Haunted by news of market uncertainty, investors are looking for reassurance from their financial advisors (at a time when some may be feeling uncertain themselves). They also may need to understand that downturns will eventually reverse. Once they do, it may be easier to convey the importance of staying the course despite wild economic headlines.
This is a great time for investment professionals to leverage their standing as trusted sources of information and provide timely communication. However, you need more than comforting phrases: A strong investment team is even more important than usual during bear markets. This could make the difference between retention (and possible gains) or losses.
The first thing you should be doing now is seeing how you can help any clients who may be misinformed or worried. Effective communication can take several forms: one-on-one conversations, Q-and-A group meetings, written communications (such as newsletters or articles), or alerts via email or text message alerts (if and when they are appropriate).
The key is delivering timely and consistent messages to help investors understand how market forces affect their investments. It’s equally important to promote an understanding of what volatile times look like—and how investors should manage their portfolios during volatile times. With patience, establishing these fundamental concepts can lay tracks toward informed decision-making and a clearer perception of when action is and isn’t necessary.
In Time, You May Also Want To Explain:
- What market timing is (and why it’s often unwise).
- How staying the course often pays.
- The importance of emotional intelligence.
- Why it helps to learn from mistakes
- That upticks often follow downturns
It can be tough convincing antsy clients to relax in the short term, but modeling the patient confidence you’d like to see them develop can help. Doing that can get profoundly easier when you have the right team backing you up: When you know you’re likely to make it, you don’t have to fake it.
Solid leadership can do wonders in this regard. In other words, quality management can help your clients evaluate risk, help you comply with regulations, manage your reputation in an increasingly crowded market, and much more. If you’re thinking, “That’s great, but I can’t afford the salary, bonuses, et cetera for a new hire,” the good news is that you don’t need to.
Affordable Excellence: The Outsourced CIO
An outsourced chief investment officer (OCIO) can provide third-party oversight for investment strategy development and asset allocation to independent Broker-dealer firms as well as RIAs.
This allows you to spend more time building relationships with your current clients as well as building new relationships with prospective clients.
At the same time—while this executive officer becomes part of your team (and you can list them on your website)—you don’t have to worry about an annual salary, benefits, or even providing a desk. The working relationship is real, but the interaction is typically virtual, so the costs incurred by bringing someone else into the firm physically don’t apply.
Meanwhile, your firm still benefits from the kind of independent perspective that can often be lacking within a large corporate structure or family office environment. They may also provide valuable insights into market conditions and industry trends. This can be invaluable when you’re trying to estimate what might happen down the road (and preparing your business model accordingly). While they don’t offer any more guarantees than you do, the better ones have a track record you can refer to.
An outsourced OCIO may be able to help you serve your clients better by offering access to a wider range of opportunities and products, as well. This could potentially help you build a more profitable business model: In addition to offering the same types of investment options as traditional advisors, you might also offer additional products that traditional broker-dealer firms, alone, generally don’t.
The benefits of outsourcing your CIO can go much further. For example, hiring a fiduciary OCIO could potentially mean strengthening your investment team by adding another level of value to your clients’ investments. With the extra horsepower and expertise, you might help investors manage their money better. A larger variety of available services could result in a higher level of satisfaction among your clients.
Leverage the Outsourced CIO Advantage
Bear markets make it challenging for investors to stay the course. When volatility increases, their confidence may often wane if they find themselves unable to align their portfolio management strategies with 100% of their long-term plans. A fiduciary OCIO may be able to help your firm mitigate the situation in a number of ways.
In addition to other possible benefits, hiring the right OCIO can mean acquiring tested investment insights from an experienced portfolio manager who’s weathered every variety of market behavior. Designed to help investors stay the course, these financial tactics may inspire more confidence in your clients, when implemented properly.
Predictably, an investor whose portfolio is too concentrated in one industry or sector of the economy will usually be impacted more significantly by its ups and downs. As a result, most investors can lose money in a bear market because they sell out of fear of losing even more money if they don’t get out now.
If you’ve ever found yourself articulating something like this to a client, but it just wasn’t sinking in, an OCIO might be able to lend additional clout to your assertions. Sometimes the second opinion of an accredited, well-seasoned financial professional can lend more weight than you’d expect.
An OCIO helps you strategize approaches designed around your clients’ assets.
As markets fluctuate and economic conditions change (almost daily, it seems), their portfolios must be monitored closely to ensure that they remain in line with their plans. This can be especially complicated when investors are looking toward retirement and need help understanding how various investment strategies will impact them in the future.
A Tactical Team
As an independent advisor, you have already made the decision to go independent. This takes hard work and choosing the correct custodian and back office to fit your needs. It also necessitates some important questions:
- What type of OCIO will you choose?
- How do you know they’re the right OCIO for you?
- Will they allow you to grow your practice?
- Will they help increase your potential for success?
In an outsourced model, an outsourced OCIO may give advisors all of the legal benefits (and quite possibly, the peace of mind) that they would have with a strictly in-house model. Often having access to all of the financial services industry’s platforms and products, advisors may be able to obtain best-of-breed solutions for their clients.
This kind of well-rounded team may also be able to help you manage risk better when the markets are volatile. If something goes wrong during the process of executing trades for a client, there can be someone else to assist you in taking care of it (rather than having to handle all the responsibility by yourself).
You and I know that volatility is the norm; not the exception. We’re used to seeing stocks rise and fall on the daily news cycle. We’ve also grown accustomed to hearing about how the markets are unpredictable (which is true). At the same time, if you have an investment team that could anticipate these ups and downs, wouldn’t you be able to weather them better?
A good OCIO can round out the team of advisors you’ve hired to manage your clients’ investments, providing financial planning support and portfolio management services. However, it almost goes without saying that some will bring more potential advantages than others. Before making your decision, you need to make sure that your candidate is a good match for your practice. You might start by asking yourself:
- What are the needs of your clients?
- How will they help grow your practice?
- What are your goals and how can they help achieve them?
These answers should assist you in identifying an OCIO that fits your needs and situation best. Again, superior prospects generally have no issues with providing you with a solid reference from other firms, either. So, look closely at how each one has performed in the past.
There are many reasons to want a stronger investment team for your brokerage firm. Market volatility may be the most prevalent this year (and, possibly, in days beyond). That makes adding Cornerstone Portfolio Research’s capabilities to your team an outstanding option. Contact us today to learn more.
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.