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Franklin Resources Inc. (NYSE:BEN)
Q4 2020 Earnings Call
Oct 27, 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 the Quarter and Fiscal Year ended September 30, 2020. My name is Holly, and I'll be your call operator today. Please note the information presented on this conference call is preliminary. Statements made on 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, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risks -- the risk factors and MD&A sections 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.

Jennifer M. Johnson -- President and Chief Executive Officer

Hello, and thank you for joining us today to discuss Franklin Templeton's fourth quarter and fiscal year 2020 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.

So this year, despite the challenges presented by COVID-19, we made significant progress in moving our business forward, including closing the Legg Mason acquisition earlier than initially expected. We focused our efforts and investments in key areas that directly support the firm's multi-year strategic plan to maximize organic growth, execute on M&A opportunities and position Franklin Templeton to capitalize on industry change.

The results that we announced this morning reflect a full quarter and fiscal year of Franklin Templeton, but only include two months of the newly combined organization. In that short amount of time, and under these extraordinary work from home conditions, we've made remarkable progress, becoming one Company all ahead of schedule.

And the strategic rationale for this powerful combination has only strengthened since we announced the acquisition back in February. We've been able to bring together two especially complementary platforms in a way that creates a more balanced organization. Our global presence has expanded in key growth markets around the world, and we have created an all-weather product offering with a greater range of specialized high quality investment capabilities, all with an eye toward delivering exceptional client outcome.

It's important to note that the Company we have become could not have been realized alone. Together, we have significantly enhanced our ability to meet the needs of clients, advisors and shareholders for many years to come, and client reaction to the acquisition has been consistently positive. We're excited about this integration, not just the strategic benefits, but also for the impressive group of people and leaders we're bringing on board.

We were pleased to be joined by so many talented professionals from Legg Mason, with a 97% acceptance rate of employment offers made to Legg Mason holding company employees. An integral part of our planning efforts has been the frequent and productive conversations we've had with the leaders of each of the specialist Investment Managers or SIMs.

We have appointed certain SIM leaders to global or regional leadership roles in different areas of the Company to fully reinforce our strong alignment, our shared focus and commitment to each other. We're also pleased to report that our global distribution team is now in place and is already able to cross sell investment products from both organizations across retail and institutional channels globally. Our new, more regionalized client-centric distribution structure is designed to increase end-to-end accountability for regional growth, and ensure clients get the most out of their relationships with us. Our Specialized Investment Managers also each retained their strong institutional distribution capabilities.

We have focused on preserving the independent investment autonomy of the SIMs while providing them with the opportunity to benefit from Franklin Templeton's Global Infrastructure and investments in technology. In one exception, Franklin Templeton multi-asset solutions and QSInvestors have combined to form Franklin Templeton Investment Solutions. This single, best-in-class platform brings together the powerful combination of Franklin Templeton's active fundamental capabilities with QS quantitative skills to customize multi-asset portfolios for clients.

The team now has more than 120 investment professionals overseeing more than $120 billion in multi-asset strategies, creating a sizable solutions business with scale to compete with the largest full service providers. We're seeing the benefits of adding world-class franchises to an already strong set of investment capabilities. We continue to believe that active management will play an increasingly important role in client portfolios and we are well-positioned to capitalize on this.

On the performance front, approximately half of mutual fund assets are outperforming their peers over the standard time period, including over 100 funds rated four stars or five stars by Morningstar. We also have strong institutional performance with 63%, 69%, 73% and 84% of assets, beating the applicable benchmark for the one, three, five and ten year periods respectively, most notably in fixed income and alternatives.

On the sales front, U.S. Fixed Income attracted record net flows of $5.7 billion in the quarter. We are pleased to see strong long-term net flows from Western Asset which reached $410 billion in long-term assets and $479 billion in total assets, its highest level on both fronts in over a decade. Additionally, as of quarter end, Western's total assets under management were $12 billion higher, than at the time the acquisition was announced. Western's investment performance has been outstanding.

