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Comparing OCIO services

September 9, 2022

The process of choosing an investment partner requires careful consideration among providers, many of which choose the popular moniker of “OCIO” to describe their services. But not all OCIOs are equal, which can help explain why the OCIO, or advisory fee, differs across providers.

Do you know what’s included in your OCIO's fee, or more importantly, what could be missing?

The OCIO/advisory fee is only part of the cost.

In Why the OCIO fee is only part of the cost, we examined how the OCIO fee is one component of the total costs charged for managing your assets. Knowing the total fee is paramount, it is nevertheless important to understand why one OCIO fee might be higher than another and if you are getting what you pay for.

That’s why we believe fee transparency is a best practice for fiduciaries and is a critical aspect to the entire evaluation process. It's important to take the next step and understand why the fee differs. Let’s explore the quantitative data and see why it matters, then explore more qualitative considerations.

Develop a profile with quantitative data

Like any decision, weighing the pros and cons can help your answer stand out. Listing the benefits and stats of each provider is a good start. This information should have numerical values that can be easily compared across providers.

The OCIO market growth has resulted in many new entrants who lack experience in managing assets through difficult markets and can only show simulated returns. As you start to develop a profile of their experience, consider asking revealing questions:

  1. How long has the provider offered OCIO services?
  2. How many clients of similar size or type do they support?
  3. What is the average tenure of those clients?
  4. What are the total assets under management?

These considerations are important to reflect on. An established heritage of providing OCIO services demonstrates experience in navigating clients through a variety of market environments and produces an actual track record of performance that can be evaluated.

Experience coupled with specificity is key. It’s important that your investment provider truly understands the ins and outs of your organization type to help establish and work toward achieving your goals.

Experience matters

Why does an OCIO's assets under management matter? Firms with more assets can often leverage them to receive access to best-in-class managers, as well as to negotiate favorable fees with managers. These lower manager fees should be passed on to investors, helping to reduce the total cost paid for portfolio management of your assets.

Larger firms may have additional benefits not offered by a boutique firm, such as:

  • Money to invest in industry-leading technologies used in portfolio management, risk management, daily security-level analysis, and reporting
  • Dedicated specialists and focused resources that come from investing in human capital, offering deep expertise in various asset classes, coupled with a high-touch client services model  

Consider services beyond the standards with qualitative criteria

Now let’s break down some of the qualitative information you will want to review before deciding on which provider is the best to partner with for the management of your assets. Questions to consider include:

  • Do they use an open architecture approach to develop customized portfolios with your goals and values in mind, or do they offer a prepackaged solution?
  • Who will be responsible for managing your relationship and will they be dedicated to client service, or do they also have day-to-day investment management responsibilities to juggle?
  • Can they offer services beyond investment management that can contribute to your success?
  • Does the provider have experience and examples of ancillary services they have provided to support their clients’ unique and vital missions?

These services differ greatly from one provider to another and may require additional fees. What each organization needs beyond investing is different. For a corporate pension plan, this might be as simple as customized reporting, liability matching or asset class education. For nonprofits, this is typically much more robust and can include: creating customized donor marketing materials, solving unique operational challenges, or participating in student-driven initiatives for college or university clients.

This information usually takes more time to gather and is often compiled through speaking with current client references, conducting virtual or in-person interviews and/or on-site visits.

With the combination of the quantitative and qualitative factors discussed in this blog, the picture becomes clearer why one OCIO fee may be more than another.  

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Comparing OCIOs

More reading on evaluating service providers.

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Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.