Market Movements

Adapting To Fiduciary Trends In The Advisor-Sold Market

CIT providers target mid-sized to large DC plans in 2024

A new report from Cerulli Associates reveals CITs show favorability over mutual funds. Lower costs, fees, and advisor education are important to continued adoption. Access the complete report here.

November 9, 2023, BOSTON—Collective investment trusts (CITs) have surpassed mutual funds as the top investment vehicle by defined contribution investment-only (DCIO) assets. CIT assets totaled $4.63 trillion as of year-end 2022, as improved capital market conditions coupled with continued robust demand within the defined contribution (DC) retirement plan space have contributed to ongoing growth, according to Cerulli’s latest report, U.S. Defined Contribution Distribution 2023: Adapting to Fiduciary Trends in the Advisor-Sold Market.

Relative to mutual funds, CIT providers see lower cost as a top benefit of the vehicle, with 66% ranking it as most significant and 25% ranking it second-most significant. The ability to negotiate fees is also ranked as a significant benefit. “Historically, asset managers have been flexible with accommodating custom fee arrangements for their CIT products,” says Idin Eftekhari, senior analyst. 88% of CIT providers confirm their willingness to offer a custom fee arrangement, while 64% indicate that their clients are in a standard fee arrangement, according to the research.

Over the course of the next year, CIT providers plan to spend a significant amount of their distribution efforts on plans with assets equal to or greater than $25 million. 69% of providers state that the $25 million to $249 million segment is a large focus, while 78% identify the $250 million to $999 million segment as a large focus. These arenas generally comprise a mix of retail-focused retirement plan advisors, retirement aggregator firms, and institutional investment consulting firms.

Advisors lacking sufficient knowledge continue to present a concern for CIT adoption by DC plans...

According to the research, national investment consultants continue to be the dominant channel for distributing CITs into DC plans for 49% of providers. Direct placement of CITs into DC plans also remains a lead channel. Distribution through RIA-based retirement aggregator firms remains steady, with 18% of investor/client relationships being intermediated by these firms.

As CIT providers assess their distribution strategies, they will need to adjust their marketing efforts, fees, and minimums to address different intermediary channels. Providing the right level of education to intermediaries—especially retail advisors—will be increasingly important. “Advisors lacking sufficient knowledge continue to present a concern for CIT adoption by DC plans,” says Eftekhari. 25% of respondents state that this issue is a significant challenge, while 66% of respondents consider it somewhat of a challenge. “Providers that are able to develop bespoke educational and fee arrangements will likely see greater adoption of their CIT investment offerings,” concludes Eftekhari.

 

 

 

About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.