Peter Mallouk: Why Demand for Financial Advisors Will Only Increase

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Hello and welcome to Barron's The Way Forward. I'm Greg Bartalus, and my special guest is Peter Mallouk, President and CEO of Creative Planning, one of the nation's largest RIAs with about $315 billion in combined assets under management and advisement. Today, we're going to hear where the wealth management industry is headed. Welcome to the podcast, Peter.

It's great to be with you.

So we don't have a ton of time, but there's a lot I want to tackle, so we may go through this a little faster than might be ideal, but hopefully we can manage it. Let's first start by talking a little bit about yourself and the firm and where things stand today.

Well, I'm the president of Creative Planning. Creative Planning has been around since 1983, but we really got going in 2004 when we put together all of our services. You know, the, the where the industry is, it has been and where it's going is really tied to me back to that original story. We were one of the first firms to bring a lot of other services together— investments, planning, legal, tax, trust services. A lot of places are starting to, you know, add some of these different services. That's becoming more standard, including financial planning without a separate fee. That's becoming table stakes a lot of places. A lot of people are taking low-cost approach to the public markets and starting to add private investments and other alternatives. All of these trends are gaining momentum. We're really seeing the future coming at us really quickly.

So what did you see back then that others didn't and that others now do see?

So I think back then I just— what I had was a happy accident. You know, I was, I was an attorney giving legal advice to other advisors' clients. I'd sometimes give tax advice to their clients. I'd sometimes do financial planning for their clients. Light bulb goes off, hey, it would be nice to do all of these things in one place. Clients want, they don't want to have to go to a CPA and an attorney and a financial planner and a money manager to figure out how much to give to a charity and what the best way to give it is. Some of those things cross, move across various disciplines to get the right advice. So I just put that together because I thought it was kind of the right thing to do and the right way to do things. Had zero, you know, zero idea that this would be where an industry would be migrating to over the coming decades. I think what's happened is clients really responded well to that. I mean, over that first decade, you know, Creative was the fastest-growing RIA over that 10-year period. And I think, you know, a lot of firms looked at that and said, hey, we've got to start to do some of these things to be able to compete.

Yeah, you know, I want to talk a little about your career before Creative Planning because You do genuinely have a fascinating background and career trajectory. It's not really common for a lot of business people who make it big. So tell me about the record stores, Napster, everything.

That's going to the Wayback Machine. But when I was in college, basically, I had opened with 3 friends a music store that basically bought and sold CDs, tapes— that really dated me right there. But anyway, mainly CDs. And, you know, it did really well. And we went— when we opened the store, we had like, you know, maybe 100, 200 CDs. And but then we got up to 10,000. We opened another store, another store. We got to 8 stores, and I bought out my 3 partners. And I remember telling my girlfriend, now wife at the time, hey, I'm not— this is going to be my job. I'm doing great, you know. And pretty soon I'm going to take distributions from this. And at the time I was in law and MBA, getting law and MBA degrees. And then somebody walks into the store that we had in this area of town called Waldo in Kansas City, Missouri. And I was working. I would work maybe in the store, you know, 50 or 60 hours a week while I was in school. And he goes, hey, have you heard of Napster? I go, I've never heard of Napster. And he goes, oh, and I go, well, tell me about it. He told me a little about it and I thought, oh, that's interesting, digital music. And within about, I don't know, a couple months all but one location had gone out of business. I mean, it was absolutely stunning. And what I learned from that, more than I learned from any college degree, is sometimes your competition isn't what you think it is. It's something that doesn't even exist today.

And taking that profound lesson, when you think about the wealth management industry today, and, you know, despite an increased awareness with news being ubiquitous, everyone online reading, researching, Do you have any thoughts about what big unforeseen forces might be placing many advisors in peril now?

You know, it's interesting when you talk about all the knowledge available. I think one of the fascinating things about this time that applies to finance, and I think just generally life in general, is I think 100 years from now when they're writing about this period in the history books, they're going to go, there's more information available to people than at any time in history, and people became dumber. I mean, like, there's the quality of information and the misinformation and the The little pieces of information where you're missing other things, that applies to the real world and it applies to finance. I think that's one of the reasons people really still need help and why you're still going to see people needing advisors. Maybe the way that advice is delivered and what we have to do for the client is different, but they're going to need advisors more than ever.

Yeah, I mean, the signal-to-noise ratio is definitely as bad as it's ever been. Off the charts, yeah. And do you know the movie Idiocracy by any chance?

I have not seen it, no.

Okay, so I think it came out, I believe, I don't know, about 20 years ago. And it's just kind of about, I mean, hence the title about de-evolution, like the band Devo, de-evolution. And a lot of people joke now, oh, it was a comedy, but now it should be filed as a documentary. So.

All right, I'll have to check that one out.

Yeah, it's worth it. So back to the business today now. What, your firm's making a lot of acquisitions. You've been active with M&A. And there is, you know, a lot of new money is going into a handful or fewer and fewer. So there's a bit of a bifurcation or barbell approach, if you will. Tell me a little more about the state of play in M&A.

