Originally published April 2, 2019
U.S. asset managers are engaged in a new arms race. Fee-based advisers are fast displacing commission-based brokers in managing Americans' wealth. Goldman Sachs and BlackRock are the latest to bulk up their wares in this $80 trillion market which offers spoils across the spectrum.
Choppy markets and the shift by investors from active stock and bond pickers to index and exchange-traded funds continue to make life difficult for asset managers. More than half of the 850-odd U.S. mutual-fund companies tracked by Refinitiv's Lipper had net outflows of funds last year.
Yet registered investment advisers, or RIAs, are raking in the money. These outfits manage money for individuals and family offices, charging an overall fee rather than hawking funds or individual stocks and bonds for a commission. This model's popularity helped RIAs increase assets by nearly 17 percent last year, according to the Investment Adviser Association.
Asset managers are happy to follow the money. Last month Goldman Sachs Asset Management acquired Standard & Poor's Investment Advisory Services from parent S&P Global. It provides non-discretionary advice and model portfolios to RIAs and other intermediaries with more than $33 billion in assets under supervision. GSAM hopes the deal will give a boost to its nascent ETF business and support the goal set by the bank's overall chief executive, David Solomon, of pushing Goldman deeper into consumer markets.
In November BlackRock, the industry giant with $6 trillion in assets under management, paid $123 million for a 4.9 percent stake in Envestnet, one of the biggest providers of trading, reporting and financial-planning software to RIAs. That cash, in turn, enabled Envestnet to strike a $500 million deal last month to buy Pietech, the privately held vendor of financial-planning software MoneyGuidePro. That gives BlackRock a fresh outlet for its own retirement-planning software. Its iShares ETF business could benefit, too, because as fiduciaries pledged to act in their clients' best interests, RIAs put a premium on low costs.
Fidelity pushed into the business when it acquired rival planning-software firm eMoney Advisor in 2015. That has already paid off, though not so much in selling more of its actively managed stock mutual funds. Rather, it has helped Fidelity grow its custody and clearing business for RIAs, brokerages and family offices to more than $2 trillion in assets. That's a useful weapon in the battle for RIA dominance.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.