The ongoing consolidation of even some of the largest registered investment advisors will lead to a future dominated by a handful of large players, Creative Planning CEO Peter Mallouk told an audience of dealmakers Wednesday at an Echelon Partners’ conference.
Speaking at the investment bank and consultants Deals and Dealmakers Summit in Laguna Niguel, Calif., the head of one of the country’s largest RIAs by assets said the industry has been buoyed by strong markets, favorable client conditions and strong margins that will eventually be tested in a way that further solidifies the dominance of bigger firms such as Creative Planning.
“Just a few years ago, there were only 10 firms doing all the buying,” Mallouk said. “Now, there are a bunch more as PE comes in and buys these platform firms, and there starts to be more deals … but I think ultimately it will revert back to whoever those top five or 10 firms wind up being. Similar to the tax world, you have the Big Four, and everybody else.”
Mallouk, who has built his firm to $370 billion in assets, made the comments on the same day an acquisition by MAI Capital of Evoke Advisors is set to create a $60 billion RIA. But even as the RIA sector draws more private equity players, breakaway advisors, and a proliferation of models, the CEO said he sees it all leading to a future of “four to 12 really big players” along with some regional firms and small, niche businesses.
“The intensity is going to get very different, the profit margins are going to get different, and it’s going to drive that consolidation back to those fewer firms,” he said.
In a wide-ranging conversation with Echelon founder and CEO Dan Seivert, Mallouk discussed his upbringing, his love for the music of Van Halen, and his firm’s rise from a small, $34 million RIA to a mega-firm that leaned in early to offering holistic wealth services such as tax and estate planning. He also made the case that strategic acquirers, as opposed to those controlled and driven by private equity, will make long-term decisions that give them an edge in the consolidation game. Creative Planning has private equity funding from TPG Capital and General Atlantic, but is majority owned by Mallouk.
On the sidelines of the conference, Mallouk further explained the parallel he sees between the independent advisor space and the accounting and benefits sectors.
“Do you think a client is going to get a better outcome if they’re a client of one of the big four, or if they’re a client of a firm that has 200 clients?” he asked. “I’m sure there are plenty of wonderful 200-person CPA firms that do an excellent job, but on average, the client of the Big Four firm is getting better advice. I think that you’re going to see that in the independent wealth management space too.”
Bigger firms, he said, will be able to negotiate for better investments, pricing, cybersecurity, and other areas.
“I think the disconnect is people think, ‘Well, if the advisor can’t do whatever they want, the client is getting less,’” he said. “But that’s not true at all. I don’t buy that.”
During the panel discussion, Echelon’s Seivert referred to research the firm had done on the increased concentration of overall assets held by RIAs of over $1 billion AUM. That concentration rose from 64% in 2018 to 74% in 2023, with signs of the trend continuing.
Mallouk responded by noting several positive factors creating a “world of winners” in the RIA sector in recent years, with “a lot of things that support the industry.”
Some of those factors, he said, include client preference, with people becoming more aware of the independent advisor versus the broker/dealer and seeking out independent advice. Furthermore, now that there are larger RIAs, he sees those clients feeling “safer” with them and also avoiding the product push they feel happens with brokerages. He also noted the “wave of assets” from the baby boomers, the great wealth transfer, and inflated asset markets.
“It’s literally the perfect storm … for now,” Mallouk said. “You’re seeing more and more assets going to the top firms—I think that’s going to be over 90% [concentration] soon.”
Mallouk said that when Creative Planning started out, it earned business from mutual fund companies and later from brokerage houses. But today, the firm “is usually converting assets from another independent firm, and when we lose, we are usually losing from an independent firm,” he said.
“This is no longer a pie-expanding world,” he said. “The pie is expanding because the markets are going up. Really, you are starting to see the very first inning of the winners and losers in the independent advisor space.”
During a separate panel with Echelon bankers, the firm discussed the rampant consolidation in the space and noted that the RIA market sees more net new entrants every year. That fits with the overall trend not just of financial advisors shifting from the wirehouse and broker/dealer space to independence, but the numerous platforms and support networks—including one launched this year by Charles Schwab—available for RIAs that don’t want to join a bigger player.
On the sidelines, Echelon Senior Vice President Brett Mulder said the continued growth of entrants does not undercut the idea that mass consolidation will eventually whittle down the market.
“The biggest difference is that the larger firms are typically growing faster from an organic basis because they invest so much into their organic growth engines,” he said. “There is so much being dedicated to custodial referral programs, which drive a ton of growth … you are not going to see the smaller firms on the top of those charts.”
He also pointed to brand awareness, making the case that RIAs such as Corient, Creative Planning, Mariner, and others will become more like “household names” in the U.S.
“That comes from marketing, it comes through getting exposure through Schwab and Fidelity,” he said. “A lot of our clients get to the $1 billion AUM range, and they have to decide whether they want to invest in the infrastructure to target that next level of growth or they want to join a larger firm that has already built out all that infrastructure to be able to grow.”
Mallouk echoed that sentiment on the sidelines of the conference.
“I think the $1 billion firms get acquired by $20-plus billion and the $20-billion will sell to the $100 billion,” he said. “There will be break-outs … but for the most part, they are going to sell.”
When asked if he was interested in Creative Planning becoming part of the industry’s first “mega-merger” on the path to consolidation, he said no.
“I do think you will see two big firms get together in the future,” he said. “But I personally have no interest in it.”
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