Speaker 1: This is Masters in Business with Barry Ridholts on Boomberg
Speaker 1: Radio this weekend on the podcast what Can I Say?
Speaker 1: This was a master class in how to build a
Speaker 1: powerhouse r i A. Peter Maluke has been with Creative
Speaker 1: Planning for twenty years. He kind of started as a
Speaker 1: junior person, eventually buying the firm um for on on
Speaker 1: a I guess an earned out basis when the then
Speaker 1: founder wanted to retire and took what was essentially a
Speaker 1: hundred and fifty million dollars or smaller firm and built
Speaker 1: it up to a forty billion dollar powerhouse. If if
Speaker 1: you want to learn the right way to manage money,
Speaker 1: to deal with clients, to provide services, to grow a business,
Speaker 1: then strap yourself in. This is a master class with
Speaker 1: no further ado. My conversation with Creative Plannings Peter Maluke.
Speaker 1: This is Masters in Business with Barry Ridholtz on Boomberg Radio.
Speaker 1: My extra special guest this week is Peter Maluke. He
Speaker 1: is the president and chief investment officer of Creative Planning,
Speaker 1: affirm that manages about forty five billion dollars in assets
Speaker 1: under management across nearly a hundred thousand client accounts. He
Speaker 1: is the only person on Worth's list of one hundred
Speaker 1: most Powerful people in global finance who actually advised clients.
Speaker 1: He was listed number one on the Baron's Top one
Speaker 1: hundred Independent Advisors for three consecutive years, and he is
Speaker 1: the author of the book The Five Mistakes Every Investor
Speaker 1: Makes and How to Avoid Them. Peter Maluke, Welcome to Bloomberg.
Speaker 1: It's great to be here. Good to see again, Barry Uh.
Speaker 1: I've been looking forward to having this conversation with you.
Speaker 1: We spoke briefly at a conference in September, but that
Speaker 1: was so short. Twenty minutes. A half hour just doesn't
Speaker 1: get it done. And we should be able to wrap
Speaker 1: this up by dinner time and I'll get to every
Speaker 1: question I have for you. I have to start with
Speaker 1: your career because it's a little unusual. You get a
Speaker 1: j d, m b A so a legal degree and
Speaker 1: a business degree from the University of Kansas in what
Speaker 1: what was your career plans? Where did you think you
Speaker 1: would go with that? So? I didn't have any career plans.
Speaker 1: A lot of people look at my college education history
Speaker 1: and think there was some master master plan, or I
Speaker 1: think I've perceived as as a strategic planner when it
Speaker 1: comes to business, and the amount of just good fortune
Speaker 1: and luck along the way is tremendously underestimated. I for sure,
Speaker 1: when I was doing UH an undergrad I just took business,
Speaker 1: just took business because I thought I liked business, and
Speaker 1: I added other majors that were interesting to me. And
Speaker 1: then I got an MBA because I wasn't sure what
Speaker 1: I wanted to do. And the same thing with the
Speaker 1: law degree. There was a joint program at University of
Speaker 1: Kansas where I went, and so I did both. So
Speaker 1: I came out of college with a bunch of degrees.
Speaker 1: But I still, even leaving campus and heading back by COMB,
Speaker 1: I had no idea what I was gonna do. And
Speaker 1: and somewhere along the lines, you were involved with used
Speaker 1: record stores. Tell me about that, because in my misspent
Speaker 1: youth I used to haunt you c D stores looking
Speaker 1: for cheap albums and discs um that were used. What
Speaker 1: what brought you to that space? So you know, I
Speaker 1: don't know where this entrepreneurial thing came from. I know
Speaker 1: my mom really encouraged it when I was younger, and
Speaker 1: I remember UH always having a paper route, which meant
Speaker 1: you know, I couldn't drive a car when I had it.
Speaker 1: I was twelve. So my my dad, you know, drove
Speaker 1: the paper out and I threw the You weren't on
Speaker 1: the back of a bike, that's how. That's how so
Speaker 1: in suburban New York, that's how you When I had
Speaker 1: a paper out, it was a bike with you would
Speaker 1: put a bunch of baskets on and you would go
Speaker 1: down the street flinging papers both ways. I thought they
Speaker 1: only did that in movies. No, not all that was real.
Speaker 1: But that's when you're in a tight suburban neighborhood. You
Speaker 1: sound like you were in a little more spread out
Speaker 1: spread I mean in Kansas, spread out suburban neighborhood house
Speaker 1: to another, you'd get you to get worn out sometimes.
Speaker 1: And so I just set out the back of a
Speaker 1: station wagon and throw and throw the newspapers. Uh. Then
Speaker 1: I had a lawnmowing business, and then I had a
Speaker 1: DJ business. I loved music, um but the music stores
Speaker 1: was probably the thing that was the biggest manifestation of
Speaker 1: what I really enjoyed and having a business. And I
Speaker 1: had started that while I was in college, and it had,
Speaker 1: you know, but pretty much gone bankrupt by the time
Speaker 1: I got out, So you really begin your career at
Speaker 1: Creative Planning in what capacity did you join the firm?
Speaker 1: And this was, by the way, a much much smaller
Speaker 1: firm at the time. Right they was had been started
Speaker 1: by three guys in the insurance business, and they had
Speaker 1: an insurance arm and they mainly did disability insurance for physicians.
Speaker 1: And one of them was really into investing all the
Speaker 1: way back in the early eighties, you know, when I
Speaker 1: was in grade school and he um so he started
Speaker 1: Creative Planning as a sister company had you know, maybe
Speaker 1: a few dozen clients basically using American funds, mutual funds
Speaker 1: and and doing planning with with you know, by hand.
Speaker 1: You know, I don't remember I took over. I look
Speaker 1: at looking at the plans. I mean there was no
Speaker 1: Internet back then. And in great technology we we take
Speaker 1: things like money Guide pro for granted today really lets
Speaker 1: you dig deep and and come up with a lot
Speaker 1: of options. Yeah, I mean technology literally lets you scale
Speaker 1: in the way you never could before in every in
Speaker 1: every business, but just being born and now you could
Speaker 1: do all these things that you could have never done
Speaker 1: a long time ago, no matter how brilliant you were,
Speaker 1: and uh. I had worked for somebody for two years
Speaker 1: just advising this physician and his practice. And at the
Speaker 1: same time, a couple of years after that, I started
Speaker 1: working with advisors, doing wills and trusts and that sort
Speaker 1: of advice for them, putting putting that legal degree to work.
Speaker 1: That's right. So never been in a courtroom for for
Speaker 1: anything ever with the practice of law, but I enjoyed
Speaker 1: helping people. Hey, you've you've got this problem. You want
Speaker 1: to fix it. You you probably hate dealing with lawyers.
Speaker 1: I'm gonna make this easy. It's gonna take a few days,
Speaker 1: it's gonna be a flat fee. I'm gonna explain it
Speaker 1: in English. And that really took off. A lot of
Speaker 1: advisors started to use me. I really learned a lot
Speaker 1: from a lot of those advisors. A lot of them
Speaker 1: were amazing, a lot of them were terrible. Um, a
Speaker 1: lot of them were brilliant but did the wrong thing
Speaker 1: and and a lot of them always did the right thing. Um.
Speaker 1: And then creative planning. At the same time, their financial
Speaker 1: planning team had left to start their own firm. They
Speaker 1: asked me to come in. And when I take on
Speaker 1: that department, I looked at it and thought you know,
Speaker 1: I can do this and two days a week. It
Speaker 1: was pretty straightforward. So I was doing that from and
Speaker 1: at the same time, I was taken care of maybe
Speaker 1: a hundred other advisors clients doing estate planning. So now
Speaker 1: it's two thousand four and you say I have an idea, Yeah,
Speaker 1: let's buy the firm. So first question is what what
Speaker 1: motivated that blight bulbin? Oh four? By the way, before
Speaker 1: the financial crisis, but not too long after the dot
Speaker 1: com implosion? Right, you know the markets had only bottom
Speaker 1: let's call it October two and then March oh three, right,
Speaker 1: I mean I'd come right into the industry basically when
Speaker 1: I was running creative plannings a few dozen clients. During
Speaker 1: that period, you had the tech bubble and you had
Speaker 1: nine eleven. So the markets were just, you know, a
Speaker 1: disaster um during that period and the lightbulb going off.
Speaker 1: Would you really think about it? Here I am for
Speaker 1: six years, I'm doing financial planning and investments for some people,
Speaker 1: and I'm doing a state and tax advice for other people,
Speaker 1: And you would think the light bulb would have gone
Speaker 1: off sooner, right that Hey, maybe people would like this
Speaker 1: if it was all together, right, And so I knew
Speaker 1: three things. I knew I wanted to be an independent advisor,
Speaker 1: and I knew that I was not comfortable with dual registration.
Speaker 1: Creative planning was duly registered at the time, and back
Speaker 1: then that was very normal, and that was Hey listen,
Speaker 1: back then r s were relatively that was and people
Speaker 1: were just adding it to brokerage firm says, oh, let's
Speaker 1: well for these services. Exactly right. I mean it was
Speaker 1: innovative to even be an r A at all at
Speaker 1: that point. Um. And I was very uncomfortable as an
Speaker 1: attorney built maybe a complex of state plan with charitable
Speaker 1: trust there bublble trust, and then find out and annuity
Speaker 1: was in there that wasn't the right kind or shouldn't
Speaker 1: be there at all. But they have a giant commission built, right,
Speaker 1: and that's where they get sold. And so you go
Speaker 1: and you do the legal. Then that advisor might do
Speaker 1: things that aren't ideal. So I I wanted to a
Speaker 1: firm that was independent, didn't sell its own products, was
Speaker 1: able to combine all those things in one place, and
Speaker 1: most importantly, could take each client and and change the
Speaker 1: portfolio per their situation. And so I went to all
Speaker 1: my clients, including Creative Planning and said, you know, I'm
Speaker 1: going this is what I want to do. And the
Speaker 1: owner of Creative Planning was basically like he had had
Speaker 1: those two former partners. One had died very young, one
Speaker 1: became disabled very young, and he said, you know what,
Speaker 1: I've had enough of this. You know, if you want
Speaker 1: to buy, if you want to take over Creative Planning,
Speaker 1: go ahead. So did you do this yourself? Did you
Speaker 1: bring in partners? Did you bootstrap it? How? How did
Speaker 1: this transaction? I mean, we're talking about a firm that
Speaker 1: had a couple hundred thousand of revenue. There wasn't I
Speaker 1: mean it was so it wasn't a multimillion. I mean,
Speaker 1: we're there and basically made monthly payments for a few
Speaker 1: years and it was over. It was not We're talking
Speaker 1: about a few dozen clients, and so what it was
Speaker 1: really the advantage for me was I didn't have to
Speaker 1: go create from al a from scratch. There was one there.
Speaker 1: I already knew those those clients, and so I could
Speaker 1: skip this like six month period of figuring all that
Speaker 1: out and get on with it. Even even more, it's
Speaker 1: like eighteen months by the time you're done with everything.
Speaker 1: We did hours from scratching, you find yourself spending a
Speaker 1: one amount of time with lawyers and accountants and compliance
Speaker 1: people just to launch the farm, right, so you bypass that.
Speaker 1: So now it's oh, four oh five, you're a hundred
Speaker 1: million dollars in assets. When do things really start to
Speaker 1: scale up? You're now forty five billion. That's a big jump,
Speaker 1: you know it was. It was really instant in terms
Speaker 1: of percentage growth. I mean every year it seemed it
Speaker 1: was thirty or thirty growth, and it's never really stopped.
Speaker 1: I mean they've been a couple of little more than
Speaker 1: that in a couple of years, a little below that.
Speaker 1: I mean the numbers change obviously, you know three years
Speaker 1: ago where at eighteen billion, and now we're at almost
Speaker 1: forty five. That seems crazy, but it might even be
Speaker 1: a slower growth rate than when we went from a
Speaker 1: hundred to five hundred. I think what we were doing
Speaker 1: in the beginning was very innovative, and it doesn't sound
Speaker 1: like it today to have a firm that was, you know,
Speaker 1: dropping its dual registration, was totally independent. We were using
Speaker 1: e t F. So I remember hearing from Van Vanguard
Speaker 1: rep that we had larger holding of indexes than any
Speaker 1: independent r A A. I'm hearing that No. Nine or
Speaker 1: I remember having to explain when E T F was
Speaker 1: two clients what pastive investing was. And then we were
Speaker 1: doing the legal and tax and all of that in
Speaker 1: one place. The way we delivered it was very efficient,
Speaker 1: and we we were doing including the planning without a
Speaker 1: separate feedback. Then if you're reading all the financial stuff,
Speaker 1: it said, this is stupid. No one will value it
Speaker 1: if you do it for free, and you always have
Speaker 1: to charge. And so there were just a maybe six
Speaker 1: or seven things we were doing that no one else
Speaker 1: was doing that. Today a lot of people are doing um.
Speaker 1: But the difference is today that's not enough. Today you
Speaker 1: have to be more specialized, you have to be faster,
Speaker 1: you have to cost less, you have to have much
Speaker 1: much more credential people. It's gotten way more competitive. You know,
Speaker 1: if I started this today, it wouldn't worked, right. I
Speaker 1: think that back then it was very unique. It was
Speaker 1: it was very on the front end of things, and
Speaker 1: it allowed us to build a lot of a lot
Speaker 1: of momentum. And you have a colleague that that sent
Speaker 1: me a wonderful article about cumulative advantage, which is you
Speaker 1: start to One of the things that people want in
Speaker 1: this business is they want to feel safe. You know,
Speaker 1: I mean you you if you're looking at hiring an advisor,
Speaker 1: it's sort of like a restaurant. You know, we're here
Speaker 1: in New York City. The way I picked where I
Speaker 1: was eating last night as I want to trip advisor.
Speaker 1: A trip advisor tell me where to eat last night, right,
Speaker 1: So part of it is probably going to go to
Speaker 1: a pretty good place, and the other part is I'm
Speaker 1: probably not going to throw up, right, probably probably not,
Speaker 1: probably not gonna be horrible. And I think people look
Speaker 1: at advisors the same way. I think they want to
Speaker 1: feel like, Okay, I'm at a place that's pretty safe. Okay,
Speaker 1: this place has lots of clients, big clients, pretty sophisticated,
Speaker 1: probably did a lot of due diligence. I feel safe there.
Speaker 1: I'm probably gonna do all right. I'm probably not gonna
Speaker 1: have a really bad outcome. It's just the way. So
Speaker 1: I think as you as we're sitting in this world today,
Speaker 1: people have been at nine eleven, the tech bubble, oh
Speaker 1: eight oh nine, Bertie made off. Just there's so much
Speaker 1: crap happening. Right. If you're an investor. You're really looking
Speaker 1: at at this landscape and going, you know what, the
Speaker 1: guy with two million dollars makes me a little nervous. Um.
Speaker 1: And now not everybody thinks that there's a path for
Speaker 1: the guy with two hundre million dollars, but there are
Speaker 1: gonna be some people that person encounters that goes you know,
Speaker 1: when you're bigger, or they might not use those words,
Speaker 1: but that's what I had a lot of people that
Speaker 1: didn't sign up with me in the first few years
Speaker 1: that signed on years later, like say, my mom and dad,
Speaker 1: I've been calling you president. Is that right? Good enough? Yeah?
Speaker 1: The bro chief investment officer, chairman? Is there a preferred title?
Speaker 1: Really it doesn't matter. But but you are the head
Speaker 1: Han show at Creative Plants, which is a billion? Can
Speaker 1: I call you forty five billion dollars? Is that? Are
Speaker 1: you just very close? Depends on I guess it depends
Speaker 1: on when this Brookt is going. That's right, depends on
Speaker 1: where the market closes. Um. So let's talk about those
Speaker 1: numbers because they're crazy. When you when you took over
Speaker 1: the firm and O four it was it was a
Speaker 1: hundred and change a hundred million dollars not a lot
Speaker 1: of firm funds. How do you scale up that a
Speaker 1: u M from a few million dollars to almost forty
Speaker 1: billion dollars. Well, I think you have to have a
Speaker 1: couple of different things. So I think that one, you
Speaker 1: have to have a sound investment philosophy that's kind of
Speaker 1: worked out for people. Right, You're not going to get
Speaker 1: through all of those things and have your clients referring
Speaker 1: other clients and aggregating their assets with you unless you
Speaker 1: deliver on your promises. As one, you have to have
Speaker 1: an investment approach that works. I think. Second, you have
Speaker 1: to have more than that, um and and so we
Speaker 1: we have more than that. We've been planning and legal
Speaker 1: and tax and trust services and institutional services and all
Speaker 1: of those things. UM. Third, you have to have the people.
