The Evolving Landscape of OCIO Services
In a challenging investment landscape, the Outsourced Chief Investment Officer (OCIO) investment model has not only grown more popular but also more vital. U.S. OCIO assets totaled a staggering $1.9 trillion as of year-end 2019, growing at an annual rate of 16.5% since 2015. And analysts anticipate the number will soar to $3 trillion by 2025. [1]
What is Catalyzing this Growth?
In short, outsourced CIOs offer an expanding catalog of valuable skills and services that savvy RIAs, wealth managers and planners are using to create competitive advantage and better navigate complex investment landscapes. OCIOs unlock new horizons of efficiency for financial professionals by aligning strategic objectives with a robust risk management program.
But What Is an OCIO, Exactly? And What Vital Services Do They Provide?
What Is an OCIO?
The OCIO is an outsourced specialist (usually a firm) that takes on the duties that would otherwise be assigned to an in-house Chief Investment Officer and his or her team, but on a fractional basis. They enjoy the expertise of industry veterans and state-of-the-art investment and risk analytics, without having to shoulder the full costs and challenges associated with an in-house CIO team and attendant software and systems.
Typically, an RIA or planner will outsource their investment management, entrusting the investment function to seasoned investment consultants or advisors. The extent of the OCIO’s services can vary, depending on factors like the RIA organization’s:
Size
Complexity
Markets
Investment Goals
Some OCIOs oversee all investment functions; whereas other RIAs might prefer an OCIO that fulfills a more narrowly defined role, focusing solely on particular functions like risk assessment, compliance, or specific asset classes.
Understanding the Different Types of OCIO Services
Navigating the investment landscape requires more than financial acumen. Here's a closer look at four OCIO services that transform the way advisors and clients approach investments, turning challenges into tailored solutions.
Comprehensive Portfolio Management Outsourcing
Managing a portfolio is a multifaceted task—one that can be outsourced to simplify day-to-day management with sub-services like:Asset Allocation – Crafting a diversified investment blend that mirrors the client's risk tolerance and objectives
Client Account Monitoring – Providing continuous oversight to ensure alignment with the financial strategy
Portfolio Management – Regularly monitoring and adjusting the portfolio to ensure it remains aligned with investor goals
Risk Management – Identifying, assessing, and mitigating various risks associated with an investment portfolio, often via diversification and asset allocation
Due Diligence & Manager Selection – Carefully evaluating managers, fund, and securities selections to identify the optimal investment avenues
Tax Efficiency Monitoring – Strategizing management activities and investment allocations to maximize after-tax returns and minimize loads
Individual Client Account Support
Every investor is unique in terms of their financial goals, risk tolerance, and favored financial securities. OCIOs help financial professionals provide individual client account support. Common services include:Personalized Portfolio Allocations – Aligning investments with individual goals and needs
Risk Profile Recommendations – Assessing and defining risk strategies that resonate with the client's comfort level
Tax Loss Harvesting, Liquidity Needs – Utilizing tax benefits wherever available while ensuring that clients have the necessary liquidity
Daily Client and Practice Support
Consistent investment management builds trust. Advisors and clients can benefit from:Operational Execution Assistance – Handling logistical tasks to streamline investment processes
Guidance and Client Meetings Support – Facilitating client interactions to further strengthen relationships by establishing trust and authority
Ongoing Responsiveness – Being on-call when needed, whether it's on the phone, responding to emails, or attending meetings
Advisor Resources
Knowledge empowers, and OCIO services equip advisors with essential insights regarding:Daily Market News – Helping firms and clients stay abreast of the ever-changing market dynamics
Analysis, Research Notes, White Papers – Performing deep dives and analysis into topics that matter, often with a fresh, unbiased perspective
One-On-One Access to Portfolio Managers – Providing access to portfolio managers to glean insights and expertise
What Are the Benefits of Utilizing OCIO Services
While partnering with an OCIO can open up a world of benefits, for financial professionals, four advantages stand out:
Optimized Operations – By outsourcing the various elements associated with account management, including portfolio rebalancing , cash management and risk management, an OCIO reduces the time and resources RIAs spend managing client.
Cost Efficiency – In the past, a firm might hire dedicated portfolio management staff at significant on-going cost and managerial oversight burden. An OCIO can provide the same—if not better—services at a fraction of the cost. Top OCIOs often eschew costly advisory consulting fees in favor of investment management fees.
Personalized Attention for Each Client Account – White glove OCIO services provide account support which goes beyond basic high-level guidance. Whether it's regular portfolio performance reviews, risk assessments, strategy alignment, tax considerations, or liquidity planning, the services are catered to the individual client.
On-Call Support – The job doesn’t stop when the markets are closed. Leading OCIOs ensure that advisors can access them at a moment’s notice, whether via phone, email, or in person. Put simply, OCIOs can contribute directly to increased client satisfaction across a range of investment related areas.
How to Identify the Right OCIO for Your Needs
As you prepare to recruit and interview OCIO candidate firms, be sure to ask the following questions:
What Is Their Experience, Expertise, and Performance History? – Pay special attention to their investment specialization, risk management strategies, performance, and risk-adjusted performance.
What Is Their Investment Philosophy and Approach? – Consider how they navigate different types of markets and methods used in portfolio construction and on-going management.
What Level of Transparency Do They Provide? – Look for a candidate committed to transparency as demonstrated by their reporting and other documentation.
Equipping your operation with an OCIO presents a wealth of potential benefits, from increasing client satisfaction to reducing RIA costs and resource burdens. To mitigate any potential misalignment associated with hiring an OCIO, make sure that you and your firm are fully aligned with your selected OCIOs approach and methods. This is why it is vital for advisors, wealth managers and planners to move through the vetting and hiring process carefully.
Examining the Potential Impact on Your Portfolio Performance With an OCIO
OCIOs can help transform the investment management functions by aligning actual investment decisions with a robust, well thought out investment philosophy and proven risk management framework. The right outsourced professional will make their impact felt almost immediately.
How Do You Identify the Best OCIO for Your Needs?
At Markin Asset Management, we provided comprehensive Outsourced Chief Investment Officer solutions designed to help financial and planning professionals save time, reduce costs, increase client focus, and grow their practices.
If you’re ready to improve your investment management and streamline your practice, schedule a meeting today.
Sources:
[1] Ceruli. Calls for Transparency in the U.S. OCIO Market Grow as AUM Reaches New High. https://www.cerulli.com/press-releases/calls-for-transparency-in-the-u.s.-ocio-market-grow-as-aum-reaches-new-high