Investing

Does White Labeling Conflict With Transparency Trends?

At a recent PLANADVISER focus group event, it was evident that small- and mid-market plan sponsors had little interest in “white labeling” investments—and their rationale might surprise you. 

By John Manganaro editors@assetinternational.com | April 27, 2017
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The concept of “white labeling” investments is actually one of the simpler topics one comes across when discussing the latest trends impacting the way defined contribution (DC) retirement plans present investment options to participants.

In basic terms there are two main strategies for white labeling DC plan investments. The first is to take a singular fund and make the name generic in plan participant communications, such that instead of, say,  listing the “BlackRock U.S. Aggregate Bond Index” as an investment option, the fund would be presented to participants as “the U.S. Bond Index fund.” The second strategy is more akin to a fund-of-funds approach, when a plan sponsor offers a single option to participants that includes several underlying funds or strategies—very much like the approach taken with the typical target-date fund (TDF).

Besides streamlining the core menu, the use of white label funds can also improve the ongoing maintenance and rationality of a defined contribution plan, experts agree, for example by forcing participants to think beyond brand names and potentially misleading style labels when picking investments. Tied to a quality communication and education campaign, white labeling can be even more effective. 

Hearing of these virtues, one might expect white labeling to be a major trend among U.S. plan sponsors, but anecdotal and survey evidence suggests otherwise. According to data provided by Aon Hewitt, still only about one-quarter of large- and mega- plan sponsors have embraced white labeling. Sixty-four percent of the large companies that white label DC plan investments told Aon Hewitt they opt for this approach to make it easier to change fund managers, the firm explains, and 71% of employers choose to white label in order to combine multiple managers under one fund. Important to note, these findings come from a relatively small survey of 75 large employers.

Among small and micro plans the use of white labeling is much rarer, a fact made evident during a recent PLANADVISER focus group event held in New York. Among small and even mid-sized plan sponsors—who were brought together for frank peer-to-peer discussions on a variety of pressing topics—there was actually a lot of uncertainty about the concept of white labeling and why the strategy would be used. Many small-plan sponsors seemed to have only a basic understanding of what “white labeling” entails.

NEXT: Hesitation among small plans