Peter Mallouk on Building a Powerhouse RIA

it up to a forty billion dollar powerhouse. If if you want to learn the right way to manage money, to deal with clients, to provide services, to grow a business, then strap yourself in. This is a master class with no further ado. My conversation with Creative Plannings Peter Maluke. This is Masters in Business with Barry Ridholtz on Boomberg Radio.

My extra special guest this week is Peter Maluke. He is the president and chief investment officer of Creative Planning, affirm that manages about forty five billion dollars in assets under management across nearly a hundred thousand client accounts. He is the only person on Worth's list of one hundred most Powerful people in global finance who actually advised clients.

He was listed number one on the Baron's Top one hundred Independent Advisors for three consecutive years, and he is the author of the book The Five Mistakes Every Investor Makes and How to Avoid Them. Peter Maluke, Welcome to Bloomberg. It's great to be here. Good to see again, Barry Uh. I've been looking forward to having this conversation with you. We spoke briefly at a conference in September, but that was so short. Twenty minutes. A half hour just doesn't

get it done. And we should be able to wrap this up by dinner time and I'll get to every question I have for you. I have to start with your career because it's a little unusual. You get a j d, m b A so a legal degree and a business degree from the University of Kansas in what what was your career plans? Where did you think you would go with that? So? I didn't have any career plans.

A lot of people look at my college education history and think there was some master master plan, or I think I've perceived as as a strategic planner when it comes to business, and the amount of just good fortune and luck along the way is tremendously underestimated. I for sure, when I was doing UH an undergrad I just took business, just took business because I thought I liked business, and I added other majors that were interesting to me. And then I got an MBA because I wasn't sure what

I wanted to do. And the same thing with the law degree. There was a joint program at University of Kansas where I went, and so I did both. So I came out of college with a bunch of degrees. But I still, even leaving campus and heading back by COMB, I had no idea what I was gonna do. And and somewhere along the lines, you were involved with used record stores. Tell me about that, because in my misspent youth I used to haunt you c D stores looking for cheap albums and discs um that were used. What

what brought you to that space? So you know, I don't know where this entrepreneurial thing came from. I know my mom really encouraged it when I was younger, and I remember UH always having a paper route, which meant you know, I couldn't drive a car when I had it. I was twelve. So my my dad, you know, drove the paper out and I threw the You weren't on

the back of a bike, that's how. That's how so in suburban New York, that's how you When I had a paper out, it was a bike with you would put a bunch of baskets on and you would go down the street flinging papers both ways. I thought they only did that in movies. No, not all that was real.

But that's when you're in a tight suburban neighborhood. You sound like you were in a little more spread out spread I mean in Kansas, spread out suburban neighborhood house to another, you'd get you to get worn out sometimes. And so I just set out the back of a station wagon and throw and throw the newspapers. Uh. Then I had a lawnmowing business, and then I had a DJ business. I loved music, um but the music stores was probably the thing that was the biggest manifestation of

what I really enjoyed and having a business. And I had started that while I was in college, and it had, you know, but pretty much gone bankrupt by the time I got out, So you really begin your career at Creative Planning in what capacity did you join the firm? And this was, by the way, a much much smaller firm at the time. Right they was had been started by three guys in the insurance business, and they had an insurance arm and they mainly did disability insurance for physicians.

And one of them was really into investing all the way back in the early eighties, you know, when I was in grade school and he um so he started Creative Planning as a sister company had you know, maybe a few dozen clients basically using American funds, mutual funds and and doing planning with with you know, by hand. You know, I don't remember I took over. I look at looking at the plans. I mean there was no

Internet back then. And in great technology we we take things like money Guide pro for granted today really lets you dig deep and and come up with a lot of options. Yeah, I mean technology literally lets you scale in the way you never could before in every in every business, but just being born and now you could do all these things that you could have never done a long time ago, no matter how brilliant you were, and uh. I had worked for somebody for two years

just advising this physician and his practice. And at the same time, a couple of years after that, I started working with advisors, doing wills and trusts and that sort of advice for them, putting putting that legal degree to work. That's right. So never been in a courtroom for for anything ever with the practice of law, but I enjoyed helping people. Hey, you've you've got this problem. You want to fix it. You you probably hate dealing with lawyers.

I'm gonna make this easy. It's gonna take a few days, it's gonna be a flat fee. I'm gonna explain it in English. And that really took off. A lot of advisors started to use me. I really learned a lot from a lot of those advisors. A lot of them were amazing, a lot of them were terrible. Um, a lot of them were brilliant but did the wrong thing and and a lot of them always did the right thing. Um. And then creative planning. At the same time, their financial

planning team had left to start their own firm. They asked me to come in. And when I take on that department, I looked at it and thought you know, I can do this and two days a week. It was pretty straightforward. So I was doing that from and at the same time, I was taken care of maybe a hundred other advisors clients doing estate planning. So now it's two thousand four and you say I have an idea, Yeah, let's buy the firm. So first question is what what

motivated that blight bulbin? Oh four? By the way, before the financial crisis, but not too long after the dot com implosion? Right, you know the markets had only bottom let's call it October two and then March oh three, right, I mean I'd come right into the industry basically when I was running creative plannings a few dozen clients. During that period, you had the tech bubble and you had

nine eleven. So the markets were just, you know, a disaster um during that period and the lightbulb going off. Would you really think about it? Here I am for six years, I'm doing financial planning and investments for some people, and I'm doing a state and tax advice for other people, And you would think the light bulb would have gone off sooner, right that Hey, maybe people would like this if it was all together, right, And so I knew

three things. I knew I wanted to be an independent advisor, and I knew that I was not comfortable with dual registration. Creative planning was duly registered at the time, and back then that was very normal, and that was Hey listen, back then r s were relatively that was and people were just adding it to brokerage firm says, oh, let's well for these services. Exactly right. I mean it was innovative to even be an r A at all at

that point. Um. And I was very uncomfortable as an attorney built maybe a complex of state plan with charitable trust there bublble trust, and then find out and annuity was in there that wasn't the right kind or shouldn't be there at all. But they have a giant commission built, right, and that's where they get sold. And so you go and you do the legal. Then that advisor might do

things that aren't ideal. So I I wanted to a firm that was independent, didn't sell its own products, was able to combine all those things in one place, and most importantly, could take each client and and change the portfolio per their situation. And so I went to all my clients, including Creative Planning and said, you know, I'm going this is what I want to do. And the owner of Creative Planning was basically like he had had

those two former partners. One had died very young, one became disabled very young, and he said, you know what, I've had enough of this. You know, if you want to buy, if you want to take over Creative Planning, go ahead. So did you do this yourself? Did you bring in partners? Did you bootstrap it? How? How did this transaction? I mean, we're talking about a firm that had a couple hundred thousand of revenue. There wasn't I

mean it was so it wasn't a multimillion. I mean, we're there and basically made monthly payments for a few years and it was over. It was not We're talking about a few dozen clients, and so what it was really the advantage for me was I didn't have to go create from al a from scratch. There was one there. I already knew those those clients, and so I could skip this like six month period of figuring all that

out and get on with it. Even even more, it's like eighteen months by the time you're done with everything. We did hours from scratching, you find yourself spending a one amount of time with lawyers and accountants and compliance people just to launch the farm, right, so you bypass that. So now it's oh, four oh five, you're a hundred million dollars in assets. When do things really start to scale up? You're now forty five billion. That's a big jump, you know it was. It was really instant in terms

of percentage growth. I mean every year it seemed it was thirty or thirty growth, and it's never really stopped. I mean they've been a couple of little more than that in a couple of years, a little below that. I mean the numbers change obviously, you know three years ago where at eighteen billion, and now we're at almost forty five. That seems crazy, but it might even be a slower growth rate than when we went from a

hundred to five hundred. I think what we were doing in the beginning was very innovative, and it doesn't sound like it today to have a firm that was, you know, dropping its dual registration, was totally independent. We were using e t F. So I remember hearing from Van Vanguard rep that we had larger holding of indexes than any independent r A A. I'm hearing that No. Nine or I remember having to explain when E T F was

two clients what pastive investing was. And then we were doing the legal and tax and all of that in one place. The way we delivered it was very efficient, and we we were doing including the planning without a separate feedback. Then if you're reading all the financial stuff, it said, this is stupid. No one will value it if you do it for free, and you always have to charge. And so there were just a maybe six or seven things we were doing that no one else

was doing that. Today a lot of people are doing um. But the difference is today that's not enough. Today you have to be more specialized, you have to be faster, you have to cost less, you have to have much much more credential people. It's gotten way more competitive. You know, if I started this today, it wouldn't worked, right. I think that back then it was very unique. It was it was very on the front end of things, and it allowed us to build a lot of a lot

of momentum. And you have a colleague that that sent me a wonderful article about cumulative advantage, which is you start to One of the things that people want in this business is they want to feel safe. You know, I mean you you if you're looking at hiring an advisor, it's sort of like a restaurant. You know, we're here in New York City. The way I picked where I was eating last night as I want to trip advisor.

A trip advisor tell me where to eat last night, right, So part of it is probably going to go to a pretty good place, and the other part is I'm probably not going to throw up, right, probably probably not, probably not gonna be horrible. And I think people look at advisors the same way. I think they want to feel like, Okay, I'm at a place that's pretty safe. Okay, this place has lots of clients, big clients, pretty sophisticated, probably did a lot of due diligence. I feel safe there.

I'm probably gonna do all right. I'm probably not gonna have a really bad outcome. It's just the way. So I think as you as we're sitting in this world today, people have been at nine eleven, the tech bubble, oh eight oh nine, Bertie made off. Just there's so much crap happening. Right. If you're an investor. You're really looking at at this landscape and going, you know what, the

guy with two million dollars makes me a little nervous. Um. And now not everybody thinks that there's a path for the guy with two hundre million dollars, but there are gonna be some people that person encounters that goes you know, when you're bigger, or they might not use those words, but that's what I had a lot of people that didn't sign up with me in the first few years that signed on years later, like say, my mom and dad, I've been calling you president. Is that right? Good enough? Yeah?

The bro chief investment officer, chairman? Is there a preferred title? Really it doesn't matter. But but you are the head Han show at Creative Plants, which is a billion? Can I call you forty five billion dollars? Is that? Are you just very close? Depends on I guess it depends on when this Brookt is going. That's right, depends on where the market closes. Um. So let's talk about those

numbers because they're crazy. When you when you took over the firm and O four it was it was a hundred and change a hundred million dollars not a lot of firm funds. How do you scale up that a u M from a few million dollars to almost forty billion dollars. Well, I think you have to have a couple of different things. So I think that one, you have to have a sound investment philosophy that's kind of

worked out for people. Right, You're not going to get through all of those things and have your clients referring other clients and aggregating their assets with you unless you deliver on your promises. As one, you have to have an investment approach that works. I think. Second, you have to have more than that, um and and so we we have more than that. We've been planning and legal and tax and trust services and institutional services and all

of those things. UM. Third, you have to have the people. And I think this industry, and I've spoken about this a couple of times before with you, the people in this industry are tremendously underrated, and I think they're viewed as interchangeable. And if you watch the behavior of a lot of financial services firms, they view the people as interchangeable. Like you look at some of these firms now, there's a lot of press around them, preparing for the next recession.

