7/14/23: Seizing the Technological Advantage

7/14/23: Seizing the Technological Advantage

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Announcer: This program provides education, not advice. Sponsors pay a fee for endorsements and interviews. See the Truth AYF.com disclosure page for details. Announcer: This is where technology, innovation and personal finance come together. This is the truth about your future with Ric Edelman. Brought to you by Global X ETFs dedicated to providing investors with unexplored intelligent solutions and by Invesco QQQ.

Anyone can become an agent of innovation with Invesco QQQ. Invesco Distributors, Inc. Ric Edelman: It's Friday, July 14th.

Coming up on today's show, the world's first ever money market fund that exists on the blockchain. We've been talking about the weakness in the economy and the challenge to many investment sectors, the excitement that's going on in Bitcoin simultaneously. Now there's a new survey of American investors. What do you think is the best long term investment? 26% of American adults surveyed, one out of four, say the best long term investment is gold. Only 18% think stocks are the best.

Well, it's understandable why investors are thinking this way. Last year, the stock market did absolutely horribly. But right now, gold is doing great.

The spider gold ETF symbol gold is up 9% year to date. The S&P 500 is only up 7.5%. So people really suffer from recency bias. They look at what's going on now, what's been going on so far this year, and they make a long term decision based on what's been happening in the recent short term past. That's a big mistake. It's common.

Investors do it all the time. As a financial advisor, you need to make sure your clients are not making that mistake. Sure, gold has been doing well so far this year, but that's because of rampant inflation.

Gold often does well during inflationary periods, but that isn't the long term trend you need to be paying attention to. Since 1970, we left the gold standard in 1971, so let's just look. Starting in 1970, the S&P 500 has gained annually 10.5% per year on average. Gold is only up 7.7%. So there is no question stocks over long periods of time historically radically outperformed gold.

We need to make sure. That clients aren't making bad long term decisions because of short term thinking. The good news is that investors, for the most part, do get this, and I am excited from this new data released by Vanguard. 20% of investors who are over the age of 85 have 100% of their money in stocks. Now, that might sound crazy to you. An 85 year old, 100% of their money in stocks.

Isn't that ridiculously risky? I don't think so, because people in their 80s these days could easily have five, ten years or more of life expectancy. Well, if you've got a ten year time horizon, what's wrong with having a lot of money in the stock market, especially if you can afford the volatility? Chances are these people aren't going to spend all their money in their lifetime anyway. They're going to leave whatever's left to their kids and grandkids, spoiled as they are.

In fact, investors over 55, according to Vanguard in the 401(k) plans, they have 70% of their money in stocks. I think that's wonderful. I think it's brilliant. This is exactly what we need to be doing. We need to have more of our money in equities for more of our years because of longevity. You're not going to be dead at 85.

You're going to be living well past age 100. You need to have more of your money in equities, not just 40 or 50 or 60%, but 70 or 80 or 90%. You need to be doing it for far more years. This is a totally new trend, and as a financial advisor, you need to be talking with your clients about this.

You need to help them realize that their allocation to stocks is too low and their glide path is too short. They need to have more of their money in stocks and they need to do it for longer into their longevity curve. Otherwise, they run a very real risk of running out of money in their 80s and 90s and hundreds. And it's not just stocks that people are going to be buying in the future. Equities, meaning ownership assets there, really as financial advisors, you all know these two kinds of assets, ownership and ownership. You know, you have equities and you have debt.

I either buy an asset that I own or I lend money and I earn interest on that loan. Traditionally, ownership has meant stocks. I own stocks or real estate. I own property. And as a stock investor, you earn a dividend, you enjoy the price going up. As a real estate investor, you earn rent and you enjoy the property rising in value.

But increasingly, thanks to technological innovation, there are going to be more and more ownership assets available to you and your clients. We've talked about this a lot in the world of crypto. Tokenization of assets is becoming increasingly available. And here is the latest example.

