Creative Planning, a $45 billion-plus RIA based in Overland, Kansas, is on a roll, announcing its fourth acquisition this year, and likely to announce another one or two before the year-end, according to CEO Peter Mallouk.
Its latest acquisition announcement, for Hogan Financial Management, a Milwaukee-based RIA with approximately $300 million in AUM, comes just two weeks after its last acquisition announcement. Terms of the latest deal were not disclosed but like all previous purchases, it is self-financed, and the seller approached Creative Planning rather than the other way around.
Mallouk says he’s been fielding calls from dozens of firms looking to be acquired for the purposes of succession and/or as a result of competitive pressures at a time when RIA valuations are strong. (The firm does not have an M&A team.)
Smaller RIAs are experiencing “serious competitive pressures” from national RIAs firms and from custodians as well, says Mallouk, adding that their margins are being squeezed by costs for technology, compliance and personnel.
RIA relationships with their custodians are also coming under pressure, according to Mallouk. “Will they be paying for custodian services in two years?” Or will they receive reduced services?
Following its recent acquisition of TD Ameritrade, Schwab is moving custodial services for RIAs with less than $200 million in AUM from dedicated teams to a call center, according to RIABiz. Asked to respond to the RIABiz report, a Schwab spokesman said, “Many changes have recently helped evolve our service structure” including changes “to better service smaller advisors,” who have been served by a “team-based call center for years.”
Creative Planning acquired three firms earlier this year: The Johnston Group, an RIA in Minneapolis, with $500 million in AUM in late February; America’s Best 401k, a retirement plan administrator in September; and OptiFour Integrated Wealth Management, a $400 million RIA based in Reston, Virginia, which was announced in November.
Mallouk expects the buying spree will continue because of the growing number of firms looking to sell so long as the firms looking for a new owner — Creative Planning acquires 100% of a firms equity — are a good match.
He said Creative Planning, which typically serves clients with $1 million or more in assets, looks for three traits in an RIA firm:
- Similar investment philosophy. Creative Planning manages each account individually, focusing on low-cost passive investments, primarily ETFs, mixed with some individual stocks and bonds and alternatives. It doesn’t use model portfolios.
- Focus on financial planning or a willingness to adopt that approach
- Personal connection with the firm’s owner. “The owner’s DNA will be all over a firm whether they stay three or 10 years,” says Mallouk.
“We don’t need to do another deal [but] as long as they’re a fit … we’re here,” said Mallouk.
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