Ep. 15 - Peter Mallouk, President and CEO, Creative Planning

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Wealth Management v2.0: The AdviceTech Revolution, Episode 15

with Peter Mallouk, President and CEO, Creative Planning

PODCAST TRANSCRIPT

Gavin Spitzner (President, Wealth Consulting Partners, LLC):

Welcome to the "Wealth Management v2.0: The AdviceTech Revolution" podcast, where we are focused on the business of the business, the business of advice. And specifically, we study and celebrate firms that are leveraging the combination of technology and humanity to deliver better advice to more people and better outcomes for more people through that combination. I'm joined today by Peter Mallouk, president and CEO of Creative Planning, who has steered the ship on its path towards national prominence and a $100 billion in AUM. Peter is a student of the industry, which should come as no given he graduated from University of Kansas with four majors. I actually cycled through four majors at Ohio State Peter, but ended up graduating with just one. So I need to hear more about that, as well as a law degree and an MBA. So we want to hear all about that and your journey, Peter, but let's start where I start with everyone. Tell us your origin story, as well as Creative Planning’s. Peter Mallouk, welcome.

Peter Mallouk (President and CEO, Creative Planning): 

And it's good to be with you, Gavin. I think you do a great job with these podcasts and with your weekly newsletter as well. So it's fun to talk to you. You know, the origin story is pretty well-known. So I'll keep it super brief…I started as an estate attorney after meandering my way a couple of years trying to figure out what I was going to do when I got out of law school and business school…and wound up working with a lot of advisors, I learned a lot from some pretty amazing financial advisors. I learned a lot about what not to do from some other advisors and really wanted to have a firm that did a lot of things in one place for the client and that tailored portfolios and was not duly registered.

And that led to Creative Planning. And what we were doing back then was really unique. I remember reading industry journals about, hey, if you give away a financial plan, you're diminishing the plan, you shouldn't do that. We were really criticized by a lot of people for that. That's become the norm. We were passive in the public markets from the beginning. We favored certain alternatives from the beginning and we were bringing everything in-house, which there are a couple of competitors that have started to do that a couple of years ago, I think in response to what clients are demanding, but we've been doing this now for 17 years this way. And so I think that was just really well received in the marketplace back then, and then marketplace continues to move in that direction. And so we've been the recipient of that. That's a little part of why I think we are where we are today. There's a lot of other pieces to that puzzle, but part of it was just doing this a full decade before really even trying to do it with any scale at all.

Gavin: Right. And you make a big deal about the comprehensive set of services you provide going well beyond investment management, financial planning, but tax planning, preparation, estate planning, insurance trust. So you really are a one-stop shop for your clients. To what degree do you see that.. how did your clients bring you there? Obviously, that's a bit of a differentiator. Others are trying through different means to cobble together those sets of capabilities, but kind of talk about what led you there. And based on that, the types of clients you serve.

Peter: Well, part was just an observation in the marketplace early on and part is from our clients. So I divide it in two. So in the beginning, when I was doing financial planning for other advisors' clients, or constructing portfolios for advisors' clients, or preparing wills and trusts for other advisors' clients as an estate and tax attorney, I started to see…it took six years for the light bulb to go off that, "Hey, clients would like this coordinated for them." Right? So that was just that observation. Now, all the things that have been added since then we've learned from our clients, right? And the clients want to get their business valued, and it keeps coming up over and over and over again, maybe we should have this service for them. A large segment of our clients have children with special needs. So it makes sense to have planning and legal work with specialists that are prepared around that.

So there's about, 10, 15 things that we do that we learned from our clients…what it is they wanted and how do we create it? How do we do it for them? But the core, I mean, that was there, January 1, 2004, right at the beginning, we were doing those core elements of being a trustee of doing the legal, doing the tax, doing the planning, doing the investments. There's 10, 15 other things that we do today that are a response to learning from our clients what they need. And I think our scale has really allowed us to specialize. If there's something that only 1% of your clients need, we can't do it if you're 20, 30, 40 billion, but today we can do that. We could go employ a couple of people full-time to do that one little niche within a niche within a niche. And so it's really allowed us to stay in front of the service offering for our clients.

