401(k) Specialist Issue 4 - 2016 - 40
401(k) PRODUCT WATCH
Mutual Fund Drama Makes CITs,
Alts More Attractive In 401(k)s
THE ESTABLISHMENT'S RATTLED.
It might seem like an postmortem on the recent (shudder) " campaign " but actually refers
to the growing popularity of collective investment trusts and liquid alternative investments
in 401(k)s. The reason, of course, is the potentially lower fees and non-correlated asset
classes they offer. The trend got a further boost with the release of the rules from the SEC
regarding mutual fund liquidity and reporting.
" With more than $2.5 trillion in assets as of year-end 2015, CITs have become an increasingly
popular vehicle for institutional
investors in both the defined benefit
(DB) and defined contribution (DC) market
places, " according to Chris Mason,
senior analyst at Cerulli Associates.
" These vehicles serve as a viable alternative
and potentially more cost-effective
options for institutional investors to
accomplish their investment goals. "
Cerulli determined that plan sponsors,
consultants, and record keepers
are now more familiar with some of the
basic operational attributes of CITs than
in years past.
" CITs have a variety of unique characteristics
that often can be misunderstood,
leading many CIT managers to focus on
efforts to increase awareness and education
of the vehicle, " according to the Boston-based
research behemoth. " Likely the
biggest differentiator from mutual funds
and exchange-traded funds is that CITs can
only be used in qualified retirement plans. "
Despite increased awareness and data
availability on third-party platforms such as
Morningstar Direct, issues still remain.
" Many who work with CITs cite a variety
of issues regarding the third-party data
available on these funds, " Mason added.
" Since the data is self-reported and not
mandatory, some firms choose not to report
certain elements of their CITs. This lack
of mandatory and homogeneous reporting
creates difficulties for analysts seeking a
comprehensive picture of the market. "
Which Products Win and Lose
With the Fiduciary Rule?
NO MENTION OF CITS, and we have to wonder about the other 50 percent.
Recent research finds just over half of 401(k) advisors either plan to, or are very likely to,
review mutual funds used in 401(k) plans before the fiduciary rule takes effect.
" The Department of Labor's Conflict of Interest Rule, commonly known as the fiduciary
rule, will cause a surge in mutual funds being reviewed and replaced in employer-sponsored
defined contribution retirement plans, even before the Jan. 1, 2018 deadline for
full compliance, " according to Ignites Retirement Research.
Some 26 percent of plan advisors expect index equity mutual funds to be the top
winner in DC plans in the aftermath of the implementation of the fiduciary rule; which
makes sense, according to Ignites, because actively managed funds are, on average,
more expensive than index funds.
For similar price reasons, 23 percent of plan advisors plan to increase their use of
products mixing active and passive strategies.
Among the products likely hurt by the fiduciary rule, 8 percent of plan advisors expect
to scale back their use of variable annuities, most of which sell on a commission basis and
therefore represent potential conflicts of interest under the new regulations.
And 7 percent of plan advisors expect to reduce their use of actively managed
equity mutual funds in DC plans.
40 ISSUE 4 2016 | 401kSpecialistmag.com
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401(k) Specialist Issue 4 - 2016
Table of Contents for the Digital Edition of 401(k) Specialist Issue 4 - 2016
Table of Contents
401(k) Specialist Issue 4 - 2016 - Cover1
401(k) Specialist Issue 4 - 2016 - Table of Contents
401(k) Specialist Issue 4 - 2016 - 1
401(k) Specialist Issue 4 - 2016 - 2
401(k) Specialist Issue 4 - 2016 - 3
401(k) Specialist Issue 4 - 2016 - 4
401(k) Specialist Issue 4 - 2016 - 5
401(k) Specialist Issue 4 - 2016 - 6
401(k) Specialist Issue 4 - 2016 - 7
401(k) Specialist Issue 4 - 2016 - 8
401(k) Specialist Issue 4 - 2016 - 9
401(k) Specialist Issue 4 - 2016 - 10
401(k) Specialist Issue 4 - 2016 - 11
401(k) Specialist Issue 4 - 2016 - 12
401(k) Specialist Issue 4 - 2016 - 13
401(k) Specialist Issue 4 - 2016 - 14
401(k) Specialist Issue 4 - 2016 - 15
401(k) Specialist Issue 4 - 2016 - 16
401(k) Specialist Issue 4 - 2016 - 17
401(k) Specialist Issue 4 - 2016 - 18
401(k) Specialist Issue 4 - 2016 - 19
401(k) Specialist Issue 4 - 2016 - 20
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401(k) Specialist Issue 4 - 2016 - 38
401(k) Specialist Issue 4 - 2016 - 39
401(k) Specialist Issue 4 - 2016 - 40
401(k) Specialist Issue 4 - 2016 - 41
401(k) Specialist Issue 4 - 2016 - 42
401(k) Specialist Issue 4 - 2016 - 43
401(k) Specialist Issue 4 - 2016 - 44
401(k) Specialist Issue 4 - 2016 - Cover3
401(k) Specialist Issue 4 - 2016 - Cover4
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