Listen To Your Participants: Don’t White Label 401k Investment Funds

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Plan sponsors, if you would like to frustrate, annoy and confuse your 401k plan participants, then white label your 401k plan investment funds.

“White labeling” is the process of renaming the investment funds in a 401k plan using the asset class name they represent. Proponents of white labeling believe that attaching generic labels to investment funds helps participants make better investment decisions. They also believe it makes it easier to make changes to an investment fund lineup, I guess because it hides the fact that changes are being made from participants.

PLANADVISER recently published a well-written piece titled “Does White Labeling Conflict With Transparency Trends?” The answer is “Yes!” I don’t believe that white labeling makes sense, for the following reasons:

It lacks transparency

The process of white labeling obscures the identity of the fund(s) being used. Proponents of white labeling believe that if participants don’t focus on the name of the fund, the fund company 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 toward 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? Obscuring the identity of the fund, fund company and fund manager would seem to run counter to the trend of greater transparency.

It can cause participant frustration

I can tell you from more than 30 years of working with participants that anytime white labeling is discussed it leads to participant confusion and lack of trust. Participants often ask, “Why are they trying to hide the name of the fund?” If I answer with “It is to help you focus on the asset class rather than the fund when you invest”, they become confused. Many participants become annoyed and frustrated because they feel white labeling makes it more difficult to figure out what they are really investing in. In all my years of working with plan participants, I have never had a participant say to me, “Bob, I’m sure glad the company white labeled all of the investment funds in my 401k plan.”

Lack of understanding leads to a devalued plan

Making sure participants understand their 401k plans is of paramount importance. Greater understanding leads to greater utilization (e.g., making more contributions) and a higher level of comfort. Participants who understand their employee benefits value them to a much greater degree than participants who don’t. 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. Hiding the identity of funds and fund companies would seem to be a stumbling block to achieving better participant understanding.

It hides complex investment strategies

If you have adopted a white labeling strategy because you are using more than one fund in an asset class, or creating a unique asset class by combining funds, maybe that investment strategy is too complex. Plan sponsors should be creating 401k plans that participants understand, value and use. In other words, plans that are simple to explain and understand. Save all of those unique investment strategies for your corporate investment accounts.

White-labeled products are generally inferior

Most individuals who understand the white labeling concept associate it with generic or inferior branding. Why would you want to take a Vanguard or Fidelity fund and lower its value by white labeling it?

It obscures fund changes

Some practitioners believe white labeling facilitates an easier fund change process. Participants don’t have to be concerned about what is happening behind the curtain because the fund name hasn’t changed, just the actual investment. This is another activity that seems to lead to less transparency rather than more. Participants have a right to know and understand why a change is being made to a fund they are invested in.

It’s not a best practice

White labeling is generally not considered to be a 401k investment menu best practice because it is very hard to determine what benefits participants receive from a white labeling process.

It’s hard to obtain objective information

Using actual fund names makes it possible for participants to obtain objective, unbiased information about their investment funds from many sources. White labeling washes away this benefit, especially when more than one fund is used in an asset class since it is not possible to find publicly available information about white labeled funds from sources like Morningstar.

It hides the impact of superstar managers

Supporters of white labeling believe that participants can become distracted when a superstar manager leaves a fund 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 a fund’s future investment performance. 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, the Department of Labor requires them to be run for the benefit of plan participants.

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About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, 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 Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider 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.

Buffet’s Investing Advice From His 2017 Shareholder Letter

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I hope you had a wonderful weekend! The days are getting longer and the darkness is receding. Warmer weather is just around the corner!

LRPC’s Monday Morning Minute for this week, “Buffett’s Investing Advice From His 2017 Shareholder Letter” (presented below) comes to you courtesy of ThinkAdvisor. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

Every year Berkshire Hathaway’s shareholder letter contains insights on investing from Warren Buffet that many eagerly await reading. You may be surprised at some of Mr. Buffet’s thoughts this year outlined below.

Have a wonderful week!

