Lawsuit's allegations call Carson Group's succession into question

One of the industry's messiest CEO changes in recent memory is testing whether a rapidly growing firm can maintain its influential position and trajectory under multiple kinds of pressure.

Last month, Omaha, Nebraska-based Carson Group unveiled Burt White as the successor CEO "selected" by founder Ron Carson, who stepped down to chairman of the firm. White assumed the top role at a company that has grown to $35.5 billion in client assets across 50,000 households about 40 years after Carson launched his business from a college dorm room. 

The April 9 handoff itself represented a giant transition for the eponymous firm, posing questions about how Carson Group would fare without its founder leading the company. Many firms have faced similar situations over the years in wealth management, which is confronting many succession challenges as an industry.

Nearly three weeks earlier, though, a lawsuit ensnared Carson and White's firm in disturbing allegations. Those allegations didn't receive public notice until the case moved into Omaha federal court on April 19 from the county district and was subsequently reported on by industry publication Financial Advisor IQ. The March 20 filing accused the firm of gender- and disability-based discrimination and retaliation based on its handling of an allegation that one of its employees sexually assaulted an attendee at a conference. The filing included Microsoft Teams chat screenshots [scroll down to the bottom of the story to read in full] in which White decried the firm's "founder-based culture" and a "swirl of discontent" there and said it has been "driven horribly."

The lawsuit's allegations "shook me to my core," said Carolyn Armitage, a veteran wealth management executive who's the founder of Carolyn Armitage Consulting. Ron Carson's legacy is "yet to be written, given the news that came to light and what was alleged about his decision" not to fire the alleged perpetrator of the 2022 assault, Armitage said. Since he's had such "a big presence in the industry" after building an "amazing machine" of a firm, it would be "challenging for anyone to step into his shoes," particularly so after this lawsuit, she said.

"Conferences are especially problematic, given the kind of free-range atmosphere," Armitage said in an interview. "They're not alone. I think it's more just the way things were handled. I'll say the quiet part out loud — this is the reason there aren't more women in financial services."

READ MORE: Ron Carson stepping down as CEO of Carson Group

The lawsuit

Carson Group has made neither White nor Carson available for interviews since the lawsuit came to light. Both execs have continued posting regularly on LinkedIn and X, formerly known as Twitter. The day FA-IQ's story on the lawsuit was published, Carson shared a video on X calling for "conscious capitalism" after viewing "the Amazon's devastation by oil industries"; White tweeted an Earth Day message with a photo of "sunrise at our mountain cabin in the  Appalachians." Carson is hosting its spring partner summit in Omaha this week. 

The company didn't respond to specific questions about the timing of the lawsuit being filed in county court and its announcement of White as its CEO. As the defendant in the case, Carson Group removed the claims from Douglas County "on federal question grounds" because the allegations include violations of Title VII of the Civil Rights Act and the Americans with Disabilities Act and breaches of state employment law in which the federal court has "supplemental" jurisdiction as well, according to the April 19 filing. In an unopposed motion, the company asked for and received an extension giving it until May 17 to reply to the complaint. 

"We are aware of the claims made against Carson Group by a former employee," spokeswoman Megan Belt said in an email. "While we are limited in our ability to comment on active litigation, we unequivocally dispute these allegations, and we will vigorously defend ourselves against these claims. The people of Carson Group are its most important asset, and the organization remains dedicated to ensuring their continued well-being and helping them to achieve their professional goals."

The plaintiff in the case, former Carson Group Chief Marketing Officer Mary Kate Gulick, referred Financial Planning's inquiry to her lawyers, who declined a request for an interview on the record.

Gulick had taken a leadership role organizing the conference, where she learned of the alleged assault, according to the lawsuit. She informed the company's chief of staff and discussed the incident with many of its highest-ranking executives, including White in September 2022, when he was the firm's chief strategy officer, the complaint stated. He expressed support for her "being such a pro at an org that isn't," according to the screenshots included in the lawsuit.

"White agreed with Mary Kate that Carson Group was not a professional organization and said he was 'so filled with confusion, rage, and unsettledness' that he could barely keep his camera on in meetings," the lawsuit said. "He described himself as 'fighting against all of what Carson [Group] is.' White described Carson Group having an 'absence of leadership,' a 'swirl of discontent,' and 'being driven horribly.' He criticized the 'founder-based culture,' said Carson Group's leadership had 'driven the car' into a 'metaphorical ditch' and insisted he did 'not want to be associated with so much [Carson Group] does and stands for.'"

Over time, however, Gulick became "deeply troubled by Carson Group's complete lack of concern about having an alleged sexual predator working there, where he was interacting and traveling with Carson Group's female employees," it said. Eventually, she found out that "the decision had been made by Ron Carson himself" to retain the alleged perpetrator of the assault, according to the lawsuit. Later, she agreed to a demotion and pay cut and began taking intermittent time off under the Family and Medical Leave Act, the document stated. In June 2023, White personally informed her that she was being terminated, according to the complaint.

