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This is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On this episode:
Vendor name:
East Bay Investment Solutions
Vendor category:
Outsourced Chief Investment Officer (OCIO)
Episode host:
Brad Wales
Episode guest:
Eric Stein
Vendor contact info:
Full Transcript:
Brad Wales – Hi, I’m Brad Wales with Transition To RIA, and this is the Transition To RIA Vendor Profile Series, where we take a look at the solution providers powering the RIA model. On today’s episode, we’re answering the question, “What is East Bay Investment Solutions?” To help us with that is Eric Stein. Eric, thanks for coming on.
Eric Stein – Thanks for having me, Brad. I appreciate it.
Brad – So if you could, at that high macro level, that 30-second elevator pitch, and then we’ll get into more details. At that high level, what is East Bay Investment Solutions?
Eric – Sure, I appreciate the question. At a very high level, we are either what you would refer to as an OCIO or outsourced chief investment officer or a fractional CIO. It’s essentially the same thing, just people will refer to us using different names and that’s fine.
We are there to be an extension of the advisors we work with, an extension of their team and helping them with all things investment-related. So if you think about the incredibly large investment firms that are out there, they’ll all have a dedicated CIO or CIO team. For the advisors we work with that maybe don’t have the need or desire to have a full CIO on staff or team, they can hire someone like East Bay to be their fractional CIO.
Brad – Most of my audience is making that transition into the RIA model, or perhaps is now watching this after the fact. Do you find that a lot of your clients perhaps were once at a very large firm, a broker-dealer type firm, and maybe they had access to some of these resources in-house, but now, because they’ve gone independent, they still desire to have that? As with a lot of things in a transition, it’s like, hey, how can I replicate that? Is that often what you see for, I don’t want to say just new RIAs, it could be longer-term ones? That they had some sort of resource previously, now they’re looking to kind of still have that type of guidance going forward?
Eric – That’s certainly part of it, whether they’re coming from a large RIA or a large firm where they had access to investment through collateral, someone there for support, they certainly are used to having that and that’s part of their value proposition, if you will. The advisors we work with are planning-focused advisors. So they want to spend their time with the clients at the end of the day, focused on the client, their plan, achieving their goals.
They don’t have the time or the desire to spend their time focused on which ETFs to allocate to or answering questions about cryptocurrency or changes in the dollar or the Fed. All the investment-type topics that come up on a day-to-day basis, they don’t have the time or desire to spend on answering all of those client questions or diving into all the things that are required of the CIO. Again, that’s why they hire us. So whether it’s a smaller RIA that’s looking to grow and specialize in their roles, or whether it’s a firm that’s relatively new that’s leaving a larger firm that had that exposure, we can be there to support them.
Brad – How much does that vary from that kind of macro level to micro level? At a high level, is it helping advisors and teams speak intelligently to the current state of the markets then at that micro level, is it all the way down to “I’m perhaps bringing on a new client or I’m trying to earn their business and here’s their situation and would welcome some feedback?” Where do you fall on that spectrum for folks that maybe never worked with, as you pointed out, an OCIO or is it fractional CIO? For folks that don’t know exactly where the spectrum of support is, how would you describe it?
Eric – It’s across that spectrum, Brad. Think, again, think about it as an extension of your team. So if you’re an RIA, if you’re an advisor, think about just having a CIO down the hall, if you will. We are meant to be there to answer all your investment-related questions. So part of our service is absolutely supporting the advisor from a collateral perspective. So we’ll have quarterly collateral that they can white label and leverage.
If there is a significant market event, we’re going to be producing some material, whether it’s talking points or something again that they can share with their clients, something that they can leverage that they don’t have to read all the articles and understand what’s happening. But it can get down to, and it does get down to, the client level. So if they bring on, or are thinking of bringing on, a large prospect and are wondering whether they have concentrated positions or a different kind of portfolio and want our help in an analysis, we can support that.
If they want us on a prospect or client call, as long as the advisor is there, we can be there as well. So it certainly is client-specific at times, but it also is at the high level for the firm at the macro level too.
Brad – So essentially an extension of the team, if you will, that they can lean on. I don’t know if some of your clients even position it publicly with, hey, look at this resource we have on the team here. Where does this typically kind of make sense from, I don’t know how you would define size.
Is that the size of the practice by assets or by number of clients or maybe just client needs, where would you say your sweet spot is? I presume at some point RIAs grow large enough that the economics justify or warrant they can have an in-house person or team. But then on the other end, too small, maybe it just doesn’t make sense. So where is typically the sweet spot for your type of service?