Speaker 1: And I think this industry, and I've spoken about this
Speaker 1: a couple of times before with you, the people in
Speaker 1: this industry are tremendously underrated, and I think they're viewed
Speaker 1: as interchangeable. And if you watch the behavior of a
Speaker 1: lot of financial services firms, they view the people as interchangeable.
Speaker 1: Like you look at some of these firms now, there's
Speaker 1: a lot of press around them, preparing for the next recession.
Speaker 1: At low rates, they're not going to make as much
Speaker 1: money holding money, So what do they do. A lot
Speaker 1: of them aren't firing their bottom performers. They're firing their
Speaker 1: highest compensated people, which you know, presumably are their highest
Speaker 1: compensated people because they rose to levels the highest performers,
Speaker 1: and they go in and go, we're gonna fire all
Speaker 1: those people, which obviously the assumption is that other people
Speaker 1: will just naturally make that work out. I don't hold
Speaker 1: that view at all. I think that, you know, when
Speaker 1: I have a I'm looking for health care for someone
Speaker 1: in the family or myself, or I'm looking for a lawyer,
Speaker 1: I do not view all physicians are lawyers equally. But
Speaker 1: this industry really views people as equal, and I never have.
Speaker 1: I mean, from the very very first higher I knew
Speaker 1: the importance of people. And I've personally witnessed and received
Speaker 1: the consequences of mostly wonderful hiring and you know, a
Speaker 1: couple of really bad hires. And if you attribute almost
Speaker 1: a huge percentage of the success to getting the right
Speaker 1: type of people, and really the biggest grief I've had
Speaker 1: in my career to one or two people I hired
Speaker 1: that were mistakes. How many employees are you up to now?
Speaker 1: About six? So at a certain point you're no longer
Speaker 1: interviewing every single person, right, you know, I'm in I'm
Speaker 1: interviewing them all, but you're you're the final check off. Yeah,
Speaker 1: that's a better way to put it. I mean I'm
Speaker 1: not running that. I mean before they're getting to me,
Speaker 1: they've been through a background check at the blian's check,
Speaker 1: They've they've interviewed with a talent acquisition team, the head
Speaker 1: of their department, usually somebody else. Then they're coming to me.
Speaker 1: But I would say, you know, one and three is
Speaker 1: not getting past me after even after all of that. Um,
Speaker 1: it's just for I have a of the firm as
Speaker 1: a whole, um and I have you know, sometimes if
Speaker 1: you've got ahead of the department, they really have a
Speaker 1: need right that you you have this you want to
Speaker 1: fill it. Right. So you're interviewing somebody and you're looking
Speaker 1: for reasons to hire them, and I'm really looking for
Speaker 1: somebody in going if this doesn't work out a year
Speaker 1: from now, why is that? What is it about this
Speaker 1: person of interviewing that's not going to feel? Uh? That
Speaker 1: could be the reason for that, I'm gonna look at
Speaker 1: the investments the same way I'm looking at a DO investment.
Speaker 1: I'm saying, if this blows up in my face, right,
Speaker 1: I've got to explain this to clients a year from
Speaker 1: now or ten years from now. What what was the
Speaker 1: scenario that made that happen? And so I'm I'm trying
Speaker 1: to think my way through those sorts of things. Sometimes
Speaker 1: the person is a wonderful person, but I don't think
Speaker 1: they're gonna be satisfied in that role. They're taking their
Speaker 1: switching under the wrong circumstances. There was one person that
Speaker 1: interviewed with us from another firm, and he just so
Speaker 1: treated badly at the other firm. And I really am
Speaker 1: not want to hire somebody is leaving something when I
Speaker 1: are somebody that's coming to something. We ought to hiring
Speaker 1: him a couple of years later. But I'm looking at
Speaker 1: more of those things, and and that I am all
Speaker 1: the things have already been figured out by others. I've
Speaker 1: had a number of CEOs, both from within finance and
Speaker 1: from other industries, say hiring is the single hardest thing
Speaker 1: they do, and it feels sometimes like the outcome can
Speaker 1: be random people that all right, that person will work
Speaker 1: out and they're become a superstar or someone they're convinced
Speaker 1: is going to be perfect for the role and it
Speaker 1: doesn't work out. Do you think hiring is Is that
Speaker 1: challenging and that important? Well, that that important? You can't
Speaker 1: you really can't overstate how important it is and the
Speaker 1: positive and negative side of this business. On the randomness,
Speaker 1: I don't think it's random. I think you're gonna have
Speaker 1: some random, random outcomes. But I think our hiring process
Speaker 1: is probably more likely to have success than say another one,
Speaker 1: and there's probably somebody that is more likely to have
Speaker 1: success than we are. So I think there are certain
Speaker 1: things you can control that are gonna narrow the field
Speaker 1: of outcomes. I had a person who at the time
Speaker 1: had a bunch bigger firm than me, had said had
Speaker 1: told me about hiring that he looks at the world
Speaker 1: and he's there's a there's a a social curve out there.
Speaker 1: There's some crazy person that's going to script your firm.
Speaker 1: There's some malicious person, there's some psychopath, you know, whatever
Speaker 1: percentage of the population fits those things. And then there's
Speaker 1: all these wonderful people, but they're not bright. There's bright
Speaker 1: people that aren't wonderful. And he's like, I'm looking at
Speaker 1: this whole social curve and when and I'm trying to
Speaker 1: keep the bad part, that standard deviation that's way off
Speaker 1: on the I'm trying to keep that away from my firm,
Speaker 1: and I'm trying to get the other end. And I
Speaker 1: thought there was an interesting way to look at it.
Speaker 1: You hiring is not random, like just pulling somebody off
Speaker 1: the street. You can really do a lot of things
Speaker 1: that are objective and some that are subjective to really
Speaker 1: narrow the range of outcomes you're gonna have. There's still
Speaker 1: gonna be surprises, but I will tell you every year
Speaker 1: we have less surprises than we've had before. And I
Speaker 1: think we've just gotten better at identifying all those things
Speaker 1: that derail somebody. In part of it, there's every Every
Speaker 1: culture has something different. Our culture is a very rapid pace.
Speaker 1: It's a very high energy culture, um very high expectations.
Speaker 1: Sometimes you can have somebody that's brilliant and wonderful, but
Speaker 1: it's just not that's just not their style, right, So
Speaker 1: some of this is stylistic too. You can screen for
Speaker 1: some of that. So you mentioned you work with Vanguard.
Speaker 1: I think you also work with d f A. Is
Speaker 1: that correct? A black Rock State Street, so you basically
Speaker 1: we do the same thing. You basically have a bias
Speaker 1: towards passive but not purely passive. Is that fair? That's fair?
Speaker 1: And then we use a lot of alternatives for our
Speaker 1: clients that have five million or more. So that's a
Speaker 1: question I had for you later on, but we might
Speaker 1: as well talk about it now. Private equity is hot
Speaker 1: as a pistol. As we work our way towards some
Speaker 1: of the larger, more sophisticated family offices and ultra high
Speaker 1: net worth investors, they're very interested in alternatives. How do
Speaker 1: you reconcile? Hey, look, we're passive over here, but we're
Speaker 1: gonna put some money in with alternatives. They're a little pricey,
Speaker 1: and we don't exactly have a lot of transparency into things,
Speaker 1: but some of the returns have been really good. How
Speaker 1: how can you reconcile those two? Well? I don't, I
Speaker 1: don't think, I mean to me, it's I don't have
Speaker 1: to reconcile the bond market in the stock market. They're
Speaker 1: different markets, they have different outcomes, and so I don't
Speaker 1: view it as conflicted, you know whatsoever? I think that
Speaker 1: I believe that the US large market international markets are
Speaker 1: generally efficient or efficient enough that I'm not going to
Speaker 1: outsmart them. Right. I know your firm feels the same way.
Speaker 1: So I'm just not going to play that game, right,
Speaker 1: I'm gonna figure out what the client needs, what return
Speaker 1: they're trying to hit, how much volatility they can handle
Speaker 1: to get there, and I'm going to create some mix
Speaker 1: that I think has the highest probability of creating that outcome.
Speaker 1: And you know, when I add bonds, my expectation as
Speaker 1: the bonds are gonna underperform equity, right, So I mean,
Speaker 1: although we could point out that there have been long
Speaker 1: periods of time the past three decades where bonds did
Speaker 1: really well versus equity. Yeah, but in general, right, most
Speaker 1: of our clients, their their timeline is multidecade, and the
Speaker 1: odds they're gonna underperform with bonds are very high. Yet
Speaker 1: we introduce bonds into the portfolio. We do that because
Speaker 1: they might have short term income needs. We've got to
Speaker 1: make sure we can deliver that to them. Even if
Speaker 1: there's an O eight on nine crisis or tech bubble
Speaker 1: or at night eleven. It's not about you know, maximum
Speaker 1: performance to introduce the bonds you're you know, you're introducing
Speaker 1: something that will probably underperform in exchange for making sure
Speaker 1: we don't blow up the portfolio by withdrawing from stocks
Speaker 1: when they're down right. What about the behavioral side of
Speaker 1: I know a number of UM people who advocate equity portfolio,
Speaker 1: which in theory does well until you hit an O
Speaker 1: eight O nine where things get cut in half and
Speaker 1: people have a tendency to jettison stocks at the worst
Speaker 1: possible moment at the lows, and then they missed the
Speaker 1: whole recovery. How do bonds fit into the behavioral side
Speaker 1: of a portfolio? I really think the behavior most of
Speaker 1: it can be controlled through education and empowerment. So I
Speaker 1: think if you're a pure money manager, I think getting
Speaker 1: somebody to get through a drop is gonna gonna be
Speaker 1: pretty tough. But if you're seeing them throughout the year
Speaker 1: and you're educating them on hey, you you're stocks or
Speaker 1: you're nine stocks, if the market goes down fifty, you
Speaker 1: can expect to go down fifty maybe more, you know,
Speaker 1: depending on what other other asset classes we have subasset classes,
Speaker 1: whether it's international, emerging markets or small cap or whatever, um,
Speaker 1: And here's what's going to happen. And here is why
Speaker 1: the dividends are enough to meet your needs and so
Speaker 1: you don't need to worry about it. And here is
Speaker 1: historically what's happened. If you're having those discussions all the time,
Speaker 1: then when it happens, you're more likely to get through it.
Speaker 1: But I think the reality is most people can't afford that.
Speaker 1: So even if you're sitting with a couple and it's
Speaker 1: a doctor and he's sixty eight, he's got four million
Speaker 1: dollars because she and her husband have been saving for forever,
Speaker 1: and um, you know they need a couple year. They
Speaker 1: can't be all stocks because if the market goes down
Speaker 1: at half, the dividends are not enough to meet their needs.
Speaker 1: So almost everybody has to have bonds in their portfolio,
Speaker 1: you know, even the top one percent. And when you
Speaker 1: get to the top one one they don't need bonds
Speaker 1: in their portfolio, right. The dividends really are enough, and
Speaker 1: they are more focused on even tying it up more
Speaker 1: than markets with you know, things like alternatives. So for me,
Speaker 1: bonds are about how how much bonds do I need
Speaker 1: to meet their needs? If something goes wrong in the
Speaker 1: short run and then it stocks for the long run.
Speaker 1: And what about since you mentioned this in terms of
Speaker 1: of income, what about people who are living in high
Speaker 1: tax states where there is a fairly robust municipal bond
Speaker 1: market that can generate tax free income. Well, I think
Speaker 1: that the municipal bond markets completely distorted now because of
Speaker 1: what's pension plans having to allocate to bonds and the
Speaker 1: aging population of people that are in those pension plans. Uh,
Speaker 1: and the tax law really pushing money to bonds. And
Speaker 1: it's very hard to take a client today and say,
Speaker 1: let's go putt of your money and municipal bonds. Was
Speaker 1: that an option years ago? Absolutely? I think that. I
Speaker 1: think three years ago, you know what it was real
Speaker 1: it was, it was an option. I think that when
Speaker 1: you're now where you're at, it's it's just you can't
Speaker 1: justify it. You look at the dimdend on stocks and
Speaker 1: and you compare it to bond yields, and it's it's hard.
Speaker 1: You and I had a conversation over the summer about
Speaker 1: the acquisition space that I found fascinating and I wanted
Speaker 1: to um delve back into that because quote, it's the
Speaker 1: hottest that's ever been, and possibly the hottest that will
Speaker 1: ever be. It's just bonkers right now. I don't know
Speaker 1: where the top is, but it ain't gonna get a
Speaker 1: whole lot better than right here. I'm paraphrasing, but it's
Speaker 1: pretty close to what you said. Why is M and
Speaker 1: A in the registered investment advisory space so hot today?
Speaker 1: I think you have a lot of different things. So first,
Speaker 1: I think you see this rotation um institutional investors moving
Speaker 1: money out of hedge funds where they've looked at orically
Speaker 1: and said, hey, hedge funds haven't done that great for
Speaker 1: us for the last twenty years, but these other alternatives
Speaker 1: have in many cases outperformed the market for us, and
Speaker 1: so they're rotating to those. And one of those asset
Speaker 1: classes as private equity, So you have the big funds
Speaker 1: are bigger than ever. I mean just you can't go
Speaker 1: a month or even a week and not see about
Speaker 1: a big private equity family raising their biggest fund ever.
Speaker 1: So that's number one, the big In fact, Mackenzie, the
Speaker 1: data point I just was reading about. Mackenzie said, by
Speaker 1: the end of that calendar year, private equity had raised
Speaker 1: seven fifty billion in new funds, UH and Fresh Capital.
Speaker 1: That's a lot of months crazy, So the big have
Speaker 1: gotten bigger. The second is there's a lot more private
Speaker 1: equity funds. There's now over eight thousand private equity funds.
Speaker 1: There's way more private equity funds than there are stocks UM,
Speaker 1: so so we have more funds with more money. So
Speaker 1: that's number one, right, just a bunch of just this
Speaker 1: huge slash of liquidity out there. Second, we have very
Speaker 1: very low interest rates. And when private equity goes in
Speaker 1: and buys a business, they don't usually just write a check.
Speaker 1: They usually do the same thing a real estate fund
Speaker 1: when they does when they buy a property, they use leverage.
Speaker 1: So they're borrowing money to buy the firm, right that
Speaker 1: the company they're buying. And so if interest rates are lower,
Speaker 1: they can obviously pay more, just like your listeners can
Speaker 1: buy more house if the mortgage is lower. Right. So
Speaker 1: you have very low interest rates, more funds, bigger funds, UH,
Speaker 1: and high net worth investors are starting to move more
Speaker 1: to private equity too. So all there's all that money
Speaker 1: over there, Now, what do they want? They want to
Speaker 1: be in an industry that is growing fast, has recurring revenue,
Speaker 1: has built an inflation hedge, UM, where people are sticky, uh,
Speaker 1: and where there's a need for consolidation right where they
Speaker 1: can take you know, Mary over here, he's doing a
Speaker 1: pretty good job, and Joe over there, he's doing a
Speaker 1: pretty good job. But together, wow, they could really be
Speaker 1: impressive because Mary is good at this and Joe is
Speaker 1: good at that. Well, what checks the boxes on all
Speaker 1: of those things about are a space sure money is sticky,
Speaker 1: market goes up there as your inflation hedge, and uh,
Speaker 1: it's recurring quarterly revenue stream although I think UM a
Speaker 1: handful of places rannual, handful of places a monthly, but
Speaker 1: for the most part it's a quarterly UM invoice the right.
