At The Money: Your Financial Captain


At The Money: Your Financial Captain with Peter Mallouk (May 29, 2024)

Who’s in charge of all of the details of your financial life? Not just the stocks and bonds, but your taxes, your will, your estate, any trusts, insurance, credit line, real estate, and anything that affects your financial health. In today’s ATM, we discuss the advantages of having a financial captain in charge of all of your financial affairs

Full transcript below.


About this week’s guest:

Peter Mallouk is CEO of Creative Planning, with over $300 billion in client assets. He is the author Money, Simplified.

For more info, see:

Personal Bio

Masters in Business





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TRANSCRIPT Your Financial Captain


Who’s in charge of all of the details of your financial life? Not just the stocks and bonds, but your taxes, your will, your estate, any trusts, insurance, credit line, your real estate, anything that affects your financial health. Who’s in charge of that?

A lot of us work with different professionals across lots of different disciplines, but that means sometimes some things can slip through the cracks.

To avoid this happening, some people use a financial quarterback, someone to captain every aspect of their finances. I’m Barry Ritholtz, and on today’s edition of At The Money, we’re going to discuss the idea of having someone to oversee All aspects of your financial life.

To help us unpack all of this and what it means for your finances, let’s bring in Peter Mallouk. He’s the CEO of Creative Planning. The firm manages over 300 billion in client assets.

Barry Ritholtz: So Peter, tell us about the concept of a financial captain. Why do we need someone to help manage our financial affairs?

Peter Mallouk: You know, it’s an interesting industry, Barry. Like, if you think about when you build a home, most people don’t want to be the general contractor.

They just assume they’re going to mess something up. Yeah, I can get a great plumber, I can get a great electrician, but somewhere along the way there’s somebody’s not going to talk to somebody and something will get screwed up. So you hire a general contractor and you pay the general contractor, but you probably wind up with a better outcome and you probably actually saved yourself money.

If you think about the financial services industry. I think it’s been broken for a long time. I think about the way I really got into this is my parents  going to a lawyer to do their legal work, going to CPA to do their taxes, going to the investment guy, paying somebody to put together some projections, and  of course, this, you know, one thing’s not talking to the other, it’s not optimized, and it’s kind of an aha moment of, hey, this stuff should be in one place, and you’re more likely to make good decisions.

Barry Ritholtz: It sounds like those are a lot of highly paid professionals. Is this just for the wealthy, or can anyone making a moderate salary take advantage of having a financial quarterback.

Peter Mallouk: Well, I think, I think that things have really changed. So Creative Planning, I think we’ve democratized this. It used to be you had to be really wealthy, have a family office to be able to get some of these things.

And Creative Planning, as far as I can tell, was the first firm in the United States to bring this at scale. And I think that when you get it at scale, one of the things that’s great about capitalism is once you have scale, you can bring prices down. And so actually, We’re able to give top-shelf advice to average American. [This is a middle class type of services].

We basically have a group that does work with the ultra affluent. So it’s, we have this division that it’s maybe a third to 40 percent of all the private wealth that we manage for very wealthy people. But 60 percent is for average Americans, um, which is the typical mass affluent, and being able to do the legal and the tax and get them top shelf investments because we’ve got the scale in place already from serving so many high-net worth families.

Barry Ritholtz: Really interesting. I like the idea of a captain as the single point of contact for all financial matters. What does this do to enhance somebody’s life? What are the problems that this can help avoid?

Peter Mallouk: Let’s take, for example, charitable giving. So, as you know, Barry, being in the business, that most people, when they want to make a gift, they write, they write a check.

So, 96% of giving is in cash, but you and I know the absolute worst way to make a charitable gift is with cash. [Appreciated stock is so much more attractive, no taxes paid]. That’s right. So you, you give the exact same amount, but you give appreciated stock. You get out of not just, not just reduce your income taxes, but you get outta capital gains taxes.

Now, on top of that, a lot of people make, you know, a certain amount of gifts every year, and they wind up not being able to deduct any of it because they don’t qualify. They’re, they’re not giving enough to deduct. So instead, they could set up their own charity, their own 501C3, or a donor advice fund.