Eric – Yeah, I’m certainly happy to answer that question. But I just want to touch on something you said before you got into that question that was related to the extension of your team and how people will publicly introduce us to their audience and to their client base. A lot of what our clients do is we’ll actually be on our client’s website. So whether they’re working with me or someone else on our team, they’ll include us as their chief investment strategist on their website.
There’s certainly some compliance rules that they need to follow in order to do that. We can certainly walk them through what that is with their compliance specialist. But again, we are meant to be an extension of their team. It does differentiate them versus other advisory firms in particular in their area that may not have an investment specialist that helps show them apart from some of their competition. But in who the typical client is, sometimes it’s less about the AUM. It’s more about the investment philosophy.
I’d say having a shared investment philosophy, at least a similar investment philosophy, in our mind is a critical component, the critical component to success of a relationship. Because regardless of size, if we are speaking a different language from an investment perspective, the relationship for obvious reasons breaks down. So we will only work with planning- focused advisors that share an investment philosophy. We do that because then we can speak the same language, they can leverage our material, and we know we’re on the same page for all of what we’re doing. So that’s key.
I’d say from a size perspective, we can work with small and large firms. Generally, we find that our fee is more amenable for advisors that have over 50 million of AUM. But over that standpoint, whether it’s 500 million or a billion, if they don’t have somebody on staff and they’re looking for support, size doesn’t matter to us because our fee is based on our service model. It’s a flat fee. It’s based on complexity, not based on size.
Brad – I’m glad you mentioned needs too, right, since it’s a bit of a two-way street. So obviously you’re trying to provide value for advisors and teams and they want to hire your service, but at the same time you recognize you’re not going to be for everyone because perhaps the investment philosophy needs to align and I applaud you for that. There’s folks out there that try to essentially be everything to everyone and at that point I don’t think you’re being true to yourself. So nice job on that front.
But how is that determined? Maybe we can jump into a question I always like asking on these chats that if someone’s listening to this and thinks wow, maybe that is something that would be beneficial for the practice, obviously they’ve got to start with a conversation with you. We’ll get to how folks can reach out here in a bit. But what does that first conversation consist of? Someone perhaps schedules time to chat with you. I assume trying to get pretty quickly into investment philosophy is early in that, no reason to waste time if it’s not aligned. But what does that first conversation look like when someone reaches out to start learning more about whether this might be a fit for their practice?
Eric – Sure, it’s honestly just a lot of questions. We ask a lot of questions. There’s no judgment in any of our questions. It’s really just to explore and understand where the practice is today, what they’re looking to do, what maybe their expectations of an OCIO are, and like you said, what their investment philosophy is. Because all those other questions are great, but if there’s not alignment in the investment side, again, it’s not worth it to them and it’s not worth it to us to start the relationship because we know it’s not going to be a successful one in the end.
We really want to focus on finding the right client. Not only selfishly for us, but also for the advisor that we’re working with. It’s not worth it for them to hire us and engage with us, promote us to their clients. If we know or have a good feeling that it’s likely not a good fit, we won’t take that client on. That’s certainly never been an issue for us.
Again, our focus is on really finding that planning-focused advisor that is out there wanting to focus on the plan. They realize that investments are important, but just either want the support from a time perspective or just want to have maybe more confidence in what they’re doing.
Maybe they want to have a broader investment lineup available to them because again, researching alternative investments, for example, or things like direct indexing or what to do with concentrated positions can be very complex topics that take a lot of time. If we’re doing it for several dozen clients, it’s a lot easier for us to undertake that research than for a single advisor to do it when they have so many other things going on in their life.
Brad – I love that this is a perfect example of how the RIA model has evolved. Arguably 20 years ago, you know, the criticism of the RIA model was, oh gosh, look at all these great resources we have. If you transition your practice out of the big wirehouse, you’re going to be out on an island and there’s going to be no one to help you with some of the things you just referenced. Perhaps that was relatively true 20, 25 years ago that weren’t these kinds of resources. But now that is the case and now they can have the same level of experience and support that you can get at the big firms.
So just as an aside, I think it’s a great representation of how the RIA model has evolved. I kind of see this as, correct me if I’m wrong, two kinds of potential client bases for you. One is that existing firm that has already made a transition, they’re already independent wherever the case is and perhaps is recognizing they could be doing things better or maybe they’re up on growth challenges because they’re stretched too thin trying to do it in-house. So I see it as one set is that existing practice that’s maybe looking to refine and better their service offer. Then the other one, which is more of my audience, is that transitioning advisor. Again, in this case, they might be looking to replicate some kind of service or value they were receiving prior to that transition.
