Maximizing RIA Firm Success: The Role of an Outsourced CIO Explained

Maximizing RIA Firm Success: The Role of an Outsourced CIO Explained

What is an outsourced CIO, and why does this role matter so much for independent RIA and IAR financial advisory firms?

A Chief Investment Officer (OCIO) firm provides investment research and portfolio management services to financial firms that may or may not manage their clients’ assets themselves.

An OCIO can be a firm of Chartered Financial Analysts® (CFAs®) responsible for managing financial advisor clients’ assets. They conduct the research and make all the buy/sell investment decisions. They can write market environment reports and produce quarterly reports for current clients and names on drip lists. They may also meet with your clients.  

These services can make boutique RIA and IAR firms more competitive against bigger firms that manage their clients’ assets in-house.

Most importantly, all of the OCIO’s work is based on a strategy that reflects the style and culture of the advisors’ firms. The ideal OCIO adapts their services to the financial advisor, not vice versa.

There are many reasons to consider adding an OCIO to your team. We’ll address their benefits to your firm and clients in this blog. 

Change Your Firm’s Role to a Money Manager

You may describe yourself as a financial planner or financial advisor when you explain your role to potential clients. However, the bigger firms market themselves as money managers because that is how they add significant value to their client relationships.

You can explain your firm’s role to prospective clients in several different ways:

  • You are a money management firm with a planning capability
  • You are a financial planning firm with a money management capability 
  • Your firm does both for a bundled fee.

How Many Hats Can You Wear And Still Be Credible?

Your RIA website may list several services you provide your clients, including planning, investment, risk, or tax-related services. Not to mention all the activities necessary to run the firm daily.

You expect clients to believe you are experts in these various disciplines and services, even though each can be a full-time job in and of itself.

Could you outsource one of the hats so you are a more credible professional focused on clients and not some of the other jobs investors hired you to perform?

A planner with a paraplanner is an example of this relationship. A wealth manager with an OCIO is another example. The planner and the wealth manager are outsourcing work to a third party so they can spend more time with prospects and clients.

One of the first hats you should consider outsourcing is the CIO responsibility, which can also make your firm more credible in the eyes of investors. It can also improve the results you produce for your clients.


Watch our video: “Focus on Clients, We’ll Handle the Research.”


How Can An OCIO Support Your Marketing Efforts To Win Bigger Clients?

What happens if you compete for new clients with a few million dollars of assets available for investment? These potential clients are naturally cautious because there is a lot at stake. And, to make it even tougher, your principal competitors are all bigger than your firm regarding several specialized financial professionals. 

They may be even more cautious based on their most recent experiences with financial advisors. They may be looking for new advisors because they recently terminated their relationship with their previous financial advisor.

What happens if this type of prospect asks to talk to the professional making the investment decisions for this amount or type of asset? 

Could you refer this prospect to a CIO who could discuss investment philosophy and strategy? All of the information provided by the CIO has been coordinated with you.

An Easier Way To Justify Your Fee

The business models for many financial advisors make it difficult to explain and justify how they are compensated and how much. The explanation gets more complicated when there are multiple layers of fees, and at some point, the prospect’s eyes start to glaze over.

Planning may be the first wealth management service that AI impacts. Marketing your firm as a money manager may help justify the fees you charge your clients. And many advisors believe it is difficult to charge a 1% for passive management investing in ETFs.

Layers and layers of fees, taken in the aggregate, can reduce your firm’s competitiveness. Withholding the compensation information of third parties is not an option, particularly if the prospective client is experienced enough to ask the right questions and require documented responses.

What is the Most Important Role of a Financial Advisor?

Arguably, it is the role of money manager, but do you have the time, inclination, and special training to manage hundreds of millions of dollars? If the answer is no, then there is a good chance you will outsource this role to a third party. This can increase the fee to the client and/or reduce the amount you retain from the relationship. 

A more financially rewarding solution is to market your firm as the money manager using the services of an OCIO. There are no third parties that charge additional fees for asset management.

Arguably, this is the most important role of a financial advisor because it is the one expense that can make the client money and pay for itself. 

A More Competitive Fee Structure

Your firm will be more competitive if it can reduce the layers of fees that are charged to your clients. There is little you can do about your fee or the fee of your custodian. However, there is an opportunity to reduce the fees charged for money managers, including TAMPs, SAMs, ETFs, or Mutual Funds.

Let’s say your fee is 1.25%, which covers the cost of planning and investment management. This could make you more competitive than firms outsourcing money management to third parties, charging much higher fees.

Pick The Right OCIO

The ideal OCIO will be the one that meshes seamlessly with the way you prefer to conduct your business. You do not want an OCIO with an investment process that disrupts your client relationships.

You should outsource to a CIO who is committed to making enhancements to your current money management 

The right OCIO is the one that makes your firm more marketable against bigger firms. The best OCIOs will have the following credentials:

  • Years of applicable experience
  • College degrees
  • Certifications (CFA® is preferred)
  • Memberships in associations with continuing education requirements
  • Clean compliance records

In addition, the ideal OCIO will have some of these characteristics:

  • The credibility of a real financial expert
  • Exceptional communication skills
  • A personality that builds trust
  • A willingness to interact with prospects and clients
  • Is adaptable to various client cultures and business practices

Want to learn more about the many benefits of OCIO services? Contact Cornerstone for an introductory conversation.

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.