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