You know, Creative Planning, our main story has been organic growth. And the best 3 years we've ever had of organic growth have been the last 3 years. But we have supplemented with M&A. And I think if you look at our size, you referenced at the beginning about $315 billion, which sounds like a big number. But really, it's a pretty small firm. We employ the same number of people as that go to school at the high school down the road from us. And if you compare us to the brokerage houses, you know, the Morgans and the Merrills, or the custodians like Schwab and Fidelity, or the banks like Goldman and JPMorgan, I mean, we're a rounding error at those places. And so the idea for us for M&A is we want to become more localized to the clients. So if somebody calls us and they're in Naples, Florida, or they're in San Francisco, or they're in Cleveland, We want to have a team there that can serve them. And so, while we have a presence in almost every major market in the United States, what we've been able to do is acquire usually smaller firms that join our local office and increase our local profile, make it easier for us to serve clients locally.

And you have a belief in having very much a unified approach with systems, belief, etc., so the consumer experience, the client experience, is consistent market to market, right?

That's right. I think, like, the financial world is very interesting. People think of like, they go to Starbucks or they go to McDonald's or they go to Target and you go to one, no matter where you go in America, and this is even high-end things like Versace, you know when you walk into that store what you're gonna experience, right? Well, financial services, that's not true at all, right? If you go to Morgan Stanley or most independent firms, basically most wealth management firms, somebody in office A could be a stock options person and office B is a fixed income person, office C is a small cap value person, and you choose that person as your advisor and you're getting a certain type of strategy, there's not a coherency. There's a platform that people use. And creative planning, we want there to be a coherency. I want it to be like going to a top hospital in the United States and you're trying to figure out what's going on. And that hospital has technology and protocol and systems and a process to uncover what, what your issues are. And then we figure out, well, what's the custom way to treat that patient? And so creative planning, same thing. We've got billionaires as clients. We've got people who've got $1 million. We're going through a process to make sure nothing gets missed and that we can then identify the right custom solutions to that particular client.

Right. And I can imagine for the client, for the reasons stated, they would prefer that peace of mind and it's a more predictable experience. But I would also think that for clients— I'm sorry, rather for advisors whose firms become a part of Creative Planning, there are going to be fewer surprises, right? They simply kind of know the on-ramp into your company is going to likely be smoother.

Yeah, that's right. When one person refer, you know, if they refer their business partner in a different city or their sister in a different city, they know what they're going to experience. They don't have to worry, well, what if this is— this advisor going to be as good as my advisor? Are they going to do something different? They know what that person's going to experience with confidence.

Yeah.

And it allows that client to become an advocate. And there's a big difference between a happy client and a client that becomes an advocate.

Exactly. So let's shift to the markets. As we're chatting now, the market's pretty much at an all-time high. It's kind of the everything bull market. Commodities are doing well, bonds, stocks. What are your advisors hearing from clients? What's the general tenor?

Well, I mean, this is probably the most at peace clients have been in a long time. They've just been through a lot. I mean, starting with '08, '09, and then going through all the stuff, tariff wars and weird, crazy elections. Social unrest and COVID. I mean, just, it's been a nonstop saga, right? So this period where we're worried about inflation, but the markets are generally doing good, you know, clients are probably more at ease than they've been in a long time. If you look at the average consumer, they're more, the average investor is more positive than they've been in a long, long, long time. But as we know, that tends to be a lagging indicator. I hope that's not the case here.

Okay. All right. And I know you are a big believer in teaching financial education. I heard a podcast in which you said a tremendous amount would be achieved if every high school in the United States dedicated one half of a credit hour to financial education. And you're the chair, I believe, of the Pathway Financial Education. Tell us a little about that and why you're doing it, what you're doing.

It does— there are some high schools that have it as a credit. I just don't understand. I mean, take one hour, make a half credit, like how to deal with people and have relationships, and the other half how to handle your finances, and the country would be infinitely better off. It just blows me away that's just not a default. But when a lot of social unrest was happening in recent years, we were looking at what we were doing at Creative Planning, and a lot of the causes that we've benefited ongoing, we always talk about, hey, we're not gonna go to the museums and the arts and spend our time and money there, even though that's where a lot of our clients are. We're gonna be, We're working with the top 10%. We're going to, from a charitable component, work with the 10% that need it the most. So when the social unrest was happening, we were saying, well, what else can we do? And we said, well, we've got lawyers and CPAs and money managers and planners and so on, business specialists. Let's take that talent and help people. So we opened Pathway Education Center. We raised a lot of money, millions of dollars in the community, which was wonderful. Opened a location on the historic 18th and Vine District in Kansas City, Missouri. And it does 3 things. It helps educate young people about money. It helps educate adults about how to run their household finances. And it helps educate business owners. And now it's no longer a Creative Planning charity. It's an independent charity. And it has other advisors that come in, other people that come in and teach people as well. It's been great.

