Evaluating OCIO Providers: Due Diligence For Wealth Managers and RIAs
In recent years, a growing number of planning and financial advisors (RIAs) have embraced Outsourced Chief Investment Officer (OCIO) services to reduce advisor/planner workload, cut costs and become more competitive. The right OCIO can leverage investment management expertise to reduce workloads and total costs while increasing the scope and quality of a firm’s investment services.
But finding the right fit in the OCIO market is no simple task. It's not just about selecting a qualified firm, but identifying a partner who aligns with your practice’s unique value proposition, philosophy, systems, and business goals. The ideal OCIO shouldn’t merely fill a role but be a trusted partner that enhances your capabilities, reduces your total costs, and propels your business forward.
Put simply, due diligence will play an essential role in selecting the ideal OCIO partner for you. Here are some key things you need to consider when evaluating potential OCIO partners.
The Role of Due Diligence in Selecting an OCIO Provider
In choosing an OCIO provider, due diligence starts with gauging investment capability in areas such as portfolio construction, asset allocation, and manager/fund/strategy selection. Are you comfortable with OCIOs investment philosophy? What technical capabilities do they bring to the table? What is the scope and depth of their investment capabilities as it pertains to your needs today and in the future? What is the OCIO’s own due diligence process? Do the people seem like people that will be helpful solving investment challenges for you over the long-term?
And How About Risk Management?
By carefully examining the OCIOs risk management functions, you can better gauge the quality and reliability of a potential OCIO services partner.
How to Approach the Evaluation Process for OCIO Providers
So, what’s the right way to gauge potential candidates? Follow these best practices:
Ask the Right Questions During the Selection Process
Choosing the right OCIO provider requires more than simply assessing qualifications on paper. Candidate interviews play a pivotal role in identifying the provider that fits your organization's unique needs and goals. This stage should not merely focus on performance and investment strategies but also dig deeper into the OCIO's approach to due diligence.
Some specific questions might include:
What is your investment philosophy and process?
How do you tailor your investment approach to the organization?
How much money do you currently have under management?
How many clients do you have that are similar to our organization?
How do you factor risk management into policy design?
What investment technologies or methodologies give you a competitive advantage?
How do you keep up with market trends and shifts?
What is your client service philosophy?
What additional value-add services do you offer?
Analyze Performance History, Fees, and Other Costs Associated with Engagement
Selecting an OCIO services provider represents an important organizational commitment. Therefore, before you hand over the reins, you must perform a clear-eyed analysis that considers both past performance and future expectations. For example, consider:
Performance History – Understanding how an OCIO has performed in the past is vital. This means analyzing not only their track record with similar clients but also assessing how they’ve weathered various market conditions. Did they meet or exceed KPIs and benchmarks? How did they perform over the long-term relative to the benchmarks you and your clients use?
Fee Structure – OCIO providers may have different fee structures. Some OCIOs charge fees to the financial advisor/planner. While others (including our firm) charge no fee to the advisor. This second fee structure can reduce an advisor’s and their clients’ total costs. Make sure to understand the OCIOs complete fee structure and how it aligns with your business structure now and going forward.
As you weigh these matters, consider them through the lens of long-term alignment with your organization's investment goals, risk tolerance, and values.
Assess the Financial Strength of the OCIO Provider
The historical financial performance of an OCIO provider is crucial. By reviewing their KPIs like returns, risks, costs, compliance, and total assets under management, you can begin to gauge their resilience and ability to adapt to market fluctuations.
How does the candidate fare against industry and your own risk and return benchmarks?
This assessment is not just about numbers. It's about ensuring a systematic, repeatable investment solution that works for you and your clients over the long-term. Many financial advisors look to their OCIO to achieve better risk-adjusted returns, better diversification, and reduced exposure to large drawdown cycles. All very valuable to clients and advisor alike.
Understanding the Investment Process Utilized by the OCIO Provider
Finally, you must also factor in the OCIO provider's specific investment process and philosophy. This involves probing into how they make their investment decisions. Related questions include:
What strategies do you employ?
What risk management measures are in place?
How do you select assets or managers, and what criteria govern their allocations?
Do you adhere to any particular investment theories or frameworks?
Are their methods that provide responsiveness to market changes? At what frequency?
Understanding these aspects can help you align with a provider whose approach resonates with your organization's investment objectives and risk tolerance. It also offers insights into how the OCIO integrates innovation and responsiveness to ensure alignment with a dynamic investment landscape.
Considerations for Selecting an OCIO Provider
For wealth managers and planners who may lack the necessary time, expertise, and resources to properly handle the demands of managing complex portfolios, selecting the right OCIO can be a critical decision. Proper due diligence like that outlined above can help you identify the best firm for the job.
At Markin Asset Management, we understand the value of providing a comprehensive and consultative OCIO service to our partners. Markin OCIO is a resource for financial advisors and planners that enhances their investment management solution, saves time, reduces costs, increases client focus and helps grow practices.
To learn more about our Markin OCIO services, schedule a call with us today.