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Creative Planning goes 'transformational,' buying $110 billion in retirement assets and crashing the elite Edelman Financial Engines, CAPTRUST party of business model ambidexterity

Peter Mallouk's acquisition of Lockton and its big-company 401(k) business will double his Overland Park, Kan, staff and solidify its business model's rear flank

Saturday, November 20, 2021 – 4:07 AM by Lisa Shidler
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Peter Mallouk: "This has the potential to be transformational."

Brooke's Note: The 401(k) business was drowning in its own stigma for decades -- deservedly so. It was a place of kickbacks, Enron-style abuses, low margins, low critical mass, dubious investments and crappy advice. That's all looking much different now with better laws, more critical mass, more awareness of advice and the possibility of doing good business by doing right by clients. That's why you yawn a bit when Peter Mallouk, ho-hum, buys $110 billion of 401(k) assets and why you'll do a double-take when you read about it in the full context of his business plan.

Creative Planning is about to add $110 billion of 401(k) AUM and compete head-on with heavyweight RIAs like Edelman Financial Engines and CAPTRUST, in a move the company calls "transformational." 

The prize: Fortune 500 company-style employee pensions and -- no rollover needed -- non-pension advice.

Peter Clune--Lockton
Peter Clune: 'This alliance is something only our two firms together could do.'

The Overland Park, Kan., firm's purchase of Lockton Companies Inc.'s retirement assets, which includes a staff of fewer than 500 of Lockton's 1,000-plus, will be its entree into the big leagues. 

The deal is being called a partnership because Lockton is taking a stake in Creative Planning.

“This alliance is something only our two firms together could do,” said Lockton CEO Peter Clune, in a statement. 

The deal will give Lockton’s clients access to holistic advice, while Creative Planning will take Lockton’s educational component nationwide, according to the company.

"We will be looking to Lockton to help our clients in several areas as well. For us, this is the most important part of the deal, and this has the potential to be transformational," says Mallouk. 

The growth is staggering, but the transcendence of Creative Planning's existing business model leaps out even more, said Dan Seivert, CEO of Echelon Partners. 

"Effectively, they are entering a different business model and different market with a whole new set of competitors and competitive dynamics," Seivert says. 

Right direction

This is a major shakeup from the past when 401(k) assets were completely separate from wealth assets, says Dennis Gallant, strategic advisor of Aite-Novarica Group.

Dan Sievert
Dan Seivert: 'Effectively, they are entering a different business model and different market.'

“They were separate and distinct businesses, and they didn’t talk to each other. What we’re really seeing is a convergence of traditional wealth management inside and outside of a plan. It’s really starting to converge.”

For years, 401(k) assets were shunned because of the low revenues and even lower profit margins, Smith agrees.

Edelman Financial Engines, Fisher and Creative Planning are smart to realize that combining retirement and wealth management is a good business and a great client acquisition strategy, he adds. 

"In 2008, retirement recordkeeping was seen as a loss leader, but now it's becoming the start of the client acquisition funnel." 

While merging the wealth and 401(k) side of a business sounds like a perfect marriage, Gallant cautions it could take years to fully merge the two sides.

“This is a move in the right direction. It’s easier said than done. We’ll see where we are in five years. Is the return on investment there? The jury’s out and it’ll take a while before we know.”

Smith adds that these RIAs can leverage inertia rather than fighting it.

"Inertia is a good thing. If you open your brokerage and 401(k) and bank account with one firm, even if you separate from the 401(k) plan, you've already got relationships with that firm." 

Mining gold

Mallouk's 401(k) business is moving from a mom-and-pop-feel to a giant scale with Lockton's retirement expertise.

Dennis Gallant: 'This is a move in the right direction.'

Creative Planning instantly gains $110 billion from the independent insurance brokerage, doubling its estimated $100 billion in AUM.  See: Peter Mallouk's two-year $50-billion AUM surge at his Kansas RIA exceeded even his expectations, causing him to hit the ceiling--literally--at his shiny office complex 

"We’ve been in the space, managing about $14 billion in the mid-market and we have about $1 billion in the small market. This opens up the large market to us," Mallouk says. 

Seivert adds: "They more than double their assets, which is very positive from an optics standpoint. Effectively they are entering a different business model and different market with a whole new set of competitors and competitive dynamics."

