As collective investment trusts play a bigger role in defined contribution and defined benefit plans, providers face a series of challenges to raising awareness and comfort among sponsors, record keepers and consultants with these options, according to research by Cerulli Associates, Boston.
In a report to be issued Wednesday, the firm highlighted the main challenges to CIT adoption based on interviews with 27 providers of CITs accounting for $2.3 trillion in assets, or more than 80% of last year's market, according to Cerulli's calculations.
When asked to identify three top challenges for DC plan adoption, 37% of providers said sponsors "lack sufficient knowledge" about CITs and 44% said "financial advisers lack sufficient knowledge," according to the report.
"If sponsors and advisers have problems, that's obviously a concern," James Tamposi, a Cerulli senior institutional research analyst, said in an interview.
Another challenge, also cited by 44% of providers, is that CITs require a contract whereas mutual funds do not, said the report, prepared in partnership with the Coalition of Collective Investment Trusts, a trade group.
Compared to mutual funds, the terms for CITs, such as fees, are "more flexible" and subject to "more negotiation," Mr. Tamposi said.
Among the other major challenges, 44% of providers said, "CITs are not as transparent as mutual funds," and 44% said sponsors and advisers "have issues accessing clean and comparable data on CITs within databases," the report said.
Mr. Tamposi said providers in general "have been making a push for more transparency," given that, for example, CITs lack ticker symbols like those identifying mutual funds and stocks. "Mutual fund reporting is more standardized," he said.
For CIT providers, "there is room for improvement for transparency," he added.
When Cerulli asked providers who in the retirement industry was most knowledgeable about CITs, consultants led the pack with 77% being described as "very knowledgeable," followed by record keepers (54%), DB sponsors (48%) and DC sponsors (27%).
"Cerulli views the consultant community as key to driving CIT adoption," said Anastasia Krymkowski, associate director of retirement, adding that last year's survey also identified consultants as the most knowledgeable.
Among providers' comments, 12% said financial advisers were not knowledgeable, 12% of DC sponsors were not knowledgeable and 4% of DB sponsors were not knowledgeable.
The survey was based on online responses, conducted during the first half of the year.
According to Cerulli, CIT assets for defined contribution and defined benefit plans were $3.07 trillion at year-end 2018, the same as year-end 2017. The five-year compounded annual growth rate in CIT assets was 7.25% over the five years ended in 2018.