Speaker 1: And they compare that to all the other areas of
Speaker 1: the financial space where there's more client turnover and people leaving,
Speaker 1: and they're going, you know what, this is the space
Speaker 1: to be in and not what a coincidence. The space
Speaker 1: to be in is the space that's really in its
Speaker 1: early stages. You know, there's a lot of room to
Speaker 1: improve some of these places. So yeah, there's a huge
Speaker 1: loss of money with very low interest rates going into
Speaker 1: a space that is attractive for a bunch of you know,
Speaker 1: Fluke reasons, and all this timing comes together, and you
Speaker 1: now have private equity coming into this space um to
Speaker 1: buy up firms. And the other thing is they've been
Speaker 1: very successful at it, right, So somebody who's just built
Speaker 1: a five million dollar firm or a ten billion dollar
Speaker 1: firm is probably not the person usually right to run
Speaker 1: a much much bigger firm. And they know that and
Speaker 1: they don't want to do that. Like I know, I
Speaker 1: don't want to run a publicly traded company, right, So
Speaker 1: I've been approached several times about, hey, you guys should
Speaker 1: go public. That's never happening with me. I've got clients
Speaker 1: that are CEO CFOs of publicly traded companies that they
Speaker 1: are not happy no. And I am very focused on
Speaker 1: my quality of life, and I just I look at
Speaker 1: them and they just look like they're aging every every review,
Speaker 1: they're aging twice as fast as all other. So it's
Speaker 1: back up a sect because this is really a fascinating digression.
Speaker 1: Most companies, when they go public, they're going public for
Speaker 1: one of two reasons. Reason Number one, they need capital
Speaker 1: to either grow or make acquisitions or some other financial
Speaker 1: engineering that's part of their long term business plan or two,
Speaker 1: they end their staff and their outside investors, typically venture
Speaker 1: capitalists or whoever, are looking for an exit. Yeah, you
Speaker 1: don't seem to have either of those issues. No, I don't.
Speaker 1: So that's would be another reason I would I would
Speaker 1: never do that. So so, and you are still the
Speaker 1: main owner, the soul owner of Soul one today, Soul one. Really,
Speaker 1: at what point does that change? Because I know we
Speaker 1: went through a whole process of setting up a path
Speaker 1: to equity for employees. You guys have been growing so
Speaker 1: crazy fast for so long that that hasn't really come
Speaker 1: up to the four yet. No, I mean that's part
Speaker 1: of it. I have a lot of partners in our
Speaker 1: affiliated entities. So there I have partners with the law
Speaker 1: firm and the the benefits firm, and the forward K
Speaker 1: firm and the and the those are all separate corporate entities,
Speaker 1: all creative planning entities, all operating out of the same place,
Speaker 1: all helping the same clients. So once there's been stable growth,
Speaker 1: I've always had partners and favor them in those areas
Speaker 1: and creative planning. It's just been such rapid growth and
Speaker 1: it's required so much capital. I mean it, there's that's
Speaker 1: never made sense to do it. I don't know that
Speaker 1: anyone would have really enjoyed the ride um and what
Speaker 1: it was going to take, uh financially along the way
Speaker 1: to do to do the or the commitments or the
Speaker 1: deferral and the patients to do this um. But we
Speaker 1: we were are considering and have for a long time
Speaker 1: considered raising money by selling a minority stake to a
Speaker 1: private equity firm because I do think that valuations are high,
Speaker 1: and I do think that the world moves very very
Speaker 1: very fast, and you are going to need money to
Speaker 1: get through it. If you look at how these big
Speaker 1: financial firms are doing it, they're doing it by preemptive layoffs, right,
Speaker 1: That's that's what they're doing now. And I would like
Speaker 1: to do it by a preemptive pile of money sitting
Speaker 1: in the bank so that no matter what happens when
Speaker 1: there's a contraction, that we can go take advantage of that.
Speaker 1: And that that's what we did in O eight oh nine.
Speaker 1: We grew rapidly through that crisis, and I want to
Speaker 1: be able to grow rapidly through the next one, which
Speaker 1: means I not only want to keep my team enforced,
Speaker 1: I want to go find more talented people and focus
Speaker 1: on getting clients and not worry about about reserves. So
Speaker 1: you mentioned oh eight oh nine, Um, I have to ask,
Speaker 1: how do you grow in the middle of a rices
Speaker 1: where every time you buy equity a week later, or
Speaker 1: or a fund or an et F or anything a
Speaker 1: month later, it's down five or ten or fift How
Speaker 1: did you manage both existing clients and growth throughout the
Speaker 1: Great Financial Crisis? So back then there were only a
Speaker 1: few of us, and so I was in every single
Speaker 1: client meeting of every client of creative planning back then.
Speaker 1: And a very very big part of this was education.
Speaker 1: So when you're doing needs based investing instead of risk
Speaker 1: based investing, so most places are like, well, this is
Speaker 1: your risk tolerance, and here's your portfolio for for you
Speaker 1: or your this age. Here's your portfolio. Have five models,
Speaker 1: you go to the closest model. We've never done that,
Speaker 1: even on day one, and we don't do it today.
Speaker 1: We've really said, you know you've got real estate, We're
Speaker 1: going to leave that out here. You you your belief
Speaker 1: system doesn't match these, will leave them out. You want
Speaker 1: more of that. It does work for your situation. But
Speaker 1: here's how we're gonna cover your short run in your
Speaker 1: long run, and here's all the horrible things that are
Speaker 1: probably gonna happen in the investment world with your life. Well,
Speaker 1: when you're going through that with people um over and
Speaker 1: over again, they're sticky. And we were we were doing
Speaker 1: their planning, we were doing there, we were doing a
Speaker 1: lot of different things for them, and so when they
Speaker 1: were going through this crisis, they were not surprised. I
Speaker 1: think people panic when things are not aligned with their expectations,
Speaker 1: and so it was a big shake up and a
Speaker 1: lot of people were leaving their advisors, and our clients
Speaker 1: were referring people to us. Now, there were a couple
Speaker 1: of things we were doing too, but I think we're
Speaker 1: very proven out, very quickly, very very basic things. So
Speaker 1: we were tax harvesting, for example, which you didn't hear
Speaker 1: a lot about back then. And the other thing we
Speaker 1: did is we we we have a feeling we don't
Speaker 1: balance at the end of the year. We don't balance
Speaker 1: every quarter. We balanced on sharp market drops. So let's
Speaker 1: just take the O eight crisis that you brought up.
Speaker 1: It bottomed in the beginning of it bottomed around March
Speaker 1: nine of oh nine, and the market just those nine
Speaker 1: days of March had dropped about we're buying, right, So
Speaker 1: we're calling our clients and we're buying and we're harvesting.
Speaker 1: By the end of that month, the market had recovered
Speaker 1: all of the losses for OH nine, not all all
Speaker 1: from OH eight, It was just up thirty plus percent.
Speaker 1: So if you take just a seventy thirty portfolio and
Speaker 1: you're buying not at the end of the quarter a year,
Speaker 1: but on when it's dropping and you're harvesting, what do
Speaker 1: you get. You're not breaking even when the market does
Speaker 1: four or five years later, you're breaking even. You take
Speaker 1: a take and a half the time to get to
Speaker 1: break even, and you have losses on your tax return,
Speaker 1: and that creates advocacy, right. And so that was really
Speaker 1: the explosion for creative planning was those clients going, you
Speaker 1: know what, I feel confident to tell my friends. I
Speaker 1: think there's a lot of people that are happy with
Speaker 1: their lawyer or their c p A, or their financial
Speaker 1: advisor or their doctor, but they're not positive that they're
Speaker 1: going to look good if they refer somebody to you, right,
Speaker 1: And I think that what you do through a crisis
Speaker 1: is you get a chance to prove yourself. So I
Speaker 1: really view all of those as tremendous opportunities of Hey,
Speaker 1: we told you this is the scenario that would happen.
Speaker 1: Here's why you're okay, here's exactly what we're gonna do.
Speaker 1: And then they see the outcome. They but they go
Speaker 1: from clients to advocates. And that was the turning point
Speaker 1: for us. And so you know, you talk about the
Speaker 1: the power of luck and all of this, and I
Speaker 1: don't want to say I would root for another oh
Speaker 1: eight o nine. I mean, it's painful to go through
Speaker 1: and long hours and a lot of stress, and not
Speaker 1: everybody's not every clients like hooray. I get the opportunity here, UM,
Speaker 1: but there's no question that without it, creative planning is
Speaker 1: not what it is today. Quite quite fascinating. One last
Speaker 1: question I have to ask about acquisitions because it circles
Speaker 1: back to um your reference that it's the hottest it's
Speaker 1: ever been. We met with a bunch of consultants early on,
Speaker 1: and pretty much the number everybody uses is two x
Speaker 1: trailing years revenue or two point two times trailing twelve.
Speaker 1: And that was, you know, six seven years ago, you
Speaker 1: and I had discussed the numbers today that are being
Speaker 1: used for acquisitions. They don't even remotely resemble that anymore.
Speaker 1: I do that, No, I mean I think that. What's
Speaker 1: I think what people have figured out is we've now
Speaker 1: moved to a level where a lot of these are
Speaker 1: enterprises and all anyone cares about now is the future
Speaker 1: earnings of these businesses. And so you can have a
Speaker 1: five million dollar firm that's running on a ten percent
Speaker 1: margin and you can have a five d million dollar
Speaker 1: firm that's running on a thirty five percent margin. They're
Speaker 1: going to have wildly different valuations um when a strategic buyer,
Speaker 1: a private equity buyer comes in. That that's definitely changed
Speaker 1: a lot in the last few years. So so what
Speaker 1: sort of multiple are you looking at for Let's take
Speaker 1: the average one percent firm, which is now probably a
Speaker 1: high fee. We were playing with numbers the other day
Speaker 1: and we were about sixty two bits on average across everything, um.
Speaker 1: But the typical firm is one percent or so, and
Speaker 1: their overhead is primarily either technology, their rent and their employees.
Speaker 1: What's the reasonable multiple for the average farm on either
Speaker 1: revenue or profits? Well, revenue is I don't have no one,
Speaker 1: but yeah, that no one would pay attention to that.
Speaker 1: I mean it's a great example, is well. I mean
Speaker 1: the expenses of those places could be wildly different depending
Speaker 1: on where their rent is and how do their employees
Speaker 1: produce on their own and get bigger payouts, or it's very,
Speaker 1: very wildly different. I'd say if you look, you're looking
Speaker 1: at these five million dollar firms, um, the multiples could
Speaker 1: be as low as five and as high as seven
Speaker 1: or eight or sometimes profits at times profits, And I
Speaker 1: think that people are looking at even the profits isn't enough.
Speaker 1: Like if the average client is seventy eight and there's
Speaker 1: no new clients coming in, you're looking at declining earnings, right,
Speaker 1: So you would have somebody say I'm not gonna buy
Speaker 1: this at all, or it's going to be two times
Speaker 1: or three times filings. You could have a firm like yours.
Speaker 1: You know where you're growing, but there's a mojo factor, right,
Speaker 1: Like there's a there's something that that could really spark
Speaker 1: great greater growth. A different buyer might look at it
Speaker 1: and go, there might be more risk here, right, And
Speaker 1: so I think that you've got that is a very
Speaker 1: big factor, especially when you're looking at these firms that
Speaker 1: are three millions eight hundred million, Where is it's totally
Speaker 1: dependent on one person, or are people tied to other people?
Speaker 1: What's the average age our accounts growing, or people referring
Speaker 1: or they're not referring. So you really need to look
Speaker 1: through all that. But you're getting to the mid the
Speaker 1: mid range. You know, when you get up to firms
Speaker 1: your size where you're billion more, you could be talking
Speaker 1: double digits um, and you get to the very large firm,
Speaker 1: you're definitely in the in the double dish. So it's
Speaker 1: it's much more complicated than we tend to see in
Speaker 1: the headway because do you see oh, so and so,
Speaker 1: but it's such a company, or here's the fifth acquisition
Speaker 1: done by this company, and they kind of make it, oh,
Speaker 1: there's this much revenue, here's the multiple, and this is
Speaker 1: their seventh acquisition this month. I don't think that ever,
Speaker 1: that ever happens where where someone looks at the revenue
Speaker 1: anymore and makes a decision based off of that. Let's
Speaker 1: talk a little bit about investor expectations. Ten year bond
Speaker 1: yields are but under two percent. It's hard to look
Speaker 1: at US stocks and not say they're let's call it
Speaker 1: fully valued, richly valued. I don't know, I don't know
Speaker 1: what phrase you want to use. What sort of future
Speaker 1: expected returns should investors have today? Well, I think what
Speaker 1: you can never figure out the stock market completely, but
Speaker 1: the bond market is largely math, right, so we we
Speaker 1: know we can't replicate in the next thirty years what
Speaker 1: the bond market did in the last thirty years. So
Speaker 1: since it's all a function of of where the yield is,
Speaker 1: I think when you look at the treasury, it sets
Speaker 1: the tone for everything else. Right, If the treasury is
Speaker 1: under two and corporates are a little bit higher than are,
Speaker 1: expected return for large stocks is a little higher, some
Speaker 1: would argue for small stocks might be a little higher,
Speaker 1: or maybe emerging markets, and you you go out that way.
Speaker 1: So you've gotta get rid of this double digit return
Speaker 1: expectation and move yourself into the squarely into the single
Speaker 1: digit range, somewhere in the mid to hire single digits,
Speaker 1: depending on your allocation of bonds and your beliefs around
Speaker 1: uh markets that are certainly not overvalued, like emerging markets,
Speaker 1: are small, kept international, and do you believe that they're
Speaker 1: low valued at a low price now, because it's just
Speaker 1: gone and it's never going to recover or or or
Speaker 1: do you think they're at a low price because things
Speaker 1: are a little messy and they're gonna get worked out
Speaker 1: like they did in the in the US UM. So
Speaker 1: you can make your argument, but it's very hard to
Speaker 1: make an argument for the double digit returns that people
Speaker 1: were making in the nineties. So a blended portfolio seventy
Speaker 1: thirty including exposure to international and emerging markets five six
Speaker 1: seven percent is that a reasonable in our projections, we're
Speaker 1: using a four percent real return. These six percent return
Speaker 1: subtract inflation, and we feel pretty comfortable with that. So
Speaker 1: that brings up the issue we briefly talked about earlier,
Speaker 1: which is alternatives, most notably private equity. People have a
Speaker 1: h story of saying I'm not getting the sort of
Speaker 1: returns I want, so I'm gonna either look for something
Speaker 1: that perhaps has more risk um and try and achieve
Speaker 1: those returns. I don't get the sense you look at
Speaker 1: private equity that way, or am I am I oversimplified? No,
Speaker 1: you're right, and I think this is a point you
Speaker 1: know that we disagree on. Right. I think that that
Speaker 1: when when I look at the public markets, I don't
Speaker 1: think you're going to find a bigger advocate for that.
Speaker 1: Those markets are pretty efficient. My entire book Five Mistakes
Speaker 1: is basically about, here's all the evidence that you just
Speaker 1: gotta quit market time and quit six stock picking and
Speaker 1: focus on allocation and discipline. So, by the way, you
Speaker 1: and I completely sympatica with that. Let's see how much
Speaker 1: space is between us on venture capital, hedge funds, and
Speaker 1: private equity. Now vent your capital, I would put it. So,
Speaker 1: I think one of the problems with alternative investments is
Speaker 1: everyone talks about alternative investments like it's one thing, and
Speaker 1: it's it's not. It's it's not. So alternative investor investments
Speaker 1: is basically an alternative to anything that's not a publicly
Speaker 1: traded stock or in the real estate. Right. So you know,
Speaker 1: if you've got a listener that owns a duplex, that
Speaker 1: they're running out there in the alternative investment business, right.
Speaker 1: And so you own a farm and someone's actually farming it,
Speaker 1: that's welcome to the alternative investment, direct investment in real
Speaker 1: estate or something else exactly. And so now when you
Speaker 1: take alternate investments, we can divide them out into a
Speaker 1: couple of things. One area we agree on it I
Speaker 1: don't think hedge funds work. Now why do I not
Speaker 1: think they work? Is it because the evidence of the
Speaker 1: last twenty years? But it doesn't work? No, it's not
Speaker 1: really that. It's because there's evidence that the stock market
Speaker 1: is fairly efficient, and what is a hedge fund. Hedge
Speaker 1: fund is basically overpaying somebody to create even more negative
Speaker 1: tax consequences to trade within the stock market usually usually right, So,
Speaker 1: now we've got a market that's pretty efficient, and we're
Speaker 1: increasing the taxes and fees and somehow expect to beat
Speaker 1: that market. It doesn't surprise me, right, that that hasn't
Speaker 1: worked out well for the overwhelming majority of people that
Speaker 1: have invested in hedge funds. And you see institutions saying, hey,
Speaker 1: this doesn't work. Great, we're not doing this anymore, and
Speaker 1: they're taking their money and they're moving it to private
Speaker 1: real estate and private equity. Now, why are they doing that?