At low rates, they're not going to make as much money holding money, So what do they do. A lot of them aren't firing their bottom performers. They're firing their highest compensated people, which you know, presumably are their highest compensated people because they rose to levels the highest performers, and they go in and go, we're gonna fire all those people, which obviously the assumption is that other people will just naturally make that work out. I don't hold

that view at all. I think that, you know, when I have a I'm looking for health care for someone in the family or myself, or I'm looking for a lawyer, I do not view all physicians are lawyers equally. But this industry really views people as equal, and I never have. I mean, from the very very first higher I knew the importance of people. And I've personally witnessed and received the consequences of mostly wonderful hiring and you know, a

couple of really bad hires. And if you attribute almost a huge percentage of the success to getting the right type of people, and really the biggest grief I've had in my career to one or two people I hired that were mistakes. How many employees are you up to now? About six? So at a certain point you're no longer interviewing every single person, right, you know, I'm in I'm interviewing them all, but you're you're the final check off. Yeah, that's a better way to put it. I mean I'm

not running that. I mean before they're getting to me, they've been through a background check at the blian's check, They've they've interviewed with a talent acquisition team, the head of their department, usually somebody else. Then they're coming to me. But I would say, you know, one and three is

not getting past me after even after all of that. Um, it's just for I have a of the firm as a whole, um and I have you know, sometimes if you've got ahead of the department, they really have a need right that you you have this you want to fill it. Right. So you're interviewing somebody and you're looking for reasons to hire them, and I'm really looking for somebody in going if this doesn't work out a year from now, why is that? What is it about this

person of interviewing that's not going to feel? Uh? That could be the reason for that, I'm gonna look at the investments the same way I'm looking at a DO investment. I'm saying, if this blows up in my face, right, I've got to explain this to clients a year from now or ten years from now. What what was the scenario that made that happen? And so I'm I'm trying to think my way through those sorts of things. Sometimes the person is a wonderful person, but I don't think

they're gonna be satisfied in that role. They're taking their switching under the wrong circumstances. There was one person that interviewed with us from another firm, and he just so treated badly at the other firm. And I really am not want to hire somebody is leaving something when I are somebody that's coming to something. We ought to hiring him a couple of years later. But I'm looking at more of those things, and and that I am all

the things have already been figured out by others. I've had a number of CEOs, both from within finance and from other industries, say hiring is the single hardest thing they do, and it feels sometimes like the outcome can be random people that all right, that person will work out and they're become a superstar or someone they're convinced is going to be perfect for the role and it doesn't work out. Do you think hiring is Is that

challenging and that important? Well, that that important? You can't you really can't overstate how important it is and the positive and negative side of this business. On the randomness, I don't think it's random. I think you're gonna have some random, random outcomes. But I think our hiring process is probably more likely to have success than say another one, and there's probably somebody that is more likely to have

success than we are. So I think there are certain things you can control that are gonna narrow the field of outcomes. I had a person who at the time had a bunch bigger firm than me, had said had told me about hiring that he looks at the world and he's there's a there's a a social curve out there. There's some crazy person that's going to script your firm. There's some malicious person, there's some psychopath, you know, whatever percentage of the population fits those things. And then there's

all these wonderful people, but they're not bright. There's bright people that aren't wonderful. And he's like, I'm looking at this whole social curve and when and I'm trying to keep the bad part, that standard deviation that's way off on the I'm trying to keep that away from my firm, and I'm trying to get the other end. And I thought there was an interesting way to look at it. You hiring is not random, like just pulling somebody off

the street. You can really do a lot of things that are objective and some that are subjective to really narrow the range of outcomes you're gonna have. There's still gonna be surprises, but I will tell you every year we have less surprises than we've had before. And I think we've just gotten better at identifying all those things that derail somebody. In part of it, there's every Every culture has something different. Our culture is a very rapid pace.

It's a very high energy culture, um very high expectations. Sometimes you can have somebody that's brilliant and wonderful, but it's just not that's just not their style, right, So some of this is stylistic too. You can screen for some of that. So you mentioned you work with Vanguard. I think you also work with d f A. Is that correct? A black Rock State Street, so you basically we do the same thing. You basically have a bias towards passive but not purely passive. Is that fair? That's fair?

And then we use a lot of alternatives for our clients that have five million or more. So that's a question I had for you later on, but we might as well talk about it now. Private equity is hot as a pistol. As we work our way towards some of the larger, more sophisticated family offices and ultra high net worth investors, they're very interested in alternatives. How do you reconcile? Hey, look, we're passive over here, but we're

gonna put some money in with alternatives. They're a little pricey, and we don't exactly have a lot of transparency into things, but some of the returns have been really good. How how can you reconcile those two? Well? I don't, I don't think, I mean to me, it's I don't have to reconcile the bond market in the stock market. They're different markets, they have different outcomes, and so I don't

view it as conflicted, you know whatsoever? I think that I believe that the US large market international markets are generally efficient or efficient enough that I'm not going to outsmart them. Right. I know your firm feels the same way.

So I'm just not going to play that game, right, I'm gonna figure out what the client needs, what return they're trying to hit, how much volatility they can handle to get there, and I'm going to create some mix that I think has the highest probability of creating that outcome. And you know, when I add bonds, my expectation as the bonds are gonna underperform equity, right, So I mean, although we could point out that there have been long periods of time the past three decades where bonds did

really well versus equity. Yeah, but in general, right, most of our clients, their their timeline is multidecade, and the odds they're gonna underperform with bonds are very high. Yet we introduce bonds into the portfolio. We do that because they might have short term income needs. We've got to make sure we can deliver that to them. Even if there's an O eight on nine crisis or tech bubble

or at night eleven. It's not about you know, maximum performance to introduce the bonds you're you know, you're introducing something that will probably underperform in exchange for making sure we don't blow up the portfolio by withdrawing from stocks

when they're down right. What about the behavioral side of I know a number of UM people who advocate equity portfolio, which in theory does well until you hit an O eight O nine where things get cut in half and people have a tendency to jettison stocks at the worst possible moment at the lows, and then they missed the whole recovery. How do bonds fit into the behavioral side of a portfolio? I really think the behavior most of

it can be controlled through education and empowerment. So I think if you're a pure money manager, I think getting somebody to get through a drop is gonna gonna be

pretty tough. But if you're seeing them throughout the year and you're educating them on hey, you you're stocks or you're nine stocks, if the market goes down fifty, you can expect to go down fifty maybe more, you know, depending on what other other asset classes we have subasset classes, whether it's international, emerging markets or small cap or whatever, um, And here's what's going to happen. And here is why the dividends are enough to meet your needs and so

you don't need to worry about it. And here is historically what's happened. If you're having those discussions all the time, then when it happens, you're more likely to get through it. But I think the reality is most people can't afford that. So even if you're sitting with a couple and it's a doctor and he's sixty eight, he's got four million dollars because she and her husband have been saving for forever,

and um, you know they need a couple year. They can't be all stocks because if the market goes down at half, the dividends are not enough to meet their needs. So almost everybody has to have bonds in their portfolio, you know, even the top one percent. And when you get to the top one one they don't need bonds in their portfolio, right. The dividends really are enough, and they are more focused on even tying it up more

than markets with you know, things like alternatives. So for me, bonds are about how how much bonds do I need to meet their needs? If something goes wrong in the short run and then it stocks for the long run. And what about since you mentioned this in terms of of income, what about people who are living in high tax states where there is a fairly robust municipal bond

market that can generate tax free income. Well, I think that the municipal bond markets completely distorted now because of what's pension plans having to allocate to bonds and the aging population of people that are in those pension plans. Uh, and the tax law really pushing money to bonds. And it's very hard to take a client today and say, let's go putt of your money and municipal bonds. Was that an option years ago? Absolutely? I think that. I think three years ago, you know what it was real

it was, it was an option. I think that when you're now where you're at, it's it's just you can't justify it. You look at the dimdend on stocks and and you compare it to bond yields, and it's it's hard. You and I had a conversation over the summer about the acquisition space that I found fascinating and I wanted to um delve back into that because quote, it's the hottest that's ever been, and possibly the hottest that will

ever be. It's just bonkers right now. I don't know where the top is, but it ain't gonna get a whole lot better than right here. I'm paraphrasing, but it's pretty close to what you said. Why is M and A in the registered investment advisory space so hot today?

I think you have a lot of different things. So first, I think you see this rotation um institutional investors moving money out of hedge funds where they've looked at orically and said, hey, hedge funds haven't done that great for us for the last twenty years, but these other alternatives have in many cases outperformed the market for us, and so they're rotating to those. And one of those asset classes as private equity, So you have the big funds

are bigger than ever. I mean just you can't go a month or even a week and not see about a big private equity family raising their biggest fund ever. So that's number one, the big In fact, Mackenzie, the data point I just was reading about. Mackenzie said, by the end of that calendar year, private equity had raised seven fifty billion in new funds, UH and Fresh Capital. That's a lot of months crazy, So the big have gotten bigger. The second is there's a lot more private

equity funds. There's now over eight thousand private equity funds. There's way more private equity funds than there are stocks UM, so so we have more funds with more money. So that's number one, right, just a bunch of just this huge slash of liquidity out there. Second, we have very very low interest rates. And when private equity goes in and buys a business, they don't usually just write a check.

They usually do the same thing a real estate fund when they does when they buy a property, they use leverage. So they're borrowing money to buy the firm, right that the company they're buying. And so if interest rates are lower, they can obviously pay more, just like your listeners can buy more house if the mortgage is lower. Right. So you have very low interest rates, more funds, bigger funds, UH, and high net worth investors are starting to move more

to private equity too. So all there's all that money over there, Now, what do they want? They want to be in an industry that is growing fast, has recurring revenue, has built an inflation hedge, UM, where people are sticky, uh, and where there's a need for consolidation right where they can take you know, Mary over here, he's doing a pretty good job, and Joe over there, he's doing a pretty good job. But together, wow, they could really be impressive because Mary is good at this and Joe is

good at that. Well, what checks the boxes on all of those things about are a space sure money is sticky, market goes up there as your inflation hedge, and uh, it's recurring quarterly revenue stream although I think UM a handful of places rannual, handful of places a monthly, but for the most part it's a quarterly UM invoice the right.