How would you like to be able to have your clients invest in a rare, exotic Ferrari 30-year old automobile? One of a kind worth $2 million. How would you like to have your clients be able to invest in a rare wine collection that's worth a million bucks? Or how would you like to have your clients own the Empire State Building or some other iconic piece of real estate somewhere in the world? Sounds pretty cool to be able to diversify your portfolio among assets of this type. The problem is these assets are ridiculously expensive and they're highly illiquid.

Your client doesn't have the money to buy an office tower. Nor do you get excited about the illiquidity of doing that. Well, guess what? We are now getting into the notion of fractionalized ownership. There is now a company that is taking a masterpiece by Francis Bacon, one of the most acclaimed artists of the last hundred years. This portrait is worth $55 million and they are selling it not at an auction where a single rich person is going to buy it.

They're selling it on the public securities markets, just like you do with the stocks. The shares will be $100 each. You can buy a piece of this artwork. The art's going to list on a specially created art stock exchange based in Liechtenstein for the first time ever. Retail investors will be able to buy and sell shares of a famous piece of art.

This is just the beginning. You're going to see Picasso's and Warhol’s and Rembrandt’s being made available in the very same way. And by the way, what happens to the actual painting? The portrait will be on public display in a museum. There's a company called Artex.

They plan to float $1 billion worth of paintings over the next few months. We are democratizing asset classes instead of having only a very few rich people being able to buy these exclusive assets. Now, everybody can afford to buy them via fractional ownership. This is pretty exciting.

So at the moment where you're used to giving your clients a diversified portfolio filled with maybe 15 or 20 asset classes in the future, you're going to be giving your clients diversified portfolios, not with 15 or 20 asset classes, but 15 or 20,000 asset classes as we're going to be able to fractionalize tokenize every asset in the world, it's going to be really exciting. And something else that's getting exciting, as a financial advisor, you may be saying threatening JP Morgan, the biggest bank in the country, says they're working on AI software for investors to help them pick stocks, bonds, commodities and other alternative investments. They just applied for a trademark.

Chat GPT and JP Morgan say they have 2000 data scientists and machine learning engineers building this software. They're going to make it available to their investors who are going to be able to turn to the software for financial advice instead of you as a financial advisor. JP Morgan is not alone. Morgan Stanley is doing the same thing. They're rolling out generative AI to its 17,000 financial advisors Bank of America, Wells Fargo, Goldman Sachs, Citigroup, Deutsche Bank. They're all doing the same thing.

What does it mean for you as a financial advisor? Are you about to become unnecessary because of AI? No, you're not going to be put out of business by AI you're going to be put out of business by financial advisors who use AI. You cannot turn a deaf ear or a blind eye to artificial intelligence. You cannot ignore the technological innovations that are being developed. AI and crypto, we've been talking about this all week.

You can't ignore these. You need to master them or your clients will find an advisor who has. Learn how we can help at DACFP, the Digital Assets Council of Financial Professionals at DACFP.com.

The links are in the show notes. You need to learn about AI. You need to learn about crypto, you need to learn about these new technological innovations and the investment opportunities they offer your clients. Because your clients are going to be very quickly saying, Are you able to help me with this stuff? Because if you can't, I'm going to find someone who can.

That's the smart decision of investors today, and it's the smart, advanced move of smart advisors. I'm Ric Edelman. Coming up next, a conversation with Roger Bayston, head of digital assets at Franklin Templeton, where they've just introduced the world's first money market fund on the blockchain. Stay with us for that. Coming up, the truth about your future.

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A modern Approach to wealth Management. Ric Edelman: You're listening to the truth about your future. You know, when we talk about the future, one of the things I talk with you an awful lot about, especially in the world of investments, is the importance of dealing with the investments of the future as opposed to relying on the successful investments of the past.

And in fact, there's kind of an axiom that gets talked about on Wall Street that if you invest in the successful companies of the 20th century, you'll fail in the 21st century. And the best example that people use of this is Kodak. I mean, talk about an incredibly successful company of the 20th century. But in 2012, Kodak went broke because of this new thing called digital photography. And it was a huge interference in Kodak's film processing business, and they couldn't really make the transition.