Speaker 1: Because there is evidence that private real estate and private
Speaker 1: equity has worked out. So the question is is it
Speaker 1: a fluke, is it an aberration, or is it sustainable?
Speaker 1: Now I think we now have eight thousand private equity
Speaker 1: funds instead of a few hundred, So it's you're going
Speaker 1: to have diminishing returns just with all this money chasing businesses.
Speaker 1: But I think what you're seeing as a fundamental shift
Speaker 1: in the way that the US economy is running. So
Speaker 1: I like, on Monday, I went to Los Angeles and
Speaker 1: I met two guys that started a keto diet food
Speaker 1: business and they just sold it for two and eighty million.
Speaker 1: Well they're getting to an eighty million, sold for much
Speaker 1: much more than that. Yesterday I was in Fargo and
Speaker 1: I met with somebody who was in the pharmaceutical business
Speaker 1: that's also getting a nine figure check. Who do they
Speaker 1: all sell to? And they sold a private equity. This
Speaker 1: is something that in my whole career has never happened,
Speaker 1: and in the last three years, it's happening like crazy.
Speaker 1: You brought up earlier how it's happening in our the space.
Speaker 1: We happen to be in the r A space, but
Speaker 1: it's really happening everywhere. And what you're seeing is these
Speaker 1: guys that are starting businesses, they get it to a
Speaker 1: certain size, and they're not the same person to take
Speaker 1: it to the next level. I believe that good private
Speaker 1: equity firms are better at taking those firms to the
Speaker 1: next level than they would be themselves. They know how
Speaker 1: to institutionalize, they know how to bring in a strong
Speaker 1: financial team. They have some sophistication around mergers and acquisitions. Uh,
Speaker 1: they have a lot more ways to exit. Uh. Good
Speaker 1: firm can take you public, they can sell you another sponsor.
Speaker 1: They can. I mean, that's what they do from when
Speaker 1: they get up in the morning, when they leave, is say,
Speaker 1: how do we take this business, this idea and help
Speaker 1: grow it? Are there bad apples out there? They go
Speaker 1: in and get the business and screw it up? And yes,
Speaker 1: are their complete idiots out there. Private equity running Private
Speaker 1: equity fun of course, But I don't view it like
Speaker 1: mutual fund managers, where if one mutual fund manager outperforms
Speaker 1: the other, it's probably but not always due to luck.
Speaker 1: I think when you see certain private equity funds with
Speaker 1: persistent outperformance, I do think the fact that private equity
Speaker 1: fund A has forty McKenzie consultants that have been doing
Speaker 1: it since the eighties is probably going to do better
Speaker 1: than the one that's, you know, four blocks away from
Speaker 1: my office. That's like two guys that opened up shop
Speaker 1: three years ago. They're not the same manager. Managers make
Speaker 1: a difference in the private equity space. So I think
Speaker 1: you can take that universe of private equity funds and
Speaker 1: go who's got the history, who's outperformed? Why have they outperformed?
Speaker 1: Is there is? There is the repeatable pattern here and
Speaker 1: my personal experience of watching my clients now I still
Speaker 1: am seeing clients. I see hundreds of clients and where
Speaker 1: I'm involved with our ultra fluent practice, that's mainly focused
Speaker 1: on people that have tens of millions or hundreds of
Speaker 1: millions or even more than that, and many, many, many
Speaker 1: of them got there because they built a business to
Speaker 1: a level and they sold a private equity fund. And
Speaker 1: let me tell you when their biggest payout was Barry.
Speaker 1: It wasn't their first buyout, it's their second. So what's
Speaker 1: happening is an equity fund is coming in and they're
Speaker 1: taking a stake, like the recent example I talked to
Speaker 1: you about with somebody had sold a majority interest, but
Speaker 1: the private equity funds want them in there because they
Speaker 1: want them engaged. You know, those people are the people
Speaker 1: that got the business at that level, and so they
Speaker 1: still have twenty percent or whatever the business. The second
Speaker 1: sale that's happening four or five years later, almost always,
Speaker 1: in my experience, is much much bigger than the first one,
Speaker 1: which is the proof that the private equity fund has
Speaker 1: more than doubled the value of that business when they
Speaker 1: stepped into it. Now, I've seen this and the restaurant business,
Speaker 1: and the consumer staples business, and the financial super over
Speaker 1: and over and over again. I've seen a couple of
Speaker 1: times where it's not worked out, But the overwhelming majority
Speaker 1: of the time, the client I'm sitting in front of
Speaker 1: that finds themselves worth million or a hundred and fifty
Speaker 1: million was never going to get there without the institutionalization
Speaker 1: of their practice. The private equity brought. Now does that
Speaker 1: translate into the private equity investor provacuity investors participating there?
Speaker 1: And I don't buy the fee thing either. Like when
Speaker 1: I look at the stock side and I look at
Speaker 1: the mutual funds. Yeah, if you divide out the world
Speaker 1: of mutual funds and take the ones that charge one
Speaker 1: more than one percent, they're in the bottom quartile of performers,
Speaker 1: and the ones that charge less than basis points or
Speaker 1: the top quartile. Because the market's pretty efficient. Fees matter
Speaker 1: of course, fees matter in the private equity space. If
Speaker 1: you can get the same performance and pay less, of
Speaker 1: course you would want that, but it's not the same thing.
Speaker 1: I mean the private equity firm. The good ones are
Speaker 1: involved in running the business. Now. The ones that are
Speaker 1: not so great, they just go put money in a
Speaker 1: firm and keep doing your thing, and we'll sell you
Speaker 1: three years later, no value added. I think that's thousands
Speaker 1: of private equity funds, all those, a lot of the
Speaker 1: small ones. That's what they do. So there's a lot
Speaker 1: less space between our views than you originally imagined. But
Speaker 1: for academic purposes, let me push back a little bit
Speaker 1: um And there's two things that stand out. The first
Speaker 1: is I heard very very similar things about hedge funds
Speaker 1: and to a lesser degree, venture capital um. We talked
Speaker 1: about cumulative advantage earlier. Hey, our guys are unique and
Speaker 1: special and because of our track record, we get to
Speaker 1: see the best deal flow, we get access to the
Speaker 1: best entrepreneurs. We get, we get, we get. And we
Speaker 1: heard that about vcs, we heard that about hedge funds,
Speaker 1: and it's still very much a fathead, long tailed distribution,
Speaker 1: a handful of giant winners, which if you have a
Speaker 1: couple of billion dollars come on in, We're happy to
Speaker 1: bring you aboard. Um. So, so that's pushback number one,
Speaker 1: and then pushback number two is sort of the soft
Speaker 1: bank vision fund idea. When you raise a hundred billion
Speaker 1: dollars and you have to put it to work quickly,
Speaker 1: you just distort the valuations in the space. We're watching
Speaker 1: private equity raise almost a trillion dollars a year, and
Speaker 1: you mentioned eight thousand. I guarantee you that will be
Speaker 1: nine and eleven thousand. So how does somebody who says,
Speaker 1: I appreciate the lack of volatility the non correlation um
Speaker 1: to equity, which private equity actually is much were much
Speaker 1: less correlated to stocks than venture capital or or hedge
Speaker 1: funds are. And I'm interested in this, But how do
Speaker 1: I pick out of these eight funds? And by the way,
Speaker 1: I don't have a billion dollars, I have five million
Speaker 1: or fifty million to put to work. Well, first of all,
Speaker 1: the hedge funds, they had that argument twenty years ago.
Speaker 1: We get, we're we're smarter and bigger, non correlated with
Speaker 1: this with that, but I mean twenty years ago, we
Speaker 1: had a lot of evidence that that markets were pretty efficient.
Speaker 1: I mean even in early in my career, we had
Speaker 1: that evidence, and I think all we're seeing is, you
Speaker 1: know that they've been called out that that that's just
Speaker 1: not true and that they can't beat the efficient markets.
Speaker 1: Well in the the argument is in the eighties and
Speaker 1: nineties they did, and then once there was this rush
Speaker 1: of capital and people to hedge funds space. It's you
Speaker 1: know the watchman called Jim Chandos has said, I'm always
Speaker 1: quoting him on this. Thirty years ago there were a
Speaker 1: hundred hedge funds, they all created alpha, and now there's
Speaker 1: eleven thousand. It's the same hundred hedge funds creating alpha. Yeah,
Speaker 1: I see a different I see a different reason. I
Speaker 1: think when you look at the eighties, there was no internet,
Speaker 1: so the market really wasn't efficient as efficient, right, I
Speaker 1: just I didn't. You can't buy the argument. In the
Speaker 1: eighties you could find mutual fund managers that would outperform
Speaker 1: and hedge fund managers that would outperform. When the market
Speaker 1: really became efficient and the two thousands, all of that
Speaker 1: stuff went away. I don't think as more hedge fund
Speaker 1: managers and mutual fund managers came into the space, Although
Speaker 1: that helps make a market more efficient, I think the
Speaker 1: reality is there's a kid in a garage and Malaysia
Speaker 1: that knows everything that that the hedge fund manager does,
Speaker 1: and so it's came over. Now, all this money going
Speaker 1: to the private equity space is going to dilute returns,
Speaker 1: just like all the money going to the real estate
Speaker 1: space is going to dilute returns. If you have a
Speaker 1: bunch more money changing the same amount of property, uh,
Speaker 1: you're going to have lower expected returns. More private equity
Speaker 1: um firms coming in to buy firms like yours, you
Speaker 1: now have higher valuations than you did a few years
Speaker 1: ago just because they're in the space, which means the
Speaker 1: competition has by definition created a lower expected return. Is
Speaker 1: there're only two private equity funds Chase r As, they
Speaker 1: wouldn't have to compete on price so much, they have
Speaker 1: a better expected return, but the return can still be
Speaker 1: better than the stock market And I think in the
Speaker 1: private equity space that you can find those firms more
Speaker 1: likely to outperform way easier than the stock market space.
Speaker 1: If you believe the space is not efficient, I believe
Speaker 1: the private space is not completely efficient. I believe if
Speaker 1: if I bought your firm, my expected return going forward.
Speaker 1: After I paid you some monstrous valuation that you would
Speaker 1: insist on, it would be I would have to advise
Speaker 1: you that that was insulted at what you would tell
Speaker 1: me for your price. But if we did that, my
Speaker 1: expectation would be I would have a better return than
Speaker 1: if I invest in this. And I just think that's
Speaker 1: that's the reality of it. And I think you think
Speaker 1: that um to some degree. I mean the the you
Speaker 1: talk about randomness and a little lock in things working
Speaker 1: out in the right place. I spent the first twenty
Speaker 1: years of my career turning money down, and then my
Speaker 1: epiphany was, all right, and I'm just sending people out
Speaker 1: to the wolves to be, you know, having their being shorn.
Speaker 1: We might as well do this. I'm telling them the
Speaker 1: right way to do it. I might as well execute
Speaker 1: it myself. That was quite the aha moment. And if
Speaker 1: you would have asked me five years ago, hey, you're
Speaker 1: gonna be a billion years and five billion dollars in
Speaker 1: five years, I would have laughed at you. But people
Speaker 1: respond to something that's a little different, a little outside
Speaker 1: of the box what you were offering in oh four
Speaker 1: or five or six, And through the financial crisis, nobody
Speaker 1: else was or very few people were talking in those
Speaker 1: terms and offering those services. So of course you're going
Speaker 1: to see faster growth and better returns. The big question
Speaker 1: that has to be on anybody's mind who's making investments
Speaker 1: in the r I A spaces How long can this
Speaker 1: continue to go for? Are we gonna see continuing consolidation.
Speaker 1: Can we continue to pay five and seven and nine
Speaker 1: times profits to these small companies and expect an above
Speaker 1: market return or at what point does that become, you know,
Speaker 1: just too pricey. Well, I think like, let's take a
Speaker 1: business and just assume you paid them ten times and
Speaker 1: they have a modest growth rate. That expected to return
Speaker 1: by itself is higher than people hundred right if you
Speaker 1: start to do the math um, so it just shows
Speaker 1: you that that it's not it's not totally crazy. Now
Speaker 1: it's the highest it's ever been. I don't think. I
Speaker 1: think there's a lot of things they're gonna make this
Speaker 1: party stop. One is there's gonna be fee compression in
Speaker 1: the industry still. It's ongoing and has been for a
Speaker 1: couple of years. I think creative planning has been the
Speaker 1: largest driver of the hidden fee compression in the industry,
Speaker 1: which is, which is, hey, we're not just going to
Speaker 1: manage your money for that fee. We're gonna charge you
Speaker 1: a little bit less than other places, and we're gonna
Speaker 1: do ten times more, and so we're that's a type
Speaker 1: of fee compression, right if so, in other words, you're
Speaker 1: doing planning and you're doing you're not charging additional for
Speaker 1: trust in the states, or or you have to pay
Speaker 1: those lawyers something so you know they'll come in and
Speaker 1: they'll get planning investment management. When we use alternatives, we
Speaker 1: don't have a upper fee, we don't have a pooled
Speaker 1: asset fee. That's all part of it. So now, how
Speaker 1: do you deal with the fact that these private equity
Speaker 1: firms tend to charge much more than financial planning firms charge.
Speaker 1: How does that fee another word, you're just passing along
Speaker 1: the fee or is it just goes straight through, straight
Speaker 1: through to the clo. It's passed through. You're not charging them,
Speaker 1: but you're not tacking anything on top. That's exactly right,
Speaker 1: and some sometimes we're able to negotiate breaks for them,
Speaker 1: but yeah, we're definitely not marking it up. So you're
Speaker 1: adding some complexity. We have to have a whole of
Speaker 1: their team. But we don't have a separate fee. We
Speaker 1: give legal advice and do trust funding without a separate fee.
Speaker 1: We give tax advice without a separate fee. We won't
Speaker 1: prepare a document some time with us severe and mean
Speaker 1: you don't you don't create the trust or the will
Speaker 1: that goes out to some No, we do. We do
Speaker 1: create them. We have a separate fee for it. Yeah,
Speaker 1: and there's a separate fee for that. So there's all
Speaker 1: of these all of this advice and and specialists that
Speaker 1: they can access. When our clients are trying to figure
Speaker 1: out they've retired and they're they're not a medicare yet,
Speaker 1: we have a team that does nothing but advise them
Speaker 1: on what health plan should they get and helping them
Speaker 1: implement it and all those things. So you have all
Speaker 1: of these different things that costs something, but we're not
Speaker 1: adding anything to the fee to the client. And that's
Speaker 1: what you mean by hidden fee compression. That's hidden feed compression. So, um,
Speaker 1: you know we're set up that way because that's what
Speaker 1: we philosophically believed in from the beginning. I'm super passionate
Speaker 1: about this business. I'm going to be in this business
Speaker 1: until they you know, I'm gonna die working in this business.
Speaker 1: I love this business. I love sitting down with a
Speaker 1: client and saying, here's where you are right now, and
Speaker 1: by the way, we can do these seven things and
Speaker 1: all those things you talked about that you're dreaming about,
Speaker 1: I can increase really a lot the chances all those
Speaker 1: things are going to happen for you. I love that.
Speaker 1: That's my favorite part of the of this whole thing.