And they compare that to all the other areas of the financial space where there's more client turnover and people leaving, and they're going, you know what, this is the space to be in and not what a coincidence. The space to be in is the space that's really in its early stages. You know, there's a lot of room to

improve some of these places. So yeah, there's a huge loss of money with very low interest rates going into a space that is attractive for a bunch of you know, Fluke reasons, and all this timing comes together, and you now have private equity coming into this space um to buy up firms. And the other thing is they've been very successful at it, right, So somebody who's just built a five million dollar firm or a ten billion dollar firm is probably not the person usually right to run

a much much bigger firm. And they know that and they don't want to do that. Like I know, I don't want to run a publicly traded company, right, So I've been approached several times about, hey, you guys should go public. That's never happening with me. I've got clients that are CEO CFOs of publicly traded companies that they are not happy no. And I am very focused on my quality of life, and I just I look at them and they just look like they're aging every every review,

they're aging twice as fast as all other. So it's back up a sect because this is really a fascinating digression. Most companies, when they go public, they're going public for one of two reasons. Reason Number one, they need capital to either grow or make acquisitions or some other financial engineering that's part of their long term business plan or two, they end their staff and their outside investors, typically venture capitalists or whoever, are looking for an exit. Yeah, you

don't seem to have either of those issues. No, I don't. So that's would be another reason I would I would never do that. So so, and you are still the main owner, the soul owner of Soul one today, Soul one. Really, at what point does that change? Because I know we went through a whole process of setting up a path to equity for employees. You guys have been growing so crazy fast for so long that that hasn't really come up to the four yet. No, I mean that's part

of it. I have a lot of partners in our affiliated entities. So there I have partners with the law firm and the the benefits firm, and the forward K firm and the and the those are all separate corporate entities, all creative planning entities, all operating out of the same place, all helping the same clients. So once there's been stable growth, I've always had partners and favor them in those areas and creative planning. It's just been such rapid growth and

it's required so much capital. I mean it, there's that's never made sense to do it. I don't know that anyone would have really enjoyed the ride um and what it was going to take, uh financially along the way to do to do the or the commitments or the

deferral and the patients to do this um. But we we were are considering and have for a long time considered raising money by selling a minority stake to a private equity firm because I do think that valuations are high, and I do think that the world moves very very very fast, and you are going to need money to get through it. If you look at how these big financial firms are doing it, they're doing it by preemptive layoffs, right,

That's that's what they're doing now. And I would like to do it by a preemptive pile of money sitting in the bank so that no matter what happens when there's a contraction, that we can go take advantage of that. And that that's what we did in O eight oh nine. We grew rapidly through that crisis, and I want to be able to grow rapidly through the next one, which means I not only want to keep my team enforced, I want to go find more talented people and focus

on getting clients and not worry about about reserves. So you mentioned oh eight oh nine, Um, I have to ask, how do you grow in the middle of a rices where every time you buy equity a week later, or or a fund or an et F or anything a month later, it's down five or ten or fift How did you manage both existing clients and growth throughout the

Great Financial Crisis? So back then there were only a few of us, and so I was in every single client meeting of every client of creative planning back then. And a very very big part of this was education. So when you're doing needs based investing instead of risk based investing, so most places are like, well, this is your risk tolerance, and here's your portfolio for for you or your this age. Here's your portfolio. Have five models,

you go to the closest model. We've never done that, even on day one, and we don't do it today. We've really said, you know you've got real estate, We're going to leave that out here. You you your belief system doesn't match these, will leave them out. You want more of that. It does work for your situation. But here's how we're gonna cover your short run in your long run, and here's all the horrible things that are

probably gonna happen in the investment world with your life. Well, when you're going through that with people um over and over again, they're sticky. And we were we were doing their planning, we were doing there, we were doing a lot of different things for them, and so when they

were going through this crisis, they were not surprised. I think people panic when things are not aligned with their expectations, and so it was a big shake up and a lot of people were leaving their advisors, and our clients were referring people to us. Now, there were a couple of things we were doing too, but I think we're very proven out, very quickly, very very basic things. So we were tax harvesting, for example, which you didn't hear

a lot about back then. And the other thing we did is we we we have a feeling we don't balance at the end of the year. We don't balance every quarter. We balanced on sharp market drops. So let's just take the O eight crisis that you brought up. It bottomed in the beginning of it bottomed around March nine of oh nine, and the market just those nine days of March had dropped about we're buying, right, So we're calling our clients and we're buying and we're harvesting.

By the end of that month, the market had recovered all of the losses for OH nine, not all all from OH eight, It was just up thirty plus percent. So if you take just a seventy thirty portfolio and you're buying not at the end of the quarter a year, but on when it's dropping and you're harvesting, what do you get. You're not breaking even when the market does

four or five years later, you're breaking even. You take a take and a half the time to get to break even, and you have losses on your tax return, and that creates advocacy, right. And so that was really the explosion for creative planning was those clients going, you

know what, I feel confident to tell my friends. I think there's a lot of people that are happy with their lawyer or their c p A, or their financial advisor or their doctor, but they're not positive that they're going to look good if they refer somebody to you, right, And I think that what you do through a crisis is you get a chance to prove yourself. So I really view all of those as tremendous opportunities of Hey, we told you this is the scenario that would happen.

Here's why you're okay, here's exactly what we're gonna do. And then they see the outcome. They but they go from clients to advocates. And that was the turning point for us. And so you know, you talk about the the power of luck and all of this, and I don't want to say I would root for another oh eight o nine. I mean, it's painful to go through and long hours and a lot of stress, and not

everybody's not every clients like hooray. I get the opportunity here, UM, but there's no question that without it, creative planning is not what it is today. Quite quite fascinating. One last question I have to ask about acquisitions because it circles back to um your reference that it's the hottest it's ever been. We met with a bunch of consultants early on, and pretty much the number everybody uses is two x trailing years revenue or two point two times trailing twelve.

And that was, you know, six seven years ago, you and I had discussed the numbers today that are being used for acquisitions. They don't even remotely resemble that anymore. I do that, No, I mean I think that. What's I think what people have figured out is we've now moved to a level where a lot of these are enterprises and all anyone cares about now is the future

earnings of these businesses. And so you can have a five million dollar firm that's running on a ten percent margin and you can have a five d million dollar firm that's running on a thirty five percent margin. They're going to have wildly different valuations um when a strategic buyer, a private equity buyer comes in. That that's definitely changed a lot in the last few years. So so what sort of multiple are you looking at for Let's take the average one percent firm, which is now probably a

high fee. We were playing with numbers the other day and we were about sixty two bits on average across everything, um. But the typical firm is one percent or so, and their overhead is primarily either technology, their rent and their employees. What's the reasonable multiple for the average farm on either revenue or profits? Well, revenue is I don't have no one, but yeah, that no one would pay attention to that.

I mean it's a great example, is well. I mean the expenses of those places could be wildly different depending on where their rent is and how do their employees produce on their own and get bigger payouts, or it's very, very wildly different. I'd say if you look, you're looking at these five million dollar firms, um, the multiples could be as low as five and as high as seven or eight or sometimes profits at times profits, And I think that people are looking at even the profits isn't enough.

Like if the average client is seventy eight and there's no new clients coming in, you're looking at declining earnings, right, So you would have somebody say I'm not gonna buy this at all, or it's going to be two times or three times filings. You could have a firm like yours. You know where you're growing, but there's a mojo factor, right, Like there's a there's something that that could really spark

great greater growth. A different buyer might look at it and go, there might be more risk here, right, And so I think that you've got that is a very big factor, especially when you're looking at these firms that are three millions eight hundred million, Where is it's totally dependent on one person, or are people tied to other people? What's the average age our accounts growing, or people referring or they're not referring. So you really need to look

through all that. But you're getting to the mid the mid range. You know, when you get up to firms your size where you're billion more, you could be talking double digits um, and you get to the very large firm,

you're definitely in the in the double dish. So it's it's much more complicated than we tend to see in the headway because do you see oh, so and so, but it's such a company, or here's the fifth acquisition done by this company, and they kind of make it, oh, there's this much revenue, here's the multiple, and this is their seventh acquisition this month. I don't think that ever, that ever happens where where someone looks at the revenue anymore and makes a decision based off of that. Let's

talk a little bit about investor expectations. Ten year bond yields are but under two percent. It's hard to look at US stocks and not say they're let's call it fully valued, richly valued. I don't know, I don't know what phrase you want to use. What sort of future expected returns should investors have today? Well, I think what you can never figure out the stock market completely, but the bond market is largely math, right, so we we know we can't replicate in the next thirty years what

the bond market did in the last thirty years. So since it's all a function of of where the yield is, I think when you look at the treasury, it sets the tone for everything else. Right, If the treasury is under two and corporates are a little bit higher than are, expected return for large stocks is a little higher, some would argue for small stocks might be a little higher, or maybe emerging markets, and you you go out that way.

So you've gotta get rid of this double digit return expectation and move yourself into the squarely into the single digit range, somewhere in the mid to hire single digits, depending on your allocation of bonds and your beliefs around uh markets that are certainly not overvalued, like emerging markets, are small, kept international, and do you believe that they're low valued at a low price now, because it's just gone and it's never going to recover or or or

do you think they're at a low price because things are a little messy and they're gonna get worked out like they did in the in the US UM. So you can make your argument, but it's very hard to make an argument for the double digit returns that people were making in the nineties. So a blended portfolio seventy thirty including exposure to international and emerging markets five six seven percent is that a reasonable in our projections, we're

using a four percent real return. These six percent return subtract inflation, and we feel pretty comfortable with that. So that brings up the issue we briefly talked about earlier, which is alternatives, most notably private equity. People have a h story of saying I'm not getting the sort of returns I want, so I'm gonna either look for something that perhaps has more risk um and try and achieve those returns. I don't get the sense you look at

private equity that way, or am I am I oversimplified? No, you're right, and I think this is a point you know that we disagree on. Right. I think that that when when I look at the public markets, I don't think you're going to find a bigger advocate for that. Those markets are pretty efficient. My entire book Five Mistakes is basically about, here's all the evidence that you just gotta quit market time and quit six stock picking and focus on allocation and discipline. So, by the way, you

and I completely sympatica with that. Let's see how much space is between us on venture capital, hedge funds, and private equity. Now vent your capital, I would put it. So, I think one of the problems with alternative investments is everyone talks about alternative investments like it's one thing, and it's it's not. It's it's not. So alternative investor investments is basically an alternative to anything that's not a publicly

traded stock or in the real estate. Right. So you know, if you've got a listener that owns a duplex, that they're running out there in the alternative investment business, right. And so you own a farm and someone's actually farming it, that's welcome to the alternative investment, direct investment in real estate or something else exactly. And so now when you take alternate investments, we can divide them out into a couple of things. One area we agree on it I

don't think hedge funds work. Now why do I not think they work? Is it because the evidence of the last twenty years? But it doesn't work? No, it's not really that. It's because there's evidence that the stock market

is fairly efficient, and what is a hedge fund. Hedge fund is basically overpaying somebody to create even more negative tax consequences to trade within the stock market usually usually right, So, now we've got a market that's pretty efficient, and we're increasing the taxes and fees and somehow expect to beat that market. It doesn't surprise me, right, that that hasn't worked out well for the overwhelming majority of people that

have invested in hedge funds. And you see institutions saying, hey, this doesn't work. Great, we're not doing this anymore, and they're taking their money and they're moving it to private real estate and private equity. Now, why are they doing that? Because there is evidence that private real estate and private equity has worked out. So the question is is it a fluke, is it an aberration, or is it sustainable?

