Wealth Manager Magazine Whole New Ballgame 0508


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Wealth Manager Magazine Whole New Ballgame 0508

  1. 1. Build  Preserve  eNdOW May 2008 wealthmanagermag.com Whole New Ballgame Lenox Advisors’ Rick Van Benschoten
  2. 2. Cover Story feature That famous line from the song By 1994, Michael Book and Greg Large were successful “New York, New York”—“If I can make it there, I'll make it agents with Mass Mutual Life Insurance Co. Both worked at anywhere”—has become a standard for measuring success. Cowan Financial Group in Manhattan and had similar clien- The refrain holds special relevance for the financial services tele among Wall Street executives. They started hiring office industry: Because of the concentration of wealth, New York staff together to leverage their businesses and increase ef- City is home to many of the largest financial services firms ficiency. Rick Van Benschoten, who also worked in the Wall and thus one of the most competitive markets in the coun- Street market, joined them in 1999, and the three managing try. Nevertheless, one firm, Lenox Advisors, has carved out a partners decided to expand beyond insurance. “We really had unique niche in Manhattan. a lot of opportunity on the investment side, but we weren’t The firm’s clientele make the success story even more going after it because we didn’t have anybody to manage the unusual: Many of their clients come from financial services money once we brought it in the door,” says Book. firms that have substantial in-house wealth management That realization led to the arrival of Tom Carstens, who joined divisions. Moreover, Lenox’s founders did not have the the firm as a partner in 2000 specifically to develop the asset usual background in investment management or private management business. Tom Henske and Greg Olsen—both with banking—they transitioned to wealth management from the backgrounds in wealth management and retirement plan distri- insurance business. bution— became partners in 2003 and 2005, respectively. M a y 2 0 0 8  w e a lt h m a n a g e r
  3. 3. profile P h o to g ra p h y b y M a t th ew Peyton Rick Van Benschoten lenox advisors w w w. w e a lt h m a n a g e r m a g . C o m M ay 2 0 0 8 23 23 M ay 2 0 0 8 w e a lt h m a n a g e r
  4. 4. Cover Story feature says. “As opposed to sending out things in the mail and saying, Lenox’s early history reads like that of numerous wealth manage- ‘Hey, if you’re eligible do you want to sign up?’ we contact clients ment firms: A group of advisors with similar clientele and comple- to set up individual meetings and tell them not only what cover- mentary skills get together and launch a new business. But how age they have in the firm but what’s being offered at the discount. many other firms that started operations within the past decade By doing it live,” Olsen adds, “with people who have trained in this have grown from servicing assets of $80 million in September, 2000 for the past 12 or 13 years, client after client, we’ve worked out all to $1.2 billion as of early 2008 with offices in four major cities and the kinks.” Because it is only natural that some of those insurance a staff of more than 100? clients inquire about the firm’s additional services, Olsen says over And the business is diversified, as well. Book says that indi- half of Lenox’s new wealth management clients originate with a vidual insurance lines—policies purchased by individuals rather multi-life DI sale. than corporations—generate about 50 percent of the firm’s overall And there is another intriguing statistic that sets Lenox apart: Roughly two-thirds of the firm’s clients are employed by Wall Street firms and hedge funds. These businesses often have a wealth management division of their own, which raises the ques- tion: Why would executives decide to work with Lenox instead of with their own firms? The Lenox partners cite several reasons: The first is the executives’ desire to keep their personal finances private. It’s common for an executive to change employers several times during the course of his career. If he has retained his current employer’s wealth management division, he probably will want to revenue. Asset management accounts for roughly 25 percent; fi- switch to the new employer’s division, which means multiple par- nancial planning, 15 percent; and the group benefits area for about ties will have knowledge of his finances. Hiring Lenox avoids that 10 percent. problem regardless of the employment situation. The source for much of this firm’s growth and for its clientele Lenox’s managers also believe their service offering is unique. is also unique. In 1996, Large and Book began discussing the out- The firm has developed the “Lenox CFO” platform, which provides look for multi-life disability income insurance (DI) sales. In a family office-style services. Clients receive advice on financial multi-life case, insureds may buy individual policies at favorable planning and asset allocation, account aggregation and online group policy terms and rates. For example, an employer might document storage. Among other services, there is also an optional arrange for senior staff to buy customized, individual DI policies bill-paying service. Van Benschoten points out that improvements at a 25 percent discount to the usual individual rate. in technology allow Lenox to offer these services efficiently to min- Book and Large began working with human resource depart- imum account sizes much lower than would have been required in ments at investment