The Evolving Role Of CIOs Over The Past 15 Years

CIOs Have Increased In Importance While Outsourcing Of Investment Services Proliferates
Julius Buchanan, Editor in Chief, Wealth Solutions Report
Julius Buchanan, Editor in Chief, Wealth Solutions Report

The modern chief investment officer faces much more complexity than CIOs of the past. What was once primarily an internally facing role with traditional investments has evolved into a role that may be outsourced partially or entirely, and CIOs must remain conversant on an ever-increasing universe of investment possibilities.

Today RIAs have options including in-house CIOs, outsourced CIOs (OCIOs), outsourcing to TAMPs or broker-dealers and more. As outsourcing becomes more common, competition becomes fiercer among investment service providers.

The recent merger of Cerity Partners with Agility, which will become Cerity Partners OCIO, is one of the latest moves that react to these trends. Verdence Capital Partners recently expanded and rebranded its OCIO services to provide a wider range of RIA solutions.

Orion Advisor Solutions recently partnered with CAIS to provide its Wealth Advisory and OCIO clients with access to alternative investments including private equity, private debt, private real estate and hedge funds. When AlTi announced its acquisition of East End Advisors earlier in the month, it stated one reason was to enhance its offerings in the OCIO market.

With the increased complexity and centrality of investment services for many industry firms, the CIO appears to be rising in prominence. In what was once a rare move, a former CIO, Burt White, has taken the reins of Carson Group as CEO.

The Centrality Of The CIO

Matt Dmytryszyn, CIO, Miracle Mile Advisors
Matt Dmytryszyn, CIO, Miracle Mile Advisors

“The CIO role has evolved significantly, transitioning from a research producer to a crucial client service partner,” said Matt Dmytryszyn, CIO of Miracle Mile Advisors. “This shift is a direct response to clients’ increasing awareness of the diverse investment vehicles available to them. Advisors require specialized resources that can effectively communicate the intricacies of these opportunities, associated risks and their alignment with long-term plans.”

According to David McNatt, EVP, Head of Investment Solutions at AssetMark, the scope of the CIO role has expanded in multiple directions over the past 15 years. “Historically, the CIO primarily focused on developing broad-based investment policies and oversight of investment activities. Today, CIOs are also involved in communications, personalized and tailored investment policies, portfolio management technology, building client relationships and trust, supporting social media and overall brand credibility, and most importantly, strong leadership.”

Outsourcing The CIO Role

The trend of outsourcing all or part of the CIO role and function has increased steadily over the past 15 years. According to Chris Shuba, Founder and CEO of Helios, the primary driver of this trend is the move to generate growth through scale and profitability. “The role of a CIO differs by practice but a client-facing CIO who focuses on high-value clients can utilize an outsourced investment platform for support work behind the scenes, maximizing their value to the practice.”

Chris Shuba, Founder & CEO, Helios
Chris Shuba, Founder & CEO, Helios

Shuba adds, “Alternatively, if the advisory practice doesn’t have a designated CIO, that same platform can fulfill all the heavy lifting.”

Dmytryszyn points out that the packaged solutions developed by investment service providers has made it easier for small RIAs to “outsource some of the CIO functionality. However, larger firms serving ultra-high net worth clients require a broader array of solutions to meet more complex needs and are better served with a dedicated CIO.”

Jim Worden, CIO at Wealth Consulting Group, predicts that the outsourcing trend will continue. He says that outsourcing makes the most sense for advisors who are not affiliated with a large RIA, and cautions, “Advisors should be careful to discern whether it is a TAMP or a true OCIO solution that fits their needs.”

Choosing The Best Option

Worden advises firms that are choosing the best outsourcing option to look at both their level of assets and the advisor’s willingness to outsource. Advisors who want to be involved in investment selection but not in every decision should, in his opinion, work with a centralized investment committee or an OCIO. “For those who don’t wish to be involved, a TAMP or BD model may suffice. Advisors should understand that TAMP or BD models are most often not customizable.”

David McNatt, EVP, Head of Investment Solutions, AssetMark
David McNatt, EVP, Head of Investment Solutions, AssetMark

Shuba says that most firms have basic investing models, and if an advisor wants advanced models, a research-focused partner is well suited. For advisors who want full support including models, he recommends an OCIO. “It ultimately depends on how much of the asset management work they want to keep in-house.”

“Expanded choice does not equate to parity of choice,” warns McNatt, describing the characteristics that he views as necessary for investment services, including a team approach, a culture of debate, a quantitative process that avoids emotional bias and a qualitative process that helps mitigate data mining risks. “I’d suggest ensuring investment diligence embraces these attributes and that the service and client support model address your needs and preferences.”

Evolving Competitive Landscape

As investment services options proliferate across TAMPs, BDs, OCIOs and other firms over the last 15 years, competition has been on the rise.

McNatt notes that investment services providers need to differentiate themselves, find ways to add value and understand the economics of running a business. He points to his firm’s investment culture as an example of competitiveness in the field, saying that it is both outcome-oriented and focused on ensuring clients understand proposed solutions and receive support during turbulent markets.

Jim Worden, CIO, Wealth Consulting Group
Jim Worden, CIO, Wealth Consulting Group

“Most investment organizations have talented people, but it is the CIO’s role to establish that culture of constant learning and instill a focus on the client,” said McNatt.

Worden points to various improvements that CIOs can package at competitive pricing to compete effectively, including tax efficiency and lower expenses from ETFs, lower transaction costs, interval wrappers giving mass affluent investors access to alts, custom indexing and unified managed account platform flexibility. He adds, “We will likely continue to rely on marketing, distribution and just good storytelling, however, in order to see greater AUM growth.”

“Large institutional asset managers have elected to offer solutions to the wealth management industry,” says Dmytryszyn. “As these come to market, they are being met with a level of comfort from CIOs and analysts who have experience with these strategies, and the advisors and clients they support benefit from the greater level of research in the solutions they are able to offer clients.”

The Next Trend For CIOs And Outsourcing

Shuba believes the next major trend will include “advanced capabilities such as machine learning which will filter out and surpass many of the more basic OCIOs.” He expects machine learning will expand support capability, which will enable more comprehensive service.

McNatt also sees technology driving future trends. “Clients increasingly want tailored outcome-based investment solutions, are looking for tax management and other personalization overlays, and want access to emerging asset classes, including private market vehicles. Technology is the only way to effectively service these needs and scale/run a profitable business.”

Other CIO Evolution

The CIO role has evolved in other ways over the past 15 years.

“In the past,” McNatt says, “it seems like there were CIOs who had managed money, and there were CIOs who had not. The CIOs who had yet to manage money tended to focus on communication and governance. The CIOs that had managed money played more technical roles, including the development of portfolio management technology, portfolio construction and investment strategy/process development.”

McNatt describes a modern fusion of these roles: “Today, I think CIOs need to provide the full range of services – from client communication to governance, to the development of portfolio management systems and processes.”

Shuba says that CIOs have increasingly focused on quantitative analysis, which led to a more holistic approach when compared with their past focus on risk management. “Access to greater analytics and better research have led to more consistent, risk-managed outcomes for clients. In the past there was a focus on severe downside management. The advancement of technology has led to a more proactive approach in securing better outcomes as opposed to implementing risk averse strategies only.”

Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com.

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