The Battle for RIA Custody: How Goldman Sachs is Challenging Fidelity Funds and Schwab

The landscape of wealth management is witnessing a high-stakes power struggle. For years, the giants of the industry—namely Fidelity and Charles Schwab—have dominated the RIA (Registered Investment Advisor) custody space. However, a new contender is making a bold move. Goldman Sachs is stepping into the arena, utilizing its institutional pedigree to potentially leapfrog the current leaders in the lucrative world of long-short Separately Managed Accounts (SMAs).

The “Gold Rush” of Long-Short SMAs

Why is everyone suddenly obsessed with long-short SMAs? To put it simply: they are an absolute goldmine for custodians. These products are not just sticky; they are phenomenally profitable. Unlike traditional investment vehicles, long-short programs generate a staggering array of revenue streams, including:

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• Marketplace and Trading Fees: Direct charges for executing trades.
• Lending Fees: Revenue generated from supporting shorted securities.
• Margin Interest: High-margin interest earned on borrowed cash.
• Payment for Order Flow: Fees paid by market makers.
• Shelf-Space Fees: Payments from asset managers to be featured on the platform.

The growth has been exponential. Some industry experts report that assets in these strategies have increased tenfold over the last two years, rivaling the growth rates seen in the AI boom.

The Friction at Fidelity and Schwab

While Fidelity funds and Schwab initially embraced the surge in demand, they soon found that too much of a good thing can be dangerous. To curb what some call a “sugar high” among advisors, both custodians have implemented restrictive measures.

Fidelity, in particular, instituted a blanket ban on new long-short accounts and significantly hiked its fees—jumping from 60 basis points to a staggering 152 basis points. Schwab has also tightened the reins, imposing strict minimum investment balances (between $1 million and $3 million) and capping asset allocation to long-short SMAs at 30% of a client’s portfolio.

Goldman Sachs: The Strategic Disruptor

This is where Goldman Sachs sees an opening. Rather than just acting as a custodian, Goldman is launching its own proprietary Goldman Sachs Asset Management (GSAM) strategies. By offering in-house, tax-aware direct indexing and long-short solutions, they are offering a “one-stop-shop” that Fidelity and Schwab currently lack.

By combining custody solutions with institutional-grade management, Goldman is positioning itself to attract new money from RIAs who are frustrated by the restrictions imposed by the larger custody giants.

The “Ticking Time Bomb”: Risks and Regulations

Despite the profitability, long-short SMAs are not without peril. Critics, including hedge fund managers, warn that these products could be a long-short equity “ticking time bomb.” The primary concern is regulatory: these strategies are incredibly effective at sheltering capital gains from taxes, which may eventually draw the ire of regulators focused on wealth inequality.

Furthermore, there is the inherent financial risk. While a stock’s potential gain is capped at 100%, the potential loss on a short position is mathematically infinite, making these strategies a high-wire act for both the advisor and the client.

Conclusion: Who Wins the Custody War?

The entry of Goldman Sachs adds a dynamic layer to the RIA ecosystem. While it may be difficult to convince RIAs to move their entire books of business away from established players like Fidelity, the gaps left by fee hikes and restrictions create a perfect entry point for a sophisticated alternative.

For RIAs, the choice boils down to a balance between the stability of legacy custodians and the institutional power and flexibility offered by the new Goldman Sachs platform.