By Jayson Forrest - Managing Editor  - IMAP Perspectives

However, James concedes that to achieve this digital advice transformation is a huge undertaking for any organisation, and one that Franklin Templeton has not been able to accomplish alone. This has led the global funds manager to develop either commercial partnerships or strategic part ownership of some businesses to help it achieve its digital innovation objectives.  

One such business that Franklin Templeton acquired a part ownership stake in through its acquisition of Legg Mason is Quantifeed - a company that specialises in developing wealth management technology for financial institutions. Quantifeed builds institutional-grade technology, which is deployed across some of the largest financial institutions in Asia.

“One of the more regular things we get asked about by Australian-based advisers is: ‘How can Franklin Templeton help build client experiences and technology for the mass affluent?’ Well, that’s precisely what we have been working on with Quantifeed in Asia,” James says.

The CEO and Co-founder of Quantifeed, Alex Ypsilanti, believes the ‘mass affluent’ market presents a significant opportunity for financial services companies and advisers. Putting the scale of the mass affluent market into perspective, Alex says approximately two-thirds of the global middle class will be living in Asia by 2030. And in terms of total assets of the mass affluent, the Asia-Pacific region is expected to grow to US$37 trillion over the next five years.

“This is a huge market and the only way it can be efficiently serviced is through digital enablement, whether that’s directly to the consumer or through advisers,” Alex says.

He adds that technology has the potential to massively disrupt wealth management, particularly in the DIY or self-directed channel.

“We believe technology can take wealth management products and turn them into solutions that are more efficient and scaleable for the financial services institution, and also more accessible, affordable and personalised for the consumer.”

However, in order to do that well, Alex says financial institutions need to first focus on the end-client, particularly in terms of how they engage with them in the early part of their wealth management journey.

“In our experience, most people, particularly Millennials, want to be engaged digitally and in a way that really matters to them. This includes via their personalised goals, like educating their children, or it can be through their personal values, like ESG or ethical investing.”

Therefore, Alex believes it’s essential that financial institutions focus on the client experience, including identifying what personally matters to the client and then matching their goals and objectives to suitable investments.

“If this is done correctly, then the digital portfolio management channel becomes credible and helps advisers become much more productive,” he says. “It reduces the need for high-touch advisory services and allows advisers to focus on areas where they add value, such as reinforcing the client relationship.”

Alex shares the case study of digiPortfolio - a platform that leverages the concept of digital portfolio management, which is powered by Quantifeed. It was launched by DBS - a Singaporean multinational banking and financial services corporation - as a digital offering that seamlessly matches customers with investment portfolios that are designed for their risk tolerance and needs.

According to Alex, digiPortfolio is a good example of using technology to scale an existing business. By using technology, the DBS Bank’s portfolio management team has a channel that allows it to distribute investment portfolios digitally to the retail clients of the bank.

“The other thing that DBS did well with digiPortfolio was the seamless combination of human expertise - the discretionary portfolio management team - and robo technology. These two elements came together well, and that enhances the overall client experience,” Alex says.

“So, given that the digiPortfolio proposition was targeted at first time customers, DBS did a great job at getting the client experience right. It was about simplicity, speed and delivering a service that was relatable to the end-user.”

Alex says by leveraging a business’ existing technology, an organisation, like DBS, can take an existing business model, and then by introducing a digital channel, is able to scale that business to grow its revenue.

“It’s a great example of how financial institutions can create digital alpha,” he says.   

With its focus on digital enablement, James says Franklin Templeton has also been rethinking its framework around saving and investing in two ways:

1. By building its intellectual property (IP) and expertise around wealth accumulation; and
2. By helping people spend their wealth in retirement (de-cumulation).

“For us, this framework to accumulating and spending wealth is about bringing the different components of wealth management together, in order to provide a better and more personalised solution for clients,” James says.

One example of what Franklin Templeton has been working on is goals-based investing. According to James, the fund manager has taken a slightly different stance to the traditional approach of goals-based investing.

“We believe the connection between a client’s goal and their risk profile can be far greater. So, we think about risk not just in terms of the underlying vehicles or the securities, but also the risk of not achieving the goal,” James says.

“As a result, some of the IP we’ve built within Franklin Templeton, and are now deploying in the market, focuses more on creating a higher degree of certainty of achieving that goal. We do that by tailoring the asset allocation as the client’s journey towards their goal progresses.”

