman Sachs Asset Management, or GSAM, said in a statement it would become the index provider for five Goldman Sachs Motif exchange-traded funds on May 15.

In May, Charles Schwab agreed to purchase Motif’s technology, intellectual property, algorithms, patents, and source code, and said it plans to hire most of its employees, including founder and CEO Hardeep Walia.

Folio’s custody and clearing business as well as the RIAs that custody with Folio will be folded into Goldman’s global markets division.

In January, during its first-ever investor day, Goldman Sachs revealed its plan to dominate wealth management. In 2016, Goldman launched its digital consumer bank, Marcus, and part of the plan included doing away with the name of United Capital, the RIA the bank bought for $750 million in 2019. It renamed the RIA Goldman Sachs Personal Financial Management.

But Goldman said last year it planned to work with RIAs outside the organization, too. In November, the bank named Rachel Schnoll, a managing director and head of Retail Product Strategy for GSAM, the head of the former United Capital’s FinLife product, a set of tools used by its advisors and other wealth managers that she told RIA Intel was “the jewel” within the acquired company.

Over the last five years, Goldman has grown its total number of financial advisors from about 900 to 1,400. Meanwhile, client assets grew from roughly $590 billion to $840 billion over the same period, the bank said in January.

The acquisition of United Capital and a new custody business aside, Goldman also said in January it plans to continue hiring advisors in its Private Wealth Management group. The group had about 800 advisors, 13,000 clients, and an average account size of approximately $55 million. It was generating $3.5 billion in revenue per year, according to the January presentation.

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