Along comes Instagram, a year and a half old with 13 employees and is sold for $1 billion the year Kodak goes broke. So it's really important that you stay focused on one of two things either focusing on the innovations of the new or focusing on the companies that have been around forever that are themselves innovating in the new. And I want to illustrate for you one of the best examples of that. And to help us do it is my good friend Roger Bayston. He is the head of digital assets at Franklin Templeton. Roger, thanks for joining us on the program.

Roger Bayston: Thanks, Ric. Ric Edelman: Franklin Templeton is a household name. Been around, what? Rogers 75 years.

Roger Bayston: Now we're celebrating our 75th anniversary this year. Ric Edelman: One of the oldest and largest mutual fund companies in America, 1300 professionals and 155 countries pushing $1.5 trillion in assets that you manage for people all around the world.

When I began my career as a financial advisor way back in the 1980s, the very first mutual funds I ever recommended to my clients were Franklin Templeton Mutual Funds, the Franklin US Government Securities Fund, a lot of the Franklin Muni bond funds and so on. I mean, if you were going to engage in the mutual fund business, Franklin Templeton was one of the biggest and best known in the industry, and the company remains so today. But unlike so many other fund companies, Roger, who used to be a big deal and are now like fallen by the wayside, I'm thinking names like Dreyfus, you know, they used to be a big deal in the 1980s. When's the last time anybody ever heard of Dreyfus? Franklin Templeton is bigger than ever and more prominent than ever.

And one of the things that you've just done, which is why I've asked you to join us here today, is that you have just launched a mutual fund that is the first ever of its kind. Tell us about it. Roger Bayston: I think you're referencing our Franklin OnChain US Government Money Fund. And the first of its kind that you're speaking of is the first of its kind in using blockchain technology inside of its operations to provide what we think is increased utility for the clients as we face, as you point out, the 21st century and the opportunities that we have and being able to use our assets appropriately. We think blockchain is a really interesting technology that will deliver new and better services and different type of assets as we look forward to the investments of the future that can be woven into clients’ portfolios to help them meet their objectives. Ric Edelman: Now I find it really interesting.

I mean, in the world of mutual funds, money market funds are about as dull and boring as it gets. I mean, the whole point of them is safety and liquidity. You're avoiding volatility. People use them, you know, as an alternative to a bank savings account or a bank checking account. They use it because it's a safe depository of money. They can get a hold of their cash pretty much any time they want.

Simple, easy to use. Very low cost yields are pretty good compared to bank accounts. These things have been around since the 1970s. It's been literally 50 years since anyone has innovated in the money market fund space. And along comes Franklin Templeton, creating the OnChain US Government Money Fund. So first, before we get to the tech part of it, the on chain part, just reiterate for everybody exactly what this thing does.

It's called the OnChain US Government Money Fund. Meaning what, exactly? Roger Bayston: Meaning that the assets that are held by the fund vehicle; the mutual fund vehicle are all US government assets. By and large, there's no corporate credit commercial paper type of exposure inside of it.

When we were going through this pilot project a couple of years ago, we focused specifically on money funds as we were beginning our journey in blockchain technology and digital assets and operating with a product that eliminates the corporate credit risk. I think it is an objective when you're talking about users of money funds inside of their liquidity stack and wanting the importance of this, you know, fully collateralized bankruptcy, remote type of investment strategy that might sit alongside of their bank accounts or the other type of cash that they might hold inside of their liquidity stack. Ric Edelman: So this thing holds Treasuries, dull and boring, safest investment in the world, generating a market comparative yield in the business. The other element of the name of this fund, the Franklin OnChain US Government Money Fund. So explain what you mean by onchain.

