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Practice Management > Building Your Business

Fee-Based Advisors Face Demand for More Services: Franklin Templeton CEO

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What You Need to Know

  • Clients expect services previously reserved for ultra wealthy clients, CEO Jenny Johnson says.
  • Passive investing is threatened, although active and passive both have portfolio roles.
  • Franklin Templeton is interested in three areas for potential acquisitions.

Fee-based financial advisors today are being asked to provide a range of services that extend well beyond handling client portfolios, Franklin Templeton President and CEO Jenny Johnson said this week, citing significant shifts happening in investment management.

“The world has changed with the fee-based advisor where they are no longer just managing people’s investment portfolios, they are expected to provide the services that used to just be (reserved) for ultra-high net worth (clients),” she said this week at the Morningstar Investment Conference.

Advisors are being asked to handle tax efficiency, trust and estate planning, educating clients’ heirs, and at minimum developing financial plans; technology can allow advisors to scale their business, she said. “We invest in technologies to build deeper relationships with (advisor) partners to be able to provide those additional kinds of services,” she said.

At the same time that fee-based advisors are expected to do more, they may be encountering resistance from clients on certain fees. Johnson, who spoke to a conference audience and in a follow-up session with reporters, recounted a scenario that one advisor described to a visiting portfolio manager.

While the Franklin Income Fund is very popular with investors, she said, the financial advisor told the portfolio manager, “I no longer can buy and hold that. I can’t tell my client that they’re paying me every month and holding the same mutual fund for 10 years.’”

The advisor asked if the fund holdings could be delivered in an open, separately managed account, with individual items appearing on the statement — an option previously available only to very wealthy clients, said Johnson. The investments essentially match the Franklin Income Fund, with a completion fund holding certain securities, she said, noting that Franklin Templeton’s technology can support this.

Franklin Templeton delivers its investment capability “in whatever vehicle the client wants to receive it,” one of which has been custom indexing, said Johnson.

Custom Indexing Tools

Johnson expects the firm’s custom indexing software platform will evolve “to being able to take active products where you then open them up, and as far as the advisor’s concerned, the client looks at it and goes, ‘Wow, my advisor’s really active on this, they’re doing all these things,’ but it’s actually just a mutual fund that’s been exposed,” she said. That will free up time for the advisor to build their practice and provide the additional services that clients expect, she said.

Advisors also can apply technology to create tax efficiency and a sustainability tilt “so that people can express whatever their passions are,” she said.  

While a full portfolio needs both active and passive investment tools, Johnson considers passive investing to be threatened now. Passive investing tends to outperform in momentum markets, while active does better in volatile times, she said, likening the difference to buying a no-frills car for driving on a flat road, then hitting mountainous terrain and regretting not having purchased a safer, more expensive vehicle.

Bringing Alts Mainstream

Johnson also sees the need to democratize alternative investments and believes the industry has to “figure out a way to responsibly bring alternatives to the wealth channel because of the excess returns that have existed.” (Franklin Templeton’s assets under management include a significant share of alternative investment products, she noted.)

Approximately half the number of public equity companies exist now in the U.S. compared with 2000, while there are five times as many private equity-backed firms now as there were then, Johnson noted. Private companies now take 11 years to go public, compared with three years in 2000, she added. That means the upside has accrued to private rather than public markets, according to Johnson, who also noted a massive amount of private credit serving corporations and consumers.

Figuring out how to bring those types of investments responsibly into the private market is  important, she said. 

“I am a big believer in financial advisors because I think that somebody not only has to be the therapist in the difficult markets but has to calm people into staying disciplined,” and in managing private assets, that means appropriately allocating the portfolio percentage to what the client can withstand, said Johnson.

Future Acquisitions

As for its own future, Franklin Templeton considers three areas appealing for potential acquisition deals, including technology firms and companies that could help it expand its wealth business, said Johnson. The firm also is interested in filling gaps in products, which could be tied to a geographic region.

“People have always allocated about 75% of their portfolio locally. So if you were a global manager you were always playing in the 25% that might have gone to global products,” she explained. “The prediction is that number is moving up to 85%. You at minimum have to be in  the region — Asia, Europe, U.S., Latin America — for the big flows, and so if we don’t have that capability, we might look for a bolt on transaction there.” 

Office Work ‘With a Purpose’

Touching on the future of work in financial services, Johnson said it’s important to respect employees’ time when expecting those who’ve been working from home during the pandemic to return to the office.

“The war for talent is over and guess what? Talent won,” she said. Employers that expect employees to come to the office on certain days need to provide a good reason for them to do so and not have them just sitting in a cubicle, she added. Those who ignore the issue will lose talent, she said.

Employees commuting 90 minutes each way into New York City, who know they can work efficiently at home, need to have “presence with a purpose” at the office, she said. On the days when employees are required on site, managers  “have to make sure that that’s the day they are going to have interactions,” she added. “Make it worth people’s time to come in.”

Johnson considers human interaction important to retention and thinks employees need to come to the office two or three days a week — or more days one week and fewer the next.

Pictured: Franklin Templeton CEO Jenny Johnson