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Franklin Resources Inc. (NYSE:BEN)
Q3 2020 Earnings Call
Jul 28, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Franklin Resources' Earnings Conference Call for Quarter Ended June 30, 2020. My name is Joanne and I'll be your call operator today. Statements made in this conference call regarding Franklin Resources, Inc, which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.

These and other risks and uncertainties and important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risks and factors of the MD&A section of Franklin's most recent Form 10-K and 10-Q filings. [Operator Instructions]

At this time, I would like to turn the call over to Franklin Resources' President and CEO, Jenny Johnson. Ms. Johnson, you may begin.

Jenny Johnson -- President Chief Executive Officer

Hello, and thank you for joining us today to discuss Franklin Templeton's third fiscal quarter results. Today, I'm joined by Greg Johnson, our Executive Chairman and Matthew Nicholls, our CFO. We hope that everyone on this call and your loved ones are staying safe and healthy. We're pleased to announce that our landmark acquisition of Legg Mason is expected to close this Friday, ahead of our original schedule. The strategic rationale for this powerful combination has only strengthened since we announced the acquisition in February. It will unlock growth opportunities driven by greater scale, diversification and balance across investment strategies, distribution channels and geographies. Significant work has been completed as we near day one, including having announced the leadership teams for our corporate functions and global distribution groups.

Financial markets stabilized during the quarter, with growth stocks outperforming value stocks by the widest margin on-record over the past two quarters, which impacted some of our flagship funds. On the positive side, we have seen strong performance and momentum in several key asset classes, most notably in our municipal bond and U.S. equity strategies.

Flow trends continued to improve across all investment objectives this quarter. Flows into U.S. equity and fixed income strategies turned positive with eight of our largest 20 funds generating positive net flows year-to-date. We continued to believe that active management will play an increasingly important role in client portfolios and we are well positioned to capitalize on this.

Additionally, our strong balance sheet continues to provide us with tremendous flexibility to evolve our business. Finally, and I'd like to -- I'd like to thank all of our employees for their significant effort to keep our business operating at the highest level to assist our clients, help them achieve their financial goals.

Now I'd like to open it up for all your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Dan Fannon from Jefferies. Your line is now open.

Dan Fannon -- Jefferies & Company Inc -- Analyst

Thanks. My first question, I guess, is on you updated your integration targets for BEN in Legg Mason. You talked about I guess 40% lower integration or execution cost. I'm curious as to what's driving that? And then also just in terms of faster than expected synergies. How do you ensure that it's not too disruptive to the business as you're combining those entities to impact flows, kind of normal course of business?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. Thanks, Dan. It's Matthew, I'll take that. So the latter part of the question, which is about the execution around the synergy realizations. As we outlined in the prepared remarks, we're talking about being able to realize 25% of these savings in the first 60 days 50% by the end of the year and 85% by the end of -- within 12 months of closing the transaction.

We're quite confident that the two work streams that we've organized, one, around the holding company functions the other around distribution are organized in a way where the first part we think we can execute pretty quickly, we think that, about 65% to 70% of those savings can be achieved within 60 days on a run rate basis. And then the rest of it around distribution will be at a slower pace to manage exactly the risk that you talked about around client management product and marketing coverage across all what we think is sort of being the front end of the business.

So we're being very careful and methodical in how we execute upon that over the 12 months that we're talking about here.

The other thing to mention is that the reductions on that front-end side of things are quite modest relative to the size of this transaction. I think we indicated between 10% and 15% reduction across our combined sales business or sales group, so that I think indicates we've been quite careful how we manage the execution.

Jenny Johnson -- President Chief Executive Officer

Well, and I'll just add to that. I mean, this is -- it's what makes it complicated and makes it simpler in some ways, which is the structure of Legg Mason with the independent investment teams. And so we right out of the gate said that we had no intention of disrupting any of that. So as long as the investment teams are disrupted and we're slow and methodical on the distribution, making sure that we're first and foremost focused on no impact on clients, we think that goes much smoother. If you take a transaction where you're trying to combine investment teams, that's where I think you get into a lot of trouble.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, so the structure that in and itself that helps. And I think in terms of that the execution costs that, in other words, is how much we're having to pay things like extension payments, severance payments and other sort of structural arrangements around the execution of the transaction. When we announced the transaction, we had estimated that to be about $350 million, we now think it's close to $200 million and that's really no more complicated than pace on a person-by-person group-by-group analysis on all the data that we now have that we didn't have at the time we made the announcement. And we're able to retain a lot more focus than we thought at lower cost than we anticipated. So that's the reason for the low execution costs.

Dan Fannon -- Jefferies & Company Inc -- Analyst

Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Sure.

Operator

Your next question comes from the line of Patrick Davitt from Autonomous Research. Your line is now open.

Patrick Davitt -- Autonomous Research -- Analyst

Good morning, everyone. Thanks. Our first question on the kind of new guidance on the cash tax benefit and refinancing. First, are you planning to include the $500 million cash tax benefit in your reported adjusted EPS? And then, does the combination of that tax benefit and the refinancing -- has that already factored into your guidance of high-20s cash EPS accretion or should we consider it incremental?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

It's incremental and it's actually below the line to -- in a way, it's just the equivalent of us having more cash on our balance sheet. The way I would model it is in the first three years, I would say, we'll probably get half of the $500 million and I'd say 25%, 25%, 50% in the way to think of it is that we have that additional cash where we could invest in the business buyback shares we'll pay down debt.

