Investing

Advisers More Apt to Use CITs in Client Portfolios

Cerulli maintains that as financial advisers become more educated about CITs, the more likely they are to use them in client portfolios.

By Javier Simon editors@strategic-i.com | October 17, 2017

Defined contribution plans are increasingly using collective investment trusts (CITs) in their investment portfolios, according to a recent study by global research firm Cerulli Associates. The firm credits this trend to fee sensitivity, the threat of litigation and awareness of CITs.

“As of 2016, CIT assets were almost $2.8 trillion, which is a major increase from 2011, when assets had yet to cross the $2 trillion mark,” says Christopher Mason, a senior analyst at Cerulli. “This increase in assets reflects an 11.6% increase from 2015 to 2016, which is the first year of double-digit year-over-year growth.”

“The primary source of growth can be explained by the fact that CITs often are priced lower as compared to mutual funds of similar strategies,” continues Mason. “However, when examining the driving forces behind the demand more closely, we see that the threat of litigation is putting pressure on plan sponsors to ensure that related fees paid reflect the best interest of the plan participants.”

In addition, the firm says increasing awareness and education of CITs are also driving up adoption. “This year’s survey by Cerulli found that 81% of CIT managers perceive consultants to be very knowledgeable about CITs, with the remaining 19% indicating that they are somewhat knowledgeable,” explains Mason. “These findings stand to reason that as consultants become more educated about CITs, they are more apt to use them in their clients’ portfolios.”

“On the other hand, the majority of surveyed managers believe financial advisers are somewhat knowledgeable regarding CITs, while only 14% believe them to be very knowledgeable,” says Mason. “Financial advisers’ familiarity with mutual funds, along with marginal differences in cost compared to CITs, cause them to be more apt to turn to mutual funds.” Cerulli maintains that as financial advisers become more educated about CITs, the more likely they are to use them in client portfolios.

In fact, the study finds that a need for education around investments is also contributing to CIT growth as “asset managers are searching for third-party help as the world of investing becomes too complicated to go it alone.”

Cerulli’s fourth quarter 2017 issue of The Cerulli Edge – U.S. Institutional Edition examines the forces creating demand for CITs and outsourced chief investment officers (OCIOs). Information about purchasing Cerulli reports can be found here.