Peter Mallouk: Competition in Financial Planning Is Heating Up

In the view of Peter Mallouk, the CEO of Creative Planning, the competitive landscape facing today’s independent financial advisors is equal parts daunting and exciting.

Many segments of the advisory industry have enjoyed record growth in the wake of the COVID-19 pandemic, and Mallouk points to substantial consolidation across all segments of the financial services and advisory industry.

In fact, Mallouk’s firm has been one of the major drivers of consolidation, with some half-dozen acquisitions booked in 2023 alone, including the acquisition of Wipfli Financial Advisors, an RIA with $5 billion in assets under management, in August. That deal came on the heels of Creative Planning’s purchase of Rosen Capital Management, a smaller shop, and Ferris Capital, which manages $755 million in assets.

In a new interview with ThinkAdvisor, Mallouk describes his industry outlook for 2023 with respect to market volatility, industry consolidation, client demands and growing competition. Mallouk says it is a great time to be in the advisory and planning industry, but those who don’t commit to changing with the times will find it increasingly difficult to win (and maintain) new business.

THINKADVISOR: How would you summarize the year we have gone through with respect to market volatility and the composure of the typical investor?

PETER MALLOUK: My sense is that, if we were to have had this year of volatility in the past, people would have been more panicked. However, the volatility we have seen came on the back of such a huge, prolonged bull market. Anyone with even a short history of participating in the markets knows that a rally such as the one we have experienced since the Great Recession doesn’t last forever.

I think it is also important to point out what I would call the hidden story of the markets in 2022. In essence, we have had two different bear markets happening at the same time.

What do I mean? When we look back at 2008 and 2009, that was a singular bear market that delivered some pretty severe devastation everywhere. Large-cap stocks had losses in the range of 40%, while small-cap stocks suffered even more.

The situation we saw in 2022 was different. One the one hand, a significant part of the market has fallen by 60% or 70%. I’m referring to speculative cryptocurrencies and SPACs, yes, but also to more legit stocks that lacked sufficient earnings to justify their high valuations. The basic story there is that a lot of stocks just caught fire coming out of the COVID-19 crisis, and now they have been brought back down to earth. Sadly, in many cases, the asset values have been devastated and they may never come back.

On the other hand, other parts of the market have withstood the pressure a lot better. Generally, larger stocks that have higher quality have seen more modest declines, in the realm of 10% to 20%. That is painful, but it is a more normal correction. Ultimately, investors with good financial plans — those who have not flooded into unproven asset classes or made risky bets — are navigating this difficult year relatively OK.

What is really sad is to see how many new and novice investors have been burned this year.