Gavin: That's great. Obviously, that approach has served you well at $100 billion. And we'll talk about the additional 100-plus in retirement side with Lockton and other things you already had been doing to get to $100 billion. So if I have this, right, I think you were under $20 billion, maybe five years ago, is that possible?

Peter: I don't think you have to go that far back. Yeah.

Gavin: It's insane. Some combination, like some of your peers, of inorganic, but we'll talk about that. But then also, obviously, a lot of organic growth, which is, of course, the holy grail. Let's talk about organic growth. And maybe tie that into what you measure, what are your key performance metrics around organic growth, and what do you see as the different ways that you're driving that within your business?

Peter: Well, I think that what's in common with a lot of large firms is there are some organic and inorganic. I think what's different is the overwhelming majority of the revenue and the assets at Creative Planning with the private wealth side are organic. And I think that's really, really rare among the large, wealth management firms. And, in terms of what we're measuring is we're basically saying, what is our client retention and what are referrals from our clients? To me, that's what tells me, are the clients happy or not right? And so if you can really overwhelm the clients with value, you can convert a client to an advocate. And if you can convert a client to an advocate, then you can organically grow. And I think there's a lot of math going on in industry now.

PE firm comes in, buys the majority stake in an RIA or buys a minority with a lot of preferred rights and a lot of controls. Goes in, buys a bunch of stuff, puts it together and sells it in three years. That's the normal deal in the private wealth management industry today. An organic has kind of an aside, it slows things down. You know, it's not what everyone is measuring. They're trying to get the revenues, double as quick as they can, so they can flip the thing to the next PE firm. I'm focused on the very long run. Like, how do I just do so much for the client that they're staying not three years from now for a transaction, but decades? And how can I really encourage them to be so happy that they're willing to talk to others about why they should come to Creative Planning?

And I think that one of the few things I think that is unique at Creative is the number of clients that are willing to do that, right? And so for me, what I'm always looking at is what else can I do for that client? What else can I do to give them something faster than they can get somewhere else, or better than somewhere else, or at a better price than somewhere else so that they feel like they have a real partner? And that's when they'll begin to advocate, right? And so I think that's been in my thought, and I know the thought of all the wealth managers, and attorneys, and CPAs, everyone that comes to work at Creative Planning from the beginning to now is that really long game and really focusing on that. And that's really led to organic growth that continues to accelerate. And I think that what organic growth lets you do is it lets you have a core culture, right? You have to have that strong tree trunk and then you can go add branches to the tree. But if your whole thing is just cobbled together and if 80% of what you have was acquired, it's like having a tree with branches taped on. It’s not the same thing.

Gavin: And not deep rooted, necessarily.

Peter: Yeah. And so to me, I look at our story as a little different just in that regard.

Gavin: So with that said, on the inorganic side, you haven't been sitting on the sidelines. You also partnered up with General Atlantic a year and a half, two years ago. Talk about that. What that's meant for you

Peter: I divide them into two things. So we had done some acquisitions before General Atlantic, and they have been a great partner. I mean, they own, in the teens of Creative Planning and they've been very supportive, but they've never injected new money in to do acquisitions or anything like that. That was just a simple transaction and done. And they've been a great, hopefully, evergreen partner for us. Now in terms of acquisitions, they're an important part of what we're doing. We're desperate for talent, right? So today at Creative Planning, there are over 100 job openings I shared with the firm this morning. A big slew of them across everything that we do. We're having a hard time keeping up with clients' demand and we want to be able to meet that demand. And what's great about an acquisition is if you can find like-minded individuals, particularly where you already have a team, so they can fold into the culture and they can really integrate into the way that you do things, then you can grow even faster because you've got more talented people.

