The RIA/IAR Strategic Advantage of Outsourcing CIO Services

An Outsourced Chief Investment Officer (OCIO) is a professional or firm that provides investment management services to RIAs and IAR firms, independent broker-dealers, and institutions, for example, endowments and foundations. 

There are many reasons why more growth-oriented financial advisory firms are outsourcing to OCIOs:  

1. OCIOs are highly experienced investment management professionals who can provide specialized knowledge and services that benefit your firm’s clients.
2. Many independent RIA and IAR firms find they have more time and resources to focus on core activities such as client relationships and business development when they outsource their investment research and portfolio management services to an OCIO.
3. Another benefit that OCIOs bring is a fresh perspective on portfolio diversification using multiple asset classes. An OCIO can provide your firm with broader investment options, improving your clients’ portfolio diversification.
4. As your firm grows in size (clients, assets). OCIO services can be tailored to your client’s needs, making your firm a more scalable and profitable business.
5. CIOs can also provide compliance support by helping your firm follow industry requirements. It pays to comply when you manage other people’s money.

When markets are volatile, many financial professionals feel the pressure when their clients’ anxieties are on the rise, and pointed questions are asked about risk exposure and the performance of their investments.  

While some of the anxiety may still exist, an OCIO can help manage your client’s concerns and provide an objective view of current and near-term market conditions.  

When you partner with an OCIO, the professional or firm can provide:

• Market Analysis: OCIOs have a deep knowledge of market trends and risks, which is the foundation for enhanced decision-making that minimizes the impact of market fluctuations.

• Active Investment Management: OCIOs keep a close watch on the market and can quickly modify investment strategies to respond to changes in economic and market outlook. This helps manage risk and identify investments for volatile market conditions.

• Portfolio Diversification: OCIOs help build diversified portfolios for clients, which is crucial for reducing the risk of large losses due to concentrated investments. 

• Time Management: By managing the complex aspects of investment research and portfolio management, OCIOs free up your firm’s principals to focus on client relationships and other business priorities without the burden of constant market research and analysis.

• Personalized Strategies: OCIOs offer tailored investment strategies that match each client’s goals and risk tolerance, providing a more custom-fit approach to investment management.

Integrating an Outsourced Chief Investment Officer (OCIO) into an RIA or IAR firm practice can be a strategic move for independent advisors, especially if you want to scale your business without taking on the expense of a full-time CIO. 

The key to successful integration into your existing advisory practice lies in clear communication about goals and business practices. You must be sure the OCIO clearly understands your needs and expectations. There is no room for misunderstandings that impact your business or clients.

Another crucial component for a smooth integration is a clear understanding of your current investment philosophy and business processes so the OCIO can seamlessly integrate with your clients. 

You should also schedule frequent meetings to keep you and the OCIO on the same page. This is key to maintaining a cohesive strategy that produces long-term benefits for you, your clients, and the OCIO – a win-win-win relationship that lasts for years.

Lastly, you should develop a series of documented processes and procedures with the OCIO to ensure they understand your compliance requirements.  

Measuring the success of your OCIO relationship involves more than just performance and risk metrics. Even better metrics can be your current client retention rate and feedback from these clients. It can also be about the quality of your working relationship with the OCIO.  Does this professional make you more competitive? Is your conversion rate better: Leads to prospects, and prospects to clients. Finding the right OCIO who fits your company’s culture may be as important as meeting your client’s financial goals.

To determine if you’re working with the right OCIO for your needs, ask yourself these six straightforward questions:

1. Have You Met Your Initial Goals?

Think about your original goals when you began partnering with your OCIO. Don’t think solely about financial metrics like returns or risk exposure. Consider if they’ve helped win new clients and made your job easier. Or, develop your measurements and apply them monthly or quarterly.

2. Are Your Risks Reduced?

A good OCIO should help lower your clients’ investment risks and improve your retention rate. This person or firm should offer sound investment advice, effective management strategies, and valuable insights for future results. Feedback from current clients is the best measurement of determining if you selected the right OCIO. 

3. Is The OCIO Process Marketable?

Dealing with your OCIO should be straightforward. Complex communications can be more trouble than they are worth. As your assets grow, you need an effective business plan that works for you and your client’s interests. If the OCIO’s process is difficult to describe to investors, you may not have the right long-term partner for you and your firm.

4. Are Your Clients Happy?

If your OCIO has any interaction with your clients, their satisfaction and feedback matters. Ensure your clients see the value in your OCIO’s support. Happy clients are indicators that the OCIO is doing something right. Any dissatisfaction can be a warning flag.

5. Is The Relationship Working?

Is your OCIO a member of the team? Make sure you and the OCIO are on the same page. You want a consistent, repeatable process between you and your clients. If there is a poor fit, you want to minimize the damage that is being done.

The role of an OCIO continues to evolve, especially as market dynamics shift and the regulatory environment changes.  Here are some of the emerging trends that an OCIO can assist with on behalf of your firm.

• Greater Flexibility and Customization: A growing trend is the increased emphasis on greater flexibility and customization for your clients’ portfolios. 

• Diversification: Another notable trend is the focus on higher levels of diversification. OCIO providers can provide your team with more diversified investment portfolios, helping to manage risk and optimize returns.

• Market Volatility and Regulatory Compliance: Market volatility, increasingly complex portfolios, and the growing burden of regulatory compliance have all led to the increasing use of OCIO services. Many organizations are turning to OCIOs as a solution to navigate these challenges more effectively.

• Value-Aligned Portfolios: There is a trend towards creating value-based portfolios, that is, aligning investments with clients’ beliefs, values, and other ethical considerations. This trend reflects a broader focus on responsible and sustainable investment practices.

• Institutional Adoption: Institutional investors increasingly consider OCIO services a compelling solution for meeting governance and investment challenges. This trend suggests that OCIO is becoming more attractive to larger institutions with substantial assets.

At Cornerstone Portfolio Research, located in Chester Springs, Pennsylvania, we specialize in investment research and portfolio management. Our services are available to clients across the U.S., and we focus on making working with us as straightforward and hassle-free as possible.

Our goal is to offer you all the advantages of having a Chief Investment Officer (CIO) and a CFA® Charterholder on your team without the high expenses and limitations of more traditional relationships. We handle the behind-the-scenes work, allowing you to concentrate on what you do best.

Benefits for You:

• Hiring an OCIO won’t require giving up any company equity.
• Avoid the high expenses of high salaries, bonuses, taxes, and benefits
• Our fees are affordable, ranging from 5 to 20 basis points, with several services priced at ten basis points or less. 
• You continue with your current custodian.
• There is no need for major changes to your investment process.
• Receive personalized research and investment models tailored to your client’s specific needs.
• There’s no need to redo client agreements, transfer assets, or set up new accounts.
• Your clients won’t be unsettled because we introduce changes gradually.
• We consider tax implications in all our recommendations.
• You can expect weekly, high-quality updates from us.
• We’re available for virtual meetings with you and your clients as needed.
• Our services are provided under your firm’s name.
• We can be featured on your website’s “Our Team” page.
• We offer solutions for succession planning.
• You have access to a full-service OCIO during regular business hours.
• We can also assist with unique, one-time needs.
• You gain a partnership with a CFA Charterholder, a highly regarded designation in our industry.