How to Integrate an Outsource CIO into Your Investment Process

How to Integrate an Outsource CIO into Your Investment Process

The time may be coming when you make a strategic decision to engage the services of an OCIO (Outsource Chief Investment Officer). It can make a lot of sense:

  • You can expand the range of investments that you offer to your clients
  • You can control your costs by not having to hire costly analysts and portfolio managers
  • You can focus on what you do best, such as marketing, servicing current clients, and providing planning services
  • You will know your clients are receiving the investment advice they need to pursue their financial goals
  • You can scale your business faster without the need to significantly expand your staff to provide investment and  portfolio management services

Every large financial firm has a CIO. Higher-quality CIOs are expensive when you add salary, taxes, benefits, and bonuses. Smaller firms have to convince prospects there is no need for a CIO because that is one of the many hats their principals wear. 

Or, you can choose to retain the services of an OCIO. You can get all of the benefits of a CIO for a fraction of the cost.

While there are several benefits, some RIAs are hesitant to move to an OCIO because they aren’t sure how adaptable its advice will be for their current clients. The concern about the impact on current relationships is valid and should be considered an important part of your decision-making process. 

In this blog, we’ll first examine the various OCIO models available to independent RIAs and IARs. Then, we’ll look at integrating an OCIO into your existing investment strategies and processes.  

OCIO Models

There are several different OCIO models to consider for your practice. Each provides different levels of service and expertise.  

  • Discretionary OCIO Model: The OCIO has full discretion over investment decisions in this model. This professional or team is responsible for strategic asset allocation decisions, market and securities research, investment selection, trading, and other day-to-day tasks. This model could work if you seek comprehensive investment management support with decision-making.
  • Non-Discretionary OCIO Model: The OCIO offers advice and recommendations here, but the final investment decisions rest with your firm or client. This model is ideal for advisors who want experienced advice but want firm or client control over the final investment decisions.
  • Consultative Model: This approach provides specialized advice on certain aspects of the investment process, such as asset allocation or investment selection. It’s tailored for RIAs and IARs who need specific expertise without making decisions to an OCIO.
  • Hybrid Model: This model combines elements of both discretionary and non-discretionary services. The OCIO may manage certain aspects of the portfolio while the advisor retains control over specific decisions. It’s a flexible solution for those seeking a balance between current and future business practices.
  • Customized Solutions: Some OCIOs provide tailor-made services based on the specific needs of the RIA or IAR firm. This can include specialized portfolio construction for various asset classes, custom-tailored risk management strategies, and support for unique client requirements.
  • Technology-Driven Models: These models leverage advanced technology and analytics to provide investment insights and portfolio management tools. They are suitable for tech-savvy advisors who prefer data-driven approaches.

How to Integrate an OCIO Into Your Current Practice

Selecting an OCIO whose approach aligns with your firm’s philosophy is crucial. You want an OCIO that adapts to you and not vice versa. This alignment ensures continuity in investment processes and minimizes service disruption for current clients.

Another important consideration when selecting an OCIO is to consider if they are custodian-agnostic or not. Some OCIOs may require you to change custodians This may be very disruptive for current clients. 

One of the key features of Cornerstone Portfolio Research’s OCIO services is our custodian-agnostic approach. This flexibility means we can work with any custodian you currently use, eliminating the need for all of the work associated with moving your clients’ assets. A percentage of your clients may resist this type of change.  

Another consideration is how the OCIO will integrate with your existing investment philosophy. If the OCIO has very distinct strategies in mind, they may or may not meld with your current investment process and advice. Again, this could be disruptive for clients if an OCIO requires wholesale portfolio changes. Marginal clients may move their assets elsewhere.

Cornerstone’s OCIO services are designed to integrate smoothly with your existing investment philosophy and practices. We make subtle but necessary adjustments to client accounts over time, minimizing risks while seeking opportunities to improve results. This continuity is critical in maintaining client trust and stability.

Some OCIOs may prefer to stay in the background and not communicate with your clients. At Cornerstone, we can be as visible as you’d like us to be with your clients. If you prefer to be the primary contact point, that’s fine. We’ll support you from behind the scenes with the necessary information you need to communicate with your current clients.  

On the other hand, we can be fully integrated into your team and communicate directly with your clients. The choice is yours. RIAs who openly discuss our role with clients can foster increased trust and client stability. Transparency about the role and benefits of the OCIO can reassure clients about the professionalism of your firm when you manage their assets.

Another benefit of working with an OCIO is their ability to adjust to current market conditions. Client concerns increase when the securities markets are more volatile. The OCIO can be responsible for producing content your firm can distribute to current clients. This content helps stabilize current client relationships. 

Integrating an OCIO like Cornerstone Portfolio Research into your investment process doesn’t mean massive changes to your current services. Instead, it’s about making a series of often minor enhancements that improve your clients’ experiences with your firm.

Connect with us for an introductory call to learn about our customized OCIO services for independent RIAs and IARs. 

An OCIO Can Help Your RIA

More about the author: Thomas Balis

Thomas holds a Bachelor of Science in Business from Ohio State and has since earned the Chartered Financial Analyst® (CFA®) designation as well as the Accredited Portfolio Management Advisor (APMA®) and Chartered Mutual Fund Counselor (CMFC®) certifications.