And we've done that in a lot of different cities, whether it's Cincinnati or Indianapolis or Atlanta, where we already have a team. And so we're not just saying, "Hey, we're acquiring this and now you're our team here." I don't think that's good for anybody. If you do that, you wind up with 30 markets with 30 firms that are doing 30 different things and sharing your name. And no one really knows each other or feels a part of the same thing and they're really not integrated. And for us, integration is a key element of our acquisitions. I think it's one of those things that may attract some people to us and make some people go, "Hey, I'm going in another direction, Peter, because I don't want to change my software." I don't want to change the way we do A, B, C." And we require that, right? Whatever we think is the best thing for clients, we want people to be doing that, whether they're in Florida or New York or California.

And so when someone's looking at joining Creative, they know exactly what they're going to get. They know what the investment philosophy is. They know the planning process. They know the software they're going to use. There's no surprises because they have a culture to roll into. So for us, if we're in a market already and we can get people to join us there, I mean, that's a wonderful thing if they match up in a lot of ways with what we're already doing.

Gavin: Interesting. And it's funny because in a lot of firms, it's more, you can be whatever you wanted to be, and you can have your choice for this or that. You've taken a very intentional approach to, we've done the heavy lifting. We've done the hard work. We've built what we consider to be a world-class capability from the technology, how we support advisors, the client-facing pieces, the investment pieces. And this is what it is. And you don't have endless choices of this or that. So that takes a lot of work to create that, that infrastructure to scale that. And, obviously, you've invested it in some ways I would think ahead of where you're going to be so that you're not overwhelming the system as you've grown. Can you speak about that in terms of that intentional approach to building out a really strong infrastructure that does scale?

Peter: Yeah. So first, I think that there are a lot of great options out there. Like, every now and then someone calls me and go, "Peter, I want to keep my brand, but I don't want to do HR." And I say, call Focus, right? I think Focus is amazing at that. So they're the right place for you, or they say, hey, I want to share a brand, but I want to continue to use my own software and trade my own way. Well, there's a lot of companies that do that I think are in the top 10. We're very focused on the way that we do things. And really, we're really constantly trying to refine how do we make this better for the end client? And then we want that to ripple through every advisor being able to implement that best practice for the end client.

In terms of staying ahead of it, I mean, we've always.. a typical year we're growing about 30% to 80% would be normal for us, but we've never been able to keep ahead of it. So I can't say that with a straight face, or someone's going to immediately run down the hall and throw something at me. We are constantly strained. We are always hiring. We've never not been hiring. It didn't matter if it was the pandemic or '08/'09, the hiring sign has always been up. We'll probably end this year outside of acquisitions having hired a person every business day. We have struggled to keep the bar high and to stay in front of the demand. I mean, there's just no question about it. But we know where we're going and we are constantly moving or trying to stay several steps ahead, and it's been a little bit of a struggle.

Gavin: Absolutely. Yeah. It's easier said than done for sure. And you can have the capital and the framework, but executing has always... How about...let's turn that a little bit to the technology side. And we don't need to get deep into the weeds, but at your level, as you think about the client experience, you're trying to deliver the consistency of that across the ever-expanding footprint. How has that influenced and informed your technology strategy, your technology build, and a little bit maybe on how that's evolved and where do you see that going to deliver the best possible advisor experience to help them do their best work for their clients, and then ultimately, a great client experience?

Peter: I mean, when we look at technology, we're basically saying, how do we make something faster, how do we lower the error rate, and how do we make it as easy as possible on the team to use and the client to understand, right? And for most of our solutions, that means we have to build something from scratch. So whether it's the way we onboard a client, the way we use our CRM, our financial planning software, we are grading those things in-house. We're saying, what do we want it to look like when we're investing the money and the talent into making those things happen. And then when we do have to use a third-party resource, we often have to work with their team to tailor it to the volume that we have to really be able to accommodate what we're doing. And so I think there's just not a lot of off-the-shelf stuff. And I think for very large RIAs, and I think that where we're having to create some of it in-house, I think that will give us a little bit of a competitive advantage as we start. Every quarter, it gets a little bit better here in terms of meeting those goals, but it's requiring a very, very heavy investment that really wasn't possible for us to do five years ago. And now it's just a normal course of doing business.