Speaker 1: But that has different components to it. There's charitable components,
Speaker 1: there's legal components, there's tax components, there's investment components. That
Speaker 1: to me, is what the client values the most is
Speaker 1: getting that that advice delivered in a way that is
Speaker 1: actionable and make sense to them. That's the part that
Speaker 1: I'm most passionate about. But that's that if you look
Speaker 1: at the larger r A A s, we were the
Speaker 1: first to do that, and almost all of the other
Speaker 1: large r A s have changed what they're doing to
Speaker 1: try to put together some semblance of what we're doing,
Speaker 1: but they've done it too late. They've done it with
Speaker 1: private equity money, They've done it with people that are
Speaker 1: CEOs that have never been advisors or are not advisors today,
Speaker 1: and it's just clunkier, and so I think that's the
Speaker 1: competitive advantage we have today is from top to bottom,
Speaker 1: the president, the vice president of the CEO, all of
Speaker 1: us are planners. All of us are certified Financial Planner
Speaker 1: UH certificates. We all of us sit in front of
Speaker 1: clients UM, all the directors in the firm. Do we
Speaker 1: understand how that deliverable works? And that becomes a big,
Speaker 1: a big differentiator. And and that has created a lot
Speaker 1: of feed compression in the industry because for someone to
Speaker 1: compete with us, they've and on a large scale, they've
Speaker 1: had to start to add these things without changing their fee. Now,
Speaker 1: once that's done, what happens. Once that's done, The next
Speaker 1: wave happens and you've got a lower fees. And I
Speaker 1: think we're gonna be on the front end of that
Speaker 1: the second it could happen. We're gonna do what we
Speaker 1: can to push those down and and push our competitors out.
Speaker 1: Where do you think those fees dropped too? I think
Speaker 1: if you're a pure money manager, you're gonna start looking
Speaker 1: at fifty basis points. If you're a money manager with
Speaker 1: planning light, you're gonna look at sixty six five basis points.
Speaker 1: If you're a comprehensive wealth manager doing everything customized and
Speaker 1: needs based with a lot of other services. You can
Speaker 1: go a little bit higher than that, but that's you know,
Speaker 1: that's substitutive and um and I think it's gonna be quick.
Speaker 1: I think a lot of people think all this happens
Speaker 1: over twenty years and blah blah blah. That ten years
Speaker 1: into the feed compression at least, So maybe it is.
Speaker 1: Look what just happened with trading fees. So they went
Speaker 1: from twenty to ten to five. We're on this trend.
Speaker 1: It could be another ten years. Then Schwab goes to
Speaker 1: zero and the end of the day TV goes to
Speaker 1: zero and the next week Fidelity goes to zero. So
Speaker 1: you know how percent drop from five in a couple
Speaker 1: in a couple of days, right, So there will there
Speaker 1: is always a tipping point. We saw it with mutual
Speaker 1: funds where oh, commissions are fee only. Who cares? Then
Speaker 1: all of a sudden commissions were gone, right then high
Speaker 1: cost mutual funds. Who cares? The people? The prospective clients
Speaker 1: I met in oh seven or eight or nine, It
Speaker 1: was too easy if they're coming in they had five
Speaker 1: mutual funds they're gonna they're paying the mutual funds more
Speaker 1: than they're gonna pay us. I'm gonna do a lot more.
Speaker 1: I'm gonna lower their taxes. I mean, what's what's not
Speaker 1: to like now? All of that's out the window. E
Speaker 1: t F s Now, all of a sudden, five basis
Speaker 1: points for SP five hundred fund is crazy, ridiculous. It's
Speaker 1: free now, you know. And so you're we've seen that
Speaker 1: tipping point with everything else, and this is the one
Speaker 1: space that's left and we don't see it here yet
Speaker 1: because there's not a firm that has the scale to
Speaker 1: really to do it UM. And I think firms are
Speaker 1: emerging that have the scale and aren't entirely motivated by
Speaker 1: profits that might be the one to deliver it. And
Speaker 1: that just might be creative planning. So I have to
Speaker 1: ask you one follow up question on the die at
Speaker 1: my desk comment. We've seen Personal Capital get acquired, We've
Speaker 1: seen United Capital get acquired. We've seen a number of
Speaker 1: big firms, billion dollar firms get acquired by places UM
Speaker 1: like Goldman Sachs was one acquirer and Financial Engines was
Speaker 1: another requirer, and there's a handful both coincidentally publicly traded.
Speaker 1: What to prevent someone from coming along and making you
Speaker 1: an offer you can't refuse? Well, I think I've already
Speaker 1: seen that a couple of those offers where I've looked
Speaker 1: at them and said, you know, I, I really truly
Speaker 1: believe that I can double this business and five years
Speaker 1: from now not get that number. I think the I
Speaker 1: think the market's so insane now. But but I mean,
Speaker 1: so wait, you you're saying, hey, five years growing, I'll
Speaker 1: double the size. And even if I don't get that number,
Speaker 1: you don't care. I don't think i'll get that. I
Speaker 1: don't think i'll get that number. Finding I think rates
Speaker 1: will be different and private equity will be different, and
Speaker 1: you know, who know, it could be a recession. They're
Speaker 1: we could try. Who knows what's good? But there's too
Speaker 1: many things that are perfect right now, and I don't
Speaker 1: that I'm not confident are going to be perfect in
Speaker 1: in five years. I don't think there's any precedent for
Speaker 1: them to be. But you've never been tempted to take
Speaker 1: the money and run. No, because I really, um, what
Speaker 1: are you gonna do? No? I know what I would do.
Speaker 1: I still have a good time. I could be in
Speaker 1: this industry and have a great time. I don't have to,
Speaker 1: you know, do it on this scale and at this pace.
Speaker 1: But but I do enjoy it. I enjoy the clients,
Speaker 1: and I enjoy the team that I work with, and
Speaker 1: I don't It's easy for somebody who's worth millions of
Speaker 1: dollars to say they don't care about money. So I'm not.
Speaker 1: I'm not gonna say I don't care about money. I
Speaker 1: obviously do. I don't care about more money. I don't
Speaker 1: care about money. I just don't. And so I feel like,
Speaker 1: you know, I don't have to maximize, right, So but
Speaker 1: I'll tell you what. I'm sitting with clients and they
Speaker 1: tell me, I'm worn out. I've grown my business to
Speaker 1: this level. I got this, this offer from private equity.
Speaker 1: What should I do? I tell him, Look, it's a
Speaker 1: bit if you if you are not in love with
Speaker 1: what you're doing, take the money and run because this
Speaker 1: is really really good times right now, and we don't
Speaker 1: know what it's going to be like in four or
Speaker 1: five years. And you know so. But but for me,
Speaker 1: I mean, that's that's regret minimization. When I'm don't do
Speaker 1: it and this offer goes away, are you gonna feel
Speaker 1: worse than if you do do it and maybe you
Speaker 1: got a slightly better offer in five years, right, And
Speaker 1: I would have no regret minimization, because I just that's
Speaker 1: not what's motivating me. I want. I want to build
Speaker 1: the best offering. I want to be able to look
Speaker 1: back and go. Anybody that came to work for Creative
Speaker 1: Planning said, you know what, I was challenged. I learned something. Uh.
Speaker 1: You know, Peter never put anything in my way. In fact,
Speaker 1: there was an obstacle in my way. He removed it
Speaker 1: and I was able to achieve the very best I
Speaker 1: could there. That matters a lot to me. I want
Speaker 1: a client's when they're at our annual event and they're
Speaker 1: talking to each other, I want them to say, you
Speaker 1: know what, Creative Planning promise some things to me, and
Speaker 1: they delivered all those things, and I feel great about
Speaker 1: my decision to come there. I am very motivated by
Speaker 1: those things. Uh. It's great that we're in a business.
Speaker 1: Um that happens to be very hot right now. Um,
Speaker 1: but if it is half as hot five years from now,
Speaker 1: I'm gonna be fine. You know, you can only one
Speaker 1: steak stake then or at night and I feel like, um,
Speaker 1: I feel like I've already achieved that. I'm in my forties,
Speaker 1: and I'm just motivated by different things. So you mentioned
Speaker 1: earlier about being able to take advantage of the next
Speaker 1: financial crisis the way you did with the last financial crisis.
Speaker 1: What would you do to accumulate some sort of a
Speaker 1: war chest you you had hinted at that earlier. How
Speaker 1: does a firm put together a war chest to go
Speaker 1: out and make acquisitions when things are, let's say, less
Speaker 1: perfect than they are today. You have two choices. You
Speaker 1: can hope nothing happens in the next couple of years
Speaker 1: and wells and build it from cash flo or you
Speaker 1: can sell a minority steak where you still control everything.
Speaker 1: And you know, when you sell the minority steak, you
Speaker 1: don't get a full valuation, you get a discount. Right. Really,
Speaker 1: if somebody's gonna buy a minority steak in general, they're
Speaker 1: gonna pay you twenty five sent less. And they're gonna
Speaker 1: do that because they don't have any control. So they're
Speaker 1: really betting on you to continue to do a good
Speaker 1: job and not be an idiot about something strategic. Right.
Speaker 1: So I was halfway there, right, So I think that
Speaker 1: I think that because I'm not into the maximization of
Speaker 1: it that that fits. I think our needs where we
Speaker 1: could take you sell five somewhere in that range, raise
Speaker 1: enough money that when we're going to the next crisis,
Speaker 1: you know, at our annual meeting, I can say what
Speaker 1: I always did, which is, We're never ever going to
Speaker 1: let anybody go because of what's going on in the
Speaker 1: markets or with the economy. In fact, I'm going to
Speaker 1: keep doing what I've done every quarter of my entire career,
Speaker 1: which is fine, higher good people, and bring on new clients.
Speaker 1: You know, Creative Planning in its entire history has never
Speaker 1: had a month that didn't have positive flow. More even
Speaker 1: in the financial crisis. Even in the financial crisis, more
Speaker 1: money was come and the Creative Planning than leaving every
Speaker 1: single month from oh four to today. And we've never
Speaker 1: had a period of time of any significance where there
Speaker 1: wasn't a tremendous positive employee flow. Right. We are attracting
Speaker 1: clients and employees with our behavior, and I think a
Speaker 1: big part of that is the that they know that
Speaker 1: this is a place where, through thick and thin, uh,
Speaker 1: I'm gonna be with him, you know, to the end.
Speaker 1: I'm gonna be in the in the in the battle. Well,
Speaker 1: you you're the you know the old expression is fish
Speaker 1: rot from the head down. You set the tone as
Speaker 1: the leader of the firm, and that obviously permeates out
Speaker 1: to the rest of the six employees. So I have
Speaker 1: a ton more questions for you. Can you stick around
Speaker 1: a little bit? We have been speaking with Peter Malukey
Speaker 1: is the c i O and President of creative Planning
Speaker 1: of forty five billion dollar firm headquartered in Kansas City.
Speaker 1: Is right, um. If you enjoy this conversation, we'll be
Speaker 1: sure and come back for the podcast extras, where we
Speaker 1: keep the tape rolling and continue discussing all things are
Speaker 1: I A related. You can find that at Apple iTunes,
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Speaker 1: at m IB podcast at Bloomberg dot net. Give us
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Speaker 1: I'm Barry Hults. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. Welcome to the podcast, Peter, Thank you so
Speaker 1: much for doing this, and I'm just gonna share a
Speaker 1: little inside baseball. Um. You and I really met for
Speaker 1: the first time in September at the Wells Stacked conference
Speaker 1: that my firm is one of the hosts of. And
Speaker 1: I was fascinated to learn you don't do a lot
Speaker 1: of media. You don't go to that was your first conference. Um,
Speaker 1: And it's astonishing because here in New York, in the
Speaker 1: media center of the world, everybody has dying for some exposure.
Speaker 1: You guys really built this with practically no national news exposure.
Speaker 1: And I am i overstating that. I think you've got
Speaker 1: it right. We we tried for a long time to
Speaker 1: do nothing, you know, to have no exposure. And there
Speaker 1: was one industry publication that that had called, maybe for
Speaker 1: the third time, to do an interview, and I didn't respond,
Speaker 1: and I got an email from the reporter. He said, Hey,
Speaker 1: we're doing a story on creative planning, and right now
Speaker 1: we just have quotes from your competitors, So do you
Speaker 1: want to be interviewed or not? That's a smart smart
Speaker 1: And they made the headline was outing a reluctant star,
Speaker 1: and that was the beginning of that. That's a great
Speaker 1: headlining being totally under the radar that that was the
Speaker 1: end of that um and see I would have gone
Speaker 1: with the biggest firm you've never heard of. That that
Speaker 1: would have been my sounds cooler. So I you know,
Speaker 1: it's got it's a little edgier. But but outing a
Speaker 1: reluctant star is is pretty accurate because you guys have
Speaker 1: built something that's unique and you know, can I call
Speaker 1: it specially? Is it a special phase? Um? Well, you
Speaker 1: can't help but look at those growth numbers from oh
Speaker 1: four through eight oh nine and then from on nine
Speaker 1: forward for the past decade and not say, Wow, these
Speaker 1: guys have to be doing something right. You don't grow
Speaker 1: that fast. There are firms that have been around longer,
Speaker 1: and there are firms that have grounded out there that
Speaker 1: are just grinding out sales, the sales process. I don't
Speaker 1: get the sense that that's your your approach now. I
Speaker 1: think that I think that we've gotten a lot more
Speaker 1: attention now obviously as we've gotten to this size and
Speaker 1: we reached just a point where we either had to
Speaker 1: embrace it or it was not gonna go great is
Speaker 1: the word to the word to the embracing it, So
Speaker 1: that was my Actually, that's a question I didn't get to,
Speaker 1: but I wanted to. Why are you now finally saying,
Speaker 1: all right, I guess we have to participate in some
Speaker 1: selective conversation through the public media. Is it simply just
Speaker 1: it's unavoidable at this point? Well, you know, I had
Speaker 1: a I had a client that was NPR and she
Speaker 1: sat across from me at at an interview we had
Speaker 1: and she said, Peter, I've never seen a firm do
Speaker 1: so little with so much. And I said, what do
Speaker 1: you mean. She's like, you guys don't have You're not
Speaker 1: even on We were on social media, which is funny
Speaker 1: talking to you, because there's no firm as president on
Speaker 1: social media as yours in the space I mean, we
Speaker 1: we I mean I think my Facebook page was controlled
Speaker 1: by Russians literally, like you went to my Facebook page
Speaker 1: like yeah, um, And and she's like, you know, when
Speaker 1: people are looking at creative planning, they're googling, and they're
Speaker 1: going to the they're not seeing anything you're saying, right,
Speaker 1: They're just seeing what other people are saying, and so
Speaker 1: you should at least tell your story. And you know,
Speaker 1: it was kind of a lightbulb for me that you
Speaker 1: really can't. There is no under the radar. Yeah, and
Speaker 1: so uh if if you want people to learn, it
Speaker 1: would be nice if they at least heard your voice
Speaker 1: and you telling the story of what you're all about.
Speaker 1: And I mean she was right, and I all I
Speaker 1: back now as as probably being so under the radars
Speaker 1: for that time period was probably good. But that was
Speaker 1: probably the best piece of advice I've had in the
Speaker 1: last you know, three or four years. So um, there's
Speaker 1: really two types of communication. One is with the world
Speaker 1: at large and prospective clients, but the other communication is
Speaker 1: with your existing clients. How do you and you mentioned
Speaker 1: you really when you're building a plan, you're really drumming
Speaker 1: it into people's consciousness. Hey, markets go up and down.
Speaker 1: Expect uh correction or a crash at some point in
Speaker 1: the future. Recessions are cyclical. Everything isn't great all the time.
Speaker 1: But after the that initial review, how do you keep
Speaker 1: in touch with clients? How do you keep them informed
Speaker 1: about the state of the world, where we are in
Speaker 1: the market cycle, how the portfolio is doing. What what
Speaker 1: sort of client communications do you guys manage? So I
Speaker 1: write newsletters many times throughout the year and anytime there's
Speaker 1: a big event, you know, bregsit that night, they get it.
Speaker 1: They'll get a newsletter, you know, it is just instantly
Speaker 1: will send out a communication others in the firm right newsletters.
Speaker 1: We do several different podcasts that we share with our
Speaker 1: internally internally interesting we UM we UM have an annual
Speaker 1: symposium that we invite clients to. We had almost three
Speaker 1: thousand at our last one, really a great experience. We
Speaker 1: email the videos of the speakers that will allow us
Speaker 1: to send videos to our clients. And then for us,
Speaker 1: we see our clients in person beyond the onboarding, so
Speaker 1: they're coming in to do all kinds of stuff throughout
Speaker 1: the year, and then they do an your reviews with us,
Speaker 1: so they're seeing they're talking to their advisor and multiple
Speaker 1: people within creative planning, plus hearing the voice of the
Speaker 1: investment team and the firm. You know, many many different
Speaker 1: ways throughout the year. How do you keep that message consistent?
