If you are considering an outsourced chief investment officer (OCIO), the most important question is not simply, “What is your investment performance?”
A better question is: “How will you make investment decisions, and can I clearly understand why those decisions are being made?”
An OCIO can provide much more than portfolio management. The right partner can bring institutional-quality research, asset allocation expertise, portfolio analytics, risk management, and an investment process that complements your firm. But OCIO relationships vary widely.
Before hiring one, ask questions that reveal how the firm thinks, how transparent it is, and whether its approach actually fits your needs.
Here are the questions I would ask before signing an OCIO agreement. We’re about to talk about it all.
But first, welcome to the Fortis Portfolio blog. We provide institutional-grade investment research and portfolio strategies to RIA firms. And the best part about it is that we don’t make your clients feel like they are part of a machine.
And now, onto the main feature!
Start with the basics.
What does an OCIO actually do for us?
An outsourced chief investment officer can take responsibility for some or all of the investment-management functions that an organization or advisory firm would otherwise need to handle internally. Depending on the relationship, that can include investment research, asset allocation, manager selection, portfolio construction, risk analysis, and ongoing monitoring.
But “OCIO” does not mean the same thing at every firm.
Ask:
- What investment responsibilities will you take on?
- What decisions remain with us?
- Who has final authority over portfolio decisions?
- How involved will you be in our investment process?
- What will you do that our current team cannot reasonably do ourselves?
The goal is to understand the actual scope of the relationship—not just the label.
How do you make investment decisions?
This may be the most important question on the list.
You should be able to understand an OCIO's investment philosophy without needing a Ph.D. in finance.
Ask the prospective OCIO to explain:
What is your investment philosophy?
Then ask:
How does that philosophy translate into actual portfolio decisions?
A strong OCIO should be able to explain the connection between research, portfolio construction, risk, and expected outcomes in plain language.
If the explanation relies heavily on jargon, proprietary terminology, or “trust us” reasoning, keep asking questions.
Transparency matters because you are not simply outsourcing a portfolio. You are outsourcing judgment.
What research supports your recommendations?
Ask what is behind the portfolio—not just what is currently in it.
Where does the firm's investment research come from? What metrics does it use? How does it evaluate investments? How frequently are its assumptions challenged?
You should also ask:
- Is your research proprietary or primarily based on third-party models?
- How do you evaluate individual securities or managers?
- How do you determine asset allocation?
- What causes you to change a portfolio?
- How do you distinguish signal from market noise?
The best OCIO relationship should make the investment process more visible, not less.
How do you manage risk?
Risk management should be much more sophisticated than saying, “We diversify.”
Ask:
What risks are you specifically trying to manage in my portfolio?
Then ask how those risks are measured.
An OCIO should be able to discuss concentration, volatility, correlations, liquidity, downside risk, and the possibility that different investments behave differently than expected.
Most importantly, ask how risk affects actual decisions.
A risk report sitting in a dashboard is not risk management. The question is whether the information changes what the OCIO does.
How do you define success?
This question can expose a major difference between OCIO providers.
Is success simply beating a benchmark?
Or is the objective tied to the investor's actual goals?
An outcome-based approach starts with the question:
What does this portfolio need to accomplish?
That could mean preserving capital, generating income, supporting spending requirements, managing risk, or pursuing long-term growth.
Ask how the OCIO defines success before discussing performance.
A portfolio can outperform an index and still fail the investor's objectives.
How do you communicate investment decisions?
You should know what you are buying from a communication standpoint.
Ask:
- How often will we meet?
- What information will you provide?
- Who will be available to answer questions?
- How do you explain changes in the portfolio?
- Will we receive the rationale behind major investment decisions?
- How quickly can you respond when markets change?
Investment expertise has limited value if the people responsible for communicating it cannot explain it clearly.
Your clients, board, investment committee, or internal team should understand why the portfolio looks the way it does.
How are you compensated?
Do not stop at asking, “What is your fee?”
Ask how the fee works.
Is it a percentage of assets? A flat fee? Are there additional costs for particular services or investment vehicles?
Also ask:
Do your economics change as our assets grow?
The structure of an OCIO's compensation can influence the economics of the relationship. You want to understand exactly what you are paying for and whether the fee structure continues to make sense as your organization or practice grows.
What happens when we disagree?
This is one of the questions prospective clients often overlook.
Ask:
What happens when your investment recommendation conflicts with our preferences or expectations?
A good OCIO should be able to explain its reasoning without becoming defensive.
You should also understand who ultimately makes decisions and how disagreements are documented and resolved.
The best partnership is not one in which everyone agrees all the time. It is one in which disagreement leads to better questions and better decisions.
Can you show us what you have built?
Finally, ask for evidence of the investment process.
Can the OCIO demonstrate its research? Can it walk you through an allocation decision? Can it explain why a particular strategy belongs—or does not belong—in a portfolio?
Look beyond a polished presentation.
You want to see how the firm thinks.
The right OCIO should make investing clearer, not more complicated
Hiring an OCIO is ultimately a decision about trust.
You are trusting another organization with an important part of your investment process. That means you should expect more than impressive credentials, attractive performance numbers, or sophisticated software.
You should expect a disciplined process, transparent decision-making, thoughtful risk management, and communication that makes sense.
At Fortis Analytics, we believe investment strategies should be transparent and easy to explain. Our approach combines institutional-grade research, portfolio analytics, and outcome-based, risk-conscious strategies with a focus on giving advisors and institutional investors a clear rationale for investment decisions.
The right OCIO should not make you feel like you are handing over control. It should make you feel like you have gained a better investment partner.
Frequently Asked Questions About Hiring an OCIO
What should I look for when hiring an OCIO?
Look for a clearly defined investment philosophy, transparent decision-making, strong research capabilities, disciplined risk management, clear communication, appropriate fees, and a process that aligns with your objectives.
What questions should I ask an OCIO?
Ask about investment philosophy, research, asset allocation, risk management, fees, decision-making authority, communication, conflicts of interest, and how the OCIO defines and measures success.
How do you evaluate an OCIO?
Evaluate the firm's investment process—not just its historical performance. Understand how decisions are made, what research supports them, how risk is managed, and whether the firm's approach fits your objectives.
What is the difference between an OCIO and an investment manager?
An investment manager typically manages a defined portfolio or strategy. An OCIO can provide broader investment oversight, potentially including asset allocation, manager selection, research, risk management, portfolio construction, and ongoing investment governance.
Why does transparency matter when choosing an OCIO?
Transparency allows you to understand how investment decisions are made and whether those decisions align with your objectives. It also makes it easier to communicate the portfolio's strategy to clients, boards, committees, and other stakeholders.
What is the biggest mistake when hiring an OCIO?
Focusing too heavily on past performance while failing to understand the investment process. Performance matters, but you should also understand how it was generated, what risks were taken, and whether the process is repeatable and appropriate for your objectives.
Are you ready to outsource your investment management?
If investment responsibilities are beginning to compete with client service, business development, or long-term growth initiatives, it may be time to evaluate whether an OCIO partnership can help your firm scale more efficiently while continuing to deliver a high-quality investment experience.
Source: ChatGPT