Creative Planning becomes ‘transformational’ by buying $ 110 billion in retirement assets and crashing the elite Edelman Financial Engines, the CAPTRUST party of the business model’s ambidexterity
Peter Mallouk’s acquisition of Lockton and his large 401 (k) company will double its workforce in Overland Park, Kan, and consolidate the rear flank of its business model
Brooke’s Note: The 401 (k) company drowned in its own stigma for decades – and rightly so. It was a place of bribes, Enron-style abuse, low margins, low critical mass, questionable investments, and crappy advice. It all looks a lot different now with better laws, greater critical mass, greater awareness of advice, and the ability to do good business by doing the right thing for clients. That’s why you yawn a bit when Peter Mallouk, ho-hum, buys $ 110 billion worth of 401 (k) assets and why you double-take when you read about it in the full context of his plan. ‘business.
Creative Planning is poised to add $ 110 billion of AUM 401 (k) and compete head-to-head with heavyweight RIAs like Edelman Financial Engines and CAPTRUST, in a move the company calls “transformational.”
The price: Fortune 500 employee pensions and – no turnover needed – non-pension advice.
The company’s purchase of the Overland Park, Kan., Retirement assets of Lockton Companies Inc., which includes fewer than 500 of Lockton’s 1,000 and more employees, will be its big leap.
The deal is called a partnership because Lockton takes a stake in Creative Planning.
“This alliance is something that only our two companies could do together,” Lockton CEO Peter Clune said in a statement.
The deal will give Lockton’s clients access to holistic counseling, while Creative Planning will take Lockton’s educational component nationwide, according to the company.
“We will also look to Lockton to help our clients in several areas. For us, this is the most important part of the deal, and it has the potential to be transformational,” said Mallouk.
The growth is staggering, but the transcendence of Creative Planning’s existing business model leaps even further, said Dan Seivert, CEO of Echelon Partners.
“They’re actually entering a different business model and a different market with a whole new set of competitors and competitive dynamics,” Seivert said.
This is a major upheaval from the past when 401 (k) assets were completely separated from legacy assets, says Dennis Gallant, strategic advisor at Aite-Novarica Group.
“They were separate and distinct businesses, and they weren’t talking to each other. What we are 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 have been shunned due to low income and even lower profit margins, Smith agrees.
Edelman Financial Engines, Fisher and Creative Planning know full well that combining retirement and wealth management is good business and a great customer acquisition strategy, he adds.
“In 2008, pension record keeping was considered a lead product, but is now becoming the start of the customer acquisition funnel. ”
While merging wealth and the 401 (k) side of a business looks like a perfect marriage, Gallant warns that it could take years to fully merge the two sides.
“It’s a step in the right direction. It’s easier said than done. We will see where we will be in five years. Is the return on investment there? The jury is out and it will be some time before we know it.
Smith adds that these RIAs can take advantage of inertia rather than combat it.
“Inertia is a good thing. If you open your brokerage and 401 (k) and bank account with a business, even if you part with the 401 (k) plan, you already have a relationship with that business. ”
Mallouk’s 401 (k) business goes from a feeling of mom and pop to a giant scale thanks to Lockton’s retirement expertise.
Creative Planning instantly earns $ 110 billion from the independent insurance brokerage firm, doubling its $ 100 billion in assets under management. See: Peter Mallouk’s two-year, $ 50 billion AUM surge in his Kansas RIA has exceeded even his expectations, leading him to hit the ceiling – literally – in his shiny office complex
“We’ve been in space, managing about $ 14 billion in the middle market and we have about $ 1 billion in the small market. It opens up the big market for us,” Mallouk said.
Seivert adds: “They have more than doubled their assets, which is very positive from an optical point of view. In fact, they are entering a different business model and a different market with a whole new set of competitors and competitive dynamics.
One merger that won’t 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 advantage to maintain the brand. This will be our retirement services brand only in the big 401 (k) space. ”
The company itself will be named “Lockton Retirement Services, A Creative Planning Offering”.
Mallouk declined to offer the terms of the deal, but says it’s not really a succession plan as he still owns 80% of the business.
The Lockton deal adds to $ 2 billion in assets under management this year from three acquisitions and a $ 5 billion deal to buy Sullivan Bruyette Speros & Blayney LLC in May. In total, Creative has completed 16 deals worth $ 11 billion in assets under management, writes Barron’s.
While Creative is now on a fast track to 401 (k) assets, Lockton’s retirement business accounts for less than 3% of its own total income. The company focuses on P&C and employee benefits businesses and employs approximately 1,700 people in the Kansas City metro area.
It is an open question whether Creative will continue to offer the benefits to Lockton’s uber employees.
They include things like 12 weeks paid parental leave, a Rolex watch for each staff member on their 10th birthday, happy hours, end of year celebrations, summer parties for the whole family. family and beer Fridays – not to mention frequent sporting and wellness events, according to its website.
Still, the deal’s 1,500 client companies give Creative Planning the elements and scale to be an Amazon one-stop-shop if Mallouk can harmonize the process like Jeff Bezos, according to Scott Smith, senior analyst at Cerulli Associates.
“If you can help people make you their only supplier, they will, but it must be easy. They want it to be as easy as possible.
The art of the game
Indeed, the allure of becoming completely Amazon with advice and fiduciary products has led to mega-mergers in the RIA industry. See: Ric Edelman removes a major obstacle to his company’s future growth – himself – the final 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 of higher margin retail assets. Edelman managed $ 21.7 billion in retail assets. Edelman bought Financial Engines in 2018.
Fisher Investments made a similar, albeit more organic, game. She started a 401 (k) business in 2014, run by Ken Fisher’s son Nathan Fisher. See: Capitalizing on the ‘Unintended Consequences’ of DOL Changes, Ken Fisher Joins High Margin 401 (k) Opportunity
Big-power startups like Vestwell are pursuing workplace savings strategies aided by regulatory tailwinds. See: Vestwell signs creative deal to buy BNY Mellon’s $ 20 billion workplace savings unit and ‘leaps further’ beyond 401 (k) s
CAPTRUST now has $ 660 billion in assets under management which also overlaps 401 (k) and retail and positions itself as an RIA superpower. See: Riskalyze tightens ties with CAPTRUST and its $ 660 billion AUA with access deal and implicit approval
Exceptionally, the merger will take physical form when neighboring Kansas City Lockton staff move into the Overland Park office complex in Creative Planning, Kan., Although there is an issue at this time. See: Peter Mallouk has a diamond as big as the Ritz, a flashy new Kansas City headquarters with the perks of Silicon Valley; Now his new goal: to reach $ 40 billion in assets
“Well, we want them to move in ASAP, but in your opinion we have no room!” Mallouk said in an ironically expressed email. Creative Planning’s staff has grown from 600 in 2018 to 950 today.
“Our third building, the last one that will fit our campus, will be finished by the end of the first quarter, and they will move in then.
“I can’t wait for this to happen. The energy this brings to both organizations is incredible.”