Their fees might be lower than their mutual fund counterparts, but smaller advisors must have scale.
Collective investment trust (CIT) assets surpassed the $3 trillion mark in 2017, up from $2.8 trillion in 2016.
Research from Cerulli Associates finds that growth in the vehicle has been relatively consistent, averaging 10 percent annually since 2011.
“This robust growth is primarily attributed to demand for lower-cost vehicle options,” Cerulli noted. “Although the vehicle is seemingly poised for continued success, CIT providers must address certain challenges to sustain the current level of growth.”
The research and consulting firm believes that the main advantage that CITs offer over similar vehicles is cost savings.
“As industry-wide fee pressure leads to the development of low-cost vehicle substitutes, CIT providers will need to capitalize on other advantages, such as their fee flexibility and speed to market due to fewer regulatory requirements,” James Tamposi, research analyst at Cerulli, said in a statement.
To maintain an advantage over other vehicles, it’s vital that CIT providers remain open to negotiating fees with investors.
“The most prevalent type of custom CIT fee arrangement is the use of multiple share classes that have an additional criterion for eligibility,” Tamposi added. “Typically, the additional criterion will be a higher-than-standard minimum investment. This type of custom fee arrangement can work well for CIT providers by giving initial investors a lower fee, and having additional investors come in at a higher cost.”
Regulatory advantages are also giving CITs a competitive edge
“There are fewer regulatory requirements for CIT providers. This enables them to develop new strategies and bring them to market more quickly than they otherwise would through other commingled vehicles. Almost 90 percent of the CIT providers surveyed cite the speed of product development as being important to the development and distribution of CITs.”
While Cerulli expects assets in CITs to continue to grow, it’s crucial for CIT providers to examine the potential challenges to growth and respond to investor demands.
“By capitalizing on the several advantages that CITs can offer, providers can benefit from the consistent flow of assets into the vehicle,” Tamposi concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.