Gavin: Absolutely. In our remaining minutes, let's zoom out a little bit. You know, scale gives you a lot of advantages and we need more scale in this business. The reality is the advisor ranks are fairly static going down in certain places. There's a whole heck of a lot of people out there. I was going to say clients, but they're not clients that need financial advice and have not traditionally had access to it. Wondering if you've got thoughts about how we broaden the scope of who we can help him. That's also maybe a little bit of a pivot. I know you're very active, both, well, you, Peter, and you, Creative Planning in the community bringing different assets and education and involvement to the community. So talk about helping more people get access to financial advice and then also involvement in the community.

Peter: Well, I think that if you look at financial education, I mean, first of all, it should be taught at school, right? How crazy that we don't have one half-credit hour of just financial education, and preferably another half-credit hour of just how to be reasonably successful in life outside of financial education?

Gavin: Some of it is there, but it's pretty crappy. My daughter, who's a pretty intelligent person, had personal finance and didn't realize that she had to file taxes this year.

Peter: Well, that's good that there has got some education around it. You know, what we've done at Creative Planning when we were going through the pandemic and all the social issues that came to the forefront at the same time, we've always done a lot of things for the communities that needed the most help. We've done that before all of this. So, going back 10 years, Creative Planning, we built a couple of food pantries from scratch and we stocked them, and we still go to one of them every Thanksgiving. We did this actually this past weekend where we went and purchased, assembled, and delivered 1,000, Thanksgiving meals for families. But those pantries are open year-round. We do a lot of other events with the part of the community that needs a break.

But when we were in this last crisis, we were really talking about what are we really good at and where can we have the most impact? And we said, well, we're in the financial education business, right? So why don't we...here we have some of the most talented people in the states and law and tax investments planning and so on. So we help in pathway education center in an area of the town that could really use it. And part of it does education for kids and teenagers, part of it does education for business owners, and part for adults. And they're all different programs, whether it's debt management, or how to scale a business, or how to understand basic economics. And I know that people here have found it incredibly rewarding to put together that curriculum to go teach it. And, we're hopefully to get this turned over to the community, have it not be a Creative Planning thing and then try to replicate it in other areas. So that's been a lot of fun for us because it's not just us spending money and time, but actually, using our expertise to make a difference. I think it's great here how quick everyone assembled to do that.

Gavin: I love it. And I saw that...I follow you on social media and it seems like you're either at some community events, something with employees in the community or at a concert, which I'm really jealous of. And we bought a little bit over of music. So I can't let you go without talking about music a little bit. So what are you listening to these days? What are maybe best concerts that you've been to either in your life or recently?

Peter: So, I'm all over the place. I owned music stores while I was in college, and I was a DJ when I was in college. I would do everything from fraternity parties to weddings. This is something that I went on right before college through past college. And I was in college for a long time. I was there for eight years. When you're sitting in a music store for eight hours, you're listening to eight or nine different, at the time, CDs. And so I heard everything there was to hear. So the pallet is wide, it's all over the place. But the best...I've been to a lot of concerts, man, I don't know if I could say the best, but the most energetic was the band called Bleachers, which is, you know, the guy from Fun, which maybe some of your viewers recognize. And he put on a show that it made me wish I was a lot younger than I am today. Very, very high energy show.

But it doesn't take a lot to please me in that category. My attitude is if thousands of people will pay money to come see you, you're probably pretty good and I'm probably going to be entertained. I just like live events in general. So I like going to sporting events and concerts. I think my Twitter feed can't take both of them, you know? So I tend not to show all the sporting events, which tend to be Kansas City-based. I live in Kansas City, I'm a Kansas City fan across everything. I don't think everyone wants to see the Royals, the Chiefs, and Sporting, all those teams all the time, whereas you could be where you're living or LA or wherever, and understand a concert maybe a little bit better, which is why I got to pick and choose what I throw out there.