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Buffett’s Investing Advice From His 2017 Shareholder Letter

By Janet Levaux, Editor in Chief, Research Magazine

According to Chairman Warren Buffet, the market value of Berkshire Hathaway’s shares has roared ahead at a compound annual growth rate of 20.8% since 1965 — more than double the S&P 500’s 9.7%. In 2016, Berkshire shares soared 23.4%, beating the S&P’s 12.0% improvement. A year earlier, the shares dropped 12.5%, while the S&P gained 1.4%.

While the information on returns is always welcome by investors and market watchers, it is the Oracle of Omaha’s musings on a variety of topics that are eagerly anticipated. Read on for the top eight nuggets of wisdom gleaned from this year’s 28-page letter to investors: [Read more…]

Three Sentences That Explain Investing

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MMM Newsletter and Website Header 10.2.15

I hope you had a great weekend. How are your NCAA tournament picks doing?

LRPC’s Monday Morning Minute for this week, “Three Sentences That Explain Investing” (presented below) comes to you courtesy of Marshall Jaffe. As an independent, objective Registered Investment Advisory (RIA) firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, make sure you read the three sentences.

The three sentences outlined below lay a foundation for a sound understanding of investing.

Have a wonderful week!

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Three Sentences That Explain Investing

By Marshall Jaffe , Managing Partner , Jaffe Asset Management

During the course of its long descent, a snowflake passes through a multitude of different weather conditions. The variability of temperature, atmospheric pressure and humidity produces an infinite variety of possible designs. The future of each snowflake is a structure that has never existed before and will never occur again — at no point in its development can we know exactly what it will look like when it finally lands. This is pure uncertainty — a completely unknowable future. [Read more…]

Should Your 401k Plan Offer ESG Investment Options?

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

At the very least, your Investment Committee should have a discussion about the topic. Here’s why. [Read more…]

Why Are Stocks Moving In Sync With Oil Prices?

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MMM Newsletter and Website Header 10.2.15

I hope you had a great weekend. Happy leap year day!

LRPC’s Monday Morning Minute for this week, “Why Are Stocks Moving In Sync With Oil Prices?” (presented below) comes to you courtesy of ThinkAdvisor. As an independent, objective Registered Investment Advisory (RIA) firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. This is a short piece I believe everyone can read in less than a minute.

Wondering why U.S. stocks and oil prices have been moving in the same direction? Many experts believe that selling of U.S. equities held by sovereign wealth funds (e.g.; Saudi Arabia and Russia) when oil prices fall is responsible for depressed U.S. equity markets. The experts ThinkAdvisor interviewed have additional thoughts, outlined below.

Have a wonderful week!

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Why Are Stocks Moving In Sync With Oil Prices?

By Bernice Napach, Senior Writer, ThinkAdvisor

Lower oil prices are supposed to be good for the economy and stock market because they provide consumers and businesses with more money to spend. But since early November, oil prices and stocks have been moving in lockstep, and there’s no telling yet when that might end. [Read more…]

Five Market Predictions From Big Investors For 2016

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MMM Newsletter and Website Header 10.2.15I hope you had a great weekend. Did you enjoy the Superbowl?

LRPC’s Monday Morning Minute for this week, “Five Market Predictions From Big Investors For 2016” (presented below) comes to you courtesy of ThinkAdvisor. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, try and review the five headings.

What do the best minds in the business think will happen in 2016? Take a look below at what the experts think the markets have in store for us in 2016.

Have a wonderful week!

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Five Market Predictions From Big Investors For 2016

By Emily Zulz, Staff Reporter, ThinkAdvisor

Institutional investors are concerned about generating returns and navigating a low-yield environment as they make plans for 2016, according to a report released by Natixis Global Asset Management. In response, these investors plan to increase allocations to equities and alternative investments, while decreasing exposure to fixed income.

Natixis surveyed 660 institutional investors around the globe to find out their year-ahead market outlook and asset allocation plans. The online survey, included a range of public and private pension managers, insurers, sovereign wealth funds, foundations, endowments and central bankers.

From that survey, Natixis found alpha is becoming harder to obtain for these institutional investors as markets become more efficient.

“Successful implementation of portfolio strategy in 2016 will require walking a tightrope between risk, return and yield,” the report says. “If they are to meet their primary objective of achieving their return targets while staying within their risk budgets, institutions will likely seek added help from outside specialists in their execution of investment plans.”

