How Outsourced Investment Management Can Help You Build a Better Business

You give 100% to delivering massive value every day. So, here’s an important question: Are you prepared to micromanage 100% of your AUM this year?

We think the market’s unlikely to settle down anytime soon. In fact, if 2022’s initial trends continue, the seas will only get rougher.

Unless you’ve got a cloning vat stashed somewhere for copying yourself, you’ll need help. That may include a CIO. However, if your budget isn’t massive, you may not be able to afford an in-house hire.

Chapter 1

Should you outsource your CIO?

Consider your options. Your principal could serve as your chief investment officer.

That’s a tall order, though. They’ll need a skill set capable of juggling investment solutions, trading, estate planning, and more.

You could hire someone for the role. However, without deep pockets, this option may be out of reach.

On the other hand, you could outsource your CIO. Many TAMPs and SAMs are eager to take lots of your money, as well.

However, here’s the good news: These aren’t your only options. Outsourced Chief Investment Officers are a rising part of the financial industry.

In fact, these independent contractors’ AUM is expected to grow annually at 7.5% into 2025. That may be because they can be cheaper than traditionally-employed CIOs or 3rd parties.

An OCIO does join your team, but there’s no salary, bonus, or benefits to pay. Meanwhile, their basis point rate can be far below that of a SAM or TAMP.

An outsourced CIO can also bring…

  • Management for any portfolio enhancements
  • Prospect/client interviewing that’s affordable
  • Marketing benefits
  • Horsepower to equal or even rival larger firms

An OCIO means less overhead compared to in-house solutions; which can result in fewer headaches for you. Whether your firm’s an RIA, Broker-Dealer, or a hybrid, you’re freed to focus on giving clients your best.

Chapter 2

Could it mean closing on more prospects?

The possibility of saving money isn’t the only advantage of an outsourced CIO. As a matter of fact, we believe it’s only the tip of the iceberg.

We believe that an OCIO can take a more thoughtful approach to management. For example, a TAMP may take clients’ portfolios and arbitrarily slash and burn.

Everything—not just losers—might get the boot. In multiple senses, your clients may only be numbers to that 3rd party.

In contrast, we believe that a top-notch OCIO tends to consider people’s investments more carefully. If something’s glaringly bad, they get rid of it. Otherwise, assets often get timed.

This, in turn, means clients can have confidence in the consistency of your investment program. As their best numbers grow, your confidence will too.

However, industry-wide stats are there, too: In 2020 alone, OCIO assets under management rose to $2 trillion.That’s $1.6 trillion more than in 2019.

A decision to outsource financial research could be one of the best you’ll ever make.

Chapter 3

Can an outsourced CIO boost client retention?

Yes, but don’t get lazy. Hiring an OCIO doesn’t mean you stop earning your paycheck.

At the same time, it can make things far easier. For instance, the more satisfied people become with your planning, the more of your client base may stay with you.

Nothing encourages people to keep you in their corner, long-term like a solid investment portfolio.

It can even create a sort of snowball effect: successful clients may tend to stay on board. As a result, their stories can encourage new conversions.

Input from a superior outsourced CIO you’ve been working with benefits those new clients. So, those clients can remain with you, as well.

However, we live in uncertain times. What the market does in decades ahead is anybody’s guess.

That’s why peace of mind is such a value-add. It’s sometimes overlooked, but it’s priceless. In addition to investment strategies, some advisory clients need emotional hand-holding from time to time.

When headlines have their heads spinning, you can counter with solid analysis. Give them talking points; facts-based reassurance.

You don’t need a crystal ball. Just remind them of what your team (including your OCIO) has built together with them. Next, affirm that whatever the market does next, you’ll be with them, adjusting strategies as you deem necessary.

Chapter 4

Could it free you up, too?

Your clients aren’t the only ones who could directly benefit: Outsourced investment management can help you reclaim hours and days.

It’s time-consuming developing investment strategies, managing staff, and covering so many other bases. When your plate’s that full, something’s got to give.

