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Your Next Big Hire – An OCIO

An outsourced chief investment officer (OCIO) can significantly impact a firm’s bottom-line.

By Rusty Vanneman

Competition is heating up for financial institutions; those that don’t offer quick, superior investments stand to get left behind. Differentiation comes down to the skills and speed of your investment management team. However, high-performing portfolio managers come with additional expenses. These include benefits, office space and technology needs—not to mention when your PM goes on vacation… Firms looking for a competitive edge, at a potentially lower cost, partner with third-party investment officers to save on in-house expenses. Why pay for one manager when you can outsource to a team of investment professionals?

An outsourced chief investment officer (OCIO) can significantly impact a firm’s bottom-line. OCIOs work as an extension of your firm; they may produce better investment outcomes in less time, allowing firms to potentially achieve scalable, client-focused growth.

In hiring an OCIO, a firm adds a team of dedicated strategists to their practice, as well as the deep marketplace understanding, professional research capabilities and institutional trading apparatus that comes with it. They offer a high-level of specialization that enhances investment management capabilities, potentially lower costs, and free up time for advisors. Firms that work with OCIOs help their advisors excel by offering them the back office due diligence required to strengthen investment results.

That said, most advisors don’t have the bandwidth to effectively research, select and allocate all the various asset classes to create personalized portfolios. With an OCIO, advisors immediately gain access to expert portfolio management in everything from emerging markets to municipal bonds. Advisors can even implement a multi-strategist model, incorporating the best strategies from any number of OCIOs. No matter how an advisor chooses to delegate investment management, they can be sure that the breadth of expertise and the advantages of specialization may allow for expanded product offerings, greater flexibility and increased customization.

An OCIO’s institutional presence and ability to interact directly with trading venues can bring a significant trading cost advantage compared to what an individual advisor receives, even on high-volume securities like ETFs. This cost-effective offering decreases the time an advisor spends on portfolio construction and maintenance, providing more time to allocate toward building profitable client relationships.

More importantly, lowering investment management costs can increase profitability, even among low-dollar accounts. In fact, we’ve seen many examples where an OCIO has bent the cost curve to the point that advisors were able to profit from accounts as low as $175,000. OCIOs can even help increase client retention. If an in-house portfolio manager isn’t delivering the returns clients expect, an advisor is left with few options. However, if an OCIO isn’t delivering returns an advisor can simply switch strategists and let clients know that they are taking steps to improve performance.

Firms that choose to outsource their investment management are creating a scalable model, whereby advisors remain the quarterback of the client relationship and the CEO of the business, while the OCIO handles day-to-day research, trading and operations. This enables advisors to build stronger relationships, provide better client experiences and focus more time on marketing to new clients.

Firms owe it to their employees, their clients and their business to harness the benefits of working with an OCIO. Doing so will give advisors more time to recruit additional clients and deepen relationships with existing clients, while also providing a new profit center of lower-net-worth clients and institutional access to investments. The result is a scalable model that leads firms and their advisors down a path of growth.

Rusty Vanneman, CFA, is president and chief investment officer of CLS Investments

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