Gavin: That makes a lot of sense. I did not know about the DJ. My brother, little older, he was a college DJ and stuck with it well afterwards. Still has...he's older than you. So he's got a vinyl collection, like 2,000 albums still.

Peter: Wow. So he held it like when it was cool, when it was totally not cool, and now it's super cool. And he held it through all of that. That's very impressive. A lot of people didn't have that stamina, the last that 20-year period where no one was interested.

Gavin: That is funny. Speaking of Kansas City and sports, Royals, where are we now, November? How many days till pitchers and catchers?

Peter: I mean, like, they start really early, like in February, but I mean, we're not going to see a game till early April, but we're very optimistic. Royals fans have to be optimistic, right? So we're very optimistic about what's coming this year, and the Chiefs seem to have turned it around too. So we're pretty excited about... We've got a lot to be thankful for here in Kansas City.

Gavin: So, Peter, you're a youngster but you're not gonna do this forever, what legacy do you wanna leave in the business?

Peter: You know, my dad is 86 and he just retired. And, I think, he only retired, he's a physician, because of the pandemic. Otherwise, he thought he had a good 5 years left in him. He probably did. And so, hopefully, I've got decades left, God willing, here.

When I think about legacy, I really tend to think more family, you know, you really think about raising kids that are well-adjusted and happy and contribute to society, are generous, all those things. You, really, that's your high-impact legacy, right, is your kids, your grandkids when you leave that behind. I really think about the legacy as the difference you make that ripples.

And when I think about Creative Planning, I think less of the institution, Creative Planning, and more about, you know, there's 50,000 clients, and we're impacting all of their legacies. That's one of the things that makes this profession just absolutely amazing. And we talked about the number one thing where a couple is worry about is money. And, to the extent, that you can help people accomplish their goals, help them pay for college, give them the feeling of confidence they can do something they wanna do, help them make a charitable impact. Do it in more tax-efficient ways. They can do even more for their kids or more for charity. I mean that's a real legacy, 50,000 families so you might have incremental or really big, big impact that can go a generation or two or more, and then I think of our team and their legacies.

And, I think, that, you know, one of things I love about Creative Planning is a lot of our challenge, you know, just has to come ready to go. You know, they just have to be amazing on day one, but there's a lot of people that we look for their traits. Their roles allow us to look for traits of success, and then we train them up. And we really get them to a level where their incomes are better than they ever were before. And their families are in a better position than they ever were before, and that is legacy too, you know, for them and their kids and so on and the community that we all of those folks live in. And then last, I would put Creative Planning's legacy, which is obviously still very important to me, but I look at it more as a derivative of everything else.

Gavin: Right. You do those other things well, you take care of your clients, you take care of your employees that's could be a natural outgrowth of all that, and I think that's a great way of looking at it. Peter, building on that, it's been somewhat mythical as far as those darn boomers just refuse to die. But whether it's a $30 trillion wealth transfer, or $40 trillion, or $10 trillion, who knows, there is this very prevalent issue in the industry as we think about legacy and that wealth transfer of not necessarily forming relationships with G2, you know, G3, and often even with a spouse, both members of a couple. So when there is death, when there is a divorce, whatever it is, there's not always that relationship that drives continuity of and helps advisors continue to help that family. Do you have any thoughts on what we, as an industry, could do a better job around that and any specific things that you're doing at Creative Planning?

Peter: I mean, the way most of the industry looks at it is, you know, "Hey, I'm a 40-year-old advisor, you know, whatever old advisor is, and I've got this client, and the client's gonna be with me for 20 years, and that's it. But, I think, if you're really thinking about serving the family, what your client cares about a lot is their legacy. You know, one of their goals, usually the goal is I need to be set for the rest of my life. Usually, the next goal is I would like my kids, or my nieces and nephews, or these charities to benefit from all the things that I've done, and so you have a responsibility really to help them figure this out. And if you do it properly, you're meeting the next generation. You really can't do it properly and not have some kind of planning that pulls down that next generation.

