The growing demand for collective investment trusts (CIT) in the target date fund (TDF) space caused Morningstar to recently predict that they would overtake mutual funds as the most popular target-date vehicle by the end of 2024.
Indeed, it almost happened in 2023, with CITs receiving 49% of the TDF market share. Yet, despite CITs’ rapid rise, misconceptions about the product persist, even among financial professionals (and advisors), especially regarding fees.
On Thursday, retirement plan trade publication 401(k) Specialist issued a retraction and lengthy explanation of a column by Ron Surz, one of its contributors, titled “Opinion: CITs Understate Fees for Target Date Funds,” published on May 2.
After receiving responses from T. Rowe Price and Great Gray Trust Company, 401(k) Specialist admitted the piece contained “factual errors” and said it “regrets any confusion the misstatements in the piece have caused, and this post is intended to provide a correction for the record.”
As of Thursday afternoon, the original opinion piece was no longer available on the 401(k) Specialist website, yet in a statement included in the retraction, Great Gray said the piece inaccurately claimed there were “excessive hidden fees” in its “target date funds and other CITs, including those charged by underlying funds,” something the company said, contrary to the article’s claims, it fully discloses.
It added that the title’s claim that CITs understate fund fees was based on two incorrect assumptions: 1) that the Great Gray target date CIT invests in mutual funds rather than other CITs, and 2) that underlying funds charge unclosed fees. Great Gray said both were false, pointing to information contained in its fact sheet that it said Surz incorrectly cited.
“Essentially, the author compounds the mistake in his first assumption by basing a second assumption on it,” Great Gray wrote, eventually concluding that, “Unfortunately, the author misunderstood the information we disclosed and then mischaracterized both the investments and fee disclosure of Great Gray’s CITs.”
Claiming the article had an “alarming number of errors,” T. Rowe Price wrote that it contained “several inaccuracies related to the pricing for collective investment trusts (CITs) in general and makes several false statements related to the pricing of T. Rowe Price’s target date strategies specifically.”
It then issued a three-point rebuttal, noting that the article “falsely asserted” that excluding the costs of the underlying funds overstates CIT TDFs’ cost advantage. It countered that the CIT expense ratio is an all-in fee, including the underlying funds’ expenses.
“Second, at T. Rowe Price, this is the same pricing structure we use for our mutual funds,” the Baltimore, Md.-based firm wrote. “T. Rowe Price has mutual fund and CIT share classes that have zero fees that are used as building blocks for the target date series. We set a top-level fee for each target date strategy.”
Lastly, T. Rowe Price said the piece “misleadingly and inaccurately” compared T. Rowe Price Retirement Blend Select CIT fees with its T. Rowe Price Retirement Funds fees, before concluding that it caused “significant confusion among readers who have reached out to us for explanations given the inconsistencies of what the piece claims and what they know to be true.”
“Brian Anderson’s very comprehensive retraction in 401(k) Specialist (including our letter) speaks for itself, so we have nothing further to add,” a spokesman for T. Rowe Price said when reached for comment.
