The former director of wealth management at one of the largest RIAs in the country is accusing the firm and the industry’s custodial giants of colluding in anti-competitive and harmful practices.
In a lawsuit filed on May 19 in Chicago federal court against Creative Planning, firm founder Peter Mallouk, Charles Schwab, TD Ameritrade, Fidelity Investments and private equity firm General Atlantic, Stephen A. Greco accuses some of wealth management’s largest players of a “collusive RIA services scheme” that is “accelerating market concentration and power” in the firms and violating the investor protections at the “core of federal securities laws.” The litigation represents only the latest phase in a saga that’s allegedly been brewing for quite some time.
“The RIA services scheme, Creative Planning fraudulent growth scheme and silencing and retaliation scheme involve nearly a decade of interconnected misconduct by defendants, in violation of a host of state and federal laws, and causing harm to many, including plaintiffs, advisory clients, competitors, the relevant markets and the general public,” the lawsuit states.
Greco’s allegations revolve around the custodians’ referrals of clients from their parent company’s brokerage arms to RIAs. The added business and payments flowing back to Schwab, TD and Fidelity from the RIAs in return have previously faced criticism that smaller firms are unable to gain access to the programs. Participating RIAs make revenue-sharing agreements subject to “performance metrics” ensuring that the practices maintain a certain level of business with the custodians, according to the lawsuit. In exchange, they get incoming clients, preferential prices and some free products and services, the lawsuit states. Some financial advisors say the custodians enforce strict minimum size requirements, leaving the extra business and the perks outside their reach and helping big firms get bigger.
Reactions and responses to the allegations
The lawsuit was first reported by Citywire RIA. Each of the defendants deny the allegations of Greco — a onetime TD Ameritrade branch manager who left Creative Planning in 2017 to launch an Oakbrook Terrace, Illinois-based RIA called Spotlight Asset Group and has been engaging in verbal and legal fights over the RIA’s referrals from giant custodians ever since. The lawsuit seeks damages, restitution, costs and other relief, though it doesn’t state an amount.
“Mr. Greco’s lawsuit shines a spotlight on the crucial role of whistleblowers in stopping the infectious spread of otherwise unchecked corporate greed, especially in high-stakes industries that are stained by a long history of improprieties,” his attorney, Kathleen Chavez of Foote, Mielke, Chavez & O’Neil, said in an email. “Mr. Greco hopes his lawsuit will end a particularly insidious collusive scheme, which is exploiting American investors, harming competition in the market for investment advice 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.” As an illustration of the continuing struggle between the firm and its former executive, Sherman brought up arbitration cases from 2019 in which Schwab and TD alleged that Spotlight attempted to solicit their clients in violation of contracts. The lawsuit follows Creative Planning’s “refusal to pay a significant sum and acquire Spotlight,” she said.
“Mr. Greco’s malicious claims are completely meritless and wholly denied,” Sherman said. “The idea that CP colluded with custodians who removed his RIA from their platforms is ludicrous, particularly given that Mr. Greco previously admitted publicly that his RIA was removed from at least one platform for hiring the broker’s former employee who attempted to take clients. Mr. Greco’s troubled departure from Creative Planning, lost partnerships and removal from prominent custodial 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 to focus on providing the highest quality services and support to its clients and team.”
Each of the other defendants issued statements denying the allegations, too.
“Schwab has stringent standards and requirements that all firms must meet to custody assets on our platform, and in some instances, there are firms who do not meet them,” spokeswoman Mayura Hooper said. “We fully intend to defend ourselves against these meritless allegations.”
“Spotlight Asset Group is alleging a concerted approach among Fidelity and its competitors in the custody space,” Fidelity spokesman Michael Aalto said. “Any such allegations are totally unfounded, and Fidelity will defend itself vigorously against any such claims.”
“The claims made in this complaint are entirely without merit,” General Atlantic spokeswoman Casey Gunkel said. “We are proud of our partnership with Creative Planning, and we are confident that they have consistently acted with integrity.”
Others in the industry may find some resonance with Greco’s arguments. For starters, Schwab’s $22-billion acquisition of TD in October 2020 went through a Department of Justice antitrust investigation before the close of the deal. In addition, Grid 202 Partners financial advisor Keith Beverly sees “a clear antitrust collusion narrative” to referral programs that send business to firms of the largest size only, he said in an interview.
Beverly, who is Black, says he doesn’t know of a single Black-owned RIA that’s currently receiving business from referrals potentially amounting to billions of dollars in assets and millions in increased revenue each year. Beverly has discussed the disparity with Schwab’s head of advisor services, Bernie Clark, and he views the lack of data about exactly which firms and how many are getting the referrals as one of the biggest problems. Beverly’s Washington, D.C.-based practice is “tiny” compared to Creative Planning and other big RIAs, he said.
“Many of them accrued to that size because of these referral programs,” Beverly said. “If you don’t allow a path for smaller firms, particularly diverse-owned firms, to participate, then you’re stifling the marketplace.”
Personal and professional implications
Beverly said he’s curious to see how the lawsuit plays out — a sentiment likely to be shared across the industry based on the high-profile defendants. As the No. 3 firm on Financial Planning’s RIA Leaders rankings of the largest fee-only firms, Creative Planning has reached $255 billion in assets after making a slew of acquisitions following General Atlantic’s 2020 investment in the firm, including its purchase last year of the $110 billion retirement business of insurance brokerage Lockton.
While Greco’s case primarily focuses on referrals, it describes the spate of as many as 30 deals as the firm’s “roll-up consolidation plan” and takes Mallouk to task for previously “disavowing any interest in acquisitions.” The lawsuit also makes a highly detailed series of allegations about Greco’s effort to take his concerns to Mallouk about the firm’s amount of growth through referrals from TD, only to leave the firm, lodge complaints with the SEC and the DOJ and face a disparagement lawsuit filed by Creative Planning against him in Kansas state court.
Regardless of that personal saga, the case’s charges about the referrals carry the biggest potential impact to the industry. Creative Planning and the other defendants “each engage in unfair and anti-competitive market allocation, price-fixing, group boycott and refusals to deal, collusive exclusivity and enforcement agreements, incentive and disincentive agreements, restrictive covenants, labor market manipulation, and other anti-competitive conduct in furtherance of their shared interests in attempting to acquire, acquire and maintain monopoly power, eliminate competitors and new market entrants, diminish competition in the relevant markets and other conduct,” the complaint states.
Chavez, Greco’s attorney, said no estimate of the financial damages was available. The 15 counts in the complaint include civil conspiracy, defamation, unjust enrichment, deceptive trade practices, breach of contract and other alleged violations of the law.
“Mr. Greco hopes his lawsuit achieves accountability and justice for millions of American investors who have trusted their life savings to investment advisers, believing their adviser is acting as a fiduciary,” Chavez said. “For decades, investment advisers have offered unique, high-trust, personalized, financial services governed by the federal fiduciary standard. More recently, a collusive cohort of the largest investment advisers have chosen a very different path, placing their own economic interests before their legal and fiduciary duties.”