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OCIO vs. Consultant: Which Option Is Best for Your Organization?

Drew Harper, CFA, CFP®

Sr. Wealth Advisor

Summary

A nonprofit’s dilemma: consultant or outsourced CIO? Consider size, budget, and desired level of involvement.

Man handing paperwork to another man

Foundations and endowments often face a crucial question when outsourcing their investment policies: Which category of investment professional is best? While there are several options, an investment management consultant and an outsourced chief investment officer (OCIO) are viable choices that can offer valuable services to a nonprofit organization. Each has distinct roles and qualifications. Here are some potential advantages and disadvantages to weigh:

 

Investment management consultant

Sometimes working alongside a nonprofit’s internal team or existing investment manager(s), an investment management consultant typically provides advisory services related to risk management, investment policies, and portfolio construction. An experienced investment management consultant can add value in several distinct ways:

  1. Objective advice: A consultant typically provides independent and objective advice, helping a nonprofit with overall financial planning and investment decision-making based on the organization’s unique needs, tolerance for risk, and long-term goals.
  2. Customization: A consultant can tailor their services to specific aspects of investment management, such as asset allocation, manager selection, and performance evaluation.
  3. Flexibility: A consultant can be engaged on a temporary or project-by-project basis. The nonprofit decides when and how, thereby maintaining flexibility in the way it obtains advice and assistance.
  4. Cost effectiveness: Along with flexibility comes cost effectiveness. Because a nonprofit can select specific services on a project-by-project basis, it doesn’t need to pay a consultant for aspects of investment policy that can be handled internally.
  5. Educational support: A consultant often focuses on educating their client in areas such as asset allocation, investment vehicles, risk management, and changes in laws and regulations, empowering the client to help better understand investment strategy and make better decisions.

 

Outsourced chief investment officer

Compared with an investment management consultant, an OCIO typically has a more comprehensive role in helping a nonprofit navigate financial markets and planning. This holistic approach differs from consultant services in several ways:

  1. Comprehensive solution: An OCIO offers an end-to-end solution, handling all aspects of investment management, including manager selection, asset allocation, and ongoing portfolio monitoring.
  2. Time savings: By outsourcing the entire investment function, a nonprofit can help save time and free up internal resources, which will allow it to focus more on the core mission.
  3. Risk management: An OCIO often assumes responsibility for risk management, ensuring that investment strategy aligns with an organization’s risk tolerance and overall financial objectives.
  4. Access to a team of specialists: An OCIO typically has a team of professionals who have diverse expertise, which provides a nonprofit with access to a broad range of skills and experience. These professionals include investment analysts, accountants, portfolio managers, and compliance or legal specialists.
  5. Accountability: An OCIO takes on the fiduciary role, providing a higher level of accountability for investment decisions and outcomes.

 

Considerations

Both an OCIO and an investment management consultant can contribute valuable insights to help a nonprofit adhere to regulatory requirements and align its investment strategy with organizational objectives. While choosing one or the other can be a challenge because there’s no one-size-fits-all solution for every organization, here are some factors to consider:

  • Size and complexity: A small nonprofit organization that has simple investment needs may find that a consultant is more suitable, while a larger entity that has a complex portfolio may benefit from the comprehensive services of an OCIO.
  • Budget constraints: A nonprofit with a limited budget may decide that hiring a consultant is the more cost-effective option, while an organization with a larger budget may find cost-effectiveness in the convenient, comprehensive services of an OCIO.
  • Desired level of involvement: How involved does a nonprofit want to be in the investment process? Hiring a consultant may allow for hands-on collaboration, while hiring an OCIO could lead to a hands-off approach.
  • Expertise: A nonprofit might prefer an OCIO over a consultant if it has enough money in its budget but not enough internal resources or expertise to manage a portfolio effectively.

 
In summary, the choice between an investment management consultant and an OCIO often depends on the specific needs, resources, and preferences of the nonprofit organization. Each option has its advantages and disadvantages, so careful consideration should be given to determine which service aligns best with the organization’s goals and constraints.

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.