From the July 2006 issue of Investment Advisor • Subscribe!

July 1, 2006

Already There

Lenox Advisors typifies the successful wealth management firm

Defining wealth management. It's a task that many advisors and industry officials have taken on as the term--and the practice--has reached the height of its popularity, with tons of advisors now calling themselves wealth managers. Many advisors have fumbled in trying to figure out exactly which ingredients must go into the wealth management brew to ensure their success. Not Lenox Advisors.

The New York-based wealth management firm, which also has offices in Chicago and San Francisco, is the epitome of wealth management done right--and they're not afraid to brag about it. Who could blame them? Managing $1 billion in assets for a clientele of Wall Street execs, hedge fund managers, professional athletes, and entertainers, Lenox has assembled a team of six partners who combine their various areas of expertise to deliver an enviable wealth management offering. "Our definition of wealth management is not leaving anything on the table," says Rick Van Benschoten, a managing partner at Lenox Advisors who runs its Financial Planning division. Wealth management means "being a very holistic firm and being able to provide all of the products and services" that clients need.

A common mistake made by many wealth management firms is they have a "standard approach" when dealing with clients, adds Tom Carstens, a Lenox partner and president of the Lenox Advisors Asset Management Group. "To us, wealth management is clearly based around the individual client," he says. "No two clients will be exactly the same in any particular way." Wealth management includes three factors: wealth accumulation, wealth preservation, and wealth distribution, Carstens continues, so before an advisor can design a holistic plan for the client, he has to "identify where the client is on that spectrum."

For advisors just entering the wealth management arena, Van Benschoten says the key to success is getting the infrastructure--technology, people--in place first. "The biggest mistake" advisors make, he says, is thinking "they are just going to get as much business as possible before they start the infrastructure and spending money to become scalable." The end result? "They never get ahead of the curve." Lenox's annual technology budget is approximately $150,000, Van Benschoten says, which is devoted to building operating systems to process workflow within the firm's various departments. "Most wealth managers or financial advisors are not investing as much in their own business as they should be," he says.

More Sophistication

Nailing down a precise definition of wealth management hasn't been an easy task for the industry, but Van Benschoten believes it is simply a "more sophisticated version" of financial planning, which means providing wealthy clients with "one-stop shopping." Wealthy clients "want to have specialists within the same firm [so] they can coordinate all of their plans--as opposed to going to several advisors to get independent advice," he says.

One of Lenox's "defining attributes," Carstens says, is how the firm implements wealth management. The four founding partners of Lenox (www.lenoxadvisors.com) were former MassMutual reps and agents before they broke away and formed Lenox in 2000. Their goal from the start was to design a wealth management firm that could draw on each partner's expertise. Each one of them brought complimentary skills: Van Benschoten has financial planning savvy, Carstens is well versed in asset management, and Greg Large and Michael Book are insurance and estate planning gurus. The two newest partners--Tom Henske and Greg Olsen--who came on board last year, are experts in the holistic approach to wealth management and retirement distribution planning. "We can offer, in essence, almost any [service] to a client, and then have outside relationships" for services like legal, accounting, property and casualty insurance, and so on, Carstens says.

Wealthy clients want holistic services, and they don't want to feel like the advisor is only pitching products, Van Benschoten adds. "Lenox's approach is to take it up to 30,000 feet and talk about the big picture planning first, because by the time you drill down into the specific product, maybe that's three or four meetings into it," he says. "The product is really the easy part; it's not necessarily the solution."

Divide and Conquer

Lenox has divided its practice into four distinct departments--financial planning, asset management, estate planning/insurance, and group benefits. When it comes to financial planning, "people hire us to become their personal CFO and literally get involved in every aspect of their financial lives," Van Benschoten says. Lenox has refined each of its departments throughout the years to keep pace with wealthy clients' needs. For instance, to attract really high-end clients, those with a net worth of $100 million and above, the firm is building out its "personal CFO" platform to work more like a family office and offer services like bill paying. Lenox's typical client has a net worth of $20 to $40 million and an annual income of $2 to $5 million. Clients need to have at least $3 million in net worth to be part of the personal CFO program.

For financial planning services, Lenox charges an annual fee between $6,000 and $9,000, which is based on the complexity of clients' needs and is independent of assets under management; the first year's fee is about 50% higher, Carstens says, ranging from $9,000 to $13,000, because "of the heavy lifting" involved.

Carstens says Lenox designed the CFO platform so that the firm can provide more services and updates to clients, not so that clients can log on and monitor their own accounts. Because clients "are very busy," he says, "they want us to come back to them on a routine basis" and provide updates on their accounts. So Lenox provides periodic services like "action alerts" throughout the year, which gives clients a to-do list. For instance, an alert may tell a client their passport is going to expire in a couple months. Plus, "we have two face-to-face meetings each year depending upon the level of client," Van Benschoten adds. "We could have up to 28 touches per year--either through e-mail, newsletters, or direct phone calls."

Kids and Retirement

Another service that Lenox added early this year to attract higher-echelon clientele is Money-Smart Kids. The program is designed to help clients raise, well, money-smart kids, and offers parents and children access to books, Web sites, newsletters, age-specific lesson plans, as well as seminars with authors, trust and estate attorneys, and money managers. "From the day the child is born, we are constantly giving [clients] advice and information on how they can talk to their kids about money and teach their kids philanthropy and the value of money," Van Benschoten says.

Because retirement distribution planning has become a hot-button issue for Lenox's client base, and the nation as a whole, in early January Lenox separated its Retirement Advisor program from the asset management division and made it a separate division. The program is designed to help clients identify the best retirement income strategies. Lenox has devoted more staff to the division, and Carstens believes it will be the division "that grows exponentially over the next few years."

Lenox is also a consultant to retirement plans. Quite a few of Lenox's clients have left the investment banking or banking fields and started their own hedge fund, private equity firm, or other businesses. To stay in step with clients' needs as they've entered the corporate world, Lenox will advise them on their existing retirement plans or help them set up new ones. This year, Lenox began offering the Virtual HR Manager, which is a technology platform that allows a small business to operate a paperless office, Van Benschoten says, and offer services like online enrollment.

Dealing With Growth

One of Lenox's biggest challenges is "maintaining its infrastructure" as the firm grows, Van Benschoten says. Even with 75 employees now, "we're constantly hiring because new clients keep coming in the door." Lenox is focused on pulling in new clients and maintaining relationships with existing ones. While most firms would consider growth a good problem to have, a firm always has to be on its toes and continuing to provide cutting-edge products and services.

The 2005 Merrill Lynch/Cap Gemini World Wealth Report found that high-net-worth investors in the U.S. hold $30.8 trillion--that's a 8.2% increase in wealth over 2003 numbers. These figures show that the need for true wealth managers is only going to increase. So how many advisors who hold themselves out as wealth managers are actually providing the holistic services these clients need? Van Benschoten says clients will have to "peel back the onion" to find out.

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@investmentadvisor.com.

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