Understanding SMAs & CITs

Have you ever wondered why there are no ticker symbols for the investment funds offered by the NYC Deferred Compensation Plan (NYCDCP).   The same issue applies to some of the investment funds offered by the various Union Annuity Funds.  Why is that?  The reason is that the NYCDCP uses separately managed accounts (SMAs) while Union Annuity Funds may use collective investment trusts (CITs) and SMAs.

One reason why the NYCDCP & the Union Annuity Funds use these type of funds is to possibly obtain lower fees.  Whether they are actually able to achieve lower fees is questionable due to the availability of extremely low cost index mutual funds and/or exchange traded funds (ETFs).  How does it work?  The retirement plan sponsor (NYCDCP/Union Annuity Fund) simply pools participants money together and goes out into the marketplace to hire an investment manager to invest the money.  Basically, each SMA or CIT is exclusively managed for one retirement plan/sponsor.  At a minimum, participants invested in the SMA or CIT are charged investment fees which are paid to the investment manager.

SMAs and CITs make it extremely difficult for the participant to fully research the investment funds.  Since SMAs and CITS are not regulated by the Securities and Exchange Commission (SEC), the information provided is limited and without a ticker symbol or a publicly available prospectus, the participant is not able to make an educated decision on how to invest.  Additionally, it may be difficult for the participant to determine if other fees are being charged besides the investment management fee.  When participants invest in SMAs and/or CITS it is critical that any footnotes provided in the plan sponsor’s materials be carefully read and understood.  For example, the following is part of a footnote from a CIT:

The Fund is not a mutual fund and is not registered with the Securities and Exchange Commission or any other regulatory body.  The Fund cannot accept investment directly from individuals and is subject to restrictions regarding transfer and withdrawal of assets including potential deferral of withdrawal requests by up to 12 months, as defined in the applicable declaration of trust.

An example of a footnote for a SMA:

If you elect to allocate funds to a Separate Account, you may not be able to immediately withdraw them.

1 reply
  1. Jim
    Jim says:

    Pete, while this is true for the NYC DCP, You are able to track most of the SOC Annuity Fund Investments by their respective ticker symbol. In fact, most of the Investment options offered by the Principle Fund (other than the SOC Balanced Funds) do have ticker symbols making it rather convenient to track their progress.
    While the investment options offered by Principle have a lot to be desired (a story for another day), I found most do have ticker symbols

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