You could act as the CIO. In this case, you have to convince investors your expertise includes planning, investment research, and other services you may offer.
You are probably marketing yourself as a generalist because you have to convince investors you are an expert in all of these disparate disciplines.
You could hire a CIO, but good ones are exceedingly expensive when you add up salaries, taxes, benefits, bonuses, stock, and business expenses. You may have to raise your fees to cover the increased costs.
You could become a gatherer and send your clients’ assets to third-party investment firms. This means you have delegated your most important responsibility to a third party.
Or, you could outsource the work to a CIO who manages your firm’s assets for you.
How can RIAs make outsourcing to a CIO a win/win for themselves and their clients?
- How are your clients better off?
- How is your RIA better off?
We believe there are some compelling reasons why more RIAs are outsourcing investment management to a CIO who is an independent contractor.
Optimize Your Time
As the old saying goes, what is the highest and best use of your time? Or, in the case of the financial service industry, you might ask how do you get the highest return on your time per client relationship?
Financial advisors tell us the highest and best use of their time lies in interacting with prospects and clients. After all, adding new clients and retaining current clients are their firm’s primary sources of revenue.
If you had to make a choice, are you and your clients better off if you delegated sales and service or investment management?
The Outsourced CIO solution can be a great way to leverage your firm’s internal resources.
Keep it Simple
We believe that investors assume they are better off when your RIA provides all of the services that they are seeking. The reason is pretty straightforward. They only have to make one selection decision.
The more third parties you introduce to clients the more due diligence they have to conduct and the more layers of fees they have to pay.
When they seek financial advisors, many investors are seeking planning and investment expertise, advice, and services. Do you market yourself as an expert in both disciplines or do you market as a team of professionals?
Investors prefer the best thinking of a team.
Asset Gatherer or Investment Manager
Your role may be diminished if you gather assets for third parties. We believe this implies the third parties have the investment expertise and your firm does not. This type of relationship can be amplified when you have non-discretionary relationships.
You could survey investors and ask them which service has the greatest impact on their financial futures. We believe that by far, the answer will be investment management followed by financial planning.
We believe that the stature of your firm is greatly enhanced when you outsource the need for a CIO to a professional who is part of your firm.
The Power of the Internet
It is very risky to underestimate the impact of the Internet on the financial services industry. Why? The Internet makes it easy for investors to find financial advisors and it makes it easy to learn more about them by visiting their websites.
Meanwhile, investors can maintain their anonymity until they are comfortable submitting their contact information. This is an unprecedented amount of power for investors.
Your key to digital marketing is to make sure you are competitive with other firms so the investors contact you.
After the home page, what is the most visited page on your website? It is often the Our Team page. They want to see the credentials of the professionals who will be advising them on planning and investment management.
This page is titled Our Team for a reason. Investors expect to find specialized professionals who work as a team. No one can be an expert in all of the various disciplines that make-up wealth management.
So, what if there is no team? We believe that your RIA will not be competitive with the other RIAs that utilize teams of specialized professionals for financial advice and services.
Layers of Fees
More knowledgeable investors know there is no free lunch in the financial services industry. All of the service providers have to get paid. Anytime you can reduce the number of providers, you are also reducing layers of fees.
If you are like most financial advisors you are going to charge an asset-based fee for your advice and services. The two core services are planning and investing and a typical fee is 1% on the first million dollars of assets.
Note the foundation of an asset-based fee is the market value of your clients’ assets. This fee goes up and down based on the performance of your clients’ assets.
Your asset-based fee may or may not cover the cost of your planning services. We believe that this means the most important type of advice is your investment recommendations or decisions (and possibly, an increase in AUM).
We believe that managing money is a unique blend of art and science. It can take years of experience to produce competitive returns for your clients.
We believe that it makes sense to outsource your clients’ need for investment advice and services to a CIO whose only role is the management of your clients’ assets.
This specialized professional is focused on the delivery of competitive rates of return that are consistent with your clients’ tolerances for risk.
Your Firm is More Marketable
You have a more robust Our Team page on your website. Most importantly, an Outsourced CIO can help you meet the expectations of potential clients who want to hire one firm that provides all of the wealth management services that they are seeking under one roof.
Ready to delegate repetitive tasks, close more prospects, and build your client base? Reach out. We’ll do the rest.
How are you and your clients better off? The answer is simple in our opinion. Outsource your need for investment management to an independent CIO who is a member of your team.
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.