How much of your work life could you reclaim—simply by offloading meetings, wholesaler calls, and compliance tasks?

You could get back to targeting prospects more often. You’d be free for relationship-building with more clients, too.

Let’s face it: Even your personal life might benefit from getting things back in balance.

Nobody gets ahead without ambition. At the same time, endless stress is harmful to human physiology and psychology.

The more extraneous stuff you get off your plate, the more you can focus on what matters. This applies 24/7; inside your practice and when you’re off the clock.

We’re not promising Utopia at home or at work, but generally speaking, simpler is usually better.

Chapter 5

Did you know it could increase assets from clients and prospects?

Yes, you read that right. We cannot promise this, but it’s possible.

Directly interfacing with your CIO is a higher-tier service. So, it only makes sense to make that into a premium feature.

Believe it or not, prospects that are accustomed to higher levels of service may find that appealing. Conversely, those holding larger assets sometimes find a lack of premium offerings off-putting.

This is because they see that lack as an indicator. To them, it signals the absence of their kind accommodation.

These are the kinds of considerations occupying leadership’s thoughts at growing firms. They shouldn’t become your sole focus, but bringing on the right OCIO can eventually bring them into play.

We’re not promising instant growth either, but if you hold up your end of the bargain, it’s probably within reach.

Chapter 6

Could fee optimization be necessary?

Nobody’s saying “Get greedy.” Nevertheless, you must avoid spreading yourself too thin if hiring an OCIO takes things next level sooner than you’d expected.

So, optimizing your fees may be something you owe existing clients and your future clients to-be. If this sounds counter-intuitive, please read on.

Let’s start with an example: Have you ever gotten food from a restaurant that’s begun watering down sodas and cooking with inferior ingredients?

If that rings a bell, you know what happens next.

It doesn’t matter if their rent’s gone up. Regardless of how many stellar meals you may have enjoyed from that restaurant before, you’re probably done.

It’s nothing personal. In fact, it could be a very fond farewell. Nevertheless, in all likelihood, you won’t be back.

There’s a moral to this story for financial advisors: Never saddle yourself or your firm with serving ever-blander versions of your advisory cuisine.

It’s noble to want to help the world handle their money better. However, it’s generally wiser to screen—and thereby limit—your inbound prospects.

A higher fee won’t fit everyone’s budget. As a result, the measure can mean offloading some clients… but sometimes you have to do what you have to.

When taking a step means you won’t have to worry about bankruptcy and that’s a good sign.

There’s something to be said for leveraging the horsepower of a CFA® Charterholder too. That’s a certification that doesn’t grow on trees.

Put simply, this can be a big prestige boost. It lends credence to raising your minimum asset requirements and optimizing your fees, as well.

You can look prospects in the eye, securely aware of the clear value this adds to your services.

Avoid getting complacent, though. At the end of the day, you still have to provide optimal fiduciary value.

As long as you do, having an outsourced CIO can bring a massive power-up for your brand’s reputation.

Chapter 7

Are you ready to take on larger firms?

It gets even better. You may want to set higher goals—because potentially, there are additional golden rings potentially within your reach.

If it helps, we believe you can think of your outsourced chief investment officer as an additional gourmet chef added to your advisory restaurant.

Competing with industry giants may have been risky before. Now you can have a fighting chance

No—it’s not a dream. At least it doesn’t have to be, anyway.

The differences between large advisory firms and an RIA, for example, are profound. They don’t mean the odds are all in the house’s favor, though.

Granted, a mega-firm has deep pockets. That’s a given, but they have weak spots, too. The most obvious may be their service.

They may have a nationwide franchise of tasty mass-produced asset management. So what?

Many people prefer the flavor that only local, from-scratch advisory cooks can deliver.

Especially if you’re focused on a niche, big firms may not be able to compete as well as you’d expect. Some clients may seldom interact with a human advisor in person, but you can meet your clients face-to-face, every time.

