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Investment Insights

White-Label Options in DC Plans: A Framework for Consideration

Som Priestley, CFA, Multi-Asset Solutions Strategist

Unbranded offerings can improve plan investment lineups.

Key Insights

  • Many defined contribution plan sponsors are interested in simplifying their plan’s investment lineups while still maintaining appropriate diversification opportunities.
  • Some sponsors are considering “white label” options—unbranded offerings that can include single or multiple portfolio managers, asset classes, and/or styles.
  • Implementation of white‑label options can take many forms. The process should take into account both plan participant and plan sponsor perspectives.
  • White‑label options can give sponsors more control and may improve participant returns. However, operational complexity may require close fiduciary oversight.

Designing investment lineups for defined contribution (DC) plans is a complex effort in which sponsors must walk a fine line between offering an appropriately diverse selection of investment options without confusing participants with too many choices. Positioning participants for financial success is especially challenging when you consider the demographic factors (such as employee age, income, and savings behavior) and the unique individual situations (such as company stock holdings) that the lineup must be flexible enough to accommodate.

Given these factors, it is not surprising that the number of investment vehicles in the typical 401(k) plan has risen over time and now averages 20 options.1 However, this trend has proven detrimental to investor behavior. One study found that employee participation falls about 2% for each 10 additional options added to a 401(k) plan.2 Other research has indicated that overwhelmed investors misallocate either by equally weighting all investment options or by investing far too conservatively.3

(Fig. 1) White‑Label Implementation Spectrum

One proposed solution to the simplicity versus diversification trade‑off has been the introduction of white‑label options—unbranded plan offerings that can include single or multiple portfolio managers, asset classes, and investment styles. In theory, white‑label vehicles can reduce the number of investment choices while still providing appropriate diversification and may help produce more successful retirement outcomes.

In this paper, we will explore the white‑label concept to understand the potential benefits, what considerations plan sponsors will need to keep in mind, and which specific white‑label design features might be most beneficial for plan participants.

Opening Quote In theory, white‑label vehicles can reduce the number of investment choices while still providing appropriate diversification and may help produce more successful retirement outcomes. Closing Quote

White‑Label Implementation

Generally, white‑label options are named after the asset class or investment objective they represent. For example, a white‑label option might be called “U.S. large‑cap stock” and include multiple underlying U.S. large‑cap equity managers selected and bundled by the plan sponsor. Participants would be able to choose the broad investment approach (U.S. large‑cap equity in this example), thus gaining diversified exposure to the strategy without having to select and weight individual managers.

While the broad definition of white‑labeling is relatively straightforward, the implementation of the approach is not so well defined. A white‑label strategy can represent anything from an unbranded, single‑manager option to multiple managers across asset classes (Figure 1). Furthermore, a DC plan sponsor could choose to fully white‑label all the options in its investment lineup or offer a combination of white‑label and branded, single‑manager strategies. Target date investment vehicles also could be offered.

Unfortunately for plan sponsors, there is still no universally accepted framework for integrating the white‑label concept into an investment lineup. The unique characteristics of each plan’s participant base should be considered, providing a basis for the plan structure. Quantitative factors such as average age and education are important, as are more subjective factors such as participants’ general comfort level with investing. Sponsors hoping to include white‑label strategies in their lineups should use this information to determine the implementation method most appropriate for their plans (Figure 2).

White‑Label Considerations

There are numerous issues plan sponsors need to evaluate when contemplating a white‑label approach. But any discussion of the benefits and challenges should take into account the perspectives and needs of both plan sponsors and plan participants. Again, given the variability around the actual application of white‑label options, it is difficult to draw up a definitive list of “pros and cons.” Instead, we will list and discuss what we see as some of the primary considerations.

(Fig. 2) Selected White‑Labeling Implementation Options

White‑Labeling: The Participant Perspective

From the perspective of the participant, the primary utility achieved via white‑labeling is a more approachable investment lineup (Figure 3). The participant no longer needs to piece together individual strategies while trying to decipher fund names and investment concepts. Instead, they are faced with a more efficiently organized set of investment options that are clearly named after the desired strategy or objective. Multi‑manager white‑label options also provide built‑in diversification, which may reduce the risk of extremely negative investment results and can improve portfolio performance. These benefits may lead to higher employee participation, more engaged participants, and improved long‑term investment results.

