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Creative Planning's Huge Step Into 401(k)s

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Peter Mallouk, CEO and president of Creative Planning, closed a weighty deal in December with the largest independent property and casualty insurer in the world.

“It’s far more than a one-plus-one-equals-two type thing because each of our strengths really fills a gap for the other,” Mallouk tells ThinkAdvisor in an interview.

Called “Lockton Retirement Services, an Offering of Creative Planning,” their new entity “removes a void” that Creative had in its retirement planning specialization, Mallouk says.

This means that Lockton will now send all its new opportunities to service corporate 401(k) plans and their participants to the Lockton group at Creative Planning.

The partnership brought Lockton’s $110 billion in assets under advisement to Creative Planning, which said only in November that it had reached $100 billion in assets under management.

Before the deal, Creative Planning’s 401(k) offering chiefly covered the small-to-midsize market. The new partnership gives the ever-growing advisory access to the broader market.

In exchange, Creative Planning will provide financial advisory services to the plans’ 401(k) participants. This was not a feature that Lockton heretofore brought to the party.

The deal gives the RIA entree to as many as a million-plus participants, for whom it will serve up financial and investment advice.

In the interview, Mallouk reveals that about a third of the Lockton retirement group has already relocated to Creative Planning headquarters in Overland Park, Kansas.

Further, in the team-up, the two firms are working on restructuring their respective offices nationwide. Lockton has taken a small minority stake in the advisory.

Over the past 17 years, Mallouk, 51, has grown the RIA through referrals and acquisitions from a firm with $30 million in AUM to a budding behemoth.

Creative Planning has now acquired 22 independent wealth management firms, most of them RIAs that typically manage $300 million to $600 million in client assets.

On Tuesday, it announced the acquisition, closed Dec. 31, of La Mesa, California-based Reilly Financial Advisors, which has more than $2 billion in AUM. More deals will be announced soon, Mallouk said at the time.

Mallouk had been working as an estate planner at Creative Planning for six years when in 2004 he bought the firm. While employed there, he also performed work for 100 advisors at other firms.

ThinkAdvisor recently held a phone interview with Mallouk, who was speaking from Kansas City. 

Hardly a day goes by when he doesn’t get a call from an advisor who wants to sell their practice, he allows.

“If 50 firms call us this month and they’re all a great fit, Creative Planning has the financial capability to do all those deals,” he says.

Here are highlights of our conversation:

THINKADVISOR: Is the deal you’ve made partnering with Lockton substantial enough to potentially make Creative Planning an Amazon, with a capital “A”?

PETER MALLOUK: No. We’re not remotely close to being an Amazon. We don’t have the awareness in the public domain for us to be anywhere near that.

But is that what you aspire to become?

I think it’s pretty clear that we’re not going to be the biggest because there are a lot of economic incentives for a lot of firms to do certain deals and make them bigger — and that is not our driver.

We aspire to be, and have the opportunity to be, a nationally recognized firm that people equate with high-level advice across a variety of [services] related to wealth management. 

But I don’t think we’ll end up being the biggest in this space for a lot of different reasons.

You’ve said that the Lockton deal “could be transformational for our firm and our clients.” Please elaborate.

It gives us access to hundreds of thousands, if not well over a million, participants that we’re going to be able to share our financial education with.

How do you define “financial education”?

Helping somebody figure out what they’re trying to do [with their assets]; how we can help them get from here to there; help them get out of a debt problem or restructure debt; figure out what investments they should be in so they’re not too conservative or too aggressive. 

It’s all financial advising.

Why did you chiefly want to partner with Lockton?

We had a pretty robust 401(k) offering, but it was mainly in the small-to-midsize market. This opened up a large market for us, which was the only void we had in the retirement planning space.

It also allows us to advise on lots of types of plans we weren’t able to [work with] before. So it [lets] us broaden our retirement planning services. 

Pretty much overnight, we were able to do everything our clients could need in this space.

Any other reason to partner with Lockton?

We’ve acquired a bunch of people who have proven to be very, very successful in the large retirement plan space. 

But they weren’t providing financial education to the participants. And of course, that’s where the marketplace is moving. That’s our strength. 

So it’s really transformative in that sense. We should be much more successful together than before. 

It’s far more than a one-plus-one-equals-two type thing because each of our strengths really fills a gap for the other.

So can we say that you’re melding retirement planning with wealth management?

We’ll be providing education for 401(k) participants. Our private clients need more 401(k) services. So it’s a little bit of an overlap.

Will this move change your business plan?

What it does is fill a gap in our specialization. It removes that gap. 

The opportunity presented itself. There had been a few opportunities [for us] in the larger retirement planning space before, but I found them not to be a good match. 

This one checked every box in a very big way. We knew it was the perfect fit.

Now Lockton has a small minority stake in Creative Planning. Does this mean they’re not doing 401(k) work for other firms?

Lockton is the largest independent property-and-casualty insurer in the world — and they’re still doing all those things. 

[But] now their 401(k) offering is within Creative Planning. If they have new 401(k) opportunities, they send them to the Lockton group at Creative Planning.

How are you accommodating the Lockton 401(k) team physically?

About a third of the people are already in Kansas City and have joined us in our headquarters [in Overland Park], which we’ve been expanding. 

We’ve added 75,000 square feet that will be ready at the end of this quarter.

Nationally, we’re restructuring: Does the Lockton 401(k) team join our office [in a particular locale]? Do we join their office? Is it a hybrid work environment? We’re working with the teams to do whatever is best for each of them.

Regarding your acquisition plans, how many independent firms do you want to acquire?

If 100 good fits came along, it could be 100. If 50 firms call us this month and they’re all a great fit, Creative Planning has the financial capability to do all those deals. 

I suspect we’re sitting on more dry powder than any other major RIA. 

But our criteria are pretty stringent, and we’re looking to be aligned [for many years] with whoever we’re doing business with.

You’ve made 22 acquisitions of independent wealth management firms, mostly RIAs. So is your goal to still expand that way? 

Our goal is: If an opportunity matches our plan, we will pursue it aggressively. There are very few that match. But the ones that do, we’ll be aggressive about partnering with.

Who usually makes the first move?

I’d say 99 out of 100 call us. We probably get an inbound [opportunity call] every day.

A lot of our acquisitions have been [within] the last three years, with half in the last 12 months. 

So we do one a month, on average.

Why so many in the last year?

We’re getting bigger, and everything we’re doing has accelerated. More opportunities are presenting themselves.

More people are looking to sell their practice or merge with a practice or become more capable of competing in whatever the world [turns out to] look like five or 10 years from now.

A 2019 J.P. Morgan Asset Management study found that participants are staying in their 401(k) plans after retirement. Does this have consequence to you?

That’s definitely a trend, and I think it’s going to continue. We want to work with a client whether they’re in the plan or outside it.

More and more people are staying within a plan. If the pricing is good and they’re getting the advice they need, why make a change?

Creative Planning has a wait list for some services. What are they?

For a while it was trust services and also tax services. Now it’s just tax services.

We don’t have enough people to match the demands coming from our clients for those.

When you were in your estate planning job at Creative Planning, did you hope to one day own it and build it into a mega-advisory?

No — like, hard no! 

I’ve been consistently surprised. I wouldn’t have imagined, if you had told me two years ago, when we had just barely touched $50 billion [in AUM], that today we’d be responsible for over $200 billion. I didn’t foresee that even 20 months ago.

But opportunities present themselves, and we’re in a position to win those opportunities.

Pictured: Creative Planning CEO Peter Mallouk