Investing

Willis Towers Watson Aims to Bust Myths About OCIOs

Outcomes from using an OCIO have been generally positive and have the potential to improve DB plan funded status, particularly in volatile market conditions, the firm says.

By Rebecca Moore editors@strategic-i.com | May 04, 2017
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For defined benefit (DB) plans that do not have in-house investment capabilities, the outsourced chief investment officer (OCIO) model is a means of filling the gap between the resources required to run efficient investment strategies and the typically constrained governance budget of a pension plan, Willis Towers Watson contends.

In a report, the firm aims to challenge five myths about using OCIOs. For example, the report says a concern among some sponsors and investment committees is if you delegate some of your decision making to a specialist, you are no longer in control of your plan and potential investment outcomes. However, Willis Towers Watson notes that investment committees still control the objectives and the constraints within which the plan operates. “If circumstances or needs change, investment committees and plan sponsors still have the power to change the objectives and the constraints within which the delegate is working,” the report says.

The firm also challenges the argument that OCIOs are conflicted because they profit from their position as both adviser and investment implementer. “A good service will always command a fee. In the OCIO model, plans may pay a service fee, and it should be transparent and separate from any management fees. OCIOs will only retain these mandates if they perform their duties and are held accountable. In the case of the OCIO model, we feel the provider should acknowledge they are a fiduciary under [the Employee Retirement Income Security Act (ERISA) within the service agreement and, therefore, are subject to the standards of prudence under ERISA,” the firm says.

NEXT: Is OCIO untested, expensive or only for plans of certain size?