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

Peter Mallouk had a "Field of Dreams" vision. If he built a shiny new headquarters almost 40 times the size of his old offices, then the assets would come.

The money didn't exactly flow out of a cornfield, but it came from some unusual sources to push his firm, Creative Planning, from $38 billion in 2018 to $100 billion in AUM as of this month, the company reported.  

"Believe me, I had no idea we would be close to capacity a little over three years later! Crazy," Mallouk says of his 225,000-square-foot Overland Park, Kan., office complex. 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

"The largest part [of growth] is from referrals, then market growth, then acquisitions," he explains in an email. 

"The fastest growing segment is ultra-affluent. Note: ultra-affluent is not the largest part, it is just the fastest growing part of the largest part. 

"I have no idea why we are attracting them. They come mostly as referrals, and, I suspect, they are more likely to call given our scale."

Now, he's worried he'll be running out of space.

"Even though we control the campus, we only have room for one more building. We'll be able to take over another 50,000 square feet of space. 

"Our inability to ever get our space right is proof that what's happening has been unexpected." 

Pandemic Surge

Mallouk, 51 unveiled the first phase of his grand headquarters in two adjacent buildings in 2018.  The surge that followed caught him off guard, he says, but it wasn't without precedent. 

The 2008-09 financial crisis caused assets to spike at an even greater rate, a trend that re-emerged during the 2019-2020 COVID-19 pandemic.

"In the beginning of 2008, we had $500 million, and fast forward to 2010, we were closing in on $2 billion.

In the spring of 2016, Creative planning had $18 billion and hit $36 billion - a 100% increase in the following two years. 

Creative Planning's net inflow jumped 68% in 2017. At the time, Mallouk had teamed up with author and noted motivational speaker Tony Robbins to write a book  “Unshakeable: Your Financial Freedom Playbook" (Simon & Schuster 2017).

Then the 2020 pandemic hit.  Creative Planning had $50 billion when the pandemic hit full force in March a year ago and doubled after that.

The number of staffers leaped, as well, from 600 to 950, with two-thirds housed at the Overland Park headquarters.

Creative Planning just completed its third building and we will occupy 250,000 square feet when done -- up from 175,000 square feet.

"You can book-end our success with these two crises. They really converted our clients and had them advocate more for us," he says.

Referrals have been mostly the old-fashioned kind albeit with a new wrinkle -- a heavy preponderance of ultra high net worth investors.

It helps that Mallouk himself is an estate attorney and has a large staff to provide that upmarket legal and tax work.

"We do have a team that specializes in working with this group and that (growing) team has been in place over a decade," he says.

Adding fuel

The S&P 500 Index has also helped supercharge growth. It's up 28% in the past 12 months and Creative Planning's portfolios were allocated to capture a good bit of that.

"We're an equity-heavy firm and clients are participating in all. of this," Mallouk says. 

Mallouk says, the firm has steadily gained ground as a serial buyer of RIAs after accepting its first-ever tranche of outside capital from General Atlantic.

It added $2 billion of AUM this year from three acquisitions and signed a $5 billion deal to buy Sullivan Bruyette Speros & Blayney LLC in May. In all it's made 16 deals worth $11 billion of AUM, Barron's writes.

Creative Planning earns 120-basis-points on the first $500,000, then 100-bp on assets of $500,001 to $2 million. Fees fall to 85-bp on assets of $2,000,001 to $5 million, and then top 80-bp on assets of $5,000,001 to $10 million. 

It only drops to a Vanguard-level wealth fee of .30-bp on assets at $50,000,001 to $100 million, according to its ADV2.

Were Creative Planning to earn an average of 1.0% or 100 basis points on assets, its revenues would be in the $1 billion range. If his near 1,000 employees each cost an average $150,000 annually in compensation, labor expense would total about $150 million. Hence, annual profits may in the hundreds of millions of dollars.

Growth engines

A tiny handful -- Fisher Investments and Financial Engines -- of the 13,880 RIAs have a remotely similar story to tell.

Fisher Investments hit $100 billion in 2019 and has a shot at hitting $200 billion soon. See: Fisher Investments surpassed $100 billion in AUM in early 2019, contained the flames of a late-2019 PR crisis and has a legit shot at hitting $200 billion in AUM this year 

Edelman Financial Engines is nearing $300 billion, albeit with only about 20% of its assets in retail. 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

The added $25 billion in just the past six months and reported $90 billion on June 30 in its ADV filing. Creative Planning, founded in 1983, first reached the $25 billion milestone in 2017.

Book deals

Mallouk declined to state what percentage of referrals came from clients and what percentage came from books he co-authored with Robbins. But he did acknowledge that the firm is gaining referrals from the book. 

Robbins had been Mallouk's chief of investor psychology and also drew in referrals to the firm, but after allegations of sexual impropriety against Robbins were reported by Buzzfeed in 2019, Mallouk and Robbins parted ways. See: Exclusive: Creative Planning's split with Tony Robbins was in the works well before self-help guru's sexual misconduct allegations, says Peter Mallouk

Mallouk and Robbins finalized their business divorce in 2019, but Mallouk still released another book penned alongside Robbins in Oct. 2020. The release was expected to generate a torrent of referrals.

Mallouk kept the rights to the book and negotiated a new deal with Post Hill Press, an independent publishing house founded in 2013. See: Peter Mallouk gets control of latest book he co-wrote with Tony Robbins. He can chop the two-chapters written by Robbins and choose a different publisher

"Clients' referrals have been record-breaking. We've had the best six months. Client referrals have by far been the biggest part of it," he says.