The legend surrounding Creative Planning keeps growing. Since 2004, when Peter Mallouk, president and chief investment officer, took over the full-service wealth-management firm headquartered in Leawood, Kan., about 70 miles east of Topeka, its assets under management have ballooned from $30 million to nearly $10 billion today. Its head count has grown from a handful of advisors to 75 professionals spread across the country. And last summer it was dubbed the No. 1 independent financial advisory by Barron’s.
But this, of course, tells just part of the story. “We’re revolutionizing the way financial advice is delivered,” says Mallouk. “We haven’t done any acquisitions and don’t plan to. We don’t do any advertising or direct marketing. We don’t even have a brochure. And we never compile performance data, because our portfolios are customized for each particular client.”
What they do do, however, is provide one-of-a-kind client service. “The firm is independent and doesn’t push the ‘product du jour,’ but rather manages specifically to our defined objectives, drawing from a broad and diverse mix of financial instruments,” says Tim Helton of H.F. Holdings, a private family holding company in Leawood, Kan., who has been a client since a trusted friend’s referral in early 2008. “We have a variety of portfolios with Creative Planning (primary accounts, trusts, charitable holdings), and they’ve done a superb job of managing our assets forward, consistent with our specific risk tolerance for each portfolio. They have consistently managed to beat our expectations and market performance for asset classes/mixes like ours.”
Helton also praises the firm’s tax-minimization orientation. “We appreciate their long-term view with an eye toward tax mitigation where it can be effectively achieved,” he says.
Yet there’s something less quantifiable that Creative Planning brings to the table. Helton refers to “the manner in which they deal with our family. They are extremely bright, responsive and pleasant to deal with. That makes a difference,” he says. “They think of things before we do, [and] we can also use the firm as a ‘family office,’ taking advantage of other services such as legal, insurance and trust/wills.”
Mallouk acknowledges that portfolios are built around a multi-asset class, global approach, typically focusing on liquid and transparent investments, with an eye toward minimizing taxes, trading fees and other costs. “We’re not married to any particular investment vehicles, such as ETFs,” he adds. “In each case, we ask what holdings make the best sense for the specific client. What’s the best way to invest in that space? And we go from there.”
The idea of tailoring portfolios is intrinsic to his philosophy. “To manage your assets, I should understand what your tax bracket is, and are you going to buy a home in the next three years. Why would I buy bonds for you if you’ve got a mortgage that’s higher than the rate of bonds? These are the kinds of things I need to know to do right by clients, to ensure we’ve done everything we can to position their portfolios correctly,” says Mallouk.
It’s an ongoing dialogue. “I do not let a risk tolerance questionnaire dictate a portfolio composition,” says Branden Frazier, the firm’s wealth manager for the San Diego and Hawaii areas. “Nor will I remain tight-lipped when a client suggests a strategy (tax or other related matter) which I feel is not in their best interest.”
For example, during the crash of 2008 many fearful clients were in a hurry to sell. Frazier had to explain the vicissitudes of the market and the fallacy of selling at a low price. “Peter [Mallouk] is a tremendous advocate of ‘educating the client,’” says Frazier. “I want my clients to know how their money is working for them and what we are doing with it. Not just in the good years but in the bad.”
He tells of one client who had been self-managing his assets “because, like many, he thought he could do it better,” Frazier recalls. “Our initial review found many, many holes in his plan. … We were able to recommend an investment strategy that could immediately address his risk, tax and cash concerns. Thereafter, we were able to coordinate all of his legal matters (in-house, I might add) to ensure a central focus which filled in the gaps by not having a specialist initially set up the entities.”
A Multidisciplinary Approach
To be sure, this degree of attention requires a particular kind of broad-based effort. Creative Planning offers not just investment management, retirement planning and estate planning but business planning, charitable-giving strategies, tax advice, reviews of individual financial questions, referrals and so forth. No single area stands out as the primary driver. “It’s really just the way we package it all and deliver it,” says Mallouk. “When you combine that with the way we manage money and give financial advice, that’s what causes clients to aggregate their business with us and leads to a tremendous amount of client referrals.”
The breadth and depth of this customized asset management are rigorous. “The world of advisors is divided among those that customize and those that use models. We truly customize,” stresses Ken Steeves, the firm’s lead wealth manager for New England, based in Milford, Conn. “We may hold positions for tax reasons [for one client] that we don’t for another client. We don’t blow out portfolios or place the same trades for every client.”