Speaker 1: So you have six hundred people were a fraction of that.
Speaker 1: One of my concerns is always we have a lot
Speaker 1: of people in the office who do research, who publish,
Speaker 1: who who write about different things. Philosophically, we're all more
Speaker 1: or less on the same page. So the message is consistent.
Speaker 1: But the concern is as you scale up and it's
Speaker 1: that many more people, does that become a challenge to
Speaker 1: keep the message the same across every advisor to every client. No.
Speaker 1: I think that we are definitely a one voice firm,
Speaker 1: and I think that that's a different firms have different decisions.
Speaker 1: We look at larger r A s. They tend not
Speaker 1: to be that way. They tend to look like a
Speaker 1: brokerage house. You know, you can go to Morgan Stanley
Speaker 1: and the guy in Office one might be a guy
Speaker 1: that does options for all his clients. In Office two
Speaker 1: is a guy who does bonds for all his clients.
Speaker 1: At Creative Planning, we it's the same thing. Every client
Speaker 1: is going through a planning process. It doesn't matter if
Speaker 1: they're on the Forbes List, which is somebody we started
Speaker 1: with a couple of weeks ago. It's going through the
Speaker 1: same process as somebody who's got five dollars. And we
Speaker 1: have that process in place because we know that in
Speaker 1: our we've developed a way that we think is the
Speaker 1: best way to get the information we need from the
Speaker 1: clients to figure out what their needs, their dreams, their
Speaker 1: vision are. It sounds cheesy, but sometimes your goals are
Speaker 1: not your dreams, right, So we want to know what
Speaker 1: they're really trying to accomplish and how feasible it all is.
Speaker 1: So everyone's going through that same process. And then we
Speaker 1: have a philosophy. So when we were talking earlier about
Speaker 1: we don't believe in hedge funds, but we I believe
Speaker 1: in in in private equity and alternatives, and I believe
Speaker 1: that the markets are fairly efficient, so we use indexing
Speaker 1: instead of most instead of large camp mutual funds. When
Speaker 1: I say that's what I believe, that's what creative believes. Right.
Speaker 1: So if you're coming and interviewing a creative planning, you're
Speaker 1: not coming to creative planning unless you believe that or
Speaker 1: close enough, and you're gonna you're going to believe you're
Speaker 1: really gonna act that way. There is no oh, by
Speaker 1: the way, we've got a hedge fund thing over here
Speaker 1: and the large camp mutual funds over there. It's one voice,
Speaker 1: one philosophy, consistent messaging. If a client gets a newsletter
Speaker 1: for me, they're not going, what the hell is this?
Speaker 1: You know, I'm in Los Angeles and my advisor is
Speaker 1: doing something completely different. That's not that's not happening. And
Speaker 1: what's great about that because we don't have to write right,
Speaker 1: vague garbage, right, we can be very specific about what
Speaker 1: we believe and what we're doing at any point in
Speaker 1: the market cycle, because everyone's going to read that and go, yeah,
Speaker 1: that's what I'm experiencing. So I don't remember if it
Speaker 1: was you or someone else who used the phrase Franken firms. Yeah,
Speaker 1: where that is you right where you have hedge funds
Speaker 1: over here, and covered coal options over there, and some
Speaker 1: wacky SMP sector rotation here, and affirm just becomes a
Speaker 1: conglomeration of ten small affirms and no conces in philosophy.
Speaker 1: Is that Is that a survivable model these days? No?
Speaker 1: I look at like some of these some of the
Speaker 1: private equity firms in this space. Um, they come in,
Speaker 1: they buy a one billion dollar or two billion dollar firm,
Speaker 1: they call it a platform, and then they take that
Speaker 1: firm and they go buy other firms and go, well,
Speaker 1: do your compliance and HR and financial stuff for you,
Speaker 1: and give you a big check. Come join us. Oh
Speaker 1: you use this software, Oh that's fine, and keep keep
Speaker 1: using it. Oh you you believe in you know exiting
Speaker 1: the market when your signals from your bond does say this,
Speaker 1: Oh yeah, you go ahead and keep doing that, and
Speaker 1: you wind up with a firm and it grows to
Speaker 1: ten billion, and it's really just twenty five small firms,
Speaker 1: uh that don't operate the same don't do the same things. Um,
Speaker 1: that's what I think of as a frankin firm. I
Speaker 1: think that buck is getting passed from one private equity
Speaker 1: firm to another and is going to explode in somebody's lap.
Speaker 1: And a lot of the larger firms, that's what they are.
Speaker 1: They're just an amount of amalgamation of a bunch of
Speaker 1: stuff that's not philosophically existent. I do think this is
Speaker 1: a one of the negatives of private equity is you
Speaker 1: have private equity come into a space like this. Let's
Speaker 1: say they want to exit in three years. You take
Speaker 1: a two billion dollar firm, you buy eight firms, you
Speaker 1: make it four billion, you you exit, you make everyone's
Speaker 1: high fiving. But somebody now has something that doesn't really
Speaker 1: probably isn't best for the client anymore, and probably isn't
Speaker 1: best for the employee anymore, and everyone can smell it right,
Speaker 1: and AND's eventually the smell will get bad enough that
Speaker 1: you'll lose employees, you'll lose clients. But by then the
Speaker 1: person who put it all together is long gone. So
Speaker 1: hot potato, so one of the Knox against private equity
Speaker 1: and R I a s years ago and I don't
Speaker 1: know if this is still true and is a gym
Speaker 1: in your office? And I had a cold conversation about this.
Speaker 1: Was in the old days, private equity would come in,
Speaker 1: they'd buy a firm. They basically loaded up with variable
Speaker 1: A nuities that have a giant commission on it and
Speaker 1: didn't work out for anybody except the pe guys and
Speaker 1: whoever sold the firm and exited. I'm getting the impression
Speaker 1: that that old school model, and maybe that's more than
Speaker 1: ten years ago, that that's not what we're talking about
Speaker 1: in this space. No, I don't think you're seeing that
Speaker 1: that's long gone. Now. It's sticky money, regular um revenue
Speaker 1: on a on an ongoing basis. That's the appeal of this. Yeah,
Speaker 1: I mean I see two two, Well, a couple of
Speaker 1: different things happening. One is you see someone comes in
Speaker 1: actually makes your place better and helps institutionalize it and
Speaker 1: grow it. H That's that's one group, and there's another
Speaker 1: groupe that's like, Hey, we're gonna come in, We're gonna
Speaker 1: buy it. We're gonna get rid of a bunch of people.
Speaker 1: We're gonna put in some new people. We're gonna go
Speaker 1: buy twenty three firms. We don't care what they look like.
Speaker 1: We're gonna put all this crap together, and we're gonna
Speaker 1: sell it to somebody else. Because there's a bunch of
Speaker 1: money slashing around and eventually someone's gonna get stuck, right,
Speaker 1: and when the music stops, you don't want to be
Speaker 1: that person, right. It's it's so, but but I think
Speaker 1: there's more of the good guys than the bad guys.
Speaker 1: So let's talk about a couple of things with creative
Speaker 1: planning that I wanted to ask you about that I
Speaker 1: didn't get to. Um you would previously mentioned four one ks,
Speaker 1: or less than ten percent of your practice. How do
Speaker 1: you grow that space? It's a very slow and sticky space,
Speaker 1: even when employees and management are not happy with their
Speaker 1: four O one K providers. Right, I think we probably
Speaker 1: have three four billion in four one KOs sets and
Speaker 1: it's growing very rapidly, and we're divided into two segments.
Speaker 1: One segment is takes care of bigger plans where employees
Speaker 1: want to sit down one and want when somebody learn
Speaker 1: a lot health help. Another one is very technology oriented
Speaker 1: startup plans um small plans where the economics of building
Speaker 1: a foreign K are very difficult for those folks. Maybe
Speaker 1: it's too two dentists starting a practice, but what we
Speaker 1: bring to our clients is almost always they're going from
Speaker 1: the traditional model of an insurance company providing it to
Speaker 1: a fiduciary providing it. And there's a lot of liability
Speaker 1: around foreign K plans now, so if you're on the
Speaker 1: board making decisions for foreign ks, you've got a liability.
Speaker 1: If you're an HR, if you're if you're the owner,
Speaker 1: you've got liability. So they love transferring that liability to
Speaker 1: a fiduciary, and we offer that full fiduciary service um. Second,
Speaker 1: almost every single time, we lower the fees very substantially.
Speaker 1: And the third we bring a common sense investment approach,
Speaker 1: you know, low cost index funds in the in the portfolio,
Speaker 1: along with ways where the client can choose the model
Speaker 1: and and get their money managed that way. And so
Speaker 1: we're seeing very fast growth in that space. It's just
Speaker 1: the private side is growing faster. But I think that
Speaker 1: the key in the foreign case space is to be competitive.
Speaker 1: You have to be able to drive fees way way
Speaker 1: way down. We found a way basis points how how
Speaker 1: low is low in four o one? I think like
Speaker 1: even a startup plan for US might pay a fee
Speaker 1: of thirty basis points. I mean, like, and you're talking
Speaker 1: about someone starting with zero assets. Now they still have
Speaker 1: their When you look at a foreign K plan, there's
Speaker 1: administration costs that you have to pay for the fund,
Speaker 1: record keeping, with all of it. They should be less
Speaker 1: than one one percent in the plan, appreciably less than Yeah,
Speaker 1: it should be appreciably less than one percent, And most
Speaker 1: plans are one and a half plus, and so it's
Speaker 1: kind of like very easy. I think if we your
Speaker 1: fuse in half, that's a huge win for everybody. Most
Speaker 1: of the time, when we're talking to somebody about a
Speaker 1: four one K, we're going to get that four one K.
Speaker 1: The issue is foreign cas are much harder than the
Speaker 1: private side because private side, somebody walks in and they're
Speaker 1: gonna make a decision with the four own K. Somebody
Speaker 1: walks in and they're the owner, but they've gotta there's
Speaker 1: a CFO, there's hr you're talking to HR protect. I mean,
Speaker 1: that's it's a process, and it should be a process.
Speaker 1: It's a big decision for the business. So in the
Speaker 1: old days, it was um, somebody's brother in law was
Speaker 1: one running the fore own cave. That those days are over.
Speaker 1: Now that's gone. I think on the private side, that's gone.
Speaker 1: It was very, very common where everyone just had their
Speaker 1: money with their with their buddy or their neighbor or whatever.
Speaker 1: That that stuff's gone. And I think that's another thing
Speaker 1: that oh eight oh nine and made Off and all
Speaker 1: that just got rid of that, and people are getting
Speaker 1: much more serious about who their advisor is. Let's let's
Speaker 1: talk about the institutional side, which has its own set
Speaker 1: of challenges. How do you deal with pension funds, foundations, um,
Speaker 1: larger entities, even family offices that might have a different
Speaker 1: set of needs and a different investment target than a
Speaker 1: family who has a portfolio with you. So this is
Speaker 1: the smallest part people that have family office as we
Speaker 1: manage a lot of money for those folks. Private family
Speaker 1: offices separate from endowments and instructions. But but institutional, as
Speaker 1: I think of it, like you do is endowments and
Speaker 1: universities and things like that. That that space we entered
Speaker 1: about five years ago. It is by far the smallest
Speaker 1: part of our business. And I would just take the
Speaker 1: foreign case space and make it even harder, a lot
Speaker 1: more decision makers and a lot lower fees. And you're
Speaker 1: seeing a very big migration away from alternatives towards you know,
Speaker 1: low cost passive investing complimented with certain alternatives. Seems to
Speaker 1: be where that space is heading. Quite quite interesting. And
Speaker 1: you have described the tears of your clients as private
Speaker 1: wealth group, ultra affluent, and emerging wealth. How do these
Speaker 1: segments different and do you offer different services to each
Speaker 1: of them. So we used to just call everything private wealth,
Speaker 1: and you went through the process. We built a portfolio.
Speaker 1: Artypical client was the multimillionaire next door um. You know,
Speaker 1: the doctor or dentist or lawyer that worked their entire career,
Speaker 1: the business owner or guy who made money in real estate.
Speaker 1: They put together a million dollars or twelve million dollars
Speaker 1: and they became a client of Creative Planning. About four
Speaker 1: years ago we set minute out Emerging Wealth Group. We
Speaker 1: had so many family members of clients and it. We
Speaker 1: didn't really have a great way to handle it. But
Speaker 1: it's very difficult to sit with somebody who's got seven
Speaker 1: million dollars and they've got three kids and their kids
Speaker 1: are all twenty eight and say we're not going to
Speaker 1: work with your kids. But they would wind up maybe
Speaker 1: with the wrong advisors, because the advisor working with somebody
Speaker 1: who has twelve million dollars at that point would be
Speaker 1: our most was our most sophisticated advisors, and they'll be
Speaker 1: working with somebody who had fifty. So we created Emerging
Speaker 1: Wealth Group to deal with that and open the doors
Speaker 1: to people who had less than half a million, and
Speaker 1: it exploded. I mean, the group has thousands of clients,
Speaker 1: about twenty employees, and interestingly has become one of the
Speaker 1: biggest lead sources for our ultra affluent practice, which is
Speaker 1: where we really try to day to only take on
Speaker 1: people at a twenty million million or more UM, like
Speaker 1: a few this week that came on had a hundred
Speaker 1: million or more UM. And there's a group that's probably
Speaker 1: our longest running group as a whole within the firm
Speaker 1: that's used to dealing with those kind of clients, and
Speaker 1: the there is a lot more sophistication needed. They're not
Speaker 1: necessarily for a large part of the portfolio, but for
Speaker 1: a small part of the portfolio. And from a legal
Speaker 1: and tax perspective, if you've got somebody who's got a
Speaker 1: hundred and fifty million dollars, all this debate we've been
Speaker 1: having about our stocks, canna do better than bonds? And
Speaker 1: do small to better than large? And will emerging markets
Speaker 1: to better than stocks? And we'll private ut when you
Speaker 1: do better. These are what I call one percent conversations. Right,
Speaker 1: we're going to move them on it. You know you're
Speaker 1: gonna make one percent more less. I you've got a
Speaker 1: hundred fifty billion dollars, you really don't care about that.
Speaker 1: You care about the fort of state tax. You care
Speaker 1: about the twelve percent state tax. You care about how
Speaker 1: your kids are going to get the money and is
Speaker 1: it going to screw them up? You care about asset protection.
Speaker 1: And these are very sophisticated concepts that most of the
Speaker 1: are a space is not equipped to handle. And we
Speaker 1: have a I think a very substantive group within creative
Speaker 1: Planning that's used to dealing with hundreds of those families,
Speaker 1: and I think we bring a very unique perspective there.
Speaker 1: And I think what's interesting is when they're comparing, it's
Speaker 1: it's always between us and say a place like a
Speaker 1: JP Morgan or a a Goldman Sachs, and the r A
Speaker 1: story resonates so much independent and we don't have our
Speaker 1: own products, but we also practice tax and law and
Speaker 1: they don't. And we're used to dealing with folks your size,
Speaker 1: and that's not something that I could say seven years ago, right,
Speaker 1: So it's it's allowed us to become very competitive and
Speaker 1: and the one of the fastest growing parts of our
Speaker 1: practice is that very very very large family. So one
Speaker 1: of the issues we've noticed amongst our i as, especially
Speaker 1: independent r A s, is that there's sort of a
Speaker 1: barbell across the age spectrum. You have a lot of
Speaker 1: advisors in their sixties, late fifties, and then a bunch
Speaker 1: of people in their twenties who were um you met
Speaker 1: at the conference, very social, very active, very um specialized
Speaker 1: in different areas. But there's this big gap across the middle.
Speaker 1: So question number one is what does this mean to
Speaker 1: your future growth? And question number two do we have
Speaker 1: enough young people coming into the r I A industry?