Now I think we now have eight thousand private equity funds instead of a few hundred, So it's you're going to have diminishing returns just with all this money chasing businesses. But I think what you're seeing as a fundamental shift in the way that the US economy is running. So I like, on Monday, I went to Los Angeles and I met two guys that started a keto diet food business and they just sold it for two and eighty million. Well they're getting to an eighty million, sold for much

much more than that. Yesterday I was in Fargo and I met with somebody who was in the pharmaceutical business that's also getting a nine figure check. Who do they all sell to? And they sold a private equity. This is something that in my whole career has never happened, and in the last three years, it's happening like crazy. You brought up earlier how it's happening in our the space. We happen to be in the r A space, but

it's really happening everywhere. And what you're seeing is these guys that are starting businesses, they get it to a certain size, and they're not the same person to take it to the next level. I believe that good private equity firms are better at taking those firms to the next level than they would be themselves. They know how to institutionalize, they know how to bring in a strong financial team. They have some sophistication around mergers and acquisitions. Uh,

they have a lot more ways to exit. Uh. Good firm can take you public, they can sell you another sponsor. They can. I mean, that's what they do from when they get up in the morning, when they leave, is say, how do we take this business, this idea and help grow it? Are there bad apples out there? They go in and get the business and screw it up? And yes,

are their complete idiots out there. Private equity running Private equity fun of course, But I don't view it like mutual fund managers, where if one mutual fund manager outperforms the other, it's probably but not always due to luck.

I think when you see certain private equity funds with persistent outperformance, I do think the fact that private equity fund A has forty McKenzie consultants that have been doing it since the eighties is probably going to do better than the one that's, you know, four blocks away from my office. That's like two guys that opened up shop three years ago. They're not the same manager. Managers make

a difference in the private equity space. So I think you can take that universe of private equity funds and go who's got the history, who's outperformed? Why have they outperformed? Is there is? There is the repeatable pattern here and my personal experience of watching my clients now I still

am seeing clients. I see hundreds of clients and where I'm involved with our ultra fluent practice, that's mainly focused on people that have tens of millions or hundreds of millions or even more than that, and many, many, many of them got there because they built a business to a level and they sold a private equity fund. And let me tell you when their biggest payout was Barry.

It wasn't their first buyout, it's their second. So what's happening is an equity fund is coming in and they're taking a stake, like the recent example I talked to you about with somebody had sold a majority interest, but the private equity funds want them in there because they want them engaged. You know, those people are the people that got the business at that level, and so they

still have twenty percent or whatever the business. The second sale that's happening four or five years later, almost always, in my experience, is much much bigger than the first one, which is the proof that the private equity fund has more than doubled the value of that business when they stepped into it. Now, I've seen this and the restaurant business, and the consumer staples business, and the financial super over

and over and over again. I've seen a couple of times where it's not worked out, But the overwhelming majority of the time, the client I'm sitting in front of that finds themselves worth million or a hundred and fifty million was never going to get there without the institutionalization of their practice. The private equity brought. Now does that translate into the private equity investor provacuity investors participating there?

And I don't buy the fee thing either. Like when I look at the stock side and I look at the mutual funds. Yeah, if you divide out the world of mutual funds and take the ones that charge one more than one percent, they're in the bottom quartile of performers, and the ones that charge less than basis points or the top quartile. Because the market's pretty efficient. Fees matter

of course, fees matter in the private equity space. If you can get the same performance and pay less, of course you would want that, but it's not the same thing. I mean the private equity firm. The good ones are involved in running the business. Now. The ones that are not so great, they just go put money in a firm and keep doing your thing, and we'll sell you three years later, no value added. I think that's thousands of private equity funds, all those, a lot of the

small ones. That's what they do. So there's a lot less space between our views than you originally imagined. But for academic purposes, let me push back a little bit um And there's two things that stand out. The first is I heard very very similar things about hedge funds and to a lesser degree, venture capital um. We talked about cumulative advantage earlier. Hey, our guys are unique and special and because of our track record, we get to see the best deal flow, we get access to the

best entrepreneurs. We get, we get, we get. And we heard that about vcs, we heard that about hedge funds, and it's still very much a fathead, long tailed distribution, a handful of giant winners, which if you have a couple of billion dollars come on in, We're happy to bring you aboard. Um. So, so that's pushback number one, and then pushback number two is sort of the soft bank vision fund idea. When you raise a hundred billion dollars and you have to put it to work quickly,

you just distort the valuations in the space. We're watching private equity raise almost a trillion dollars a year, and you mentioned eight thousand. I guarantee you that will be nine and eleven thousand. So how does somebody who says, I appreciate the lack of volatility the non correlation um to equity, which private equity actually is much were much less correlated to stocks than venture capital or or hedge funds are. And I'm interested in this, But how do

I pick out of these eight funds? And by the way, I don't have a billion dollars, I have five million or fifty million to put to work. Well, first of all, the hedge funds, they had that argument twenty years ago. We get, we're we're smarter and bigger, non correlated with this with that, but I mean twenty years ago, we had a lot of evidence that that markets were pretty efficient.

I mean even in early in my career, we had that evidence, and I think all we're seeing is, you know that they've been called out that that that's just not true and that they can't beat the efficient markets. Well in the the argument is in the eighties and nineties they did, and then once there was this rush of capital and people to hedge funds space. It's you know the watchman called Jim Chandos has said, I'm always

quoting him on this. Thirty years ago there were a hundred hedge funds, they all created alpha, and now there's eleven thousand. It's the same hundred hedge funds creating alpha. Yeah, I see a different I see a different reason. I think when you look at the eighties, there was no internet, so the market really wasn't efficient as efficient, right, I just I didn't. You can't buy the argument. In the eighties you could find mutual fund managers that would outperform

and hedge fund managers that would outperform. When the market really became efficient and the two thousands, all of that stuff went away. I don't think as more hedge fund managers and mutual fund managers came into the space, Although that helps make a market more efficient, I think the reality is there's a kid in a garage and Malaysia that knows everything that that the hedge fund manager does,

and so it's came over. Now, all this money going to the private equity space is going to dilute returns, just like all the money going to the real estate space is going to dilute returns. If you have a bunch more money changing the same amount of property, uh, you're going to have lower expected returns. More private equity um firms coming in to buy firms like yours, you now have higher valuations than you did a few years ago just because they're in the space, which means the

competition has by definition created a lower expected return. Is there're only two private equity funds Chase r As, they wouldn't have to compete on price so much, they have a better expected return, but the return can still be better than the stock market And I think in the private equity space that you can find those firms more likely to outperform way easier than the stock market space. If you believe the space is not efficient, I believe

the private space is not completely efficient. I believe if if I bought your firm, my expected return going forward. After I paid you some monstrous valuation that you would insist on, it would be I would have to advise you that that was insulted at what you would tell me for your price. But if we did that, my expectation would be I would have a better return than if I invest in this. And I just think that's that's the reality of it. And I think you think

that um to some degree. I mean the the you talk about randomness and a little lock in things working out in the right place. I spent the first twenty years of my career turning money down, and then my epiphany was, all right, and I'm just sending people out to the wolves to be, you know, having their being shorn. We might as well do this. I'm telling them the right way to do it. I might as well execute

it myself. That was quite the aha moment. And if you would have asked me five years ago, hey, you're gonna be a billion years and five billion dollars in five years, I would have laughed at you. But people respond to something that's a little different, a little outside of the box what you were offering in oh four or five or six, And through the financial crisis, nobody else was or very few people were talking in those terms and offering those services. So of course you're going

to see faster growth and better returns. The big question that has to be on anybody's mind who's making investments in the r I A spaces How long can this continue to go for? Are we gonna see continuing consolidation. Can we continue to pay five and seven and nine times profits to these small companies and expect an above market return or at what point does that become, you know, just too pricey. Well, I think like, let's take a business and just assume you paid them ten times and

they have a modest growth rate. That expected to return by itself is higher than people hundred right if you start to do the math um, so it just shows you that that it's not it's not totally crazy. Now it's the highest it's ever been. I don't think. I think there's a lot of things they're gonna make this party stop. One is there's gonna be fee compression in the industry still. It's ongoing and has been for a

couple of years. I think creative planning has been the largest driver of the hidden fee compression in the industry, which is, which is, hey, we're not just going to

manage your money for that fee. We're gonna charge you a little bit less than other places, and we're gonna do ten times more, and so we're that's a type of fee compression, right if so, in other words, you're doing planning and you're doing you're not charging additional for trust in the states, or or you have to pay those lawyers something so you know they'll come in and they'll get planning investment management. When we use alternatives, we don't have a upper fee, we don't have a pooled

asset fee. That's all part of it. So now, how do you deal with the fact that these private equity firms tend to charge much more than financial planning firms charge. How does that fee another word, you're just passing along the fee or is it just goes straight through, straight through to the clo. It's passed through. You're not charging them, but you're not tacking anything on top. That's exactly right, and some sometimes we're able to negotiate breaks for them,

but yeah, we're definitely not marking it up. So you're adding some complexity. We have to have a whole of their team. But we don't have a separate fee. We give legal advice and do trust funding without a separate fee. We give tax advice without a separate fee. We won't prepare a document some time with us severe and mean you don't you don't create the trust or the will that goes out to some No, we do. We do create them. We have a separate fee for it. Yeah,

and there's a separate fee for that. So there's all of these all of this advice and and specialists that they can access. When our clients are trying to figure out they've retired and they're they're not a medicare yet, we have a team that does nothing but advise them on what health plan should they get and helping them implement it and all those things. So you have all of these different things that costs something, but we're not adding anything to the fee to the client. And that's

what you mean by hidden fee compression. That's hidden feed compression. So, um, you know we're set up that way because that's what we philosophically believed in from the beginning. I'm super passionate about this business. I'm going to be in this business until they you know, I'm gonna die working in this business.

