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Creative Planning CEO Mallouk: ‘Eye-Popping Moments’ Could Be Ahead for New Investors in 2022

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What You Need to Know

  • Though it will take awhile, RIA valuations will start to soften when rates rise or the market corrects, Peter Mallouk says.
  • Investors will start looking more critically at their money managers' performance.
  • New investors could be in for a shock.

Creative Planning is “seeing record inflows in terms of numbers of clients, in terms of assets” across all the demographics of clients the firm works with, CEO Peter Mallouk told Thinkadvisor on Tuesday. But he is looking ahead cautiously to how the Federal Reserve’s unwinding of stimulus will play out in both the RIA space and investors at large.

Mallouk shared his outlook with ThinkAdvisor in an interview discussing Creative’s acquisition, closed Dec. 31, of Reilly Financial Advisors, an RIA with more than $2 billion in assets under management based in La Mesa, California. Creative Planning has more than $100 billion in assets under management.

Meanwhile, stock prices fell and Treasury yields jumped Tuesday over concerns that central banks will move to boost interest rates earlier than expected. The S&P 500 fell 1.6%, the Dow Jones Industrial Average 1.8% and the Nasdaq 2% by 3:50 p.m.

More investors have been seeking financial advice, Mallouk said, and he predicts that will continue through 2022.

There are many new entrants into the financial services market that are experiencing wealth for the first time that were in “very risky assets” like cryptocurrencies who “never really experienced something super negative,” he said. As a result, he predicted: “There could be some eye-popping moments this year if the great unwinding doesn’t happen according to plan.”

To investors, all companies tend to look good in such a low-rate environment, according to Mallouk. But, as rates start to rise, “people will have to get back to being more selective about how they construct portfolios and they’re going to start to become more judgmental around how their money managers are performing,” he predicted.

He predicted smaller financial services firms will continue to be sold as competition continues. “As rates rise, I think we’ll start to see valuations contract,” he said. “But I think it’s going to take a while because I think there’s so much demand for RIAs that, even as rates rise, the demand” is still there, he explained.

While the prices of firms likely won’t soften initially, they will decline if the market starts to correct or have an off year, he said, adding that any major change to the M&A landscape likely won’t happen until later this year.

Of market volatility, he said: “I think this is only the beginning of what’s going to happen. We’ve seen government stimulus before. We’ve seen artificial support for mortgages and things like that before.” But he added: “We’ve never, ever seen it this aggressive, this much.”

As a result, he predicted that as the U.S. government stops buying some of the Treasury bonds and raises interest rates in 2022, “we are going to see some of the air come out of this balloon.”

He predicted that, by about midyear, manufacturing supply issues will be worked out and COVID cases will start slowing. By year-end, he says, inflation should start declining. Mallouk is “very optimistic” about those developments but “pretty cautious” on how the market will react to the Fed’s unwinding, he said.