2017 a ‘Tipping Point’ for CIT Use

Time to for advisors to 'sharpen their pencil' to evaluate where CITs create opportunity

CIT, 401k, collective investment trusts, retirementCollective trusts continue their positive trends.

They’re not new but nevertheless hot—CITs are a major 401k topic in 2017.

Collective investment trusts are investment vehicles important both from a product management and distribution point of view, as they may increase an asset manager’s chances of winning defined-contribution plan mandates, something Cerulli Associates notes it its latest research.

“Cerulli finds that even perennial cynics are beginning to see the distribution opportunity collective trusts present in the defined-contribution market,” Jessica Sclafani, associate director at the Boston-based research and consulting firm, said in a statement. “Many asset managers we spoke with describe 2017 as a ‘tipping point’ for CIT flows from DC plans.”

She recommends that asset managers who currently do not offer collective trusts or offer a limited number of investment strategies in a collective trust vehicle go through the exercise of “sharpening their pencil” and evaluate where a collective trust vehicle may create an opportunity to offer more competitive pricing.

“In today’s highly competitive marketplace, DC plan mandates can be won or lost by the difference of a few basis points,” Sclafani added. “Mutual funds consistently represent greater than half of total 401k plan assets. The next-largest investment vehicle by 401k plan assets is CITs, which hold almost one-fifth of total 401k plan assets.”

Together, mutual funds and CITS hold close to three-quarters of 401k plan assets, making them the most widely used investment vehicles for 401k plans, according to the report, titled “U.S. Defined Contribution Distribution 2017: Re-Evaluating the Use of CITs in DC Plans.”

“Cerulli believes there is room for CITs to expand from their current share of the 401k plan market by taking share from mutual funds,” Sclafani concluded. “In a survey of 401k plan sponsors, nearly one in five indicate that they anticipate switching the vehicle of at least one investment option from a mutual fund to a CIT.”

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