In terms of $20 million to $25 million just to be clear, that is not delevering the capital structure that is lower interest payments on about $750 million of debt that is quite high cost on Legg Mason's balance sheet that we intend to refinance in the first quarter or the first half, let's call it, of 2021.

Patrick Davitt -- Autonomous Research -- Analyst

Great. And that's incremental as well to the high-20s.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, incremental, we didn't have either of those in our accretion estimates. Correct.

Patrick Davitt -- Autonomous Research -- Analyst

Okay. My follow up, the outflow trend for the income fund looks like it's starting to accelerate a bit more after the recent underperformance. I know you've talked in the past about that being more sticky given the yield focus of the investors, but do you have any updated thoughts on that potential stickiness relative to the global bond fund experience forever, when they had similarly bad performance?

Jenny Johnson -- President Chief Executive Officer

Yeah. I mean, the income fund again is, it's always rated lower in its category because it's managed for yield, as opposed to the total return. And there is retirees that just love the nature of that product and there's not as many competitors directly in that space, but it has had some underperformance here, and it is impacting it, but we still, it's been here for 70 years because it does exactly what it's supposed to do, which is generate that stable income.

Patrick Davitt -- Autonomous Research -- Analyst

Thanks.

Operator

Your next question comes from the line of Mike Carrier from Bank of America. Your line is now open.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks for taking the questions. 8% on the expenses, that you mentioned similar guidance in the 5% to 10% because we've shifted a little bit in terms of the adjusted I just want to make sure from the comparable period that what that base is?

And then as you're thinking through the year, whether that exact range and then the longer term you've mentioned some other sort of expense initiatives. The flip side is, as you're also probably looking at investments and raised just given transaction. I just wanted to get an update on your thoughts on some of those longer-term opportunities on the expense side?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. Thanks, Mike. So I think the way to look at it, is that the base is about $2.5 billion to $5 billion, so that's our non-GAAP 2019 base and 2019 full expenses, and expect to reduce that by between $130 million, $150 million, which is between 5% and 7% and that guidance remains exactly the same, notwithstanding the fact that we increased our comp accruals this quarter.

That we've adjusted our comp accruals upwards to reflect the momentum in our business this quarter and it obviously reflects more of where we ended the quarter versus where we started the quarter. Last quarter, before that and the second quarter we had being quite aggressive in our reduction accruals, frankly, based on exactly where we were at in very significant uncertainty across the market in the industry. So we did what we thought was the appropriate thing to do there, and frankly we've reversed that based on the momentum we have in the business this quarter.

All other aspects and expenses are absolutely in line or below where we expected to be, so we haven't taken the foot off the gas in terms of pressurizing those areas that we think we have leverage. And of course, what's going to be a little bit complicated going into the fourth quarter is the addition of Legg Mason, and you've noticed that Legg Mason has also reduced their expenses by $100 million. So Legg Mason has reduced by $100 million, we're reducing by between a $130 million, a $150 million, we're doing another $300 million around the deal, so we're talking upwards of $500 million to $550 million of cost reductions on a run rate basis, it's quite substantial.

However, the more we've looked at the combination of the company and what we can do without destabilizing things, we do see some additional potential saving opportunities across the operations area, finance area, all the sort of the support functions of the firm in addition to the cash tax benefit in the capital structure points that I've mentioned to you.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Okay, that's helpful. And then just a follow-up just on the flows. So you saw some good strength on the U.S. equity and in the news that you mentioned international both on the equity and fixed income side still the challenge. Some of that, it looks like it's driven by performance. Just wanted to hear your thoughts on, are you starting to see any like improving trends on that price or it's still going to be mostly dictated by by performance improvement and then we can see some of the trajectory change?

Jenny Johnson -- President Chief Executive Officer

Well, I'd say that the -- on the international side, our technology funds and just the Franklin Growth funds are getting a lot more attention and traction, so we're seeing good uplift in sales on those strategies. We -- we've seen reduced redemptions as you're seeing slightly less redemptions in things like the global macro strategies, and so overall there has been a net sales improvement.

I would say July, we got hit with a large $1 billion redemption in institutional account in global equity, but otherwise you're taking that out you've sort of seeing the same improvement in trend in net sales.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, I think also the point on the eight of our 20 largest funds being positive inflows is a very important one, it's just the fact for us is that we have a couple of strategies that are so large that it tends to dominate the story, but the reality is, is that a lot of our funds are actually doing very well, they're just smaller, but they are getting bigger and bigger incrementally, so it's making a difference for example Dynatech where only last year we were talking about that fund, it was $7 billion -- $6 billion, $7 billion, $8 billion, now it's $15 billion, so it's becoming a bigger part of the story that we can tell on the flow front. And gradually, as those things get larger and then we add Legg Masons much larger strategies, it helps manage the story, a little bit around some of the larger things that have been not that -- they're not bad things they're just out of favor things, which is where the performance reflects that and the flow. But even on those larger things the point we want-- it's really important for this quarter, that the redemptions have fallen quite significantly on those things.

Greg Johnson -- Executive Chairman

And I would just add, the technology fund, it was the number three cross border fund, that's really a new category for us that you can see how quickly it's accelerating and flows and you could pretty quickly offset some of the headwinds you have on the global equity side with the deeper value funds as well as the global bond, which are very defensively positioned. And it's really going to take a downturn in the market for those to see any kind of swing from where they are today inflows.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks a lot.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thanks, Mike.

