Those boring, staid and completely effective collective investment trusts are enjoying a resurgence of late, the likely result of increasing concerns over high fees and fiduciary responsibilities now argued in court.
Pooled accounts specific to the retirement plan space that must be operated by a bank, CITs are outpacing the overall retirement market, growing at a 7-year CAGR of 14.4 percent. This compares with less than 9 percent for the retirement market over the same time period, according to recent research from ALPS.
And Manning & Napier reports that 60 percent of retirement advisors expect more of their plans to offer CITs in the next five years.
“According to a recent survey, 83 percent of employers are concerned about the current increase in litigation pertaining to investment selection and fee reasonableness,” Shelby George, Defined Contribution Practice Leader at Manning & Napier, said in a statement.
She notes that CITs are an increasingly important part of the fiduciary due diligence process.
“While it has always been important for fiduciaries to consider CITs because of the many benefits they provide to participants, today’s 401(k) fee litigation is making it essential for fiduciaries to give CITs a hard look.”
However, interest and utilization, at least currently, seem to be coming from a select few. The firm notes that more than a quarter of advisors we surveyed have never used CITs, 35 percent of advisors are not comfortable discussing CITs and 40 percent of advisors feel advisor education on CITs would improve adoption of CITs.
Additionally, 47 percent of advisors feel plan sponsors don’t understand CITs and 83 percent of plan sponsors not asking for more information on CITs
Manning & Napier announced in late June that it is now offering the Disciplined Value Collective Investment Trust Fund, which adds to the 25-plus CITs the firm manages, including risk-based, target date, asset class, and Cash Balance CITs.
“We continue to develop solutions to meet participant needs,” George concluded. “Today’s slow growth outlook and volatility coupled with low interest rates create a challenging environment, particularly for participants nearing retirement. The Disciplined Value CIT is designed to help these participants generate strong absolute returns with lower volatility while providing consistent downside risk management.”
In addition to the newly created CIT, the Disciplined Value strategy is available as a separately managed account with a minimum investment of $250,000 as well as a mutual fund.