Advisors, Should You Hire a CIO? Maybe.


In our newest paper, The Purposeful Advisory Firm, we look at the tradeoffs between creating a lifestyle business vs. building an enterprise firm. We also suggest ways to maximize the business, no matter which route the advisor/business owner takes. The idea for the paper came from consulting with many great firms who are maturing to a point that some significant business decisions have to be made, yet the industry typically only had one suggestion – build an enterprise.

Without a doubt, one of the major discussion points that need to be addressed by both those heading down the lifestyle path (by choice or by not making a decision) and those heading down the enterprise path is what to do about investments. We’ve argued before that advice and planning is the value hub of an advisor’s business, especially in a world where clients increasingly have access to products from direct-to-custodian providers, retail mutual funds, discount brokers and robo (and virtual) advisors. But how does a purposeful firm maximize the portion of their business that takes a significant amount to time and resources, yet may not be differentiated in the eyes of their clients and prospects?

C-level evolutions

The traditional evolution of an advisor’s business goes from startup to emerging to mature. Typically in the first two stages, the advisor (and maybe a support person) does all things for the firm – he is planner, marketer, investment specialist and client servicer. (In the early years of the firm, he is probably operations and IT, too). As the firm moves to mature, size, profitability and the complexity of the business demands the firm brings in more resources. It is at this point that I typically have conversations about C-level resources.

It makes sense to me. Even if the advisor has not self-identified whether they are leaning toward the lifestyle or enterprise approach, the demands of running a maturing firm make it difficult for advisors to do it all. More often than not, instead of hiring a COO (in my mind, one of the most important hires), the firm starts looking to add investment expertise – a CIO (chief investment officer).

I get it; a COO is a direct expense that will not find new clients or add to top-line revenue growth (but will to the bottom line), so the CIO is a natural progression in the line of thinking. Let’s look at it for the two types of firms:

For the firm heading down the enterprise path, the CIO:

  • Adds in-house expertise in the wealth management offering
  • Supports “one-off” demands from a growing client base with larger account sizes
  • Can support or create a more consistent investment process from the startup and emerging phases that were more product and sales focused.

For the firm heading down the lifestyle path, the CIO:

  • Frees up time for the lead advisor to focus on relationship management and new client acquisition
  • Allows the advisor to bring younger talent into the firm (typically the route for a son or daughter of the lead advisor)
  • Supports “one-off” demands from existing client base with larger account sizes

You can’t argue with the idea of wanting to streamline processes, gain consistency and especially freeing up time, so why aren’t more firms snapping up CFAs and tenured investment specialists in record numbers for this role?

Advisors, should you hire a CIO? Maybe. Click To Tweet

Time is on my side

With over 30 years in the business, I have some perspective on what a CIO hire can do for a firm. I have seen successful first-generation planning-focused firms turn into performance-chasing investment firms by their successors and CIO. More than once, I have seen the culture of long-term planning turn into questions on standard deviation, beta and alpha. And more often than not, I have listened to advisors who were fired by clients because clients could not separate the firm’s investment approach from the planning – it was the same brand.

Assuming that the lead advisor (usually the founder) can let go of the reigns of the investment portion of their business (and that is a BIG assumption for many), firms today are looking at how they want to be perceived in the market. They don’t want to hitch their brand to things they cannot control, such as the markets and economy. They are worried about compliance and the fiduciary movement, as well as infrastructure costs and the salary expense that a seasoned investment professional will command. They are asking, “Is the juice worth the squeeze?” In other words, will they get the added benefit from adding the resource? And the answer is no… and also, yes.

Maximizing the investment specialist (even if it is you)

When considering hiring a CIO or investment specialist, it comes down to the kind of firm that you want to be. While the enterprise firm may need/desire someone to run the investment area, the firm needs to decide if investments are a part of the value proposition. If so, do you need a CFA to manage a portfolio to create an investment strategy (something that a robo can do much cheaper) or can they add value in other ways, such as client portfolio reviews, sophisticated tax management and incorporating alternative asset classes? Let’s be honest, as much as we like to think our investment process is really different, the truth is that everyone will say theirs is unique, so why fight the battle? If investments are part of your value prop, then maximize them by creating models and making it easy for the clients/advisors to use.

For the lifestyle firm, the key to success is to be in front of as many clients/prospects as possible. Any time in front of a computer means you are not maximizing your business model. However, if you are a true investment advisor, then by all means, beef up the investment department and double down on technology and infrastructure.

That said, the traditional planning lifestyle firm should consider outsourcing or an investment specialist who can generate the reviews, look at the portfolios on an ongoing basis and support the investment approach of the lead advisor. The challenge is to maintain the brand around the advisor and planning.

For both types of firms, there is no question that a models-based approach will create efficiencies and scale. Hiring a CIO has the potential to overcomplicate the business and add layers of expenses to the firm – unless there is clear leadership on the direction and responsibility of the new hire.

Ultimately, there are a lot of questions to ask before you think about your next hire, but it starts with a vison (a purposeful one) of your firm. Before you put out a help wanted sign and commit to a six figure salary, ask yourself the following questions.

  • How do you want your clients to see you – money manager or provider of advice?
  • What is the risk to your value when delegating certain investment management tasks?
  • What do your clients value most from your wealth management services?
  • What is your brand now – and what do you want it to be in the future?

If your value is more aligned with the performance report than the financial plan, maybe hiring a CIO is the right thing – but make sure he/she is adding value and not re-creating the wheel. If your value is beyond the performance report, would that hire be a distraction from the brand?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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