They give the appreciated stock to that, maybe five years worth all at once, right? And then give it out later, but you get the deduction in the year where that deduction is magnified. Now think about that very simple thing. To really get it right, you’ve got a lawyer who’s got what kind of foundation should I set up? And setting it up, you need the CPA to tell you which year you, you’re going to get the biggest deduction; the investment manager or planner picks the most appreciated assets; and the financial planner is making sure you’re giving within your means, right?

So having all these pieces talk to each other, you’re more likely to be smart about your charitable giving – from a practical element, what it means is that person can give more if they want to and costs the same. Or they can give what they wanted to give and still have more money left in their pocket just because the left hand and right hand each knew what the other was doing.

Barry Ritholtz: You have somebody quarterbacking all of these different pieces. What are the most common mistakes that this is going to help avoid?

Peter Mallouk: Well, I mean, the biggest thing is people don’t know what they don’t know. And, and a lot of advisors, they just stop right at the line of what they’re supposed to do, right?

So we know that a great CPA is a strategist, but we know most CPAs are tax preparers, right? A great financial planner is a strategist, but we know most of them are just entering stuff in a financial plan and just spitting out, like, a couple projections and telling you how much to save. But really, if you’ve got these people together, there’s an accountability among them that you’re less likely to have that missing element along the way, like the donor advice fund we were talking about earlier.

Everything is more likely to be optimized. The, the investments coming out of a financial plan means you’re more likely to have investments that are, that are more probable to hit your goals because we’ve started with, well, what are the goals? They’re more likely to generate less taxes along the way because we understand your tax situation.

The investments in your trust are going to be managed differently than your IRA because we’ve accounted for your estate plan as part of it. So that. You really avoid a lot of mistakes, but the main thing is capturing all the things you wouldn’t think about.

Barry Ritholtz: It sounds like you’re trying to mitigate unexpected risks.

Peter Mallouk: That’s right. I think a big part of wealth management is risk management. Everyone thinks about wealth management as growth. That’s obviously a very big part of it. And the biggest motivation clients come to us for is they want to take something that’s a certain size and make it as big as possible.

But, you know, part of that’s tax management. How do you avoid the dilution of taxes? Part of it’s risk management. How do you not lose it or wind up with a problem you didn’t anticipate? And part of that is succession planning, estate planning.

Barry Ritholtz: How does this role evolve over time? I’ve watched clients start out in their accumulation phase and then later on they’re in their deaccumulation phase. They’re either retiring or spending money. How does the concept of a financial quarterback change across the lifespan of somebody’s personal financial life?

Peter Mallouk: This is what one of the great side effects or core purposes of having that financial captain, that financial quarterback, because if you think about the way someone’s life changes. They start out, they’re very growth oriented. The plan says, hey, stocks, maybe private equity, real estate, things like that. You get a little bit older, you’ve got kids. We’re now focused on estate planning. Who are going to be the guardians? How are they going to inherit the money? Do I need term life insurance to protect them? How am I going to pay for college? Am I going to set up 529s?  We’re in different kinds of accumulation mode, but there’s a little bit of risk management introduced.

You get a little bit older, the biggest contingent liability for most Americans is long-term care. That one of, that one person, if they’re single or, or one of two spouses is going to wind up needing care. That’s the biggest liability. Not that your home will burn down, but that one of you will need long term care.

So now we get in real risk management phase. We’re protecting against long term care. We’re setting up a team. Setting up trusts to make sure we don’t lose things in lawsuits or divorce or kids won’t lose things.

And, all of these, we’ve got more money to lose now, so we’re much more have a risk management mindset. You see people say, “Okay, I’ve got it. I don’t want to lose it now.” So it’s not just managing it a way to not lose it, but also having rental properties owned by limited liability companies and things like that, that improve the asset protection along the way.

So a good financial quarterback. as your life changes is going to be able to anticipate your next move and be able to make sure that you’re out in front of it instead of reacting to it.

Barry Ritholtz: So to sum up, having a financial quarterback keeps you on the path towards your financial goals, it mitigates risk, it adjusts as you progress through life, and it prevents small errors from becoming large ones. It makes sure little but expensive things don’t slip through the cracks.

I’m Barry Ritholtz. This is Bloomberg’s At The Money.




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