What does that mean? Roger Bayston: Well, this whole product was designed with collaboration and cooperation with the SEC, which is kind of an interesting headline by itself. When you see all the SEC's activities as it relates to digital assets and cryptocurrencies and some of the actors in that side of the ecosystem over the past several months. So the onchain component means that in this context, the transaction records for shareholders are actually captured and held on a public blockchain. I'm going to be very careful. Think of my words as I speak to them.

Transaction records. There's multiple data sets. Franklin's journey into this space was really began with this idea like blockchain technology. You're aware that other words that are used inside of this is distributed ledger technologies and that I really was focused on that word ledger because inside of asset management there are ledgers everywhere.

And in fact, inside of a mutual fund, there's two ledgers. There's the ledger, which is the assets that the “fund vehicle investment company” owns. And then there is the ledger of shareholders as well. And in this construct, what we're doing is the bulk of that ledger of shareholder activity is all about transactions, activity, subscriptions, redemptions, reinvestments.

And as a result of that, we were trying to find a way to achieve more efficiencies and potentially better utility for customers and clients going forward by utilizing a public blockchain construct to hold those transaction records. And that's what we've been busy doing and working with our friends, the SEC, and the various departments of SEC through that regulatory path about giving us permission to be able to operate the official books of records of the transactions of the fund on a public blockchain. Ric Edelman: And ultimately, obviously the SEC said, yes, they're confident in your ability to do this.

They're confident in the underlying technology that it works, that it's reliable, that it is cyber-safe, and that it allows you to deliver exactly what you're trying to deliver that you used to deliver in alternative technological methodologies. But this offers what benefits? What's the point of the exercise you have improved? Roger Bayston: Well, I'm going to tell you a little bit more of our journey to it and to get to that specific point. Okay. Started this journey four and a half, five years ago. You know, it was just a proof of concept.

How do we use this technology inside of our experience of being an asset manager, in this case, mutual funds themselves and had the idea that we should try to use these technologies for a money market fund. And the reason why I chose a money market fund for this first experiment was because we've known that money market funds have been in the transactional economy for a long period of time. So one of the innovations that Franklin brought into the money fund space all those years ago was check writing capabilities on a money fund. When's the last time you actually wrote a check? But debit card capabilities came on to them as well, Right? And so this idea that the more transactional nature of a money fund in my mind meant that there was a more velocity of activity in this transactional database that we needed to maintain as part of our transfer agency process. And in looking that, it felt like if we could solve that problem a higher velocity of transactions than a longer dated, longer-held mutual fund, then we could probably deliver something that we could scale and bring into the rest of our business another fund vehicles and the like.

Now, again, remember four and a half, five years ago, there was no yield on the front part of the curve. And so it's a little bit like this is just totally R&D activity. I wanted to be careful that we weren't spinning up a whole bunch of costs on something that we would never be able to recapture. Ric Edelman: Yeah because five years ago yields were near zero. Roger Bayston: That's exactly right. And fee waivers on money funds were very popular because you're just providing the service now.

Lo and behold, times have changed. And global macroeconomic events or political events have caused inflation and higher rates in the front part of the curve across the globe. And so now all of a sudden you sit with the situation where, okay, money funds are attractive alternatives.

They do help diversify that liquidity stack. And so there's actually more people are opening their eyes to the opportunities of what money funds might be able to do. Now, what are the new utilities going forward? Well, as part of our process here, what we really uncovered was that operating this transfer agency processes on a public blockchain as opposed into a centrally controlled monolithic database, which is what kind of the legacy transfer agency systems are built on. Had a lot of cost efficiencies by and large, I mean a lot of cost efficiencies.

And so as we think about the future, we think that this is just another technology that can help decrease costs for fund shareholders over time that would allow them to keep increasing and capturing more of the return that might exist inside of a fund vehicle, by and large. Ric Edelman: Let's stop you right there for a second, because that's an important point. People know there are no fees in a money market fund. So when you say that you're saving money in fees, what that translates into is you get end up with getting a higher yield.

Roger Bayston: Yes, I mean, there are fees on money funds. There are asset advisory fees that are attached to all money funds. They are not distribution or sales charges that come and when many funds are placed, but there are asset management fees and other sort of transfer agency fees that come into operating and money fund vehicle.

