White Labeling Benefits Both 401k Sponsors and Participants. We’ve written previously that too many investment choices can be overwhelming for retirement plan participants.
One way to simplify your retirement plan’s “core” investment lineup — that is, the funds offered outside of the default or conservative options like target-date funds, stable value, and balanced funds — is to “white label” them. Basically, white labeling means to re-label the branded funds in the plan with generic names. The idea is that the fund becomes identified by its asset class, i.e., “diversified U.S. equity” instead of by the brand of the investment firm (or firms in multi-manager designs) that manages it.
Willis Towers Watson recently released a white paper detailing some of the benefits of white labeling DC plan fund options for plan sponsors and participants.
Depending on how they use white labeling, it affords plan sponsors the opportunity to lower their plans’ investment management fees. White label funds tend to be less expensive than their branded counterparts. What’s more, sponsors can amp up the multi-manager exposure, create a mix of active, passive or combined active/passive strategies, and use a variety of instruments, including mutual funds, collective investment trusts (CITs) or separate accounts. Another advantage of white labeling is that sponsors can quickly and easily swap out fund managers when necessary without upsetting brand-loyal participants. In short, white labeling the core investment menu gives sponsors more flexibility at a lower cost.
The responsibility of selecting the fund managers and allocating assets is handled by plan fiduciaries, along with any necessary investment disclosure and monitoring duties. However, it is possible for sponsors to delegate or outsource these responsibilities to an outsourced chief investment officer (OCIO) provider if they choose.
White labeling gives participants fewer investment options to choose from overall – meaning less overwhelm and analysis paralysis — and helps improve diversification because white labeled names make it easier for participants to identify and understand where they’re directing their retirement plan assets. As such, it may foster higher engagement as participants’ comfort level with their investment choices increases and they feel more confident making asset allocation decisions.
Traditionally the purview of mega and large retirement plans, white labeling is a trend that’s moving down market as fund providers move from mutual funds to institutional-level CITs in stand-alone fund options. That means it’s a more readily available option for sponsors of plans of all asset sizes — a boon for employers and participants alike.
White labeling can make plan sponsors’ lives easier for all of the reasons listed above and takes some of the confusion out of retirement investing for participants. It is important for sponsors to assess whether they have the staff and knowledge in-house to white label their investment lineup, or whether they’ll need to hire outside resources like an advisor or OCIO. Nonetheless, offering a finite selection of multi-manager investment options may ultimately help improve retirement outcomes by increasing the appropriateness of participants’ asset allocation and portfolio diversification inside of their retirement plan accounts – a goal that makes white labeling well worth a closer look.
