Pros & Cons of Outsourcing Investment Management to an OCIO

Pros & Cons of Outsourcing Investment Management to an OCIO

In today’s dynamic investment landscape, many financial advisory firms are contemplating whether to manage their investment processes in-house or outsource them to established experts. The Outsourced CIO (Chief Investment Officer) alternative is a popular solution gaining significant traction. 

But what exactly are outsourced CIO solutions? And are they the right fit for your firm? In this article, we’ll describe the advantages and disadvantages of outsourcing investment management to an outsourced CIO, helping you make informed decisions about your organization’s investment management services.


Considering OCIO services? Read our popular Quick Guide, “Why an Outsourced CIO could be your shrewdest investment.


Pros of Outsourced CIO Solutions

Expertise and Experience: One of the most significant benefits of utilizing outsourced chief investment officer services is gaining access to a pool of professionals with specialized knowledge and extensive experience. These experts are well-versed in the nuances of the markets and can provide insights and strategies that might be beyond the scope of a current in-house professional.

Cost-Efficiency: Maintaining an in-house investment team can be very costly, especially when you consider salaries, bonuses, benefits, and other types of expenses. By outsourcing, firms can save significant money by only paying for the needed service. 

Potential for Improved Performance: An OCIO’s specialized expertise provides the potential for improved investment performance, creating long-term relationships. This collaboration between a financial advisor and OCIO can boost the advisor’s client retention rate due to improved results—a win-win-win relationship for everyone.

Improved Credibility: Listing a specialized OCIO on a website can improve the credibility of a firm. It is no longer necessary to convince prospects that one professional is an expert at providing multiple wealth management solutions – planning, investing, risk management, tax, administration, etc. Improved credibility can also make a firm more competitive against bigger firms that employ full-time CIOs. 

Reduction in Administrative Duties: By offloading complex investment research and management decisions, financial advisory firms can focus on what they do best: acquring new clients and serving current clients. Wearing fewer hats creates more time to focus on activities that produce and retain revenue. 

Keeping Up With Change: Partnering with an OCIO can help empower your firm to navigate complex, rapidly changing investment landscapes more efficiently. By leveraging the OCIO’s expertise, firms can implement sophisticated investment strategies that stay current with market conditions. It’s about smarter investing through collaboration.

Marketing Support: Some prospects who have relied on financial advisors in the past may want to talk to the professional who will be managing their money. Your firm can be more competitive when investors can talk to an OCIO about investment strategies and practices.

A Resource That Is Focused on Investment Management: The key word is focus. Your clients should experience better outcomes when you have an OCIO that is focused on risk management and the delivery of competitive rates of return. Partnering with an OCIO can streamline your investment-related decision-making processes and may improve the results you produce for your clients. 

Increased Diversification: An outsourced CIO typically has access to a broader range of asset classes than financial advisors, who may be limited to the basics (stocks, bonds, cash equivalents). Additional asset classes can reduce risk and improve rates of return.

Risk Management: Outsourced CIO services often employ state-of-the-art tools and methodologies to monitor and manage investment risks. Their sole focus on investment management ensures they stay ahead of changing market conditions.

Reallocation of Time: Instead of spending hours researching, analyzing, and managing investments, firms can focus on building an improved quality of life. This can mean less stress and more time with family and leisure activities.


Watch our video on how RIAs use OCIO services to grow their firms.  


Cons of Outsourced CIO Solutions

Outsourced CIO solutions benefit financial advisors and their clients. However, there are a few red flags if the relationships between advisors, prospects, clients, and OCIO are not managed properly.  Our goal is a well-oiled machine that produces the results you are seeking with the least amount of disruption. 

Hiring an OCIO does not replace the need for oversight: Hiring an OCIO is a strategic move for financial advisory firms. However, it doesn’t negate the need for oversight. Even with an OCIO, continuous monitoring and involvement ensure alignment with your firm’s goals and objectives. Partnership, not replacement, is the key.

Hard to give up internal control: Entrusting the core of your investment management to an outsider can feel like surrendering control. It’s natural for an internal team to grapple with relinquishing such a pivotal role, especially when they’ve nurtured and fine-tuned their strategies over the years. Trusting external expertise requires a mindset shift.

Depending upon the scope of services provided, it can be a more expensive solution: The allure of specialized expertise sometimes comes with a premium price. While they offer specialized knowledge, the fees charged by a Fractional CIO are deducted from the fees charged by the financial advisor. Ensure you know what the services cost and what advisors get for their money. 

 Potential Misalignment of Interests: While many outsourced CIO services prioritize their client’s best interests, conflicts are always possible. Ensure the outsourced entity’s processes align with your firm’s objectives and client needs.

Communication Gaps: Effective communication is essential for any successful partnership. If not managed correctly, communication breakdowns between the firm and the outsourced CIO can lead to misunderstandings or missed opportunities.

Potential for Generic Solutions: Not all outsourced CIOs are created equal. Some might offer a one-size-fits-all process, which can be duplicated in-house with some guidance. It’s vital to select a partner that provides tailored solutions.

Transitional Challenges: Switching from an in-house professional or team to an outsourced CIO can pose transitional challenges. There might be integration issues, philosophical differences, or a learning curve during the period both parties are getting accustomed to working together.

Get to Know Cornerstone Portfolio Research

Cornerstone Portfolio Research is a beacon of independent portfolio management and investment research. We’re proud to cater to clients across the U.S., ensuring that outsourcing is a seamless, integrated process for their firm and clients. 

Our philosophy? You deserve the premium advantages of collaborating with a CIO and a CFA® Charterholder without the usual hassles or disruptions that outsourcing often brings. Leave the back-office tasks to us and channel your energy into what truly matters – showcasing your expertise and serving current clients. Connect with us to learn why more RIAs and IARs are partnering with us. 

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.