By Ryan W. Neal CloseText About Ryan W. twitter ryanwneal linkedin ryanwneal March 29, 2022, 6:16 p.m. EDT 3 Min Read
Financial institutions see the workplace as an area to grow their wealth management businesses and are investing in technology to help tap into the market.
Goldman Sachs announced Tuesday plans to acquire NextCapital, a digital retirement advice provider based in Chicago. Terms of the deal were not disclosed, but it is reportedly one the five largest asset management deals in Goldman’s history, according to the Financial Times.
NextCapital is a digital advice company focused on providing managed accounts and planning through workplace retirement plans and IRAs. NextCapital already powers Goldman’s Workplace Retirement Solution, a program for small and midsized businesses that contributes to the $350 billion in assets Goldman Sachs Asset Management supervises across defined benefit and defined contribution plans. Bringing NextCapital in-house can accelerate growth in this market by going directly to large plan providers, the company said.
“This acquisition furthers our strategic objective of building compelling client solutions in asset management and accelerating our investment in technology to serve the growing DC market,” Goldman CEO David Solomon said in a statement.
“Together with NextCapital’s talented team, we will continue to invest in technology to improve the experiences and outcomes of retirement investors and better serve the employers, advisors and financial institutions that support the growing $10 trillion DC market and the even larger IRA segment,” added Luke Sarsfield, the global co-head of Goldman Sachs Asset Management.
The firm also offers workplace wealth management through its Ayco Personal Financial Management business.
Goldman isn’t the only financial institution investing in technology to offer better workplace retirement accounts to corporate clients. In addition to the retail stock trading technology, Morgan Stanley also acquired E-Trade’s corporate services business in the blockbuster deal in February 2020. Morgan Stanley has integrated this business with Solium, the equity compensation company it acquired in 2019; its existing workplace offering; and partnerships with Vestwell and Empower Retirement to provide a range of workplace benefits under the Morgan Stanley at Work brand. “Anything that touches a financial offering that a corporate client may want to put in place for employees,” said Brian McDonald, a managing director and head of Morgan Stanley at Work.
There is more demand from employers looking to attract and retain talent, and firms want the chance to create relationships with employees as they build wealth, McDonald added.
“More wealth is being created in the workplace than ever before,” he said. “If we do this right, we earn the right to provide employees with education, financial advice and investing.”
If firms like Goldman want to tap into the large market of in-plan retirement savers, they have to work within the existing record keeping system, said Rob Foregger, the co-founder of NextCapital, who stepped down from his duties as CEO in 2021 to go on sabbatical.
“It’s all about the retirement money in motion,” Foregger said. “Part of the brilliance of Ned Johnson was connecting the 401(k) business to the retail investing business, and that’s not lost on people.”
Foregger, who is still a major stakeholder in NextCapital, said he is “incredibly proud” of his team and believes Goldman’s experience integrating other tech-forward businesses, such as United Capital, make it a good fit for a company like NextCapital.
Of the 32 million small businesses in the U.S., fewer than 3% offer a workplace savings solution, said Vestwell founder and CEO Aaron Schumm. This makes the market a “green field of engagement opportunities” for wealth management firms, which traditionally sent business-owner clients to an outside recordkeeper if they wanted to offer employees a retirement plan, Schumm said.
Vestwell expands into college savings plans by acquiring Sumday from BNY Mellon
“All those employees are potential clients of the future, but you just put them with a competitor,” Schumm said. But with technology making it easier and more cost-efficient to offer and manage retirement plans, firms are realizing they can keep those assets in-house and create a pipeline of future companies. “Rather than compete, you can have your own solution and use that as a pool to fish from.”
The deal is expected to close in the second half of 2022, and NextCapital will become part of GSAM’s multi-asset solutions (MAS) business.
“This acquisition represents the next phase in our ability to engage with employees and employers to help them retire safely,” Greg Calnon, who leads the MAS business, told Financial Planning. “Combined with what we have at Goldman Sachs in terms of our broad investment capabilities, financial wellness offerings and technology, it allows for a very differentiated product.”
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