Not surprisingly, a similar degree of personalization goes for ongoing account monitoring. “At some point, there are going to be life events that affect every client’s plan and portfolio,” says Steeves. “It is imperative to stay connected, keeping the strategy in line with the client’s goals and objectives while being able to explain the rationale along the way.”
Assisting Clients Across The Board
But the proof of the pudding is in the eating. “Creative Planning helped me organize estate matters, including my will, health-care proxy, revocable trust, etc.,” relates Alan G. Weinstein of Buffalo, N.Y., a client since 2008. “They also helped to make sense out of my investments, both tax deferred and those we put into the trust. I had a great deal of redundancy in my investments, several nonperforming stocks, and I was paying over 2% in [my old mutual fund] fees. I remain a client because they are responsive to my needs and they keep me well informed on my investments. … Their metrics are clear and provide me an excellent view of not only my earnings but the future use of funds using my spending goals.”
What all this amounts to, he says, goes beyond dollars and cents. He feels the firm truly cares, has his best interests at heart. His advisors even travel to him to conduct an annual review. “I have peace of mind having my assets under their management,” says Weinstein.
How can one firm provide all this? The answer goes back to its very roots. When he acquired and rebooted the firm in 2004, Mallouk, now 44, says it was with an eye toward determining what people truly wanted from their advisors. “My belief has always been I cannot give good investment advice to somebody if I don’t know what they’re trying to do,” he says. (This is why his firm does not charge a separate fee for financial plans. “We include the financial plan as part of the process,” he says.)
His varied background may not have seemed the most likely to end him up where he is, but he says it was in fact a perfect mix. A native Kansan, he earned a multidisciplinary bachelor’s degree in business administration, economics, psychology and political science from the University of Kansas in 1993, followed three years later by an MBA and a JD from there. He became an estate-planning attorney, assisting a wide spectrum of financial advisors.
“I might be at Wachovia in the morning and UBS in the afternoon,” he recalls. “Whether independent firms or major brokerage houses or fee-only financial planners, I got to see it all for many years. From that I gained a feeling for the industry, how advisors position themselves, how they choose investments, which functions they handed off to others, and generally how things went together. And I watched one high-net-worth client after another in all these different settings. That, combined with my diverse education, gave me a view of what clients deserve and what I could deliver to them.”
When Mallouk became a certified financial planner, he had not only a clear sense of what he could bring to the table; he had a kind of mission: to deliver what clients want and need in a way that “costs clients less than the average mutual fund but still works as a profitable enterprise,” he says.
It wasn’t always meant to be. His father was a physician, and Mallouk had originally thought of following in those footsteps. “My dad told me not to,” Mallouk reflects. “He had concerns about the way medicine was changing.” Yet he also told young Mallouk about his frustrations with finding good financial advice. “He felt like he had to go from one advisor to another, which planted the idea in my head early on,” says Mallouk. “When I started in financial planning, physicians became the primary group I worked with.”
Initially, the building blocks for Creative Planning—whose name and Web site name, ThinkingBeyond.com, signify nothing so much as its fresh approach to wealth management—were money management, financial planning and estate planning, and they remain at its core. It soon became clear, however, that many clients were business owners who wanted professional as well as personal guidance. So the firm added business planning and retirement, 401(k) and benefits management. That set a pattern. “We continued adding components that clients needed,” says Mallouk.
That’s true geographically as well. “Whenever we have a certain number of clients in a given area, we’ll hire in that area,” says Mallouk.
But Mallouk concedes there have been a few surprises along the way. Perhaps the biggest was the difficulty in finding advisors who fit his high standard. “The first four or five people I hired turned out to be absolutely incredible, so I thought it would be easy. I’ve since learned how lucky I was,” he says. “But having them taught me the kind of people to look for. They set a high bar.”
He’s currently looking to hire 15 professionals, but that may take several months. “I’d love to fill them all by next Monday, but I’d rather not have somebody there who isn’t truly exceptional,” says Mallouk. “I’d rather wait and get it right.”
