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US Fiduciary gains NYC alts specialist

FWR Staff

27 March 2006

Houston-based advisor-support provider continues rapid growth. Hedge-fund specialist David Zale has established a New York-based private-client advisory supported by US Fiduciary, a boutique wealth-management platform provider to high-end investment advisors and their clients. That gives US Fiduciary a bridgehead in Manhattan, a development in keeping with the fledgling firm's ambitious expansion plans.

"When we launched last year, we said we wanted to penetrate all five regions by the end of 2006," says Elliot Weissbluth, head of US Fiduciary's advisor-support business. "We've already knocked off four of the five, and we'll see the fifth one in the second quarter with an office in the Bay area" - a development Weissbluth says should coincide with the opening of an advisory affiliate in Atlanta.

The advisor-support side of US Fiduciary - which provides administrative, compliance, marketing and business-development support to advisors in both the fee-only advisory and the brokerage channels - has been up and running since last June. The firm's investment platform, headed by Scott MacKillop and available to bank-, brokerage- and RIA-based advisors who stop short of the whole-hog advisory-support option, has been a going concern for about a year now.

Steady growth

US Fiduciary had a pair of regionally representative advisory offices from the outset through its pre-launch acquisitions of Houston's Post Oak Capital Advisors, a business founded by Donald Graubart, father of US Fiduciary CEO Steven Graubart, and Chicago's West Hills Asset Management. In July 2005 Philadelphia-based former Smith Barney broker Mary Ann Lambert founded US Fiduciary's first Northeastern office. In November last year Curtis Lyman Jr., one of Lehman Brothers' top advisors in Florida, established US Fiduciary's a Florida-based advisory outlet in Palm Beach Gardens.

In addition to the Chicago and Houston offices and the de novo advisories in Philadelphia, Southeast Florida and now New York, US Fiduciary supports advisors at New Century Bank in Chicago and at Palo Alto, Calif.-based Addison Avenue Financial.

Weissbluth says US Fiduciary turned down several advisors who wanted to establish offices in New York before it came to an agreement with Zale, who had just left Trautman Wasserman, where he was head of hedge-fund-of-fund products, to set up on his own. "People like David Zale have the assets and sophistication to hang their hats just about anywhere they like," says Weissbluth. "It's gratifying that partners like that find our solutions attractive."

Sam Wasserman, Zale's former boss, calls the fund-of-fund manger "a good friend and an exceptional employee who left us with our full support and blessings."

Three Ps

Zale, who constructs portfolios using hedge-fund strategies, says he was drawn to US Fiduciary by "the people, the platform and the payout." As far as the people go, Zale describes Steven Graubart and Weissbluth as "good guys with a clear vision" for US Fiduciary.

As for the platform, Zale says US Fiduciary's combined brokerage-and-RIA capabilities "looks like it could make things easier for me." More specifically, he says that working with US Fiduciary will help him control costs as his practice grows. For the moment he's a one-man operation with eight clients and "less than $1 billion" under management. But as he scales up to his goal of 20 ultra-high-wealth clients, he figures US Fiduciary's support will let him run on a support staff of three. "One person to help me vet the fund managers, one person for client relations and one person to run my back office," says Zale.

Zale didn't go into detail about his payout arrangement with US Fiduciary, but Graubart was quoted about 18 months ago saying the target payout for advisors linked to his firm's infrastructure was between 70% and 80%. That compares with payouts of between 35% and 50% for wirehouse brokers, and payouts in the 80%-to-90% range for independent brokers.

Zale, whose grandfather founded Zales, a retail chain that brought installment-plan jewelry to middle-class America, worked in the family business for about 18 years before he began a career in financial service, first as a retail analyst at Barington Capital Group, then as a sell-side analyst with Sands Brothers Asset Management, before leading that firm's hedge-fund business.

But for all his experience as an investment analyst and portfolio manager, Zale's roots in the jewelry business run deep. He notes, for instance, that "designing a portfolio uses the same part of the brain as designing a piece of jewelry."

He also takes to heart his grandfather Morris Zale's observation that "you make your money on the buy" in the jewelry trade - that is, hard bargaining for the expensive gems that go into a piece lay the groundwork for healthy margins. As a portfolio manager, Zale sees the "buy" as his value adds: the fund analysis and customization that allows him to "command a full management and performance fee."

Fallen angels

Zale isn't sure whether US Fiduciary will use his bespoke hedge-fund-of-fund strategies to augment its growing alternatives platform, but it's at least in the realm of possibility, he says - it wouldn't be in connection with an overtly retail-oriented investment platform.

"A company like Merrill Lynch is restricted to dealing with the largest hedge funds," says Zale. "I believe I can look at a broader range of hedge-fund managers, including the some 'fallen angels'" - managers who have weathered bouts of underperformance and kept the to set their houses right. "The youngster working at Merrill wouldn't recommend those managers, but I really like the guys who have the back-bone to come back and do what's right."

Although the advisories supported by US Fiduciary aren't formally affiliated with one another, there is "an incredibly high degree of camaraderie between the offices," according to Palm Beach Gardens-based office owner Lyman. In part that stems from a desire to safeguard US Fiduciary's brand value, says Lyman; but for the most part it's a natural by-product of building a business on established and highly respected practitioners.

So though a New York advisory office supported by US Fiduciary might not mean much more to Lyman than occasional use of a Manhattan conference room and the ancillary benefit of "indicating to clients that the firm is vibrant and growing," the addition of Zale's business is "tremendous for the growth of US Fiduciary," says Lyman, and therefore a boon to all those associated with it. -FWR

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