I love this business. I love sitting down with a client and saying, here's where you are right now, and by the way, we can do these seven things and all those things you talked about that you're dreaming about, I can increase really a lot the chances all those things are going to happen for you. I love that. That's my favorite part of the of this whole thing. But that has different components to it. There's charitable components,

there's legal components, there's tax components, there's investment components. That to me, is what the client values the most is getting that that advice delivered in a way that is actionable and make sense to them. That's the part that I'm most passionate about. But that's that if you look at the larger r A A s, we were the first to do that, and almost all of the other large r A s have changed what they're doing to try to put together some semblance of what we're doing,

but they've done it too late. They've done it with private equity money, They've done it with people that are CEOs that have never been advisors or are not advisors today, and it's just clunkier, and so I think that's the competitive advantage we have today is from top to bottom, the president, the vice president of the CEO, all of us are planners. All of us are certified Financial Planner UH certificates. We all of us sit in front of clients UM, all the directors in the firm. Do we

understand how that deliverable works? And that becomes a big, a big differentiator. And and that has created a lot of feed compression in the industry because for someone to compete with us, they've and on a large scale, they've had to start to add these things without changing their fee. Now, once that's done, what happens. Once that's done, The next wave happens and you've got a lower fees. And I think we're gonna be on the front end of that

the second it could happen. We're gonna do what we can to push those down and and push our competitors out. Where do you think those fees dropped too? I think if you're a pure money manager, you're gonna start looking at fifty basis points. If you're a money manager with planning light, you're gonna look at sixty six five basis points. If you're a comprehensive wealth manager doing everything customized and

needs based with a lot of other services. You can go a little bit higher than that, but that's you know, that's substitutive and um and I think it's gonna be quick. I think a lot of people think all this happens over twenty years and blah blah blah. That ten years into the feed compression at least, So maybe it is. Look what just happened with trading fees. So they went from twenty to ten to five. We're on this trend.

It could be another ten years. Then Schwab goes to zero and the end of the day TV goes to zero and the next week Fidelity goes to zero. So you know how percent drop from five in a couple in a couple of days, right, So there will there is always a tipping point. We saw it with mutual funds where oh, commissions are fee only. Who cares? Then all of a sudden commissions were gone, right then high

cost mutual funds. Who cares? The people? The prospective clients I met in oh seven or eight or nine, It was too easy if they're coming in they had five mutual funds they're gonna they're paying the mutual funds more than they're gonna pay us. I'm gonna do a lot more. I'm gonna lower their taxes. I mean, what's what's not to like now? All of that's out the window. E t F s Now, all of a sudden, five basis points for SP five hundred fund is crazy, ridiculous. It's

free now, you know. And so you're we've seen that tipping point with everything else, and this is the one space that's left and we don't see it here yet because there's not a firm that has the scale to really to do it UM. And I think firms are emerging that have the scale and aren't entirely motivated by profits that might be the one to deliver it. And that just might be creative planning. So I have to ask you one follow up question on the die at

my desk comment. We've seen Personal Capital get acquired, We've seen United Capital get acquired. We've seen a number of big firms, billion dollar firms get acquired by places UM like Goldman Sachs was one acquirer and Financial Engines was another requirer, and there's a handful both coincidentally publicly traded. What to prevent someone from coming along and making you

an offer you can't refuse? Well, I think I've already seen that a couple of those offers where I've looked at them and said, you know, I, I really truly believe that I can double this business and five years from now not get that number. I think the I think the market's so insane now. But but I mean, so wait, you you're saying, hey, five years growing, I'll double the size. And even if I don't get that number, you don't care. I don't think i'll get that. I

don't think i'll get that number. Finding I think rates will be different and private equity will be different, and you know, who know, it could be a recession. They're we could try. Who knows what's good? But there's too many things that are perfect right now, and I don't that I'm not confident are going to be perfect in in five years. I don't think there's any precedent for them to be. But you've never been tempted to take the money and run. No, because I really, um, what

are you gonna do? No? I know what I would do. I still have a good time. I could be in this industry and have a great time. I don't have to, you know, do it on this scale and at this pace. But but I do enjoy it. I enjoy the clients, and I enjoy the team that I work with, and I don't It's easy for somebody who's worth millions of dollars to say they don't care about money. So I'm not. I'm not gonna say I don't care about money. I obviously do. I don't care about more money. I don't

care about money. I just don't. And so I feel like, you know, I don't have to maximize, right, So but I'll tell you what. I'm sitting with clients and they tell me, I'm worn out. I've grown my business to this level. I got this, this offer from private equity. What should I do? I tell him, Look, it's a bit if you if you are not in love with what you're doing, take the money and run because this is really really good times right now, and we don't know what it's going to be like in four or

five years. And you know so. But but for me, I mean, that's that's regret minimization. When I'm don't do it and this offer goes away, are you gonna feel worse than if you do do it and maybe you got a slightly better offer in five years, right, And I would have no regret minimization, because I just that's not what's motivating me. I want. I want to build the best offering. I want to be able to look back and go. Anybody that came to work for Creative

Planning said, you know what, I was challenged. I learned something. Uh. You know, Peter never put anything in my way. In fact, there was an obstacle in my way. He removed it and I was able to achieve the very best I could there. That matters a lot to me. I want a client's when they're at our annual event and they're talking to each other, I want them to say, you know what, Creative Planning promise some things to me, and they delivered all those things, and I feel great about

my decision to come there. I am very motivated by those things. Uh. It's great that we're in a business. Um that happens to be very hot right now. Um, but if it is half as hot five years from now, I'm gonna be fine. You know, you can only one steak stake then or at night and I feel like, um, I feel like I've already achieved that. I'm in my forties,

and I'm just motivated by different things. So you mentioned earlier about being able to take advantage of the next financial crisis the way you did with the last financial crisis. What would you do to accumulate some sort of a war chest you you had hinted at that earlier. How does a firm put together a war chest to go out and make acquisitions when things are, let's say, less

perfect than they are today. You have two choices. You can hope nothing happens in the next couple of years and wells and build it from cash flo or you can sell a minority steak where you still control everything. And you know, when you sell the minority steak, you don't get a full valuation, you get a discount. Right. Really, if somebody's gonna buy a minority steak in general, they're gonna pay you twenty five sent less. And they're gonna

do that because they don't have any control. So they're really betting on you to continue to do a good job and not be an idiot about something strategic. Right. So I was halfway there, right, So I think that I think that because I'm not into the maximization of

it that that fits. I think our needs where we could take you sell five somewhere in that range, raise enough money that when we're going to the next crisis, you know, at our annual meeting, I can say what I always did, which is, We're never ever going to let anybody go because of what's going on in the markets or with the economy. In fact, I'm going to keep doing what I've done every quarter of my entire career, which is fine, higher good people, and bring on new clients.

You know, Creative Planning in its entire history has never had a month that didn't have positive flow. More even in the financial crisis. Even in the financial crisis, more money was come and the Creative Planning than leaving every single month from oh four to today. And we've never had a period of time of any significance where there

wasn't a tremendous positive employee flow. Right. We are attracting clients and employees with our behavior, and I think a big part of that is the that they know that this is a place where, through thick and thin, uh, I'm gonna be with him, you know, to the end. I'm gonna be in the in the in the battle. Well, you you're the you know the old expression is fish rot from the head down. You set the tone as the leader of the firm, and that obviously permeates out

to the rest of the six employees. So I have a ton more questions for you. Can you stick around a little bit? We have been speaking with Peter Malukey is the c i O and President of creative Planning of forty five billion dollar firm headquartered in Kansas City. Is right, um. If you enjoy this conversation, we'll be sure and come back for the podcast extras, where we keep the tape rolling and continue discussing all things are

I A related. You can find that at Apple iTunes, Google Podcasts, Stitcher, Spotify, wherever your finer podcasts are found. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Give us a review on Apple iTunes. Check out my weekly column on Bloomberg dot com. Follow me on Twitter at Riolts. I'm Barry Hults. You're listening to Masters in Business on

Bloomberg Radio. Welcome to the podcast, Peter, Thank you so much for doing this, and I'm just gonna share a little inside baseball. Um. You and I really met for the first time in September at the Wells Stacked conference that my firm is one of the hosts of. And I was fascinated to learn you don't do a lot of media. You don't go to that was your first conference. Um, And it's astonishing because here in New York, in the media center of the world, everybody has dying for some exposure.

You guys really built this with practically no national news exposure. And I am i overstating that. I think you've got it right. We we tried for a long time to do nothing, you know, to have no exposure. And there was one industry publication that that had called, maybe for the third time, to do an interview, and I didn't respond, and I got an email from the reporter. He said, Hey, we're doing a story on creative planning, and right now we just have quotes from your competitors, So do you

want to be interviewed or not? That's a smart smart And they made the headline was outing a reluctant star, and that was the beginning of that. That's a great headlining being totally under the radar that that was the end of that um and see I would have gone with the biggest firm you've never heard of. That that would have been my sounds cooler. So I you know,

it's got it's a little edgier. But but outing a reluctant star is is pretty accurate because you guys have built something that's unique and you know, can I call it specially? Is it a special phase? Um? Well, you can't help but look at those growth numbers from oh four through eight oh nine and then from on nine forward for the past decade and not say, Wow, these guys have to be doing something right. You don't grow

that fast. There are firms that have been around longer, and there are firms that have grounded out there that are just grinding out sales, the sales process. I don't

get the sense that that's your your approach now. I think that I think that we've gotten a lot more attention now obviously as we've gotten to this size and we reached just a point where we either had to embrace it or it was not gonna go great is the word to the word to the embracing it, So that was my Actually, that's a question I didn't get to, but I wanted to. Why are you now finally saying, all right, I guess we have to participate in some

selective conversation through the public media. Is it simply just it's unavoidable at this point? Well, you know, I had a I had a client that was NPR and she sat across from me at at an interview we had and she said, Peter, I've never seen a firm do so little with so much. And I said, what do

you mean. She's like, you guys don't have You're not even on We were on social media, which is funny talking to you, because there's no firm as president on social media as yours in the space I mean, we we I mean I think my Facebook page was controlled by Russians literally, like you went to my Facebook page like yeah, um, And and she's like, you know, when people are looking at creative planning, they're googling, and they're going to the they're not seeing anything you're saying, right,

They're just seeing what other people are saying, and so you should at least tell your story. And you know, it was kind of a lightbulb for me that you really can't. There is no under the radar. Yeah, and so uh if if you want people to learn, it would be nice if they at least heard your voice and you telling the story of what you're all about. And I mean she was right, and I all I back now as as probably being so under the radars

for that time period was probably good. But that was probably the best piece of advice I've had in the last you know, three or four years. So um, there's really two types of communication. One is with the world at large and prospective clients, but the other communication is with your existing clients. How do you and you mentioned you really when you're building a plan, you're really drumming it into people's consciousness. Hey, markets go up and down.

Expect uh correction or a crash at some point in the future. Recessions are cyclical. Everything isn't great all the time. But after the that initial review, how do you keep in touch with clients? How do you keep them informed about the state of the world, where we are in the market cycle, how the portfolio is doing. What what

sort of client communications do you guys manage? So I write newsletters many times throughout the year and anytime there's a big event, you know, bregsit that night, they get it. They'll get a newsletter, you know, it is just instantly will send out a communication others in the firm right newsletters. We do several different podcasts that we share with our internally internally interesting we UM we UM have an annual symposium that we invite clients to. We had almost three

thousand at our last one, really a great experience. We email the videos of the speakers that will allow us to send videos to our clients. And then for us, we see our clients in person beyond the onboarding, so they're coming in to do all kinds of stuff throughout the year, and then they do an your reviews with us, so they're seeing they're talking to their advisor and multiple people within creative planning, plus hearing the voice of the

investment team and the firm. You know, many many different ways throughout the year. How do you keep that message consistent? So you have six hundred people were a fraction of that. One of my concerns is always we have a lot of people in the office who do research, who publish, who who write about different things. Philosophically, we're all more or less on the same page. So the message is consistent.

