CITs were hot (sort of), then not, but are now hot again, with Morningstar reporting that “CITs are on pace to overtake mutual funds as the most popular target-date vehicle in the coming years.”
In 2021 alone, the Chicago-based research giant said, net contributions to CITs outpaced mutual funds $146 billion to $24 billion and accounted for 86% of target-date strategy net inflows. CITs now make up 45% of total target-date strategy assets, up from 32% five years ago.
“We’ve seen strong growth,” Rob Barnett, Head of Retirement Distribution and Product Leader for Collective Investment Trust Business with Wilmington Trust, said at the Wealth@wor(k) conference in Las Vegas on Monday. “A lot of it comes back to continued democratization and making it easier for people to access information. If you make information available, people then make informed choices that are best for them.”
For example, he mentioned Wilmington Trust’s early adoption of Nasdaq tickers, something the company pioneered not only for Wilmington but to challenge the industry to adopt tickers as a whole.
“There was a lot of back and forth about whether it was legal, and we exhausted that item,” he added. “It’s not advertising; it’s information.”
For participants and advisors, a once-steep CIT learning curve is also starting to flatten.
“We’re seeing a lot more adoption from advisors,” Barnett noted. “It’s not as much of a challenge. It’s, ‘How do I do it,’ instead of, ‘Why would I do it?’
While costs compared with other vehicles vary depending on the asset class, they can be significant, but it still depends on plan suitability.
“It’s a matter of, ‘Is it the right investment vehicle for the plan?’ So as adviser works through their [due diligence] of identifying investments that are appropriate for the plan and then figuring out which investment vehicle underlying the strategies best fits the plan, that should be what people are doing to find out how to get there.”
It’s a team effort when educating participants about current events and the volatility they cause, particularly now with inflation and other worrisome topics negatively impacting retirement.
“This is where we lean back on the recordkeepers as part of the ecosystem,” Barnett concluded. “Recordkeepers have been phenomenal in pushing content to participants about avoiding the worst time to sell and how losses compound if they do sell. And advisors do great with education at the plan sponsor level.”
All aboard
In mid-September, Wilmington Trust announced the launch of BoardingPass, a digital solution that automates and simplifies the CIT onboarding process.
“BoardingPass is a technology application that digitizes the retirement plan onboarding process and creates a simplified experience for plan sponsors, advisors and recordkeepers to effectively manage their participation agreements and make CITs more accessible and transparent to more members of the U.S. workforce,” the company said.