An increasing number of large firms are bringing in outside professionals to run the business -- but a recent, high-profile split illustrates the strategy's risks.
Cincinnati-based Lenox Wealth Management, which has over $1 billion in AUM, has parted ways with 34-year-old president and chief operating officer Jay Hummel, Financial Planning has learned, after the executive team clashed over management philosophy.
At the heart of the debate: the speed and implementation of the company's "future growth plans," according to John Lame, Lenox' chairman and chief executive officer. "What we needed and what Jay wanted were different," Lame says.
The more than 20-year age gap between Hummel and Lame was a contributing factor to the split, Hummel adds. "We had different perspectives on how aggressive we were willing to be to grow the company," he explains. "In retrospect, I wanted to be more aggressive than it was reasonable for Lenox to be at the time."
With more wealth advisory firms determining that they needed professional management expertise to grow, Hummel had been a prominent example of the trend. He joined Lenox in 2010 with no experience in financial advisory services, although he had worked as a strategic consultant for accounting firm Deloitte & Touche and Ward Group, a financial consulting firm. "Jay is focused 100% on the business, management and future of the firm," Lame said last year -- "and I think that is a key differentiator for us."
LESSONS FOR OTHER FIRMS
What lessons might Hummel's departure provide for other wealth management advisory firms considering bringing in outside managers? Hummel himself suggests that firms seeking to bring in outside talent should first clarify their own goals.
"They should really determine what they want a full-time manager to be focused on," Hummel says. "If you're going to bring in a full-time manager and want them to be around a long time, the manager and the majority owners need to have a consistent view about the strategic future of the firm."
"If the majority owners just want to milk the business for current income," he adds, "they should hire somebody to mind the store -- because that's very different from trying to double the size of the business by doing M&A transactions and whatever else is needed to grow."
Lenox, meanwhile, "learned a lot" from its first foray into hiring professional management, Lame says. Lenox needs to "go through a lot more changes than just hiring a COO" to meet its goal of being a dominant player in the Midwest, he says.
Among the changes Lenox plans to implement, Lame says, will be "broadening the ownership of the company" -- a move intended to strengthen the firm's succession plan as well as help it gain "increased commitment from management and the board."
Lenox and Hummel are not in litigation, Hummel says, describing the split as "very amicable," and noting that he has a standard noncompete clause in his contract. "I wouldn't do anything that would harm the business," he adds. "I want to see Lenox be successful."
The two parties are still discussing some of the specifics related to Hummel's departure, Lame says, as specified in the former COO's employment agreement. But in the end, he adds, both sides "came out in the right spot. ... We wish Jay luck in whatever he does next."
Hummel has opened Simple Management Group, a consulting firm in Cincinnati, and is working with outsourcing provider Envestnet on "internal strategic projects." He is also considering writing a book on advisory practice succession issues.
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