According to James, while the traditional approach to investing targets a specific risk/return level to arrive at a portfolio, Franklin Templeton’s Global Optimisation Engine (GOE) does things differently, by targeting a probability of success, then shifting the portfolio allocation as markets change and the goal approaches. The GOE framework can be integrated into an existing adviser’s platform.

And what if a client has multiple goals? That’s also something Franklin Templeton is looking at.

“We’re also thinking about how to optimise a client’s financial plan if there are multiple goals, which is likely over a 20-30 year time horizon. Clients may even have different attitudes to achieving those goals over that time period.

“Therefore, if you have a collection of different goals, how does the adviser and client have the conversation about prioritising the financial plan on an ongoing and dynamic basis? We see ‘multi-goals optimisation’ being a great opportunity for advisers with their clients over the coming years,” James says.

And while Franklin Templeton has developed plenty of IP around creating wealth, it is also working with Quantifeed to develop technology solutions that target the wealth de-cumulation phase of clients. According to James, the funds manager has identified an opportunity that brings technology, IP and investment capabilities together to provide clients with a personalised retirement income solution.

Alex agrees, saying Quantifeed has been focusing on retirement income solutions and wealth de-cumulation, which is becoming more necessary in markets, like Australia, where the population is ageing.

“The de-cumulation problem is quite interesting because you’ve got two competing objectives,” says Alex. “On the one hand, you want to maximise the retiree’s wealth in retirement, but at the same time, you want to ensure the retiree doesn’t run out of money before they pass on.”

He points to an interesting industry statistic which shows that most retirees still have 80 per cent of their pre-retirement savings available to them two decades after they retire.  

“The other interesting point concerning de-cumulation is the actual size of the market. For example, 75 per cent of Baby Boomers and the Silent generation in the U.S. represent US$107 trillion in household wealth. De-cumulation is a huge opportunity for advisers but a difficult problem to solve for the financial services industry.”

Alex believes adviser conversations around de-cumulation requires a more personalised approach, compared to accumulation, as retirees generally will have very different levels of wealth and spending requirements, therefore requiring a different approach to their retirement planning.

Alex adds that the other element that makes de-cumulation and retirement income solutions interesting is the actual makeup of retirees, with the current cohort of retirees typically less technologically savvy, making it more necessary to service retirees through an adviser.

“Retirement is something that is nuanced, particularly in markets like Australia that has a complex tax regime, and it’s often fraught with emotions. Being able to digitally enable advisers to help them with their clients’ retirement income strategies will become increasingly critical,” he says.

According to Alex, the way that Quantifeed has provided a solution to the de-cumulation issue is by using technology to bring together three components of the retirement ecosystem on the single digital platform. They are:

1. Retirement analytics: An analytical solution delivered to an adviser’s platform via an application programming interface (API), creating personalised
   
   
2. Integrated journeys: Bridging the retirement income with the investment solution, providing clients with an intuitive retirement incomes journey.
   
   
3. Model portfolio solutions: Open investment architecture, providing clients with institutional capability across multi-asset retirement solutions.

“What brings the retirement analytics and investment solutions together is the digital journey; technology that can take the client, with the help of the adviser, from a set of inputs, which leads to an investment proposal, and then to the implementation of the client’s investment portfolio.”

An example of the implementation of this retirement ecosystem is a retirement income framework that has been developed by Legg Mason called DRIVE. The system provides personalised advice, including for the investment portfolio, while providing the recommended optimal amount that the retiree should be drawing down each year.

“We bring this together through Quantifeed’s APIs and a powerful front-end, which can be integrated with an adviser’s system and allows the adviser to provide advice, generate a proposal, and within a few clicks of a button, execute the investment portfolio. The system also allows the client to review their investments on an ongoing basis and collaborate with their adviser digitally,” Alex says.

According to James, Franklin Templeton is excited by the opportunity of being able to work collaboratively with other companies, like Quantifeed, on digital initiatives that provide advisers and their clients with enhanced product solutions.

“The collaboration between an agile, innovative technology company and a large global asset manager, can provide creative solutions that will enhance the service offerings of advisers, as well as the overall client experience,” James says.

“The collaborative work Franklin Templeton is doing with Quantifeed, clearly shows this is the future of financial services and a great way of creating digital alpha.”

James Verner is Vice President of Digital Strategy and Wealth Management at Franklin Templeton, and Alex Ypsilanti is CEO and Co-founder of Quantifeed.