Knowing there’s a lot of things that these teams need to work through all at once, where would you typically suggest someone start engaging you to understand how you might be able to help? If they say hey, yeah, this is probably something I’m going to want on the other end of that transition, when should they start bringing you in knowing that the day they launch, they’re going to be head down and just working on trying to move client accounts? How do you typically frame that transition in advisor scenario?
Eric – I’ll say it’s really up to the advisor. I don’t want to tell them when the right time is because it is really independent of each of the different situations we’re in.
For example, let’s say you have a plan to start your practice on January 1st of 2026. We can make a very good argument to say, okay, you should start engaging with us now. That way, the onboarding process that we have takes a couple of months and when you start on January 1st, you’ll have an investment philosophy that’s written and available. Your allocations for your models are set. We know exactly how we’re going to implement them. You’ve got an investment resource for collateral. We can be part of your early webinars to your prospective clients that you’re trying to transition and say, okay, here’s what I’ve got in place. It’s not just me. It’s maybe not just the team I had, but now we’ve got an expanded team. So we can make a very strong argument to say that we should be part of that transition before you ever go live.
For the advisor that says, like you gave the example, I’ve just got too much on my plate doing the transition. I want to make sure my clients are actually transitioning. We totally get that and respect that, too. We would just say when you have time, when you’re available, when there’s more time allotted to the investment side, give us a call and we can always come in after the fact and have that conversation.
You just need to be aware that there could be potential for more change from what you were doing previously. We don’t force change on our advisors. That change can take place slowly and over time. But there is likelihood that there will be at least some change in the process, whether it’s the collateral that your clients are receiving or something else. Just understand that there can be that period where we’re moving from what you were doing to the new approach with East Bay.
Brad – How long is that timeline? Often I assume it varies by team, but you know, there’s a lot of advisors and teams that for better or worse have been doing one investment approach for perhaps decades and are now saying maybe there’s a better way to do it or a different way to do it. I also certainly see advisors that it seems that every single client account has its own separate portfolio that it’s invested in. These RIAs are realizing hey, maybe we can run a much more efficient practice. We can kind of streamline or standardize this.
Even if someone buys into that concept and recognizes that you could help them get to that new path, you can’t just unwind what’s been done for perhaps 20 years and instantly get to that new path. You might have to explain it to clients or just work on messaging and how it’s positioned. So how does that normally play over for someone who does buy into this, does want your help, is going to take your suggestions, but hey, we can’t just rip off the bandaid and do this in one day. So how long does that usually take?
Eric – Sure. Yeah, it’s client-by-client situations. Most of the advisors we work with are, as you said, existing advisors. They have a book of business, they have existing clients with existing portfolios. For example, there’s some sort of change. If they’re taxable accounts, we don’t want to go in and create taxable events just to match a new model portfolio. That doesn’t make sense for the end client at the end of the day. That’s what’s most important, the end client.
So, we’ll say, for clients where there is no taxable event, we can quickly transition those portfolios. That’s something the advisor will generally do. We’ll use the new portfolio suggestions for the new clients that are coming in. It may be, if you’ve been in business for 10 or 20 years, you may have several different iterations of your models that some of your older clients are in.
So it’s just sort of a natural flow of business to say, okay, you know, for some clients, we may not be able to make the change and transition. For newer clients and clients without a taxable event, we can do it quickly and that’s okay. We work with our clients to make sure they understand that, that they’re not creating taxable events just to match a portfolio. We’ll also work with them on the communication to talk about the enhancements that we’re making to their portfolio, whether it’s in the allocation itself or into the holdings.
We’ll communicate what we’re trying to achieve by making those changes. So we don’t leave the advisor on an island to say, okay, we’re making changes or making suggestions for change that they’re approving. It is us working with them to make sure they have the confidence in what they’re doing, the conviction in what they’re doing.
Because at the end of the day, and I think this is important, there are no East Bay models. I don’t have a solution that I have to sell. East Bay, we are a consultant. So we’re going to walk into our clients and say, here’s what we might recommend, but I don’t have discretion. I’m not trading. I don’t have access to your custodian, your custodial accounts, I don’t know who your clients are.
At the end of the day, it’s the advisors that we’re working with that have discretion. They are deciding these are the models that are right for us, and they are making those transitions on a day-to-day basis for their clients. So again, we’ll work with them to say, here’s how we would position it. Here’s how we think what these enhancements are. So again, we’re helping them through that entire process.
