Retirement Plan Aggregators Bring CITs to Small, Mid-Market Plans

Retirement plan aggregators such as CAPTRUST Financial Advisors and OneDigital are increasingly bringing collective investment trusts to small and midsize retirement plans, as CIT asset growth has outpaced mutual funds since 2018, as reported in October’s Cerulli Edge—U.S. Monthly Product Trends.

About 70% of defined contribution investment-only asset managers cite registered investment advisory retirement plan firms as the primary influencers for plans with assets ranging from $25 million to $250 million. While asset managers should not overlook investment consultants and outsourced CIOs serving larger plans, they should also monitor the product usage and buying process of these RIAs, Cerulli Associates recommended.

Cerulli analysts suggested that the rise of RIA retirement plan aggregators has boosted industry confidence in CITs. Among DCIO asset managers, 71% agree that CITs offer their firm the best opportunity among plans with between $250 million and $500 million in assets, while 80% believe the same for plans ranging from $500 million to $1 billion. That belief dips slightly farther downmarket, as less than half say the same about the $100 million to $250 million (43%) and the $25 million to $100 million (17%) plan segments. However, these percentages are both up, from 34% and 9%, respectively, in 2020.

Legislation proposed in the U.S. House of Representatives called the Retirement Fairness for Charities and Educational Institutions Act seeks to amend laws set out in the SECURE 2.0 Act of 2022 to allow 403(b) plans to utilize CITs, potentially opening a portion of the $1.4 trillion retirement market, Cerulli noted. Larger plans and those working with intermediaries are expected to be early adopters.

“While some uncertainty remains, specifically related to which 403(b) plan segments may be covered, many DC executives told Cerulli they consider larger plans to be the first movers,” the report stated. “Notably, those intermediated by consultants, OCIOs, and other intermediaries that are familiar with CITs already are forecasted to be earlier adopters. As with the corporate DC market, Cerulli believes headwinds to adoption will occur farther downmarket, at least to start, with issues related to limited scale and comfort with the mutual fund.”

Cerulli also suggested in the report that asset managers keen on distributing investment strategies within the DC space should continue to develop their CIT offerings, as DC plan sponsors and intermediaries value the cost advantages they offer.

According to the consultancy, mutual fund assets dipped below $17 trillion by the end of September, with a 4.4% decrease and $48 billion in net outflows for the month. Year-to-date outflows reached $292 billion, while assets returned to February levels.

In September, exchange-traded-fund flows were slightly below the 2023 monthly average of $36 billion, according to the report. Both active and passive ETFs saw inflows, with active ETFs experiencing their strongest month of the year. Cerulli noted that active ETFs are on track to surpass their all-time annual flow record, set in 2022, by the end of October.