Products August 24, 2021

Stadion Technology to Provide Personalized Managed Accounts for Franklin Templeton

Stadion credits the rise in personalization as the motivation behind its partnership with Franklin Templeton.

Reported by

Franklin Templeton and Stadion Money Management have announced they have entered a partnership aimed at delivering personalized participant managed account solutions in the defined contribution (DC) marketplace.

Through the partnership, Stadion, a retirement plan managed account provider, will deliver technology and consulting services to support Franklin Templeton’s goals optimization engine (GOE), which offers personalized investment solutions to retirement plan participants.

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Todd Lacey, chief revenue officer at Stadion, spoke about the motivation behind the partnership in an interview with PLANADVISER.

“In the past couple of years, we’ve seen a lot of demand from different firms in the industry that want to offer a managed account service inside a retirement plan,” he said. “In order to do that, they need the tech to deploy that managed account to a recordkeeper. [Franklin Templeton] developed its own offering and it needed a tech partner to support that so the firm could distribute it through different recordkeepers.”

According to Franklin Templeton, GOE delivers individualized portfolio pathways based on a participant’s goals. With the ability to handle multiple investor goals, GOE uses probability of success as the driver for the initial asset allocation and each reallocation to maximize the likelihood of achieving the goal. Portfolio paths further adapt to client changes and market events. To enhance the GOE product, Stadion Technology will provide consulting and technology to advisers and asset managers entering the managed account and participant advice space.

Lacey says the growing trend toward personalization in retirement accounts motivated the partnership between the two firms. Rather than investing in a target-date fund (TDF) or selecting an all-purpose approach to investing, more participants are reaching for a tailored design, he says.

“Participants have clearly expressed a desire to have a more personalized experience, and we get that. Historically, retirement plan participants have not had access to personalization,” he notes. “They’ve had to select their own investments, and they’ve been pointed to a TDF, which is a one-size-fits-all option that’s based on age only or retirement date only, so that’s how it’s been done for years.”

He says managed accounts and an interest in more personalized approaches also tie in to the rise of digitalization and participants’ desire to manage their retirement accounts and investments on an online platform. With Stadion’s technology, for example, participants can add outside assets, risk tolerance or other key components about themselves that then allow Franklin Templeton to design a more tailored portfolio.

“Managed accounts have become more prominent because people not only want, but expect, a personalized experience,” Lacey says. “That comes in the form of a managed account, but it can also include the broader digital experience that a participant may have.”

Looking forward, Lacey says he anticipates a further rise in personalization from employers and large-to-mega 401(k) providers. “This is further evidence that personalization is here and more of it is coming,” he says. “We’re just excited to be [Franklin Templeton’s] technology partner and to see how this grows.”

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The Markets August 23, 2021

Investors Favor DEI Investments

Participants in a Morningstar study showed a higher preference for socially responsible funds than they did for traditional investments.

Reported by

Amanda Umpierrez

A recent Morningstar study found participants may be willing to trade in return gains for the opportunity to invest in socially responsible funds.

The report found that although survey participants strongly favored funds with high five-year returns, they preferred funds or asset managers with both strong financial metrics and high diversity, equity and inclusion (DEI) or gender equality scores.

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For the study, Morningstar asked potential investors to consider a scenario in which they were new employees and needed to allocate their savings across 13 hypothetical funds in their company’s retirement plan. For each fund, the firm shared standard financial information, including historic five-year total returns, expense ratios and Morningstar Ratings. In addition, randomly selected participants were provided one other piece of information—either a diversity-related metric about the fund or fund asset manager or a less-relevant financial metric—to examine how their fund-allocation decisions may differ in response. The firm also informed participants that no net asset value or DEI was disclosed for four of the funds to test whether failure to share this information could also influence allocation decisions.

The study divided participants into four groups: The standard information control group received no additional information, while the net asset value (NAV) control group received additional NAV information, which Morningstar says is a less relevant financial metric that it provided to determine if any receiving any additional information could influence participants. The final two groups—DEI and gender equality—received information on a DEI score and a gender equality score, respectively.

The Morningstar study found that participants who received diversity-related information allocated 6.7 percentage points more to fund with high DEI scores and 7.3 percentage points more to funds with high gender equality scores. It says the deviance shows participants were motivated to allocate money based on diversity-related metrics. Participants allocated 13.2 percentage points more to funds whose asset managers have high DEI scores, compared with participants who did not receive diversity-related information.

Among funds with weaker financial metrics, participants in the DEI group were willing to allocate more than 8% of their contribution to funds with high DEI scores, 2.6 percentage points more than the control group.

Participants in the DEI and gender equality groups were found to select funds with both high returns and high DEI and gender equality scores considerably more than participants in the NAV control group. Those in the DEI group were also significantly less likely to contribute to low-performing funds with missing DEI information by allocating only $1,700 (out of a hypothetical $100,000 contribution) to these funds, which came out to just over half of what members of the control group allocated for the funds.

While 2020 brought more support for environmental, social and governance (ESG) investing, Morningstar says its research highlights that there are considerable interest among participants for socially responsible investments, including those that have gender and racial equality.

And the firm says investors might not have to sacrifice returns to allocate their money to socially responsible funds. Another Morningstar report, the “Sustainable Funds U.S. Landscape Report,”€ revealed that sustainable funds outperformed traditional investments. Forty-three percent posted top quartile returns in their Morningstar category and only 6% posted returns in the bottom quartile.

In its conclusion, Morningstar found that while participants tend to focus on high five-year returns, given the proper diversity information, they allocate their money to funds which have both high returns and DEI and gender equality scores and they allocate less money to high-performing funds with low diversity-related metrics.

Morningstar says financial advisers who are looking to differentiate themselves can start by providing DEI information to clients. The report also argues that including DEI factors can align with an adviser’s fiduciary responsibility, and it says well-informed investors are willing to accept higher expense ratios in return for increased DEI scores.

More information and data on the Morningstar study can be found here.