Creative Planning, the Kansas City, Kan.–based independent registered investment advisor run by CEO Peter Mallouk, was once again a top RIA acquirer this year, with most recent deals including Dashboard Wealth Advisors, a firm owned by a childhood friend of Mallouk’s, and Lockton’s retirement plan business.
The firm also recently surpassed $100 billion in assets under management, a big milestone for Mallouk, who says he now considers his firm a national RIA, with a scalable offering for its clients, which are now in all 50 states and 65 countries.
Peter Mallouk recently chatted with WealthManagement.com about Creative Planning’s big bet on the 401(k) space, his acquisition strategy going forward and taking on Goldman Sachs as a custody partner.
The following interview has been edited for length and clarity.
WealthManagement.com: You recently acquired Lockton’s retirement plan business, adding $110 billion to Creative Planning’s assets once the deal closes. What does that acquisition mean for Creative Planning?
Peter Mallouk: It has the opportunity to be transformational for us, in that we were already pretty strong in the retirement plan space, but their typical plans are $100 million and up. It opened up a new space for us where we had a lot of opportunities, but we weren't best in class, so it solved that problem by bringing an immense amount of talent overnight. Second, we now have a partnership with Lockton and to the extent our clients need services we can't provide, they're able to help and vice versa.
And then, obviously, we're the wealth management business. This gives us an opportunity to provide wealth management services to what may be around 1 million participants in 401(k) plans all over the country, or more.
WM: This is a big bet on the 401(k) business. Why are you taking such a big bet on that market?
PM: We have actually been approached by two different top 10 or 12 401(k) providers in the country, and I had close to 0% interest in that. This is really unique because I know Lockton. They started in our backyard. I knew the CEO. I know the chairman. I know the former chairman. Many of their executives and producers are clients of Creative Planning because we're both in the same city, so I really had this comfort level when this dialogue began of, "Hey, I know who I'm dealing with here. I know what I'm getting. I know what they're capable of." And that's really what made this appealing, whereas when I looked at the other firms that had approached us, I do not have the same degree of confidence and was not willing to make that kind of investment.
WM: A couple of years ago, you went from doing very little in the acquisition space to being one of the top acquirers now. How is that going? And how do you integrate these firms in a smooth and efficient way?
PM: Our goal is for acquisitions to be just complementary to what we're already doing. So, we'd like it to be between 10% and 28% of what Creative Planning is doing on its own.
And for us, integration is pretty easy because we're already everywhere. So, instead of buying a firm and saying, "Hey, we're now going to be in Oklahoma” or “We're now going to be in Atlanta," we're able to take that company and say, "Here is our office in Atlanta," and it's a cultural fit. We're also a total integration firm. It's very different than most acquirers.
We're very selective. So, we might have had 200 looks in 2021, maybe 300 looks, and we will maybe have done a dozen acquisitions. And so, for us, we really don't want to mess with what's working here at Creative Planning. So, it has to be a culture fit, a philosophical fit, a willingness to totally integrate and so it really becomes no different than our hiring. This year, independent of acquisitions, we'll hire a couple hundred people. And so, for us, it's just trying to maintain those same standards we have with a new hire, with an acquisition.
WM: What does the typical target acquisition look like for Creative Planning?
PM: The typical firm we want is a firm that is willing to totally integrate, so that's very different than most firms. You're talking everything from a brand change to changing technology on day one. And then we want a firm that's planning-led, or willing to be financial planning-led, a firm that shares our similar investment philosophy. If you've got a firm that has hedge funds as a primary part of its offering, that’s not going to fit in at Creative Planning.
And we will only buy completely independent firms. We won't buy a dually registered firm. You really get down to a very small group of firms that it even makes sense to have a conversation with.
WM: Competition is heating up in the RIA M&A space. How are you differentiating yourself out there in the marketplace when you're looking to buy a firm?
PM: There are maybe 10 big buyers, and if you look at them, if people want to retain their brand and just kind of keep doing what they're doing, I consider, for example, Focus Financial as the gold standard there. If you're looking at somebody who is dually registered and it's important for them to stay registered, there are only about three of the big buyers that will do that. If you're looking for the firm that wants to do partial integration but just share a brand and appear to be part of a national firm, there's a couple that will do that.
We really get down to, "I want to be integrated into a platform that has a process of best practices in place, and a process in place, and technology that I'm going to use to create certain solutions for my clients with a broader offering.” I don't think there are as many options as there appear to be, and I think when people are navigating, looking at a sale, I think that they quickly get to the place that's right for them.
WM: What is your acquisition strategy going forward?
PM: We have a lot of dry powder, and so if an opportunity presents itself, we can do whatever we need to do. It's not the typical private equity playbook where even the firm is leveraged to the hilt all of the time. This is something where, if something comes along that makes a lot of sense for us, that can be transformative, we have the ability to do it, but if it doesn't, we're fine doing what we're doing day in and day out.
WM: When you say you have a lot of dry powder, are you referring to capital from General Atlantic?
PM: No, we have not used any capital from General Atlantic to do any of our acquisitions. We have purchasing power just from our existing financial strength.
WM: You recently opened up equity to more employees. Any other changes planned for your ownership structure?
PM: I own over 80%, and today, we have about 100 team members as partners. We'll probably be expanding that to maybe 150 to 200 the next couple of months as our partnership window opens up in January/February.
WM: What made you decide to open it up to employees?
PM: I think we got to a point where we were able to have financial strength. This is an opportunity for people to participate in the growth of the firm going forward without having to participate early on, when it really required a lot of investment and more substantive risk.
WM: There’s a lot of change happening with the big custodians, in the wake of Schwab’s acquisition of TD Ameritrade. What are you seeing in the custodian market? Are you working with smaller niche custodians? Are you thinking about Goldman Sachs as a custody partner?
PM: We use TD Ameritrade, Schwab and Fidelity, and they're all impressive groups. We've added Goldman Sachs, and I think that the space is ripe for disruption and that there's going to be somebody that comes out of nowhere and becomes a formidable additional option. I don't know who that is yet, and we're not going to be the firm that experiments with the up and coming firm, but I'm sure there will be somebody that comes out of nowhere and is able to build something that provides another option. There's just been too much consolidation in the space.
WM: What was attractive to you about Goldman’s custody offering?
PM: We knew we were dealing with a big player on day one, and we want to have a diversity of options for our clients. So with Schwab acquiring TD Ameritrade, and essentially Scottrade, we went from four to two. This just takes us from four to three. And that was really the only reason; we want to have a third option that was really credible and strong. And this provided that for us.
WM: At one point, you said that once you get to $100 billion in assets, you think you'll have name recognition. You recently crossed $100 billion. Do you feel like you have that name recognition?
PM: No, I think I was completely wrong about that. I think if you walk out the door, and ask 100 people who Creative Planning is, somewhere between 99 and 100 will say, "I have no idea." We're a long, long way from getting there.
I do think we're a national firm. If somebody calls and they want to see somebody, there's somebody who probably lives in their city.
WM: Are you looking at other affiliation models? A lot of firms are launching these "supported independence models," for instance, where they help breakaways have a soft landing.
PM: I am 100% not interested in that. I'm not interested in having a solution that has our brand and our logo, and then someone leaves Merrill Lynch or another independent firm and uses that, but it's just their back office and they're running their own operation, basically doing what they want to do. I think it's dilutive to the brand and kind of insulting to the people that work at Creative Planning. I do agree it works as a business model, but it's just not a fit for us.
