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The global outsourced CIO (OCIO) industry has grown significantly over the past five years, with assets under administration (AUA) rising from $1.29 trillion in 2016 to $2.46 trillion in 2021. Analysts predict that by 2026, the industry will reach an impressive $4.15 trillion in AUA, highlighting the growing demand for these services by financial advisory practices.
What accounts for this acceleration?
Advisors are increasingly turning to OCIOs to differentiate their firms, increase profitability and scale their businesses through gained efficiencies. Outsourcing time-consuming front and back-office activities lets advisors focus on their core competencies and provide a higher level of service to their clients. Solving for many of the challenges they face day-to-day empowers advisors to spend more time doing what they love, providing counsel to their clients.
Compared to OCIOs, an insourced CIO (ICIO) works more closely with practices. An ICIO offers bespoke investment models and quantitative strategies that can be white-labeled and offered to clients as an “in-house” solution. This level of customization allows practices to differentiate themselves and create a unique value proposition.
As a practice scales, these discretionary models and investment processes become increasingly essential rather than mere “nice to haves.” Advisors can leverage data and analytics to calm jittery clients during periods of market volatility or during “black swan” events like the COVID-19 pandemic, providing a sense of stability and confidence in their investment decisions.
Let’s take a deeper dive into the advantages that partnering with an ICIO provides an advisory practice.
Increase the bottom line
By outsourcing investment management services and back-office functions, such as reporting, advisory practices can save significant time and effort that can be reallocated to client acquisition and business development. This allows for a more efficient use of resources and serves as a springboard for growth, helping advisory practices to increase revenue and improve their bottom line.
An ICIO delivers sophisticated and customized investment solutions, resulting in more robust investment strategies tailored to their clients' specific needs. This leads to higher client satisfaction and retention rates by differentiating themselves from their peers, leading to an increase in market share.
This partnership can also expand a firm’s service offerings, providing access to new markets and a broader range of investment options. Advisors will be well-positioned to start new business lines and vertically integrate, allowing for more holistic financial planning encompassing investment advice, estate planning or tax preparation. By offering a broad range of services, the advisor can provide their clients with a more comprehensive solution to their financial needs.
Scale via “stickiness”
A huge impediment to a practice’s growth trajectory is advisor churn, which falls in the 7% range for RIAs. Whether the churn results from the departure of a “star” lead advisor or several less-tenured advisors, clients take notice. A partnership with an ICIO establishes a standard and framework for bringing on board new advisors, ensuring that the firm's investment process remains consistent and reliable, making the system the star of the show.
Should an advisor depart the firm, the core messaging, investment process and strategy removes any guesswork or need to assemble an investment strategy or process from scratch. They’re ingrained in the ICIO’s customized plan, tailored specifically to each firm according to its culture, values and mission. This “stickiness” empowers firms to scale much easier than if they were to attempt to navigate the complexities inherent in advisor departures on their own.
Newfound time equals an enhanced client experience and referrals
As advisors have more time to spend on client-facing activities, it results in greater satisfaction among clients, which leads to increased referrals from satisfied clients to their peers and colleagues.
When volatility or black swan events impact the markets, advisors can assuage investor fears by providing data-driven insights based on historical scenarios that reflect opportunities and risks in a particular market. The ability to deliver quantitative strategies and models – all of which can be back tested and tweaked based upon market conditions – allows a firm to offer a more comprehensive range of investment solutions to clients, attracting and retaining clients who are looking for a high level of investment expertise that transcends “vanilla” offerings at other firms.
By providing an improved client experience, advisors will effectively communicate their firm’s value proposition, highlighting the unique aspects of their approach and demonstrating how it can benefit their clients. This transparency and clarity fosters trust between the advisor and the client.
Working with an ICIO, advisors can set, deliver and manage expectations for clients’ financial journeys while holding the plan accountable over time. This level of accountability not only increases client loyalty but can lead to referrals.
ICIOs enable the advisor’s practice to shine
Partnering with an ICIO differentiates an advisor’s practice while enhancing the client experience, increasing their firm’s bottom line. Growth is accelerated and sustained via the elimination of tedious everyday tasks and the offloading of investment-related and back-office work.
A savvy, forward-thinking ICIO understands and solves for RIAs’ pain points by immersing themselves in the business, freeing advisors to focus on maintaining client relationships and prospecting, providing a launchpad for growth. That’s why we chose to be advisors – to counsel clients and help them achieve better outcomes.
Chris Shuba is CEO and founder of Helios Quantitative Research, LLC.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
