We’ve discussed the virtues of an Outsourced Chief Investment Officer (OCIO) quite a bit recently, and with good reason. With nearly 2 trillion dollars currently in assets under management by outsourced chief investment officers, and that number only looking to grow, the OCIO model is the investment model of the future, no matter the size of your firm. Whether it’s just you and your dog operating out of a home office, or a multi-location RIA serving a wide range of clients, a success-oriented OCIO can and will take your business to the next level.
But with any “next big thing”, it’s absolutely crucial to understand what the metric of success will look like before getting started. “Who is this guy, and how can I tell if he’s good at his job?” is a good place to start—but that’s not all that goes into a complex outsourced relationship like this, particularly once we’re dealing with the c-suite. As we all know, executive results take place on a different playing field.
Fortunately, we’ve spent many years in the finance industry, and worked through many successful OCIO partnerships. We’ve compiled a few of the most relevant questions to ask when you’re evaluating the success of your new outsourced role.
If you can answer these six questions positively, you’ll know that you’re working with the right OCIO for your needs:
Have You Met Your Initial Goals?
As a major decision maker in your company, you likely gravitate towards cold hard numbers when looking for benchmarks. Depending on your initial goals, these will vary widely—you may be looking for a change in funded status, lowered surplus volatility, excess returns, or other metrics. As you consider these, however, think about what you really wanted to achieve with the OCIO relationship:
- Better support for your full-time staff?
- Strong leadership?
- Improved client relations?
None of those are necessarily “moving the needle”—but they’re all crucial to your operation’s ongoing success. Few people make the decision to bring on an OCIO out of a desire for better numbers alone, and it’s important to keep this in mind as you evaluate how close you’ve come to meeting your initial goals.
Are Your Risks Minimal?
The successful OCIO is, by and large, a risk mitigator. They will be able to advise you on safer investment strategies, timely management styles like hedging strategy, and provide serious industry insights based in a lifetime of experience. If that input doesn’t go a long way towards reducing your overall risks, then it’s time to start asking some questions. You should feel confident in their ability to lead your team towards low-risk strategies, even in a volatile and uncertain market.
Is The Process Simple?
The more complex and convoluted the process of communicating with your OCIO, the higher the risk of that relationship becoming more trouble than it’s worth. As your assets grow, it’s important to have a stable and easy-to-understand management structure in order to continue scaling effectively. The delegation process to an outsourced manager should be simple, mutually beneficial, and easily scalable. If your OCIO partner’s process takes forever, isn’t transparent, and utilizes overly complex stratagems for simple tasks, that should give you pause. While this OCIO might achieve short-term success, they may not be the best partner for you in the long run.
Are You Paying Them In A Scalable Way?
Many of my clients have made the mistake in the past of paying for external asset management with a variable fee, determined by your AUM. Proceed with caution! As your business grows, you want to be able to grow your profits, too—and that doesn’t happen if the amount you’re paying your OCIO grows with your business. Instead, opt for a fixed fee model, where you pay a flat fee for your OCIO that remains the same no matter the size of your AUM. If your business grows significantly, but you have a fixed cost, then that adds to the profitability in measurable ways. Now that’s scalability.
Are Your Clients Happy?
While your OCIO’s success may not hinge on client relations, if they have any direct contact or involvement with your clients, it’s something to consider. Specialized and highly experienced investment support for major clients is all well and good—if those clients realize the value of that support. As you evaluate the success of your OCIO relationship, bring your clients into the conversation and get an honest look at how they feel. If your clients are happy and trust this new voice, that’s a step in the right direction. If they don’t, that should be a red flag regarding the value of this individual to your team.
Is The Relationship Working?
You might not immediately consider the relationship aspect when evaluating the success of your OCIO partnership, but it’s not something that should be taken lightly. Any external executive role can be exceptionally difficult to integrate and maintain, and especially one that changes the balance of financial power. Consider whether this new person respects your processes and people, and whether they fit into the hierarchy of your firm. If the answer is no, then it may be time to keep looking. The wrong fit here can cause a multitude of problems down the line if left unchecked.
At the end of the day, only you can answer the question of whether your OCIO has achieved success. It’s about money and results, yes—but you also have to work with this person regularly. And so do your clients. If the numbers line up but you don’t enjoy the partnership, that’s a good reason to call it quits. Really. As recruiters, we how important a “culture fit” can be—just as much as meeting benchmarks and surpassing goals. If you’re ready to find the right OCIO for your company, don’t hesitate to get in touch