Operator

And your next question comes from the line of Glenn Schorr from Evercore. Your line is now open.

Glenn Schorr -- Evercore ISI -- Analyst

Thanks. Maybe that's a good lead in. I want to do a little -- ask a little more on Global, International Bond segment. Part of it is the product that the environment where peoples preferences away from that category. And then there is some performance issues there. So maybe if you could help us differentiate between what you think is the cyclical component of people avoiding the category. And then maybe, importantly, what's the ideal backdrop for that strategy that we can anticipate a turn in client preferences. Thanks.

Greg Johnson -- Executive Chairman

Yeah. I mean, this is Greg. And I think the backdrop, if you look at where that the global-macro strategy is really accelerated inflows was after the last crisis and having a 10-year period against equities that was the flat decade versus that product I think, was the number one selling fund of its kind.

So the backdrop is more of a risk-off environment, where you can lower the risk in a portfolio that's really how we talk about it today, non-correlated kind of asset class, it doesn't have the same kind of risk that you're equities and fixed income has. And that's really how it's positioned. So, I think today when you have markets that continue to be extremely strong and it's a risk-off environment, people really don't pay a lot of attention to the global fixed category. When things get a little shaky, you'll start to see renewed interest there, I think that's really the key.

And I think, today as of asset class where people are allocating a percentage of it too, regardless where before it was a relatively very small asset class.

Jenny Johnson -- President Chief Executive Officer

But to Greg's point, if you just look at the flow...

Glenn Schorr -- Evercore ISI -- Analyst

That's perfect.

Jenny Johnson -- President Chief Executive Officer

Categories global bond is, that global fix is not a big flow category right now.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

But I think, Glenn...

Glenn Schorr -- Evercore ISI -- Analyst

I'm with you. Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Sorry, but Glenn, I think another part of your question is what portion of the flows are or the client base, if you will, on global macro is attributed to just that risk management client base and it's very hard to bifurcate that, but it's a probably a decent foundation of the assets under management we now have in that category is because it's been so long. It's -- these are long relationships now is to do with exactly that fact. It's around risk management and having some downside protection in a market that's being quite lofty.

Glenn Schorr -- Evercore ISI -- Analyst

Great.

Operator

And the next...

Glenn Schorr -- Evercore ISI -- Analyst

Can I ask just one quickly on Benefit?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah.

Glenn Schorr -- Evercore ISI -- Analyst

Oh, sorry. I thought I was being cut. Benefit Street, just curious on how they performed in this crazy backdrop? Where they're at and some of their capital raises, what opportunities you guys see on the private credit side. Thanks.

Jenny Johnson -- President Chief Executive Officer

Yes. So in the numbers for last quarter, they called about, well, they called out $500 million in capital. Deployed $400 million, the other $100 million there they have coming in, so that was in there. Then they raised actually a CLO, which won't be reflected. It closed in June, but won't be reflected until July numbers of $400 million and they have a second CLO that will close in August, so also will show in this quarter.

So that's 800 million two CLOs. They also raised -- and they're about to have a first close of $400 million in a dislocation fund and what was somewhat unique there is lot of that was raised by our Australia institutional team. Benefit Street had been trying, Australia is a very sophisticated market and have been trying for a long time to break into that market and just were not able to do it. So the combination of our team with Benefit Street was just a great opportunity.

In addition to that, they raised another $50 million into their Senior Opportunities Fund, which they'll close with $700 million in commitments. Again, these are commitments, so it is dependent on withdrawing of capital, but that was raised by our institutional team in Hong Kong and China, so piece of that.

So I think, they've had good opportunities as people see the importance of having the -- an active manager in this space and the experience they have around the distress side, but they also had to have a writedown on some of their BDC, both, because of having to take down some leverage as well as some distressed asset to it and they don't actually have AUM write down there. But, so that was kind of their troubling part, but on the other hand, they've had really good traction on the sales and flows.

Greg Johnson -- Executive Chairman

And that, I would just add that if we look at our pipeline on the institutional side, it's our greatest opportunity and we're still very optimistic on strong organic growth coming in for the rest of the year.

Glenn Schorr -- Evercore ISI -- Analyst

Thanks for all that. I appreciate it.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Ken Worthington from JPMorgan. Your line is now open.

Kenneth B. Worthington -- J.P. Morgan -- Analyst

Hi. Thank you for taking my question. You announced new leadership in distribution with the appointment of Adam Spector as Global Head. Maybe talk about what Adam's vision is for Franklin Distribution, for the combined companies? What his mandate may be in terms of deliverables? And any changes or adjustments you envision that he will make to comp or structure to kind of achieve his and management's longer-term goals?

Jenny Johnson -- President Chief Executive Officer

So, well, first of all, we did a -- really a global search on this position and had unbelievable candidates as I think people in the industry were particularly attracted to understanding the opportunities of $1.4 trillion manager with an emphasis on the active side. And ended up picking Adam for several reasons. One is, he is just -- we've just been very impressed as we have worked with him with his, both is acumen on sort of his business in practical business approach, to things as well as his experience and we talk to clients and he'd really been in a distribution role within Brandywine.