[Speaker] Excellent. And in that spirit, you also published a book called "Money Simplified." which is designed to help readers avoid common errors, etc., and reach a broader audience. Quickly, just a couple high-level common errors that you continue to see?

Well, I think the thing about investing is it's very emotional, and anytime you put emotion into something, you increase the error rate. And it's hard not to be emotional about— you know, people work 50 hours a week for decades and decades and decades, and you put all your money in an account. It's hard not to be emotional about how that account is doing. When I wrote Money Simplified, I really wanted to be very accessible. I wanted somebody who was a sophisticated investor or high net worth to be able to read it in 40 minutes, 30 minutes, and go, I really got 2 or 3 things out of it. And I wanted somebody who was really just curious about money and wanted to learn. I wanted the book to be very accessible and easy for them to read. My son JP, who's shadowing me today, I have written, you know, 4 books, but that's the first time like he took a book and sat in a chair and just knocked it out in 30 minutes. That's my goal, is for somebody to be like Hey, I'm going to open this up, look at a few things, but wait a second, this is easy, I can do this. And when it's done, I've learned a few things.

That's great. There are many investing maxims that are sensible and logical. Is there any one that you're like, yeah, that best describes my belief about the markets?

Well, I mean, for me, I believe in— it might come across as cliché, but I believe in America, and I believe that that when you look at progress, innovation, that the markets follow all of that. It's very easy for me to be a long-term investor because I think the good scenario and the bad scenario both benefit the long scenario. The good scenario is corporations keep earning and the government gets the budget under control and all of those things. And the bad scenario is none of those things happen, you have high inflation over the long run. And both of those things, you win if you're an owner. If you're an investor.

Right, right. You have the owner class and then the asset income earner. That's right. Yeah, yeah. Well, we're almost out of time. So I just did want to go touch on a couple of light things briefly before we wrap up. So you're a part owner of the Kansas City Royals baseball team. Tell me about that just briefly. Anything beyond the dollars? I know you've been a lifelong fan.

So if you grew up in Kansas City, like I've lived my whole life, it's hard not to be a sports fan. And, you know, today I just, we happen to have, I think, the best NFL player, Patrick Mahomes, and I think we have the best Major League Baseball player in Bobby Witt Jr., both in the same city, which is awesome. But I grew up listening to the Royals. I literally listened to them on the radio while I was going to bed. And then I worked in the visitors' clubhouse for the Royals, got to know the Royals players, and got to know a lot of the visiting players. Amazing job. I can't believe my parents let me do it, literally get home at 2 in the morning on weeknights while I was in high school. And so when they were raising money to buy the Royals, I was like, you don't even need to show me the pitch deck. I'm in.

Right. That's great. That's great. And you mentioned when we were writing that you bought Wade Boggs' fried chicken.

Right.

Wade Boggs, he's a Hall of Famer, great hitter. And he was known for eating chicken, I think, before every single game.

That's right.

Anything like, what was the context?

I mean, he was very superstitious, and so I was a clubbie, which your job was basically to wash their clothes, shine their shoes, organize their lockers, and run errands for them. So if somebody wanted to get their fiancée a gift, or they wanted something specific. So Wade Boggs, he had a lot of superstitions. He wouldn't step on the baseline coming onto the field and things like that, but he also had to have chicken before the game. So they sent me out to buy chicken for him, you know, before these games, because apparently in the stadium at the time, they didn't have whatever it was he wanted. One time I was actually doing this and I ran out of gas and this was before there were, you know, faux, I mean, I literally just stood on the side of the road. He did not get his chicken.

Really?

I was very concerned about it. Was he upset at you? That particular game. He was not upset at me at all, but my boss was extremely upset at me because it was also his car I ran out of gas in. So yeah, that was not a good day.

Wow, and do you remember how he did that game?

I don't remember. I remember really freaking out though that something was gonna go wrong and it was gonna be my fault. So it must have been okay.

Okay, and no intelligence on the Wade Boggs beer mythology? There's stories that he drank 60 or 70 on an airplane.

I did, that seems impossible having seen him so much. There are a couple players I would not put that past, you know, that used to drive home to their hotels after they stayed in the clubhouse too long. But Wade Boggs, I don't know, but that seems shocking.

Okay, all right, and the last question, given your background with the record stores, Do you have a favorite song of all time?

Favorite song of all time is "Here Comes the Sun" by the Beatles. So what's interesting about that is the greatest songwriters of all time in rock and pop anyway is Lennon and McCartney, and it's written by George Harrison. So to have them not write the greatest song of all time when they were in the greatest band of all time, I think, is also an interesting bit of trivia.

Yeah, absolutely interesting twist there. It's been a pleasure. Thank you so much for joining.

Yeah, it was a lot of fun. Went fast. Thanks.

Absolutely. Thank you. Uh, my guest has been Peter Mallouk. For more podcasts and the latest wealth management news, visit barons.com/advisor. For The Way Forward, I'm Greg Bartolus.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.