From the March 2007 issue of Investment Advisor • Subscribe!

More Than Managing Numbers

Kristine Porcaro and Mike Tucci had an epiphany in 2001 that changed their business model from an asset management to a wealth management firm

If it has anything to do with money, Mike Tucci and Kristine Porcaro are able to handle it for their clients. Their firm, Lexington Wealth Management, with offices in the city of that name just outside Boston and in New York, is in its 10th year, but as Tucci likes to point out, they've only been using their current business model for six years.

When the two partners initially set up shop, the staff consisted of Tucci and Porcaro and a receptionist, and they primarily provided advice on asset management. It wasn't until the fall of 2001 when they had what Tucci likes to call our "epiphany." Like many advisors, they found themselves at a loss for what to do in the aftermath of 9/11. Fortunately, they had the good sense to discuss the problem with a client who was a psychologist.

She told the partners that the best thing they could probably do for their clients would be to just go out and talk to them. They could bring along charts showing how the markets have recovered from disasters, but their most important job, she said, was to talk with those clients, not lecture. "And that's what we did," recalls Tucci. "Some of our best relationships today are with those people who we just sat in their living room and talked."

From that series of conversations, Tucci and Porcaro came to realize that they wanted to provide services that went beyond just managing investments and then reporting on their performance to clients. While that is still where the majority of their business lies, for clients who want more, the partners have more to offer. In describing Lexington, Tucci calls the firm an "independent, fee-only, open architecture wealth management firm. We start with that, and then say we go beyond what you expect us to do, working with many aspects of life. We provide holistic wealth management."

For Lexington, holistic wealth management includes comprehensive financial planning; investment consulting; collateralized lending and mortgages; concierge service, where the firm acts as the client's "personal CFO" and can include anything from bill paying, selling a business, purchasing a property, or planning a vacation; to wealth counseling and professional referrals to CPAs, estate attorneys, art appraisers, lending institutions, and whatever other professional services the clients may require.

"We don't walk into every meeting with a psychologist," points out Tucci, "although we do have one on retainer as a wealth counselor." The first step in any client relationship for Lexington is for everyone to get to know each other. "We like to have meetings in people's living rooms," says Tucci. "We don't wear suits and ties every day because we don't think people want some stuffed shirt preaching at them. We get to know their family and become an extension of the family."

Since transitioning to the wealth management model, Lexington's compensation has been strictly fee-based. At this point the majority of clients are interested solely in asset management advice, for which the charge is 1% of the assets under advisement on the first $1 million to $10 million. For clients whose needs are more complicated and wish to draw on the full menu of services, an annual fee is negotiated depending on the type of relationship involved.

While the partners remain loyal to their initial customer base and say they would never want to end any of those relationships, for new business they are concentrating on a higher level of investable assets.

"At this point our profile client is in that $2 million to $20 million range," notes Tucci. "I know it's a huge range, but we grew up trying to implement the fee-only model and we wanted to do it very well. At the beginning we had smaller clients. We went to a complete fee-only model in 2001, and we decided to keep the clients we had, but to execute [a wealth management strategy] effectively it's basically at $2 million and up that it's going to work. People in the $2 million to $5 million range need our help much more than those in that $10 million-plus range.

"We feel they're being underserved in terms of who they can work with and investment choices," adds his partner. "They've needed to have $25 million-plus to be with the firms that are going to provide all these services."

Women and Entrepreneurs

The firm's client base boils down to two groups: entrepreneurs and women undergoing transitions (three, if you count women entrepreneurs). "It could be a woman who's going through a divorce, or she's recently widowed," explains Porcaro. Tucci notes that the client mix was "by complete accident. We had no marketing plan or strategy."

Last year, the firm added a five-person advisory board, comprising, as Tucci describes them, "five of the smartest people we knew." One member, a former VP of marketing for Elle magazine, asked who their clients were. "We knew and we didn't know. We knew them all by name," says Tucci. "It turns out we had done a pretty good job with women and entrepreneurs. One of the biggest growing areas of our practice is a person selling a company for $5 million to $30 million who had all their net worth tied up in that business."

With offices in two cities and a total staff of eight people, Lexington Wealth Management attempts to make its 120 clients feel that everyone at Lexington cares about them. "Once we've decided to take on a client and they've decided that they want to hire us, they get introduced to a team of folks here at the firm," explains Porcaro. "Everyone gets to understand all the clients and the clients understand that there's more than one person that understands their circumstances and can service them on an ongoing basis. Then they're met with on a very frequent basis. Two, three, four times a year, we're meeting with the client."

While everyone in the firm is involved in client relationships, the two principals have found a way to divide other duties that capitalize on their individual strengths. Tucci concentrates on the external relationships, meeting with potential relationship partners and networking, while Porcaro says her functions entail more of the firm's day-to-day operations, including compliance.

Although in the last few years the firm has embraced a wealth management approach, Porcaro stresses that its original mission of providing asset management advice remains its core competency and it strives to do so without resorting to a cookie-cutter approach. As for investment vehicles, Tucci notes that the firm is not locked into any particular strategy or model and is open to using whatever works best for the client within the client's risk tolerance, whether ETFs, mutual funds, institutional funds, private money managers, funds of funds, or any combination.

While Porcaro says all client portfolios are unique, they share a common goal of tempering volatility and reducing risk.

No One Told Me There'd Be Days Like This

When Porcaro and Tucci decided that they wanted their business to be about more than the numbers, they were setting themselves up for a series of unexpected challenges. Although neither professes any expertise in the area of art, they've picked up some knowledge along the way and become familiar with appraisers and auction houses.

They had one client who had about 400 paintings but really never considered their value. It turned out that both her mother and grandmother had been artists of some note and the entire collection was worth several million dollars.

Another client also had stacks of unappraised, and uninsured, paintings. He was in the midst of building his dream house but was facing a liquidity crisis because much of his worth was tied up in real estate. After having the art appraised, he was able able to use his part of the collection to finance his dream house.

Both Tucci and Porcaro have also helped clients work through emotional issues on more than one occasion, but have found that such moments only deepen the relationship. Tucci recalls acting as the moderator of a multigenerational, multimarriage family meeting where estate planning issues threatened to destroy family harmony, but ultimately they were able to come up with solutions that left everyone feeling better. "There was a lot of crying and a lot of emotion in that room," he recalls. "Without the psychologist, I wouldn't even attempt such a thing."

Porcaro's definitive client experience was another that had a connection to an art collection. This particular client had an extensive collection, and her fianc?(C), an architect, was designing a home that would be a showcase for the art. In the midst of the project he became ill and eventually died. Porcaro found herself involved in every aspect of the situation from helping find medical specialists for treatment, having the art appraised and arranging for some pieces to be sold to pay for treatment, to arranging for consultations with the wealth counselor to help resolve some of the emotional issues. "You do what you do and pull in all the resources that you can," she says. "If you have a good relationship with a client and they trust you, they ask you to help them in everything in their life."

For a firm with only eight peopple--nine including the psychologist/wealth counselor--helping with everything in the client's life would seem to place a limit on the number of clients that could be handled properly. Tucci acknowledges that could happen at some point, but is sure the firm hasn't even begun to approach that number. To help manage the range of services and focus on client service, Porcaro notes that the firm outsources functions like conducting due diligence on money managers to keep the service level high without having to add additional staff. Both partners also understand, however, that they do need to add professionals to the firm in order to deliver service at the level they desire while still continuing to grow. Toward that end, last year they added two new advisors, Gary Pomerantz and Adam Kerr, who each bring with them a decade of experience, and plan to make whatever other adjustments the business demands. And they're always going to look at more than the numbers.

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