When choosing an outsourced OCIO partner, one of the most important steps is getting a clear picture of how their fees are determined.
This raises key questions: What is their fee structure, and how are costs managed? What should you look for when evaluating OCIO fees, and how can you determine if the costs are justified by the services provided?
Gaining clarity on OCIO fee structures helps you better assess the value they deliver and their overall impact on your firm’s bottom line.
At Cornerstone Portfolio Research, our team has 70+ years of experience delivering investment research and portfolio management services tailored to RIA firms across the U.S.
This article explores the types of OCIO fee structures, compares these costs to in-house investment management, and evaluates the value gained when partnering with an OCIO.
Types of OCIO Fees: Fixed, Variable, and Performance-Based
OCIOs typically offer several fee structures, which can vary depending on the scope of services provided and the complexity of your firm’s needs.
Fixed fees: A straightforward, predictable fee structure often used for comprehensive services. While fixed fees provide clarity and consistency, they may not fully reflect the OCIO’s performance.
Variable fees: A model that changes based on the level of services or assets managed. This type of fee can fluctuate over time and may be linked to specific services, such as tactical asset allocation or strategic asset allocation services.
Performance-based fees: A fee structure that ties compensation to portfolio performance, matching the OCIO’s incentives with the firm’s goals. It’s important to evaluate how performance is measured and whether it corresponds with your firm’s benchmarks and risk tolerance.
Finding the right fee structure depends on your firm’s investment philosophy and long-term objectives. Understanding these models will help you select an OCIO that supports your firm’s financial health.
Cornerstone offers a flexible fee structure that promotes your firm’s growth without adding unnecessary financial burden. We’re experienced with making outsourcing a seamless transition, where you maintain control while accessing sophisticated investment strategies.
Cost Comparison: OCIO Fees vs. In-House Management Costs
Comparing OCIO fees with the costs of managing investments in-house is not always straightforward. While OCIO fees may initially appear higher, consider the additional value and potential cost savings they offer in the long term.
Here are some factors to keep in mind when evaluating OCIO fees:
- Operational savings: An OCIO can reduce the need for an in-house Chief Investment Officer, portfolio managers, and research analysts, saving your firm substantial salary and benefit costs.
- Access to advanced technologies: OCIOs often invest in sophisticated portfolio management, risk assessment, and reporting technologies. These tools can enhance your firm’s capabilities without requiring you to purchase expensive software or maintain in-house data analytics.
- Economies of scale: Because outsourced OCIOs typically manage multiple portfolios across a diverse client base, they can leverage economies of scale. This access to better pricing on trades, research, and investment products can result in overall cost efficiencies for your firm.
When comparing the cost of OCIO services to maintaining an internal investment team, indirect savings should be included, such as time spent on investment research, manager selection, and rebalancing. A partner like Cornerstone can free up these resources, allowing your firm to focus on client relationships and business growth.
Value for Money: What Are You Getting for Your Fees?
It’s not just about the cost—it’s about the value you’re getting for your money. Consider the upfront cost and the value they add to your firm through expertise, resources, and growth potential.
Key factors when evaluating an OCIO’s value:
- Access to a broader investment universe: OCIOs often provide access to a more comprehensive range of investment options, including alternative investments like private equity, real estate, and hedge funds, which can help diversify portfolios and capture unique growth opportunities.
- Specialized expertise: An experienced OCIO will provide a high level of proficiency in various investment strategies, such as tactical and strategic asset allocation services. This expertise helps your firm respond effectively to shifting market conditions and implement strategies aligned with your client’s goals.
- Improved client outcomes: Working with the right OCIO allows your firm to leverage advanced investment solutions, resulting in more robust portfolio performance and greater client satisfaction. Access to a broader range of asset classes and tailored strategies can help you meet your client’s evolving needs more effectively.
- Tax-efficient strategies: They can develop strategies tailored to high-net-worth clients, such as managing large stock positions, implementing tax-loss harvesting, and optimizing charitable giving strategies.
- Scalability and growth potential: Partnering with an OCIO enables your firm to scale its services as you grow, freeing valuable time that can be redirected toward client acquisition and relationship-building. This flexibility supports the management of larger, more complex portfolios. It enhances your ability to attract and retain high-net-worth clients seeking sophisticated investment solutions.
Evaluating these qualitative aspects can help you make a more informed decision about the overall value of an OCIO partnership and determine whether the selected fee structure aligns with your firm’s objectives.
Why Consider Partnering With Cornerstone Portfolio Research?
Selecting the right OCIO partner can make all the difference in your firm’s continued success and streamline growth.
Cornerstone provides a seamless, cost-effective solution that empowers your firm without disrupting your current processes or client relationships. Our goal is to enhance your firm’s capabilities, offering the expertise and flexibility you need to grow with confidence.
When you partner with Cornerstone, you gain:
- Tailored solutions without equity sacrifice: You don’t have to give up equity or make significant changes to your investment strategy. We provide CIO-level services on your terms.
- Competitive, low-cost fee structure: Our fees range from 5 to 20 basis points, with most falling in the 5 to 10 bps range, ensuring you receive high-value services without the high costs of hiring an in-house CIO.
- Custodian-neutral integration: We can work with your current custodian and do not require client re-papering or transferring assets, minimizing client disruption.
- Advanced investment research: Access sophisticated investment models and research customized to your firm’s approach—no cookie-cutter solutions.
- High-touch client support: We provide high-level communication weekly, and our team is available for virtual meetings with you and your clients as needed.
Contact us today to learn how Cornerstone’s flexible fee structure and personalized approach can support your firm’s growth and success.