Based off of Natixis’ survey results, here are five of institutional investors’ predictions for 2016. [Read more…]

Top Six Investment Ideas

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MMM Newsletter and Website Header 10.2.15I hope you had a great weekend. We are almost through the coldest part of the winter. Hang in there!

LRPC’s Monday Morning Minute for this week, “Top Six Investment Ideas” (presented below) comes to you courtesy of ThinkAdvisor. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, try and review the six headings.

Wondering where to invest in 2016? Take a look below at what the experts from ThinkAdvisor believe will be hot this year.

Have a wonderful week!

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Top Six Investment Ideas

By Bernice Napach, Senior Writer, ThinkAdvisor

If there’s one overriding outlook for the financial markets in 2016 it’s this: No big gains are expected. The weakness in oil markets is expected to continue though prices could hit bottom at some point, and the dollar is expected to remain strong though not quite as strong as it’s been relative to other major currencies.

Most important, the change in U.S. monetary policy, following the Federal Reserve’s first rate hike in almost 10 years, will color market performance not only in the U.S. but globally.

Given this backdrop, investors and advisors need to choose carefully for 2016, then monitor investments closely.

Here are the six best investment themes and picks for 2016 that ThinkAdvisor has culled from myriad outlooks by market strategists as well as interviews with strategists and analysts. [Read more…]

What You Should Know About Recent Market Volatility

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MMM Newsletter and Website Header 10.2.15I hope you had a great weekend. I am sure you were just as surprised as I was when you didn’t win the Powerball jackpot. Maybe next time!

LRPC’s Monday Morning Minute for this week, “What You Should Know About Recent Market Volatility” (presented below) comes to you courtesy of Schwab. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. This is a short piece I believe everyone can read in less than 60 seconds.

What’s going on with the U.S. stock markets? Check out the ideas that the experts from Schwab have below.

Have a wonderful week!

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What You Should Know About Recent Market Volatility

From Schwab Center for Financial Research

Key points

  • Markets have been unusually volatile so far in 2016, with low oil prices, slowing growth in China and concerns about the Federal Reserve all contributing to uncertainty.
  • We do not expect the recent U.S. stock market correction to turn into a bear market.
  • Investors should review their portfolios to make sure they still reflect their target asset allocations and goals. They should resist the urge to buy and sell based on recent market movements, as it could hobble their performance over time.

[Read more…]

Why TDFs Are The Best Professionally Managed 401k Investment Option

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PSI Newsletter and Website Header 10.2.15

By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

There has been quite a bit written recently, most negative, about target date funds (TDFs).  It is hard for me to understand why since TDFs provide 401k plan participants with: [Read more…]

Will Bond Funds Make Sense When Interest Rates Rise?

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MMM Newsletter and Website Header 10.2.15
I hope you had a great weekend. The leaves are changing here in Milwaukee!

LRPC’s Monday Morning Minute for this week, “Will Bond Funds Make Sense When Interest Rates Rise? (presented below) comes to you courtesy of Schwab. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, make sure you review the “Key points” below.

We all know it is coming. The Fed is going to start raising interest rates soon. Is any fixed income portfolio safe? Check out the thoughts below from the experts at Schwab.

Have a wonderful week!

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Will Bond Funds Make Sense When Interest Rates Rise?

By Rob Williams, Charles Schwab & Co., Inc.

Key points

  • Although the value of most bonds and bond funds fall when interest rates increase, not all bond funds react the same.
  • A look at how various bond fund categories performed in prior rate cycles can help your fixed income strategy.
  • Short-term bond funds have performed better than intermediate-term, long-term, or multisector funds during the past three rate-tightening cycles.

As the Federal Reserve prepares to raise interest rates for the first time in almost a decade, many bond investors are concerned about how their portfolios may be affected. Although the value of most bonds and bond funds fall when interest rates increase (all else being equal), not all bond funds react the same. Short-term bond funds have tended to perform the best in this type of environment.

Although past performance is no guarantee of future results, during the past three rate-tightening cycles, short-term bond funds have delivered positive cumulative returns. That’s partly due to rising income, which helps bond and bond fund investors over time. Consider this when shaping your fixed income strategy. [Read more…]