CITs Surge in 401(k) Market as Advisors Seek Value
The rush of 401(k) assets into collective investment trusts at the expense of mutual funds appears to be growing at a frenzied pace. And while the benefits of CITs existed for decades, it is only within the past five to 10 years that CITs in advisor sold 401(k) plans have proliferated.
The benefits of CITs are obvious, starting with lower fees in part because of less disclosure requirements and regulatory oversight, as well as flexible pricing. CIT trustees, which started with banks, have expanded to trustees with state charters and are ERISA fiduciaries unlike mutual fund boards, adding an extra layer of protection but also the need for more oversight and increased potential for conflicts. “The OCC knows ERISA,” noted PRI’s Jason Roberts, who wrote a white paper about CITs in 2021. “They are often more knowledgeable than the DOL.”
What started with banks pooling trust assets when the SEC gave them an exemption in the 1950s has turned into advisory firms and investment managers using the CIT wrapper. Some of the issues with CITs compared to mutual funds, like no ticker symbols, the need for a participation agreement and limited performance data, are being overcome. (See “CITs: What ERISA Fiduciaries Ned to Know”)
So why in the last five years have CITs grown in the advisor-sold market used for decades, along with SMAs, by institutional plans?
Just like custom TDFs, it’s expensive to create a CIT—maybe less than a mutual fund but still costly. So a plan or even an investment strategy must have at least $50 million to make sense, which would not be viable for most plans under $250 million or even $500 million. What changed is that advisory firms and eventually record keepers pooled all assets for plans under management, allowing them to not just cover the cost of creating and running a CIT but the ability to negotiate favorable pricing with asset managers leveraging scale.
The genesis of the run of CITs in the advisor sold 401(k) market began when Blackrock, FlexPATH and Wilmington Trust partnered to offer multi manager TDFs with three risk profiles within each five year segment, leveraging Blackrock’s glidepath in 2015. With over $100 billion in FlexPATH’s TDF adding new strategies quickly and almost $250 billion held by Great Gray as of Q2 2025, the results speak for themselves.
Advisory firms leveraging scale can offer investments at a lower cost than the same mutual fund strategy and efficiently create models though there may be issues if they charge an additional fee, which is likely why FlexPATH separated from NFP, whose advisors along with RPAG seeded their strategies. The lower cost is enough of a competitive advantage while record keepers not acting as fiduciaries do not have the same issues with insurance providers adding in their general accounts or stable value to private-label TDFs.
With distribution fees reported to be in the seven figures by one CIT provider and more record keepers charging DCIOs to be on their platform with different tiers, along with 20%-40% lower expense ratios, why are investment managers so willing?
Distribution is king in the RPA market. DCIOs without a top tier TDF (over $100 billion), a major indexing complex or a scaled record keeper, are fighting over a much smaller pie. As a result, some have eliminated or reduced their field force focusing on the home office trying to win sleeves in multi-manager models or managed accounts. Meanwhile, firms like FlexPATH are growing their field force along with Great Gray, Global Trust, owned by BPAS with $130 billion, and SEI. Almost all DCIOs are willing to take a serious haircut, like they do with institutional plans, and pay distribution fees.
What are the risks for plan sponsors and advisors recommending CITs?
Some of the reduced cost is a result of less transparency as CITs, available only to institutions, assume a level of sophistication that smaller and mid-size plans do have, which requires a greater level of due diligence. “Explaining disclosure can be a challenge,” stated Global Trusts SVP Vincent Manning. ”Some CIT providers do not include the cost of the underlying investments [in their reporting].” Although reference is made to another document, it can make the CIT appear to less inexpensive than they really are.
To overcome the three-year history requirement, CITs adopt the results of a mutual fund, which cannot be mirrored even if they use the identical investments as the initial cost of assets bought years ago will not be the same. Multiple CIT share classes require the plan to pick the right one.
And while there may be added protection with the CIT acting as an ERISA fiduciary, it also means greater liability with the plan and advisor needing to make sure that their trustee is solid and free of conflicts. “You need to assess governance structure,” warned Christopher Randall, managing director of CITs at SEI, which is one of the largest and most established CIT trustees with mover $200 billion and over $1.5 trillion in alternative investments, mostly serving the institutional market. Randall led M&T and Wilmington Trust’s CIT business and helped form Great Gray. “Due diligence [of the trustee] is important because if they lose their bank exemption they will have to unwind assets.”
As managed accounts grow, the need for CITs may lessen with advisors like Prime able to charge up to 30 basis points for advice.
In the end, lower fees and increased distribution will win the day with private investments, institutional IRAs and perhaps even retirement income adopting CITs. But not all CIT trustees are created equally, requiring the plan and especially the 3(38) fiduciary to conduct much more due diligence than with mutual funds understanding all fees, not just the ones disclosed.
It’s a bit of the Wild West with a weaker sheriff out there but also new opportunities for a land grab.