Our fixed income pipeline across the firm is strong with at least $6 billion of unfunded wins and a significant opportunity pipeline. We recently introduced a new portfolio management team structure for the Franklin municipal bond team to align portfolio managers with common strategies across the platform.

We believe this will further enhance investment performance that rebounded this year with 85% of assets, ahead of peers for the one-year period, contributing to positive net flows for the year. On a combined basis across the firm, our tax free fixed income AUM has increased to almost $85 billion.

ClearBridge AUM is close to its all-time high, standing at $153 billion with strong investment performance and flows in several strategies. Royce and Martin Currie Strategies also have strong investment performance with essentially flat flows for the quarter. Franklin Equity Group continues to achieve strong performance and attract inflows. Franklin Dynatech Fund generated $4.4 billion in net inflows for the year, more than doubling its assets under management to over $18 billion. Combined with Franklin Growth and Franklin Rising Dividend Fund, the Franklin Equity Group now has three funds near or above $20 billion of assets under management.

In terms of global macro, while performance challenges and attrition from Franklin Templeton and Brandywine global macro strategies persist, these continue to be positioned for more challenging market conditions. These set strategies also made up some ground on peers and the benchmark in the quarter. It's undeniable that with Franklin Templeton, Western and Brandywine, we have a truly unique position and extensive capabilities across global macro strategies.

Similarly, Templeton global equity and Franklin mutual series strategies continue to experience outflows, but are well-positioned for periods that favor value investing. With the addition of Clarion Partners, along with Benefit Street Partners and K2 Advisors, the alternative asset class recorded its fifth consecutive quarter of net inflows and now represents $124 billion in assets firm wide.

Clarion is experiencing strong investor interest with an inbound queue of over $1 billion. Benefit Street Partners priced two new CLOs in the quarter totaling $800 million and received additional commitments of approximately $300 million. Momentum in our alternative business continues to build.

As investors become more and more vehicle-agnostic, we are well-positioned in the retail SMA segment of the market where we are now a leading franchise with $103 billion in assets compared to just $6 billion a year ago. And our expanded ETF offering doubled to over $10 billion in AUM this year. We are also planning to expand our closed-end fund capabilities.

Turning to financial highlights, adjusted operating income increased to $429 million, a 58% increase versus last quarter or 5% from the prior year, largely reflecting the addition of two months of Legg Mason. We are on track to realize $300 million of gross synergies with 85% of run rate savings expected to be realized by the end of fiscal year 2021.

The cost to achieve these savings is expected to be approximately $200 million, which is a $150 million less than originally anticipated. And we expect to realize approximately $600 million of cash tax benefit related to the various tax attributes and deductions, which carried forward in the transaction a 20% increase from our initial estimate.

Our strong balance sheet continues to provide us with tremendous flexibility to evolve our business. Earlier this month, we completed a public offering of $750 million aggregate principal senior notes due 2030 issuing at a 1.6% coupon and pre-funding our intention to call higher coupon junior subordinated notes, which are callable at par in March and September 2021.

And finally, I'd like to thank all of our employees for their significant efforts to keep our business operating smoothly during these extraordinary times and for maintaining their laser focus on our clients' needs. Now, I'd like to open it up to your questions. Operator?

Questions and Answers:

Operator

Thank you, Ms. Johnson. [Operator Instructions]. And our first question is going to come from the line of Ken Worthington with JPMorgan.

Kenneth B. Worthington -- JPMorgan -- Analyst

Hi, good morning. Thank you for taking my question. With the integration of Legg well under way, can you talk about the integration of the two distribution networks thus far? I think on the last call you talked about building a more agile and regional distribution organization.

So I wanted to hear any updates there. And then you gave a cross-selling anecdote in the commentary, and I was hoping you could flesh out kind of how you would expect cross-selling to ramp, given the integration and maybe what products might be most successful, given what you've learned over the last couple of months? Thanks.

