Despite the shock to the markets and the economy over the month of March, Peter Mallouk, the founder and CEO of the nation’s largest independent RIA, Creative Planning, said his firm brought in $500 million in net new assets.
“It’s been our best month in a long time,” he said. “We are proud of our team. Clients are staying with us, moving more money to us. And there was a big uptick in referrals from existing clients.”
The S&P 500 was down over 12% during the month and ended the quarter down 20%, as the economy was plunged into a deep freeze to combat the coronavirus pandemic. Volatility spiked across all asset classes, leaving investors disoriented. It’s that kind of stomach-churning financial scare that prompts a lot of clients to pull the trigger on hiring or changing advisors, a move they may have been considering but now feel is urgent.
“People see what our clients are getting,” he said, referencing an existing client in Florida who got his father to bring a multimillion-dollar account to Creative Planning. “They talk. It’s being proactive in communication, taking actions on the portfolio, implementing the strategy that was promised. All of those things you talk about in a down market. All of a sudden, it’s no longer a drill.”
“This is the first time a whole generation has to judge their financial advisor. I think they are. And when the dust clears, they are going to see a reshuffling of where the clients sit,” he said. “The separation happens here.”
Mallouk said there was a pattern to the inbound calls over the course of the month.
“There was that period early in the month when the market was collapsing," he said. "There was no promise of a vaccine. The Fed hadn’t stepped in yet. We probably saw the least new people coming to Creative Planning in that 10-day period. I can’t recall the last time that few people came over.
“The turning point was when the Fed came in. In most people’s minds, that got rid of the systemic risk. We saw the market go up 20%. We had some positive news about the coronavirus treatments.”
That’s when he started seeing people make the change, and the last two weeks of the month were among the busiest in the firm’s history, with many signing on to Creative Planning via remote videoconferencing with the firm's planners.
Creative Planning has more than 350 investment advisors in the firm across the country, serving almost 100,000 client accounts. They charge clients around 1% of assets under management, with certain breakpoints, so even with the new assets, the steep decline in the markets will still be a hit to revenue.
Mallouk has promised his staff that he will not let any of them go or cut any compensation—in fact, he said, he had just hired an additional 10 people over the past few weeks.
“We can withstand this for years," he said. "We came into this from a position of strength. If we make substantially less money, that’s fine.”
The market rout isn’t throwing off his plans to expand. Mallouk largely grew Creative Planning, based in Overland Park, Kan., organically, but over the past few years has pivoted to an acquisition strategy. There are an additional six firms in the pipeline now, he said, and he expects to close on many of those deals over the next month, even with the market turmoil.
He sold 18% of the company to private equity firm General Atlantic earlier this year to fund the expansion and says the investors understand the long-term goals and aren’t looking for a short-term liquidity event. They fully support his pledge to employees and the continued acquisitions, he said.
Being a buyer has given him a chance to look under the hood of hundreds of RIAs, and he’s confident most have the means to survive the current climate—up to a point.
“I don’t think there is an RIA in the country that can’t survive this for a couple of quarters,” he said. “That’s not a problem. But three or four quarters of this? You will see firms shut down. Most of them cannot survive markets being down 30% for a year. Everyone is around for a couple of quarters. After that, it’s off a cliff.”