Peter Mallouk has been a masterful acquirer of firms, to date some 40+ in fact, though, for any professional investor, some deals are failures from the start . With the acquisition of GSPFM, he has overlooked the roots of the very advisors and clients he thought he purchased and, in short, it seems Mallouk has made a massive miscalculation. Mallouk seems to have overlooked the fact that most advisors came from their own RIA firms prior to United Capital, are entrepreneurial, believe they own their businesses and their client relationships. Goldman Sachs who acquired United Capital realized that four years ago, and now Creative Planning is realizing that former UC advisors aren’t in favor of yet another corporation telling them what to do.
United Capital advisors deserve better and are tired of being pawns in another firm’s chess board. It’s vital to note that GSPFM and former United Capital advisors hold the key to client relationships, not any acquirer. Advisors should be empowered and emboldened to decide for themselves if they care to sell their business and their clients. As is, Creative Planning claims to control the destiny of advisors, holding advisors hostage as if they own you, with what are the most erroneous, unfair employment contracts in our industry.
Roger Gershman from The Gershman Group, who advises a large number of United Capital advisor teams in making educated decisions says, “ he hopes to empower teams to create their own destiny, reminding advisors that they don’t need these big firms who think they own you, they’ve been taken advantage of, and do what is the best interests for themselves, their businesses and their clients.”
Even though advisors had little to say when presented with these contracts, now they are furious that Mallouk is holding their careers as ‘get out of jail cards.’ Now he is trying to force the sale to advisors and their clients as if it is a fire sale. Accounts will default to Creative Planning in 45 days, unless advisors take action to do otherwise. This means that advisors need to sit out a minimum of three months to upwards of six months, a blip on the radar to control one’s career destiny, paid for half of that time, before being free of all encumbrances to Goldman, now Creative Planning, thereafter. Asked about the criticism of the acquisition and contracts, CEO of Creative Planning, Peter Mallouk laughed and acknowledged the deal is loaded with conditions, and that he expects some advisors to leave. He declined to comment on the “garden leave” provision.
Peter Mallouk recognizes the predicament advisors face and has returned with a few choices, all with the common thread that Creative Planning will have a controlling stake in your practice, they own you and your clients with the obvious goal to just kick the proverbial can down the road with two choices.
Join Creative Planning – The goal was for United Capital advisors to become an employee of yet another brand RIA (which clients know little of), with a mere 30%+/- payout with 10% for referrals just for the honor to be an employee. This also comes with a two-year non solicit/non compete where the firm effectively owns you and your clients for the rest of your career. The retention agreement does vary but in most cases undervalues the advisor’s practice significantly. In one case, it was about 60% of one-year worth of W2 earnings paid over five years.
Establish a new ADV for United Capital 2.0 under its name, with Creative Planning retaining a stake in the business. The obvious end game here is just to keep advisors on the hook with the fallacy that somehow this option pans out. The details and long term solution are murky at best, who owns what, at what price, and what are the risks/rewards? How will United 2.0 reach economies of scale? Who manages this new entity, what is the critical mass necessary to succeed and who can trust if it eventually folds?
As one anonymous United Capital advisor quotes, “I do not believe a word Mallouk says. This UC 2.0 is a carrot that Mallouk is dangling that will go nowhere, and even if it does, what stops him from eventually folding it.” Advisors nationally just aren’t “buying it” who believe once this freezy is over Mallouk will move on to greener pastures with probably $100B of pipeline opportunities.
While platforms and products are abundant and often ubiquitous, what truly matters is the culture and the level of control advisors can maintain over clients and their business. How many times must advisors and their practices endure mergers and acquisitions, and rollups without a say? Remaining at Creative Planning could mean yet another sell off in time.
Gershman adds, “advisors deserve to own 100% their own equity, they should be handsomely paid to move their business, should have average 1099 operating income 70%-80% and sell equity (if they choose) at 8-12x earrings.” According to sources, the valuation of a $5M business generates about $3.55M earnings and should be worth $25M. Advisors like the tax treatment of being a business owner, can sell at a long-term capital gain and can use that equity to retire partners, buy practices – become the house. What do advisors really need in a platform that Creative Planning offers more than owning their own business? Supported independent platforms are a pure play with comprehensive services that do it all, custodied at Fidelity, Schwab, Pershing or even GS. Products are ubiquitous, and so is the backbone infrastructure commoditized such as technology, investment platform’s, SMAs, compliance, operations, and legal.
Even the employment contract isn’t holding advisors back from exiting. The fact is that GSPFM advisors have a competitive advantage over typical Goldman Sachs advisors. The Texas team that left GSPFM/Creative Planning hasn’t honored the garden leave. All eyes are on this move to see what goes down, but so far, it seems the team has been successful in its departure, likely attributed to loopholes in the contract under legal counsel. Meanwhile, assets are flying out the door making yet another miscalculation by Mallouk. Apparently he didn’t realize that United Capital advisors and their clients do not have the same disadvantage as an ordinary Goldman Sachs advisor has. To start, Creative Planning advisors will have a hard time convincing them to stay with a firm they do not know. Also, GSPFM advisors have the advantage to give their clients a heads up that they may be moving to a firm that is in their clients’ better interests.
The point is that there are ways for advisors to leave now with the proper legal counsel and guidance in transition to a far better platform fitting their needs to a far bigger payout and control over one’s lifetime. Even if they abide by the contract, three to six months is a very short period of time in one’s career to be free from big corporations that have little interest in any single advisors’ business and their clients.
The smart move currently is to review all options, goals for your practice and your future. Decide if you want to control your destiny or allow Mallouk to own you, and potentially in time, yet another firm. If after solid due diligence, Creative Planning is the best option, it will feel right after you’ve considered and owned your part in the decision making process.
