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Franklin Weaves a Tapestry for Wealthy Canadians


"Move SMAs into the mass-affluent Northern Lights," is the battle cry of Franklin Templeton Investments private client group of Toronto, Canada, the high-net-worth unit of Franklin Resources of San Mateo, Calif..

This past fall, just as initial allegations of underhanded trading were surfacing within the broad U.S. investment management industry, Franklin Templeton's Canadian wealth management unit was busy rolling out its 11-portfolio Tapestry Pooled Portfolios, a new, actively managed investment product aimed at the mass affluent.

Franklin's new Tapestry program earns bragging rights as the first HNW investment program in Canada to automatically allocate about 15% of total assets to alternative investments. That asset class currently includes just two multi-manager, multi-strategies, Cayman Islands-domiciled hedge funds managed by Franklin Templeton Alternative Strategies.

But the alternative investments offerings will expand beyond just hedge funds as enhancements to the program are made, said Bill K. Dickie, president of the firm's Canadian private client group.

Franklin slowly began rolling out its Tapestry product in September and October, after obtaining from its existing brokers and financial planner distributors the Canadian equivalent of new selling group agreements. Although widely available, Tapestry has yet to get the nod from Canadian regulators in three provinces.

Through Dec. 31, 2003, Tapestry has woven together C$42.1 million ($32.9 million U.S.). That is already almost one-third of the C$135 million Franklin hopes to rake in within the next 12 months.

The spectrum of Tapestry portfolios runs the gamut from a capital preservation portfolio that invests more than two-thirds of its assets in bond funds, to an international maximum growth portfolio that invests 85% of assets in global equities. Franklin is in charge of reallocating the underlying allocation mix. The minimum investment for each portfolio is C$250,000.

All of the underlying investment funds are proprietarily managed by Franklin, which embraces an international growth style, or its subsidiary asset managers. That lineup includes value manager Templeton Investments, deep value manager Mutual Series and "growth at a reasonable price" manager Bissett Investment Management, headquartered in Calgary. Bissett is the high- net-worth advisor that Franklin acquired in October 2000 for $95 million.

Bissett is the Canadian wealth management firm started in 1982, and the cousin to Fiduciary Trust Co., the US-based custody and high-net-worth firm that Franklin scooped up in April 2001 in a deal valued at $776 million.

The Bissett acquisition added $3.7 billion in mutual fund and other managed assets to Franklin's coffers. Still, as of Nov. 30, 2003, the C$29.6 billion in Canadian assets under management represented a mere seven percent of Franklin's total global assets.

Franklin has long offered the Canadian equivalent of separately managed accounts to the ultra wealthy and institutions with $1 million or more to invest. It has also long offered traditional mutual funds for more modest retail investors. Tapestry, however, allows Franklin to tap into the riches of Canada's mass affluent and get a better toehold in the investment space between the ultra-wealthy and the classic mutual fund investor.

Tapestry was created for financial intermediaries whose business is moving up market. It now includes clients with $2 million or $3 million to invest. The goal is to create a solution for HNW, while offering them diversification into alternative asset classes, Dickie said.

To that end, Franklin has leveraged its existing team of 30 regional wholesalers, and 12 internal wholesalers to sell Tapestry and is working to help brokers and planners look up market for clients, Dickie added.

Tapestry offers a multiple share class structure and annual investment management fees that vary, depending upon the portfolio, from a flat 1% to 1.3%. Moreover, the program's flexible, no-load series O share class includes an individually negotiated investment advisory fee that investors pay directly to their broker/dealer or financial adviser.

Those fees vary depending upon the diversified portfolio chosen, but generally start at a low of 1% and top off at 2.3%. From these client-to-broker advisory fees, Franklin then collects its management fees, paid to it by the financial adviser.

The Tapestry program's O share flexible fee option allows financial advisers to offer lower fees to up market clients, Dickie said. "The choice of fees is an option that is becoming more available," he noted. "The trend is coming, but not as quickly as I would see it," he added. The Tapestry product offering is a product that follows-on to the mutual fund wrap program, dubbed the Quotential Program, that Franklin Templeton Investments of Canada debuted in late 2002. The Quotential wrap program, which offers a lesser six investment options and carries a $25,000 minimum investment, has raked in C$762 million (approximately $595.3 million in U.S. dollars) since its launch.

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