Lenox Wealth Management may be the only financial advisory firm named after a bar of soap. Considering the firm's deep connection with consumer products giant Procter & Gamble, however, the reference makes perfect sense.
In 1887, William Cooper Procter established a savings bank to help employees of the Cincinnati-based company take care of their financial needs, such as securing a mortgage. He named the institution after one of the company's early products - Lenox Soap. In 1995, Lenox Bancorp went public, but eight years later, the board of directors decided that the bank could best serve the needs of its client base, made up largely of P&G executives, by restructuring as a fee-only RIA.
John Lame, one of the board members, led the charge. At the time, Lame was a senior vice president at UBS, but his P&G roots ran deep. His parents had worked at the company, and had himself spent 12 years there, working in finance. "I wanted to be a fee-only fiduciary," recalls the Lame, 56, now Lenox's chairman and CEO. "My team at UBS was working with corporate executives at [Cincinnati media company] E.W. Scripps, and they asked us if we had thought of opening a family office. We liked the idea, and realized it might make a lot of sense if we put it on the chassis of the existing bank."
By 2004, the bank business had been sold, and a freshly capitalized Lenox Wealth Management launched with five employees and around $300 million in assets from P&G and Scripps clients. Nearly a decade later, with 14 employees and more than $1 billion in assets under management and advisement, corporate executives are still Lenox's primary market.
Jay Hummel, Lenox's 33-year-old president and chief operating officer, estimates that 65% of the firms' approximately 240 clients are current or retired P&G executives, another 20% are current or retired Scripps executives, and the rest are "heavily weighted" toward executives from other Cincinnati companies such as Kroger, the supermarket chain.
AT THE CAR DEALERSHIP
Lenox prides itself on providing clients with services, strategies and planning that are both "deep and broad," Lame says. "Our job is to make our clients' lives easier."
"We are very good at helping them buy a car," he notes as an example. "We compare ... leasing versus buying, and we'll negotiate a price with the dealership. We do the work, and sometimes all the client has to do is go pick up the car."
Helping clients in transition is another Lenox specialty, Lame says. "If an executive is leaving P&G, we'll negotiate their cash compensation and review their restricted stock and other stock options," he says. "If they take money out of the P&G profit-sharing plan, we'll analyze how much to put in their IRA or Roth IRA. Then we identify the new company's compensation plan and benefit package, and negotiate on behalf of the client."
Lenox also specializes in managing stock options, which often account for more than half an average client's retirement funds. "Being good at managing stock options is one of the most important things we do," Hummel says, particularly in advising clients "on how and when to execute or hedge the options."
ACTIVE & PASSIVE
Client portfolios are usually split evenly between active and passive strategies, Lame says. But the firm also makes tactical moves based on the risk environment in the market, so the ratio can swing as far as 70/30 in either direction, "depending on market conditions," he adds.
Over the last five years, Lenox has been increasing client allocations steadily in alternative investments, particularly in venture capital, private equity and absolute return vehicles, as well as investing directly in local companies. Some Lenox clients co-invested directly in a Cincinnati asset-based lending company, for example, while others invested in a foreign currency exchange business that needed growth capital.
These more illiquid investments make up about 7% of clients' assets, according to Hummel.
Lenox also pools client assets to get into deals through its P&G connections, Hummel says. He cited Revolution Growth II, a new private-equity fund recently launched by AOL founder (and former P&G junior executive) Steve Case. The fund requires a minimum investment of $25 million; Lenox clients, however, will be able to get in with $5 million.
Similarly, Cintrifuse is a venture capital enterprise launched with P&G backing; Lenox clients with at least $250,000 to invest will be able to pool assets to participate. "We want our clients to have unique opportunities [and] get into deals they wouldn't be able to otherwise," Hummel says.
Recognizing the risk involved with private equity and venture capital investments, however, the firm limits exposure in those vehicles to 20% or less of portfolios of clients whose net worth exceeds $5 million.
While Lenox doesn't have a stated minimum for new clients, it does prefer to work with clients who will be able to grow their investable assets beyond $1 million, says Lame, who is a hands-on wealth advisor. Fees start at 85 basis points for clients with up to $3 million, drop to 80 basis points for clients with more than $5 million, 72 basis points for those with at least $10 million and 60 basis points for clients with more than $20 million.
FAMILY OFFICE GROWTH
Two of the firm's core services are customized financial planning - which includes retirement, education, insurance, estate planning, charitable giving and cash-flow analysis - and investment-oriented wealth management, emphasizing capital preservation, asset growth and retirement income.
Yet Lame says he sees a third area, family-office services, as Lenox's biggest growth opportunity. About 20 families with at least $10 million in investable assets are currently receiving family- office services, Lame says; these account for about one-third of the firm's assets. These families receive concierge services such as bill payment; back-office support for their businesses such as accounting and bookkeeping; payroll processing for family employees, and tax and advanced estate planning help. "As clients' balance sheets grow, so does the complexity of their needs, and we feel our capabilities match up well with what their wealth requires," Hummel says.
Lame says Hummel's background as a management-oriented strategic consultant with Deloitte & Touche and Ward Group is a plus for the firm's future. "Jay is focused 100% on the business, management and future of the firm, and I think that is a key differentiator for us," Lame declares.
One area Hummel is looking at: using big data to help the firm design portfolios more effectively and with "greater sensitivity to clients' risk tolerance." For the past year he has been advising outsourcing provider Envestnet on the launch of Envestnet Intelligence - an analytical offering for both advisors and clients; it's intended to help make better planning, portfolio and investment decisions.
"I've said that we're in the recommendation business, not the advice business," Hummel says. "Using data like this will help us make better decisions faster and communicate more effectively with our clients, who are going to expect this kind of service."
Charles Paikert is a senior editor at Financial Planning.
Chairman & CEO, Lenox Wealth Management, Cincinnati
Credentials: B.A., business administration, University of Cincinnati; MBA, Xavier University; CFP, CEPAe
Experience: Finance manager, Procter & Gamble; financial consultant, Merrill Lynch; partner, J.C. Bradford; senior VP, UBS Paine Webber
AUM: About $700M
How I see it: "Our job is to make our clients' lives easier."