How good are the alternatives?

For advisors considering whether and how clients should take advantage of President Donald Trump’s executive order expanding access to alternative investments in 401(k)s, the verdict is split. Retirement plan recordkeepers and the Trump administration’s Department of Labor have praised the move, while industry experts and advisors warn it could lead to confusion, conflicts of interest, and harm to clients whose money moves into less-stable investments they don’t understand.

Alternatives aren’t prohibited in 401(k)s but have historically been rare due to their risks and laxer regulation. Their inclusion in the past has sparked numerous lawsuits under the Employee Retirement Income Security Act, alleging plan committees breached their fiduciary duty to act in clients’ best interests. The order aims to reduce “burdensome lawsuits” and “regulatory overreach,” offering participants greater access to private equity, private credit, cryptocurrencies, commodities, infrastructure and real estate.

Will this deliver great private market returns for clients, or open the door to conflicts? “It’s another windfall for Wall Street at the expense of retirees,” Randi Weingarten, president of the American Federation of Teachers, told Advisor Upside.

In the Record Books

Empower, one of the largest recordkeepers with roughly $2 trillion in assets under administration, welcomed the order. “By opening the door to additional types of assets, we can offer everyday savers access to the same opportunities that have historically powered institutional portfolios,” company CEO Edmund Murphy III said in a statement.

T. Rowe Price echoed the sentiment: “Reducing unnecessary litigation is an important step toward helping plan sponsors focus on delivering the best investment options for plan participants.”

Got a Bad Feeling About This

Industry veterans are less enthusiastic. Highlighting alternatives’ illiquidity, high costs, and opaqueness, Knut Rostad, president of the Institute for the Fiduciary Standard, said it’s “breathtaking” how little the administration understands advisor responsibilities. “This represents a frontal assault … on the heart of what fiduciary means,” he said in a Friday webinar.

Phyllis Borzi, former assistant secretary for the Employee Benefits Security Administration under President Obama, warned of potential conflicts of interest, with brokers and consultants receiving high commissions to push smaller employers and participants toward alts. She also questioned the timing, noting widespread concerns over Americans’ low financial literacy. “You can’t go to any convention or meeting in the investment world … without people talking about the severe lack of financial literacy among many participants and plan sponsors,” she said during the Fiduciary Institute webinar.

Risky Business. For smaller, independent RIAs managing 401(k)s, expanded alt access may not move the needle, since many already see them as too risky. N Financial Plans Founder Amir Noor likened it to a client who recently asked about investing $100,000 in a liquor store: “It’s far more likely that a liquor store is going to close instead of Amazon, so I’d rather just buy shares of Amazon.”

The president’s audacious firing of the head of the Bureau of Labor Statistics may not cause asset managers to mistrust government data — but much depends on who gets confirmed as successor for the agency.

President Donald Trump last week shocked economists, market watchers and the wider financial services world when he announced the firing of BLS head Erika McEntarfer (no small accomplishment amid rumors of a UFC fight on the White House lawn next year). Trump disputed revisions to recent jobs reports, which he claimed were manipulated for political purposes, despite citing no evidence. The announcement called into question the future independence of BLS data, and perhaps government data more widely, which could have implications for asset managers.

“It’s a potentially serious problem. It’s kind of surprising to me that the markets haven’t responded with the horror you would expect,” said Hal Ratner, head of research at Morningstar Retirement.

Revisionist History

It is common for the BLS to revise numbers in its reports, given that the initial figures are estimates based on early survey data. The changes it made Aug. 1 to jobs numbers in May, June and July dramatically cut the payroll numbers it reported earlier, representing the biggest revisions the agency had made to reports since 1968, Ratner noted in an analysis piece. However, the changes brought the figures in line with what economists had been predicting, as the tariffs had been expected to make employers uncertain in the near term and less likely to staff up, he said.

McEntarfer’s firing amounts to “shooting the messenger,” as the BLS has historically operated without political pressure, Que Nguyen, chief investment officer of equity strategies at Research Affiliates, said in a statement. “This is a culture and a process that has been embedded in the agencies that measure our economy. This culture is not easy to change.” Investors use a variety of indicators, especially given that initial BLS data are subject to revisions, Nguyen said.

