Goldman Sachs Group Inc. (GS), which has grown its ETF family to 21 ETFs over the past four years, is doubling down on its goal to become a top ten player in the market. This feat requires that the Wall Street Bank catch up to rivals including JPMorgan Chase & Co. (JPM) and Charles Schwab Corp. (SCHW), also latecomers to the industry ,which are now at number ten and number five in the industry, respectively, per a detailed Barron’s story.

This initiative explains Goldman’s recent purchase of $33 billion of assets from Standard & Poor’s Investment Advisory Services. SPIAS, a creator of model portfolios, offers portfolios constructed with ETFs and mutual funds, a model which is gaining fast traction among to financial advisors. Goldman’s recent mega-deal will enable the financial services giant to chase after a growing $360 billion asset market tied to model portfolios.

Goldman’s SPIAS Purchase

  • $1.5 billion Asset Management arm adds another $33 billion
  • Goldman, at N. 17 in the ETF space, seeks to break top 10
  • SPIAS business offers model portfolios, increasingly popular among financial advisors
  • Bank expects model portfolio business to double in three years

Source: Barron’s

Model Portfolio Space Seen Doubling in Three Years

The SPIAS business will add another line of service, and another $33 billion, to Goldman Sachs Asset Management’s $1.5 trillion in assets under management. Currently, Goldman ranks at number 17 in terms of size in the industry, and is striving to break into the single digits, per Michael Crinieri, Goldman’s head of ETF strategy.

SPIAS should give Goldman an edge in an increasingly crowded and competitive ETF space, where issuers have been weighed down by intense fee cutting as they seek to win over investor assets. The model portfolio space should continue to boom as advisors move away from portfolio building, and instead see their time more efficiently used on services such as coaching, estate planning and tax guidance, according to Barron’s. The adoption of model portfolios has also been driven by broader regulatory and industry changes which make outsourcing more attractive, and should make it easier for buyers to differentiate based on fund holdings and price, per the report.

“The market could double in the next three years,” said Crinieri.

SPIAS has the advantage of a successful track record, and attractive placement on technology platforms already used by many advisors, says Goldman. The $33 billion S&P Global unit that the bank is acquiring also manages rules-based equity portfolios.

The SPIAS model portfolio uses an open architecture structure, which allows for ETFS from other firms to be included in the portfolios, and that charges an “overlay” fee for its services, typically around 0.15%. Goldman will broaden its offerings by adding its own model portfolios using proprietary Goldman Sachs ETFS, which will not charge overlay fees. The bank will instead generate revenue from management fees on the underlying ETFs.

Moving Forward

While the majority of Goldman’s current ETFs are equity funds, moving forward, Crinieri says the firm is planning on expanding into multiple asset classes and product categories. Earlier this month, Goldman launched five new ETFs in partnership with Motif Investing Inc., which rely on machine learning. The bank is among those who are attempting to revolutionize tech investment, theming its new AI-driven tech ETFs to focus on industries such as data, finance and manufacturing.