Speaker 1: You know, I read a lot about this and I
Speaker 1: view it very differently, so as running creative planning, our
Speaker 1: market share is your point O O O R to
Speaker 1: writer point oh no sce. So I don't to me,
Speaker 1: even if there were half the advisors I don't need
Speaker 1: to have. I'm not Merrill Lynch. I mean, so no
Speaker 1: thundering her and just I mean, I just need to
Speaker 1: find a few awesome people every quarter, and I'm always
Speaker 1: going to be able to find that, right, And so
Speaker 1: I just don't I lose I spend any time worrying
Speaker 1: about about that, and frankly about the industry. I think
Speaker 1: the industry could use less advisors. Really. Do you think
Speaker 1: the headspace compression like the few compression we've seen over
Speaker 1: the past ten years, does that continue well? I think
Speaker 1: I think that there are advisors that do a lot
Speaker 1: of good and there's a lot of advisors this is
Speaker 1: not fantastic. And I think having a bunch of really
Speaker 1: good advisors that survive is better than having a whole
Speaker 1: bunch of advisors. Uh. And so I don't see this
Speaker 1: as an industry crisis. I think if the industry contracts
Speaker 1: a little bit, that's just fine. We've got the technology
Speaker 1: for it to contract. I'm just focused on finding the
Speaker 1: right people for our little tiny, you know, section of
Speaker 1: your little tiny section of the wealth management industry. And
Speaker 1: and you know, it's funny, I was shocked to read
Speaker 1: about your little tiny firm. I think once you cross
Speaker 1: the billion dollar threshold and a u M that puts
Speaker 1: you in like the top eight percent or so advisors.
Speaker 1: It's really that their advisors mostly. I think someone else
Speaker 1: called it lifestyle practices. So so you have a unique
Speaker 1: perspective on what's going on. Um, what happens with those people?
Speaker 1: Is it just a massive consolidation or can you just
Speaker 1: have a very nice, little million dollar practice And that's fine,
Speaker 1: you know, I know there's a lot of people running around.
Speaker 1: All those guys are gonna get crushed, and I don't
Speaker 1: I don't necessarily agree. If you go to the conference,
Speaker 1: they're the same three people who coincidentally have been on
Speaker 1: an acquisition. So so maybe they're talking their books a
Speaker 1: little bit um. You know, I'm assuming, like us, you
Speaker 1: don't really buy into that. I don't buy into it totally.
Speaker 1: So I think that I think that most most five
Speaker 1: million dollar firms cannot compete at the level they used to.
Speaker 1: You know what, I'm hearing that from firms that call
Speaker 1: us to be acquired. I mean, they're just saying, look,
Speaker 1: I used to be able to grow, and it's gotten
Speaker 1: a little more intense, a little more competitive, and I
Speaker 1: feel like to bring on larger clients, I need to
Speaker 1: be in a larger firm. There's no question that's a force.
Speaker 1: But it reminds me of like when the robot advisors
Speaker 1: came out and everyone said, well, everything is going to
Speaker 1: go to the robos. Well everything didn't go to the robos,
Speaker 1: but but some did, right, So that came from somewhere,
Speaker 1: And you guys don't have a robot do We don't
Speaker 1: know any thoughts of setting up a robo for that
Speaker 1: sub two thousand dollar client who maybe eventually moves from
Speaker 1: um under a hundred thousand to emerging wealth to high
Speaker 1: net worth. You know, I've I've thought about it, and
Speaker 1: I just thought, you know, that's just not what we do.
Speaker 1: It's not our style. And I want one creative planning
Speaker 1: client to talk to another creative planning client and go,
Speaker 1: this is what they do for me, and I don't
Speaker 1: want anybody to go. I never saw a person ever,
Speaker 1: and everything was online, and I know there's people that
Speaker 1: want that, and that's totally fine. It's just not what
Speaker 1: we do. To me, It's just we don't sell ice
Speaker 1: cream either. It's just completely it's completely different. And then
Speaker 1: before I get to my favorite questions, I have one
Speaker 1: last um general question about the firm. You actually made
Speaker 1: your first acquisition this year, a five million dollar firm.
Speaker 1: Um that was part? Was that? Is that this year
Speaker 1: or last year? That was this year? And it was?
Speaker 1: It was amazing to me. This was really fascinating because
Speaker 1: I was very focused on building out all our services
Speaker 1: and building a culture. And you know, we we did
Speaker 1: that and really inan we moved to a headquarters, we
Speaker 1: made a bunch of shifts in technology, We finished our
Speaker 1: hiring push, got all the right people at all the
Speaker 1: right places, finished building out our trust company, institutional arm
Speaker 1: and so on, and really we're in a place where
Speaker 1: I could finally start to think about that a little bit.
Speaker 1: But I kind of put it on the shelf. Is
Speaker 1: not a priority. And uh, I got Brad Johnston gave
Speaker 1: me a call literally out of the blue and just said, hey,
Speaker 1: I've talked to all these firms. I thought, wait, wait, wait, wait, wait,
Speaker 1: Brad Johnson God, you don't know. I don't know him
Speaker 1: at all. Calls you, and Peter Muluke says, yeah, I'll
Speaker 1: take the call. So actually, I don't know. He winds
Speaker 1: up talking to Jim in office and Jim is like,
Speaker 1: you know, maybe you should talk to Brad, and I'm like,
Speaker 1: I don't know. I just we just got done with this.
Speaker 1: Let's give it a little time before we do a
Speaker 1: couple of acquisitions, so we'll just just have a conversation.
Speaker 1: So Brad comes to Kansas I want to come to Kancities,
Speaker 1: comes to Kansas City, brings an advisor. I find out
Speaker 1: the advisor as his son. So I'm like, well, maybe
Speaker 1: they're just kicking tires, but I really liked them there
Speaker 1: from Minnesota all this stuff, and says about it's true.
Speaker 1: I don't understand it, but I really liked him. Um,
Speaker 1: and you know, they left, and I told Jim's I
Speaker 1: kinda go. I really liked him, but you know, I
Speaker 1: think they just want to know what we're doing. And uh, anyway,
Speaker 1: you know, Brad calb me the next day and Study
Speaker 1: is interested in continuing dialogue. I think it was thirty
Speaker 1: days later. They were part of creat of planning really
Speaker 1: that fast. Yeah, and even though it was our first
Speaker 1: one and they didn't know what they were doing, we
Speaker 1: didn't know we were doing. You know, they've never been
Speaker 1: acquired before, we never acquired I have. It was wonderful
Speaker 1: and our and I looked at Minnesota and said, you know,
Speaker 1: we had a presence there. I might have been around
Speaker 1: half a billion. And now all of a sudden, we're
Speaker 1: about a billion dollar enterprise and uh, we've got some
Speaker 1: scale and we're gonna get noticed and we're in the
Speaker 1: just like you said, how many billion dollar firms are there? Right?
Speaker 1: So now all of a sudden we're in the conversation
Speaker 1: on cases we weren't before. And it got me looking
Speaker 1: at the whole country and saying, you know what, um
Speaker 1: in Dallas we manage about a billion UM. We were
Speaker 1: approached by a firm that has about six and or million.
Speaker 1: We're now having l o I with them, and so
Speaker 1: so you'll be close to two billion in Dallas and
Speaker 1: now you're a player there. Yeah. So I think that
Speaker 1: that what's happening now is the description I use is
Speaker 1: we have a very very strong tree trunk with very
Speaker 1: strong branches that we've built. We built them they're they're
Speaker 1: the creative planning DNA, and we could add leaves to
Speaker 1: that tree and have that tree flourish without damaging the tree.
Speaker 1: And so we're not a billion dollar firm where the
Speaker 1: whole trunk was put together by twenty five firms. Right,
Speaker 1: so when people come into Creative they know this is
Speaker 1: how it works, right, this is the culture, this is
Speaker 1: the investment philosophy, this is what the people are like.
Speaker 1: And it's not different from office to office because it's
Speaker 1: not twenty three different firms. So it's really open my
Speaker 1: mind to that we've now done two acquisitions. We have
Speaker 1: two other firms under l o I, and we don't
Speaker 1: have a merger's acquisitions team. You know, it's just someone
Speaker 1: has a conversation with Jim and then and then they
Speaker 1: meet me and and um we're off and and and
Speaker 1: if if they're philosophically a fit, and the look maybe
Speaker 1: one and ten times it is right. You've got to
Speaker 1: be philosophically a fit. You've got to like the people
Speaker 1: and all that. So you get to that ten percent.
Speaker 1: With that ten percent, it's happening pretty quickly. I think
Speaker 1: that we're finding there are a few people that are
Speaker 1: very like minded out there, and I think they're finding that, Hey,
Speaker 1: this is a firm that's kind of like me. It's
Speaker 1: not really an amalgamation of a bunch of stuff, and
Speaker 1: so they can they can be a part of something
Speaker 1: that's kind of what they were doing. But Turbocharged, that's fascinating.
Speaker 1: It's really interesting to hear you guys have have scaled
Speaker 1: that up, because that was one of the questions I had.
Speaker 1: How the hell do you get to be that big
Speaker 1: organically with no acquisitions? And imagine if they did acquisitions,
Speaker 1: you guys are gonna be a hundred billion dollars not
Speaker 1: too not too long from now. Yeah, it's a crazy industry.
Speaker 1: You can never predict what's going to happen. True, But
Speaker 1: but I feel like I feel very good about the
Speaker 1: offering that we have from the people, the process, and
Speaker 1: I think, um, you know what you have to be.
Speaker 1: You don't have to be the the fastest person in
Speaker 1: the world. You've got to be faster than the people
Speaker 1: you're racing against, right And I feel like we're in
Speaker 1: a good spot right now the that that makes perfect
Speaker 1: sense to me. I know I don't have you for
Speaker 1: for ever, So let me get to my favorite questions
Speaker 1: we ask all of our guests. These have been designed
Speaker 1: to be revealing about who you are. UM, let's start
Speaker 1: with the first car you ever owned. You're making model
Speaker 1: Ultimobile Omega crashed it, Uh, teaching my younger fourteen year
Speaker 1: old brother how to drive? Teaching it was not a
Speaker 1: good lesson. Where did you grow You don't start with
Speaker 1: a left turn. Were you in Kansas or Yeah, we
Speaker 1: were in Kansas. So to me, I'm the first question
Speaker 1: is how do you crash something in Kansas? Well, it's
Speaker 1: I mean, it's an actual city barrier. They're like million
Speaker 1: people there Kansas City. So you're in Kansas City and
Speaker 1: we're not in like a town of three hundred west.
Speaker 1: So easy enough to have because when I think Kansas,
Speaker 1: I'm thinking farms and ranches and lots of open space
Speaker 1: most of the Kansas Yes, Kansas City, No, got it.
Speaker 1: I didn't realize you grew up in Kansas City. That's
Speaker 1: a interesting Um. Who were some of your early mentors
Speaker 1: who affected the way you look at the world of
Speaker 1: investing in financial planning? Well, I would say that, Um,
Speaker 1: the person that owned creative Planning before me was just
Speaker 1: such an incredibly he's an incredibly positive person and was
Speaker 1: an incredible influence to watch. He treated people so well
Speaker 1: and he always had a positive attitude. He always looked
Speaker 1: on the bright side of things. And this is a
Speaker 1: business that that you you need to infuse. It's interesting
Speaker 1: because you need to be an optimistic person, but you
Speaker 1: have to take a pessimistic point of view when you're
Speaker 1: doing planning. You have to plan for the worst, right,
Speaker 1: So I really liked that kind of style that he had.
Speaker 1: But really the biggest influence it was very early. I
Speaker 1: had had a T shirt company and I made a
Speaker 1: bunch of money and and I was a few thousands
Speaker 1: of dollars and my dad said, I just put it
Speaker 1: in an index spud and I remember watching the Asian
Speaker 1: Contagion on TV. I cant remember what year was. Okay, alright, alright,
Speaker 1: well that's impressive and I can be wrong. And my
Speaker 1: Dad's like, hey, um, yeah, don't worry about it. It'll
Speaker 1: you know it, it'll all work itself out over five years.
Speaker 1: And that's interesting. And I went and read a bunch
Speaker 1: of books and found out he was right, and that
Speaker 1: probably wound up sending me on the trajectory. And are
Speaker 1: reading some Bogel books and Jeremy Siegal books and and
Speaker 1: the rest is history. So I'm gonna say Asian contagion
Speaker 1: long term capital management, but around both around the same
Speaker 1: time and and both with the same result. Temporary setback, um,
Speaker 1: which is what we tend to see all market YEP
Speaker 1: corrections are temporary. Even if they last from fifty four,
Speaker 1: it's still temporary. Hopefully you're not retiring went into that. Um,
Speaker 1: let's talk about books. Give us some of the favorite
Speaker 1: books that you like to read. Be they you mentioned Bogel?
Speaker 1: Who else? Who else? Uh? So I read a couple
Speaker 1: of books every week, but I can't get away from
Speaker 1: the same two books I think as being huper influential
Speaker 1: to me. One takes like twenty minutes to read. It's
Speaker 1: called how Full is Your Bucket? And it's basically just says,
Speaker 1: you know everybody you encounter, um, you leave feeling better
Speaker 1: or worse? Uh? And is somebody? Are you filling people's
Speaker 1: buckets up? Are you draining their buckets? It's really informed
Speaker 1: the way I interview, the who I work with, the
Speaker 1: way I get through a day, making sure that I'm
Speaker 1: in the right mind frame all the time. And it
Speaker 1: was so obvious, such a light, quick read, but it's
Speaker 1: really informed. How full is your bucket? Yeah, I don't
Speaker 1: know if I've ever heard of that. I'm gonna don't
Speaker 1: have to really short, really short book. I mean I
Speaker 1: got it for my kids, I got it for all
Speaker 1: our employees at the time. And and it's really interesting.
Speaker 1: I mean, like when you when you talk to that client,
Speaker 1: when you talk to a colleague, when you talk to
Speaker 1: a family member, are they leaving feeling better about themselves
Speaker 1: in their day or worse? And it and it's it's
Speaker 1: an interesting, pretty straightforward makes a lot of very very
Speaker 1: straightforward um. And then a book that really kind of
Speaker 1: transformed my thinking was Awareness by Demello and he was
Speaker 1: Jesuit priest to Awareness Awareness he was a Jesuit priest
Speaker 1: that um lived in the Far East. And so it's
Speaker 1: got a combination of all these things. But the basic
Speaker 1: message of the book is get over yourself. You know,
Speaker 1: you don't matter whatever you accomplish. A couple of years
Speaker 1: from now, no one's gonna know who you are. Uh,
Speaker 1: you know, we don't know who anybody from Mesopotamia is.
Speaker 1: You know, we might remember Abraham Lincoln, but you know,
Speaker 1: you go far up in the future, very very very
Speaker 1: little matters. It sounds like really horrible. What it does
Speaker 1: is it clarifies for you, Um, the high shouldn't be
Speaker 1: too high, the lows shouldn't be too low, and um,
Speaker 1: very solomonic in its wisdom. Yeah, and this two shall pass,
Speaker 1: this two shall pass, And it really if you start
Speaker 1: to take that attitude. For me, I'm not sure this
Speaker 1: is what the book was about, but it really crystallized.
Speaker 1: You know, if I look at like all the stuff
Speaker 1: that comes at you all day, everywhere, and all the
Speaker 1: stuff you encounter, the reality is it doesn't matter at all.
Speaker 1: It's ephemeral, right, just like investments, right, it's there's so
Speaker 1: much stuff out there. Part of being good at investments
Speaker 1: is to know the nine percent that doesn't matter at all,
Speaker 1: what you don't need to read, what you don't need
Speaker 1: to watch, what you don't need to care about, what
Speaker 1: you don't need to invest in, what you don't need
Speaker 1: to research, and then you get you carve away all
Speaker 1: that stone, you get the masterpiece, right, And I think
Speaker 1: that that that book for me really just changed my
Speaker 1: thinking of who do I want to be around, who
Speaker 1: do I want to spend my time? With what things matter,
Speaker 1: what things don't? How do I get everything that doesn't
Speaker 1: matter away from me and focus more on the things
Speaker 1: that do matter? And so I it was became an
Speaker 1: interesting time in my life to read that book. It's
Speaker 1: the only book I've read more than once. UM. I
Speaker 1: enjoyed it a lot. That that is quite fascinating. UM
Speaker 1: tell us about a time you've failed and what you
Speaker 1: learned from the experience. So I've I've failed many, many,
Speaker 1: many times. So I'll give you just some growing up experiences.
