Creative Planning's Peter Mallouk on buying Goldman's wealth unit

With its purchase of Goldman Sachs' Personal Financial Management unit scheduled to close in the fourth quarter, Creative Planning is busy trying to figure out exactly how much of the business will ultimately move over.

Creative Planning President Peter Mallouk said Tuesday that he fully recognizes not everyone now working at the Goldman wealth management unit, with $29 billion under management, will make the transition over to his firm. He said he and his colleagues plan to spend the next few weeks meeting with the Goldman Personal Financial Management unit's roughly 200 advisors working in some 70 offices in the U.S.

"We only want people that fit in with our lines of business," said Mallouk, whose Overland Park, Kansas-based firm has roughly 2,100 employees and $245 billion in assets under management. "We are working toward that understanding. We want clients to be in a spot that makes sense and a team that's happy to work for Creative Planning."

Goldman Sachs confirmed on Monday that it was selling its Personal Financial Management unit to Creative Planning for an undisclosed amount following more than a week of speculation about who the buyer would be. The PFM division's time at Goldman has been short. The unit originated in the Wall Street giant's $750 million purchase in 2019 of United Capital Financial Advisors, a California-based registered investment advisor.

Brian Hamburger, the chief counsel of the Hamburger Law Firm and an advisor on many RIA deals, said he wouldn't be surprised if some of the advisors involved in the deal start looking for employment elsewhere. Two acquisitions in less than five years makes for a lot of instability, he said.

"Any time you have a transaction like this that's thrust on advisors, you're going to have advisors who are very concerned about their careers," Hamburger said. "So I think that it certainly makes sense that there are going to be advisors who are looking to evaluate their other options."

"The only silver lining," he added, "is that you finally have a sense of Goldman's intentions with the business, knowing that you are not wanted but knowing now who is going to pick you up."

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The former United Capital was always a bit of an odd fit for a long-standing Wall Street titan like Goldman Sachs. At Goldman, many no doubt found themselves chafing under the restrictions that come working at a large firm. 

Joe Duran, a founder of United Capital, left Goldman in February after helping to set up the new Personal Financial Management unit inside the investment banking giant. Two other United Capital founders, Gary Roth and Mike Capelle, headed for Goldman's exit door in April to start another firm, Modern Wealth Management.

Mallouk said Creative Planning's way of doing business is much closer to how things had been run at the former United Capital.

"I think they are planning-led, and we are also planning-led," Mallouk said. "They do  goals-based investing, and so does Creative Planning. We also work mainly with the multimillionaires and the millionaires next door, as well as some of the ultra-affluent."

Mallouk said about 40% of the assets his firm manages are from clients with $10 million or more. 

Goldman's sale of its Personal Financial Management unit marks another step in its retreat from its previous plans to work more closely with retail-level clients. Goldman is also seeking to unwind its purchase in 2021 of the fintech lender GreenSky.

But unlike with the sale of GreenSky, Goldman isn't expecting to lose money on unloading the former United Capital. Although Goldman is not disclosing the sales price, it said it does expect to book a financial gain once the transaction is closed.

"This transaction is progress toward executing the goals and targets we outlined," Marc Nachmann, the head of Goldman's asset and wealth management unit, said in a statement. The deal, he added, allows the firm "to focus on the execution of our premier ultra-high-net-worth wealth-management and workplace growth strategy."

Mary Athridge, a Goldman Sachs spokesperson, said Goldman will retain roughly 1,000 advisors following the sale. They'll work with ultra-rich clients with a minimum of  $10 million to invest and an average account size of $60 million, she said.

Much of Goldman's wealth management business also comes from offering services to registered investment advisors and similar firms. Of the roughly $2.7 trillion Goldman has under management, a little more than a third comes from such third parties, Athridge said.

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Pierre Buhler, a banking specialist at the consulting and research firm SSA, wrote in an analyst note that Goldman had struggled to stand out for high-net-worth clients, a market already dominated by firms like Charles Schwab and Fidelity. By reconcentrating on the ultra rich, Buhler wrote, Goldman is putting itself in a better position to weather any recession that might eventually strike.

"The central task for Goldman Sachs lies in divesting assets that slow down its growth trajectory and reorienting towards its primary business," he wrote. "As economic downturns often favor high-net-worth individuals, this pivot could enable Goldman Sachs to seize a larger market share."

David DeVoe, the founder and CEO of the RIA consulting firm DeVoe & Company, said the sale is evidently part of a "strategy shift" for Goldman. The firm, he wrote in an email, "has determined that the best way to approach the (high net worth) market is through their product set. Their products have brand value, higher margins, and scalability."

Mallouk also declined to name how much Creative Planning is paying for Goldman's PFM business. He said he believes about half a dozen companies eventually expressed some interest in buying the Goldman wealth management unit. 

Mallouk's bid ultimately won out following a failed purchase attempt by Osaic Wealth, a deal prospect first reported by CityWire. CityWire, which also broke the news of Goldman's plans to sell its Personal Financial Management unit, eventually also listed Hightower, Mercer Advisors and Wealth Enhancement Group as being among the suitors.

This isn't the only recent deal to be struck between Creative Planning and Goldman. Creative Planning announced in July that it was adding Goldman to its list of asset custodians now including Charles Schwab, Fidelity and Pershing.

Mallouk said that custodial agreement had nothing to do with Creative Planning's purchase of Goldman's PFM unit.