Creative Planning CEO Peter Mallouk stressed that he had no interest in taking the company public at Wealth Management EDGE, held at The Boca Raton resort in Boca Raton, Fla., this week.
During an interview with Wealth Management Senior Reporter Alex Ortolani, Mallouk acknowledged partners in the firm may feel differently, but said his “behavior should indicate” he has little desire to take the company public, and he’d prefer not to be CEO if that day ever arrives.
“We’ve got equity, more and more every year, moving among the thousand employee partners that we have,” he said. “That’s been a model for the last 10 years, and I’d like to stretch that out to infinity, if possible.”
In addition to going public, Mallouk discussed a range of issues facing his firm and the industry, including the impact of private equity and Creative Planning’s growing international footprint.
When discussing Creative Planning’s acquisitions of the $5 billion, 123-employee firm MASECO LLP and the acquisition of Switzerland-based Baseline Wealth Management, Mallouk called entering Canada’s space a “top priority,” and that they’re in discussion with several potential acquisitions (though Mallouk stressed they are not close to a deal).
“We actually get more potential clients from Canada than the UK and Switzerland. And we’re just having a very hard time; it’s a very banking, active, high-fee environment,” he said. “So, finding the right match or building it out ourselves is more challenging than other places.”
Creative Planning is majority owned by Mallouk, with minority investments from private equity firms TPG Capital and General Atlantic. In addressing qualms about PE firms’ majority ownership, Mallouk stressed that the issue was not with PE ownership per se, but with the limited time windows majority owners have to maximize value for their clients.
In such situations, a PE firm controlling an RIA may opt not to make necessary changes because it could rock shareholder value now for the promise of more value later.
“Are they going to do a deal that may not culturally work out over the long run, but it’s going to change the financials in the short term? Yeah, they will,” Mallouk said. “I think about it that way; if you told me to erase all of that from your mind and walk through the front door and just think about maximizing shareholder value for three years, probably 80% of my strategic decision-making would be different.”
When responding to an audience member who questioned why there is an assumption that firms will eventually go public, Mallouk said he worried that PE majority-owned firms would be in a bind, needing to maximize shareholder value and may not have other options to exit (besides sovereign wealth funds).
“I don’t think a firm that’s majority-owned has to do that,” he said. “Everyone thinks, ‘Oh, we’re going to go public, and we have to go public,’ and I feel the way you do. Why do I need to do that? I’ve got a thousand employee-partners and minority partners, and we can keep going as long as we need to.”
Mallouk also said Creative Planning was building its in-house artificial intelligence-led tech team. When mulling how AI will impact the business, he surmised that at the start, “it’s going to be like a dream,” with rapid advancements in automated financial plan creation, trading order and money movement order recommendations. But in time, he said, AI will become a competitor in the crowded wealth management space.
“That tends to be what normally happens, right? A new technology comes in and makes you more efficient, then the technology itself becomes the competition,” he said. “I might be thinking about other RIAs and Morgan Stanley, and really, in four years, maybe there’s three big RIAs that have one employee, and that’s the competition, and they’re doing a big percentage of stuff and doing it at a much lower fee.”
