Morgan Stanley Adds Franklin Templeton Model Portfolios
In the latest example of large firms’ efforts to centralize their brokers’ investment management activities, Morgan Stanley Wealth Management has added model portfolios from Franklin Templeton Investments to those of eight other outside companies on its “select” unified managed account platform.According to independent research firm Cerulli Associates, about 12% of the 350,000 financial advisors in the United States are now fully outsourcing portfolio construction to asset managers and wirehouses’ home-office research and outside-manager due diligence teams. Brokerage firms encourage model portfolios because they receive hefty fees from asset management firms whose products they sell and have stronger compliance, sales and marketing controls over advisors who use centralized portfolios.
UMAs are professionally managed “wrap” accounts generally offered to high net worth investors as semi-customized alternatives to broader mutual fund investments.
A Morgan Stanley spokeswoman declined to comment on the selection process for the company’s UMA platform or on compensation it may receive from the model providers.
A Franklin Templeton spokeswoman confirmed the affiliation with Morgan Stanley, which was formalized in August and posted on a wirehouse website this week, but declined to discuss financial details of the arrangement.
Franklin Templeton has added six model portfolios—Income, Tax-Advantaged Income, Growth & Income, Growth & Enhanced Income, Tax-Advantaged Growth & Income and Quality Income—to the wirehouse platform. They are comprised largely of its own mutual funds and exchange-traded funds products, and selection is overseen by Ed Perks, chief investment officer of Franklin Templeton’s multi-asset solutions group, a spokeswoman said.
While they are the San Mateo, California-based firm’s first model portfolios offered to Morgan Stanley’s 15,700 brokers, Franklin Templeton since 2013 has sold three “separately managed accounts” through them. The SMAs, which are included in the UMA platform, invest in intermediate municipal bonds, intermediate fixed income and small-cap growth stocks, according to a Morgan Stanley website.
Third-party asset managers pay Morgan Stanley a platform fee of 0.01% to 0.10% of assets per year held by brokerage firm clients, according to a revenue-sharing disclosure document from the wirehouse. Morgan Stanley and other large distributors also charge other administrative service and research fees to asset managers. For example, funds can pay Morgan Stanley up to $600,000 per year for data analytics packages that help target individual brokers who sell or may be interested in particular fund products.
Morgan Stanley two years ago stopped selling Vanguard Group funds because of the asset-management giant’s refusal to pay for so-called “shelf space” and access to the firm’s brokers. Vanguard does not pay for distribution in order to keep fund costs low, a spokeswoman said at the time.
Merrill Lynch, among other firms, also does not sell funds from Vanguard and other fund companies that do not pay the fees.
The eight fund companies already on Morgan Stanley’s UMA platform are American Funds, BlackRock, Columbia Threadneedle Investments, First Trust Portfolios, JP Morgan Asset Management, Legg Mason Global Asset Management, Naxtis Investment Managers and Pimco Investment Management.