firms and hedge funds, offering supplemen- the past. “Ten years ago, when I did this for a client, I would liter- tal DI to company executives. They discovered that multi-life sales ally have to spend somewhere from 10 to 15 hours doing Excel were a natural entrée into prospective clients in need of wealth spreadsheets with data input from my assistants—just to get ready management services. The HR people introduced Lenox to their for a meeting,” he says. “Now, with a couple of clicks of a button, managers—essentially putting a stamp of approval on Lenox’s it’s available to me and to the client. So I think that has certainly sales efforts. The firm took advantage of the opportunity for its helped the general public to have more access to family office ser- representatives to meet on-site with multiple prospects each day. vices now than in the past.” According to Greg Olsen, the national closing average for multi-life The Lenox CFO program is the focal point for client relation- DI sales is in the 15 percent to 20 percent range, but Lenox’s results ships. Carstens says the firm will not work with clients who want are much higher. In fact, the firm is the largest producing group only investment management services, because the partners be- for MassMutual in the country. “Our numbers are between 45 and lieve these services must be part of an overall financial plan. Each 50 percent, and we have application periods in which close to 60 Lenox CFO client works with a relationship manager who is sup- percent of the people have taken advantage of the offer,” Olsen ported by an internal team. The firm’s first-year retainer for new M a y 2 0 0 8  w e a lt h m a n a g e r
  5. 5. profile clients starts at $15,000 for those with net worth between $1 million and $20 million, and ranges as high as $30,000. Fees in subsequent years are typically 50 percent to 75 percent of the first-year fee. The bill-paying service is an optional feature; Van Benschoten estimates that 25 percent of clients use it. Lenox does not have custody of, or discretion over, clients’ funds, so the firm created a joint venture with an accounting firm that writes the checks. Lenox, which has no proprietary investment products, acts as a manager-of-managers for client accounts. Carstens es- timates that net new assets will increase by about $140 mil- lion during 2008; the firm’s fees range from 40 to eight basis points on a declining scale. A state-registered RIA, Lenox uses MML Investors Services, Inc. as its broker/dealer. As the firm’s chief investment officer, Carstens heads the investment committee. That group sets “big picture” quar- terly guidelines for client portfolios—such as recommen- dations on asset-class allocations and sector weightings. At monthly and weekly meetings, the committee reviews products it will consider for allocations, specific manag- ers, funds and so forth. While the committee’s decisions provide guidelines for the eight asset managers who work directly with clients, the managers make the final decisions for each client’s portfolio. “The asset manager is free to in- crease or decrease (allocations) a little bit depending on their understanding of the client situation,” Carstens says. “When push comes to shove, they’re the one sitting across the table from the client and looking them in the eye. When the client has a question, they’re the one that’s going to get the phone call.” Although an asset manager’s client load varies with the complexity of their accounts, Carstens estimates that each manager serves 75 to 80 clients. Roughly 75 percent of cli- ents’ assets are invested in fixed-income and equity sepa- rate accounts with outside managers. Another 15 percent of client assets are in alternative classes, primarily hedge funds or funds-of-funds. The remaining 10 percent is allo- cated to specialty mutual funds, private placement prod- ucts and oil and gas partnerships, among alternatives. Lenox also works with clients to educate their children about wealth. One usual approach to this end has been through a “boot camp” environment at a suitably upscale lo- Van Benschoten cation where clients’ kids go through an immersion course w e a lt h m a n a g e r m a g . C o m  M a y 2 0 0 8
  6. 6. Cover Story feature in wealth management. Lenox chose a different route, creating an clients are not as robust. As a result, Lenox has spent “well over age-based program that runs until the child starts college. a million dollars to date” to create a proprietary system to man- Tom Henske says the lessons are an attempt to pass on par- age its business. Lenox also uses financial software from eMoney ents’ financial values to their children. Lenox provides lesson Advisor Inc., and Large says the firm is developing a proprietary plans to parents that cover topics such as the right time to give client management system. One of his goals is to create a seamless children an allowance, when to give the first credit card and so data exchange between their benefits and wealth management on. The program started four years services. “We’re in the middle of a 12- ago with a beta group of 30 clients; month build-out, so we’re probably Henske estimates that 150 to 200 cli- only 10 percent there right now,” he ents are now enrolled. says. “But we realize the economy and The program serves a marketing the scale that it can create, and it is a purpose as well. Henske relates an huge investment for us.” incident in which he was competing Another information technology with several much larger firms for a challenge Lenox faces