Why Use an OCIO? A Comprehensive Guide for RIAs and Financial Advisors

One of the primary advantages of employing an OCIO is the potential for substantial cost savings. Traditionally, RIAs and IARs incur significant expenses in building and maintaining an in-house Chief Investment Officer. There are hundreds of thousands of dollars of salaries, bonuses, stock options, benefits, taxes, and technology to support just one in-house professional. 

A fractional OCIO, like Cornerstone Portfolio Research, can provide a cost-effective solution at a fraction of the cost. Even more importantly, some OCIOs are willing to work for basis points, their incentive for improved results. This setup allows RIAs to enjoy top-tier investment management services without the prohibitive costs of an internal CIO and other professionals.

Here are the top five cost-related reasons why financial advisors might make this move:

1. OCIOs typically manage larger pools of assets than individual RIAs or IARs. This allows them to access institutional pricing on investment products and services, which can reduce portfolio management . These savings can be passed down to clients, making the advisor’s services more competitive. Or, they can be used to offset the cost of the OCIO.

2. RIAs and IARs can lower their internal overhead by outsourcing investment management functions. They no longer need to maintain a full in-house investment team or the associated technology and research tools, which can be costly. This reduction in overhead can free up resources for other business areas, such as client acquisition and higher-level services.

3. OCIOs invest heavily in technology and research capabilities, which can be expensive for smaller firms to replicate. Partnering with an OCIO gives RIAs and IARs access to sophisticated investment tools, data analytics, and research without requiring a substantial capital investment.

4. OCIOs often have robust compliance and risk management frameworks, which can help RIAs and IARs avoid costly regulatory fines and legal issues. Managing compliance and risk internally requires significant resources and expertise, which can be a significant financial burden for smaller firms.

5. By outsourcing investment management to an OCIO, RIAs and IARs can focus more time on their core competencies, such as client relationship management, networking, and financial planning. This focus can lead to better client retention rates and improved growth, which enhances their results and makes them more valuable when their owners decide to retire or merge with another firm.

Download our eBook: “12 Reasons to Outsource Your Portfolio Management”

An OCIO can be a valuable partner for RIAs, IARs, and financial advisors, especially in terms of risk management and compliance. Their services help keep financial advisors in compliance and allow them to spend more time marketing their services to prospective clients.

Following are five ways OCIOs can assist with risk management and compliance:

1. OCIOs stay current with regulatory changes, helping advisors stay compliant without having to track every new rule themselves. This can significantly reduce the burden on advisors while ensuring they meet all of the new requirements’ provisions.

2. An OCIO conducts thorough risk assessments and continuous monitoring of portfolio holdings. This proactive approach identifies potential issues before they grow into real problems so advisors have time to correct them before they are audited.

3. Developing comprehensive risk management policies and strategies can be time-consuming. OCIOs can create these policies, ensuring they are thorough and aligned with regulatory standards. This includes guidelines on investment practices, client communications, and internal controls.

4. Preparing for audits can be stressful. OCIOs assist by organizing records, ensuring all documentation is in order, and conducting mock audits to identify and address potential issues in advance. This preparation can make actual audits smoother.

5. Staying current with compliance can be challenging and time-consuming for advisors and their staff. OCIOs provide ongoing training and education, ensuring everyone understands the latest compliance requirements and best practices. This can improve the overall effectiveness of an advisor’s practice.

Portfolio management is at the heart of what you do for your clients. It is the foundation for financial advisors who charge asset-based fees. Planning is an important service, but its cost is usually covered by the asset-based fee. Even then, the complexity of managing diverse client portfolios can be overwhelming. A partnership with an OCIO can be valuable for RIAs, IARs, and financial advisors, especially regarding risk management and compliance. 

There are five ways they can assist:

1. OCIOs stay current with regulatory changes, helping advisors stay compliant without having to track every new rule themselves. This can significantly reduce the burden on advisors and ensure they meet all compliance requirements.

2. An OCIO conducts thorough risk assessments and continuous monitoring of portfolio investments. This proactive approach identifies potential issues before they become serious problems, enabling advisors to fix problems while they are still small.

