While collective investment trusts (CIT) were long heralded as “the next big thing” in the 401k and larger defined contribution industry, data from global research and consulting firm Cerulli Associates finds that in recent years, CIT adoption is finally experiencing a meaningful increase.
Cerulli’s most current sizing of the 401k market indicates that as of 2017, more than one-quarter of the total $5.5 trillion 401k market was invested in CITs.
This contrasts with a historical market share closer to 20 percent of total 401k assets.
“Increased CIT adoption has been supported by ongoing fee pressure along with growing demand from mid-market consultants active in the DC market,” Jessica Sclafani, director at Cerulli, said in a statement.
“Target-date funds have been an important driver of total 401k CIT asset growth—in fact, target-date CIT assets increased by nearly 85 percent between 2015 and 2017,” Sclafani adds.
It compares with a 45 percent increase for target-date mutual fund assets for the same period.
Today, target-date strategies are generally available in a CIT vehicle with eight of the top-10 largest target-date managers offering a CIT.
“Obviously, there is some flexibility with the CIT,” says Steve Glasgow, senior vice president with Nashville-based Avondale Partners, when asked about CIT advantages over mutual funds. “If you are negotiating an investment management agreement directly as a large plan sponsor, you can have a little more control over what goes on in there, and that’s all great. But I think it’s really the fees that drive the whole conversation. If you’re in a mutual fund format, obviously, it’s a one-fee-fits-all, and those fees tend to be higher. Not in every case, but in a lot of cases.”
CITs, due to compliance and some other associated issues, “tend to be a good bit lower” in expense, he added.
Given how much focus there has been on expenses in 401k business recently and the fact that, “we are all racing to zero as fast as we can, CITs are a natural way to continue to carve down expenses whenever they are not necessary.”
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.
