Goldman's purchase of Ayco looks like a mistake
By Brooke Southall
September 13, 2004, 6:01 AM EST Post a Comment Recommend (
SAN FRANCISCO - The Goldman Sachs Group Inc. made a bold move into financial planning last year by acquiring a national company with a plum market.
But the move might backfire for both companies, analysts and competing advisers are starting to say.
"It is one of those deals that sounds good on the surface, but implementation may not be as logical as one may think," said Charles Roame, principal with Tiburon (Calif.) Strategic Advisors.
"Tiburon believes that Ayco [Co. LP] and Goldman were not a good match as Ayco's strength is in serving a broad base of executives, while Goldman is just focusing on the top echelon," he added.
By buying Ayco in April 2003, the Wall Street juggernaut sought to strengthen the money management capabilities and cachet of the Albany, N.Y., company's 1,100 planners and other staff.
It also sought to get planning expertise for its own clients and create cross-referrals along the way.
Little sign of progress
But 18 months later, there's little sign that any of that has occurred.
"I initially thought that the strategy would be an effective model - putting Goldman services into the executive-planning market," said Timothy P. Speiss, partner in charge of the financial planning practice at KPMG LLP in New York. "But we haven't seen that."
Ayco serves about 9,300 executives, according to its website, but many of them have pedestrian salaries by corporate standards. Many retire with assets of $3 million to $5 million.
Goldman Sachs typically serves executives who are likely to be principals with assets of more than $10 million.
The growing perception that the Goldman-Ayco marriage was not a match made in heaven has financial advisers from Greenwich, Conn., to San Francisco starting to see opportunities and looking to capitalize on them.
"If they're going to lose business, where is it going to go?" asks S. Timothy Kochis, principal with San Francisco-based Kochis Fitz Tracy Fitzhugh & Gott Inc., which has $1.1 billion under management, mostly from corporate executives.
Mr. Kochis added that his perception of the ramifications of Goldman's purchase of Ayco prompt-ed him to hire two salespeople to call on Bay Area corporations that Ayco serves.
"I happen to agree that it's going to be easier to compete on a variety of levels," said Mitchell D. Eichen, chief executive with MDE Group Inc. in Parsippany, N.J., which has $1.06 billion under management and has a large practice serving executives directly through their companies.
"This is a newfound opportunity," he added.
Jacqueline Dunbar, spokeswoman for Ayco, said her company would not entertain questions from InvestmentNews. "We will decline the opportunity to be interviewed for your article," she said.
Indeed, a number of advisers have said Ayco has been eerily quiet since Goldman swallowed it up.
Mike Ford-Taggart, an equity analyst at Morningstar Inc. in Chicago who follows Goldman Sachs, said he agrees that it would not be surprising if the company let Ayco languish.
"Goldman's high-net-worth strategy is that they're used to working with corporate titans," he said.
"They have not had a retail push, and if they did, the Street would not look kindly upon it," he added. "The Street likes them because they're in trading and investment banking."
Stephen C. Winks, principal with SrConsultant.com in Richmond, Va., agrees.
"At Goldman Sachs, they were trying to become more process oriented, but they have the same problem as Merrill," he said. "It's hard to take a sales culture and slow it down with process."However, Andrea Raphael, Goldman Sachs' vice president of media relations, said the firm was happy with how Ayco has added to Goldman's process orientation.
"We are very pleased with the increased services we are able to offer our clients through this partnership between Goldman Sachs Private WealthManagement and Ayco and we are looking forward to further success in the future," she said.
Still, Mr. Eichen and Mr. Kochis said, U.S. corporations are becoming sensitive to how independent and open architecture the advisers who counsel their executives are.Phil Glennon, principal with Darien, Conn.-based Hynes Himmelreich Glennon & Co. Inc., which has $550 million under management, said another factor is leveling the playing field for companies seeking to compete with Ayco.
"The executive financial planning business is so fragmented looking," said the former Ayco ex-ecutive.
"There used to be an approved list" of planner names issued by a corporation, said Mr. Glennon. "Now companies are saying, 'Here's $10,000. Go spend it'" on any financial planner that you want.Big Four revisited?
Yet Ayco has proved to be a tough nut to crack, advisers say, because it boasted size and independence. The purchase by Goldman Sachs changed that.
"I've always encountered them as a major competitor," Mr. Kochis said. "I anticipate I may be more successful in competing against them, because they are no longer an independent firm."
Mr. Kochis, Mr. Eichen and Mr. Glennon added that Ayco's plight might follow the pattern set by the financial planning practices of the Big Four accounting firms. These were harmed by perceived conflicts after Arthur Andersen LLP of Chicago was brought down in the Enron Corp. scandal, they said.
"That's just becoming something that isn't an appropriate service" for an auditing accountant to offer an auditing client, Mr. Speiss conceded, though he said his own company's practice is going strong.
And financial planning for execs isn't a big business for most of these firms. Ayco has $4 billion in non-money-market assets under management, according to Goldman Sachs' 10K filing for the year ended Dec. 31. Ayco's website says it has assets totaling $6 billion.
But what is a "rounding error" in asset quantity for Goldman Sachs, Mr. Kochis wryly noted, represents a substantial market opportunity for advisers nationally who compete with Ayco regularly. Ayco has branch offices in New York, New Jersey, California, Georgia, Texas and Pennsylvania.
Some competing advisers, and headhunters, who asked not to be identified, said there is another growing drumbeat. Some top Ayco advisers, who were former principals - many with retainers that expire in July 2005 - made noises about moving to a company with a culture more in tune with what they have known for the past decade.
Junior executives - many of whom did not receive a payday when the firm was acquired - are already sending r%E9;sum%E9;s to other firms.
Meanwhile, some advisers said this all seems like d%E9;j%E0; vu. Ayco already failed once as a planning cog for a bigger corporate machine. American Express owned it from 1983 to 1994.
In that instance, the owners bought it back after it lost much of its stature.
"This began a new phase in Ayco's history, marked by tremendous growth in all aspects of the business," according to the Ayco website.
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