The use of TDFs using CITs is growing rapidly in the large DC plan market, according to studies by Aon Hewitt and Callan – a trend that is expected to move down market.
Overall, Callan studies show that 30.6% of plans offered a TDF CIT in 2015, up from 13.2% in 2011. Only 4% of Aon Hewitt clients use a mutual fund TDF, with 60% using CITs. Both studies tend to capture the activity of larger plans.
Lower fees, greater flexibility, simplicity and greater transparency have fueled the move to CITs, which is coming down market to plans as small as $50 million. The lack of ticker symbol, traditionally considered the biggest downside of CITs, is being overcome by increased communication.
So who’s taking most advantage? Vanguard is the leader in both mutual fund and CIT TDFs by assets, with BlackRock second for CITs and 91% of assets in this lower cost wrapper which has propelled them into second place overall in DC assets in 2015, according to P&I. By percentage of the top TDF providers, Schwab is next with 77.6% in CITs, followed by Principal at 41%, Vanguard at 37%, and JP Morgan at 33%. Fidelity has only 7% of TDF assets in CITs.
With a keen focus on fees and transparency, look for smaller plans to move to CITs not just for TDFs. Some larger advisory groups are creating CIT TDFs as well as for other strategies like fixed income, leveraging their group of advisors making CITs available to smaller plans that might not be otherwise eligible.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