Jennifer M. Johnson -- President and Chief Executive Officer

Yeah. So thanks for the question Ken. So the first thing was a decision to more regionalize. So what does that mean? We wanted to push out more marketing and product and data analytics, out to the regions historically that was centrally [Phonetic]. And so now there is a portion of it that's completely controlled by the Head of that region.

And as you probably know, we talked about some of the SIM heads taking on leadership roles. Adam Spector, who is CEO of Brandywine is now Head of Global Distribution, and Julian Ide, who was Head of Martin Currie is now Head of Europe for us. And so that's just helpful in ensuring that we understand both how to integrate the global distribution with really how each of the SIMs handles their distribution. So it's helpful having people who come from that perspective.

As far as you look at U.S. retail, which is a $1 trillion of our asset, Legg Mason came in with a much stronger footprint in the broker dealer warehouse channel and we were much stronger in the independent channel. We now have $103 billion in SMAs. They were very top three SMA provider. And so it was really looking at the capabilities between the two organizations and figuring out how to -- and in some cases you just had great people in the same covering the same channel, but one had greater penetration in that. And so our distribution team is legally a mix of Legg Mason and historic Franklin Templeton people and it was trying to recognize kind of where those strengths were. They had strong penetration in the insurance channel. So we bring in the Legg Mason folks.

We have spent -- trying to remember the number -- something like 1,200 people had participated in something like 83 webinars that we've done to teach and ensure that there is -- that all the sales people have now each other's products. So we spent a lot of time on that. You saw the anecdotes in the comments. We also had another example where we had an Israeli institution, where Legg never had any distribution in Israel, and ended up winning the mandate for one of the SIMs.

So this -- it takes a little bit of time, but I have to tell you this, we are -- we felt really good about how it's operating now and that we found less overlap than we thought we'd find with distribution when you really got under the covers.

Kenneth B. Worthington -- JPMorgan -- Analyst

Great, thank you very much.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I think I'd just one thing to that, which is to say on the institutional side, recognizing how important the institutional distribution is, given the fact that a big portion of Legg Mason and the rationale for our transaction was to grow institutional business that staying largely exactly as it's organized today at the specialized investment management level and that creates a high degree of confidence with clients, the stability and continuity in that area of the business.

Jennifer M. Johnson -- President and Chief Executive Officer

And actually, let me add one other thing, you asked the question of how do we get more positive flows. As you saw, we had things like the alternatives, who actually have been in positive flows. We think there was just huge amount of opportunity for Clarion and BSP and the retail channels and BSP did a small acquisition of a REIT. And really what they were doing was acquiring some -- so wholesalers who have expertise in selling alternatives to the RA channel. So we think that's a tremendous opportunity for both Clarion and BSP as well as feedback we've had from wirehouses who feel that they may have a heavy concentration in the real estate managers that they have, and they'd like to diversify and Clarion coming out of this is just a tremendous performance as they were overweight in things like industrials and underweight in say retail.

Western obviously continuing cross sell capabilities. We have in the SMA side is the income fund, is able to be -- we are penetrating more of the relationships that Legg Mason has with advisors and sell SMAs. We think that's going to be a great opportunity for an Income Fund. And I do have to say that, I think with the Templeton Global Bond there is increasingly nervousness around whether -- they're very much set up for a risk-off environment as is Brandywine and we've seen them perform very well in September, and as investors, they fix them as almost an insurance policy right now to any kind of big catalyst of the surprise, whether it's an inflation surprise, or escalation of U.S.-China tension, and so I think the story, we're doing a better job of getting out their story there.

I think we could at least begin to see some reduction in the redemptions and again it's kind of positioning that message as an insurance.

Kenneth B. Worthington -- JPMorgan -- Analyst

Great. Thank you very much.

Operator

And our next question will come from the line of Patrick Davitt with Autonomous Research.

Patrick Davitt -- Autonomous -- Analyst

Hey, good morning all. Could you give us the amount of reinvested distributions in the long-term flow numbers so we can better compare it to your public comps?

