Taiko: Enter The OCIO When Procuring Investment Research Becomes A Daunting Task for RIAs

(Taiko) Financial advisors play a critical role in guiding their clients towards making informed investment decisions. However, they face a number of challenges when it comes to selecting and utilizing investment research to guide their planning for client portfolios.

Many registered investment advisors (RIAs) don’t have access to the same level of research and data as larger institutional investors, which can make it more difficult for them to analyze and evaluate investment opportunities. They may also face time constraints, making it difficult to conduct thorough research on all of the alternative investments landscape. Quality, unbiased research can be costly, and most RIAs don’t have the budget to tap all of the research they need to make informed investment decisions for clients. 

By embracing external resources for capital market and investment research, advisors can eliminate many of these challenges, turning investment research into a differentiator for their practice. In fact, a 2022 FlexShares survey found that a third (33%) of respondents outsourced their investment research while 85 percent claimed they would consider using an outside manager. 

Let’s examine some of the challenges and risks advisors face if they choose to tackle investment research on their own, versus joining forces with an expert partner.

Budgetary and time constraints

Many advisors entered their profession to help clients achieve their financial goals and plan effectively for the future. This involves vetting and selecting risk-appropriate investments that are suitable for each client’s needs, a time-consuming process if not managed effectively. Advisors are increasingly forced to juggle a multitude of responsibilities and they may not have the time to conduct thorough research on all of the investment opportunities available to their clients. 

In many instances, advisors wind up relying solely on free mutual fund or other investment company research, which can be laden with inherent bias. Rather than offering objective information regarding the best option, many firms tilt their recommendations to push their own products and proprietary strategies. By leveraging an OCIO’s research platform, advisors are afforded the peace of mind that comes from knowing investment recommendations are merit-based. They are also afforded the gift of time, which they can spend developing all-important connections with their clients.

Access and lack of specialized knowledge

Investment research is a dynamic field and financial advisors may also lack the knowledge to dig into the latest trends and insights. As a result, they might miss out on profitable investment opportunities for clients or expose them to unnecessary risk. 

Access to an external provider’s information network can be a game changer for advisors, with investment opinions from a multitude of subject matter experts in a near-endless array of asset classes and sub-styles. Advisors can easily tap timely insights on industry trends and valuations that are not available to most RIAs.    

Financial advisors seeking to diversify client portfolios away from traditional allocations, like a 60/40 portfolio, may not have the same level of expertise with alternative investments such as private equity, private debt, hedge funds or real estate. 

Experience matters when it comes to investment research. A team of tenured professionals will have spent decades navigating portfolios through multiple market cycles, including bear and bull markets, and periods of economic recession and expansion. An OCIO draws upon a deep combination of both internal research and external research, empowering clients with informed market judgment to better analyze and evaluate potential opportunities as they arise.

Steer clear of business and reputational risk

Failure to maintain adequate manager and research due diligence, including meeting notes, investment policy documentation and sell discipline, can open RIAs up to serious reputational and brand risk.

Partnering with an OCIO can help to alleviate regulatory burdens by leaning on their team of experts to help advisors navigate the complex compliance landscape. This can take many forms, including conducting rigorous due diligence on asset allocations for advisors, supplying an air-tight reporting and audit trail for investment recommendations culled from the research and saving advisors from having to compile these cumbersome files on their own.

The U.S. Securities and Exchange Commission (SEC) has increasingly stressed the importance of performing and documenting continuous supervision of assets under management, leaving many advisory firms with no real basis for their asset allocation recommendations.

Outsourced investment research improves the advisor-client experience

Investment research can be a road fraught with peril for RIAs who attempt to go it alone. Given the dynamic and time-consuming nature of this research, advisors can spin their wheels sourcing potentially biased recommendations, ultimately harming client outcomes.

Partnering with an external capital market and investment research source like an OCIO can provide financial advisors with a disciplined approach to making informed investment decisions, reducing business risk while increasing their credibility. 

By working collaboratively with advisors, acting as an extension of their practice, an OCIO can distill market intelligence into a consistent and coherent message. Providing salient market insights ensures clients are always informed about the latest market opportunities (and risks) and the advisor will enjoy more face time counseling them.

Phil Kosmala, CFA, is Managing Partner at Taiko, a boutique, full-service OCIO solution built for RIAs, national advisory firms, broker dealers and trust companies.



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