Every step an RIA takes in competition with other firms counts. Particularly where the market is heavily contested, there are no do-overs. Wading into the fray with anything less than your A game is a waste of both time and resources.
In fact, in some markets, even a great service model and phenomenal marketing, alone may not be enough. You need a secret weapon; something to help you stand out from the sea of look-alikes. At Cornerstone Portfolio Research, we are convinced that your potential winning edge is an outsourced chief investment officer (OCIO).
In case you are new to the term, an outsourced chief investment officer can be an independent contractor who serves on your team. You do not need to provide a parking space, benefits, or salary for them (just their fee). Nevertheless, you can list their bio on the team page of your firm’s website. The benefits of a reputable fiduciary outsourced CIO are numerous. However, you might say that they all boil down to providing the horsepower and expertise to let you do what many RIAs do best with confidence; financial planning. This is your bread and butter, so obtaining the freedom to do your best work can be a massive potential win for you and your clients.
A quality OCIO can handle as much or as little investment decision-making and risk management as you delegate. However, in order to utilize one as a competitive edge, we believe that you should delegate as much of your portfolio management as possible. This, in turn, leads to the kind of peace of mind that can only come from knowing that your asset management is in the hands of a thoroughly vetted expert.
One of the most dangerous mistakes to make as an advisor is letting your financial planning and client trust-building get lost in the shuffle. Your contacts chose you over a mega-firm because they want the boutique service model you provide; not the international conglomerate approach.
However, you should never take this for granted. Advisors who get preoccupied with other things; even necessities like research, risk alienating the clients they have less time for. Generally speaking, even low-maintenance clients don’t remain patient forever: sooner or later, they will notice when you start putting them off.
Once they realize that they are being back-burnered, they may reconsider staying with you, long-term. As a matter of fact, all investors are most likely to leave their current advisor in search of a replacement during periods of market volatility.
The one-two punch of inflation and supply chain issues we are seeing now happens infrequently. So, the timing could not be worse for putting your financial planning last. If there ever was a good time to risk getting out of touch with your contacts list, it definitely is not right now.
Keep in mind, as well: If your ideal potential clients include ultra-high net worth (UHNW) investors, as many as 32% want to be contacted monthly (and 93% want you to initiate contact, most of the time). These people are not hurting for advisory candidates. If you keep them waiting at all, they may not stick around.
The upside of the current market situation is that sticking to your financial planning, paired with good communication and trust-building, can prevent many worst-case scenarios from happening. You just have to figure out a way to hold onto the investment management ball, without neglecting your AUM.
This is where we believe that hiring an OCIO can potentially save the day and, possibly, help you compete better, even when the market is saturated. Entrusting all the time-consuming research grind to a quality fiduciary outsourced CIO should free you up to excel, both defensively and offensively.
I say “offensively” because there is a huge potential silver lining to the effects of volatility on nervous HNW clients: There may be unusual numbers of investors in search of a new advisor soon. Once you reassure your existing clients, one benefit of today’s market volatility is that it could lead to significant growth of your prospect list.
In other words, we believe that offloading time-consuming tasks like investment research to a trustworthy OCIO could potentially free you up to go after those disenchanted investors that may soon be up for grabs. At the same time, you should be able to relax and focus, certain that the kinds of tactical investing and research a volatile market requires are in more-than-capable hands.
Global financial firms have understood the advantages that an OCIO can provide for years. They do not have an exclusive right to the resulting competitive advantage, though. Believe it or not, the size and budget limitations of an independent RIA may be compensated for, at least somewhat, with the right outsourced CIO on your team.
Especially if you outsource a CIO who happens to be a Chartered Financial Analyst® (CFA®), your firm could receive an immediate prestige boost. This, in turn, might inspire you to optimize your fees and (perhaps) raise your minimum assets requirement. After all, top-notch investment management, research, and expertise do not come cheap.
If your OCIO meets with clients directly, the CIO may be able to present options that broaden their diversification choices. By providing a comprehensive approach to balancing asset classes as deep as the larger firms’, your outsourced chief investment officer could easily become an even more sound reason for increasing your fees.
Meeting your regulatory and compliance obligations could become less stressful, as well. It is past time to stop letting increased complexity intimidate you! All you need, essentially, is a reputable fiduciary OCIO. No matter how the field changes regulations-wise, you can know that everything is being kept both up-to-date and on the level.
The more successful you are, the harder it seems to be to make time. It is the one commodity that money cannot buy. Nevertheless, you have to save time where you can in order to maintain client relationships (to say nothing of prospecting for new ones). The more you need it for them, the less there usually is to spare.
I cannot say for certain, but sometimes I suspect that whoever said “time is money” worked in the financial industry. This, also, is where the services of an OCIO could become a significant competitive edge: The more tasks that you offload onto your outsourced CIO, the more time that you can potentially recoup.
As a result, your financial planning services could be improved (if not expanded), possibly facilitating a rate increase. New prospects might even be closed at higher rates. Once you start investment resource outsourcing, you may want to consider raising rates for your existing book of clients, also.
There are certain aspects of an OCIO’s services that may catch the eye of HNW individuals, as well. I have already mentioned the hands-on expectations of UHNW clients. The same may be said for some high-net-worth clients, also. As many as 70% of millionaire households utilize financial advising.