The way we're thinking about approaching distribution is much more regional and trying to build a more agile organization. So while historically Franklin Templeton had kept many functions like product and marketing and even data analytics to be centralized, we are distributing that out more into the regions to provide a little bit more flexibility and yet still have a central group for those things that will be central.

So that's kind of Adam's and our vision around how to do that. We've evaluated, as you can imagine, bringing the Legg Mason team together and the Franklin team together really evaluated how we're looking at pay for distribution and trying to figure out what the optimal approach is, and so we've been a process and that may vary a little bit by region, depending on what's appropriate.

So all of that there has been tremendous amount of work in the process, leading up to Adam's announcement in really restructuring this. And of the, let's see, five real leadership positions reporting into Adam, actually they'll will be six. There will be -- there are two, that are Franklin Templeton, two, that are Legg Mason, one that's undetermined whether it's coming from internal or external and one that will be an external hire. So we're also really excited that we've been able to bring together leadership from both organizations and as we, over the next month or so make announcements around that, you'll see that it's a real combination of the two organizations.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I think one other point to make on Adam, Ken, is Adam, in addition to being highly qualified for this position. He has existing relationships across very important parts of the combined organization, including all the investment organizations that have -- going to become part of Franklin Templeton. And that can -- that can be, that can introduce additional efficiency in and of itself both relationship wise, the fact they've worked strategically together for so many years and Adam's knowledge of our company has come up to speed so fast. His vision on combining these things and how we work together in a collaborative fashion across all the investment groups, it's very impressive and it's exciting for us to have that and be at to hit the ground running as opposed to have to worry about other integrations, cultures and things, so very good.

Kenneth B. Worthington -- J.P. Morgan -- Analyst

Great, thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Craig Siegenthaler from Credit Suisse. Your line is now open.

Craig Siegenthaler -- Credit Suisse -- Analyst

Hey, good morning everyone. It was nice to see the rebound in U.S. equity flows this quarter and also strong traction in you're Dynatech and Technology Funds. Outside of these two funds, can you talk about if you're seeing underlying demand across the industry for U.S. active equity or any green shoots relative to the passive just as clients are looking to navigate a less certain future here?

Jenny Johnson -- President Chief Executive Officer

Yeah.It's interesting. We do have some sector funds or utility fund our U.S. Gov, well I guess that's Fixed Income biotech. There's a couple of underlying sector funds that have performed well. And so, as you're seeing kind of interest in thematics, we rolled out some thematic ETFs that are managed by Matt Moberg, who does the Dynatech Fund and seeing a little bit of traction in those although very, very early on.

So again, the emphasis has tended to be in within the Franklin group and that group has always had a lot of strong sector funds and so to the extent that there has been good -- seeing traction.

Greg Johnson -- Executive Chairman

Yeah. And I would just add, I mean I think in this COVID world that the theme around technology and how many of these trends are accelerating as people work from home use more technology that's certainly from the advisor, they want to get more exposure to their clients to this sector. So you're really seeing I think tremendous growth on the back of obviously tremendous performance. And one that as I said earlier, we're very optimistic on our positioning and because Franklin has had such a long history in this area, right in the heart of Silicon Valley, that we think we're in a unique position to capitalize on that.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. And just as my follow-up, how do you think investor allocations and you can comment across institutional retail, which is bigger for you, will change for fixed income. Just given that we have a very low interest rate environment here, it's reduced future return potential across the asset class. Many of the segments are pretty close to zero. And if bond allocations do change or reduce. Do you expect to see stronger demand in other segments or maybe other segment for the high-yield credit segments?

And I'm thinking also of the privates, like would you manage over beneficiary?

Jenny Johnson -- President Chief Executive Officer

Yeah. Sorry -- I'm just, looking at kind of a flow chart that it tracks Morningstar's categories. And I think, out of the top eight flow categories, it looks to me like seven of them are bond categories and one is a stock category. And I -- the reason I actually have the report in front of me is just one interesting data point, which is that that Legg Mason has 6, 4 or 5 rated funds in the top eight categories. And we have zero rated in the 4 or 5 stars. So just bringing that combination and this is a retail focus, I want to emphasize the benefit of what we've always said is so important strategically, which is a broad product breadth, so that you always have things that are in favor with a diversified distribution channel and so that combination of bringing in the Legg Mason with our strong retail, we think will be a real benefit.

But to answer your original question about the bond flows you definitely see even in this flow rate environment, it's an emphasis. Whether that stays there, how much was that moving when people just think that rates had come down, remains to be seen. I don't know Greg, if you want to add...

Greg Johnson -- Executive Chairman

I mean, I think if one, if you look at the institutional world, it's very hard to get away from bonds and fixed income and a fiduciary that's running that, you can maybe put a little more risk on that portfolio, but you certainly can't walk away from bonds, even in a low rate environment, but I would say the bigger trend is the importance of alternatives like what BSP offers, like with Clarion has with real estate. I think all these alternative categories in a zero rate environment become very important, as supplemental kind of income providers to your traditional government type security.

So I think it just accelerates a lot of what's already happening on the alternative side and that being that much more important for both institutions and retail investors.

Jenny Johnson -- President Chief Executive Officer

And I'll just add on munis. I mean, in this COVID environment where governments or states have had to increase their spend to support their economies internally -- does that translate I think many people think that's going to translate into higher taxes in states. And we think that, that one is that's going to bring -- continue to have demand in munis, and two, is going to be all the more reason why you want an active muni manager who is selecting what those opportunities are.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, Jenny.

