White Labeling 401k Investment Funds A Bad Idea


PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Recently, most plan sponsors were forced to make a decision about keeping a particular fixed income fund in their line-up that many participants feel is the anchor to their 401k plan investment strategy. When Bill Gross left PIMCO, plan sponsors needed to consider whether PIMCO’s flagship Total Return Fund should remain part of their investment menus. Many observers have used this situation to outline the benefits of white-labeling 401k plan investment funds. I don’t believe that white labeling makes sense, for the following reasons:

The process of white labeling obscures the true identity of the fund(s) that underlie a particular asset class

Proponents of white labeling believe that if participants don’t know what the fund is and who is managing it they will invest with more integrity based on their overall investment strategy. Unfortunately, white labeling flies in the face of the overall movement in 401k plans towards transparency. Don’t participants have a right to know what fund they are investing in and shouldn’t that be a major consideration in determining whether they invest in it?

Participant understanding

Participant understanding of their 401k plans is paramount. Use of unbranded or white-labeled funds is great for a defined benefit plan where participants do not bear the investment risk or responsibility. But, with 401k plans, white labeling can be confusing. Anything that helps participants better understand their plans should be embraced. Without question there are investment funds and mutual fund companies that participants quickly recognize, helping them become more comfortable with the investment offerings in their plans.

Fund changes

Many experts believe white labeling facilitates an easier fund change process. Funds or strategies can be changed without notifying participants. This is another activity that seems to lead to less transparency rather than more. Also, if a change is being made to an asset class I am invested in as a participant, why wouldn’t I want to know that the change is being made? It would seem logical to alert plan participants to give them the opportunity to reconsider whether it makes sense to continue to invest in that asset class or strategy.

Continuing follow-up

Using branded funds makes it possible for participants to obtain objective, unbiased information about their investment funds from many sources. White labeling washes away this benefit since it is not possible to find publically available information about white labeled funds from sources like Morningstar, for example.

Super-star managers

Supporters of white labeling believe that participants can become distracted when a super-star manager leaves a fund that they may be invested in. Since white-labeling hides the names of the investment funds from participants, many may not be aware of management changes. Shouldn’t they be? The departure of a superstar manager can significantly impact that fund’s future investment prospects. It may also alter the future path of that fund family. It would seem that a change like this should be shared with participants rather than hidden from them.

There is no question that white-labeling makes investment fund administration and communication easier for plan sponsors. However, 401k plans are not run for the benefit of plan sponsors. Rather, they are required to be run by the Department of Labor for the benefit of plan participants.


About the Author
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.