Getting it right means finding candidates with demonstrated acumen in investing, financial planning and client service. The ideal hire is highly motivated to excel at “working directly with clients and eager to make a difference in their lives,” he says. Proven proficiency with technology is another must. The firm prides itself on its proprietary software, and no one should be held back by an inability to use the latest high-tech gear, he says.
A Team of Experts
Indeed, Mallouk gives much of the credit to his team and their “certain skill set,” he says. Though he won’t reveal exactly what that skill set entails, part of it involves the willingness and ability to listen to clients and deliver exactly what each one wants and needs.
Mallouk has been quoted as saying his is a team of all-stars. In fact, they come from a variety of backgrounds. Key members are hired from other firms where they were top-ranked or perhaps under-appreciated. “For advisors who interface with clients at a high level, we primarily hire from other firms,” he acknowledges.
When he finds his stars, he lets them shine, he says. “I don’t get in the way of successful people. I don’t babysit them,” says Mallouk. “I make sure we hire people who believe in what we’re doing so they can feel good about what they do day in and day out. I never put limits on what they can accomplish.”
Perhaps that’s all the incentive they need. Turnover is extremely low. And indeed, the corporate culture is one of mutual respect. “Our team is absolutely amazing when one looks at the breadth of experience and skills we offer,” says Frazier, who joined in early 2012. He cites two other reasons for his decision to come to Creative Planning, despite other promising offers. First: “The services provided by our firm are unparalleled,” he says. Second: the opportunity to work under Mallouk, whom he describes as “amazing.”
It may sound like a mutual-admiration society, but Mallouk concurs that, “Our people know their colleagues are very bright and at the top of their field,” he says. “That kind of pride permeates our culture and helps make us a tight-knit group.”
Creative Planning’s client roster—currently numbering more than 7,000, according to Mallouk—has been built primarily from word of mouth and leads from accountants, attorneys and other professionals, says Mallouk. It may help that referring parties can be rewarded with a portion of the client’s investment-management fee, according to SEC filings. But the firm also has juiced its growth with referrals from TD Ameritrade, Charles Schwab & Co., Scottrade, Fidelity and others with whom it custodies for an ongoing fee.
This isn’t unique but few firms have parlayed custodian referrals into the type of blistering growth exhibited by Creative Planning. Ben Welch, director of advisor business development at TD Ameritrade Institutional in San Diego, says that some 170 advisors are part of TD Ameritrade’s AdvisorDirect referral program. In the most recent fiscal year, the program referred “a record $25 billion in client assets to RIAs,” he says.
For each successful referral, Creative Planning typically pays TD Ameritrade 25% of the advisory fee, in perpetuity, according to its ADV. Additional payments are made if any family members of those clients, including spouses, become clients too. “These charges are common throughout the industry and have been in place for a number of years,” says Welch. “These fees are widely accepted among advisors who want to participate in a highly successful referral program.”
Creative Planning also refers its portfolio management clients to TD Ameritrade and other independent custodians to implement its investment advice. This minimizes clients’ commission costs, but SEC filings state that the firm has “material arrangements” with TD Ameritrade that “create an incentive” for these recommendations. The details aren’t clear, but Creative Planning receives certain “economic benefits” from using TD for custody of securities, trade execution, clearance and transaction settlements, according to SEC filings.
Welch insists, however, that the referral program is “truly open architecture and product-neutral.” TD Ameritrade may have its own platform, but it doesn’t have proprietary products. “That means referrals always are based on the needs and best interests of the client,” he says. “There is no financial incentive for branch employees to refer business to one particular investment advisor over another. Our branch investment consultants are compensated the same regardless of which advisor the investor chooses to work with. In the long run, TD Ameritrade benefits most if these referred clients are truly satisfied with their new investment advisor.”
In any case, such custody referrals represent a “minority” of Creative Planning’s current client base, Mallouk maintains.
One satisfied client, referred by a trusted friend six years ago, is Mike Capperino, a Northrop Grumman retiree in Austin, Texas. He credits the firm with turning his savings around, preventing him from “permanently losing any retirement money and pushing my portfolio to an all-time [high] years ahead of the market.”
It also found him a long-term-care plan, created a trust, helped him refinance one house and buy another, and even recommended a tax expert. “They are my life’s advisors, from birth to death and everything in between,” says Capperino. “They do what’s best for the client, not their own bottom line.”