Choosing the right money managers is only part of the equation. Monitoring their performance, integrating new asset categories, and continuously adjusting asset allocations—whether tactical or strategic—can be time-consuming and demands constant attention.
How do you approach investment strategy and asset allocation? Could the services of an expert outsourced OCIO benefit your RIA firm?
An Outsourced Chief Investment Officer partners with advisors to offer a high level of expertise in asset management, flexible solutions, and in-depth knowledge in crafting asset allocation strategies.
With over 70 years of combined investment expertise, Cornerstone offers specialized research and portfolio management services tailored to RIAs and IARs.
This article explores how OCIOs create investment and asset allocation strategies, adapt to market volatility, and tailor solutions for clients. We’ll highlight how working with an experienced OCIO can help you consistently deliver value to your clients.
Strategy Development: How the OCIO Develops Investment Strategies
Partnering with an outsourced OCIO means you’re looking for more than surface-level investment management. OCIOs dive deeper into understanding each client’s unique needs and financial goals. Developing investment strategies starts with thoroughly analyzing the client’s long-term objectives, risk profile, and market conditions.
OCIOs, like Cornerstone, conduct in-depth research to identify new asset classes, evaluate investment opportunities, and select top-tier money managers. This vigilance keeps your clients’ portfolios dynamic and responsive to emerging trends.
By continuously assessing market trends, macroeconomic shifts, and new opportunities, an OCIO provides insights to refine your strategy, aligning with your immediate priorities and future goals. This ongoing research helps you stay ahead without managing day-to-day portfolio complexities.
The OCIO’s expertise proves valuable when swift adjustments or new opportunities arise, ensuring the broader strategy stays aligned with client needs and remains flexible. Their ongoing evaluation and proactive approach enable you to concentrate on the high-touch client service that sets your practice apart.
Overview of Asset Allocation Techniques: An Insight Into Various Approaches
The techniques OCIOs employ go beyond the basics, offering tailored strategies that align with diverse goals, risk profiles, and market conditions. They also bring in more specialized tools to optimize performance.
Strategic Asset Allocation
Strategic asset allocation is the foundation of a long-term investment strategy. This approach is familiar, but with an OCIO, execution is enhanced through by:
- Rebalancing models: An OCIO offers sophisticated tools to ensure the portfolio doesn’t drift too far from the established allocation. Rather than simple calendar-based rebalancing, OCIOs often implement threshold-based triggers, enabling adjustments when an asset class significantly deviates from its target.
- Stress testing: An outsourced OCIO may conduct periodic stress tests, simulating market downturns or interest rate hikes, allowing you to anticipate how your clients’ portfolios might respond in various scenarios.
An OCIO’s disciplined strategic asset allocation services help manage risk while positioning portfolios for growth, giving you confidence that your clients’ investments remain aligned with their goals, even as market conditions change.
Tactical Asset Allocation
While strategic allocation offers stability, tactical asset allocation provides flexibility. As an RIA, you know the value of making short-term adjustments based on market insights. OCIOs bring robust research capabilities and high-level expertise to fine-tune real-time allocations.
Key benefits of tactical asset allocation include:
- Data-driven adjustments: OCIOs leverage advanced analytics and market intelligence tools to identify trends such as shifts in asset class correlations, sector performance, and economic indicators. This data lets them make more informed, tactical shifts in your clients’ portfolios.
- Multi-asset expertise: Tactical decisions aren’t limited to the traditional equities/bonds mix. OCIOs continuously evaluate a broader spectrum of asset classes, including alternatives like real estate, private equity, or commodities, providing a more diversified approach to capturing gains and mitigating risk.
- Dynamic risk management: By actively adjusting allocations, OCIOs strive to limit downside risk during periods of volatility. This flexibility allows them to fine-tune portfolios, responding to short-term shifts while keeping the long-term strategy intact.
For experienced RIAs, using tactical and strategic asset allocation services is valuable when paired with the OCIO’s thorough research and capacity to seize opportunities.
Adaptability: Handling Market Volatility and Changing Client Needs
The markets constantly shift, and clients often worry about volatility or experience changes in their financial goals. OCIOs like Cornerstone provide value by offering strategies that adapt to market conditions and evolving client needs.
Market Volatility
OCIOs closely monitor the markets, ready to adjust during instability. When volatility strikes, they aim to protect portfolios from excessive risk while seeking growth opportunities.
In downturns: An OCIO might shift more investments into defensive sectors like utilities or consumer staples, where there is typically less risk of loss. They may also add uncorrelated assets to provide stability during turbulent periods.
In bull markets: During strong market conditions, OCIOs may increase investments in growth sectors like technology or emerging markets to capture more upside potential.
OCIOs constantly evaluate market trends and risks to make proactive decisions, helping keep portfolios on track during market highs and lows.
Evolving Client Needs
As clients’ lives change—whether due to retirement, divorce, or the passing of a loved one—their financial needs change too. OCIOs work with RIAs to adjust portfolios to meet these new needs.
- Large stock positions: Clients with concentrated stock positions may need help diversifying to reduce risk. OCIOs can create strategies to do this while managing tax consequences.
- Tax considerations: OCIOs also help design tax-efficient strategies, minimizing capital gains or managing tax impacts from withdrawals.
- Life events: Major life changes require portfolio adjustments. An OCIO helps realign investments based on the client’s new goals, whether they need more income in retirement or a different risk level after a divorce.
By providing customized solutions, OCIOs ensure that portfolios remain aligned with each client’s evolving goals, no matter what life brings.
Partner with Cornerstone
Our team recognizes the value of your time and adapts to your processes with minimal disruption. Our services seamlessly align with your investment practices, philosophy, and operations.
Partnering with Cornerstone offers numerous advantages, including personalized asset allocation. Rather than a generic approach, we manage strategic and tactical asset allocation strategies that cater to the unique needs of each RIA’s clients.
If you would like to explore the OCIO model further, please contact us to arrange an introductory call.
