Boutique wealth-management firm lacked time to achieve the scale it needed. US Fiduciary , a broker-dealer, RIA and investment-platform provider that tore out of the gate late in 2004 with the stated ambition of becoming a destination of choice for high-end wirehouse refugees is practically out of business.

"You need a tremendous amount of scale for an asset-based business model," says US Fiduciary's founder Steven Graubart. "With assets down 40%, revenues go down right along with them -- and you can't cut expenses at the same rate."

I.O.U.

When Houston-based US Fiduciary recently came up short on unspecified obligations to brokersXpress, the institutional arm of online broker-dealer optionsXpress, brokersXpress "assumed management of certain assets within" USF Services and "certain assets of" US Fiduciary's RIA in lieu of payment, according to Barry Metzger, CEO of brokersXpress.

US Fiduciary subsequently shuttered its brokerage, says Graubart.

Chicago-based brokersXpress has been a client of USF Services since 2006. As new owner of the platform, it's in the process of re-papering agreements with USF Services' legacy clients such as Palo Alto, Calif.-based Addison Avenue Financial Partners and Chicago-based New Century Bank.

It's unclear whether SagePoint Financial's Houston-based affiliate American General Securities was still with USF Services when brokerXpress took it over -- or rather "assumed management of certain assets within" it. ("SagePoint Financial" is the new name for AIG Financial Advisors, AIG's independent broker-dealer.)

Back and forth

US Fiduciary was designed to appeal to productive brokers from wirehouses and big regionals. It offered higher-than-wirehouse payouts, an open-architecture investment platform and the ability to function as a fee-based fiduciary and to conduct commission-based business, either as US Fiduciary advisor or as own-brand affiliate.

By early 2007, it had a small but thriving investment-platform business and a less lucrative but still impressive advisor stable of nine affiliate offices in seven states.

By the spring of that year, however, US Fiduciary's brass had split ranks and several of its top executives --including president Elliot Weissbluth (now CEO of Chicago-based HighTower Advisors) -- upped stakes. Before 2007 was out, six of the firm's advisory teams had left to establish RIAs of their own.

But US Fiduciary seemed to rally over the next 18 months. It got a total of $9 million in capital backing from New York-based private-equity firm Inter-Atlantic Group and St. Louis, Mo.-based venture investors Advantage Capital Partners, and it added affiliate offices or broker-dealer clients in South Carolina, Illinois, New York and Texas.

Weight of events

By early last September it was back with a two-prong growth strategy of recruiting only the very top producers from big-name firms and buying established investment advisories. But bigger events -- Fannie and Freddie, AIG, Lehman, shotgun mergers, government bailouts and a precipitous drop in financial-sector share prices -- kept those plans pinned firmly to the drawing board.

Looking back, it seems to Graubart that US Fiduciary would have fared better if, like brokersXpress, it had had self-clearing capabilities.

"Certainly you need something else -- banking or clearing services -- to generate margin if you don't have the scale we talked about," says Graubart, who has been retained by brokersXpress to help it develop an acquisition strategy.

(Graubart's US Fiduciary shouldn't be confused with US Fiduciary Services Incorporated; a Lisle, Ill.-based holding company for GreatBanc Trust Company, Pennant Management, Salem Trust Company, Waretech and USF Affiliate Services.) -FWR

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