Creative Planning’s Peter Mallouk on Record Stores and Capitalism

Creative Planning CEO Peter Mallouk knows his music. In fact, the chief of the $245 billion-dollar RIA was once the proud owner of not one, but eight music stores, after his college years at the University of Kansas. That all changed when the digital music revolution — led by the likes of Napster — threw the music industry into dire financial straits and changed the course of his career forever.

“It just happens so fast,” Mallouk said about digital disruption. Similar scenarios have played out in the mutual fund and brokerage industries in recent decades. “Once Schwab got down to zero [fees], you saw how quickly TD Ameritrade folded,” he told The Daily Upside. “It’s going to happen in the RIA industry.”

The wealth management industry is projected to top $2.92 trillion by the end of 2029, opening up massive opportunities for growth. It has also attracted the gaze of private-equity investors from all over the globe. The eventual winners will rely on the strategies put in place today, he said. “It’s just how capitalism works.”

Mallouk sat down for an interview with The Daily Upside on the sidelines of the Future Proof festival in Huntington Beach, California.

TDU: What’s the biggest challenge for advisors today?

PM: You see a lot of RIAs that think they’re doing well, but they’re not. The market has been on a 15-year bull run and just gone straight up. So you can have very few positive inflows — and actually, you aren’t doing very well in the marketplace in terms of winning over consumers — but your practice has gone up. You feel like you’re doing great. At the same time, those that have emerged as leaders in the space have become highly specialized and found a way to deliver more value to clients. What will happen is, when the markets normalize, there will be a mass slaughter. I mean, it’s going to be really bad, and it’s going to happen in a very short, multiyear period.

TDU: How is technology transforming our industry?

PM: The great thing about technology is it allows for scale. We can disseminate information quickly and that levels the playing field. People from all over the world have access to the same data and information that someone in a penthouse in Manhattan does. Those are wonderful things. But people that want to cause harm can also do it at scale, and we’re going to have to think about cyber crime and fake AI calls. There will be a lot of good, but there will be a lot of challenges, too.

TDU: What’s one thing no one is talking about?

PM: It’s really hard to get your brain around just how much money is sloshing around the system, and what deficit spending does to the economy. Inflation shows up in equity prices not linearly, but over time. Deficit spending is worse than it has ever been before the US, which means equity prices will be inflationary, too, over the long run. There’s no end in sight.

We will have a real bear market in here somewhere. We love to talk about COVID like it’s some miraculous thing. “Oh, we survived it; we were so amazing.” It lasted a couple of months. Sure, independent advisors have been around since the ‘70s, but for practical purposes, it’s been 20 years. And no one’s experienced a prolonged bear market. We just have not experienced that in the modern RIA era.