Navigating CITs: A Vital Investment Approach for Retirement Plans
CITs are popular because they offer cost-effective, customizable, and diversified investment solutions that align with the goals of plan sponsors and the needs of retirement plan participants. However, it’s important for plan sponsors to work with experienced financial professionals or consultants when considering CITs as investment options in retirement plans. They can help plan sponsors navigate the complexities of CITs, assess the available options, and choose the ones that best align with the goals of the retirement plan and the needs of plan participants.
Collective Investment Trusts (CITs) are pooled investment vehicles that are like mutual funds but with key differences, primarily in their regulatory structure. CITs are investment funds that pool money from various investors, typically employees of a single retirement plan or a group of retirement plans. These trusts are managed by a bank or trust company, often a trust department of a financial institution, on behalf of the plan sponsor or retirement plan.
At the conclusion of The Plan Sponsor University (TPSU) Fiduciary Education Program held on the campus of The University of North Florida, in Milwaukee, Wisconsin, Fred Barstein, founder, and CEO of TPSU, interviews Keola Elobt, of Mai Capital Management who discusses his firm’s recent acquisition and the introduction of collective investment trusts (CITs) in the retirement industry.
He highlights that CITs, which operate similarly to mutual funds, have gained the attention of plan sponsors due to changes in how they are made available. Historically, CITs were reserved for large plan sponsors with substantial assets, allowing them to negotiate favorable deals with specific managers. However, recent developments have shifted the accessibility of CITs. Larger advisor firms, like Elobt’s, are now aggregating their volumes to create CITs that are accessible to plan sponsors of various sizes and mandates.
Elobt’s recommendation for plan sponsors is to initiate discussions with their advisors to explore the availability of CITs as an investment option. They can inquire whether their existing mutual funds have corresponding CITs, potentially offering cost savings and investment flexibility. This approach underscores the importance of keeping the investment lineup current and cost-effective.
Read the Full Transcript Here:
Fred Barstein:
Greetings. This is Fred Barstein, CEO and Founder of TPSU. I’m here in Jacksonville at the University of North Florida conducting a program with our adjunct lecturer, Keola Elobt. Welcome, Keola.
Keola Elobt:
Thank you.
Fred Barstein:
Before we start, Keola, tell us a little bit about your firm, and I know there’s been some changes in the last year or so with the firm.
Keola Elobt:
Yeah. Thank you, Fred. So originally for almost 20 years, my business partner, Clay Perry and I, ran an independent shop called West Point Business Group, focused in the retirement plan consulting space. Last year we were acquired by a top 25 registered investment advisor firm, MAI Capital, very well established and known in the ultra-high net worth management arena. And the goal of acquiring our firm was strategic in nature to stand up a division to really bring more of the consulting solutions to organizations at a retirement plan level.
Fred Barstein:
Convergence of wealth and retirement, right?
Keola Elobt:
Absolutely.
Fred Barstein:
So Keola, I know that it doesn’t always come up on a plan sponsor’s radar about CITs. Can you tell us what are CITs and why should plan sponsors be paying attention to it?
Keola Elobt:
Yeah, I’d be happy to. So collective investment trusts, while they’re getting a lot of attention now, have been around for a very long time. In essence, what they are is just a holding or a way to manage money very similar to that of a mutual fund. So most plan sponsors are very accustomed to dealing with their fund lineup and in replacement of some of those mutual funds, they may use collective investment trusts. The organization, how they’re managed is very similar, but there’s been a significant evolution in that space that makes them a little bit more attractive to most plan sponsors where they weren’t before.
And so while they’ve been around a long time, historically, these were types of investments that were available only at plan sponsor volume. So days in the past when it was a pension fund and the organization maybe had hundreds of millions of dollars in the pension plan and had one particular mandate, they may look to find a manager and create a deal with a specific manager that was better from an expense standpoint than the mutual fund counterpart. And they were able to arrange that deal in the form of a collective investment trust because the plan sponsor themselves had the volume sufficient that the investment manager would want to make that deal.
So for example, X, Y, Z mutual fund may have been available to the manager for 0.6%, but the plan sponsor said, “We have a lot of assets here, we want a better deal than your mutual fund deal. So give us this deal in the collective investment trust nature.” So fast-forward to the last decade, these collective investment trust arrangements have now moved away from the plan sponsor’s volume dictating the arrangement of the deal and now have moved to larger advisor firms and us aggregating our volume with specific managers and building these collective investment trusts. So instead of the sponsor needing tens if not hundreds of millions, we are now creating these deals and are able to deliver them to plan sponsors regardless of their size in any particular mandate.
Fred Barstein:
So what would be the next step for a plan sponsor if they were interested? What should they be doing?
Keola Elobt:
I think the next step is to talk to your advisor about it. Your advisor certainly has his or her hands around the investment lineup, you likely have a lot of mutual funds, you may even have collective investment trusts already in there. But I think the question of, “Hey, do any of our mutual funds have collective investment trusts available?” And then some advisor firms, because of volume, are going to have these and some are not.
Fred Barstein:
Right. So final question. Why should a plan sponsor attend TPSU? What’s the value for them? And I know it’s a lot of work for your group, why do you do it?
Keola Elobt:
We do it, we think it’s a great opportunity for us to coalesce our partners in a room, pull some of that intellectual capital out of people that have been in the industry in different capacities, not only for the participants, the plan sponsors, but for us as well. It’s a great opportunity for us to hear the challenges of plan sponsors. We’re in the day-to-day fight with these sponsors so we hear it, but occasionally we hear a different issue. So it is great for that. Also, we love the idea sharing. So most of our TPSU engagements we’ve had with you, Fred, we’re inviting our clients. It’s typically a third of the room as clients, two-thirds are not clients. And being able to have that opportunity to idea share outside of our client base and from our advice, we think is very valuable to everybody.
Fred Barstein:
And that’s what we hear too, it’s the peer-to-peer idea sharing. It’s good to have the experts, but we want to hear from each other as well.
Keola Elobt:
Absolutely.
Fred Barstein:
Well, thanks for your support of TPSU. Thanks for your time today. And thank you for watching 401kTV. Please stay tuned for more videos like this.
