Peter Mallouk is the founder and president of $45 billion AUM Creative Planning, one of the nation's largest independent registered investment advisory firms. He spoke to WealthManagement.com at the end of a busy few weeks, helping clients navigate government loans and volatile markets, helping his employees' slow emergence from the coronavirus lockdown and helping his Kansas City community in response to the social unrest sweeping the nation with calls for racial equality.
WealthManagement.com: What is your take on PPP loans?
Peter Mallouk: I think the program per se is a great, great program. It was intended to keep businesses going. A lot of our clients needed those loans and it helps them. I also think our unemployment system simply wasn’t built to handle so many people heading there at once. This was a great way to keep people out of the unemployment system but also keep the businesses in place for them to return to when the virus was under control. The businesses would be there for people to return to. And I think it did what it was intended to do: a great job for the general public. Many businesses like restaurants, travel agencies, dentists and doctors really needed it. We did not apply for a loan because we didn't need one.
WM: Why did you not need a PPP loan?
PM: Well, I think the idea is, if your business couldn't continue to operate, if you were going to have to lay people off significantly and you're going to have a hard time surviving, I think that's what the loan was for. Even before that program came out, we already publicly committed to our employees. We had said we would not let anybody go and we would not cut their compensation regardless of how long the pandemic went on. We had emergency reserves in place. I think like most individuals do and most businesses do, we were not anticipating the coronavirus, but anticipating that there's always something that can derail the economy for a long period of time. And if you want to keep your team in place and continue to be strong that's where you just have on the side reserves in place to enable you to get through times like that. And then we did, we always had, we always have, since the very beginning, we've always maintained, a level of security to get through rough times. In my career we had (the financial crisis of) 2008 and (the terrorist attacks of) 09/11, these things happen and we got through those just fine. I never laid off anybody due to those crises either.
WM: Where does the reserve stand at the moment?
PM: We have enough to get through a couple of years regardless of the market with our firm.
WM: So it sounds like the decision not to take a PPP loan was primarily a financial one?
PM: Yeah. There was no reason to take one at all. It would have violated the principles of what that was about.
WM: I'm sure you've seen other RIAs take out PPP loans. We've been writing about it.
PM: My take on it is it falls into three camps. One camp, there are places that legitimately needed the loans to survive without having mass layoffs. Then the other places that just didn't do what we tell clients to do. Which is to have an emergency reserve. As we tell our clients, don't invest in stocks until you have enough money to get you through a real problem. To me that's a normal part of planning and wealth management. Three, there were people that didn't need them and took advantage of it. So I think it falls into those three categories.
WM: After the riots in Minneapolis, you chose to tell the world how you felt on the side of one of your buildings, right?
PM: Yeah, we did. We did. We're in a community near Kansas City and that community has had a little bit of everything. We were the first city in the country to send the kids home from school. Kansas was the first state in the country to do that. And so we had been dealing with the pandemic for quite some time and then we started to see the beginning happening in Minneapolis. And we live in a diverse city that was quarantined before. We sent kids home before anybody else. And I think that it was wearing on the town. That was just a nice way of telling our team as they come into work and the people that drive by our building, which is on a major thoroughfare that we're all living together and to stay strong. Everyone could use even a small sign of relief.
WM: How can the industry tackle social justice from within?
PM: I think that in a couple of ways. One is to make a better effort at hiring and recruiting. When we just look at the applicants that apply, we're never going to get where we need to be in terms of representation with that. So we started to move toward going out of our way to go to schools where we're more likely to get a more diverse group of people, anyone in the middle Kansas suburbs. We're going to make a bigger effort to do that. So I think all of us in the industry can do that. I think second, all of us should support our community in one way or another. Today we announced the donation of $12 million to the community that will go to basic needs, like food distribution in the inner city to help with food insecurity, to help with financial literacy programs and to help with education, scholarships and mentorships. And I think that the wealth management industry, we always say: create a plan for working with one end of the population that has wealth to manage. And our giving from the beginning has been targeted towards the part of the population that are not our clients, the people that need help.
WM: The CFP and other organizations put out statements soon after the riots. What needs to happen next?
PM: I think what we need to do is to look at organizations, whether it's Creative Planning or any other one, and a year from now say, well, it happened, you know, what? It looks like an opportunity path. I feel like there's going to be more accountability. And then the street and the people are going to demand that accountability. And they think you're going to see this gift. People and firms themselves and all other key organizations need to make a bigger effort to become more diverse.
WM: How many minority advisors or staff or clients have you been able to bring on?
PM: As for clients, I don't have a way in our database to know what we have. I do know that at our firm, we are underrepresented. You know, people of color are a few percentage points of the people at Creative Planning and we're making a big effort to try to double that in the next 12 months.
WM: What’s your next step?
PM: We've announced our plans for the community due to this recent crisis. In response to the coronavirus, we donated a million dollars to Harvesters to deliver meals to kids that were relying on the school system. We were there for our clients through the crisis. We were there for our employees with guaranteed employment and salaries. And I'm frankly hoping that with all of this, hopefully we can have a normal third or fourth quarter and just get back to the business of everyday reviews with clients and things like that while we continue to do our part in the community. I hope that we don't have another crisis unfold, but 2020 is still young. So we don’t know what's going to happen.
WM: What is your plan to return to your offices? Have you formulated one?
PM: We’ve been working from home. We sent people home mid-March and we're still working from home. On Monday, we start a phased return to work where we'll have some people come back on Monday, we'll have the cafe reopen with a limited menu, but we'll still have most of our common areas shut down. And then we’ll start to roll out step by step from there, with people that are at risk or living with people at risk hopefully just staying home until this is fully behind us.
This interview has been edited for length and clarity.