Franklin Templeton builds on its tech for 401(k) managed accounts

Franklin Templeton has been partnering up with several firms on its Goals Optimization Engine, an indication that the company sees much more potential in adviser managed accounts and model portfolios.

Earlier this month, the San Mateo, California-based company announced that is working with Stadion Money Management to provide technology and consulting for that service. That followed the news a month earlier that Franklin had made an investment in vWise and would collaborate with the firm “to integrate technology, predictive analytics, behavioral finance insights and a personalized investment solution” in defined-contribution plans.

Franklin Resources CEO Jenny Johnson last year alluded to the potential for managed accounts to become a major component of DC plans, specifically for retirement income.

The first plan provider to use Franklin’s Goals Optimization Engine, or GOE, within its managed accounts program is Vestwell, which announced an arrangement with the company at the beginning of the year.

As a cloud-based record keeper and managed accounts provider, Vestwell is unique, said Deepak Agrawal, vice president of digital strategy and wealth management for the U.S., Canada and global fintech at Franklin. The companies are looking at joint distribution opportunities, Agrawal said.

Vestwell's managed account service recently became available to plans, and some businesses working with Strategic Retirement Partners, Payroll Service Solutions and another RIA aggregator have signed up, CEO Aaron Schumm said in an email. Vestwell is adding about 50 plans per month "that are leveraging managed accounts and expect[s] that to continue to increase," he said.

Franklin has been working with NextCapital for about a year to integrate GOE into a discretionary managed advice service for DC plans, which is similar to what it is doing with Stadion, he noted.

“Workplace is a core strategy in terms of offering these solutions,” Agrawal said. The company is also looking at potential partnerships in other parts of the market, he noted.

With vWise, GOE will be used to build model portfolios for large retirement plans.

Adviser managed accounts, such as Vestwell’s and others that could be supported by Franklin’s methodology, have been growing in the 401(k) world largely thanks to RIA aggregators, such as Captrust, SageView, OneDigital and Pensionmark, according to a recent report from Cerulli Associates. For advisers, the managed accounts represent a potential bridge that helps retirement plan participants become wealth management clients, the report noted.

Among 401(k) and IRA owners, 29% rely primarily on resources available through their providers for retirement advice, Cerulli found in a recent survey. By comparison, 20% of workers said financial professionals such as advisers are their primary source of retirement advice.

Less than a quarter (23%) of DC plans include managed accounts, according to Cerulli. Their use is far more common in the largest plans, with 44% of those with at least $250 million in assets offering managed accounts.

Franklin’s GOE, which is open architecture for the investments used within it, is provided through wealth management software firm AdvisorEngine, which Franklin acquired in 2020.

The software uses an algorithm to make asset allocations, using data on individual workers, as well as capital markets assumptions and research.

Franklin is considering a way to build cohorts of workers that the technology could be applied to, meaning that the asset allocation could also be semi-custom, rather than just individual, making it more scalable, Agrawal said.

“People engage in things that are relevant to them. And typically things are relevant to people when they are connected to their personal circumstances,” said Felix Touchard, vice president of retirement, education and digital marketing at Franklin.

“This is going to be the new expectation in the retirement marketplace,” Touchard said. “We have a chance to reach a market that so far has been underserved in the workplace, which is the new financial hub for many Americans.”