Speaker 1: So you know, I I UM started a lot mowing
Speaker 1: company with a friend, and I mean it was a
Speaker 1: real deal. We were making some good money. And back
Speaker 1: then you had to bag all the grass. And then
Speaker 1: some other people came along with these big machines and
Speaker 1: and you didn't need to bag grass. It turned out.
Speaker 1: It's turned out people thought you need to do but
Speaker 1: you didn't need to. It would take us like five
Speaker 1: hours to do a long they would do it in
Speaker 1: ten minutes. And you know, we were like, wow, we're
Speaker 1: out of business. That was super quick. You know, we
Speaker 1: didn't understand where this industry was going. I had an
Speaker 1: idea for a T shirt. It was against drunk driving.
Speaker 1: My school wouldn't let us do it. It was a
Speaker 1: Catholic school and it was a little racy. So we
Speaker 1: created the T shirt. I was we should just go
Speaker 1: make it. So I made it. Wound up selling like
Speaker 1: a hundred thousand of T shirt. What was the T
Speaker 1: shirts saying that the school wouldn't let you. On the
Speaker 1: front it said sed drink, Scenic drive, Sedic die, and
Speaker 1: on the back it said don't don't be you know,
Speaker 1: basically right. So so this winds up selling like a
Speaker 1: hundred thousand shirts Scenic Scenic drink, Scenic drive, Scenic give
Speaker 1: us the sceedic drink, Scenic Drives. I'm really regretting. I remember,
Speaker 1: I remember those shirts. I had no idea that was
Speaker 1: you those shirts until now, probably nobody did. I don't
Speaker 1: know why what door I've opened here, but I have
Speaker 1: found you can't find one online, thank god. So anyway,
Speaker 1: then the wound up creating like cedic smoke and all
Speaker 1: created a whole line around this, were you doing anything
Speaker 1: with the proceeds involving any drunk driving or mother's and
Speaker 1: a donation that went back to Sad and Mad And
Speaker 1: so this went on for you know, like two years,
Speaker 1: I'm like, hey, I'm I'm not even in college. Do
Speaker 1: I need to go to college? Well, here's what I
Speaker 1: learned about patents. So all of a sudden, the shirt
Speaker 1: went up all over the country. And I hadn't had
Speaker 1: a trade, and that was it. I was at a
Speaker 1: business trademark. People were just stealing it. The printer I
Speaker 1: used stole it, so they basically took the art my
Speaker 1: mama drawn and the sayings and then just copied the
Speaker 1: whole thing. And so that was a hell of a lesson.
Speaker 1: The biggest lesson though, was the music stores. You know,
Speaker 1: at one store, save the money out, got to to
Speaker 1: save the money, got to force save the money, got
Speaker 1: to eight, had three partners, bought out the three partners,
Speaker 1: was about to graduate from law school, and I'm like,
Speaker 1: you know what I might I bet if I stopped
Speaker 1: opening stores, I can make a hundred grand doing this.
Speaker 1: I'm not gonna work, you know, this is what I'm
Speaker 1: gonna do. Napster came out. I M telling I think
Speaker 1: it was a hundred days. Ever the last store was closed.
Speaker 1: My total take over my I think six years of
Speaker 1: of running these and buying out all my partners was
Speaker 1: eight thousand four hundred dollars. It calculated into cents per
Speaker 1: hour spent in the store. But but you know what,
Speaker 1: it was worth more than any college degree that I got.
Speaker 1: It was an incredibly valuable experience. But it taught me
Speaker 1: about how fast technology changes then And you can be
Speaker 1: growing and you can think your competition some music store
Speaker 1: across the street. Uh, it's not. It's something you're not
Speaker 1: even thinking about, right And I and I constantly look
Speaker 1: at creative planning and say, what am I not thinking about?
Speaker 1: What can I do better? How can I stay in
Speaker 1: front of somebody else? How can I be the better offering?
Speaker 1: How can I, you know, do more for less? All
Speaker 1: the time I'm asking question because I've been on the
Speaker 1: receiving end of capitalism. Capitalism is a death blow several
Speaker 1: timepsle of times. Well Andy Grove had it right, only
Speaker 1: the paranoid survivor. Um, what do you do for fun?
Speaker 1: What do you do when you're not helping people plan
Speaker 1: for their financial futures? So I I love UM short trips.
Speaker 1: It's probably my favorite thing where I can. If I'm
Speaker 1: going to see a client in Boston, I'll you know,
Speaker 1: take the whole family and I'll go make a weekend
Speaker 1: of it, and and I can kind of get Griswold
Speaker 1: about it. You know my kids. My kids are like,
Speaker 1: so I've you have to explain the European vacation reference.
Speaker 1: I find myself the problem with getting older isn't the
Speaker 1: body falling apart, it's all of your cultural references fail.
Speaker 1: With the younger generation, I try to cram too much
Speaker 1: trip in the two little types. So I've tried to
Speaker 1: lay off that and just go, look, I'm gonna going
Speaker 1: to a city. We're gonna do two or three things
Speaker 1: that are fun. But I think that America's amazing cities,
Speaker 1: and so we've tried to hit every city that has
Speaker 1: a baseball stadium where three force of the way done that.
Speaker 1: That's been a complete blast. And I try to cram
Speaker 1: that and wherever I possibly can, which is rare because
Speaker 1: I've got three kids that are teenagers and they all
Speaker 1: have like twenty seven sports. And have you seen the
Speaker 1: book thirty six Hours in I think it's the New
Speaker 1: York Times puts it out. I haven't. Oh, so this
Speaker 1: is basically every the top two hundred or four hundred
Speaker 1: cities in the country, you're gonna spend thirty six hours
Speaker 1: in the city. Here's what you need to see. Here's
Speaker 1: what man could use that book like eight years ago. Well,
Speaker 1: I'm sure you have some cities left, but it's uh,
Speaker 1: it's a really interesting books. You should look at it.
Speaker 1: Let's talk about the industry for a second. What are
Speaker 1: you most optimistic about within the financial services industry today
Speaker 1: and what might you be pessimistic about within that same industry.
Speaker 1: I think I'm optimistic about is I think the consumer
Speaker 1: is very close to finally getting what they deserve right.
Speaker 1: I mean taken long enough to take it a long, long, long,
Speaker 1: long time, and I think we're almost there. I think
Speaker 1: we're gonna get to a world someday where every advisor
Speaker 1: is a fiduciary, that the firm that's advising the client
Speaker 1: doesn't own their own products, that they get to know
Speaker 1: the line a little bit before they invest their money,
Speaker 1: and that they do all that at a reasonable price.
Speaker 1: I had taken a long, long, long time. I think
Speaker 1: we're well on our way there. That gives me a
Speaker 1: lot of optimism. I felt like the industry has been
Speaker 1: broken for a long time. Now we could be really
Speaker 1: close to there and have it not be fixed. You
Speaker 1: know by the time when you and I are still working,
Speaker 1: it might not be I still might not be fixed,
Speaker 1: but it's certainly on the path to getting closer. Even
Speaker 1: if the government decided not to embrace the fiduciary standard.
Speaker 1: It seems like the market is That's exactly right. I
Speaker 1: think the market is what's forcing most of this. The
Speaker 1: market is what has forced lower mutual fund fees and
Speaker 1: lower commissions and disclosing proprietary products, and all the markets
Speaker 1: pushing that. The government has done a phenomenally horrible job
Speaker 1: I think in this space. And so I think that
Speaker 1: that you're right. I think capitalism itself is forcing us
Speaker 1: to get where we need to be. Pessimistic. Um, I
Speaker 1: worry about two things. I think one, UM, I think
Speaker 1: there's going to be a cybersecurity attack on a major
Speaker 1: financial institution that succeeds that so point in the coming
Speaker 1: years that is horrifying. Is and and I don't think
Speaker 1: I don't I know institutions are worried about the very
Speaker 1: big institutions. I don't think we quite know what that's
Speaker 1: gonna do to the average American when that happens. Is
Speaker 1: everything going to be in mattresses? I mean, the post crisis,
Speaker 1: post cybersecurity, if we get a serious breach of a
Speaker 1: major institution, you know, a trillion plus institution, of which
Speaker 1: there are a whole bunch of them. Um, that is
Speaker 1: enough to freeze capitalism for a while, I think, And
Speaker 1: so I think it's gonna be very interesting to see
Speaker 1: if that can be prevented, uh, and if it happens,
Speaker 1: how our economy is going to react to it. The
Speaker 1: other thing I worry about is you look at what
Speaker 1: happened in Saudi Arabia or I think we're debating who
Speaker 1: who those those drones that went in and the oil
Speaker 1: up the oil fields right before they were going public.
Speaker 1: That's not brain surgery, right, And I think that we
Speaker 1: look at nine eleven as like an impossible You know,
Speaker 1: we've got all these measures in place to do all
Speaker 1: all these things to protect things, but at the end
Speaker 1: of the day, a kid in the garage with ten
Speaker 1: drones and the internet can cause a lot of damage.
Speaker 1: And I am I am concerned about that what it
Speaker 1: does to the way we live with each other, you know,
Speaker 1: from a personal level, you know, kind of your kids, grandkids,
Speaker 1: that kind of thinking, and from your specific question about
Speaker 1: the financial industry, what does it do to economics? Like
Speaker 1: if you remember after nine eleven, no one went to
Speaker 1: the movies, everything, no one went to the months, there
Speaker 1: was a cocoon effect for months. This to me would
Speaker 1: be much worse because people would be like, well, wait
Speaker 1: a second. You know nine eleven at least requires some
Speaker 1: strategicy and some breakdown and defenses. But and a physical event,
Speaker 1: not a cyber events. Right. If if we move into
Speaker 1: a world where there's a cyber event or you know,
Speaker 1: some teenager with drones causes havoc in Times square, I
Speaker 1: think that's going to be a cocooning effect that we're
Speaker 1: not we've never thought about, are prepared for. I think
Speaker 1: those are the real, the real threats to the economy
Speaker 1: that because you look at the economy is very resilient.
Speaker 1: It can get through everything. Bretto Uch pot is gonna
Speaker 1: cost more ten years from now than it does today,
Speaker 1: and like you, shoes are gonna cost more ten years
Speaker 1: from now than they do today. The market's going to
Speaker 1: go up into the right the way it always has.
Speaker 1: But these kind of things are the kind of things
Speaker 1: that can change that that narrative. And so those are
Speaker 1: the things that I think about when I think about
Speaker 1: existential threats to the norm. Huh. Fascinating. And our final
Speaker 1: two questions. A recent college grad comes to you and
Speaker 1: says they're interested in financial services as a career. What
Speaker 1: sort of advice do you give them? So first I'd say,
Speaker 1: you know, it's it's kind of like show me your friends.
Speaker 1: I'll show you who you are. You know, you give
Speaker 1: four people you hang out with the most. I don't
Speaker 1: need to meet you. I can pretty much tell you
Speaker 1: what what kind of guy you're like. Don't just go
Speaker 1: somewhere for experience. Try to get to a place that
Speaker 1: is aligned with the values that you're you're trying to
Speaker 1: do right, So try to get if you're focused on
Speaker 1: being a fiduciary and be based or you only get
Speaker 1: into an r a A. Just start there right, Try
Speaker 1: to get into the right environment to begin with. Second,
Speaker 1: create separation between you and other people. And I think
Speaker 1: there's a couple of things. One of the interview process.
Speaker 1: I'm always fascinating when somebody goes, well, I'm coming here
Speaker 1: for experience, or I'm coming here because I can think
Speaker 1: I learned this and that. Imagine, uh, somebody going to
Speaker 1: an NFL tryout and going I'm here because I want
Speaker 1: to learn to get to get better, and I want
Speaker 1: you want somebody who's gonna come. Here's how I can
Speaker 1: help you win. You know, here's what so talk about.
Speaker 1: How you can help the place that you're coming into
Speaker 1: now once you show up, Um, you can differentiate yourself
Speaker 1: by going the extra mile. This is an industry where
Speaker 1: it's very easy to go to the the extra mile. I mean,
Speaker 1: there's a lot of things you can do more for
Speaker 1: your client or your employer, and it's not hard to
Speaker 1: separate yourself from your peers if you are willing to
Speaker 1: stay a little later, or take on a project or
Speaker 1: offer your help. I mean, even with hundreds of people.
Speaker 1: I am very aware of the people within creative planning
Speaker 1: that do that, especially those that are starting out. And
Speaker 1: so you tend to get judged in the first thirty
Speaker 1: days when you're at work. The reality is we all
Speaker 1: judge each other in the first few seconds of seeing
Speaker 1: each other. There's a whole book about this called You've
Speaker 1: Got Three Seconds, and basically the ideas when you meet
Speaker 1: somebody in a few seconds, you've decided what you think
Speaker 1: of them, and it's up to them to dig themselves
Speaker 1: out of that hole or they're gonna go up or
Speaker 1: down later over time, but you've kind of put you
Speaker 1: put an anchor on them. The same thing happens when
Speaker 1: you're employed. Don't grow into it, come in hard, come
Speaker 1: in strong. If it's the ground running, it's the same
Speaker 1: thing I try to do with the client. I try
Speaker 1: to give that client as much value upfront as I can,
Speaker 1: so they're going, Wow, this is I made the right decision.
Speaker 1: You want the employer to feel the same way about you, huh.
Speaker 1: And our final question, what do you know about the
Speaker 1: world of investing and financial planning today? You wish you
Speaker 1: knew twenty five or so years ago when you were
Speaker 1: first getting started. Well, I mean it took all the
Speaker 1: way until, you know, from oh four until to put
Speaker 1: all the pieces together, and it was really like hearing
Speaker 1: from clients, Oh I need this, I need at and
Speaker 1: then going well, I need to build a service to
Speaker 1: do that. So I always had a very strong bias
Speaker 1: against product. I don't want to own anything where I
Speaker 1: make more money, and a very strong bias towards service
Speaker 1: and value. How do I deliver more services? I wish
Speaker 1: I had the vision and no four to go. These
Speaker 1: were all the services that were needed and really found
Speaker 1: a way to build it out all on day one
Speaker 1: instead of taking you know, fourteen years to build it.
Speaker 1: I I told our team at our last annual meeting
Speaker 1: that for the first time, I feel like I'm at
Speaker 1: the starting line. I feel like the first time I
Speaker 1: have an offense and a defense, and an offensive coordinator
Speaker 1: and a defensive coordinator. Up until now, we've been playing
Speaker 1: with an incomplete, incomplete team and complete coaching. We didn't
Speaker 1: have all the piece we have the special teams. We've
Speaker 1: got it all now. Um, and you know, I wish
Speaker 1: I had a time machine. I could go go have
Speaker 1: started that way. But to be fair, you have you
Speaker 1: were path dependent. You had to travel that route in
Speaker 1: order to figure out what all those pieces were. That's true,
Speaker 1: so but that's still still quite fascinating. Thank you, Peter
Speaker 1: for being so generous with your time. I've I've had
Speaker 1: you in here for two hours, and uh, most people
Speaker 1: fade by by sixty minutes. In fine, you were great.
Speaker 1: I really enjoyed it. Barry. We have been speaking with
Speaker 1: Peter Mluke. He is the c I O and President
Speaker 1: of Creative Planning. If you enjoy this conversation. Well, look
Speaker 1: up an intro, down an intron Apple iTunes and you
Speaker 1: can see any of our previous three hundred such conversations
Speaker 1: we've had over the past five years. Where has the
Speaker 1: time gone? Um? We love your comments, feedback and suggestions
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
Speaker 1: Be sure and give us a delightful review on Apple iTunes.
Speaker 1: You can check out my weekly column on Bloomberg dot com.
Speaker 1: Sign up for the Daily Reads at Reholts dot com.
Speaker 1: I would be remiss if I did not thank the
Speaker 1: crack staff that helps me put together this podcast each week.
Speaker 1: Carolin O'Brien is our audio engineer, Michael Batnick is my
Speaker 1: head of research, and Michael Boyle is our producer. I'm
Speaker 1: Barry Riholts. You've been listening to Masters in Business on
Speaker 1: Bloomberg Radio.