Ric Edelman: And the result is by lowering those internal fees, the net yield to the investor is higher. Roger Bayston: That's exactly right. Now, future opportunities is really what we were thinking about and future opportunities that we were considering is again, the transactional nature of money funds. It feels that the technology that the possibility of being able to condense the amount of time that it takes to transfer a money fund essentially equates to the amount of time it takes you to record a new record on a blockchain, which can be microseconds, quite frankly, depending on the blockchains that you're using. And so we saw this possibility that money funds, again, thinking about their application in the transactional economy and payments that there may be a future space for money funds to be having a deeper integration into the payment systems of the future.

Because quite frankly, you can effectively transfer money fund shares between Ric and Roger almost instantaneously. And so as you weave these technologies together, imagine the possibilities of taking an interest-bearing money fund instrument, walking over into Starbucks and get your venti decaf oatmilk mocha every morning. Those possibilities, we think, are sitting right in front. That's for a retail. But you can also think about the application for money funds is in institutional treasuries. I mean, there's literally trillions of dollars all over planet Earth in money fund constructs used by institutional investors to achieve these same collateralization and yield opportunities inside of their liquidity opportunities.

So we see the ability for operating a blockchain rails to update what is a very tried and true conservative money fund strategy but position it for the future for the transactional economies around the world. Ric Edelman: So let me make sure I'm understanding this. With this new technology of blockchain technology, we're able to execute the transactions in milliseconds. You said compared to the old technology, which takes how long to move money from one money market fund to another.

Roger Bayston: Well, I'm specifically honing in on the transfer ability properties that may exist, and I have some experience with this. I just went through a life event of myself, you know, probably 12 years ago that caused me to need to be transferring mutual fund shares that I owned to my ex-wife. And inside of that construct, it could often take days or weeks for that transfer ability to occur once it was going through the legacy transfer agency process.

Now you're talking about condensing those transaction rails down to something that makes all of these things much more seamless and a less friction basically to make them almost instantaneous. Now, I say microseconds on some chains because the way some blockchains are organized, the ability to add a new block actually takes a lot more time and expense. And so the myriad of opportunities that are unfolding in front of the digital asset space and different blockchains organizing, it's really depending on where you're developing and what kind of chain that you're working with specifically. Ric Edelman: Franklin Templeton is an asset manager, one of the largest and oldest in the world. You're not a blockchain technology company, so you didn't go to the trouble of building your own blockchain.

I'm assuming you partnered with somebody who did. Roger Bayston: That's exactly right. Ric Edelman: And you chose who for the blockchain partnership. Roger Bayston: The first part of our journey, and again, having walked through this with the SEC, you know, speaking with the SEC and beginning to help identify all of the kind of stakeholders that need to be involved in this, we have had the great opportunity to work in this product with the Stellar Development Foundation and the Stellar blockchain as our first journey for Benji.

We use the official name the Franklin OnChain US Government Money Fund, but we are affectionately called that product Benji and Benji has been working with both Stellar and then recently we've added Polygon as another blockchain that we're developing inside to expand the reach and opportunity. We began our development work on the Stellar blockchain initially, and the Stellar blockchain is perfectly suited to help add new records in a very short amount of time and its origination form. It has been more of a constrained environment without many smart contracts, abilities on top of it, and that we thought from our development perspective, being in more of a limited chain is a super important construct. We had seen some of the vulnerabilities of smart contracts over the past several years and we wanted to be able to start our journey without having to tackle that concept. Now that being said, these technologies are evolving quite quickly and rapidly and becoming more secure, just like anything, just like any technology, as it matures, there's more users and people are adapting to it.

The vulnerabilities decrease and the security and infrastructure continues to increase. And as a result, we have been migrating and will intend to migrate across any number of type of blockchain environments to provide this. This feature set that Benji provides to users of those blockchains as well.

