Comparing OCIO services

The process of choosing an investment partner requires careful consideration among many providers. To further complicate your decision, many providers choose the popular moniker of “OCIO” to describe the services offered. 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 or, more importantly, what could be missing?

The OCIO/Advisory fee is only part of the cost

In OCIO fees: 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, but it is still important to understand why one OCIO fee might be higher than another and more importantly, 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 is important to know what costs makes up the total fee, but taking the next step and understanding why the fee differs is noteworthy. 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 led to many new entrants who lack experiences in managing asset through difficult markets and can only show simulated returns. Key questions to start to develop a profile of their experience include:

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, as having 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

So why does the amount of assets an OCIO manages matter? Firms with more assets can often leverage those assets to receive access to the best-in-class managers as well as negotiate favourable 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 have additional benefits a boutique firm may not offer 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 by investing in human capital to offer 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 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.  

Information provided by SEI Investments Management Corporation (SIMC) and SEI Investments Canada Company, wholly owned subsidiaries of SEI Investments Company. SIMC is a registered investment adviser and SEI Investments Canada Company is the manager of the SEI Funds in Canada. Investing involves risk including possible loss of principal. There is no guarantee that risk can be managed successfully. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon as research or investment advice and is intended for educational purposes only.