Frequently Asked Questions about Outsourced Chief Investment Officers (CIO)

What is an ‘outsourced CIO’?

An outsourced Chief Investment Officer (CIO) is a fiduciary adviser with legal accountability to protect your assets and advise you objectively about inherent opportunities and risks associated with various investment options.

Once you have established your investment goals, an outsourced CIO helps you determine how to deploy your assets, designs your investment portfolio to meet your needs and reflect your risk tolerances, and selects and monitors the professionals who manage the portfolio on a daily basis.

What does an ‘outsourced CIO’ do?

An outsourced CIO is a fiduciary who will design your investment portfolio with a legal and ethical accountability to protect your assets.

Responsibly managing assets can be challenging. An outsourced CIO is a trusted expert who will advise you objectively and help you navigate the many available investment options you may face.

An outsourced CIO’s job is to build a portfolio that meets your needs and goals, and reflects your risk tolerances. They will then select and monitor the investment managers who manage your portfolio.

Click here to visit our webpage “What Is an Outsourced Chief Investment Officer” for more information.

Why do I need an ‘outsourced CIO’?

With an outsourced CIO, you will know where all of your assets are invested – and why. You will have an advocate with a fiduciary responsibility to protect your assets and “sit on your side of the table”.

The top five benefits of an outsourced CIO for high net worth families and foundations are as follows:

1. Comprehensive and integrated asset management advice
2. An ongoing relationship
3. Unwavering objectivity
4. Holding investment managers accountable for investment performance
5. Value

The primary benefit families and foundations have found from engaging an outsourced CIO is simply the peace of mind of knowing their assets are well taken care of (both now and for the future).

Click here to visit our webpage “Why Do You Need an Outsourced Chief Investment Officer” for more information.

When should I engage the services of an ‘outsourced CIO’?

Families and affluent foundations need a customized, integrated asset management plan.

You should consider contacting an outsourced CIO when:

• You’re not meeting your investment goals
• You’re tired of people ‘pushing investment products’ at you
• Your financial organization operates with a conflict of interest in dealing with your assets
• Your portfolio doesn’t match your tolerance for risk
• You’re concerned your portfolio is not sustainable
• You’re skeptical about the competency of the investment managers working on your behalf
• You don’t know how much you’re truly paying for your investment advice (your current investment advisor is not transparent!
• You do know how much you’re paying for investment advice … and it’s too much
• You feel the advice amongst your various professional advisors (e.g. accountants, lawyers, etc.) is disconnected

Investors face many complex challenges in the current asset management industry. When you need an objective expert at your side, you should engage an outsourced CIO.

How does an ‘outsourced CIO’ work with their clients?

Although different outsourced CIOs may have slightly varied processes, the core of how an outsourced CIO works involves: 1) a fiduciary responsibility, 2) a deep understanding of their client’s needs, and 3) an expertise in managing clients’ assets accordingly.

Here is how we work with our clients:

Investment Stewardship

• As a fiduciary, we act in our clients’ best interests to ensure their assets are protected.
• We help establish integration among our clients’ professional advisors, such as their accountants and lawyers, to provide comprehensive advice.
• We meet with our clients regularly to review their portfolio and ensure it is always aligned with their needs.

Goals Assessment

• We spend time getting to know our clients.
• We conduct an in-depth assessment to understand our clients’ needs, goals, timelines, and risk tolerances.
• We tailor a sustainable investment plan and portfolio for each client.

Asset Management

• We develop integrated asset management solutions customized to each specific client.
• We are completely transparent about how clients’ portfolios and fees are structured.
• We will rebalance our clients’ portfolios over time (due to changing financial markets or client objectives) to ensure it is always structured appropriately for each client.
• We will review, recommend, and closely monitor the performance of our clients’ investment managers.

An outsourced CIO works with clients to provide prudent portfolio structuring and responsible preservation and growth of assets.

How does an ‘outsourced CIO’ price their services?

An outsourced CIO should always be transparent with their fees.

The costs associated with an outsourced CIO’s offering can be broken down into five main categories:

1. Counsel and Advice: Advice on structuring your portfolio so it aligns with your unique objectives and risk tolerances.
2. Investment Management: Actual money management of your portfolio; involves finding, paying, and overseeing external money managers.
3. Security Transactions: Buying and selling securities (note: large investment portfolios should pay only the lower-costing “Wholesale/Institutional” pricing, not the “Retail” pricing).
4. Pool/Investment Funds: If investment funds are utilized, each investment fund has operating costs, and potentially additional costs for advice and management.
5. Custody: Independent safekeeping of your assets (note: as portfolio size increases, custody costs generally decrease as a percentage of portfolio size).

Investors should ask about each of these fees upfront, before signing any paperwork. This will ensure you aren’t subjected to hidden fees in the future.

Click here to read our in-depth blog on this subject, “Get the Truth about Costs: Top 5 Questions for Investors to Ask Investment Advisors”.

How frequently do ‘outsourced CIOs’ meet with their clients?

Outsourced CIOs typically meet with their clients on a quarterly basis to review their portfolio and ensure it continues to meet the client’s (possibly changing) objectives. However, an outsourced CIO is always available if more meetings are required in the interim.

At the quarterly review, three crucial components should be addressed:

1. Goals Review: Is the portfolio still aligned with the client’s goals?
2. Portfolio Review: Is the portfolio accomplishing what was expected?
3. Policy Review: Have any changes occurred that necessitate a change to the portfolio structure and/or Investment Policy Statement (IPS)? Think of your IPS as the architectural blueprint for the construction of a house – it’s a critical document that provides concrete guidelines for managing your asset.

Click here to learn more about quarterly reviews in our blog, “Portfolio Reviews Matter”.

Does an ‘outsourced CIO’ work with my other professional advisors?

Yes!

One of the most essential parts of an outsourced CIO’s role is investment stewardship. That means outsourced CIOs are concerned about the management of your assets beyond just building an investment portfolio. The successful management of family or foundation assets requires the expertise of several trusted advisors working on behalf of the family or foundation as an integrated and focused team.

For affluent families, we collaborate with your professional advisors to take into account tax and estate, and insurance and business succession planning, to name a few of the many moving parts that combine to create a worry-free life for our clients.

For foundations, we collaborate with the Foundation Board/Investment Committee and their financial auditors to create integrated and real sustainable solutions.

This collaboration not only avoids costly oversights, but strengthens an asset management strategy as a whole.

Click here to learn more about how HighView works with your professional advisors.

How should I measure the success of an ‘outsourced CIO’?

Unfortunately, the success of an investment portfolio is too often measured against the capital markets or an arbitrary benchmark. This is not how you should measure the success of your outsourced CIO! It is also not how they should be measuring their own success on your behalf.

Instead, you should measure the success of your outsourced CIO by whether your portfolio is meeting your funding obligations over time, while simultaneously respecting your tolerances for risk/portfolio volatility.

We call this “goals-based investing”. Remember, your investment portfolio is a simply a utility that exists to fund your goals and ensure funds are available for your future commitments and liabilities. This cannot be measured with relative benchmarks.

Click here to read our in-depth blog on this subject, “Debunking the Investment Industry: Relative Benchmarking”.