Like other clients, they often need wealth management, tax strategies, or estate management. Occasionally, they might want help choosing their best life insurance, investment advice, or a question-and-answer session about various financial products.
Some advisors might be intimidated by the scale of an HNW’s larger-volume investment and financial concerns, but having a quality OCIO in your corner means that you do not have to be. The experience and expertise that they bring should make the idea of larger HNW clients exciting rather than intimidating.
Since many HNWs under the age of 45 screen advisors by searching online, if your niche fits this demographic, you might start feathering the nest for them at your website. Research their pain points and then make sure that your layout, copy, and graphics cater to each of them.
One of the biggest things HNWs look for in a financial advisor is trustworthiness. As reputable as you may be now, adding a vetted-and-credentialed OCIO to your team can only help increase visitors’ perception of this vital characteristic. The impressive bio does not hurt, but it should only be a part of the overall package.
Many HNWs seek an advisor with values similar to their own, as well. This is another area in which a reputable outsourced CIO may be seen as furthering your credibility. Since the better ones, for example, are often involved with forms of philanthropy, your firm’s appeal to HNWs could receive a boost there, as well.
I would not waste time making a shallow pretense of a particular value(s). No matter what niche you are hoping to attract, it may ring untrue or seem insincere—which could alienate the very investors that you hoped to impress.
In other words, focus on the standards that you, personally, hold dear. The truth has a way of surfacing, come what may. So, avoid emulating views that you cannot honestly say that you believe in.
If you are reading this from under a large financial firm’s roof, while dreaming of going independent, please do not feel left out: a fiduciary OCIO could potentially help you, also. As a matter of fact, we believe that a reputable one might help streamline your big move into a much simpler process.
Meanwhile, there are still multiple factors to consider, first. For instance, your clients should be more than just satisfied with your advising. The bond should be strong; ideally, nurtured ahead of time for months. This is not just important; it is vital to your chances of keeping them.
In many cases, anywhere from 60% to 90% of your clients could potentially follow you to a new firm. However, this hinges entirely on how happy they are with your work and the relationship. It may be wiser to hold off a bit longer and make sure than to rush out and base your firm’s future on “I-hope-so”s.
Make sure that you have done your documentation homework, as well. Many signatory firms have protocols stipulating that they will not begin legal action against advisors taking clients to another signatory institution. Some even green light an advisor to contact current clients when they leave to inform them of what is happening.
In these cases, the client is afforded the choice to follow the advisor, if they wish. Things are not always this easy, though. If you have signed a non-compete or non-solicitation agreement (usually when joining firms that have them), things are certainly more complicated. So, it pays to verify everything document signed coming in the door.
None of what you are reading should be construed as legal advice. Nevertheless, I will say that you must honor any such agreement(s). This is a no-brainer. You do not want to even appear to be actively soliciting anyone away from your soon-to-be-former firm.
There may not be any restrictions barring you from sharing a private address, email or phone number. If this is the case, you might conceivably consider sharing either or both, in case anyone wants to keep in touch after you leave.
The burden is on you to read the fine print before proceeding, however. Please make sure to look before you leap. In your shoes, I would prepare myself to expect nothing beyond breaking even for the first year, as well.
A bright future may still lie beyond, but do not expect any significant income while you are getting started. Many advisors’ revenue actually shrinks for anywhere from the first three to the first six months.
Unless you have ample savings, odds are that you will need to get a loan or line of credit. Therefore, it may be best to hold off from making the big leap until you have about nine months’ worth of income socked away.
When the time comes and you know that you are ready, outsourced investment management should be, as well. Especially early on, when money may be tight, a prestigious expert working for a fee (whose work you could not afford a salary for) could prove extremely useful.
In order to develop and then maintain strong client relationships, you have to be candid. Whether you call it accountability or transparency, it is integral for building trust as a financial advisor. Fiduciary outsourced chief investment officers knew this well before the public started voicing a demand for transparency.
Loyalty does not necessarily grow from big words or gee-whiz technology. Each may have its place, but real, all-weather relationships start with setting realistic expectations. Remember, meanwhile, that this is only the tip of the relationship-nurturing iceberg.
For best results, keep your interactions genuine. For example, where appropriate, be willing to offer a relevant story to help make a topic easier to relate to. No one is perfect and some clients may relate more easily to an advisor who has, for instance, made a similar financial misstep early on.
It is okay to be forthcoming about positive aspects, as well. For instance, if you are a fiduciary, clients may need to be informed of the basics in order to appreciate your value. Knowing that you avoid conflicts of interest can be something of a value-add, in and of itself.
As an advisor, it is perfectly reasonable for you to expect this from an outsourced team member, also. The right OCIO for your firm will happily keep accountable in regard to all management decisions. If someone only makes excuses when asked, avoiding scrutiny, they may not be a good fit for your firm.
For all the reasons above and more (that I am out of space and time to list here), we believe an OCIO is an advantage that you need for competing in a tight financial market. Compare the potential prestige, revenue boost, and more to the price of a few basis points.
Whether you are located in Main Line PA or somewhere nearby, we would love to discuss how Cornerstone Portfolio Research can bring a serious competitive edge to your firm. Contact us today.
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.