As the economic landscape continues to change, independent financial firms are looking for ways to maximize efficiency while maintaining an edge in their niches. One of the shrewdest investments an advisor or broker-dealer can make is offloading time-consuming tasks to an outsourced CIO (OCIO).
The right outsourced CIO will bring experience honed over years in the industry; seasoned insights of a caliber that few small firms may have, otherwise. Utilizing an objective point-of-view and outside perspective, they can help you evaluate your existing opportunities, discover new ones, and anticipate challenges with confidence.
This article explores these topics (and more):
There are several key indicators that may suggest a recession is on its way. The first is GDP growth. A decline or even stagnation can be an early warning sign of impending economic contraction. Another key indicator is consumer confidence, which has definitely been higher in the past.
Additionally, we have seen the yield curve inverting recently, indicating that short-term interest rates are higher than long-term interest rates. This has long been considered a clear sign of an oncoming economic slowdown. Similarly, job losses can also signal a possible downturn in the economy as people are forced to cut back on spending due to financial hardship.
No one can predict exactly when a recession will occur, but it’s especially important now for independent firms to take steps to prepare. Hopefully, your clients’ sentiment is still positive overall. Nevertheless, there is still a common level of unease and apprehension about what can happen if the recession continues for an extended period of time.
With markets tumbling, it’s no wonder that so many people feel nervous about their portfolios and wonder what they can do to protect their investments. Managing clients’ wealth would be far easier if there was a one-size-fits-all solution to navigating the current financial climate. However, the hard truth is that there isn’t one.
This is why it’s vital to understand your clients’ perspectives. Remember that their portfolios (and, by extension, their livelihoods) are on the line. To be blunt, they need hand-holding. They want to know that their portfolios are in good hands and that their investments are being managed properly. Unfortunately, providing the necessary reassurance can take up a lot of your team’s time and resources.
Unless you’re friends with someone who can clone you, quickly, it can also mean neglecting other important tasks. If this sounds familiar, it might be worth looking into hiring an outsourced chief investment officer (OCIO). A quality OCIO should have extensive knowledge of the global markets and experienced insights to help you make informed decisions based on current economic conditions.
If you’re an RIA, for example, hiring an outsourced CIO could reduce the amount of time that you spend on asset management, freeing you up to focus on planning. This is possible because the right one will have knowledge and experience you can rely on. By delegating duties such as managing portfolios, compliance, back-office work, and more, you could find yourself catching your breath again.
In addition, having a CIO on board can help ensure that someone’s always at the helm. Someone who is fully qualified to make decisions when needed. Considering how concerned some investors are about the recession and inflation, this could positively influence your firm’s retention rates, as well.
There are multiple possible advantages to bringing an OCIO onto your roster. They should be able, for instance, to analyze your firm’s data, providing actionable insights to help you make more informed decisions. Similarly, an experienced CIO can identify opportunities for improvement, suggest strategies, and monitor relevant trends in the industry.
The better ones can also serve as a sounding board: If asked to, they can advise you on how best to position yourself in terms of pricing and services offered, as well. Meanwhile, an RIA-savvy OCIO could also provide technology solutions tailored specifically to your needs. This can mean finding the right solutions for managing client relationships, monitoring investments, tracking performance metrics, and more.
In other words, having an outsourced CIO can allow an independent RIA to focus on your core business instead of worrying about technology management issues or developing IT strategies from scratch. At the same time, by not having to hire a full-time employee, you can save on costs associated with bonuses, benefits, office space, and so on—while still having access to a high level of expertise when needed most.
In this sense, it could be the best of both worlds: You can get an accredited, vetted, and accomplished professional. However, you get to skip providing the perks normally required to hire an executive to work in your brick-and-mortar office. There’s no need for an additional parking spot. You don’t even have to provide a stapler.
Possibly best of all, you don’t have to wear a million hats anymore. Working with an OCIO can mean an end to trying to manage all aspects of your firm yourself. This, clearly, can mean less stress for you and your team, but that’s only the tip of the iceberg. In addition to nurturing client relationships, you could start prospecting again—and, possibly, landing those investors jumping ship from your competitors now.
What I’m saying next may sound like bragging, but it’s true: Engaging OCIO services from Cornerstone Portfolio Research means adding a CFA® Charterholder to your team. That kind of horsepower certainly doesn’t grow on trees. It could be the boost your firm needs to turn the heads of high-net-worth clients.
The same near-instant prestige enhancement can be leveraged by independent broker-dealers, as well. We’ll delve into the other potential benefits for you, specifically, in a bit.
The main benefit of working with an OCIO is having access to fiduciary investment solutions tailored to the needs of your particular firm. The better ones can, for instance, help you potentially minimize risk exposure while maintaining compliance with applicable regulations. An outsourced CIO can also monitor your portfolio performance closely, helping you make market-weather-ready decisions over the long haul.
