Plan Sponsors Should Not Have Concerns About Adopting CITs

CIT assets have been increasing 14.4% a year, according to DST.

By Lee Barney | May 30, 2017
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The lower cost of collective investment trusts (CITs) is attracting the attention of plan sponsors, retirement executives say. Compared to mutual funds, CITs are priced 10 to 30 basis points lower, according to a DST white paper, “Collective Investment Trusts—A Perfect Storm.”

DST attributes this lower cost to three factors. First, as bank products, CITs are regulated at the state level by the Office of the Comptroller of the Currency instead of at the federal level by the Securities and Exchange Commission. Second, CITs are not permitted to advertise, and third, CITs do not have revenue sharing. Thus, between 2009 and 2016, CIT assets have grown by an average of 14.4% a year, compared to 9% by mutual funds, and DST projects their assets will grow another 63% from $1.9 trillion in 2015 to $3.1 trillion by 2018.

Given the rash of lawsuits that have been filed against retirement plans in recent years and the fiduciary rule, DST expects more plan sponsors will at least consider adding CITs to their fund lineup.

Whitfield Athey, chief executive officer of Delta Data in Columbus, Georgia, says that many CIT providers have been lowering their costs well beyond the 30 basis points that DST points to. “They are getting very aggressive” in this regard, with many lowering their costs to the “single digits, sometimes half as much as R6 share classes,” Athey says.

Cindy Dash, general manager at Matrix Financial Solutions, a Broadridge Company, in Denver, says, “In the past 12 to 18 months, we have had more clients interested in CITs and have seen an increase in CIT assets under administration of more than 30%. In our opinion, this increase is the result of the ‘conflict of interest’ rule, in which plans are looking for lower cost retirement plan options and the fact that once set up, CITs are operationally efficient.”

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