Operator

Your next question comes from the line of Chris Harris from Wells Fargo. Your line is now open.

Chris Harris -- Wells Fargo Securities -- Analyst

Yeah, thanks. Coming back to the Legg Mason synergies. Are you guys now saying $270 million on a net basis, and that would be up from $200 million previously. Do I have that correct?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yes. Yeah. And i mean, what we didn't want to move away from Chris was that was the notion that a portion of the savings that we create from this transaction are going to be earmarked for reinvesting in the company, that is really important part of our statement, but obviously since we made the statement about reinvesting a $100 million back into the business, the market has changed and there's more stress in the industry, so we're appropriately adjusting that.

I'm still convinced, we're going to invest the amount that we -- reinvest the amount that we talked about and we're just going to get it from other places across the organization, but in terms of looking at the $300 million gross and what portion of that will be reallocated if you will, we thought the $270 million net was appropriate guide. And we feel very -- we feel that is a minimum. So $270 million.

Chris Harris -- Wells Fargo Securities -- Analyst

Yeah, and that was going to be my follow-up on an earlier question you had mentioned the opportunity to maybe do more with the cost beyond what's already been identified. So maybe you could elaborate a bit on what you might have in mind?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, I mean I don't think we want to get into the different components now because we're not even a single company yet, but it's just our feel of working through this that we'll have opportunities both on the investment side, obviously so it's going to be a demand for reinvesting capital into the company, but on the cost front here, we've been very conservative in this transaction. We're incredibly focused on client retention, and so far in this deal, again, we're closing on Friday, but so far in the run-up to the transaction we virtually have no redemptions as a consequence of the transaction itself, maybe there is one in Asia, but it's very, very small.

So we're very focused on that, but there are various projects going on around the integration of the functions for instance that show that there are certain things we're doing in higher cost areas that could be moved to lower cost areas as you know, we have a big business, we're big center in India and Poland. So we have potential there, and there are certain things that we may choose to outsource down the line.

We announced an outsourcing last year as you know we're executing that we're going to save a $100 million over 10 years in that regard, so I think there'll be more of these types of things to work through. But to announce today, guide -- guidance on that I think would be -- wouldn't be a good idea. So -- but we -- the point we're making is we got the minimum of $270 million net, we see it a good opportunity in the future, we've got other synergies on the cost side that I've mentioned already around the capital structure around cash tax execution costs are going to be lower. And we think those things add up to very substantial amounts of money that can be reinvested or used to buyback shares and so on.

Chris Harris -- Wells Fargo Securities -- Analyst

Got it. Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thanks, Chris.

Operator

Your next question comes from the line of Brennan Hawken from UBS. Your line is now open.

Brennan Hawken -- UBS Investment Bank. -- Analyst

Good morning, thanks for taking my question. I wanted to touch on the -- hi. I wanted to touch on the fee rate pressure this quarter. So just curious about maybe some of the source. I think you touched on in your prepared remarks there was some mix, but also some waivers, which included India, but you knew about India last quarter when you gave us the expectation. So was there some incremental or additional fee waivers that you maybe you hadn't expected previously, maybe Benefit Street we hear about CLOs deferring fees on OC tests failing. So, was that a contributing factor as well. Maybe if you could break that down a bit. That'd be helpful.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, sure, Brenn. So of the 0.9 basis point reduction on non-GAAP basis that's going from -- that's going down to 49.7 basis points effective fee rate. About 0.24 basis points is attributed to India, about 0.21 basis points is attributed to fee waivers to answer your question specifically, and about 0.23 basis points is because of regional shift between EMEA and the U.S. We have some other moving --movements within the fee rates around business mix, more generally, which make up the other 20% of the 0.9 basis points, but that's the -- that sort of try to break it down a little bit further for you.

We don't see obviously things will be different when we're merged with Legg Mason, we don't see a further change in the 0.21 to 0.25 basis points for fee waivers. India is what it is, and that won't change until we rebuilt the credit business, in India what fees could be charged. So that's sort of a mainstay. But that really gives you a little bit more compartmentalization. It wouldn't surprise us if we saw the fee rate staying where it is or even ticking up slightly in the next quarter. And based on some movement around the wealth management, some other things that we see coming on in the pipeline.

Brennan Hawken -- UBS Investment Bank. -- Analyst

Okay, thank you for that Mathew. That's very helpful. And that fee waiver impact was my -- position that it might be out of Benefit Street and some of the CLO fee deferrals that we're hearing about from that market, is that related there and is that as bad as it can get or is it just bad as bad as you suspect it might get?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I'm actually not aware of that, I will have to come back to you on that.

Jenny Johnson -- President Chief Executive Officer

Yeah, none of us are.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

But we'll come back to you on that.

Jenny Johnson -- President Chief Executive Officer

Unheard anything.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

We haven't had anything on that front.

Brennan Hawken -- UBS Investment Bank. -- Analyst

Okay. Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Bill Katz from Citigroup. Your line is now open.

William R.Katz -- Citigroup -- Analyst

Okay, thank you very much. So as you look at the core business ex-Legg Mason, appreciate all the updated synergy expectations. How are you thinking about core expense growth year-on-year for 2021?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

So for 2021 -- you talking about just in Templeton stand-alone?