But the concern is as you scale up and it's that many more people, does that become a challenge to keep the message the same across every advisor to every client. No. I think that we are definitely a one voice firm, and I think that that's a different firms have different decisions. We look at larger r A s. They tend not to be that way. They tend to look like a brokerage house. You know, you can go to Morgan Stanley and the guy in Office one might be a guy

that does options for all his clients. In Office two is a guy who does bonds for all his clients. At Creative Planning, we it's the same thing. Every client is going through a planning process. It doesn't matter if they're on the Forbes List, which is somebody we started with a couple of weeks ago. It's going through the

same process as somebody who's got five dollars. And we have that process in place because we know that in our we've developed a way that we think is the best way to get the information we need from the clients to figure out what their needs, their dreams, their vision are. It sounds cheesy, but sometimes your goals are not your dreams, right, So we want to know what they're really trying to accomplish and how feasible it all is. So everyone's going through that same process. And then we

have a philosophy. So when we were talking earlier about we don't believe in hedge funds, but we I believe in in in private equity and alternatives, and I believe that the markets are fairly efficient, so we use indexing instead of most instead of large camp mutual funds. When I say that's what I believe, that's what creative believes. Right.

So if you're coming and interviewing a creative planning, you're not coming to creative planning unless you believe that or close enough, and you're gonna you're going to believe you're really gonna act that way. There is no oh, by the way, we've got a hedge fund thing over here and the large camp mutual funds over there. It's one voice, one philosophy, consistent messaging. If a client gets a newsletter for me, they're not going, what the hell is this?

You know, I'm in Los Angeles and my advisor is doing something completely different. That's not that's not happening. And what's great about that because we don't have to write right, vague garbage, right, we can be very specific about what we believe and what we're doing at any point in the market cycle, because everyone's going to read that and go, yeah, that's what I'm experiencing. So I don't remember if it

was you or someone else who used the phrase Franken firms. Yeah, where that is you right where you have hedge funds over here, and covered coal options over there, and some wacky SMP sector rotation here, and affirm just becomes a conglomeration of ten small affirms and no conces in philosophy. Is that Is that a survivable model these days? No? I look at like some of these some of the

private equity firms in this space. Um, they come in, they buy a one billion dollar or two billion dollar firm, they call it a platform, and then they take that firm and they go buy other firms and go, well, do your compliance and HR and financial stuff for you, and give you a big check. Come join us. Oh you use this software, Oh that's fine, and keep keep

using it. Oh you you believe in you know exiting the market when your signals from your bond does say this, Oh yeah, you go ahead and keep doing that, and you wind up with a firm and it grows to ten billion, and it's really just twenty five small firms, uh that don't operate the same don't do the same things. Um, that's what I think of as a frankin firm. I think that buck is getting passed from one private equity firm to another and is going to explode in somebody's lap.

And a lot of the larger firms, that's what they are. They're just an amount of amalgamation of a bunch of stuff that's not philosophically existent. I do think this is a one of the negatives of private equity is you have private equity come into a space like this. Let's say they want to exit in three years. You take a two billion dollar firm, you buy eight firms, you make it four billion, you you exit, you make everyone's

high fiving. But somebody now has something that doesn't really probably isn't best for the client anymore, and probably isn't best for the employee anymore, and everyone can smell it right, and AND's eventually the smell will get bad enough that you'll lose employees, you'll lose clients. But by then the person who put it all together is long gone. So hot potato, so one of the Knox against private equity and R I a s years ago and I don't know if this is still true and is a gym

in your office? And I had a cold conversation about this. Was in the old days, private equity would come in, they'd buy a firm. They basically loaded up with variable A nuities that have a giant commission on it and didn't work out for anybody except the pe guys and whoever sold the firm and exited. I'm getting the impression that that old school model, and maybe that's more than ten years ago, that that's not what we're talking about in this space. No, I don't think you're seeing that

that's long gone. Now. It's sticky money, regular um revenue on a on an ongoing basis. That's the appeal of this. Yeah, I mean I see two two, Well, a couple of different things happening. One is you see someone comes in actually makes your place better and helps institutionalize it and grow it. H That's that's one group, and there's another groupe that's like, Hey, we're gonna come in, We're gonna buy it. We're gonna get rid of a bunch of people.

We're gonna put in some new people. We're gonna go buy twenty three firms. We don't care what they look like. We're gonna put all this crap together, and we're gonna sell it to somebody else. Because there's a bunch of money slashing around and eventually someone's gonna get stuck, right, and when the music stops, you don't want to be that person, right. It's it's so, but but I think there's more of the good guys than the bad guys.

So let's talk about a couple of things with creative planning that I wanted to ask you about that I didn't get to. Um you would previously mentioned four one ks, or less than ten percent of your practice. How do you grow that space? It's a very slow and sticky space, even when employees and management are not happy with their four O one K providers. Right, I think we probably have three four billion in four one KOs sets and it's growing very rapidly, and we're divided into two segments.

One segment is takes care of bigger plans where employees want to sit down one and want when somebody learn a lot health help. Another one is very technology oriented startup plans um small plans where the economics of building a foreign K are very difficult for those folks. Maybe it's too two dentists starting a practice, but what we bring to our clients is almost always they're going from the traditional model of an insurance company providing it to

a fiduciary providing it. And there's a lot of liability around foreign K plans now, so if you're on the board making decisions for foreign ks, you've got a liability. If you're an HR, if you're if you're the owner, you've got liability. So they love transferring that liability to a fiduciary, and we offer that full fiduciary service um. Second, almost every single time, we lower the fees very substantially.

And the third we bring a common sense investment approach, you know, low cost index funds in the in the portfolio, along with ways where the client can choose the model and and get their money managed that way. And so we're seeing very fast growth in that space. It's just the private side is growing faster. But I think that the key in the foreign case space is to be competitive. You have to be able to drive fees way way way down. We found a way basis points how how

low is low in four o one? I think like even a startup plan for US might pay a fee of thirty basis points. I mean, like, and you're talking about someone starting with zero assets. Now they still have their When you look at a foreign K plan, there's administration costs that you have to pay for the fund,

record keeping, with all of it. They should be less than one one percent in the plan, appreciably less than Yeah, it should be appreciably less than one percent, And most plans are one and a half plus, and so it's kind of like very easy. I think if we your

fuse in half, that's a huge win for everybody. Most of the time, when we're talking to somebody about a four one K, we're going to get that four one K. The issue is foreign cas are much harder than the private side because private side, somebody walks in and they're gonna make a decision with the four own K. Somebody walks in and they're the owner, but they've gotta there's a CFO, there's hr you're talking to HR protect. I mean, that's it's a process, and it should be a process.

It's a big decision for the business. So in the old days, it was um, somebody's brother in law was one running the fore own cave. That those days are over. Now that's gone. I think on the private side, that's gone. It was very, very common where everyone just had their money with their with their buddy or their neighbor or whatever. That that stuff's gone. And I think that's another thing that oh eight oh nine and made Off and all that just got rid of that, and people are getting

much more serious about who their advisor is. Let's let's talk about the institutional side, which has its own set of challenges. How do you deal with pension funds, foundations, um, larger entities, even family offices that might have a different set of needs and a different investment target than a family who has a portfolio with you. So this is the smallest part people that have family office as we manage a lot of money for those folks. Private family

offices separate from endowments and instructions. But but institutional, as I think of it, like you do is endowments and universities and things like that. That that space we entered about five years ago. It is by far the smallest part of our business. And I would just take the foreign case space and make it even harder, a lot more decision makers and a lot lower fees. And you're seeing a very big migration away from alternatives towards you know,

low cost passive investing complimented with certain alternatives. Seems to be where that space is heading. Quite quite interesting. And you have described the tears of your clients as private wealth group, ultra affluent, and emerging wealth. How do these segments different and do you offer different services to each of them. So we used to just call everything private wealth, and you went through the process. We built a portfolio.

Artypical client was the multimillionaire next door um. You know, the doctor or dentist or lawyer that worked their entire career, the business owner or guy who made money in real estate. They put together a million dollars or twelve million dollars and they became a client of Creative Planning. About four years ago we set minute out Emerging Wealth Group. We had so many family members of clients and it. We

didn't really have a great way to handle it. But it's very difficult to sit with somebody who's got seven million dollars and they've got three kids and their kids are all twenty eight and say we're not going to work with your kids. But they would wind up maybe with the wrong advisors, because the advisor working with somebody who has twelve million dollars at that point would be our most was our most sophisticated advisors, and they'll be

working with somebody who had fifty. So we created Emerging Wealth Group to deal with that and open the doors to people who had less than half a million, and it exploded. I mean, the group has thousands of clients, about twenty employees, and interestingly has become one of the biggest lead sources for our ultra affluent practice, which is where we really try to day to only take on people at a twenty million million or more UM, like a few this week that came on had a hundred

million or more UM. And there's a group that's probably our longest running group as a whole within the firm that's used to dealing with those kind of clients, and the there is a lot more sophistication needed. They're not necessarily for a large part of the portfolio, but for a small part of the portfolio. And from a legal and tax perspective, if you've got somebody who's got a hundred and fifty million dollars, all this debate we've been having about our stocks, canna do better than bonds? And

do small to better than large? And will emerging markets to better than stocks? And we'll private ut when you do better. These are what I call one percent conversations. Right, we're going to move them on it. You know you're gonna make one percent more less. I you've got a hundred fifty billion dollars, you really don't care about that. You care about the fort of state tax. You care about the twelve percent state tax. You care about how your kids are going to get the money and is

it going to screw them up? You care about asset protection. And these are very sophisticated concepts that most of the are a space is not equipped to handle. And we have a I think a very substantive group within creative Planning that's used to dealing with hundreds of those families, and I think we bring a very unique perspective there.

