Viewpoints | Advyzon

Outsourced CIOs: How aligned do you need to be?

Written by Advyzon Team

Chances are, your clients are working with you at least partly because of the way you manage their investments. Even planning-first advisors tend to rely on assets under management, and therefore, investment returns, for a portion of their revenue.

And yet, for many advisors, investment management isn’t their favorite part of the job. Building portfolio models, rebalancing them, ongoing due diligence, tracking performance against benchmarks…

While this can all be made easier via great reporting and rebalancing technology (ahem), some advisors may want to take this a step further. This can be especially true, perhaps counterintuitively, in down markets. In uncertain times, many clients seek, retain, and refer advisors based not on investment performance but on holistic planning and support. Outsourcing investment management can free your time to focus on that.

But, if you’re going to outsource, there’s a fairly large question to answer:

How will you find an investment manager (at a TAMP) that reflects your investing outlook and philosophy—the one your clients have come to value? And, how important is it that your outlook align with any outsourced asset managers?

How to evaluate a TAMP

The way you evaluate a potential TAMP may depend on your own approach to investing and portfolio management. If you believe in a largely passive approach, you may care less about the fund manager’s outlook. However, even passive portfolios can reflect a specific approach—which funds are included, how weighting and rebalancing is approached, and so on.

When you introduce active management into the picture, the impact of an asset manager is clearer. For instance, if you are offering an ESG portfolio to clients via a TAMP, it’s important you agree with the manager’s point of view on what constitutes an ESG investment.

For example, Brian Huckstep, the Chief Investment Officer at Advyzon Investment Management (AIM) shared his approach: “Every one of the underlying fund managers [in our ESG Asset Allocation models] has an ESG mandate.” This approach screens many funds that are ESG in name only while holding investments that may not reflect the principles valued by many socially conscious investors.

It’s also a good idea to ask about the tilt. According to Huckstep: “Portfolio managers can have widely varying degrees of impact on portfolios. There are a lot of ways to measure the forecast of how large your tilts are, or your bets versus your benchmark.”

AIM, for instance, aims for a 2% tracking error limit. This risk budget resulted in a value stock overweight between 2% and 6% and an underweight to long-duration bonds between 3% and 8% in 2022. Both tilts will continue that way into 2023.

Some firms, however, take tilts as large as 20%. The larger the tilt, the more important it is to ensure you’re on the same page as the asset manager.

Is a TAMP right for you?

It’s also important to note that most TAMPs offer a wide array of portfolio options (AIM offers 51 portfolios, including three separately managed accounts and a number of specialized options, including tax-focused and ETF-only portfolios). Many advisors use these offerings for a portion of assets, while continuing to manage the rest. Still others might split their AUM among more than one provider to ensure the right mix of portfolio offerings for their clients.

One consideration: Does the provider send market commentary or provide white label insights? For clients who want to dive into the weeds of their portfolio, this type of commentary can engage clients outside of regularly scheduled meetings.

You may also be able to use the commentary to create simple takeaways and high-level bullets for your less market-minded clients. Thought leadership from a TAMP or outsourced CIO can boost your client engagement while still saving you time, so long as you’re aligned with the thinking they’re putting out.

If you’re curious about the portfolios offered in AIM, and how they might supplement your in-house investment management, book a free 30-minute consultation to explore the offerings.

Advyzon Investment Management LLC ("AIM") is a registered investment adviser registered with the United States Securities and Exchange Commission, and a wholly-owned subsidiary of yHLsoft Inc., doing business as Advyzon ("Advyzon"). All references to investment advisory services mentioned in any correspondence are provided by AIM, while some technology and administrative support services are provided by Advyzon. AIM's advisory services are available to financial advisers for use in managing assets for their clients. We do not provide advisory services directly to retail investors.
Written by Advyzon Team