Jennifer M. Johnson -- President and Chief Executive Officer

Yeah, I think -- go ahead Matt.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Okay. So we had $2.5 billion of reinvested distributions for the quarter. That compares to $3.5 billion last quarter, and as you know, $3 billion a year ago. Our plan there, by the way -- so we seem to have caused some confusion here, was to call out anything that's unusual around those flows. We decided to have a simplified view of flows in terms of the presentation of it. So we had client driven activity in, client activity out and given our size and breadth of our business, we thought that made the most sense.

But we're not trying to avoid discussing reinvested distributions with anything unusual around that we have planned to discuss it, for example, at year-end, as you know, that's often elevated and we plan to call it out at that time. But that's the number for the quarter is $2.5 billion, $3.5 billion last quarter, as you know and $3 billion a year ago.

Patrick Davitt -- Autonomous -- Analyst

Perfect, thanks. And on the fee rate guide, is there any kind of money fund fee waiver headwind built into that? And through that lens, how much has that started to hit in the most recent quarter and maybe any view on how it's tracking kind of into the December quarter?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yes, it's fully included in the projection.

Patrick Davitt -- Autonomous -- Analyst

Okay. And was it impactful in the last quarter?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Not relative to the size of our business, and also given the structure of our arrangement with Western has the largest portion of our money market business. We have some protection there on the margin. So it's not a big -- it's absolutely not material to our overall company operation.

Patrick Davitt -- Autonomous -- Analyst

Great. Thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

And our next question will come from the line of Craig Siegenthaler with Credit Suisse.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Hey, Craig.

Craig Siegenthaler -- Credit Suisse -- Analyst

Hey, good morning, Jenny and Matthew. Hope you both are doing well.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Good morning. Thank you.

Craig Siegenthaler -- Credit Suisse -- Analyst

I wanted to start with M&A. And so, just given the pickup in M&A speculation in U.S. asset management, we want to see if Franklin would consider doing another large acquisition over the next 12 months, knowing that you're still in the process of digesting Legg Mason which probably isn't easy on the organization.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, I think the way that we'd answer that is that we are absolutely in the flow of what's going on. You're right, there's a tremendous amount of activity in the industry with some interesting opportunities to consider. Broadly speaking, I think in many ways the evolution of the industry in terms of some of the more dramatic ideas that are out there is just getting started.

But we are very, very focused on making sure that we maximize the output from the Legg Mason transaction. I mean we literally doubled the size of our Company from an assets under management perspective. We -- every time when we have meetings internally, we peel the onion back, and we realize we've got another opportunity internally, either to be more efficient or to work together to produce more revenue.

So, I think that, that's our primary focus. But we are in the flow on these things. We're not short for M&A by any stretch. If there was something tremendously compelling, in particular on the distribution side, if there was something that helped us with distribution, further to what we already have, we'll look at it very carefully. We still have a very strong balance sheet. We're not going to compromise that. We had strong earnings potential. We're not going to compromise that, given the opportunities we've got to use our cash elsewhere internally.

But it's fascinating times and we are one of the companies that is quite actively pursuing ideas in the industry, and making sure we keep up with the flow of change.

Jennifer M. Johnson -- President and Chief Executive Officer

Yeah, and I would just add to that -- exactly with Matt, it would take a lot for us to want to take on something else before we digest this one. But you never know. I mean it was -- we were very intentional about keeping a -- having dry powder in case something else just came up but the bar is probably a little bit higher on any big deals. But we've also said that we continue to -- we want to grow our high net worth business.

And as Matt said, if there is something that's sort of distribution-related, which tends to be more on the technology side that we'll always look at those and then, we stay on the flow in the industry, because I think the industry is changing pretty dramatically.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you. Just as my follow-up on flows, we've seen really this strong migration into fixed income in the U.S., and then you have a much stronger bond business now with the addition of Brandywine and Western. But your flows were a little bit negative in the quarter due to Global Bond. Do you expect the bond migration to continue for the industry, even though yields are very low? And then if you do you think it will continue, do you think Franklin, as a Company, can start to participate, just as all the pieces start working together?