"Carson Group executives subjected Mary Kate to repeated demeaning and insulting comments about her perceived inability or unwillingness to simply forget about the alleged sexual assault by Carson Group's employee, move on and get over it," the lawsuit stated. "Carson Group approved Mary Kate's application for intermittent FMLA, which it knew she required for a medical diagnosis of major depressive disorder and PTSD. Carson Group then fired Mary Kate because she didn't seem happy or like she was 'having fun.'"

READ MORE: Wealth management's problem with sexual harassment in the workplace

The firm's outlook

Gulick's six-count lawsuit seeks unspecified damages for her claims of violations of state employment and federal civil rights laws against discrimination and retaliation. The lawsuit contains no specific identifying information about the alleged perpetrator, the details of Carson Group's investigation or any more insight as to why the firm retained him.

Amid the puzzling and distressing allegations in the lawsuit, White did display some "empathy" for Gulick in their exchange on Teams, Armitage said. She came to know him when both worked for LPL Financial, where White was chief investment officer for 14 years and Carson had been a broker for 28 years before the firm's high-profile move to Cetera Financial Group in 2017.

"I have known him to be a very stand-up guy," Armitage said of White. "I do think he has a strong character and may be able to turn things around there."

Picking White as Carson's successor reflected the choice of "a fresh perspective" of an executive who joined the firm in April 2022 over those with a dozen or more years in their tenures with Carson Group — President Teri Shepherd and Divisional President of Partners Aaron Schaben — Armitage noted. In July 2019, the company appointed Shepherd and Schaben co-presidents, promotions it billed in a press release at the time as "the future vision for Carson's succession." Last year, Schaben took his current title. The announcement of White as Carson's successor as CEO included a statement from Shepherd.

"Anyone who has spent time with Burt knows the most important thing to him is an unwavering focus on serving our advisors at the highest level and ensuring they can add value to their clients in new ways," she said. "I look forward to continuing to build on all that we have accomplished so far."  

The litigation has stunted any momentum behind the firm's incoming CEO, who did give an interview the day after the succession announcement to Citywire. In it, White said the company had "built a value proposition around being like Ron," who is "a hall of fame advisor" based on the massive expansion of his wealth management and coaching firm.

LPL Financial

"When I joined a couple of years ago, we rightfully earned the phrase that we were a bit rigid and narrow and inflexible," White told Citywire. "We've recognized there are a lot of financial advisors that … might have their own way of looking at the world and that might be a little different than Ron. We want to open it up to everyone, not just those that want to follow the Ron model."

However, the firm has been enlarging in recent years despite any tension within its ranks. When Carson moved to Cetera seven years ago, its registered investment advisory firm had about $3 billion in client assets. Private equity firm Bain Capital invested in a 29% stake in the firm at a valuation of $1 billion four years later — when it had less than half the client assets of its present size. 

As a hybrid registered investment advisory firm that uses the Cetera Advisor Networks brokerage, Carson operates a W-2 employee channel called Carson Wealth, the Peak Insurance Agency and Carson Group Coaching. Some investment advisory representatives from other firms use Carson's RIA as well, according to the firm's latest disclosure.

"Therefore, you could receive advisory services from one individual acting as an investment adviser representative on behalf of two separate registered investment advisors," the firm's annual regulatory brochure read. 

READ MORE: Carson Group's Dani Fava on data strategy, AI bias and disconnecting from your desktop

It has a network of 150 advisory practices that have joined another channel called Carson Partners by selling minority stakes to the firm over the past dozen years, and the advisor coaching network launched in 1993, according to a profile of the firm's M&A activities in a recent report by research and consulting firm Datos Insights. Carson Group began acquiring majority stakes two years ago.

"With the transitions team and technology infrastructure already in place, it became clear that Carson could offer a full acquisition option and bring those firms under the Carson Wealth umbrella," Lisa Asher, a strategic advisor in Datos' wealth management practice, wrote in the report. "Looking to 2024, Carson plans to focus on the transitions of its most recent acquisitions ― seven in 2023, four of which were announced ― and turn its attention toward geographic expansion where it lacks a strong presence. The top consideration for prospective firms is cultural alignment followed by growth potential."

While the lawsuit "weighs on my mind," Asher wrote the report "before any of that came to light," she noted in an interview. Regardless, anointing a successor at this firm or another often proves difficult, "whether it's Ron Carson or pick another figure that we associate with a specific brand," Asher said.

"It's important for any leader to understand when to kind of remove themselves from the limelight so to speak," she said. "It's incumbent on all of them to really bring up the next generation in terms of introducing them, letting them have a moment to shine so that you're building that trust. It's a matter of preparation so that these things don't even become a surprise and then it's kind of business as usual."

SCROLL DOWN: Screenshots from the Microsoft Teams conversation included in the lawsuit

Omaha federal court filing