Hybrid RIA-IBD sets acquisition and recruiting growth strategies in motion. US Fiduciary has hired Warren Williams, formerly a top executive with energy-infrastructure firm Willbros Group, as its CFO and new second-in-command. The appointment is meant to help the Houston-based wealth-management firm purchase established investment advisories as part of a two-prong push for growth.

"Warren's expertise in financial management of high-growth businesses, his experience in accessing the capital markets and completing acquisitions make his contributions to [US Fiduciary] both immediate and impactful," says US Fiduciary's chairman and CEO Steven Graubart.

Williams was Houston-based Willbros' CFO from 2001 through August 2006. In that period the oil- and gas-pipeline builder completed or initiated several acquisitions.*

Mixed model

Williams says US Fiduciary is looking to acquire independent RIAs run by "advisors who want to retire in one to five years."

US Fiduciary affiliates get access to open-architecture managed-account and alternative-investment platforms, compliance, hurman-resource and practice-management support and the ability to conduct fee- and commission-based business.

"The pendulum of the focus exclusively on fee-only RIA is starting to swing back," says Williams, citing a yet-to-be-announced move to US Fiduciary by a fee-only RIA that wants the flexibility to provide commission-based products.

"There's a lot of good commissionable business out there like insurance, annuities and private placements that you just can't access on a fee-only basis," Williams adds.

In the six years between 2001 and 2007, RIAs saw a 62% increase in assets under management from $1.3 trillion to $2.1 trillion, according to San Francisco-based RIA custodian Schwab Institutional. And though much of this growth is predicated on RIAs' adherence to fee-based payment structures, the mantra of "best of breed" service -- mixed, as ever, with enlightened self interest -- is prompting a significant number of RIAs to include commission-based capabilities.

In motion

Such "hybrid" RIAs are far more optimistic about their prospects for increasing assets under management through 2008 than fee-only RIAs, according to a 2007 survey by Aite Group, a Boston-based research and consulting firm. Dual registrants saw a 31.2% compound annual growth rate through 2006 as against the increase of 15.3% seen by the pure-play RIAs surveyed.

A more recent report, this one by Fidelity's National Financial clearing subsidiary, says that 9% of the brokers and RIA advisors it questioned early this year are "likely to consider" jumping ship in 2008. That's up from 5% last year. And nearly two thirds of those mulling a break prefer the idea of "moving to another type of firm" with independent broker-dealers, regional brokerage and RIAs their preferred destinations.

But US Fiduciary sees its hybrid, open-architecture model catching on with advisors more as a result of demographics than transitory restlessness. Over the next thirty or forty years as much as $150 trillion could change hands as members of the Depression-era generation leave money to baby boomers -- some of whom will need advice as they prepare for retirement by selling businesses, cashing out of company stock and rolling over pension-savings vehicles in preparation for retirement and for leaving money to their next-generation heirs.

Prologue

US Fiduciary got off the ground in 2004 with two advisory offices through pre-launch acquisitions of Houston-based Post Oak Capital Advisors and Chicago-based West Hills Asset Management.

By early 2007 it had nine affiliate offices in seven states and a small roster of institutions using its third-party investment platform.

But in the spring of that year some of US Fiduciary's top executives departed including president Elliot Weissbluth and CFO Cindy Burnette. Before 2007 was out, six of the firm's advisory teams had left to establish RIAs of their own.

Over the past 18 months or so US Fiduciary has received $9 million in capital backing in separate deals with New York-based private-equity firm Inter-Atlantic Group and St. Louis, Mo.-based venture firm Advantage Capital Partners, and it has added affiliate offices or broker-dealer clients in South Carolina, Illinois, New York and Texas and retained all but one of its four investment-platform clients (while picking up two more.)

And now, says CEO Graubart, US Fiduciary is putting the last touches on its first acquisition since 2004 -- with more in store now that Williams is in place to help identify acquisition targets and structure deals.

Second prong 

In another move, Robert Drake -- who joined from Smith Barney in the summer of 2007 to replace Weissbluth as US Fiduicary's president -- has been re-assigned to focus on recruiting new advisors and providing on-going service to existing ones.

Far from being demotion, Drake's new role is a reflection of the importance to US Fiduciary of fostering its organic growth by recruiting established advisors, says Graubart. In fact, he adds, US Fiduciary is in the process of bringing in three advisory teams to establish new US Fiduciary offices.

In his new role, Drake is, along with Jeffrey Sills and Ray Miller, one of three senior vice presidents of US Fiduciary.

Besides appointing Williams as its CFO, US Fiduciary has a new chief compliance officer in Stanford Financial compliance manager Jack Bruno. He replaces Rita DeFloreo, who left the firm late in 2007.

"The importance of having a chief compliance officer with the highest quality and experience has never been greater," says Graubart. "Jack brings deep knowledge and experience in the back-office administration, operations, and compliance of both broker-dealers and RIAs." -FWR

* As Willbros' CFO, Williams was also instrumental in maintaining investor confidence in the face of a bribery scandal involving some of its international managers in Africa and South America. This affair -- which Williams says Willbros uncovered late in 2004 and reported to the U.S. Department of Justice and the SEC early in 2005 -- has so far cost the company $32.3 million in criminal penalties, disgorgements and interest payments in addition to an undisclosed amount paid to settle a suit brought against it by a group of investors. "In recognition of Willbros' thorough review of the improper payments, the companies' exemplary co-operation [and] the companies' implementation of enhanced compliance policies and procedures," the Department of Justice has put a three-year moratorium on further prosecution of the company with a view to dismissing the case thereafter, according to a 14 May 2008 press release.

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