Under a white‑label framework, firms that also have defined benefit plans may be able to place institutional investment vehicles in their DC lineups, potentially resulting in lower management fees under asset‑based fee schedules. The inclusion of passive and active strategies within a multi‑manager white‑label option may also tend to reduce management fees. In fact, the ability to package passive and active strategies within a single white‑label option itself is a potential benefit, as it may allow for pairing higher‑tracking‑error active strategies with passive, index‑oriented approaches.

However, there also are some considerations that may cloud the overall advantages of a white‑label lineup from a participant perspective. For example, asset allocation and periodic rebalancing (two areas many participants have struggled with historically) remain the participant’s responsibility. Figure 4 uses simple hypothetical examples to illustrate the potential pitfalls of poor allocation decisions—or non‑decisions. The table shows the performance of four portfolios, each of them primarily concentrated in either U.S. equities or U.S. bonds, over a 20‑year period ended December 31, 2019. Two of the sample portfolios were rebalanced annually, while the other two were allowed to drift.

(Fig. 3) Participant White‑Label Considerations

As expected, the higher‑equity sample portfolios could have outperformed, although with a higher level of risk. Both of the equity‑based allocations would have produced ending portfolio values that were higher than the predominately bond allocations—9% higher for the rebalanced sample portfolios and 5% higher for the unrebalanced sample portfolios.4

Rebalancing alone also could have added about 4% to the ending portfolio value of the 75% equity/25% bond portfolio over the full period. While rebalancing would have had a flat absolute return impact on the bond‑heavy portfolio, it could have markedly improved its risk‑adjusted return.

The point of this exercise is not to endorse higher equity allocations (although periodic rebalancing is typically advisable for plan participants), but to show the significant impact that asset allocation management can have on long‑term performance. There are many reasons why a participant might desire the more stable stream of returns associated with higher bond allocations, and as long as that outcome is by design, it can be a valid investment choice. However, it seems fair to question how much incremental value will be added by a white‑label framework if participants chronically misallocate among the available investment options.

Another potential concern: Fewer investment options could reduce the lineup’s flexibility to meet specific investor needs. Because a white‑label option may encompass a broad investment opportunity set, the ability of participants to tailor their allocations to their personal financial circumstances could be reduced.


About the increase in the ending value of the 75% equity/25% bond portfolio over the full period from rebalancing alone.

An employee working for a large‑cap U.S. firm, for example, might have a sizable position in company stock that he or she either cannot or does not wish to sell. If a U.S. equity white‑label strategy combines both large‑ and small‑cap stocks, the employee might be forced to carry an undesirable overweight to U.S. large‑cap equities. Furthermore, the participant would be tied to a sponsor’s prevailing investment perspective. If the manager of the white‑label strategy had an especially favorable view of U.S. large caps (using our previous example), then the participant might be forced to carry an even greater overweight to that sector—regardless of his or her personal viewpoint.

These considerations do not necessarily undermine the potential value that could be achieved through white‑labeling, but they do highlight the importance of designing white‑label options and utilizing an implementation framework that will be easy for participants to execute while still being flexible enough to support a wide range of participant needs. Ongoing investment education on asset class‑based portfolio construction and regular rebalancing can better prepare participants.

1 The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, December 2014. Figure is adjusted to count the plan’s entire target date fund suite as a single investment.
2 Sheena S. Iyengar, W. Jiang, and Gur Huberman, “How Much Choice Is Too Much: Determinants of Individual Contributions to 401(k) Retirement Plans,” Olivia S. Mitchell and Stephen P. Utkus, eds., Pension Design and Structure: New Lessons from Behavioral Finance. Oxford, UK: Oxford University Press, 2004.
3 Sheena S. Iyengar and Emir Kamenica, “Choice Overload and Simplicity Seeking,” working paper, 2006.
4 Analysis is based on historical returns. U.S. Equity represents the S&P 500 Index, and U.S. Bonds represents the Bloomberg Barclays U.S. Aggregate Bond Index. In both the no‑rebalancing and the annual‑rebalancing scenarios, the cumulative value premium shows the total end value of the sample portfolio invested over the period in 25% U.S. equity/75% U.S. bonds versus the equivalent 75% U.S. equity/25% U.S. bonds sample portfolio to provide the percent difference in final portfolio value.
Bloomberg Index Services Ltd. Copyright © 2020, Bloomberg Index Services Ltd. Used with permission (see Additional Disclosure). The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). T. Rowe Price’s product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.


White-Label Options in DC Plans: A Framework for Consideration

White-Label Options in DC Plans: A Framework for Consideration
Unbranded offerings can improve plan investment lineups.

Additional Disclosure

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

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