William R.Katz -- Citigroup -- Analyst

Correct.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

We expect expenses to be flat to our reduction. So no growth.

William R.Katz -- Citigroup -- Analyst

Okay. And then just going back to CLOs, you're one of the few managers who's actually offered up the ability to actually get some CLOs done and it's kind of backdrop. What is the specifically that you've seeing the opportunity? Is it just the markets themselves firming or is there some unique distribution opportunity that Benefit Street or Franklin offers and maybe what location you're seeing those in?

Jenny Johnson -- President Chief Executive Officer

So I think that these were relationships that Benefit Street had the majority of the equity were purchased by U.S. investors, well-known Japanese investors that purchased 100% of CLO notes. They had to new investors that came in on the CLO platform. So, I'd say that this is much about the deep relationships that Benefit Street has had. I mean it was really BSP who raised this through their team. I know that on the second CLO it included some ESG restrictions around like controversial weapons and tobacco and things, but we see, well-known relationships that they've had, but also a couple of new ones that joined.

William R.Katz -- Citigroup -- Analyst

Okay. And just one clarifying that you had mentioned about flows. I don't know if you're speaking specifically to the global equity footprint or overall. You had mentioned you had one sort of $1 billion mandate coming out in July. They said the rest of the business was sort of improving. Was that the Global Equity segment or is that overall to the firm?

Jenny Johnson -- President Chief Executive Officer

That was the $1 billion mandate that came out was a global equity. What I was saying is that you take out that $1 billion and you kind of see you our progressively improving the income fund did have some increased redemptions in July. But otherwise, you see the trend of improving flows.

William R.Katz -- Citigroup -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Robert Lee from KBW. Your line is now open.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great, thanks. Good morning, thanks for taking my questions. Just the first one is with lagging the affiliates or understanding that focus is keeping other investment affiliates independent doing their thing. I'm just curious, as part of the transaction, there are any type of change in kind of be yet revenue shares distributions will giving any kind of retention to the affiliates and if that's or any changes in kind of it actual relationships at all?

Greg Johnson -- Executive Chairman

No. Rob, we won't see any change in the structure of the arrangement that we have with the specialist investment managers as we call them, which is consistent with what we call our investment teams internally at Franklin Templeton. The revenue shares as we described on different calls are accretive to our company because we're eliminating the holding company. So it takes out those costs and means the revenue shares makes sense to us. Over time there may be some things that are adapted based on need of these investment groups or desire to uptick the collaboration across the group, but there is nothing needs to be forced to make the coordination across the group worked very effectively as we've described.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. And then, as a follow up in just curious about AdvisorEngine, I know it's a tiny acquisition, but you have had some of your peers also try to look and they, make investments in kind of financial advisor. Of course, our processing platforms like a better way and maybe up there and kind of where you think you can have success there because I'd say is, from my perspective the track, it's kind of spotty you BlackRock on one end with providing-business and others taking a stab at it and then it happens really -- gain much momentum. So how do you feel like you can make this work and help drive flows?

Jenny Johnson -- President Chief Executive Officer

Yeah, I mean we already through fiduciary have kind of a high-touch custody business for RIAs and so part of fiduciary strategy is figuring out how to add additional tools just to that segment. And AdvisorEngine has the possibility of doing that, but also as you're having these independent RIAs, they're being pushed the world got more and more toward fee based to be more wealth manager. So what does that mean it mean? It means you're not just doing investment management clients seeing every month that they're paying your fees and the clients are demanding more financial planning, education for airs, tax efficiency. And so part of the other piece of AdvisorEngine actually was a CRM tool that has, I think 1,200 almost 10% of our RIA market 1,200 RIA firms and I think 12,000 or 13,000 users that allow us just communicate with those and build deeper relationships, because again they're difficult to communicate with in some ways because it's a very fragmented market. So it's a tool that we can be able to support their business, gain mind share and build relationships with. And so that's how we see it, it's just one tool in the tool in the box to build a deeper relationship with that growing channel.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I think the other thing Rob on AdvisorEngine is to say that we were already investing millions of dollars a year in this type of area and now what we have is a terrific team that completely focuses on it, almost like the entrepreneurial type way which is tremendous for our company for our wealth business for our asset management business and technology investment area. And all those things combined mean, that frankly owning AdvisorEngine has increased efficiencies for us in terms of investing in some of the future distribution.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. I don't know if I can ask maybe one quick follow-up on distribution. So understanding that combining the distributions are realigning your distribution function by minimized disruption that we have seen in the other transactions where distribution forces getting bind and investment teams are up alone the wholesalers marketing people who spoke as sales follow-up one of your peers, I guess, had some technology issues around finding their distribution or so how do you minimize or avoid that or are you actually making some short-term disruption in sales as to how you're thinking about that of both quarters, so just kind of curious of your take.

Jenny Johnson -- President Chief Executive Officer

Yeah, I mean, I think that's why to Matt's point what we're talking about capturing the synergies, the synergies much faster we -- quite a much faster on the holding company side because that doesn't have the client implication and that we're a bit slower on the distribution side because we'll be very, very careful on any client facing individual, so that's one piece of this.

