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Goldman Sachs to Acquire Folio Financial

Many acquisitions in 2020 have been all about technology. This one is no different.

Goldman Sachs is purchasing Folio Financial for an undisclosed sum, in a deal expected to close in the third quarter pending regulatory approval. The acquisition was announced by Folio Financial’s CEO, Steven Wallman, on Thursday. Goldman Sachs did not comment on the announcement.

“Joining with Goldman Sachs fulfills Folio’s long-term goal of partnering with a preeminent financial services firm,” Wallman wrote in a letter posted on the firm’s website. For Folio’s leaders and its employees, the deal marks a culmination of two decades of tech development and investor services, he added.

The timing of the deal, announced not long after Folio was tapped as the new home for assets transitioning from now-defunct Motif, is not related to the latter’s demise, said an industry source speaking on background. The Goldman Sachs-Folio deal was in the works long before Motif entered troubled waters.

Rather, Goldman’s purchase is about acquiring technology and technologists, said the source. Most notably, the purchase will bring Folio’s clearing and custody business under Goldman’s control.

It’s an explanation with other backers. “Goldman can now run its United Capital and Ayco business on its own clearing and custody platform,” said Alois Pirker, Aite Group wealth management research director, “giving it full control of those business’ back office functions.” According to regulatory filings, Goldman Sachs Personal Financial Management (formerly United Capital) currently has multiple custodial relationships, which allow clients to open accounts at Charles Schwab, Fidelity Brokerage Services and TD Ameritrade Institutional.

Nevertheless, Folio’s sale should also be seen as another example of the seismic change the online brokerage industry is undergoing as it moves to zero commissions, he added. The deal marks the “third casualty” precipitated by Charles Schwab’s move to eliminate commissions, after TD Ameritrade was targeted for acquisition by Schwab and E*Trade by Morgan Stanley. The scale required to run an online brokerage is now so immense that firms like Folio, even with 20 years in the business, are no longer viable, he said.

Folio’s tech will provide other benefits for Goldman, Pirker explained. Marcus, Goldman’s online bank, should become stronger with the online brokerage expertise provided by Folio. Goldman could also get a boost in its robo advice business, as Folio’s tech should “fast track the building and roll out” of a Goldman-branded robo advisor, he added.

Advisors should view Goldman’s move as another sign of how serious it is about its wealth management business, added David Goldstone, research analyst at Backend Benchmarking. “With [its] acquisition and rebranding of United Capital, the expected launch of a robo advice product and the development of [its] Marcus brand, [Goldman] is aggressively expanding services to offer mass-affluent, younger and less wealthy clients.” Folio’s fractional share technology will be appealing to those investors and Goldman will now have a “foothold in the RIA custody business,” he added. Goldman will also be able to use Folio’s direct indexing tech, as features like that gain popularity with investors.

Folio Financial has roughly 160 employees and $11 billion in assets under custody for RIAs. 

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