A huge firm’s vast client base requires mass-marketing, as well. The big names have gotten shrewder than they used to be, but they still send out cookie-cutter approaches, as a result.

It doesn’t happen as often as it once did, but those expensive outreaches sometimes fall laughably flat. It’s better to focus on winning for clients than gloating over their failures, though.

Chapter 8

Is there a hidden bonus? Would you like better client results?

Seeking every possible advantage for clients is a no-brainer. As long as it’s by moral (and legal) means, it’s part of your fiduciary commitment.

We think combining a smaller client base with the advantages of an OCIO  gives you the upper hand.

There may be mega-firms that regularly produce impressive results for some of their clients. Nevertheless, odds are that they can’t keep as many of their people as happy as you can yours.

Conversely, a modest-sized independent broker deal  firm may be able to provide more personalized service. You can look your clients in the eye and greet them by name from memory.

As that kind of service becomes rarer, the level of value you’re providing becomes even more of a hot commodity. There may be advisors at vast companies who do the same, but they’re not the mega-industry norm.

More importantly, by adding an expert to your team, you can know that you’re giving clients your absolute best. If you scale things down between a large firm and yours, your clients may fare better, case-by-case.

A world-class financial chef managing a small firm almost guarantees that everyone eats well. Don’t think that means your CIO will be inaccessible, though.

Yes, they will be busy keeping watch over assets. At the same time, the better ones make themselves available to clients.

A CIO outsourced from Cornerstone, for example, could be available for Zoom meetings. We all have schedules, but with enough notice, those bases will be covered, too.

In fact, we’ll discuss this a little more later, but you might want to consider setting a higher minimum asset requirement for interaction with your OCIO.

Your outsourced CIO doesn’t have to limit access to clients, for that matter. Prospects may also book a time to hear about your investment services.

Before signing on with an OCIO, be sure to ask if the current revenue-sharing arrangement covers it. In some cases, it may be negotiable.

Chapter 9

Can you imagine your potential growth?

Much of humanity communicates over the Internet today, but there’s still something to be said for word-of-mouth.

Even amid higher asset minimums and scaled-up pricing, people know quality when they get it. Consistently delivered value, on a personal basis, adds up.

It can also turn heads within communities.

No one with significant assets wants them managed by mediocre hands. It’s a cliché, but it’s true: The more you have, the more you have to lose.

So, affluent leads want the best possible management for their money. It only makes sense.

Intelligent people don’t hire apathetic guardians. If your livelihood were at stake, you wouldn’t, either.

That’s why they’ll seek out financial advisors that give them—not just great service but—solid results. These are the kinds of growth-friendly things that an OCIO can help you achieve.

Hiring one isn’t just about growth, though. Think of it as an investment in the long-term stability of your firm.

The hard truth is that you’re going to need it. Volatility looks likely to continue, possibly into the mid 2020’s.

This is for multiple reasons:

  • Increasing international tensions (in Eastern Europe, Asia, the Middle East…)
  • A rising US national debt (nearing $30 trillion)
  • Political instabilities
  • Artificially reduced interest rates
  • Inflation at a 40-year high
  • Supply chain issues
  • An unprecedented stock market bubble
  • Rising overall interest rates

We don’t think these trends are going away anytime soon. Every investment decision impacting asset allocation, risk exposure, security selection, and performance needs extra scrutiny.

However, there is a silver lining to these clouds: With the right outsourced chief investment officer in your corner, you can relax, focused on giving every client and prospect your best. Come what may, your OCIO will have your back—and theirs.

Hiring an OCIO can give you another perk they could only dream of, anyway: How many advisors wish they could pick their own CIO, but can’t?

You’re still the boss of your practice. The fact that you’ll sign the outsourced CIO’s checks proves it.

Many giant-firm financial planners can probably only dream of such an upgrade. It almost makes you want to pity them.

However, their careers are their problem.

Your clients, too, may have no idea how good things could get. With an OCIO managing their assets, it may only be a matter of time.

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.