is integrating new client. The prospect’s estate plan- the data that its newly hired relation- ning attorney had arranged a series ship managers bring to the firm. These of three one-hour interviews with ad- managers usually have at least several visory firms and Henske was the last years’ experience and substantial cli- presenter. The two other contenders ent rosters which the Lenox IT staff had emphasized their investment ex- must integrate into the Lenox sys- lenox advisors partners pertise and institutional status, but tem. “We give them a template of data Greg Large, Michael Book, Richard Van Benschoten, Henske took a different tack, includ- Tom Henske, Greg Olsen, Tom Carstens that’s going to be required to make the ing a discussion of the Money Smart transition,” says Large. “Usually their Kids program. “By the time I got to them, you can imagine these response to us is that they have it all in Outlook, but when we ac- people were already exhausted,” Henske recalls. “I totally avoided tually look into the data, the holes that exist are unbelievable.” those conversations and made it a values conversation. We talked Consequently, another of Large’s IT goals is to streamline and au- about their kids and talked about the values that they’d like to tomate that process so Lenox can retrieve, verify and integrate new pass on. Ironically, the other two competitors for this particular managers’ data more readily. client didn’t even mention that in the course of their hour. The point of this is to make a better life for yourself and your kids— it’s not that you create a plan and then you stick the values in In November 2002, National Financial Partners (NFP) purchased there. You have values, and then you create the financial plan Lenox. Book says that he and his partners were hesitant at first around that.” The clients signed with Lenox after the meeting. because they believed that selling “is a process for older people who want to slow down and get out of their business.” Ultimately, however, they decided to sell, and Book says that joining NFP has Tracking the data underlying Lenox’s multiple business lines is improved the Lenox-partners’ business skills considerably. “While a daunting task. Large points out that while the wealth manage- we’re all good salespeople, and we had some real solid, strategic ment industry has made significant advances in managing cli- ideas of what we wanted to do with the company and how to grow it, ents’ investment data, the applications for benefits and insurance one thing we were missing was that none of us really had a business M a y 2 0 0 8  w e a lt h m a n a g e r
  7. 7. profile background,” Book adds. “Learning how to run your business and up to speed as we bring in relationship managers.” grow your business in the most profitable manner was something You can’t miss a hint of that “New York, New York” attitude when we knew we wanted to do but did not know how to do it. Six years Van Benschoten talks about possible competitive threats, but the later, I’d say the most valuable thing we got out of the NFP deal is firm’s 97 percent client-retention rate justifies his confidence. “I that we’re a lot better business people than we were six years ago.” don’t want to sound silly and say we don’t have competition, but Lenox has had a great run over the past decade, but the partners nobody’s really put it together in one package like we have,” he says. recognize that growth can cause its own problems. Book believes the “They will do financial planning and also asset management, but firm’s biggest challenge is controlling its growth in a way that doesn’t they don’t execute and they don’t do the insurance. Nobody’s really diminish long-term efficiency. “Everybody wants to double and triple put together the one package from 30,000 feet where a client can revenues, but what you don’t see is the effect of doubling and tripling have that one-stop shopping. So that’s really been our differentiator, revenues on the expense side and infrastructure,” he says. “We need and it’s very rare that we come up against someone a client is also to go behind the scenes and under the hood to make sure that we’re interviewing that does what we do…very, very rare.” growing in a way that we can handle. We need to make sure that we’re taking the time to train new employees properly and that everybody’s Ed McCarthy is a freelance writer in Pascoag, RI. (#17324) Adapted with permission from Wealth Manager magazine. Copyright 2008 by Highline Media, LLC. All Rights Reserved. Fee-based financial planning services offered through Lenox Advisors, Inc. Lenox Advisors, Inc., offers access to securities and asset management services through MML Investors Services, Inc., 530 5th Avenue, 14th Floor, New York, NY 10036, 212-536-6000, member SIPC. Investment Adviser representatives of Lenox Advisors, Inc. offering fee-based financial planning services may also be registered representatives and investment adviser representatives of MML Investors Services, Inc. for purposes of offering securities and asset management services, as applicable. Lenox Advisors, Inc. is a wholly owned subsidiary of National Financial Partners Corp. (NFP). Lenox Advisors, Inc. and NFP are not affiliates or subsidiaries of MML Investors Services, Inc. Services offered through Lenox Advisors, Inc. as an Independent Registered Investment Advisor are not sponsored or offered through MML Investors Services, Inc. Insurance offered through Massachusetts Mutual Life Insurance Company and other fine companies. CRN201006-104905