Gregory E. Johnson -- Executive Chairman and Chairman of the Board

Yeah, I mean, this is Greg. I would say that you really have to separate out between what Western's doing on U.S. fixed income side. We've seen a lot of strength in areas like munis. We think that's going to continue as state rates and possibly federal rates go up. So I think that's very positive.

Obviously, rates declined mostly over the period. So any duration, and even credit worked very well. And that's really why Western stood out. And it would be a very strong quarter for flows if you just looked at our U.S. fixed income that's $5.5 billion or so of inflows for the quarter, it just gets masked by what is happening on the global bond side, which really is a category that is very different from the traditional fixed income buyer.

And as Jenny said earlier, I look at the categories and any spike in rates, any contraction in spreads and credit, we saw that a little bit, we saw that in September. We may see that continuing a bit, and I think that will help Global Bond. At the end of the day, any asset category, like especially Global Bond competes with everything else and the returns when you compare U.S. equities and just straight U.S. fixed it doesn't look very attractive.

I think it can look pretty attractive fairly quickly, if you have any kind of move up in rates. And that's really why we think this is a nice balance to the overall portfolio.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, Greg.

Gregory E. Johnson -- Executive Chairman and Chairman of the Board

Thanks.

Operator

And our next question will come from the line of Robert Lee with KBW.

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

Thanks, and good morning everyone. I guess first question...

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Hello.

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

Hi, Matt, could you comment on -- maybe just want to understand the tax guidance in the 26% rate, which I know you mentioned GAAP compared to kind of a -- kind of at 22% or so, that kind of we're expecting. Should we still expect 22% on an adjusted basis or is -- should we use 26% as the baseline understanding and bounce around from there? I mean, how should we think of that?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I'd use 26% as the baseline. I mean at the business -- our business has changed in terms of, we've got a greater portion of our business in the U.S., which is at higher tax rate. And there are a couple of jurisdictions internationally where the tax rates have gone up a little bit so that impacts our overall tax view. So I think I would use 26% with a view that maybe it could be 25%. But I think 26% is a good number to put in the model for now.

The fourth quarter was confusing. We had a spike in that rate because of the reasons we mentioned in the prepared remarks. It was just very unusual, that spiked it up to 36%, -- 36%.

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

Great. And maybe just going back to the fee rate guide, so the 36% and 38% on kind of a fully consolidated basis, are you thinking that kind of over -- it's kind of a fiscal 2021 or is kind of longer term and on like kind of exit run rate basis, adjusted against the 38% and change in the quarter, adjusted with a two months lag, is that kind of a feasible run rate?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, the 36% to 38% is assuming a full year. So that's the full 12 months combination, if you will. So we think that's a good guide based on, obviously that very significant mix of business change. So with much bigger fixed income business and much bigger institutional business, both at lower fee rates versus legacy Franklin Templeton which brings that down.

But at the same time there is opportunity there in the alternative side where the fee rate is quite a bit higher and we see some interesting growth opportunities there. So you have Global Bond being -- Global Bond higher rate being offset by lower rate broader fixed income, business core, core plus institutional, that's what brings it down. And then, pressure upwards if you will is the growth of the alternative business. So we hope we're on the higher end of it, but we think that's the natural range for the year.

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

Okay, thank you. Appreciate you taking my questions.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you Rob.

Operator

Our next question is going to come from the line of Dan Fannon with Jefferies.

Daniel T. Fannon -- Jefferies -- Analyst

Thanks. Just a follow-up on one more question, just in terms of the assumptions for your guidance. Do the fee rates assume any level of performance fees, and if so, kind of what's the baseline? Also, as you think about your expense guidance and the fee rate guidance you gave, what is the market assumption that you're using, was it flat or is there some modest growth?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

So we assume flat, we don't assume any market growth in our projections, one. Two, that the fees do not include performance, they take average, fee rate projection does not include performance fees. We expect our performance fees to actually go up. They were $10 million for this quarter from $0 last quarter Standalone FT. We start to enjoy a larger percentage of performance fees from Clarion after April next year. So that provides an opportunity, we share 50-50 performance fees with them today whereas today, we don't get any. It's 50% on our 83% ownership in Clarion.