One merger that will not happen, however, is the brand. 

The Lockton brand is "gold inside and outside of the 401(k) business," Mallouk says, and will continue to exist. "I consider it a huge plus to maintain the brand. It will be our retirement services brand in the large 401(k) space only." 

The business itself will be named “Lockton Retirement Services, an Offering of Creative Planning.” 

Easy does it

Mallouk declined to offer terms of the deal, but he says it's hardly a succession plan because he still owns 80% of the company.

Scott Smith
Scott Smith: 'It has to be easy.'

The Lockton deal is on top of $2 billion of AUM this year from three acquisitions and a $5 billion deal to buy Sullivan Bruyette Speros & Blayney LLC in May. In all Creative has made 16 deals worth $11 billion of AUM, Barron's writes.

While Creative is now on a fast track for 401(k) assets, Lockton’s retirement business is less that 3% of its own total revenue. The company focuses on P&C and benefits businesses and employs about 1,700 in the Kansas City metro area. 

It's an open question whether Creative will continue offering Lockton's uber employee perks.

They include such things like 12-weeks paid parental leave, a Rolex watch for every staffer on their 10th anniversary, happy hours, holiday parties, summer parties for the entire family and Beer Fridays -- never mind frequent athletic and wellness events, according to its website.

Nonetheless, the deal's 1,500 business clients gives Creative Planning the pieces and scale to be an Amazon, one-stop shop if Mallouk can harmonize the process like Jeff Bezos, according to Scott Smith, a senior analyst at Cerulli Associates.

“If you can make it easy for people to make you their sole provider, they’ll do so, but it has to be easy. They want it to be as simple as possible.”

Art of the game

Indeed, the allure of going full Amazon with fiduciary advice and products has led to mega-mergers in the RIA business.  See: Ric Edelman removes a major impediment to his firm's future growth--himself--the last act in a 36-year career that will leave Edelman Financial Engines to fend for itself.

In 2018, Financial Engines managed $156 billion of low margin 401(k) assets, and $13 billion in higher margin retail assets. Edelman managed $21.7 billion in retail assets. Edelman purchased Financial Engines in 2018. 

Fisher Investments made a similar play, though more organic. It launched a 401(k) business in 2014, headed by Ken Fisher’s son, Nathan Fisher.  See: Capitalizing on 'unintended consequences' of DOL changes, Ken Fisher pounces on a fat-margin 401(k) opportunity  

High-powered startups like Vestwell are pursuing workplace savings strategies aided by regulatory tailwinds. See: Vestwell does creative deal to buy BNY Mellon's $20 billion workplace savings unit and 'leapfrog' beyond 401(k)s

CAPTRUST now has $660 billion of AUM that also straddles 401(k) and retail and positions as an RIA superpower. See: Riskalyze tightens ties to CAPTRUST and its $660 billion in AUA with an access deal and its implicit endorsement


Unusually, the merger will take physical form when the nearby-Kansas City Lockton staff moves into Creative Planning's 225,000-square-foot Overland Park, Kan., office complex -- albeit there's a hitch for now. See: Peter Mallouk has diamond as big as The Ritz, a flashy new Kansas City headquarters, complete with Silicon Valley perks; Now his new goal--top $40 billion in assets

Creative Planning headquarters
The Creative Planning campus -- a monument to optimism in 2018 (Click photo to enlarge).

"Well, we want them to move in as soon as possible, but to your point, we have no space!" Mallouk says in a wryly expressed email. Creative Planning's staffers have leaped from 600 in 2018 to 950 currently. 

"Our third building, the last that will fit on our campus, will be complete by the end of the first quarter, and they will move in then.

"I can’t wait for it to happen. The energy this is bringing to both organizations is incredible."


Related Moves

The new 'Tony Robbins' book debut coincides with Ajay Gupta revealing plan to retire, which leaves Creative Planning to keep the referral spoils with Robbins down to a 'with' credit on the cover

Peter Mallouk's and Robbins' book, 'The Path: Accelerating Your Journey to Financial Freedom,' was released this week through a new publisher and word got out that 50 year-old Gupta was departing with little explanation

October 16, 2020 – 7:49 PM

Mentioned in this article:

Creative Planning
RIA Serving Other RIAs
Top Executive: Peter Mallouk, JD, MBA, CFP®

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