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Features of CIT's or CIF's

Collective Investment Trusts

Use of Collective Investment Trusts as a Retirement Plan Investment Vehicle

When considering appropriate investments for retirement plans, all types of investment vehicles should be considered.  One investment option is a Collective Investment Trust (CIT). CIT’s are fast growing in popularity in the retirement and pension marketplace.   Collective Investment Trust definition

A Collective Investment Trust, sometimes referred to as commingled funds or collective trust funds, are bank-administered trusts that hold pooled assets of various trust accounts with similar objectives into a single portfolio. A CIT is managed and operated according to each trust’s governing documents called the “Declarations of Trust”. The bank acts as a fiduciary for the CIT and holds legal title to the trust assets whereas participants in a CIT are the beneficial owners of the trust assets. Overall, the commingling or pooling of assets lowers fees associated with investing in fiduciary assets and enhances risk management and investment performance for the participating accounts.

Unlike mutual funds, eligible investors of CITs only include certain qualified retirement plans.  Accordingly, CITs may only admit eligible assets and may not hold assets of 403(b) plans, individual retirement accounts (IRA) or health savings accounts (HSA).  Investments in a CIT are neither insured by the Federal Deposit Insurance Corporation (FDIC) nor are subject to potential claims by a bank’s creditors.

Features of CIT's or CIF'sAn important feature of a CIT is that the capital gains and income received by the CIT are ordinarily not subject to federal taxes. Although tax-exempt, CITs are treated as a separate tax entity from participant accounts.  Since 2000, CITs have operated more similarly to mutual funds.  CITs now offer automated subscription and withdrawal transactions and continue to receive expanded coverage from data aggregators.

CITs are subject to laws and regulations of state and federal bank regulatory agencies. Additionally, Collective Investment Trusts are subject to ERISA and the DOL, in which transactions must comply with ERISA’s prohibited transaction rules. To qualify for “tax-exempt” treatment, CITs must also operate in conformance with IRC revenue rule 81-100.  Moreover, the sale of CITs by a broker-dealer may subject the CIT sponsor to FINRA rules.  The SEC also governs investment advisers’ activities to the extent that a bank employs a sub-adviser to assist it in its exercise of investment discretion. However, most CITs are not required to register under the federal securities laws if the fund qualifies for specific exemptions of the Securities Act of 1933 (the ’33 Act) and the exclusions provided in the Investment Company Act of 1940 (the ’40 Act).

Several factors have helped increase the popularity of CITs as an investment vehicle for institutional investors and qualified retirement plans.  Ultimately, retirement plan fiduciaries must gauge all types of investment vehicles that they consider in fulfilling their suitability and fiduciary obligations.

Are you considering adding a Collective Investment Trust to your RIA or Fund product portfolio? Reach out to our sales team for guidance with procedure and policy updates, employee training, and updates to Form ADV brochure, and accounting. (818) 657-0288. 

RND Resources Inc – Fund Development Services include organization and start-up consulting, preparing regulatory documentation, compliance administration, and principal registration. See Fund Development Services and Steps to forming funds for more.

Read our Collective Trust Q&A for more

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2016 DOL Fiduciary Rule Confusion

2016 DOL Fiduciary Rule change sparks lawsuits and confusion among industry firms and advisors

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Guide to 2016 Fiduciary Rule

Since the adoption of the Fiduciary rule change in April 2016, BDs and RIAs are scrambling to understand how it will affect them, what to change, how to implement it, and whether or not the stemming lawsuits will prevail. Many compliance officers are confused by the new standard taking place and even further concerned about making changes that will later be reversed if the rule itself is reversed.

Firms cannot count on the flurry of lawsuits to stop this bit of legislation. However they may result in a few changes or further clarifying language. 

What are the Fiduciary rule lawsuits all about?

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DOL Fiduciary Rule Change – good or bad, its here

Department of Labor released a final statement April 6, 2016 on the Fiduciary Rule for brokerages, representatives, and investment advisors working with senior investors and retiree investment products.

FINRA Risk CultureWhile the rule is a lighter version of the original proposal and provides concessions for BD’s and RIA’s with senior retiree clients, the purpose is clear; new fiduciary standards are expected, documented, and required going forward.

Labor Secretary Thomas Perez said, “We are putting… a fundamental protection into the American retirement landscape. A consumer’s best interest must now come before an advisors financial interest.” The rule as it was proposed has been scrutinized and changed several times of the past 6 years in consideration of comments from consumer groups, industry firms, and other stakeholders. Now a final version is in place and firms can begin drafting and adapting to new policy and procedure requirements.

Talking points of the 2016 DOL Fiduciary Rule

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Senior Adviser Regulations

Dept of Labor Stepping Up to Fiduciary Responsibility for Retirement Advisers

Senior Adviser RegulationsProposed rule:  Labor Department proposes to hold retirement investment advisers to a fiduciary standard, leaving them to avoid conflicts of interest that include sales based on commission and sales performance compensation.

With the proposed rule back on the table and likely to pass, brokers and insurance agents will be pressed to update conflict of interest policies and procedures.  FINRA focus on senior and vulnerable investors has increased over the past years. In 2016 FINRA plans to make treatment of senior investors a priority and urges firms to monitor investor accounts for red flags like overly aggressive investments, unusual asset movements, and an unusual number of high cost products driving unsuitable recommendations. Read more