And I think what's interesting is when they're comparing, it's it's always between us and say a place like a JP Morgan or a a Goldman Sachs, and the r A story resonates so much independent and we don't have our own products, but we also practice tax and law and they don't. And we're used to dealing with folks your size, and that's not something that I could say seven years ago, right, So it's it's allowed us to become very competitive and and the one of the fastest growing parts of our

practice is that very very very large family. So one of the issues we've noticed amongst our i as, especially independent r A s, is that there's sort of a barbell across the age spectrum. You have a lot of advisors in their sixties, late fifties, and then a bunch of people in their twenties who were um you met at the conference, very social, very active, very um specialized in different areas. But there's this big gap across the middle. So question number one is what does this mean to

your future growth? And question number two do we have enough young people coming into the r I A industry? You know, I read a lot about this and I view it very differently, so as running creative planning, our market share is your point O O O R to writer point oh no sce. So I don't to me, even if there were half the advisors I don't need

to have. I'm not Merrill Lynch. I mean, so no thundering her and just I mean, I just need to find a few awesome people every quarter, and I'm always going to be able to find that, right, And so I just don't I lose I spend any time worrying about about that, and frankly about the industry. I think the industry could use less advisors. Really. Do you think the headspace compression like the few compression we've seen over

the past ten years, does that continue well? I think I think that there are advisors that do a lot of good and there's a lot of advisors this is not fantastic. And I think having a bunch of really good advisors that survive is better than having a whole bunch of advisors. Uh. And so I don't see this as an industry crisis. I think if the industry contracts a little bit, that's just fine. We've got the technology

for it to contract. I'm just focused on finding the right people for our little tiny, you know, section of your little tiny section of the wealth management industry. And and you know, it's funny, I was shocked to read about your little tiny firm. I think once you cross the billion dollar threshold and a u M that puts you in like the top eight percent or so advisors. It's really that their advisors mostly. I think someone else called it lifestyle practices. So so you have a unique

perspective on what's going on. Um, what happens with those people? Is it just a massive consolidation or can you just have a very nice, little million dollar practice And that's fine, you know, I know there's a lot of people running around. All those guys are gonna get crushed, and I don't I don't necessarily agree. If you go to the conference, they're the same three people who coincidentally have been on an acquisition. So so maybe they're talking their books a

little bit um. You know, I'm assuming, like us, you don't really buy into that. I don't buy into it totally. So I think that I think that most most five million dollar firms cannot compete at the level they used to. You know what, I'm hearing that from firms that call us to be acquired. I mean, they're just saying, look, I used to be able to grow, and it's gotten a little more intense, a little more competitive, and I feel like to bring on larger clients, I need to

be in a larger firm. There's no question that's a force. But it reminds me of like when the robot advisors came out and everyone said, well, everything is going to go to the robos. Well everything didn't go to the robos, but but some did, right, So that came from somewhere, And you guys don't have a robot do We don't know any thoughts of setting up a robo for that sub two thousand dollar client who maybe eventually moves from um under a hundred thousand to emerging wealth to high

net worth. You know, I've I've thought about it, and I just thought, you know, that's just not what we do. It's not our style. And I want one creative planning client to talk to another creative planning client and go, this is what they do for me, and I don't want anybody to go. I never saw a person ever, and everything was online, and I know there's people that want that, and that's totally fine. It's just not what we do. To me, It's just we don't sell ice

cream either. It's just completely it's completely different. And then before I get to my favorite questions, I have one last um general question about the firm. You actually made your first acquisition this year, a five million dollar firm. Um that was part? Was that? Is that this year or last year? That was this year? And it was? It was amazing to me. This was really fascinating because I was very focused on building out all our services

and building a culture. And you know, we we did that and really inan we moved to a headquarters, we made a bunch of shifts in technology, We finished our hiring push, got all the right people at all the right places, finished building out our trust company, institutional arm and so on, and really we're in a place where I could finally start to think about that a little bit. But I kind of put it on the shelf. Is

not a priority. And uh, I got Brad Johnston gave me a call literally out of the blue and just said, hey, I've talked to all these firms. I thought, wait, wait, wait, wait, wait, Brad Johnson God, you don't know. I don't know him at all. Calls you, and Peter Muluke says, yeah, I'll take the call. So actually, I don't know. He winds up talking to Jim in office and Jim is like, you know, maybe you should talk to Brad, and I'm like, I don't know. I just we just got done with this.

Let's give it a little time before we do a couple of acquisitions, so we'll just just have a conversation. So Brad comes to Kansas I want to come to Kancities, comes to Kansas City, brings an advisor. I find out the advisor as his son. So I'm like, well, maybe they're just kicking tires, but I really liked them there from Minnesota all this stuff, and says about it's true. I don't understand it, but I really liked him. Um, and you know, they left, and I told Jim's I

kinda go. I really liked him, but you know, I think they just want to know what we're doing. And uh, anyway, you know, Brad calb me the next day and Study is interested in continuing dialogue. I think it was thirty days later. They were part of creat of planning really that fast. Yeah, and even though it was our first one and they didn't know what they were doing, we didn't know we were doing. You know, they've never been

acquired before, we never acquired I have. It was wonderful and our and I looked at Minnesota and said, you know, we had a presence there. I might have been around half a billion. And now all of a sudden, we're about a billion dollar enterprise and uh, we've got some scale and we're gonna get noticed and we're in the just like you said, how many billion dollar firms are there? Right? So now all of a sudden we're in the conversation

on cases we weren't before. And it got me looking at the whole country and saying, you know what, um in Dallas we manage about a billion UM. We were approached by a firm that has about six and or million. We're now having l o I with them, and so so you'll be close to two billion in Dallas and now you're a player there. Yeah. So I think that that what's happening now is the description I use is we have a very very strong tree trunk with very

strong branches that we've built. We built them they're they're the creative planning DNA, and we could add leaves to that tree and have that tree flourish without damaging the tree. And so we're not a billion dollar firm where the whole trunk was put together by twenty five firms. Right, so when people come into Creative they know this is how it works, right, this is the culture, this is the investment philosophy, this is what the people are like.

And it's not different from office to office because it's not twenty three different firms. So it's really open my mind to that we've now done two acquisitions. We have two other firms under l o I, and we don't have a merger's acquisitions team. You know, it's just someone has a conversation with Jim and then and then they meet me and and um we're off and and and if if they're philosophically a fit, and the look maybe one and ten times it is right. You've got to

be philosophically a fit. You've got to like the people and all that. So you get to that ten percent. With that ten percent, it's happening pretty quickly. I think that we're finding there are a few people that are very like minded out there, and I think they're finding that, Hey, this is a firm that's kind of like me. It's not really an amalgamation of a bunch of stuff, and so they can they can be a part of something that's kind of what they were doing. But Turbocharged, that's fascinating.

It's really interesting to hear you guys have have scaled that up, because that was one of the questions I had. How the hell do you get to be that big organically with no acquisitions? And imagine if they did acquisitions, you guys are gonna be a hundred billion dollars not too not too long from now. Yeah, it's a crazy industry.

You can never predict what's going to happen. True, But but I feel like I feel very good about the offering that we have from the people, the process, and I think, um, you know what you have to be. You don't have to be the the fastest person in the world. You've got to be faster than the people you're racing against, right And I feel like we're in a good spot right now the that that makes perfect sense to me. I know I don't have you for for ever, So let me get to my favorite questions

we ask all of our guests. These have been designed to be revealing about who you are. UM, let's start with the first car you ever owned. You're making model Ultimobile Omega crashed it, Uh, teaching my younger fourteen year old brother how to drive? Teaching it was not a good lesson. Where did you grow You don't start with a left turn. Were you in Kansas or Yeah, we were in Kansas. So to me, I'm the first question is how do you crash something in Kansas? Well, it's

I mean, it's an actual city barrier. They're like million people there Kansas City. So you're in Kansas City and we're not in like a town of three hundred west. So easy enough to have because when I think Kansas, I'm thinking farms and ranches and lots of open space most of the Kansas Yes, Kansas City, No, got it. I didn't realize you grew up in Kansas City. That's a interesting Um. Who were some of your early mentors who affected the way you look at the world of

investing in financial planning? Well, I would say that, Um, the person that owned creative Planning before me was just such an incredibly he's an incredibly positive person and was an incredible influence to watch. He treated people so well and he always had a positive attitude. He always looked on the bright side of things. And this is a

business that that you you need to infuse. It's interesting because you need to be an optimistic person, but you have to take a pessimistic point of view when you're doing planning. You have to plan for the worst, right, So I really liked that kind of style that he had.

But really the biggest influence it was very early. I had had a T shirt company and I made a bunch of money and and I was a few thousands of dollars and my dad said, I just put it in an index spud and I remember watching the Asian Contagion on TV. I cant remember what year was. Okay, alright, alright, well that's impressive and I can be wrong. And my Dad's like, hey, um, yeah, don't worry about it. It'll you know it, it'll all work itself out over five years.

And that's interesting. And I went and read a bunch of books and found out he was right, and that probably wound up sending me on the trajectory. And are reading some Bogel books and Jeremy Siegal books and and the rest is history. So I'm gonna say Asian contagion long term capital management, but around both around the same time and and both with the same result. Temporary setback, um, which is what we tend to see all market YEP corrections are temporary. Even if they last from fifty four,

it's still temporary. Hopefully you're not retiring went into that. Um, let's talk about books. Give us some of the favorite books that you like to read. Be they you mentioned Bogel? Who else? Who else? Uh? So I read a couple of books every week, but I can't get away from the same two books I think as being huper influential to me. One takes like twenty minutes to read. It's

called how Full is Your Bucket? And it's basically just says, you know everybody you encounter, um, you leave feeling better or worse? Uh? And is somebody? Are you filling people's buckets up? Are you draining their buckets? It's really informed the way I interview, the who I work with, the way I get through a day, making sure that I'm in the right mind frame all the time. And it was so obvious, such a light, quick read, but it's really informed. How full is your bucket? Yeah, I don't

know if I've ever heard of that. I'm gonna don't have to really short, really short book. I mean I got it for my kids, I got it for all our employees at the time. And and it's really interesting. I mean, like when you when you talk to that client, when you talk to a colleague, when you talk to a family member, are they leaving feeling better about themselves in their day or worse? And it and it's it's an interesting, pretty straightforward makes a lot of very very

straightforward um. And then a book that really kind of transformed my thinking was Awareness by Demello and he was Jesuit priest to Awareness Awareness he was a Jesuit priest that um lived in the Far East. And so it's got a combination of all these things. But the basic message of the book is get over yourself. You know, you don't matter whatever you accomplish. A couple of years from now, no one's gonna know who you are. Uh, you know, we don't know who anybody from Mesopotamia is.

You know, we might remember Abraham Lincoln, but you know, you go far up in the future, very very very little matters. It sounds like really horrible. What it does is it clarifies for you, Um, the high shouldn't be too high, the lows shouldn't be too low, and um, very solomonic in its wisdom. Yeah, and this two shall pass, this two shall pass, And it really if you start to take that attitude. For me, I'm not sure this is what the book was about, but it really crystallized.

