Partnering with an Outsourced Chief Investment Officer is a pivotal decision for RIAs, as the right partner can significantly impact your success. However, choosing the wrong partner can result in unnecessary distractions.
One of the most important factors to consider when evaluating an OCIO partner is their track record. But what key experience metrics should you look for, and how can an outsourced OCIO’s track record give you insights into their ability to meet your RIA firm’s needs?
In this blog from Cornerstone Portfolio Research, we’ll discuss key aspects of an OCIO’s experience and how RIA/IARs can evaluate these factors when considering potential partners.
Importance of Experience in Choosing an OCIO
An OCIO’s experience is vital, as it can provide valuable insights, tailored solutions, and a deep understanding of the industry’s unique challenges and opportunities. When evaluating an OCIO’s experience, take into account the following.
Years of experience: How long has the OCIO been operating in the industry? A longer tenure often indicates a deeper understanding of market dynamics and investment strategies.
Number of clients served: The number of clients they serve can provide insights into their
capacity and ability to handle diverse portfolios.
Types of RIA firms served: Evaluate whether they have worked with RIAs that match your firm’s size, client demographics, and investment goals. An OCIO’s experience with firms like yours can reveal how well they align with your needs.
Customization capability: Each RIA has unique needs, so assess the OCIO’s ability to tailor solutions based on individual preferences and goals.
Investment style: What types of investment approaches does the OCIO provide? Do they offer tactical asset allocation, strategic asset allocation services, or other investment styles? Determine if their investment philosophy matches your firm’s goals and risk tolerance.
Key Experience Metrics: What To Look For in OCIO’s Past Performance
When evaluating an OCIO’s experience, there are several key metrics to consider:
- Client retention rate: High client retention over long periods suggests consistent client satisfaction and the OCIO’s ability to maintain strong relationships and deliver results.
- AUM growth: The growth in assets under management can indicate the outsourced OCIO’s ability to attract and retain clients and their overall success in managing and growing portfolios.
- Performance vs. benchmark: Evaluate how their portfolios perform against relevant benchmarks, as this indicates the effectiveness of their strategies.
- Risk-adjusted returns: Assess how they manage risk while pursuing returns. Consider metrics such as Sharpe ratios and Maximum Drawdown to gauge the OCIO’s risk management abilities.
- Track record across market cycles: Performance during different market conditions (bull, bear, or volatile markets) shows adaptability in managing risk and returns over time.
- Experience in various asset classes: Look for OCIOs with expertise across multiple asset classes (e.g., equities, fixed income, alternatives), especially if your clients have more complex portfolios.
- Tactical vs. strategic allocation experience: Examine how well the OCIO balances short-term tactical asset allocation moves with long-term strategic planning to optimize returns and minimize risk.
- Fee structure and transparency: Consider how they structure fees and whether they are clear, transparent pricing models.
While past performance does not guarantee future results, it will provide valuable insights into the OCIO’s investment strategies and decision-making processes.
Also, seek feedback from existing RIA clients to assess their satisfaction with the services and investment outcomes, as their experiences can strongly indicate the OCIO’s ability to deliver results.
Assessing OCIO Success Through Work With Similar Firms
One of the most important experience metrics is understanding the outsourced OCIO’s previous work and success with firms like yours.
Challenges faced by clients: Examine how the OCIO tackled specific client challenges, such as portfolio restructuring, risk management, or growth strategies. This can highlight their adaptability and problem-solving skills.
Tailored solutions: Look for evidence of how they developed customized strategies based on the unique needs and objectives of each client. Their ability to offer flexible, personalized solutions may reflect how well they can align with your firm’s goals.
Long-term partnerships: Strong, long-lasting relationships with clients are an indicator of consistent results and trust. These partnerships suggest that the OCIO has maintained client satisfaction and continued to provide value over time.
Regulatory compliance and conflict management: Confirm that the OCIO adheres to industry regulations and has a transparent approach to managing conflicts of interest.
Financial stability: Assess the OCIO’s financial health and stability. A partner with sound financials is better positioned to weather market volatility and support long-term strategies.
Understanding how an outsourced OCIO manages risk at both the portfolio level and within their organization is essential. Ask about any past incidents where they navigated market downturns or other risks and how they handled them. This can offer insight into their process and crisis management skills.
A key advantage of partnering with an experienced OCIO like Cornerstone is our ability to seamlessly integrate into your existing workflow and systems. Our integration process includes:
- Utilizing your existing tools: We work within your current infrastructure, using your CRM, custodial software, client reporting systems, and portfolio management applications.
- White-labeled services: Cornerstone provides white-labeled solutions so your firm maintains its branding and all communication and reporting appear under your firm’s identity.
- Joint client meetings: Our team can join specific client and prospect meetings to offer expert support, helping you build new relationships and strengthen existing ones.
Discover Cornerstone Portfolio Research
With over 70 years of combined investment experience, Cornerstone provides expert research and portfolio management services to RIAs and IARs. By partnering with us, your firm gains access to a dedicated CFA® Charterholder, a highly-regarded industry designation.
Our team is dedicated to helping you create high-quality client portfolios while ensuring seamless integration into your workflow. We provide cost-effective solutions designed to support your firm’s long-term success.
We place the needs of our RIA partners and their clients at the forefront of everything we do.
If you’re interested in a partnership using an OCIO model, please don’t hesitate to contact us to schedule an introductory call.
