Creative Planning’s Three-Year Cash-Reserve Pledge and Why Other RIAs Won’t Promise the Same

“No matter how long it takes, we will be here for our team — no workforce cuts and no pay cuts — and our team will be here for our clients.”

Peter Mallouk (Illustration by RIA Intel)

Peter Mallouk

(Illustration by RIA Intel)

When the state of Kansas ordered residents to stay at home last month, in an attempt to contain the spread of the novel coronavirus, the offices of Creative Planning were empty. Employees of the RIA that manages more than $46 billion, primarily for more than 28,000 private individuals, were already working remotely for their safety.

But the ability to work from home does not guarantee someone a job and the anxiety of that unknown — along with their health and other perils of the pandemic — is on the minds of millions of Americans.

Recognizing he could resolve one of anxieties, Peter Mallouk, the president of Creative Planning, emailed his 700 employees and promised that none of them would be laid off or asked to take a pay cut as a result of Covid-19. He said the same thing in a phone call to employees shortly after.

“I know it put a lot of them at ease and I could let them focus on the clients and not be concerned about their own situation,” Mallouk told RIA Intel.

Since Mallouk’s promise in March, employees have reached out to thank him, especially those with spouses and partners suddenly unemployed. The number of infections and deaths has sharply risen in the U.S. and millions have lost their jobs in a now battered economy. The consensus is that a recession has already begun.

Mallouk also sends a daily note to employees and, every month, or as needed, hosts a call. But earlier this month, an employee called him to ask if he was serious when he said there would be no layoffs or pay cuts. “I’m completely serious and I’ll repeat it as often as I can to let people know how committed I am to it,” he said.

“At Creative Planning, we have taken the forever pledge. No matter how long it takes, we will be here for our team - no workforce cuts and no pay cuts - and our team will be here for our clients,” he tweeted April 11.

The promise is not a reflection of any forecast by the executive, who said he is “as uncertain as everyone else” on when borders and businesses will reopen, or how long it will take markets and the economy to recover. But he is certain about how much money his RIA has in the bank.

Creative Planning has always kept a cash reserve large enough to cover operating costs for up to three years and set aside even more money recently, according to Mallouk.

“I’m not working because I need the money, I’m working because I love it,” Mallouk said about his clients (he still personally works with about 100) and employees. “If you care about those people then you make it part of your plan to take care of those people.”

Pay cuts and layoffs wouldn’t just harm employees, they would impair Creative Planning’s service and harm clients, he said. The executive is ready to spend the money if necessary to maintain that, which also sends a message to stakeholders. “It seems like that’s a small price to pay if we’re talking about wanting to have employees stick with you for 20 years.”

“It goes to show how strong his financials are,” Carolyn Armitage, managing director of Echelon Partners, an investment bank and consulting firm focused on wealth and investment managers, said.

RIAs don’t typically build a cash reserve that large. Most of them are limited liability companies — where much or all of the profits funnel to the owners — and revenue is usually recurring and relatively predictable, and there are tax implications they consider, according to Armitage. “Having three years set aside for the use of payroll is not the norm.”

“It wouldn’t make sense for your typical RIA to have three year’s worth of operating expenses [in cash]” but it can for companies like Creative Planning, said Shirl Penney, the president and CEO of Dynasty Financial Partners, a service provider to a network of 45 RIAs managing an aggregate of more than $40 billion in client assets. Among Creative Planning’s 700 employees, about 300 are financial advisors, a total that dwarfs the number at the vast majority of similar firms.

The benefits of scale become more apparent in troubling times and companies like Creative Planning can afford to stockpile cash and ensure their operations aren’t disrupted — or invest to grow. That might not be the case at all RIAs. “The best led businesses, the most profitable, are going to be spring loaded coming out of this environment,” Penney said.

Captrust, the Raleigh, N.C.-based advisor to individuals, corporate retirement plans, and institutions that manages more than $290 billion, has reinvested half of its profit back into the business since inception, preparing it for quarters like the first of 2020, according to Wilson Hoyle III, a managing director and the Head of the Advisor Group at Captrust.

As a result, the private company grew its workforce by a “double-digit” percentage through the global financial crisis and it plans to do the same this year, he said.

Like Creative Planning, Captrust sent its 650 employees to work from home mid-March and said none would lose their jobs due to the pandemic.

The Wealth Consulting Group, a Las Vegas-based wealth manager with about $2.8 billion, still plans to host interns (albeit perhaps virtually) this summer and also told employees it will not furlough or lay anyone off. Other large financial services companies have made promises to workers, too. Morgan Stanley has pledged it will not lay off employees in 2020, and Citigroup already announced it plans to offer all summer interns a full-time job.

Mallouk stopped just short of considering his public promise a call to action for other big RIAs.

“I would say this. The industry has been awfully silent and, at a minimum, the big firms should feel comfortable saying, ‘Look, for a minimum of six months we’ll stand by you.’ It’s not reasonable to assume everyone can do it for three years. But can you do it for half a year?”

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