Top 20 Questions Financial Advisors Should Ask OCIO Candidates For Their RIAs

Top 20 Questions Financial Advisors Should Ask OCIO Candidates For Their RIAs

Let’s assume you have decided to take money management in-house and you are considering bringing on an Outsourced Chief Investment Officer (OCIO) to manage your clients’ portfolios.

We know this is a critical decision for your independent RIA because an OCIO will have a major impact on the performance of your clients’ portfolios. 

This makes the selection of the right OCIO a critical decision for your financial advisor firm.

Following are the top 20 questions that we believe financial advisors should be asking when they interview OCIOs for this important role.

1. What Are Your Credentials?

There are four types of credentials that we believe impact the expertise of OCIOs:

  • Education with degrees
  • Years of experience
  • Certifications (CFA is best)
  • Association memberships (continuing education requirements)

2. How Much Money Do You Currently Manage?

The amount of AUM may be an important criterion, in particular for financial advisors with higher minimum asset requirements. 

There will be a disclosure requirement if this number is used in the financial advisor’s marketing content.

3. What Is a Typical Amount of Assets for Client Portfolios That Financial Advisors Refer to OCIOs?

The answer to this question may be several numbers:

  • The average size portfolio that is managed by the OCIO
  • The largest client managed by the OCIO
  • The smallest client managed by the OCIO
  • The OCIO’s minimum account size

4. Does the OCIO Own an RIA With Direct Client Relationships?

Some OCIOs work exclusively with financial advisors and do not have their own clients. Other OCIOs may manage money for their own clients that are in addition to the outsourced clients.  

5. What Does the OCIO Invest In?

OCIOs may invest in securities, ETFs, mutual funds, hedge funds, alternatives, or some combination of the above.

The investments may vary by asset classes, domestic versus global, or some other differentiating characteristic.

Financial advisors may want to select outsourced CIOs that have investment strategies consistent with their own. 

6. How Does the OCIO Manage Risk?

It is important to understand how the OCIO will manage risk in your clients’ portfolios.

We believe that from a client perspective, most risk is associated with market volatility, therefore stocks are riskier than bonds. 

There are also other types of risk worth noting – for example, inflation and reduced purchasing power for client assets.

Diversification may be the OCIO’s primary strategy for managing risk. So it would be important to know how many asset classes are represented in a typical client’s portfolio. 

7. How Does the OCIO Allocate Assets?

This is a broad question that can address several alternatives.

One version of this response is market timing. Another answer can be diversification based on where companies are headquartered and where they generate most of their earnings.

Some broadly diversified portfolios include five or more global asset classes.

8. Does the OCIO Practice Active, Passive, or Both Styles of Management?

This is one of the more important questions that must align with your preferred method for outsourced investment management. 

Active investment management is frequently associated with a strategy that is trying to beat the market. On the other hand, passive management is frequently associated with trying to match the returns of specific market indices.

Passive OCIOs may also be more inclined to stay fully invested during market declines. Whereas, active managers may reallocate assets to more conservative investments. 

9. Does the OCIO Have a Minimum Asset Requirement?

An OCIO may have a minimum asset requirement that represents the smallest client portfolio that this professional can or will manage.

For example, a minimum amount of assets may be required to properly diversify a client’s portfolio. A passive management OCIO may have lower minimum requirements than active management OCIOs.

10. How Is the OCIO Compensated?

Most OCIOs are going to be compensated with basis points so the question is how many? 

Does the outsourced CIO charge the same basis points for equity, balanced, and fixed income portfolios?

Does the OCIO have a sliding schedule of fees that is based on amounts of assets?

Does the professional charge any type of a minimum fee per portfolio?

11. What About Current Clients?

Will the outsourced chief investment officer take over the management of current clients?

If the answer is “Yes,” how many changes will the OCIO make to the current portfolios?

12. Does the OCIO Have a Marketable Track Record?

It is possible that some OCIOs have track records that can be presented to investors. No doubt there are some significant disclosure requirements for assets that are managed by an OCIO at another firm.

We believe that a marketable track record should be GIPS compliant and audited by an independent third party.

13. Does the OCIO Have a Clean Compliance Record?

Does the OCIO have any blemishes on his or her compliance record? 

This can include client complaints, actions by regulatory agencies, bankruptcies, foreclosures, liens, and other actions that impact the integrity and/or financial stability of the OCIO.

14. Can I List the OCIO on the Our Team Page of Our Website?

Most financial advisors have websites and one of the most visited pages is the Our Team page. 

It makes sense that investors want to learn more about the professionals who will be making recommendations or decisions for their assets.

The question is can financial advisors list the OCIO on the Our 

Team page of their websites. This will be an important marketing tool that we believe increases the credibility of financial advisors.  

15. How Many Relationships Does the OCIO Have With Other RIAs?

The number of current relationships is important information. A related question is does the OCIO have a cap on the number of clients that he or she will work with? 

16. Do All of the Financial Advisor’s Client Portfolios Have the Same Holdings?  

Just how customized are the portfolios managed by the OCIO? Some OCIOs may manage a series of model portfolios that vary by risk (aggressive, moderate, conservative) or some other criterion. 

Other CIOs may manage individual portfolios that vary by clients’ goals, time horizons, and current circumstances.

17. Does the OCIO Work With Any Other Advisors in My Area?

This could be an important question if the OCIO has other financial advisors clients in the same city. It could be a little awkward if the two RIAs were competing for the same client with the same OCIO.

18. Is the OCIO a Sole Practitioner or a Member of a Team?

Some OCIOs are sole practitioners and some represent teams that include portfolio managers, research analysts, economists, and other types of investment professionals.

19. Is the OCIO Available for Virtual Meetings With Prospects and Clients?

This is an important question when you consider some larger clients will want to talk to the person who will be managing their money. Some OCIOs are comfortable in this marketing role and some are not.

We believe that OCIOs should be more comfortable communicating with current clients who have questions about the OCIO’s investment research, practices, and portfolio holdings.

20. Does the OCIO Have a Vision for How the RIA May Expand Portfolio Management Services in the Future?

We believe that the best OCIOs will be part of the financial advisor’s team that is responsible for planning the future of the firm. 

In this role, the OCIO may be acting as a product manager who is responsible for planning and developing the financial advisor’s investment services.

We have a free eBook detailing the difference it can make. However, please contact us for the specifics of how we can benefit you.

CPS eBook Reasons to Outsource

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.    

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.