3. Developing comprehensive risk management policies can be time-consuming. OCIOs can create these policies and ensure they meet all regulatory standards. This includes guidelines on investment practices, client communications, and internal controls.

4. Preparing for audits can be daunting. OCIOs assist by organizing records, ensuring all documentation is in order, and conducting mock audits to identify and address potential issues before the auditors arrive. This preparation can make actual audits smoother and less stressful.

5. Keeping up with documentation requirements can be challenging for advisors and their teams. OCIOs provide ongoing training and education, ensuring everyone understands the latest compliance requirements and best practices. This knowledge can improve the overall effectiveness of an advisor’s practice.

An Outsourced Chief Investment Officer (OCIO) can provide top-notch investment research services, which can be a game-changer for RIAs, IARs, and financial advisors. 

The following are five ways they can help:

1. An OCIO tailors investment strategies to fit clients’ goals and risk tolerances. This personalized approach ensures that each client’s portfolio meets their unique requirements.

2. OCIOs utilize sophisticated research tools and resources that may be out of reach for smaller advisory firms. This allows for more in-depth analysis, better investment decision-making, and improved results.

3. An OCIO continuously monitors and analyzes market trends, economic indicators, and investment opportunities. This ongoing analysis helps advisors minimize the impact of unexpected economic events. 

4. By leveraging their expertise, OCIOs can optimize portfolios to improve performance and manage risk. They use advanced techniques to ensure well-balanced and personalized portfolios. There are no cookie-cutter solutions.

5. OCIOs often have specialized knowledge in alternative investments, such as private equity, hedge funds, and real estate assets. This expertise can open up new opportunities for clients seeking diversification and improved rates of return.

Partnering with an OCIO can directly contribute to an RIA firm’s growth and scalability, particularly when the primary source of income for financial advisors is an asset-based fee. As the OCIO takes on investment management and operational tasks, you and your team can allocate more resources toward client acquisition and service. 

This not only helps scale operations more efficiently but can also enhance client satisfaction and retention. An OCIO model also positions your firm to attract a broader client base with larger asset amounts by leveraging the sophisticated capabilities and performance results of firms like Cornerstone Portfolio Research.

Each RIA has unique needs and diverse clientele, requiring tailored investment solutions. That’s why, at Cornerstone Portfolio Research, we’ve designed our services to meld into your existing operations with minimal need for significant changes.  

As an independent portfolio management and investment research firm based in Chester Springs, Pennsylvania, we work with RIAs, IARs, and financial advisor clients across the U.S., delivering straightforward, hassle-free investment research and portfolio management services.

You can enjoy all the perks of working with a CIO and CFA® Charterholder without the usual headaches and disruptions. We handle back-office tasks so you can concentrate on what you do best.

What’s in it for you:

• No Equity Sacrifice: You don’t need to give up equity to hire us.
• Cost-effective: Skip the mid-six-figure salary, taxes, and benefits. Our fees are low, ranging from 5 to 20 bps, with many in the 5 to 10 bps range.
• Affordability: No need to increase client fees to cover our costs.
• Custodian Neutral: Keep your current custodian; we’re flexible.
• Minimal Strategy Changes: Your investment strategy stays largely intact.
• Tailored Research: Get customized research and investment models that fit your approach, not a one-size-fits-all solution.
• Smooth Transition: No need to re-paper clients, transfer assets, or open new accounts.
• Client Comfort: Changes are introduced gradually so your clients feel at ease.
• Tax-Aware: Our recommendations consider tax implications.
• Regular Updates: Receive high-level communication from us weekly.
• Virtual Meetings: We can meet with you and your clients virtually.
• White-Labeled Services: Our services carry your RIA’s name.
• Team Integration: We can be listed on your website’s “Our Team” page.
• Succession Planning: We help solve succession planning issues.
• Full-Service Access: Access a full-service CIO during regular business hours.
• Flexibility: We can assist with any one-off needs.
• Industry Expertise: You’ll work with a CFA Charterholder, a highly respected industry designation.