I do think that if you don't have a scale, it is difficult. I mean, like you, you've got 100 clients, and you do this, well, now you have 300 clients, right? And you're now added 200 clients that are really cost centers in a way, but it really needs to be, if you're really doing generational planning, and I think there are a lot of firms that do, they're just in the minority, you have to be dealing with multiple generations. If you do that then, of course, your company will do better over the long run too. I think, for a lot of people depends are you running a lifestyle practice or you trying to run something that in and of itself is gonna go on.

Gavin: Yeah. No, that's well said. And, this sort of goes hand in hand with that in terms of reaching out to a broader, more diverse set of clients than the industry typically has. As we look to attract those folks, it also means attracting and developing a more diverse set of advisors and members of the team to serve those people in, hopefully, what's overall, a more diverse set of clients, any thoughts or any things you've done at Creative Planning to help build out that diversity within your team and your advisor base.

Peter: Well, I mean, I think that's something that I think we're exceptional at, and I think that we were the first to really think about and to really implement. I think you see the industry trying to migrate some of it, trying to migrate that way as people figure out their positions. Are they gonna be a niche player? Are they gonna be an active manager? Are they gonna focus alternatives? Are they gonna be holistic? But, you see more and more firms kind of copying, you know, to the extent they can the Creative Planning model.

And, I think, that some of it you really need to scale. I mean, there are a lot of services we have today that we did not have when we were a $50 billion firm. And, I think, that you're really....to serve a client, you have to be able to help them navigate all these little nuances. So, you know, for example, if we have a family that has a special needs child, but we have people here that they know that inside and out, right? Well, it's hard to do if you're a $10 billion firm to be dedicating people to these little niches like that. And so I think that this one of the many benefits to the end clients of scale is the hyperspecialization that can come from it.

Gavin: Absolutely. So, speaking of scale, somebody asked me recently my thoughts on, are there any truly national RIAs at this point, and Creating Planning came up within that conversation. So, you recently hit that $100 billion, you have more, added over $100 billion plus in a way with the Lockton deal, we talked about that. So, at this point, do you consider yourself truly a national firm, what are your aspirations in that regard, and, maybe as part of that, what do you see as the ultimate Creative Planning unfair competitive advantage, what's that mode that you have and continue to dig?

Peter: So, I think, in terms of, are we a national RIA, I think, in the sense that you're asking it, the answer is no. Are we national in the sense that if a prospective client calls in that there is someone in their area that can meet with them and represent Creative Planning and help them? Yes. But, I think, what you mean is, is there awareness that you're a national RIA?

And if you walk out your front door in California, or New York, or Florida, or Texas, all of the states where you manage, you know, billions and billions of dollars. And you ask 100 people, "Who's Creative Planning?" 99 of them are gonna say, "I don't know." So, I think, the answer is no. We are not a national RIA in that sense.

Do we have aspirations? We definitely do. And, I think, we made a conscious decision a few years ago that, "Hey, look, you know, someone's going to do this. We think we're doing it the right way. We've been the fastest growing firm. I think the marketplace response the way that we're doing it organically. And, I think, that we really just said, "Do we want to do it?" And we made a decision to do it, we invested in the technology, the people, in the headquarters and everything to do it, to really invest in broadening the offering even more and deepening it even more, and raising national awareness.

So, we are going to become a national RIA, and I don't think we are there today. In terms of the mode, I don't think anyone really knows what's the mode is, and I'm not gonna share it. I think, it's an outside world, I think, there are some criteria. I think that people feel like they can capture, but, I think, there are some things that we're doing that I think make a very, very big difference, and we're gonna keep it that way as long as we can.

Gavin: The secret sauce. I love it, I appreciate that. In fact, let's end it there. Great way to sign off. Peter Mallouk, thank you so much for spending time with me today.

Peter: Hey, thanks Gavin.

END