Ric Edelman: Benji let's elaborate on that. Obviously Benji is short for Benjamin, which is the first name of Franklin. Benjamin Franklin. So Benji is the name of this project. Roger Bayston: It is, yeah.

It just so happens that, you know, Benji is slang for money in many corners too, so it kind of comes together in a number of different place. Ric Edelman: That's really awesome. Let me ask you this.

This fund has achieved success really rather quickly. You're pushing $300 million in assets in this fund in an incredibly short amount of time. Investors are clearly responding well to this.

Roger Bayston: I mean, think again. It arrives at a right at a right time where people are beginning to re-identify with money funds in general as a result of some of the headlines in the banking sector. And this just this idea, there's a very expansive digital asset ecosystem that exists with a number of different players, whether it's the blockchains themselves, the foundations that support those blockchains, whether it's centralized actors like exchanges that are engaged in the trading of digital assets or cryptocurrencies specifically themselves, fund vehicles that are focused on the digital asset economy and the like. And the fact, in this construct, Benji is held inside of a digital wallet and is represented as a token. One share of the Franklin OnChain US Government Money Fund is held as a token of Benji inside of your digital wallet.

And clearly when you look across the map, there's some actors who are far more comfortable with that construct of owning a token inside of a digital wallet. Then there are others. And so, we play the long game. That's why we've been in business for 75 years. We think we have an understanding of where blockchain technologies are taking capital markets moving forward.

Understanding the technologies is really fundamental. Starting with Benji has been the first part of our experience but has really unfolded a number of other discoveries about digital assets that are super important that we're trying to weave into our product mix and understandings as well. Ric Edelman: So elaborate on that for me.

Let's talk about just the logistics, the operational elements of this. If somebody wanted to open an account with the Franklin OnChain US Government Money Fund, what's the logistics process of doing? Roger Bayston: So you go to the App Store, you know, either Google or Android and or the Apple App Store. Benji Invest is a consumer facing app that will punch you through the onboarding process and within minutes you can own Benji tokens inside of a digital wallet so. Ric Edelman: You don't have to own bitcoin or any other digital assets. You don't have an account. Roger Bayston: No, you don’t have to own any other digital asset.

You do provide linkages so that subscriptions and redemptions would flow back and forth through your bank account. So the cash still rides through banking system rails by and large. Other experiences that we have as we're engaging in more institutional investors is a white glove hand experience that onboards them into an institutional user interface, web-based app as opposed to a digital app on a mobile device. And that's because institutional users have a number of different checks and balances in their systems that we think are hugely important to separate, people who want to do trades and people who execute trades. And the money movement, it's another level of security actually, we provide. And so there's a number of ways that you can come and participate in.

Ric Edelman: Tell me again the name of the app. Roger Bayston: Benji Invest. Ric Edelman: Now you began, you said by using the stellar blockchain, but you have broadened this. You're also using the Polygon blockchain. Roger Bayston: That’s correct.

Here's our thinking. We think of these various blockchains. And by the way, obviously Bitcoin was the very first blockchain project designed to do one thing, generate Bitcoin or Bitcoin.

But as these technologies have unfolded and, you know, we had the advent of Ethereum and then, you know, Layer 2 blockchains built on Ethereum and a number of other blockchains moving forward, what we kind of think of these as digital nation states. So they have rules, they have governance bodies, they have money supply, currency supply that they're engaged in. And as a result, we think they don't have physical geographic borders, but they are all trying to address opportunities in the global economy for essentially selling block space and securing their networks.

And as they expand, just as Franklin Templeton over their 75 years has expanded its delivery of products and services from the United States to all these countries that you mentioned across the world, we see this as the features. While these networks digital nation states is one way we think of them, we also think of them very much as utilities In some context. As these continue to grow and expand, we want to be able to provide services through and to these digital nation state actors and users of these products and services. And that's kind of how our vision unfolds. Ric Edelman: We are talking with Roger Bayston.

