As an independent RIA/IAR owner of a financial advisory firm, do you often juggle multiple tasks while serving your clients? Do you feel like you’re constantly putting out fires whenever there is significant market volatility? If so, you’re not alone.
Many independent RIA and IAR firms want to improve and streamline their operations and get out of the “fire drill” mode. The ability to quickly adapt to rapid economic changes while ensuring your investment decisions are aligned with your client’s best interests is critical for sustaining and growing your firm. That’s why many wealth management firms are partnering with an Outsourced Chief Investment Officer (OCIO).
In our blog, we’ll look at how OCIOs use adaptive investment strategies to combat the unpredictability of the markets.
The Role of OCIOs
OCIOs provide comprehensive investment research and management services, including strategic planning, asset allocation, manager or investment selection, compliance oversight, and risk management advice.
OCIOs can also facilitate marketing when investors with larger assets require discussion with a Chief Investment Officer. After all, that is the level of service they received from their previous financial advisors.
Think of the type of resources you would need in-house to handle all of these responsibilities. Depending upon the size of your practice, a full-time CIO may not be realistic, but with the assistance of an OCIO, you get state-of-the-art investment management skills from credentialed CFA ® professionals for a nominal fee compared to hiring full-time professionals who require salaries, benefits, bonuses, and stock options.
The upside? When you partner with an OCIO, you can pass all of these tasks to them to oversee, giving you and your team more time to focus on nurturing existing client relationships and converting more prospects into revenue-producing clients.
Adapting to Market Volatility
Market volatility is inevitable, but the right strategies can soften its impact. Here are some of the more common approaches that OCIOs use to protect your clients’ investments during periods of excessive market volatility:
1. Dynamic Asset Allocation
OCIOs typically don’t use a static asset allocation model. Instead, they adjust your client’s portfolio asset mix in response to current market conditions and expectations for future market volatility. This can help protect the value of your client’s investments during prolonged down markets while repositioning assets for future rising markets.
2. Tactical Asset Allocation
OCIOs may shift the mix of investments in portfolios to capitalize on short-term market opportunities or minimize risks. This could involve increasing the allocation to equities for bull market outlooks and short-intermediate bonds for bear market outlooks.
3. Strategic Allocations
This includes rebalancing portfolios to maintain original or desired asset allocations based on your client’s risk tolerances. This process ensures that the portfolio mix stays within its target allocation due to market movements, helping to control future risks.
4. Risk Parity
This balances the portfolio not by dollar amounts invested in various assets but by the risk contributed by each asset. This approach can lead to a more diversified portfolio that is less dependent on the performance of any single asset class or investment.
5. Factor Investing
By focusing on specific return drivers, such as valuations, market capitalizations, momentum, and volatility, OCIOs can construct portfolios that perform well during various economic conditions.
6. Diversification Beyond Traditional Assets
Depending on the needs of individual clients, OCIOs often incorporate alternative investments into their portfolios, such as real estate, private equity, precious metals, and commodities. These investments typically have lower correlations to more traditional investments (stocks, bonds), providing additional protection during periods of higher volatility.
7. Advanced Risk Management
OCIOs employ sophisticated risk management techniques to identify and minimize risks that impact client portfolios. This includes stress testing, scenario analysis, and implementing hedging strategies to add protection for a variety of downside risks.
8. Leveraging Technology and Research
OCIOs often have access to advanced analytical tools and research that can provide deeper insights into market trends, risks, and investment opportunities. This technology enables them to make informed, data-driven decisions that enhance portfolio performance even in turbulent times.
Benefits for RIA and IAR Advisory Firms
Partnering with an OCIO can offer several advantages for RIAs and IARs, especially when it comes to managing money during volatile markets:
- OCIOs bring a wealth of experience and knowledge, providing you with strategies based on years of experience.
- Outsourcing investment management lets you concentrate on adding new revenue sources and protecting current revenue sources.
- When applicable, OCIOs tailor investment strategies to fit your firm’s current investment philosophy and business practices, not the other way around.
- Leveraging an OCIO’s resources can improve portfolio management and lower costs.
Get to Know Cornerstone Portfolio Research
Cornerstone Portfolio Research is a dedicated portfolio management and investment research firm serving independent RIA and IAR firms. We cater to firms nationwide, striving to simplify the conversion process for its services and business practices.
Our philosophy centers around providing you with the advantages of engaging with a full-time CIO and CFA® Charterholder, minus the usual hassles and disruptions that outsourcing can create. Our focus is on research, investment management, and back-office services so you can stay focused on what you do best.
Our affordable OCIO services don’t require substantial increases or any increases – our fees range from 5 to 20 bps, with an average of 10 bps.
- You can hire an OCIO without sacrificing equity
- You can avoid the expense of a full-time CIO expenses
- There is no equity consideration. Our sole method of compensation is basis points.
- We are custodian-neutral, meaning you don’t have to change your current custodian relationship – there is no need for re-papering, asset transfers, or new account setups
- You can maintain your current investment strategy without major changes that require client notification
- You will have expanded access to tailored research and investment models that complement your strategy
- The gradual implementation of our services frees up your time
- When applicable, tax-efficient processes guide all of our investment services
- We provide weekly detailed updates to keep you fully informed
- Virtual meetings with you and your clients are available upon request
- We white-label all of our advice and services under your RIA’s name
- You can include us on your website’s Our Team page, making you more competitive with bigger firms that also have OCIOs or CIOs
- We offer solutions for succession planning issues
- We guarantee quick access during normal business hours
- Support for unique, specific needs is available upon request
- A partnership with a CFA® charter holder ensures recognized industry credentials and expertise
If you’re ready to get out of fire drill mode, let’s connect to see how our OCIO services might fit into your practice.
