No Fidelity RIA referrals for Goldman PFM after Creative Planning deal

After it agreed to be acquired by Creative Planning, Goldman Sachs Personal Financial Management quietly dropped out of the RIA referral program run by Fidelity Investments.

None of the three firms answered questions about the disappearance of Goldman PFM from a website listing the registered investment advisory firms participating in Fidelity's referral program, Fidelity Wealth Advisor Solutions, after the August announcement that the former United Capital unit and its $29 billion in client assets would fold into Creative this quarter. The deal started a recruiting and legal fight as Creative seeks to retain as many advisory practices as possible from pouncing competitors and Goldman enforces its nonsolicitation agreements.

The retail wealth management and custodial arms of Fidelity and rival Charles Schwab run two of the industry's largest referral networks, which have been shrinking in recent years in terms of the number of participating RIAs, even as the firms dole out tens of thousands of leads a year. The firms' financial consultants point clients whose complex needs go beyond their capacity toward member RIAs that try to convert the leads into customers. Many of the largest RIAs are members of both Schwab and Fidelity's programs, while smaller firms often fall below the requirements for consideration. In researching over the past several months for a cover story about the referral programs for the annual RIA Leaders study, Financial Planning observed that the roughly 70 RIAs listed on Fidelity's website no longer included Goldman PFM after the deal.

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Representatives for Fidelity declined to comment, citing a policy against discussing the status of individual firms in the referral program. Creative Planning CEO Peter Mallouk also declined to comment, saying in an email that he was unable to discuss any aspect of the Goldman PFM deal ahead of the expected close in the fourth quarter. Representatives for Goldman Sachs didn't respond to emails seeking comment.

It's not clear whether there's any connection between the deal and Goldman PFM leaving Fidelity's referral program, according to Mike Watson, a senior vice president and head of RIA custody for Axos Advisor Services. Prior to joining that firm — a smaller custodian competitor of Schwab and Fidelity once known as the Trust Company of America — Watson had worked on the AdvisorDirect RIA referral program as the director of institutional sales at TD Ameritrade.

Much of Creative's early growth prior to an ongoing acquisition binge that's built the firm's size up to $245 billion in client assets under the minority backing of private equity firm General Atlantic stemmed from AdvisorDirect referrals, Watson noted. Mallouk's team may be wary of one aspect of Fidelity's program that differs from Schwab in that "Fidelity keeps a portion where they manage certain sleeves" of the customer's account, Watson said. Creative had been a standout participant since 2009 in AdvisorDirect, where the firm was "getting the lion's share of leads because they had the strongest value proposition with the retail consumer," he recalled.

"Consumers were saying, 'You know, I probably need a financial professional to manage my wealth,'" Watson said in an interview. "Along comes Creative, which was willing to do this at a lower cost than other firms that participated in the program. They earned every bit of it. They did a really great job of providing exceptional service. They were converting billions and billions of dollars a year in referral program assets."

The give-and-take of losing new referrals from Fidelity while retaining the existing stream from Schwab under Creative likely is playing only a minor role in decisions made by Goldman PFM advisors to stay through the transition or go to new firms, according to recruiter Rick Rummage, CEO of the The Rummage Group. The Goldman PFM advisors are fielding calls from recruiters suggesting there may be better opportunities for them elsewhere, and they're set to lose "a business card that says, 'Goldman Sachs,'" which is "like the pinnacle" in the industry, he said.

"You're dealing with some big personalities," Rummage said. "Most of them will only tolerate so much. That's why you see so much movement whenever there's a big change at a company."

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The referral programs represent one area of shifts across the industry. Goldman PFM listed AdvisorDirect alongside the Schwab and Fidelity referral programs in its latest Form ADV brochure filing with the Securities and Exchange Commission last March. Out of a group of more than a half dozen of the largest RIAs, including Captrust, Mariner Wealth Advisors, Wealth Enhancement Group and Cerity Partners, whose disclosures FP reviewed for the story, only Creative Planning is part of the Schwab program but not a member of Fidelity's referral network.       

Schwab slashed the number of participating RIAs by more than 100 firms when it consolidated AdvisorDirect into its referral program, the Schwab Advisor Network, the year after acquiring TD in 2020. Participants have fallen further since then to 152, according to Schwab. Industry consolidation has reduced the participants in Fidelity's program to the 70 listed today from as many as 150 roughly two decades ago and 84 in 2020.

The RIAs receiving the referrals from Fidelity pay a substantial fee of 10 basis points on fixed-income assets, 25 bps on other referred holdings, an annual flat payment of $50,000 and a termination fee of 75 bps on any assets moved to other custodians, according to disclosures on the company's website and the Form ADV brochures of Goldman PFM and other members. Those participating RIAs also point out that they invest a lot of time and resources into converting the leads into customers of the firm.

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Many other RIAs often express frustration that none of those leads flow to them, however.

Perhaps the most systematic condemnation of Schwab and Fidelity's referrals came in the form of the lawsuit filed against Creative Planning, Mallouk, Charles Schwab, TD Ameritrade, Fidelity Investments and private equity firm General Atlantic in May 2022 in Chicago federal court by Stephen A. Greco of Spotlight Asset Group. Greco left Creative Planning in 2017 to start the Oakbrook Terrace, Illinois-based RIA. 

"The RIA Industry is facing a critical reckoning as defendants' collusive RIA services scheme is accelerating market concentration and power in defendants and a handful of participating RIAs who unapologetically violate the fundamental purpose of 'investor protection' at the core of federal securities laws governing the RIA industry," the lawsuit stated. "Defendants are horizontal competitors who consciously combine, associate together, conspire and agree to carry out the RIA services scheme for the shared common purpose of dominating the RIA Industry, allocating advisory clients and services sold to them, collusively circumventing SEC compliance and federal laws and covertly engaging in unfair and deceptive concerted actions designed to achieve inflated sales, pricing, and profits that would otherwise be unattainable but for their collusive agreements, combinations and concerted action in furtherance of the RIA services scheme." 

The lawsuit against Creative and the custodial giants may stand little likelihood of success. In a joint motion filed last September, the defendants described the allegations as "utterly frivolous" and an "imagined conspiracy."

"In their 199-page complaint, plaintiffs Stephen Greco and Spotlight Asset Group, a small, regional registered investment advisor, blame their lack of success, in an admittedly growing industry, on a massive conspiracy of not only thirteen separate defendants — with differing roles in the marketplace — but also various, unidentified co-conspirators," according to the filing. "Plaintiffs' fifteen separate causes of action, however, make no sense and are entirely unsupportable. The centerpiece of plaintiffs' complaint — that defendants 'conspired' to carry out a so-called 'RIA services scheme' and a 'silencing and retaliation scheme' — fails because plaintiffs allege no plausible facts to support the existence of an agreement among the defendants. Plaintiffs provide no evidence of collusion, either directly through 'smoking gun' evidence, or indirectly, through facts from which a conspiracy could be inferred."