He is the head of digital assets at Franklin Templeton, one of the world's largest asset management firms. Roger, as you talk about the experiment that you've engaged in over the past four plus years in the development of the Franklin OnChain US Government Money Fund, that by definition says to me that there are other plans you have in mind. This is not the end.

This is the beginning for what you have underway using blockchain technology. Is that right? Roger Bayston: It is. And thanks to the leadership of my good friend and mentor business partner, the CEO of Franklin Templeton, Jenny Johnson. This spirit of R&D activity in this space, we have been kind of the spearhead of that as a result of the blockchain. You identify me as the head of digital assets. I kind of joke sometimes it's like kind of being 25 years ago, if somebody said that they were the head of the Internet department in their company, think how goofy that would sound.

Now, because we do see these technologies becoming increasingly interlaid in the operations of the capital markets or actually there new assets themselves, the tokenomics of the cryptocurrency that powers the tokenomics of a chain as an asset as well. And then we just see a future space of all sorts of different potential virtual assets as metaverse and expands and the usage of things that metaverse, we just see these blockchain rails delivering all different types of assets. All of that encapsulates some of the things that we're looking at going forward. But more specifically, we had a several aha moments and one of those aha moments was this efficiency gain that I spoke to earlier inside of the transfer agency processes that are engage a broker dealer and the distribution of a mutual fund. And when that aha moment arrived that there could be so many cost savings, it doesn't take too much level two or level three thinking to realize transfer agency processes inside a broker. Dealers and asset management are just one narrow slice of the overall economy.

These blocks and using this public blockchain space is going to be something that will likely see lots of different industries deployed. I mean, just think about the number of records that are kept all over planet Earth and different types of businesses. And so we see the application for these blockchains to expand quite broadly. And that led us to the to the realization, hey, we need to provide advice about these to customers and clients, just as we do, offering advice about which credits you think you should be holding in a various part of the economic cycle.

Which type of stock and equity exposure, what type of private companies or private alternative investments you should weave in your portfolios? We see this as another expanding opportunity set and we want to be able to provide that advice to clients globally. And so we have built a deep research team of investment professionals who are generating that advice about these digital assets and packaging that advice, whatever might be appropriate in the market to be able to deliver that to a client. Ric Edelman: You know, there are, I don't know how many, a few dozen major asset managers of the scale and scope of Franklin Templeton. There aren't really very many I can think of off the top of my head that has devoting so much attention and thinking to blockchain technology. Why you guys? What is it Roger that helps you and Jenny and the leadership at Franklin Templeton realize you can't ignore digital assets and you really need to start figuring out how to deploy it to improve the quality of your business. How did how did that happen? That doesn't strike me as intuitive, let's put it that way.

Roger Bayston: I appreciate your compliments and, you kind of sit in a different seat and so you do look across the industry and think you're a credible voice to be able to reflect on that. Look, I joined Franklin in 1991. When I joined Franklin, five of the 15 largest mutual funds on the planet were Franklin products. You mentioned yourself your own experience and distributing when you were in the 1980s, counseling your clients and using high quality mutual funds to help generate outcomes for your clients. So I think it's always been the spirit of us to be able to be innovative and moving forward.

And I think, you know, Jenny's culture that she has built has been super attentive to this, where focusing on customers and clients first. And we know that we need to be delivering better products, more cost effective over time in this type of space. And so when you have your focus on the customers first, it really helps to set that culture about inattentive to what is growing in front of you and to be able to capture those opportunities in whatever kind of manifestation that takes, because sometimes that might be a separate account, depending on which regulatory jurisdiction you're operating across the planet, that might be any number of type of things. It's just a matter of being able to have that very forward vision on the thematic changes and then be able to carefully punch through those in order to be able ultimately to be able to deliver a product service to a client that enhances their experience. Ric Edelman: Well, my hat's off to you. So.

okay, here we are. You've launched the Franklin OnChain US Government Money Fund. It has nearly 300 million in assets under management already. What's next? Roger Bayston: Well, as I mentioned, developing this research capability to be able to offer opinions and advice on the growing array of digital assets in order to put those into portfolios and offer that advice to clients is a big part of some of the infrastructure that we're laying in now.