And just ensuring that there -- yeah, we minimize any disruption there. And then number two, what's a little bit unique in this transaction is again, much of the institutional sales base sits in the affiliates and they are not part of this integration. So nothing has changed there in our special -- specialized investment management group. And so that's a little different than I think you see in other transactions that's unique to this.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. I also think rather in certain cases we're actually adding, we're adding greater emphasis on client coverage and how we monitor that and manage it. And I think our focus on making sure, that client service remains top notch and that the intensity of coverage and calling remains exactly where it should be.

I mean, the fact that we've worked through this transaction and we haven't had one in-person meeting between announcing the transaction and closing it, so that tells you what you can get done remotely. And I think our collective sales groups and sales teams are incredibly energized, as a function of this transaction by having more things to talk about, more connections across different relationships, it's a really powerful thing. And of course, you have distractions, but the management team was put in place really quickly, very -- decisions were made quickly in that regard and that right away helps retain the most talented people across the organization.

So we hope that we're taking the right steps to minimize any disruption you're talking about.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thank you so much. Thanks for taking my question and do well.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you, Rob.

Operator

Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is now open.

Alexander Blostein -- Goldman Sachs -- Analyst

Great, thanks, good morning. Just a quick follow-up on expenses. So I guess, based on the revenue run rate for Franklin stand-alone and averaging effects of the timing the market etc. in the flow trends, I mean it looks like the 2021 revenues could decline still relative to 2020.

So Matt, if you maybe give a little more color of why would core BEN expenses be flat in that scenario, or we should really take that in conjunction with opportunities on net cost savings from the transaction that should be above the $270 million number?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. In our modeling we have -- when we look at the momentum we have across half of our large, it's almost half not exactly half. Almost half of our strategies of which a number have grown really quite significantly over the past 18 months alone. We think that some of these things can start better offsetting the outflows we have from our largest strategies. And then when you combine that with the fact redemptions have fallen really frankly quite significantly in particular internationally, I think in certain places, the lowest in a decade for example. We feel that it's appropriate that yeah our expense -- providing expense guidance for '21 is very tough right now because of the -- because of what we're going through in terms of the transaction, but to us right now based on what we see across the firm and the opportunities and where we think we need to pay, we think it's appropriate to say that we won't be anything worse than flat.

It doesn't mean that we won't be better than that, but I think right now, we're not really in the business of giving guidance 18 months ahead of 12 months ahead whatever. And then the $270 million I think, as I've alluded to already, yeah, we're going to be a much larger company with a much larger cost base and our number one focus is I'm sorry to keep repeating, but it's continuity and stability of the franchise and making sure we retain as much of this as we can and then focus on the growth engines.

That doesn't mean, we won't be more efficient in all the functions, we're going to -- we'll work very hard on that, but you have to sort of bet down a bit and see what other opportunities may exist to improve upon the $270 million. Our feeling is there is a good shot, there will be, but we're not in a position to talk about that now. So...

Alexander Blostein -- Goldman Sachs -- Analyst

Got it, got it. Okay. All makes sense. So essentially predicated on maybe a little bit better revenue outlook than what maybe consensus is making up for you guys. Okay, makes sense.

My second question back to the some of the dynamics in fixed income markets, and just building on the earlier discussion around the impact of low interest rate. So I guess, wouldn't the low rate environment just essentially increase client sensitivity to fees, especially given the passive fixed income products out there a fraction of what active is charging today. Are you seeing some of these pressures already showing up and client conversations today?

And more importantly, I guess, how are you positioning in both the Legacy Franklin line-up and Legg Mason line-up to more effectively compete with lower cost options, as that potentially becomes more pronounced.

Jenny Johnson -- President Chief Executive Officer

So I mean one of the things I would say, and then I'll Greg jump in here too. To think that passive is necessarily a good way to do fixed income management, it's just as the concept of let me increase my investment to the company that's taken on more debt that's a challenge. And so, as I've mentioned on the munis to think that all states are going to be equal -- equals and that you should just apply a passive approach to that I think is a dangerous thing, and we see it you look at where the COVID environment is, one of the reasons we've shifted a bit in some of our multi-asset solutions to some of the more conservative companies is just how long does this thing go on and who is going to be able to sustain themselves through it.

And so I think probably no more no times greater than now for an active approach to thinking about fixed income. And you're right, we're in environment where scale is going to matter because it's going to be pressure on fees, it's going to continue to be that case and so scale is going to be important and you're going to have to adjust the fees, but I think there is a danger to just assuming that a passive approach to fixed income is a good thing. And Greg, you want to.

Greg Johnson -- Executive Chairman

Yeah, I mean I think, it's really when we look at the logic of the Legg deal and Western standing out as obviously the largest, and really a leader in fixed income among a very small peer group, and I would say the pressure on fees has been there. It's real, it will continue to be, but I think the net result when we look out X number of years is going to be two or three large fixed income players that may be at a lower fee rate, but a lot of the smaller ones are not going to survive under that. And what we would lose and fees hopefully, you'd pick up the market share, and I think the flexibility we have with the broad array of capabilities between Benefit Street and others is that we have the full fixed income spectrum available.

