After their wild United Capital deal, Peter Mallouk and Goldman Sachs kept $7-billion-plus of AUM on board with a sweetheart deal for advisors, but the bloom is off their budding custody romance

Creative Planning and Goldman Sachs each held an ace in the “United Capital” deal that will tie them together indefinitely – even as their budding custody arrangement sputters, RIABiz has learned. 

Peter Mallouk, owner of the $290-billion Overland Park, Kan., RIA, and the New York City investment bank were facing an unprecedented poaching frenzy [against an RIA] after the deal was sealed last August. 

But Goldman offered to provide advisors with its blue-chip fixed income management – for the rock-bottom rate of 15 basis points. That kept advisors with at least $7 billion in assets in house, according to a source familiar with the deal.

(The ADV says 20 basis points, but United Capital advisors have a legacy 25% discount, a source says.)

“This [is] a coup for Creative Planning," says industry analyst Andrew Besheer, formerly of Datos Insights, via email. 

"The assets and the access as a package deal … [is] a way for Creative Planning to really plant their flag and say ‘we’ve arrived, and we intend to compete with the big boys.” 

Goldman Sachs fund managers offer not only access to all kinds of corporate and municipal inventory, but can also use its analysts to determine what's under the hood. See: After false start, Goldman Sachs unloads high-net-worth unit to high-flying Peter Mallouk.

Incentivized

Better yet, Mallouk was able to get the same GSAM access extended to Creative Planning legacy advisors as well. United Capital is technically a subsidiary of Creative Planning and files its own SEC ADV.

“Access to Goldman's capabilities in the [fixed-income] space certainly can be a pretty significant differentiator for Creative Planning against its typical rivals and even against that next echelon of even larger hybrid RIAs and IBDs,” Besheer adds. 

One Mallouk competitor marveled at how Goldman was incentivized to extend its private stock to a wider public. 

“Goldman Sachs had an incentive to get the advisors to go to Peter so that it could sell their assets to him,” the source says. See: Goldman Sachs salvages $349-million 'gain' from its United Capital misadventure.

The Goldman/Mallouk deal was not a resounding success, with scores of advisors defecting to other RIAs and broker-dealers.

But as much as 60% of the $30 billion of assets Goldman Sachs held were salvaged. See: Peter Mallouk ends up losing the majority of Goldman-United Capital advisors, but keeps the lion's share of the managed assets.

Avoiding advisors

Goldman had a second incentive, too. 

It makes about $14 million at 20 basis points annually from the United Capital bond portfolios, with none of the trouble of employing the advisors.

But some question how long that relationship might last. 

The revenue – and the desire for even greater customization – might be enough to make Mallouk bring those bond investments in-house, says Alois Pirker, founder and CEO of Pirker Partners, a consultant in Marblehead, Mass. 

“Tax loss harvesting might very well be high quality at Goldman Sachs. [But] it is a matter of time until wealth management firms will want to bring it in-house using a vendor solution but running the process themselves," he adds, in an email exchange.

“Economics is one reason for that, and the ability to incorporate client specifics is another.” 

Custody crumbles

Creative Planning's deepening partnership with Goldman has already faltered once over Goldman's RIA custody unit, according to sources who asked not to be named to speak candidly. 

Mallouk put a good faith $100 million or so into the unit before the United Capital deal. See: Peter Mallouk grants Goldman Sachs a 'multi-billion dollar' opportunity.

The unit has struggled to provide the level of service the RIA is accustomed to with Fidelity and Schwab as it experiences turnover and growing pains, three sources tell RIABiz.

Mallouk declined to comment on Creative Planning's custody or fixed income relationships with Goldman, and deferred to United Capital President Jim Rivers on the latter. See: United Capital to name new president within 14 days.

“As part of the deal, we negotiated ongoing access to these investment options," Rivers said, via email. 

"Our advisors have discretion to invest as they see fit … We do not have a plan to transition the fixed-income assets from Goldman.

“Continued access to Goldman Sachs, including the depth and breadth of [its] fixed-income capabilities, are a benefit not only to advisors but also clients … [and] continued access to these resources with no additional cost to clients is a fantastic benefit to United Capital,” he adds.

“Tax loss harvesting has been a tremendous value-add to our clients and we [intend] to continue to offer this to our clients. There is no plan to take this in house,” says Rivers.

Goldman declined a request for comment.

Mutual benefit

Besheer doubts Rivers or Mallouk will want to scuttle the GSAM arrangement.

“If the infrastructure is already in place … across a solid chunk of existing assets, and it’s coming from a premier provider, why would you want to rip it out and replace it?” he says.

“That process would be a significant cost, in and of itself, and you’d need to see at least an equal and offsetting uptick out of converting to even consider changing."

Goldman will certainly want to keep the GSAM deal in place, says Pirker.

“[With Creative Planning, Goldman] captures a product distribution channel without having to actually run those producers directly, which fits their more institutional DNA than maybe owning the advisor channel did,” he explains. See: Goldman Sachs turns big page on United Capital.

“Selling that channel – but retaining some of the assets and continuing to support the advisors with product – maybe offsets some of the transaction price discount that Goldman took,” he adds. See: Goldman Sachs CEO calls United Capital debacle 'lesson learned,' amid RIA exodus, and operating losses.

Systems transition

Creative Planning's acquisition of United Capital closed Nov. 3; since then, United advisors have attended a number of working groups to ensure the separation from Goldman goes without a hitch, according to Rivers. 

“There is a planned period of time where Goldman [will] continue to maintain our technology and client data while United Capital establish[es] new systems to allow for this data transfer,” says Rivers.

"This timeline includes key dates in the first quarter and second quarter of 2024 … to transition United Capital client information from Goldman. 

"We are on time and tracking to this timeline, and teams will start to see the systems transition … in the coming months," he adds.

Software filip

United Capital advisors will also benefit from having a bigger choice of software than they had under Goldman's ownership, according to Rivers.

“At the same time, we are moving systems over, we are also able to offer enhanced features on many pieces of technology advisors were using – Salesforce, eMoney and MoneyGuidePro – [that] Goldman would not allow us to use. Advisors are excited,” he adds.

“In addition, we have a robust road map to build new features to our FinLife Tools throughout the balance of 2024," he says

FinLife was designed to take advisors from financial planning to a loftier role as life planners with juicier profit margins. Goldman largely left the product on the shelf.