So that's an opportunity to get more performance fees. So, and in previous times last quarter was unusual. We had no performance fees in Benefit Street, but we expect that to pick up for example this quarter. It went from $0 million to $4 million. We got $6 million from the Legg Mason side and it wouldn't surprise us to see that go up quite a bit in 2021.

Daniel T. Fannon -- Jefferies -- Analyst

Great. And then in terms of the known redemptions, you called out $3 billion in the prepared comments, but you also then highlighted that it was not related to the transaction. So I guess what gives you confidence around that? And then, just curious about other potential disruptions that you might see or have heard about coming from either just normal course of business or the acquisition?

Jennifer M. Johnson -- President and Chief Executive Officer

So I have to say just on the -- from the Legg Mason standpoint, Legg Mason was in positive flows in September. They have a much bigger institutional business. So you have lumpier redemption. As I said, it's going to be more characteristic than we've seen historically. But we basically haven't seen redemptions related to any in this transaction. The bigger redemptions have tended to be Franklin Templeton as we said. That one that we called out was a low fee sub-advise relationship.

There are some where you are seeing sovereign wealth funds in the Middle East who are redeeming I think larger numbers for -- not for investment performance, not for transaction, just because it's sort of what's going on in the market right now. So we are optimistic from the standpoint of the integration and how things are going with clients, but you're always going to have -- we still have the issues on our performance in a couple of areas like global macro. Obviously value -- the value indexes underperformed, 3,200 basis points year-to-date.

So there are some people that are just ready to throw in the towel on value, others who are thinking maybe it's time to -- that could switch. So those are always going to be -- to the extent they are on the institutional side a little bit more lumpy.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

But as a general matter, obviously, we'd rather have no outflows, $12.6 billion it's not like we're pleased about $12.6 billion of outflows, but when you think about it, the $12.6 billion is very consistent with Franklin Templeton stand-alone outflows from the previous quarter and both last quarter and the quarter before that. So the percentage attrition across the firm has come down a lot and it's driven by exactly the same thing that we're -- that are really market driven, if you think about the positioning of those strategies and the all-weather point that Jenny has made a few times is an important one in this regard because we do have some very important strategies under the hood here that, that will do well if the market starts to get more difficult again.

I'd also say that out of our $11.5 billion of sort of unfunded wins that we have, we would expect something like $5 billion or so that to come in the December quarter.

Daniel T. Fannon -- Jefferies -- Analyst

Great, thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

And our next question will come from the line of Michael Cyprys with Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good morning. Thanks for taking the question. Just on the multi-asset front, you guys have combined QS with the Franklin Templeton multi-asset solutions group to create the stand-alone multi-asset solutions platform. I'm just hoping you could talk a little bit more about the strategy there. What you're most excited about? How you're thinking about the opportunity set? And then just a follow up there would be, just as you look across the organization entirely where else could it make sense maybe over time to think about bringing together some of the investment teams from Franklin Templeton and like to create similar sort of combined businesses and investment teams?

Jennifer M. Johnson -- President and Chief Executive Officer

So on the QS and FTMAS, very much kind of the team's got together and really thought about it, talked about it and said that we could be much stronger together. So this is really kind of organically coming from the team. Today that combined organization has 120 investment professionals and $120 billion in assets. So what I think intrigued them on why it makes sense [Indecipherable] is QS was an institutional kind of client manager. They had a very strong track record and things like liability-driven investment active client risk mitigation.

On the Franklin side, while there was quant capability was much more of really sort of active manager, active allocation and when they -- and they have their own outside managers due diligence. So in bringing them together, you're really bringing this hybrid of kind of quant and an active.