Utilizing an OCIO can also add the availability of, for example, portfolio analytics, shrewd risk management strategies, diversification strategies, tax planning strategies, and estate planning assistance. All of these may help reduce volatility in the portfolio over time, possibly increasing clients’ overall returns in both good times and bad.
Again, an outsourced chief investment officer doesn’t require bonuses, benefits, or even lunch space in the office fridge: Affordable investment consulting isn’t a myth! Leveraging it at your practice could pave the way for you to pursue clients who are looking to change advisors without the need for pockets as deep as larger firms have.
Investing money can be a hazardous, competitive industry. To guarantee profits, you need professional skills, sharp financial insights, and clever strategic decisions. Fiduciary investment solutions from an OCIO can potentially enable you to get ahead of the competition (and stay there).
When you can trust the insights in your corner as actionable and tailored plans, appealing to all stakeholders’ interests can feel a lot less daunting. It only makes sense to leverage experienced, industry-tested professional input without incurring budget-breaking costs.
Having accurate record-keeping is essential for every business. Nevertheless, it’s doubly so for independent broker-dealers. It’s pretty hard to demonstrate compliance with industry regulations if you don’t. The Division, AKA the SEC’s Division of Examinations, released its 2023 risk alert on January 30th.
The document draws attention to commonly-cited weaknesses and deficiencies in the four areas of broker-dealers’ recent Reg BI compliance exams. As usual, Care Obligation, Compliance, Conflict of Interest, and Disclosure are all mentioned as sources of concern. Echoing FINRA’s 2023 report on its exam and risk monitoring programs somewhat, the Division’s alert focuses chiefly on the procedures and written policies specified for Reg BI implementation.
In order to effectively meet the 2023 Reg BI requirements for documentation during customer interactions, you need consistent procedures in place. This means having standard workflows and templates for all firm documents such as account opening forms, trade confirmations, and other customer correspondences.
It also involves using clear language while still providing complete disclosure of relevant information regarding fees and costs associated with each product or service being offered. Enforcement may be a gradual process, but rest assured that it’s coming.
The SEC has tended to focus first on those who had little or no Reg BI compliance plan in place. Regardless, sooner or later, they’ll make their way down the line to your practice. To say the least, you don’t want to be caught half-ready. It’s not something that any of us can afford to put off for long.
Getting Reg-BI-compliance-ready doesn’t have to be a headache—if you have the right ally in your corner. At Cornerstone, we specialize in helping firms create customized documentation methodologies to satisfy both the demands of state regulators and the SEC. We prefer doing so by integrating with your existing systems whenever possible, as well.
In other words, we don’t roll into your practice and start pulling plugs the way some new in-house CIOs might. You’ve worked hard to build the firm you have and we respect that. So, unless something cannot be implemented without a complete overhaul (which we’d consult you about before starting), we prefer streamlining the process(es) that you and your team are accustomed to.
When recession fears are discouraging investors, they need extra reassurance. As a result, you need as little complication/frustration behind the counter as possible. Even the most loyal of clients have a way of seeing through a harried poker face. So, the less stress and fatigue you have to deal with behind the counter, the better your reassurances should resonate.
Working closely with your team, we can handle your investment-related Reg-BI, record-keeping, and more. Delegate your most time-consuming compliance/documentation tasks to us. As a result, you can relax and focus on retention, advising, and (hopefully, in the future) expansion.
An outsourced CIO can provide a greater range of benefits to your practice than I’ve covered today. However, considering current recessionary concerns, I believe we may have focused on the most urgent. Whether you’re an RIA in need of support and an experienced soundboard or a broker-dealer exhausted from jumping through Reg BI hoops, the right OCIO can quickly become an invaluable ally.
From adding the almost instant prestige boost of a CFA® Charterholder to your team to streamlining your documentation for SEC exam readiness, we can become a resource you’ll wonder how you managed to get along without. At the same time, a solid fiduciary outsourced CIO can provide fresh, objective perspectives that may not be available internally at your practice. This insight, in turn, could help you stay ahead of the competition.
Cornerstone Portfolio Research takes pride in exceeding your expectations; not your budget. We’re also custodian-neutral: You never have to worry about switching custodians because we work with yours. Additionally, all of our services get white-labeled with the name of your independent broker-dealer or RIA.
We have over 70 years of combined experience in the financial industry. That’s part of why, when conducting portfolio research, we use a personalized approach for maximum compatibility with your unique investment philosophy. Your clients should only be getting recommendations in close alignment with it.
Similarly, we feel you shouldn’t have to re-paper your clients, transfer assets, or establish new accounts to work with us, either. Clients, ideally, should never feel disrupted. This is why we make any changes over time, avoiding confusion and frustration.
When you’re ready to learn more, we’re ready to talk. Schedule an appointment with us at your convenience.
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.