With more focus on fees by plan sponsors and the industry as a whole, is it time for advisors to start considering collective investment trusts (CITs)? More popular in larger plans, the major benefit of CITs — lower fees — is muted for smaller plans. But the time may be right to consider them — especially for advisors who are considering more customized target date funds.
Because CITs are administered by banks, the SEC doesn’t regulate them, resulting in simpler disclosures and prospectuses and lower compliance expenses. Fees are also lower because of the limit on advertising and marketing costs. In one case, for the same fund, a large value mutual fund charges 89 BPs for smaller plans and 30 BPs for larger plans using a CIT wrapper. With an estimated 1,200 CITs with $1.2 trillion — $800 billion of which is in DC plans — this investment vehicle is for real, growing almost 10% since 2009. Future growth may be in the 13%-18% range, according to experts.
The downsides? With no ticker symbol, CITs are harder to track, even though Morningstar does cover them. And since they’re only available in qualified ERISA plans, participants can’t use them if they want to keep their investments when they roll over. Likewise, CITs are not used in non-qualified plans, 457 plans or non-ERISA 403(b) plans.
In the sea of sameness made choppier by fee disclosure, CITs might be at least a good story for advisors to consider telling clients and prospects.