Brad – I think that’s only going to increase, right? Because the growth of model marketplaces. All kinds of product manufacturers putting out different models or investment solutions. How do you sort through that? How do you decide what might be a fit? Maybe those aren’t a fit and something entirely different needs to be put together? So it certainly sounds like part of your value prop is kind of sorting through all that’s out there.
Eric – I was just going to just say, yes, we’re not going out to the model marketplaces and choosing what’s best. We’re actually working with our advisors to create their own models for their own firms. So it’s their firm’s models, not the models of somebody else. What I would also like to add is we can spend all day talking about model portfolios and this and that.
The true value I think East Bay adds to our client relationships is really outside of the models. It’s there to be available for all the other aspects of what we do, and whether it’s the collateral, whether it’s walking through an advisor and a client of what to do with a concentrated position, whether it’s helping with questions that they’re getting related to the government shutdown or interest rates or whatever the topic du jour is, and there’s always a new topic du jour, making sure that the advisors that we work with have a lifeline to us to say, okay, I’ve got a client question. I’m not sure how to answer this. I don’t want to spend four hours researching it. Can you help me? Again, that’s where we’re there for. That’s where our true value adds above and beyond what we can do with the models.
Brad – I appreciate you pointing that out. One of the benefits of the RIA model is compared to a lot of captive environments, RIAs provide the ability for advisors and teams to more quickly communicate out with their clients perhaps for those market moving events, sometimes unexpected events and so it’s great perhaps from compliance review process that it’s significantly faster. You can do it yourself as an RIA but you still need perhaps the resources of the data and the feedback to be able to compile that message in and as I’m hearing you, that’s part of the value. You have to be able to do that quickly. So that’s certainly worth pointing out.
Eric – We can do it independently. So we’re not tied to any particular asset management firm. We’re not tied to any custodian. We’re not tied to any technology. We are agnostic to all of that. So we have our beliefs, certainly have our preferences. But again, we are compensated by our clients only. We’re not receiving compensation from anybody else in terms of a preferred provider, things like that. It just allows us to be very independent and provide the advice that we think is most appropriate for the advisors we work with.
Brad – Maybe if we could just expand on that on two things. One, we’ve only touched on your value at a high level here, so ultimately folks would want to chat with you directly to understand all the things you can perhaps do individually for them.
So with that caveat that, again, we’ve only touched on a high level, but how is a service like this typically priced out? Is this based on the size of the practice, number of clients, some sort of fixed fee, or how do you typically price it out?
Eric – We have a flat fee approach. We do that because the way we think about it is if you were hiring a CIO, the CIO would receive a salary. They’re not paid on basis points. So we feel like if we’re going to be an extension of that team as an OCIO or fractional CIO, we should also receive sort of a fixed compensation, if you will. So we charge based on a flat fee. It’s based on the complexity of the relationship, not based on the size. Our website includes the pricing information. So I would suggest looking at our website and that’ll show you exactly what our starting fee looks like.
Brad – Terrific, we’ll dovetail into that in just a second, what that contact information is. But I think what you just described is a great example. There’s the operating leverage that can be present in an independent practice where, while there are some expenses of running an independent practice that are variable, there’s others, as an example like this, where it’s not in lockstep that every time you add a new client or asset, bring on new assets that your cost incrementally goes up alongside with it.
Obviously as your practice grows and the complexity grows, there at some point might be a stair step in the pricing. But I think that’s great example. As you grow the practice, some of your costs can stay more static. That’s operating leverage to the RIA.
Eric – That actually goes down as a percentage of the business. So as their pie grows with their AUM, our fee actually becomes a smaller component of their overall revenue, which they all appreciate.
Brad – Yep, that’s a wonderful thing to pencil out as the assets grow. For folks that do want to learn more, do want to have that first conversation with you, perhaps this is the first time they’ve been exposed to the concept of an OCIO or a fractional CIO or they’ve been thinking about it and looking for solution and now via this have learned more about your firm, what is the best way for folks to get a hold of you and your team to begin that conversation?
Eric – Yeah, certainly they can reach out and look at our website. It’s eastbayis.com. There’s a link on there that says “LET’S TALK.” So if they’re interested, we’d love to have a conversation with them.
Brad – Perfect. I will put that in the show notes. Again, though, their website is eastbayis.com. I will make sure it’s in the show notes to follow. Eric, I appreciate you coming on and helping us better understand what is East Bay Investment Solutions.
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