And I think you'll see more tactical allocations and flexibility to move across different categories to gain also in fixed income, and we think we're extremely well positioned to benefit from that trend along with unconstrained portfolios and just giving a broader mandate for the active managers, and I look at our line-up, and I think it's probably the best in the industry for that.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And also we have -- we have obviously added substantially -- it doesn't completely hedge out the pressure on these of course, but we do have a much larger portion of higher fee harder to commoditize assets under management now as a combined company. I think we have $125 billion roughly of alternative assets of which are in a higher fee categories and it's important not to just think of Western is being all low-fee fixed income. I mean, Western has some very important alternative credit businesses alongside Benefit Street and clarity on the real-estate side and and for us we have K2, a few other things. When you combine that group together and you think of how significant we are from an alternative asset perspective, we're getting ourselves on the map in that regard.

Jenny Johnson -- President Chief Executive Officer

And actually, while expanding your question because Matt touched on it. I mean, I think, that the opportunity on Clarion in the retail channel is massive, because we've talked to some distributors, they feel that they are highly concentrated with a couple of managers and it happens to be that Clarion also has very-very good performance, because they were overweight industrials and underweight retail coming, we think, coming out of this thing. But again, that's where this combination of having a broader line-up with a real diverse distribution base is going to bring a lot of strength. And so we think that that's -- that higher fee product has just tremendous opportunity. Taking it to our retail channel.

Alexander Blostein -- Goldman Sachs -- Analyst

Great. Thank you for all the color.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Brian Bedell from Deutsche Bank. Your line is now open.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks. Good morning folks. Just wanted to clarify a couple things that I may have missed on the detail, first of all in the quarter expenses I think, that's implying $2.1 billion for Franklin stand-alone in 2020 if you can just -- if you can tell me if that's right or not? And then, I think Matt, you said, earlier you talked about the retention packages being much less expensive than initially thought. Just can you clarify if that was I think, you said, from $350 million expectation down to around $200 million and if those are now concluded and is that still as, I think, initially you thought it was a four to seven-year vesting schedule. Just to clarify this.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Okay. That's a different matter, you were talking about there, Brian. So the retention mechanisms in place are not connected with the $200 million I mentioned a moment ago, the $200 million I mentioned a moment ago, is the cost of achieving the $300 million in savings. So that, that's the cost of the, basically the cost of the headcount reductions, the termination payments, severance payments and other costs related to the downsizing of the company. That's what that is.

The piece, you're talking about the share grants that were awarded at the time of the transaction, they remain the same number of shares, the only thing that's change is the share price has come down a bit since we announced the transaction and we were very likely hedge that position when we have the discussion with our board later on this year and we talked about capital management. So that's -- they're two different things to be clear about that.

Brian Bedell -- Deutsche Bank -- Analyst

Yeah.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

In terms of the 2020 cost base, yes, that's exactly right. It may be a little bit lower than $2.1 billion.

Brian Bedell -- Deutsche Bank -- Analyst

2.1 -- based on the $130 million or $150 million. And then I guess just in terms of both the cost saves and then the attrition expectation. So far, attrition has been great. Like you said, very little attrition, maybe if you could just give us some perspective on your updated thoughts and what attrition levels might be from the deal for the first year or two? And then on the cost save side, it sounds like obviously most of it's coming from the holding company and other overlapping operations, but are you doing anything structurally within the affiliates on the cost side? I know that was hard to do you when Wake did their cost saving program or is that more of a longer-term upside to the extent the affiliates want to rationalize their own internal costs?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. So, sorry, there's quite a lot of questions there. I apologize if I don't get them all but let's go through. So the -- starting with the last one first, my memory works that way. So the last one first, the -- as I mentioned a moment ago, to get the efficiencies we need to get out of this transaction. We don't need the affiliates to change anything that they're doing with the investment organization, so that's somewhat. But having said that, that -- given Franklin Templeton's capacity to provide various functions to different parts of organization is candidly with all respect to our friends in Legg Mason is quite a bit larger and greater than Legg Masons. It means that the investment groups of our overall company has quite a bit of confidence in our ability to help.

So down the line, we probably will do more with the investment organizations when they are ready and when we're ready. Right now, we've got too many other things going on to worry about that but there -- and there probably will be some efficiencies in there. So that is a little bit of a synergy tail, if you will. Well, that's the last question, what was your other question? The other one?

Brian Bedell -- Deutsche Bank -- Analyst

It was on the, your conversations with gatekeepers, I mean, decisions and better so far you have updated on deal related attrition at Legg Mason from assets perspective?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, I mean the deal I think, as Jenny mentioned earlier, due to the structure of the transaction, the fact that we -- there's zero changes in terms of client coverage at the investment organization or affiliate level, it means we have sort of a much more embedded stability in terms of client coverage and client support. So, so far, the client retention is being very high and we're very-very focused on that. We like to believe we can continue along that -- those lines. So right now, the client attrition that we've had has been very minimal in one country, in Asia with one of the investment organizations and we hope it remains that way. So we're more focused on revenue synergies going forward.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

There are no further questions. I will turn the call back over to the presenters.

Jenny Johnson -- President Chief Executive Officer

Well, I just want to again thank everybody for joining the call today. And again, in this time just hope everybody is staying healthy and safe. So, thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Jenny Johnson -- President Chief Executive Officer

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Greg Johnson -- Executive Chairman

Dan Fannon -- Jefferies & Company Inc -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Kenneth B. Worthington -- J.P. Morgan -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Chris Harris -- Wells Fargo Securities -- Analyst

Brennan Hawken -- UBS Investment Bank. -- Analyst

William R.Katz -- Citigroup -- Analyst

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Alexander Blostein -- Goldman Sachs -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

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