That's a journey by itself because this is a nascent field. When you go to transact, you're dealing with a combination of custodian and transaction platform being closely more closely knitted together than what you're going to see in what we call the TradFi markets. There are in the United States evolving regulatory frameworks.

I talked about all of our great work we've done with the SEC and we continue to do great work in the SEC, whether it relates to Project Benji or the other things that we have in front of us, other places on planet Earth, there are more aggressively acting regulators who are developing sandboxes that are really encouraging the development of these technologies, these blockchain technologies moving forward. And so the cadence is different. We also think that Benji itself is an interesting construct when you think about another very popular and widely used asset inside of the digital asset ecosystem, which is Stablecoins. Stablecoins are often used as on and off ramps into the digital asset ecosystem. And we think Benji again with its proper regulatory construct, offers a potential very interesting new wrinkle inside of Stablecoins because first of all, it's fully regulated. It is a mutual fund; it's fully regulated by the SEC in that contract.

That is different than the current regulatory constraint around Stablecoins. But more importantly, it offers the users the yield. And, you know, when short rates and yields can be as high as 4.75%.

I'm generalizing about what the yield might be on Benji right now, but that's a big difference. 4.75% versus zero is a big gap that provides a lot more benefit for the users of a stablecoin as we think about things going forward.

So that's on our radar map. When I think of other things that we are just aware of, blockchains are networks the network economy. The best way to understand these networks and the network economy is to be part of the network. And in this case, the way you are part of the network. The work is that you run nodes on those networks. You actually are involved in validating transactions and approving blocks coming onto the blockchain, these records.

And so Franklin Templeton is also operating nodes for any number of networks as we help secure and provide a strong foundation for this expansion of this activity long term. Ric Edelman: Do you see doing something similar with stock mutual funds, bond mutual funds? Roger Bayston: We’re super aware of this. Again, going back, ledgers, mutual funds are ledgers.

We do know oftentimes we refer to these fund vehicles as ‘40 Act funds. I mean, you and I both know what that means: 40 Act funds, because the laws originated were 1940. I'll remind everybody, we are here right now speaking in 2023.

It's been a long time since these laws come forward. And so there are trends about customization, giving highly customized portfolios to clients through constructs. All of these things we think are technologies that are evolving in front of us.

And so there's any number of asset classes I think that will be coming to be using blockchain rails for the benefits that they provide in reducing friction within the capital markets by and large. So yes, stocks, credits, bonds, loans. We think of an individual loan as an NFT. If you think about what the definition of what an NFT is, you could easily apply that definition to an individual mortgage that you might take out on your house where you are, the counterparty to the mortgage, and it's assigned specifically to the title of the address of your resident. By and large, that encapsulates a definition of an NFT as well.

And so we think this is a ripe place for us to be spending time, effort and resources and understanding. We're going to make some mistakes, but we think if we don't work at it, we won't find the successes for our clients. If we're not putting in the good work now to be able to uncover those. Ric Edelman: It's all pretty exciting. And I encourage you to take a really close look at the innovative work that one of the largest and oldest asset management firms is engaging in.

That's Roger Bayston, the head of digital assets at Franklin Templeton. As Roger mentioned, you can download the app from your smartphone. The app is called Benji Invest. The link is in your show notes.

You can also learn more by going to Franklin Templeton their website as Franklin Templeton.com and that link is also in the show notes as well. This is something you really need to be paying attention to and I think the sooner you participate, the sooner you get engaged, the better off you're going to be. Roger, thanks so much for being with us on the program. Roger Bayston: Thanks, Ric. Ric Edelman: Hey, you can catch up on past episodes of this podcast at TheTruthAYF.com.

Longevity, Retirement security, Exponential technologies, Digital assets and Health and Wellness. TheTruthAYF.com. A link is in the show notes.

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2023-07-20 04:44

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