Lenox Advisors, a niche New York investment advisory firm, says it has seen substantial growth, and little competition from banks, while targeting ultra-wealthy Wall Street executives, many of them hedge fund managers.
The firm, which was started six years ago, has grown to $1.1 billion of assets under management, from $200 million in 2004, by aiming solely at the ultra-wealthy.
“We are interested in servicing high-net-worth individuals, and that is it,” said Richard P. Van Benschoten, a partner at Lenox. “I’d say 95% of our clients are Wall Street executives, and most of them are hedge fund managers. The other 5% are professional athletes and entertainers.”
Mr. Van Benschoten, who runs Lenox’s financial planning division, said accountants, not banks, are Lenox’s competitors for new customers.
“I wouldn’t say that we don’t have competition at all from banks,” he added. “I mean, that would be silly. We may come up against some firms when talking about one thing or another, but we feel by offering a full array of services, there are not too many firms offering the overall package the way that we do.”
Mr. Van Benschoten said Lenox is able to stand out by offering a full-array of third-party products and services.
Banks “have certain product ties, but that is exactly what clients don’t want,” he said. “They don’t want someone handling their assets that will just talk about products.”
In recent years large companies like Bank of America Corp., Wachovia Corp., and PNC Financial Services Group Inc. have begun integrating products and services in order to take a more advice-driven approach. Executives at these banks have said they want to use products such as managed accounts and unified managed accounts to deepen their relationships with wealthy customers.
The difference may be that banks take a wider approach to the wealth market, an analyst said.
“Banks target a broad market of customers and offer a large set of skills,” said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. “Smaller investment advisers can gather assets by targeting specific customers, but that’s not to say that banks can’t get these customers. Large banks are working hard to get wealthier customers.”
Analysts said that many banks have units that specifically target the wealthy and ultra-wealthy but that small investment advisory firms can gather assets by going after a specific niche.
Mr. Van Benschoten said ultra-wealthy clients demand a tremendous amount of hand-holding. “They don’t want to call in and talk to five different people,” he said, but “they get that kind of service with a bank. I mean, it might be different with a private bank, but invariably in the end [banks] are pushing their own proprietary products.”
Regardless of how they frame their efforts, he said, banks are ultimately trying to sell products.
“Banks are product providers, they are not advisers,” he said. “We are not trying to make a sale, and our clients know that. They want advice, not products.”
“We want to be their financial quarterback,” he said. “If there is a financial issue on their mind, we want to help them.”
He helped develop Lenox CFO, the firm’s proprietary financial planning platform, which lets it advise on every part of a client’s financial life from asset management to retirement planning, insurance issues, and mortgages.
Mr. Van Benschoten said the platform does account aggregation and “total asset allocation,” letting wealthy clients have “their entire financial life in one place.”
“This is definitely our differentiator,” he said.
The Lenox CFO platform supplies about 15% of the firm’s revenue, Mr. Van Benschoten said. Asset management supplies 25%, insurance and estate planning 50%, and business planning for group benefits 10%.
“We try not to leave too many chips on the table for our competitors,” he said. “We provide lots of service for clients.”
Mr. Van Benschoten said he expects the firm will reach $2 billion under management within three years. Lenox has six partners and a staff of 70 in New York and has developed satellite offices in Chicago and San Francisco. He said he expects to open a Los Angeles office in the next two years.
“Once we have developed the relationship and the trust, we can offer other products and services down the road. Our distribution and growth develops from our clients,” he said. “The more we can keep the competition out of their ear, the more we can grow, and the more we can sell to our clients.”