You know, if I look at like all the stuff that comes at you all day, everywhere, and all the stuff you encounter, the reality is it doesn't matter at all. It's ephemeral, right, just like investments, right, it's there's so

much stuff out there. Part of being good at investments is to know the nine percent that doesn't matter at all, what you don't need to read, what you don't need to watch, what you don't need to care about, what you don't need to invest in, what you don't need to research, and then you get you carve away all that stone, you get the masterpiece, right, And I think that that that book for me really just changed my thinking of who do I want to be around, who

do I want to spend my time? With what things matter, what things don't? How do I get everything that doesn't matter away from me and focus more on the things that do matter? And so I it was became an interesting time in my life to read that book. It's the only book I've read more than once. UM. I enjoyed it a lot. That that is quite fascinating. UM tell us about a time you've failed and what you learned from the experience. So I've I've failed many, many,

many times. So I'll give you just some growing up experiences. So you know, I I UM started a lot mowing company with a friend, and I mean it was a real deal. We were making some good money. And back then you had to bag all the grass. And then some other people came along with these big machines and and you didn't need to bag grass. It turned out. It's turned out people thought you need to do but you didn't need to. It would take us like five hours to do a long they would do it in

ten minutes. And you know, we were like, wow, we're out of business. That was super quick. You know, we didn't understand where this industry was going. I had an idea for a T shirt. It was against drunk driving. My school wouldn't let us do it. It was a Catholic school and it was a little racy. So we created the T shirt. I was we should just go make it. So I made it. Wound up selling like a hundred thousand of T shirt. What was the T

shirts saying that the school wouldn't let you. On the front it said sed drink, Scenic drive, Sedic die, and on the back it said don't don't be you know, basically right. So so this winds up selling like a hundred thousand shirts Scenic Scenic drink, Scenic drive, Scenic give us the sceedic drink, Scenic Drives. I'm really regretting. I remember, I remember those shirts. I had no idea that was

you those shirts until now, probably nobody did. I don't know why what door I've opened here, but I have found you can't find one online, thank god. So anyway, then the wound up creating like cedic smoke and all created a whole line around this, were you doing anything with the proceeds involving any drunk driving or mother's and a donation that went back to Sad and Mad And so this went on for you know, like two years, I'm like, hey, I'm I'm not even in college. Do

I need to go to college? Well, here's what I learned about patents. So all of a sudden, the shirt went up all over the country. And I hadn't had a trade, and that was it. I was at a business trademark. People were just stealing it. The printer I used stole it, so they basically took the art my mama drawn and the sayings and then just copied the whole thing. And so that was a hell of a lesson.

The biggest lesson though, was the music stores. You know, at one store, save the money out, got to to save the money, got to force save the money, got to eight, had three partners, bought out the three partners, was about to graduate from law school, and I'm like, you know what I might I bet if I stopped opening stores, I can make a hundred grand doing this. I'm not gonna work, you know, this is what I'm gonna do. Napster came out. I M telling I think

it was a hundred days. Ever the last store was closed. My total take over my I think six years of of running these and buying out all my partners was eight thousand four hundred dollars. It calculated into cents per hour spent in the store. But but you know what, it was worth more than any college degree that I got. It was an incredibly valuable experience. But it taught me about how fast technology changes then And you can be growing and you can think your competition some music store

across the street. Uh, it's not. It's something you're not even thinking about, right And I and I constantly look at creative planning and say, what am I not thinking about? What can I do better? How can I stay in front of somebody else? How can I be the better offering? How can I, you know, do more for less? All the time I'm asking question because I've been on the receiving end of capitalism. Capitalism is a death blow several timepsle of times. Well Andy Grove had it right, only

the paranoid survivor. Um, what do you do for fun? What do you do when you're not helping people plan for their financial futures? So I I love UM short trips. It's probably my favorite thing where I can. If I'm going to see a client in Boston, I'll you know, take the whole family and I'll go make a weekend of it, and and I can kind of get Griswold about it. You know my kids. My kids are like, so I've you have to explain the European vacation reference.

I find myself the problem with getting older isn't the body falling apart, it's all of your cultural references fail. With the younger generation, I try to cram too much trip in the two little types. So I've tried to lay off that and just go, look, I'm gonna going to a city. We're gonna do two or three things that are fun. But I think that America's amazing cities, and so we've tried to hit every city that has a baseball stadium where three force of the way done that.

That's been a complete blast. And I try to cram that and wherever I possibly can, which is rare because I've got three kids that are teenagers and they all have like twenty seven sports. And have you seen the book thirty six Hours in I think it's the New York Times puts it out. I haven't. Oh, so this is basically every the top two hundred or four hundred cities in the country, you're gonna spend thirty six hours in the city. Here's what you need to see. Here's

what man could use that book like eight years ago. Well, I'm sure you have some cities left, but it's uh, it's a really interesting books. You should look at it. Let's talk about the industry for a second. What are you most optimistic about within the financial services industry today and what might you be pessimistic about within that same industry. I think I'm optimistic about is I think the consumer is very close to finally getting what they deserve right.

I mean taken long enough to take it a long, long, long, long time, and I think we're almost there. I think we're gonna get to a world someday where every advisor is a fiduciary, that the firm that's advising the client doesn't own their own products, that they get to know the line a little bit before they invest their money, and that they do all that at a reasonable price. I had taken a long, long, long time. I think we're well on our way there. That gives me a

lot of optimism. I felt like the industry has been broken for a long time. Now we could be really close to there and have it not be fixed. You know by the time when you and I are still working, it might not be I still might not be fixed, but it's certainly on the path to getting closer. Even if the government decided not to embrace the fiduciary standard. It seems like the market is That's exactly right. I

think the market is what's forcing most of this. The market is what has forced lower mutual fund fees and lower commissions and disclosing proprietary products, and all the markets pushing that. The government has done a phenomenally horrible job I think in this space. And so I think that that you're right. I think capitalism itself is forcing us to get where we need to be. Pessimistic. Um, I

worry about two things. I think one, UM, I think there's going to be a cybersecurity attack on a major financial institution that succeeds that so point in the coming years that is horrifying. Is and and I don't think I don't I know institutions are worried about the very big institutions. I don't think we quite know what that's gonna do to the average American when that happens. Is

everything going to be in mattresses? I mean, the post crisis, post cybersecurity, if we get a serious breach of a major institution, you know, a trillion plus institution, of which there are a whole bunch of them. Um, that is enough to freeze capitalism for a while, I think, And so I think it's gonna be very interesting to see if that can be prevented, uh, and if it happens,

how our economy is going to react to it. The other thing I worry about is you look at what happened in Saudi Arabia or I think we're debating who who those those drones that went in and the oil up the oil fields right before they were going public.

That's not brain surgery, right, And I think that we look at nine eleven as like an impossible You know, we've got all these measures in place to do all all these things to protect things, but at the end of the day, a kid in the garage with ten drones and the internet can cause a lot of damage.

And I am I am concerned about that what it does to the way we live with each other, you know, from a personal level, you know, kind of your kids, grandkids, that kind of thinking, and from your specific question about the financial industry, what does it do to economics? Like if you remember after nine eleven, no one went to the movies, everything, no one went to the months, there was a cocoon effect for months. This to me would be much worse because people would be like, well, wait

a second. You know nine eleven at least requires some strategicy and some breakdown and defenses. But and a physical event, not a cyber events. Right. If if we move into a world where there's a cyber event or you know, some teenager with drones causes havoc in Times square, I think that's going to be a cocooning effect that we're not we've never thought about, are prepared for. I think those are the real, the real threats to the economy that because you look at the economy is very resilient.

It can get through everything. Bretto Uch pot is gonna cost more ten years from now than it does today, and like you, shoes are gonna cost more ten years from now than they do today. The market's going to go up into the right the way it always has. But these kind of things are the kind of things that can change that that narrative. And so those are the things that I think about when I think about existential threats to the norm. Huh. Fascinating. And our final

two questions. A recent college grad comes to you and says they're interested in financial services as a career. What sort of advice do you give them? So first I'd say, you know, it's it's kind of like show me your friends. I'll show you who you are. You know, you give four people you hang out with the most. I don't need to meet you. I can pretty much tell you what what kind of guy you're like. Don't just go

somewhere for experience. Try to get to a place that is aligned with the values that you're you're trying to do right, So try to get if you're focused on being a fiduciary and be based or you only get into an r a A. Just start there right, Try to get into the right environment to begin with. Second, create separation between you and other people. And I think there's a couple of things. One of the interview process.

I'm always fascinating when somebody goes, well, I'm coming here for experience, or I'm coming here because I can think I learned this and that. Imagine, uh, somebody going to an NFL tryout and going I'm here because I want to learn to get to get better, and I want you want somebody who's gonna come. Here's how I can help you win. You know, here's what so talk about. How you can help the place that you're coming into now once you show up, Um, you can differentiate yourself

by going the extra mile. This is an industry where it's very easy to go to the the extra mile. I mean, there's a lot of things you can do more for your client or your employer, and it's not hard to separate yourself from your peers if you are willing to stay a little later, or take on a project or offer your help. I mean, even with hundreds of people. I am very aware of the people within creative planning

that do that, especially those that are starting out. And so you tend to get judged in the first thirty days when you're at work. The reality is we all judge each other in the first few seconds of seeing

each other. There's a whole book about this called You've Got Three Seconds, and basically the ideas when you meet somebody in a few seconds, you've decided what you think of them, and it's up to them to dig themselves out of that hole or they're gonna go up or down later over time, but you've kind of put you put an anchor on them. The same thing happens when you're employed. Don't grow into it, come in hard, come in strong. If it's the ground running, it's the same

thing I try to do with the client. I try to give that client as much value upfront as I can, so they're going, Wow, this is I made the right decision. You want the employer to feel the same way about you, huh. And our final question, what do you know about the world of investing and financial planning today? You wish you knew twenty five or so years ago when you were

first getting started. Well, I mean it took all the way until, you know, from oh four until to put all the pieces together, and it was really like hearing from clients, Oh I need this, I need at and then going well, I need to build a service to do that. So I always had a very strong bias against product. I don't want to own anything where I make more money, and a very strong bias towards service and value. How do I deliver more services? I wish

I had the vision and no four to go. These were all the services that were needed and really found a way to build it out all on day one instead of taking you know, fourteen years to build it. I I told our team at our last annual meeting that for the first time, I feel like I'm at the starting line. I feel like the first time I have an offense and a defense, and an offensive coordinator and a defensive coordinator. Up until now, we've been playing

with an incomplete, incomplete team and complete coaching. We didn't have all the piece we have the special teams. We've got it all now. Um, and you know, I wish I had a time machine. I could go go have started that way. But to be fair, you have you were path dependent. You had to travel that route in order to figure out what all those pieces were. That's true, so but that's still still quite fascinating. Thank you, Peter

for being so generous with your time. I've I've had you in here for two hours, and uh, most people fade by by sixty minutes. In fine, you were great. I really enjoyed it. Barry. We have been speaking with Peter Mluke. He is the c I O and President of Creative Planning. If you enjoy this conversation. Well, look up an intro, down an intron Apple iTunes and you can see any of our previous three hundred such conversations we've had over the past five years. Where has the

time gone? Um? We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Be sure and give us a delightful review on Apple iTunes. You can check out my weekly column on Bloomberg dot com. Sign up for the Daily Reads at Reholts dot com. I would be remiss if I did not thank the crack staff that helps me put together this podcast each week. Carolin O'Brien is our audio engineer, Michael Batnick is my head of research, and Michael Boyle is our producer. I'm

Barry Riholts. You've been listening to Masters in Business on Bloomberg Radio.