Small acquisition company denied attempt to take on Schwab's TD Ameritrade deal

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Does Charles Schwab have competition for its proposed purchase of TD Ameritrade’s institutional business? Not anymore.

BlackCrown, an RIA and a private acquisition company which challenged the deal in December by asking a federal court for the right to acquire TD Ameritrade’s custody unit, has already been denied.

A judge dismissed the case Thursday on the basis that BlackCrown's CEO, Franklin Tsung, was representing the company himself without an attorney. Tsung did not respond to two requests for comment, and it is unclear whether he — or other challengers — will pursue antitrust claims in the future.

“[I think] that they just want to stop the transaction,” Doc Kennedy, founder of AdvisorLaw, said in an email before the judge's decision, questioning whether BlackCrown had the money it would require to buy the Omaha-based custodian.

Schwab’s $26 billion offer for retail brokerage and custodian TD Ameritrade is expected to close in the second half of 2020. In the antitrust lawsuit, BlackCrown claimed that San Francisco-based Schwab would have an “unlawful monopoly” over the custodial marketplace.

“If allowed to proceed, the proposed acquisition would transform the wealth management industry, harm competition and disenfranchise a great majority and minority of RIAs and [investment advisor representatives],” the lawsuit reads.

Schwab spokesman Pete Greenley said that the firm believes the complaint is baseless.

BlackCrown asserted that a purchase of TD Ameritrade’s institutional business would “dissipate the anticompetitive effects” of Schwab’s anticipated deal and protect smaller RIAs, according to the lawsuit.

Tsung, the former COO of wealth management tech company AppCrown, said in the lawsuit that “the Big Four” players — Schwab, TD Ameritrade, Fidelity and Pershing — dominate the custodial marketplace. He noted that Schwab and TD Ameritrade are the only two without “explicit or implicit” minimum AUM levels for smaller planners.

“TD Ameritrade’s custodian services and technology are the only competitive alternatives to Charles Schwab for independent wealth management firms with smaller AUM sizes,” the lawsuit reads. Smaller players, including Shareholder Services Group, do not have the same level of national scale and market concentration, the lawsuit says.

Tsung asserted that a deal would lessen innovation, overall quality, service and choice for advisory firms. Schwab would also be positioned to charge more for its RIA services, according to the filing.

“The merger would give the combined company the incentive and ability to harm the entire independent wealth management customer market by raising prices of those custodian services,” it reads.

Schwab and TD Ameritrade collectively custody assets for 51% of the total RIA market, according to estimates by Cerulli Associates.

Before the judge dismissed the case, attorneys validated some of the claims made in the lawsuit, but questioned whether they would have stood in court.

“There is no question that Schwab is the dominant player in the RIA custodial market, and that TD Ameritrade is also a significant player,” Paul Foley, an attorney uninvolved with the antitrust lawsuit, said in an email, noting that the success of the lawsuit would depend on the judge.

Kennedy said that he didn’t think this action “in and of itself” would have been a significant threat to the merger.

“I'm not sure how much interest a court will have in ensuring that RIAs with less than a couple-hundred million in AUM get a fair shake,” he said, although he noted that pointing out the “extremely high” barriers to entry into the custody space may be a convincing argument.

BlackCrown operates an SEC-registered RIA, which offers private wealth management services to the CEOs and management teams of companies it acquires, according to its website. It does not offer portfolio management services and has no reported AUM, according to its Form ADV.

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M&A Clearinghouses/custodians TD Ameritrade Charles Schwab RIAs