BLS reports are critical to gauging inflation and setting rates:

• The jobs data help inform the Fed funds rate. Despite Trump’s claims about the revisions being rigged, the lower numbers help support a rate cut.
• The Consumer Price Index numbers released on Tuesday by the BLS showed annual inflation being relatively steady in July, at 2.7%.

Heritage Hire: On Monday evening, Trump announced on social media that he would nominate Heritage Foundation economist and Project 2025 contributor E.J. Antoni, who has been critical of the Fed and of BLS data, as McEntarfer’s replacement. Trump wrote that “our economy is booming, and E.J. will ensure that the numbers released are honest and accurate.” That statement isn’t the sentiment observers were hoping for, Ratner said. “Antoni is much more the political operative than the serious economist,” he said. “My hope is that he doesn’t clear Senate confirmation.”

Shrinkflation has hit Omaha in more ways than one.

Berkshire Hathaway shares fell 3% on Monday after the conglomerate revealed a multibillion-dollar writedown on its investment in Kraft Heinz, the packaged food giant dinged by critics in recent years for shrinkflation — or reducing portion sizes — and whose shares have tumbled 12% this year. With just five months until legendary CEO Warren Buffett is slated to step down, the results also suggested there’s room for him to pull off one last move before retiring to a life of Dilly bars and Coke.

Stubborn

First, there’s what’s gone wrong at Kraft. When Berkshire invested in motorcycle manufacturer Harley Davidson in 2009, Buffett explained: “I kind of like a business where your customers tattoo your name on their chest.” And packaged food, no matter how addictive, doesn’t have brand loyalty on par with how hirsute bikers feel about their hogs.

Berkshire said it took a $3.8 billion impairment charge for its investment in Kraft Heinz, with its stake written down to $8.4 billion from roughly $17 billion in 2017. The investment, which now looks like a rare swing and a miss for Buffett, looked reasonable when Berkshire lent Kraft a hand when it bought Heinz in 2015. But the 2020s have brought years of high, compounded inflation weighing on shoppers; at the same time, some 12% of Americans say they have taken GLP-1 diet drugs, which reduce junk food cravings. The S&P 500’s packaged foods and meats index is down 5.5% this year, with Kraft Heinz competitor General Mills notably down over 20%. But that one blip doesn’t explain Berkshire’s tumble on its own:

• Buffett has said repeatedly in recent years that he thinks the stock market is overvalued — that would appear to be his view of his own company, which trades at about 1.5 times its book value, as Berkshire didn’t make any stock buybacks in the second quarter, something it’s held off on since May 2024. Overall, Berkshire was a net seller of stocks for the eleventh quarter in a row, selling $6.9 billion and buying $3.9 billion in an affirmation of Buffett’s view that things are a bit pricey.
• Buffett has kept his powder dry in search of a deal worth it to him, which has inflated Berkshire’s cash levels, which rose $10 billion from the first quarter to $344 billion in cash and equivalents as of the end of June. That means Buffett has plenty to spend on, say, CSX, which Berkshire reportedly wants to acquire to pair with its BNSF Railway in order to compete with the pending merger of Union Pacific and Norfolk Southern that would create a transcontinental rail giant.

Taking Care of Businesses: Berkshire’s stock has slipped more than 13% since Buffett announced in May that he would step down at the end of the year, handing the reins to Greg Abel. While some have reasonably speculated Berkshire could lose its so-called “Buffett Premium” when he retires, he’s leaving behind a resilient business anchored in fundamentals, the very kind of company the Omaha Oracle himself is known to fancy. Berkshire’s profit fell 4% year-over-year to $11.1 billion in the second quarter, mostly the result of a 12% decline in profit from insurance underwriting — which could be hurt by tariffs if auto parts become pricier and increase claims costs — but profits at the conglomerate’s energy, manufacturing, railroad, and retailing businesses all rose.