Franklin Templeton is the latest asset manager to turn to financial planning and automated investing technology in a bid to grow its digital presence. The financial services company has partnered with Apex Clearing, owned by private equity and venture capital firm PEAK6, to launch a white-label “turnkey robo advisor,” called Tango, built for financial advisors interested in attracting more business from the mass affluent and “high-net-worth clients of the future.”
It joins an already crowded field of more than a dozen white-label automated advice platforms, or so-called robo advisors, available to the independent advisor and independent broker/dealer sectors. Those offerings come from a mix of asset management firms, banks, custodians, robos and partnerships of the former: all secretive about the assets under management, growth or the lack thereof for their platforms.
With Tango, Franklin Templeton is deploying a customizable automated investing platform with no upfront deployment fees, costing advisors 15 basis points of AUM, on an ongoing basis. The tool uses a default mix of actively and passively managed ETFs, supplied by Franklin Templeton and “larger, well known ETF providers.”
Tango has an “‘out-of-the-box’ implementation” of 10 asset categories, according to Rebecca Radosevich, a spokesperson for Franklin Templeton. However, while Tango can “deploy with a customized investment mix and we are open to exploring those opportunities with advisors,” effectively providing advisors with a customizable robo that utilizes ETFs and mutual funds. “We can engage with a firm’s due diligence team to create their own suite of ten products,” added Radosevich.
The new white-label robo’s heritage can, at first blush, be a bit confusing to follow. It relies heavily on components supplied by both Franklin Templeton and PEAK6. Both firms also have a financial stake in Bambu, the global robo advising platform, which is providing the user interface and code base that forms the foundation for Tango.
Originally a builder of customized robo products, Singapore-based Bambu earlier this year launched its own turnkey white-label robo, with Plaid providing account aggregation, called Bambu Go, and much of its DNA is shared with Tango. It rests on the same chassis, said Ned Phillips, CEO and founder of Bambu.
And it was Bambu’s coders who also implemented Franklin Templeton’s vision for a goals-based asset allocation system, which is called the Goals Optimization Engine (GOE). Apex Clearing provides Tango users with custody and clearing.
“GOE combines Franklin Templeton Investment Solutions’ portfolio construction expertise with dynamic programming to deliver individualized portfolio pathways based upon an individual’s unique goals,” according to a description provided in the Tango announcement. But that does not mean that GOE is recommending products, including Franklin Templeton’s own funds.
The “GOE periodically re-allocates each client portfolio to maximize probability of success over the time horizon of the goal. It dials risk up or down as dictated by the dynamic programming algorithm,” explained Radosevich. “Selecting the products GOE will use as it adjusts the asset mix over time is a completely separate discussion involving the firm’s due diligence team. Ideally, the advisor would inform the client that the products used by the GOE have been thoroughly vetted by the firm’s due diligence team.”
As for the risk questionnaire employed by Tango, the tool has its own default list of questions, but advisors can also customize it with their own questions, she added.
Plenty of competition
Since Betterment for Advisors’ launch in 2014, BlackRock, Charles Schwab, Vanguard, UBS, Fidelity, Goldman Sachs and Empower Retirement—among others—have all launched robo products through some measure of partnership or purchase.
The fierce competition that exists at the intersection of asset management, financial planning and automated investing products—even in the B2B space—hasn’t deterred Bambu’s Phillips or Franklin Templeton. The modular nature of the underlying Bambu technology and Franklin Templeton’s GOE will help set Tango apart from the crowd, said Phillips. Compared with the original Bambu product, which was more customizable but took longer to deploy, Tango is “a ready-to-go digital wealth tool,” he said.
Still, Tango faces head winds. Bambu currently has 300,000 users, globally, with the majority of them living outside of the U.S., according to Phillips. After Tango was announced, Phillips said he was fielding “overwhelming demand.” He declined to indicate how many potential customers he had interacted with following the launch of Tango.
Framing Tango as a play for the mass affluent market is wise, said Sophie Schmitt, a senior analyst in Aite Group’s wealth management unit. Advisors might find the tool to be helpful in converting lower-asset new leads into clients, she said.
However, employing a tool like Tango is not cover for advisors to abdicate their responsibility for ensuring clients understand what they’re getting themselves into, she said. In fact, a need for guidance could end up as the advisor’s differentiator.
“It could be a huge value add for an advisor to point out” the investment solutions being offered by Franklin Templeton, she said. “The advisor could be providing the insight.”
While analysts see Franklin Templeton’s move fitting into a larger narrative of asset managers turning to new sources of revenues as their fees become increasingly thin, worries about conflicts of interest remain.
With the GOE allocating funds, advisors utilizing Tango’s default fund selection will have to defend Franklin Templeton’s design. “If you do robo investing with Schwab, you’ll have mostly Schwab products, ditto with Vanguard. That’s not necessarily a good thing; nor is the lack of transparency into the selection process a good thing,” said Will Trout, director of wealth management at Javelin Strategy and Research. “But that’s kind of the way it is.”
Advisors using Tango should be prepared to disclose how their use of Tango is compensated, if at all, said Schmitt. She pointed to platforms that give advisors discounts on automated investment tech—as long as the advisor uses the platform. While Franklin Templeton is “open-architecture,” it would also be helpful to know the extent of Tango’s investment management products universe, she said.
It’s worth noting that Franklin Templeton, an asset manager perhaps most well-known for its actively managed funds, will be employing passive funds in Tango. Certainly customization is an important selling point for the firm, but whether it is enough to convince advisors to utilize the new tool remains to be seen.