White Labeling DC Plan Investments May Offer Advantages

Nearly half (46%) are using this approach for their entire fund lineup, while the remainder white label only some of their funds.

Rob Austin, director of Retirement Research at Aon Hewitt, in Charlotte, North Carolina, tells PLANSPONSOR there are two main strategies for white labeling. The first is to take a singular fund and make the name generic. “For example, instead of listing the BlackRock U.S. Aggregate Bond Index, the fund would be presented to participants as the U.S. Bond Index fund,” he explains. This lets participants know the goals of fund and what it invests in, but makes it simpler for participants, he says.

The second strategy is like a fund-of-funds approach, when a plan sponsor offers a single fund option to participants called the Large-Cap Equity fund, for example, but assets in the fund are directed to several underlying funds. Even with funds-of-funds, such as target-date funds, Austin explains, some plan sponsors are white labeling them. “For example, instead of listing the J.P. Morgan SmartRetirement 2015 fund, a plan sponsor may call it the 2015 Retirement fund.”

Aon Hewitt found 71% of employers choose to white label in order to combine multiple managers under one fund. Austin says this is, in part, to improve returns and, in part, to streamline the fund lineup and make it easier for participants to invest effectively. “Companies ask, ‘Do we need four large-cap funds or can we just use one to get the same result?’” Austin explains. 

He points to the example of a DC plan sponsor that wants to diversify investment vehicle types without adding more complexity for participants. In this case, the sponsor could include more alternative investment vehicles within a white labeled fund-of-funds strategy—thereby bringing better diversification to the fund lineup. 

Sixty-four percent of companies that white label DC plan investments told Aon Hewitt they opt for this approach to make it easier to change fund managers, if needed. “It’s more visible to change a singular fund, but if it’s all under large-cap, it may not even be noticed,” Austin says. It is also easier to switch out an underlying fund in a fund-of-funds approach because there doesn’t need to be a blackout period or time when participants have to make new elections, and participants do not have to be mapped to a new fund.

Among the companies in Aon Hewitt’s poll, 57% indicated they white label to simplify communication to participants. “It certainly makes it easier and takes away some of the jargon for participants,” Austin notes. “Participants still may not know the difference between small-cap and large-cap, but it still makes it a little more digestible.” Plan sponsors that choose to white label DC plan investments can simplify fund names even further if they want.

Aon Hewitt also found 43% of companies that white label select this approach to lower total fund fees. Austin explains that in a fund-of-funds approach, each fund would be charging the same fee as if it were offered as a standalone fund, but since it is part of a broader fund, it may get more assets than if offered as a standalone, and plan sponsors can get a different, cheaper share class.

For those companies that do not use a white label approach, more than half (52%) stated they have not adopted this because they have not considered it. “Definitely plan sponsors should consider [white labeling their DC investments],” Austin contends. “It may not be for everyone—there may be valid reasons not to—but plan sponsors should at least look at it. It can make investing more palatable to the novice investor.”

Thirty-seven percent of firms that are not white labeling indicated they prefer to keep the retail provider’s name in the fund. Another 23% are concerned about negative reactions from employees, and the same percentage is concerned about related communications challenges. “They may want the fund company name there because employees trust the brand,” Austin explains.

Aon Hewitt thinks the trend of white labeling DC plan investment options will grow, and it has grown over time, according to Austin. “There are valid reasons to consider it, so as they do, more companies will take this approach,” he says.