Templeton adds new European sales channels

Franklin Templeton has long been a leading investment brand in both the US and Asia, where its star emerging markets fund manager, Mark Mobius, was featured in a high-profile television advertising campaign for much of the 1990s.

But despite having been available in Europe for the past 15 years, the Franklin Templeton brand has failed to make the kind of impression it did across the Atlantic.

To date, there has not been a concerted, pan-European push. But there has been a large measure of success in selected geographical pockets.

In Germany, Templeton has established itself as one of the 10 largest asset managers. But even there, strategists are aware that the US house should not rest on its laurels, and must keep well on top of the fast-developing Teutonic distribution market.

Boutique channel

In order to “fine-tune” its German sales strategy, Templeton has begun to market its funds through the new distribution channel of boutique wealth managers.

“Traditionally, independent asset managers have been focused on investing in direct equities and bonds for client portfolios,” says Hans Wisser, the group’s managing director for Central Europe. “But over the past 18 months, they have started adding third-party funds to their portfolios.”

Typically, only about 20 per cent of the portfolios managed by these wealth houses are invested in funds, with normal minimum investments of €500,000.

This is a very different picture to when Templeton began selling funds in Germany eight years ago, when 99 per cent of its funds were distributed through independent financial advisers (IFAs). “Now only 25 per cent of funds are sold via IFAs,” reveals Mr Wisser, with 75 per cent funnelled through banks, insurance companies and funds of funds.

Although he is pleased with the firm’s overall achievements in Germany – Templeton has the best-selling foreign funds and is ranked seventh of all fund management groups in the country – he wants to boost his market share from the current 2.7 per cent.

The move towards guided architecture, where banks now recommend a limited number of external providers, has its roots in Germany, and Mr Wisser believes the trend will help drive consolidation among both domestic and cross-border asset managers.

“A relatively few asset managers will attract the majority of net inflows,” says Mr Wisser. “In each market, there will eventually be around five or six domestic fund groups and three or four international asset managers receiving about 90 per cent of inflows. “Under guided architecture, the seven or eight external asset managers will largely be the same companies in each case. This will mean there will have to be consolidation among smaller asset managers.”

This diversification of Templeton’s sales channels, in line with the maturing of European distribution models, is also taking place elsewhere on the continent, reveals Mr Wisser.

In the 12 months to September 2004, sales in Italy increased by 150 per cent and they grew by 70 per cent in France.

“Previously, we had focused on funds of funds in these markets, but assets tend to stick less than for other distribution channels. Over the past 12 months, we have expanded our strategy to include private banks and discretionary managers.”

In France, Templeton has started to sell via financial advisers, almost unheard of in a market traditionally dominated by banks and insurance companies.

While funds of funds may require few resources to support sales, this does not make them the most profitable distribution routes, says Mr Wisser. “The most profitable channels are those where investments remain for a long time. Funds of funds inflows tend to be the most volatile. Money sticks in those channels where investors receive advice. In Germany, for example, we have done well out of the insurance companies because there are tax incentives for investors to make regular payments over many years.”

UK Hopes

While the German operation has seen the strongest historical sales, it is in the UK where Templeton is pinning its highest hopes for a dramatic growth story. The changes here have been immense, if not so well-documented.

When Templeton established a London office 15 years ago, the idea was to make this the hub of Templeton’s pan-European operation. But despite these European pretensions, like many competitors, the house initially focused on the offshore market in the UK by selling its Luxembourg Sicav range of open-ended funds to discretionary managers. The Sicav currently encompasses a range of 44 funds. These continental-style funds proved difficult to market in the UK.

Templeton later launched two Oeic funds domiciled in the UK (Templeton Growth and Franklin Biotechnology), but the greater emphasis was still on the Sicav. “The decision was taken to focus on the Sicav, which could be transported across Europe rather than set up domestic ranges in multiple countries,” says London-based managing director Jed Plafker.

But 18 months ago, there was a change of heart, following a strategy review and Templeton decided to start actively marketing a specialist fund range in the UK. It added another six funds to the UK Oeic range and plans to launch another six over the next few months.

Having just broken through the $1bn (€810m) barrier in UK assets, Vijay Advani, executive managing director of Franklin Templeton International, to whom Mr Plafker and Mr Wisser report, has set a target of between $10bn and $20bn in assets over the next five years. Worldwide, Franklin Templeton runs $351bn. It would not supply European figures.

According to Mr Plafker, the UK is the only European market in which there is a need for a domestic fund range. This is partly because 60 to 70 per cent of retail fund sales are via IFAs. One reason for the optimism about the UK is the imminent arrival of depolarisation, which will make it easier for banks to sell third-party products.

“We believe this will be good for us because we already have distribution relationships with many banks, such as HSBC and Citigroup, on a global basis,” reveals Mr Plafker. “Furthermore, we have a support structure across Europe to help train and educate bank staff in selling funds to customers.”

The support, training and global presence are important factors in being selected by banks across Europe, says Mr Plafker. “We operate in 60 markets by having a physical presence in 30 countries. We can support banks in virtually any country in which they have customers. “The other attraction is the comprehensive fund range we offer. This has become more important as banks across Europe have started to move from open architecture to guided architecture as they realise having a list of hundreds of funds is difficult to manage.”

The past 15 years have not been without mistakes, says Mr Plafker. “It is a shame we did not start actively selling funds in the UK earlier than 18 months ago. But at the time it was thought best to focus on the Sicav, particularly selling in Germany. Elsewhere, perhaps, we tried to grow too fast in some markets. We also started our Sicav range with one share class, although we realised it was vital to build a comprehensive range with different share classes and pricing.”

Mr Plafker claims sales have also been increasing in other markets, as distributors have expanded their fund ranges to include third-party providers. “Spain, for example, has moved towards open architecture in the past couple of years and we have built good relationships with BBVA and Banco Santander,” he adds.

The distribution team also points to Scandinavian local banks, which have moved to a guided architecture model. These institutions are now adopting funds of funds as a protective mechanism, to ensure there are some flows into their own funds in addition to third-party products.

Internet access

Particular success has been achieved selling funds via Kaupthing Bank, based in Iceland but with branches in Finland. Templeton is also accessing financial advisers in Scandinavia via Internet platform Mina Fonder.

While Mr Plafker identifies Germany and the UK as offering the best growth prospects for Templeton over the next five years, he is eyeing Eastern Europe as the next phase of its expansion.

“We have funds registered in the Czech Republic, Estonia and Latvia but we also see opportunities in Poland and Hungary. These markets are dominated by local banks and their proprietary funds but they will open up and cross-border banks will expand there.”