Even with the Labor Department’s fiduciary rule concerning retirement plans vacated by the 5th Circuit Court decision on March 15, there is a clear direction toward holding the asset management industry responsible for delivering retirement solutions at low prices for investors.
Consumers like this trend, increasingly rewarding low-cost providers with their money, so margins are likely to stay under pressure. Thankfully, innovation has delivered a potential answer: Collective Investment Trusts (CITs). Many blend the performance potential of active management with lower-cost passive solutions.
CITs offer similar potential benefits to mutual funds at generally lower costs, providing attractive options for retirement plan sponsors in carrying out their fiduciary responsibilities. Available only to ERISA plans and certain other governmental plan types, and historically designed for large defined benefit plans, CITs have evolved into a popular choice for defined contribution plan sponsors of all sizes.
These solutions can provide participants with upside return potential, combined with the ability to manage volatility at times when investors may need it most. Using cost-effective investment vehicles such as CITs, rather than ’40 Act funds, can mean sizable savings for plans and participants.
Improved technology makes it possible to create individual investor accounts for five basis points or less. Thus, they can meet goals set by regulators to provide low-cost retirement solutions. CITs can also offer multiple classes of unit ownership, with different pricing to retirement plans depending on the amount of assets the plans invest. It should be noted, however, that CITs are not registered with the Securities and Exchange Commission, so manager selection is critical.
Transparency is generally high with CITs: Most are valued and traded on a daily basis, with portfolio values accessible online. Full statements are required to be issued quarterly.