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Franklin Templeton Riding Convergence Wave as It Integrates Putnam

And why that’s important for RPAs and wealth advisors.

Though the defined contribution division of Franklin Templeton after the acquisition of Putnam is relatively small accounting for just $100 billion of their $1.5 trillion, like with many assets managers, it is still critical. Now led by Yaqub Ahmed, who will focus on the institutional market, and Steve McKay from Putnam leading the advisor sold segment, they are well positioned to leverage the convergence of wealth and retirement at the workplace.

The DCIO market is tough and getting tougher (Transamerica just exited, following Hartford Funds last year)— the majority of assets now flow into target date or index funds or proprietary investments of record keepers. The costs continue to rise for record keeper placement as well as for broker/dealers and RPA aggregators for access to their advisors. Yet ignoring the almost $22 trillion in DC plans and IRAs in the U.S. alone is a losing strategy recognized by leading money managers like Fidelity, Blackrock, Capital Group and Vanguard.

There are six DCIOs with deep roots in the advisor market that enjoy a top position in at least one of the key categories and only Vanguard has all three—indexing, TDFs and record keeping. Yet there are almost 50 DCIOs calling on advisors, record keepers and broker/dealer home offices because the profit margins are insane as much of the cost of creating and managing the assets as well as compliance and infrastructure are sunk—most have fewer than 10 field wholesalers compared to 10 times that number for retail.

DCIOs play a vital role in the ecosystem of 401(k) and 403(b) plans but have the least access to clients, either plan sponsors or participants, with the importance of asset selection diminishing as asset allocation and now personalization rising. The focus on costs, the one controllable factor, and fiduciary liability has led to the exodus from active investments. Annuity and guaranteed income providers, once very popular in DC plans, are hoping retirement income takes off though adoption has been slow.

So while the new Franklin DC segment led by Ahmed and McKay is global and also oversees insurance, fintech, 529 plans and alternatives includes over $500 billion or one-third of their total assets, there is still work to be done in the DCIO segment. Both leaders are squarely focused of riding the convergence wave as RPAs race to provide wealth services to participants in their plans and wealth advisors look to DC plans to find more wealth clients.

Most experts predicted massive layoffs as Putnam and Franklin merged, especially in the field but the new team has 13 external wholesalers with seven focused on aggregators and top tier RPAs with the other six focused on the non-specialists hoping to leverage the 100 retail wholesalers. There has been little if any reduction of home office professionals.

While only a handful of asset managers can be a top TDF manager, indexer or record keeper with almost no chance for a new entrant, firms like Franklin that have significant relationships with wealth advisors and a strong wholesaling force can become real DCIO winners. And the opportunity to leverage the convergence of wealth and retirement at the workplace working through the 275,000 non-specialist advisors compared to 12,000 RPAs is literally unlimited and more lucrative.

Though early days, McKay and Ahmed see the potential in leveraging the convergence of wealth and retirement, as well as the move to personalization through their Goal Oriented Engine deploying their asset allocation capabilities. Their ACES program, Franklin Templeton Academy, recent partnership with TIFIN to deliver simple financial planning to the masses, and their world class value add recognized in consecutive years by Industry Awards are tangible ways they can help both RPAs and wealth advisors to ride the convergence wave.

Critical to their success with be the Franklin DC group’s ability to effectively work with their 100 retail wholesalers, which is the job of six of the 13 external wholesalers. Along with traveling with their retail partners, Franklin is trying to align compensation for these 100 wholesalers. The challenge is these sales people have a myriad of products to sell—how can the DC group elevate their products and services to make them a priority?

Scale in the DCIO market, while important, is not as critical as with advisors and record keepers. Along with a unique relation with Empower, whose parent now owns 6% of Franklin as a result of the Putnam acquisition, they will have carved out a new attribute that could define success in the increasingly tough DCIO market by leveraging the convergence of wealth and retirement which, along with American Funds, they are well positioned to do and could be critical to enable RPAs’ race to wealth and the growing interest of wealth advisors in DC plans as plan growth explodes.

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