CITs Offer Major Cost Advantages, But Education and Transparency Will be Essential

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CITs Offer Major Cost Advantages, But Education and Transparency Will be Essential


Assets in collective investment trusts (CITs) have grown significantly in recent years due to increased demand for lower-cost vehicle options


August 2019, BOSTON - For the fifth consecutive year, the Coalition of Collective Investment Trusts (CCIT) partnered with Cerulli Associates to address various topics pertaining to collective investment trusts (CITs), including distribution opportunities, business metrics, and fee arrangements.


According to survey data and Cerulli’s proprietary modeling, CIT assets stood at $3 trillion as of year-end 2018. The vehicle exhibited a compound annual growth rate (CAGR) of 7.25% over the five-year period ended 2018. Notably, a temporary dip in market performance at the end of the period (4Q 2018) hindered what would have otherwise been a higher CAGR.


Generally priced lower than other retirement plan vehicles, such as mutual funds, costs continue to be the primary growth driver of CITs. However, broader penetration will depend upon CIT providers’ ability to address potential headwinds to growth and secure opportunities to improve advisor education.


In recent years, defined contribution (DC) plans have accounted for the majority of flows to CIT products, forcing providers to increasingly question strategies for tapping the channel. “More than 40% of CIT providers identify financial advisors’ lack of CIT knowledge as a top challenge to adoption in DC plans,” remarks James Tamposi, senior analyst at Cerulli. “This highlights that one of the biggest initiatives has been to increase education and awareness of the vehicle among plan sponsors, financial advisors, and other industry participants.”


Another challenge that CIT providers face is addressing investors’ expectations for transparency. “The lack of consistent, public reporting factors in to DC plan sponsors’ reluctance to adopt the vehicle,” says Anna Fang, research analyst at Cerulli. “Almost half of providers surveyed noted that CITs’ lack of transparency relative to mutual funds threatens the vehicle’s adoption.”


Cerulli’s survey findings show that CIT providers should continue to offer advisors as much information and transparency as possible (e.g., reporting, commentary). The industry will be pressed to educate the advisor world, dispelling any long-standing myths that are preventing otherwise valuable vehicle recommendations.


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