Josh Lichtenstein Provides Insight on OCIOs and Possible Conflict of Interests

Market conditions and economic uncertainty are drawing asset owners to the outsourced CIO model, in which asset owners “outsource” the investment management decisions for their pool of assets to a third party. The third part is typically an investment firm willing to take on fiduciary responsibility and ownership of certain operational services from the asset owner. The increasingly popular model is raising concerns on whether there is a conflict of interest when OCIOs include proprietary offerings in portfolios.

Josh Lichtenstein, partner and head of the firm’s ERISA and fiduciary benefits practice, commented in FUNDfire on how the Employee Retirement Income Security Act (ERISA) prevents advisors and OCIOs from “double dipping” and says it is important for OCIOs to inform their clients about any potential conflicts of interest. “Investors that aren't subject to ERISA are going to be subject to various other regimes,” Lichtenstein said. “But in many cases, those regimes allow disclosure of conflicts of interest to cure a conflict.”