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Peter Mallouk Tells ‘The Mooch’ Why Private Equity Loves RIAs

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RIA Creative Planning, with about $50 billion in assets under management, has been on a buying spree in recent months, adding firms including Thun Financial Advisors, retirement plan provider America’s Best 401k and Starfire Investment Advisers.

Here are four main takeaways from an online conversation that Peter Mallouk, president and CEO of Creative Planning, had Tuesday with Anthony Scaramucci, founder and managing partner of SkyBridge Capital.

Scaramucci, dubbed “the Mooch,” is the founder and chairman of the SALT thought leadership forum — SALT is short for SkyBridge Alternatives — who did a brief stint as White House communications director for President Donald Trump.

1. RIAs will remain appealing targets for private equity.

Creative Planning is an example of the appeal that independent RIAs present to private equity firms. After all, global growth equity firm General Atlantic recently bought a minority stake in it.

“Money is moving from the brokerage world to the independent world,” and “we’re seeing market share move over to the independent world every year,” Mallouk said.

And there are no signs showing the trend won’t continue, he said. One factor is that “there really hasn’t been a spectacular failure in this space” yet, he noted.

However, “the reality is, I think if this coronavirus crisis had stayed at March levels for nine months, we would have seen several spectacular blowups in the RIA space from overleveraged, larger RIAs $10 billion and up,” he said.

If that happened, “I think the math of the space might have changed and the attractiveness of it might have changed,” he noted.

2. Use the pandemic to strengthen relationships.

When the pandemic started, despite not knowing how long it would last, Mallouk said he decided he was not cutting anybody’s pay and he communicated that to them. That allowed his advisors to focus on clients and not have to worry about other issues, he explained.

This is also an “opportunity to show your clients ‘hey I told you this is what we were going to do with your portfolio when the market’s down, and we’re doing it.’”

The firm helped clients figure out the Coronavirus Aid, Relief and Economic Security (CARES) Act and Paycheck Protection Program loans, he noted, adding: “We did everything we could to be there for our clients … For us, from the very beginning to today, it’s been offense, offense, offense instead of just trying to hold the place together.”

3. There’s no yield without risk.

“I just keep getting this question from clients now: ‘How do I get more yield without taking additional risk?’” Mallouk noted.

But that “simply does not exist,” he said, adding those who think otherwise are “someday going to pay a price.”

His advice: Start “accepting you’re not going to get more yield without taking more risk.”

4. The U.S. debt problem can be solved.

“Deficit spending is a real problem” and the U.S Federal Reserve “has gotten away with it” over the past few years, mainly because of the “explosive growth” created by the “tech revolution that allowed us to carry this huge debt,” Mallouk said.

Now, however, “we’re running out of bullets,” he said, adding: “There’s no way you can dance around it. And the problem with our system is a democracy doesn’t lend itself to fixing a problem like this.”

But it is a “solvable problem” if the president and Congress can muster “some modicum of political courage” on both sides of the aisle, combining “some common-sense tax rates with Social Security reform and spending [cuts] across the board that really makes both parties mad,” he said.

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