Creative Planning sells up to 20% stake to private equity firm

Rapidly growing RIA Creative Planning sold a sizable stake — somewhere between 10% and 20% — to global private-equity firm General Atlantic.

The reason: to ensure its staying power well into the 2020s and protect its current employees against any unforseen economic shocks, according to Peter Mallouk, the company’s CEO.

“I want to have a reserve that — no matter what in the world happens — this firm can continue to operate with every single person that's here today for seven years,” he says, adding that had he wanted a “much bigger check,” he would have sold a majority stake.

Although he is “not anticipating a downturn,” Mallouk says, “you never know when one will happen but, when it does, I want us to be strong.”

Mallouk bought Creative Planning in 2004 when it managed less than $100 million and says he has since grown it to nearly $50 billion in client assets; $48 billion according to the SEC’s latest Form ADV. The difference is due to the firm’s ongoing conversion of client accounts from four recent acquisitions, according to Mallouk.

General Atlantic’s “investment is in the teens,” he says, adding that “I still own the vast majority of Creative Planning.” The 40-year-old private equity firm has a portfolio of nearly 40 firms in the financial services sector, including digital wealth platform SigFig, Santander Asset management and First Republic Bank.

Further terms of the deal were not disclosed.

Mallouk says he plans to remain at Creative Planning for the next 20 years.

Most of the Overland Park, Kansas-based firm’s growth has come from referrals from pre-existing clients, Mallouk says, though he declined to provide specific numbers. “We get one client at a time. That's never changed.”

Other growth has come from TD Ameritrade’s AdvisorDirect referral platform as well as from the firm’s affiliation with author and motivational speaker, Tony Robbins, which was severed last year. Robbins remains a client.

Most recently, growth has come from acquisitions and from Schwab’s referral platform, which Creative Planning joined a few years ago. The firm does not participate in Fidelity’s program.

Creative Planning pays custodians a fee for retail referrals as part of the program, according to disclosures in its ADV.

While Mallouk says the overall strategy hasn’t changed, Creative Planning is “supplementing” that growth with acquisitions and is currently redoubling its advertising efforts.

In early 2019, Mallouk said his firm was “open for business” and interested in acquiring as many as 100 firms. However, it ended the year having made just four acquisitions.

“It is very hard to find a like-minded firm,” Mallouk said last month.

The firm is still seeking to expand in cities such as Dallas, Milwaukee, Washington D.C. and Minneapolis with firms that have the same investment approach and culture, he says.

“We want to accelerate our ability to compete in major markets,” Mallouk says.

When it comes to outside investors, “we get called all the time,” he says.

While the General Atlantic deal was about security, Mallouk also notes that he is “very comfortable” with private equity firm, given that it has worked with several of his firm’s clients in the past.

The timing for an investment was right, according to Mallouk, coming on the heels of the completion of the firm’s new headquarters, a doubling of its workforce and the establishment of firms in every major metropolitan market.

“The final piece was, ‘What could go wrong?’” He says. “Well what could go wrong is a prolonged pullback for whatever reason. We want to be strong whenever that happens.”

With additional reporting by Ann Marsh.