Platform provider says setbacks in '07 have given it a new sense of purpose. With financial backing from two private-equity firms and a new focus on recruiting big-book "breakaway" brokers, four-year-old wealth-management platform provider US Fiduciary says it's better positioned than ever to fulfill its ambition of becoming a major player in the wealth-management industry -- despite having lost much of its brass and many of its RIA affiliates in 2007.

The Houston-based wealth-management platform provider has two new affiliates, a wirehouse-style pricing menu, and -- it says -- a sharpened sense of the needs of the advisors it hopes to attract and retain.

"We've benefited from having been in the ring for a few rounds," says US Fiduciary's founder and CEO Steven Graubart. "Rather than just talking about a business strategy, we're able to demonstrate that ours works."

New blood

This time last year US Fiduciary certainly looked like it had a winning formula. The firm, which launched in stages through late 2004 and early 2005, had nine affiliates -- advisory teams using its RIA, broker-dealer or both -- in seven states, and a small but steadily growing roster of institutions using its third-party investment platform.

By the end of 2007, however, six of US Fiduciary's own-brand advisory teams -- ex-wirehousers for the most part -- had left to establish RIAs of their own. This exodus followed the departure last March of some of US Fiduciary's top executives including president Elliot Weissbluth, CFO Cindy Burnette, sales and business-development chief James Lynch and compliance head Matthew Reynolds.

But even as these things were taking place, US Fiduciary was making strides. In April 2007, it got an infusion of capital from New York-based private-equity firm Inter-Atlantic Group and added affiliate offices in South Carolina and Illinois. In July it signed New York-based RIA Satovsky Asset Management as a broker-dealer client. By August it had a new president and COO in ex-Smith Barney executive Robert Blake, topping off a management team that now included Smith Barney's former head of financial-planning sales Jeffery Sills, ex-Stanford Financial executive Keith Roberts as operations chief and advisor-services head Michael Walton, who came from AIM Investments.

Around the same time US Fiduciary got another capital boost, this one from St. Louis, Mo.-based venture firm Advantage Capital Partners, bringing its total private-equity backing to around $9 million, according to Graubart.

It's also worth mentioning that several of the teams that left US Fiduciary's RIA last year maintain ties to the firm as clients of its broker-dealer and third-party investment platform.

Discovery

In addition, US Fiduciary has retained all its investment-platform clients -- namely Chicago-based New Century Bank, Palo Alto, Calif.-based Addison Avenue Financial Partners, Chicago-based brokersXpress and Houston-based American General Securities. In fact, last summer it added Napa, Calif.-based Essex National Securities to its list of "tamp" clients.

Still, Graubart sees sharp lessons in US Fiduciary's first few years, especially in the recent RIA departures. "My thinking at that time was narrower than it should have been," he says. "We weren't properly targeted; some those advisors would have been better placed using their own RIAs rather than the US Fiduciary platform."

As a result, US Fiduciary now takes more care to help prospective affiliates understand what they're getting into.

"Our discovery process includes a questionnaire with 70 questions," says Drake. "We create a [profit and loss statement] to help these [financial advisors] -- many of them relationship managers above all -- understand their business models in the truest sense and [understand] how they might fit in with US Fiduciary's infrastructure."

For one new affiliate, coming across US Fiduciary was a welcome shortcut to client-centricity. "We were about half way toward pulling together all the things a wealth-management firm needs to be truly focused on the client," says Charlie Rawl who left Stanford Financial late last year with Mark Tidwell.

Originally Rawl and Tidwell planned to found their own RIA. "But we're sales people, relationship managers, and we were never enamored with administration, and this is about as complicated a business as you can build. We went with [US Fiduciary] and they had us up and running in a couple of weeks -- not the months it would have taken us if we were still trying to do everything on our own."

Rawl's and Tidwell's new firm has its own branding as Zenith Wealth Management, but uses US Fiduciary's RIA and broker-dealer.

Scale

If US Fiduciary gives Zenith the support it needs to engage clients on its own terms without headaches of having run an RIA, Zenith -- which brings in about $2 million in revenue a year -- represents the kind of high-production team US Fiduciary needs to function smoothly.

"To provide all the services we offer at the prices we charge, we need scale -- and that means bigger advisors," says Graubart.

New affiliate PenCal, a 10-year-old executive and employee benefit-plan provider, is another large catch for US Fiduciary. Its 10-member brokerage team -- responsible for about $3 million in revenue last year -- has moved to US Fiduciary's broker-dealer from Multi-Financial, a Denver-based affiliate of ING USA.

US Fiduciary won Pleasanton, Calif.-based PenCal with its "flexibility, and can-do attitude," according to its president and CEO Kirk Penland. As a result, he adds, its "service offering and culture is a better fit for a growing business like ours."

As an example of its "flexibility," US Fiduciary points to its new pricing strategy. With a view to easing transitions for ex-wirehouse brokers, US Fiduciary lets reps keep their existing "wrapped" pricing approach with their clients instead of chiseling their advisors for nickels and dimes as independent broker-dealers and RIA-platform providers are wont to do, according to Graubart.

"Historically, as an independent [advisor], expenses such as trading, performance-reporting costs, and access to managers and products are charged at retail-like pricing, which diminishes profitability for the [advisor]," US Fiduciary says in a recent press release. But by covering all these expenses for the advisor, US Fiduciary says it "creates a much smoother transition from the wirehouse than any other independent RIA or [independent broker-dealer] platform, including Schwab or Fidelity."

Capturing "breakaway" brokers is a significant part of US Fiduciary's business plan, but, like all wealth-management businesses, it's also looking at the demographics.

Over the next three or four decades, says Graubart, $135 trillion to $150 trillion could change hands as members of the Depression-era generation leave money to baby boomers, who in turn prepare for retirement by selling businesses, cashing in company stock and rolling over pension-savings vehicles in preparation for retirement -- and get set to leave money to their generation-X heirs.

"We can't even conceptualize these numbers," says Graubart. "But we know that in order to advise the largest and wealthiest generation that has ever existed, advisors need to embrace fiduciary standards, and we know that with our approach and the technological capabilities that exist today, we're in a strong position to help them do that." -FWR

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