Outsourced CIO Firms Gain Traction with Private Wealth Managers

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Doug De Groote, the founder of De Groote Financial Group, has shared his insight into how outsourcing a chief investment officer has seen a 30% growth in his own company’s assets. De Groote, the founder of a five-employee investment adviser in Westlake Village, serves clients that usually hit the $1.2 million mark. His company has a worth of over $240 million and has been partnered with a CIO firm to help serve his clients.

De Groote employed Dynasty Financial Partners, a New York-based wealth manager that does third-party investment management for more than 40 firms, which has combined assets of more than $20 billion. He has shared his insight into how his partnership with Dynasty Financial Partners has helped his own company grow, and maintain customer satisfaction.

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De Groote Financial Group is only one of many private wealth managers that have turned towards CIO firms over the past few 10 years. De Groote’s RIA firm is popular amongst pension funds and institutional investors and uses the model of hiring CIO firms to help them stay on top of new regulations.

This model of RIA and CIO firms has been very successful over the past 10 years, with more and more RIA firms following the model. The way CIO firms help RIAs is by allowing them to spend more time with their wealthy clients and finding new investment opportunities. The usual clients for RIAs are young entrepreneurs and senior executives, so the personal touch is very much important.

According to CIO Advise, the typical RIA firm has more than $320 million in assets, between nine and fourteen staff, and between 25 and 100 clients on their books. The constant need for discovering new strategies and research into unfamiliar asset classes has forced RIAs into partnering with CIOs to discover these strategies. The need for discovering new and better sources of return has grown even bigger, bigger than ever before.

The potential advantages to outsourcing solutions to CIOs can put out family squabbles, especially if a third-party manages the wealth rather than a designated family member. Furthermore, RIAs have nothing to worry about, as the CIO takes care of everything, including the risks.

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Phillip Watson, president and head of Cambridge Associates in Boston, says that hiring a neutral party in a different location can make intergenerational wealth transfer much easy and less messy. An outsourced solution can work well, especially when the question of whom in the next generation of going to oversee the investment emerges.

According to statistics from the Chicago-based Northern Trust Asset Management, about 40% of the 690 participants said that they use wealth managers. This trend of collaboration between RIAs and CIOs is slowly growing and gaining much traction in the world of institutional and asset investment. It frees up time for RIAs to spend more time with their clients, it frees up more time in practicing wealth-management, and it generates above-market returns. These are some of the reasons as to why RIAs are outsourcing to CIOs. From the statistics, we found that 96% of participants are more than happy with the whole arrangement. The number was 100% for firms with more than $3 billion in assets. So a pattern emerges where the wealthier the firm, the more success outsourcing to CIOs has.