A good chief investment officer can benefit you in multiple ways. That’s why they rarely come cheap.
The question is: Do you have the funds to bring one onto your staff? On top of their salary, you will have to cover insurance, bonuses, taxes, and more.
Turnkey solutions can be a workaround. However, they can eat through your bottom line rapidly.
So, your best option may be an Outsourced Chief Investment Officer (OCIO).
What Sets an Outsourced CIO Apart?
An outsourced CIO has a lot in common with the in-house variety. In fact, you get most of the benefits of the in-house type. You just don’t have all of the drawbacks.
An OCIO joins you, meaning you can list them on your firm’s meet-our-team page. At the same time, they may work for basis points rather than a salary.
We aren’t talking about a fortune in basis points (like TAMPs often charge), either. This may be a set number per client, like 10.
We believe that an OCIO’s compensation is far from the most important factor, though. Let’s consider what we think is the real point: You see your clients as more than faceless consumers, right?
The problem with some third-party solutions is that not everyone shares this view. At the end of the day, many turnkey programs will view them only as numbers.
For their own convenience, someone at a TAMP may dump entire portfolios—not just the losers—and then replace it all as they see fit. The decision can be as arbitrary as it is hastily-made.
Meanwhile, a good OCIO treats peoples’ assets thoughtfully. Like a surgeon, the better ones will attempt to remove investments that are truly malignant, leaving healthy assets right where they are.
When something looks so-so, it gets timed. Questionable investments are scrutinized, but only worst-case scenarios get culled immediately.
This is only one of the multiple ways in which an outsourced chief investment officer can make a profound difference for your client.
How Else Does an OCIO Fit the Puzzle?
Let’s dig deeper into the investment role of outsourced CIOs. Fundamentally, they manage client assets.
At the same time, they can provide critical investment programs like research, strategizing, analysis, buy/sell decision-making, asset allocation, and market environment reports.
As an independent contractor, they can manage model portfolios. Or, depending on your needs, they can oversee individual portfolios tailored specifically to clients’ individual needs.
An OCIO’s level of involvement is entirely up to you. You can delegate all assets for management or only your most attention-hungry.
With that said, for best results, we recommend making the entire investment process their responsibility. Of course, verify that you have a solid candidate first.
Once you have a vetted OCIO, you should be able to focus on promoting growth. People who seek meetings generally want face-to-face time with a human being. If that didn’t matter, they might be using a robo-advisor, instead.
In fairness, that outsourced CIO could meet with clients and prospects (perhaps at a premium rate). The problem with that is that no one can pitch your firm quite as well as you.
No, that’s not a run-along-now pat on the head, either: If you manage client assets yourself, an outsourced CIO becomes an incremental expense. As a result, you could be making less money—unless you keep adding new clients or assets.
There’s something to be said for the influence that having an OCIO onboard delivers, too. If yours is a CFA Charterholder, their certification can bring a great deal of prestige, simply by association.
We’re not saying that your firm will market itself, but this can definitely lend you an edge. You might gain increased operational efficiency, as well.
Who Benefits From Having an OCIO?
Just for reference, almost a year before COVID-19 appeared in headlines, AlphaNasdaq’s OCIO index rose 30.69%. This means that the CIO-outsourcing trend was gaining steam. It hasn’t slowed since.
Granted, not everyone needs an outsourced CIO. If you’re part of a mega-firm with deep pockets, for example, you may prefer having someone physically in-house.
On the other hand, if you’re an RIA, the potential benefits can be significant. First, there’s the growth potential: Delegating asset management to your OCIO can mean greater freedom to pursue prospects.
That, in turn, can mean more conversions… and a growing CRM. When these contribute to increasing your AUM, you may have to consider modifying your fee schedule for new clients.
There are worse fates than having to gate prospects to avoid spreading yourself too thin. You even decide to set your sights higher, while you’re at it.
Let’s say you’re a hybrid or independent advisory firm dreaming of taking on the big players among your competition. No, not the firms who’re slightly larger than you; the big companies.
Success isn’t guaranteed, but the right outsourced investment management could unlock fishing in larger ponds. With an OCIO’s hands on the wheel of the boat, you might even compete more ambitiously with better chances of success.
All small to medium firms could use the data today’s OCIOs gather from continuously monitoring the markets, too.
Could Simpler Be Better?
We’ve said it in other posts here: Gaining an OCIO may be a quality-of-life improvement, as well. Your time is irreplaceable, so a chance to get it back is worth considering.
Whether you reconnect with loved ones, pets, or a favorite hobby, you’d also get reacquainted with the off-the-clock you. That’s a physical, emotional, and psychological recharge everybody needs.
To be blunt, if you’ve been pushing yourself to wear multiple hats for a while now, your practice might need it, too. We all deliver our maximum value when we’re well-rested. So, in a sense, keeping that increased focus may be a part of our fiduciary obligation.
Life beyond the pressure of constantly micromanaging clients’ assets isn’t a dream. If you contact us, we’ll show you how easily it can happen.
For more information on how an outsourced CIO can help you build a better business, we have an in-depth article here. We also have an eBook that’s yours, free of charge.
Cornerstone Portfolio Research (“Cornerstone”) is an SEC-registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. This publication should not be construed by any consumer or prospective client as Cornerstone’s solicitation or attempt to effect transactions in securities, or the rendering of personalized investment advice over the Internet. The statements in this publication are the opinion of Cornerstone regarding Outsourced Chief Investment Officer (“OCIO”) services. These are not personalized recommendations and you should consider your own criteria when choosing an OCIO.
A copy of Cornerstone’s current written disclosure statement as set forth on Form ADV, discussing Cornerstone’s business operations, services, and fees is available from Cornerstone upon written request. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Cornerstone or the professional advisors of your choosing.
