Advisors often outsource the investment management portion of their business to focus on their areas of expertise. When deciding whether to use a traditional TAMP (Turnkey Asset Management Program), an OCIO (Outsourced Chief Investment Officer), or an ICIO (Insourced Chief Investment Officer) for portfolio management, advisors should consider the ways an ICIO can add value to their business.
Invariant’s primary model for partnering with financial advisors is serving as an ICIO. While TAMP’s and OCIO’s services are generally limited to investment management, the ICIO provides service far beyond this. We believe that ICIO’s can significantly add value beyond investment management in three key areas: Operational Tasks, Business Development, and Portfolio Customization.
Operations
Managing client accounts involves considerably more than just target portfolio weights. There are withdrawals, contributions, and other ad hoc requests. These situations create the need for individual client servicing even when running model portfolios. Withdrawal accounts need to be administered in such a way that there is always sufficient cash on the withdrawal date. With contribution accounts, cash must be invested when appropriate. Invariant has systems in place to ensure these tasks are administered professionally.
Additionally, the portfolios need to be monitored on a regular basis to confirm that they are allocated according to plan. Rather than auto-rebalancing on a set frequency - which may leave accounts out of balance in between rebalances - Invariant will run routine “drift reports” which compare the client’s actual allocation with their target allocation and then adjust when necessary. This both avoids unnecessarily frequent rebalance and ensures that account allocations are where they need to be.
The ICIO model works at a level of granularity far deeper what a TAMP manager or OCIO can offer, helping the advisor deliver more value to their clients.
Business Development
Advisors typically outsource the investment management portion of their business so that they can focus on growing their business. While this is the primary way an ICIO will support an advisor’s business development efforts, we aim to do so in other ways as well.
This includes, but is not limited to, creating customized reporting/marketing material on the model portfolios that an advisor can use in client and/or prospect meetings. Invariant has created YCharts “one-pagers” that summarize each model portfolio’s exposure. We also use Riskalyze reports to help communicate portfolio risk statistics and scenario analysis to clients. These reports can be white-labelled and customized to fit the advisor’s needs. The final product is a useful communication tool for both client and prospect meetings.
Lastly, as needed, Invariant will collaborate with the advisor on strategies for prospect meetings and join the communications when requested. Advisor clients are also welcomed to join our monthly investment committee meetings.
Portfolio Customization
Model portfolios are an excellent, efficient way to manage a book of client portfolios. Even so, it is common that certain clients will often have one-off portfolio holdings that benefit from customization beyond the model portfolio. The most common scenario is that a client has a low-basis concentrated holding. While a TAMP manager may be limited in what they can do regarding these scenarios, an effective ICIO will:
- Build a portfolio around the concentrated holding, aiming to for diversification.
- Create a hedging strategy to mitigate left-tail outcomes.
- Work with the advisor to create a long-term exit plan.
Additionally, clients may have a preference to not hold certain securities or asset classes. Through trading software, which is compatible with every major platform, Invariant can exclude specific securities, asset classes, and even come up with equivalencies.
The Bottom Line
We believe that the ICIO model adds considerable value to an advisor’s practice. Advisors who are looking to outsource the portfolio management part of their business should consider the many ways that their practice could benefit from partnering with an ICIO – from operational efficiency, collaborative business development, to customizations where necessary. A competent ICIO allows the advisor to better focus on what is most important: serving their clients and growing their business.