Why consider partnering with an Outsourced CIO

Your financial planning practice is unique and so your outsourced CIO partnership also needs to also be unique. This is why when selecting an outsourced CIO that is tailored to your businesses’ and client’s circumstances is so important.

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Outsourced CIO, is clearly evolving, but what does outsourcing mean in our industry today? And what should you look for in your outsourced partner?

In today’s environment, we are seeing an increased number of financial planning practices seeking an outsourced CIO partnership to help navigate volatile markets and achieve their key investment objectives. As the financial services landscape continues to evolve, it’s important to work with the right partner in order to achieve your goals - to manage costs, provide a scalable but customised solution, and achieve required returns. Firstly, your outsourced CIO partner needs to recognise that each partnership is unique. Selecting an outsourced CIO that is tailored to your businesses’ and client circumstances is so important.

Here we give you our insights on what you should consider when looking for your outsourced CIO partner.

What are some typical examples of activities that are delegated in an outsourced relationship?

Manager selection and fee negotiations are the most obvious examples, but it goes beyond that to include things like tactical tilts around the strategic asset allocation targets; dynamic use of both active and passive management; and daily risk management, including the use of exposure management strategies. These are all commonly delegated investment activities.

The right partner, with the right resources will help position your business to capitalise on future change, to take advantage of investment trends and regulatory change. Outsourcing CIO allows you to focus on delivering your core strategy whilst knowing you have a partner to take care of the rest, which leads to significant benefits to not only the business, but to the end client.

Is there anything that can’t be outsourced?

Yes. While an outsourced CIO partner acts as a co-fiduciary in every outsourcing relationship, your practice/business still retain fiduciary obligations. This means they continue to conduct governance oversight. Their focus, however, shifts. For example, rather than approving things such as manager changes or tactical tilts (which are really daily portfolio management decisions), in an outsourcing relationship, an outsourcing client’s focus changes to ensuring that the outsourced CIO’s decision-making and implementation processes remain sound.

Another example is asset allocation. While some outsourced OIC’s are often given some discretion around strategic asset allocation, most organisations ultimately approve policy and risk targets—because strategic asset allocation is a direct reflection of risk tolerance, and risk tolerance is unique to each investor.

Do financial planning practices remain in a hands-on role?

Absolutely. In fact, “outsourcing” is not the best term for these relationships. It’s more an extension of your business, whereby the business focusses on the “long lever” decisions and the outsourced CIO focusses on the day-to-day implementation of these decisions.

What fundamentals do I need to consider in an outsourced partnership?

We believe that every partnership is unique but there are some fundamentals you should always consider when looking to partner with an outsourced CIO.

Fee Flexibility: A partner who can work within your set fee budget without compromising on the investment outcomes you want to achieve and that your clients expect.

Global access & local knowledge: Access to global leading managers and strategies, the same access an institutional grade investor would expect for their investment program. Local on the ground knowledge to bring together and connect global insights with local insights. A partner who understands the local environment and the opportunities and challenges it may present.

Customisation: A partner who can provide a customised solution to meet the needs of your clients’ investment goals and the needs of your growing business. Collaborating with you to understand your business, adjust to market changes and opportunities and manage risks.

Knowledge & resources: As an extension of your team, going beyond just investment advice and providing access to the resources, thought leadership and the strategic investment expertise your partner has to offer.

Why is the outsourced approach gaining momentum?

More and more financial advisers today are feeling the strain of regulatory pressures and the need to stay on top of timely market shifts in this environment. Many advisers are looking to create efficiency in their business and shift towards a partnership to provide a customised solution to enhance their offering to their clients whilst maintain control. To create business efficiency whilst staying on track to a set fee budget requires a partnership with an outsourced CIO. A long-term partner to help grow your business as well as deliver on your investment outcomes.

And, finally, what is next in this area?

Resources continue to be stretched. The investment world continues to get more complex with growing regulation requirements. So, the conditions that have led to an increase in outsourcing seem set to persist. We expect this to mean that the practice will continue to gain ground.

As you look to consider if your business should be partnering with an outsourced CIO, ensure you partner with a provider that can truly understand your business and has the right access and resources for an ongoing successful relationship. Your partnership should not be a cookie cutter approach, your business is unique, and all aspects of your business should be considered this way.