The Power of the PENsion: What is OCIO? A Discussion of Advisory Relationships

OCIO, CEO, E-I-E-I-O: Is OCIO just another abbreviation to remember? For those in need of investment management, this is one you don’t want to forget. The term OCIO, or Outsourced Chief Investment Officer, originated in the 1970s and was designed to add the responsibility of asset management to the duties of the traditional investment consultant. These advisory relationships are defined in the Employee Retirement Income Security Act of 1974 (ERISA). Specifically, the terms 3(21) investment adviser and 3(38) investment manager are defined in ERISA as follows:

• The 3(21) investment manager generally describes a consultant, advisor, or other financial professional who provides non-discretionary, fee-based investment advice to a plan sponsor.

• The 3(38) investment manager describes an investment professional who manages a plan’s assets on a discretionary basis. This full-OCIO means you’ve delegated full authority to the advisor to make decisions about the investment lineup, including selecting, managing, monitoring, and benchmarking the plan’s investment offerings. Only a 3(38) advisor can make independent investment decisions on behalf of a client. This is why a 3(38) fiduciary must be a registered investment adviser (RIA) under federal or state law, a bank or an insurance company.

• In basic terms, the 3(21) advises and helps you do it, and the primary fiduciary liability for investment decisions remains yours. The 3(38) advises and does it for you, and the primary fiduciary liability for the investments is assumed by your 3(38) Investment Manager.

Highland’s OCIO model provides you with everything you need and nothing you don’t. Our services are offered on a continuum, from one-off projects all the way to a turn-key program where we are the stewards of your capital. Highland can take the burden of investment decisions and related activities off your plate so you can focus on what matters most – your mission.

If you’d like to talk further about your pension plan and Highland’s OCIO services, contact Mike Paolucci, mpaolucci@highlandusa.net or 440-808-1500.

(While we’re speaking of E-I, E-I or O, you might see the words “advisor” and “adviser” used interchangeably. The words mean the same thing, except that the Investment Advisers Act of 1940 defined and spelled the term “Registered Investment Adviser” with an “er.” According to ERISA, Your 3(38) investment manager must be an RIA (with an “er”). Just in case this comes up in a trivia game, you’ll be prepared.)