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An outsourced chief investment officer (OCIO) can deliver vastly expanded investment capabilities while seamlessly alleviating the burden of investment infrastructure, operations back-office, and administrative tasks, freeing up advisors’ time for vital client-facing and relationship-building activities. They can also mitigate regulatory risk, create new efficiencies and reduce overhead costs.
While this may sound ideal to a time-constrained advisor, don't blindly accept this premise. Identify the appropriate OCIO partner, one that is best equipped to meet the unique needs of your firm and its clients.
The use of an OCIO was long the domain of institutions such as pension plans, nonprofit endowments and foundations, but a shift has been underway in recent years. In the wake of the global financial crisis, a tightening of regulatory standards created an increasingly complex market environment that necessitated a more rigorous approach to investments, compliance, risk controls and governance. Intensifying competition and the demand for more sophisticated investment strategies have forced many financial advisors to take on tasks that distract from core relationship- and business-building activities.
Against this backdrop, a growing number of financial professionals are looking to outsource certain functions. Increasingly, advisors are using OCIOs to offload time-consuming administrative and back-office tasks, as well as satisfy a range of other investment initiatives, including fiduciary requirements, institutional investment disciplines, improved performance, decreased volatility and cost mitigation. Between 2016 and 2021, the total global OCIO industry expanded from $1.29 trillion in assets under administration (AUA) to $2.46 trillion. By 2026, it’s expected to reach $4.15 trillion in global AUA.
The OCIO has transcended niche status and is a value-add for a wider range of financial services platforms and firms.
As advisors seek collaborative partnerships with OCIOs, remember that not all OCIOs and TAMPs are the same. If you’re one of these advisors and are evaluating potential OCIO providers, here are some factors to consider.
A consultative approach
The success of any relationship is predicated upon the trust between both parties, and the same is true of the advisor-OCIO relationship. Advisors should feel confident that their prospective OCIO is highly attuned to their investment philosophy, goals, preferences and limitations. That should be determined during the selection process, in which providers complete a checklist exercise employing a consultative, collaborative and highly communicative approach to cement their value as a strategic partner. Those that are committed to understanding where you’ve been and where you’re going, proactively seeking to uncover your unique challenges and lighten the load, are likely worth a second look.
Deep institutional relationships
Traditionally, OCIOs and legacy TAMPs delivered uninspiring, ”vanilla” platforms, with access to the same strategies and managers. This prosaic approach was ripe for disruption. Some platforms are rising to this challenge by leaning on the strength of their unique relationships.
There is no substitute for experience, independent research and informed market judgment. Savvy advisors are realizing this and turning to pure-play OCIOs whose in-house expertise is complemented by long-standing connections across the spectrum of investment management, operations and compliance. A worthy OCIO should be able to tap into relationships to assess and access offerings, opportunities and capabilities suited to your needs.
Bespoke investment portfolios
Just as the majority of OCIOs offer access to the same set of name-brand managers, many also rely on cookie-cutter or one-size-fits-all portfolios. In an increasingly commoditized environment, and at a time when personalization is no longer a mere “nice to have,” this approach is unlikely to succeed. Advisors need to differentiate their investment offerings. Fortunately, this is an area in which a modern, forward-looking OCIO lends immense value.
An OCIO partner should customize portfolio design in line with each client’s circumstances, goals and risk/return profile. Further, their offering should extend beyond the scope of traditional providers, with access to institutional managers and alternative investments such as real assets, hedge funds and private equity, as well as overseas exposures.
High-touch service + high-tech capabilities = a perfect match
The OCIO model is accelerating in the advisory profession, and for good reason – these providers’ value extends beyond investment research and management. The right partner can deliver a tailored, holistic experience that enables advisors to focus on scaling effectively while forging stronger relationships with clients.
As you contemplate growing your practice, look to the next generation of OCIOs: those that combine a highly customizable, consultative service model with robust technology that supports mission-critical business operations such as portfolio construction, rebalancing and billing. The benefits of a thoughtful, tailored approach will quickly become apparent to you and your clients.
Joseph Taiber is managing partner at Taiko, a boutique, full-service OCIO solution built for RIAs, national advisory firms, broker dealers and trust companies.
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