RIA referrals under scrutiny in lawsuit against Creative Planning

The former head of wealth management at one of the country’s largest RIAs accuses the company and industry giants of colluding in anti-competitive and harmful practices.

In a lawsuit filed May 19 in Chicago federal court against Creative Planning, company founder Peter Mallouk, Charles Schwab, TD Ameritrade, Fidelity Investments, and private equity firm General Atlantic, Stephen A. Greco accuses some of the biggest players in wealth management from a “collusive RIA Services Program” that “accelerates concentration and market power” in companies and violates investor protections at the “heart of federal securities laws The litigation represents only the latest phase of a saga that has been brewing for some time.

“The RIA Services Program, the Creative Planning Fraudulent Growth Program, and the Silence and Retaliation Program involve nearly a decade of interconnected misconduct by the defendants, in violation of a multitude of state and federal laws , and causing harm to many people, including complainants, advisory customers, competitors. , relevant markets and the general public,” the lawsuit states.

Greco’s allegations revolve around custodians’ referrals of clients from their parent company’s brokerage arms to RIAs. The additional business and payments going to Schwab, TD and Fidelity from the RIAs in return have previously been the subject of criticism that small businesses do not have access to programs. Participating RIAs subject revenue-sharing agreements to “performance metrics” that ensure practices maintain a certain level of activity with custodians, according to the lawsuit. In exchange, they get inbound customers, preferential pricing and some free goods and services, the lawsuit says. Some financial advisers say custodians enforce strict minimum size requirements, keeping extra business and perks out of their reach and helping big companies grow.

Reactions and Responses to Allegations
The lawsuit was first reported by news outlets Ignites and Citywire RIA. Each of the defendants denies allegations by Greco – a former TD Ameritrade branch manager who left Creative Planning in 2017 to start an Oakbrook Terrace, Illinois-based RIA called Spotlight Asset Group and engaged in battles verbal and legal over RIA dismissals of giant goalies since. In arbitration cases from 2019, Schwab and TD alleged that Spotlight attempted to solicit their customers in violation of contracts. Greco’s lawsuit seeks damages, restitution, costs and other relief, though it does not state an amount.

“Mr. Greco’s lawsuit shines a light on the crucial role of whistleblowers in stopping the contagious spread of otherwise unchecked corporate greed, especially in high-stakes industries that are marred by a long history of wrongdoing. “His attorney, Kathleen Chavez of Foote, Mielke, Chavez. & O’Neil, said in an email. “Mr. Greco hopes his lawsuit will put an end to a particularly insidious collusive scheme, which is exploiting American investors, undermining competition in the investment advice market and threatening public confidence in an important financial sector.

In response to the 200-page lawsuit, Creative Planning attorney Melissa Sherman of Spencer Fane sent a statement describing the allegations as “baseless” and Greco’s “latest attempt to disparage the company”. The lawsuit follows Creative Planning’s “refusal to pay a significant sum and acquire Spotlight,” she said.

“Mr. Greco’s malicious assertions are totally baseless and completely debunked,” Sherman said. that Mr. Greco has previously publicly admitted that his RIA was removed from at least one platform for hiring the broker’s former employee who was trying to take on clients Mr. Greco’s troubled departure from Creative Planning, the loss of partnerships and the removal of significant custody platforms were entirely the result of Mr. Greco’s own behavior and business practices – not a grand conspiracy. Creative Planning will continue to conduct itself with integrity and focus on providing of the highest quality service and support to its customers and team.

Each of the other defendants also released statements denying the allegations.

“Schwab has strict standards and requirements that all companies must meet to keep assets on our platform, and in some cases some companies are not meeting them,” spokeswoman Mayura Hooper said. “We fully intend to defend ourselves against these baseless allegations.”

“Spotlight Asset Group alleges a concerted approach between Fidelity and its competitors in the custody space,” Fidelity spokesman Michael Aalto said. “Such allegations are completely without merit, and Fidelity will vigorously defend itself against such allegations.”

“The assertions made in this complaint are completely baseless,” said General Atlantic spokeswoman Casey Gunkel. “We are proud of our partnership with Creative Planning, and believe they have always acted with integrity.”

Others in the industry may find resonance with Greco’s arguments. For starters, Schwab’s Acquisition of TD for $22 billion in October 2020 went through a Justice Department antitrust investigation before the case is closed. Additionally, Grid 202 Partners’ financial adviser Keith Beverly sees “a clear narrative of antitrust collusion” in referral programs that only send business to the largest companies, he said. in an interview.

Beverly, who is black, says he doesn’t know a single black-owned RIA which currently receives referral business potentially amounting to billions of dollars in assets and millions in additional revenue each year. Beverly discussed the disparity with Schwab’s head of consulting services, Bernie Clark, and he sees the lack of data on exactly which companies and how many are receiving referrals as one of the biggest problems. Beverly’s Washington, DC-based practice is “tiny” compared to Creative Planning and other large RIAs, he said.

“A lot of them have grown to this size through these sponsorship programs,” Beverly said. “If you don’t allow small businesses, especially multi-capital businesses, to participate, you’re stifling the market.”

Personal and professional implications
Beverly said he was curious to see how the trial would go – a sentiment likely to be shared across the industry depending on the high profile defendants. As the #3 firm in financial planning RIA Leaders Ranking of the largest paying companies, Creative Planning has achieved $255 billion in assets after making a multitude of purchases following General Atlantic 2020 business investmentincluding his purchase last year from the $110 billion pension business of insurance brokerage Lockton.

While Greco’s case focuses primarily on referrals, it describes the series of no fewer than 30 deals as the company’s “rollout consolidation plan” and blames Mallouk for previously “disavowing any interest in acquisition”. The lawsuit also makes a series of very detailed allegations about Greco’s efforts to raise concerns with Mallouk about the company’s growth through TD referrals, only to later quit the company, file complaints. with the SEC and the DOJ and face a smear lawsuit. by Creative Planning against him in Kansas state court.

Regardless of this personal saga, the charges of the case regarding removals have the greatest potential impact on the industry. Creative Planning and the other defendants “each engage in unfair and anti-competitive market allocation, price fixing, group boycott and refusal to deal, collusive exclusivity and enforcement agreements, incentives and disincentives, restrictive covenants, labor market manipulation and other anti-competitive behavior in pursuit of their common interests by attempting to gain, acquire and maintain monopoly power , eliminate competitors and new market entrants, lessen competition in the relevant markets and other conduct,” the complaint states.

Chavez, Greco’s lawyer, said no estimate of financial damages was available. The 15 charges in the complaint include civil conspiracy, defamation, unjust enrichment, deceptive marketing practices, breach of contract and other alleged violations of law.

“Mr. Greco hopes his lawsuit will bring accountability and justice to millions of American investors who have entrusted their savings to investment advisers, believing that their adviser is acting as a fiduciary,” Chavez said. decades, investment advisers have been providing unique, personalized, high-trust financial services governed by the federal fiduciary standard.More recently, a collusive cohort of top investment advisers have chosen a very different path, putting their own economic interests ahead of their own interests. legal and fiduciary duties.