And you think about the way the world's going, whether it models in retail, outcome-oriented models in the retail channel or risk overlay of separately managed accounts, clients are looking for being able to have a conversation, almost like an OCIO type of conversation, as they're trying to think through how to build their portfolios, how to position their portfolio and this just gives us tremendous capability around that.

And we think that that's sort of the way to feature those.

Gregory E. Johnson -- Executive Chairman and Chairman of the Board

Yeah, I would just add, I mean I think it -- also from a client service and institutional accounts, having that capability and just the value added side of the looking at the risk overlays and LDIs, opening up new channels like insurance, for us, it just increases the toolbox that we can offer the clients and hopefully deepen the relationships. And I also take as examples, the one example of scale where you have a large organization. It's bringing all that expertise into one and then hopefully leveraging that with clients. We think that's very exciting.

Jennifer M. Johnson -- President and Chief Executive Officer

And just to answer your other part of the question about, do we see opportunities to bring other groups together, we are not focused on merging products together. That is not part of this deal. And as a matter of fact, you just -- you talk to our CIO of global fixed income and CIO of Western, and they have different views on sort of the timing on whether or not we'll see inflation or interest rate rise in the long end on the curve. And that's what an all-weather product line up is that ability to have different products for different outcomes and we think that's very healthy.

Our distribution team has been selling equities where arguably two different managers compete in the same category. They -- you have to have the best distribution team, because they have to be able to discern what the client's looking for, and either deliver up one option or decide that you're going to answer the RFP with two different options in the same category.

We've been very comfortable with that on the equity side. I can say that now we just added that capability on the fixed income side.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thanks, Mike.

Operator

And our next question will come from the line of Bill Katz with Citigroup.

William R.Katz -- Citigroup -- Analyst

Okay, thanks very much for taking the questions. So I guess I'm not sure, Jenny or Matt or yourself, just coming back to your fiscal '21 expense guidance of $3.7 billion. What kind of sort of G&A assumptions are you playing -- plugging into that number, just trying to get a sense of what you're thinking about in terms of normal around travel, entertainment sort of things that are probably depressed given the COVID-19 backdrop?

Jennifer M. Johnson -- President and Chief Executive Officer

In 2020, [Speech Overlap]. I am going to pass it to Matt.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Hey Bill, hope your son is doing well.

William R.Katz -- Citigroup -- Analyst

Thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

The -- So I would say that we've built in a sense of -- again, maybe this is sort of optimistic from my perspective, but we are building a sense of normalization in beginning, say that in March next year. But we've also built in more in terms of advertising promotion, these sorts of things that you'd expect us to do as we've been working on our distribution client franchise. And so our G&A, we have forecasted for about $485 million for the year, which is a healthy number and allows us to continue to invest in a number of important things and does allow for travel to go back to some form of normality after the first annualized quarter next year.

William R.Katz -- Citigroup -- Analyst

Great, that's helpful. And just as a follow-up, I noticed you started to repurchase some stock in the quarter. So how do you counter balance sort of reinvesting back into the business versus the return of cash to investors versus your commentary that, which is the beginning stages of an M&A evolution?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, so you can see, when you look at our balance sheet. In fact, we last quarter we ended at $8.2 billion or so on the cash investments. We now have $5.1 billion cash investments. It's still quite healthy underpinning to give us confidence to use our income. Our income already with just two months of Legg Mason in there is pretty significantly enhanced.

So I think what we plan to do at a minimum with respect to share repurchase is to make sure that we offset all of our share grants and then obviously we are very focused on the dividend to making -- you know our history there and you can expect that to continue, subject to our Board approving in December, the capital management policy. And then we have already multiple new requests internally, given the new breadth of our firm to consider co-investments, seek capital opportunities, other internal growth opportunities.

And what I would say is that as we reach the end, either of a quarter or of a year even, we then may do some top-ups in terms of some additional share repurchases if we don't feel pressure elsewhere. We also have a higher debt load as you know now, and we successfully accessed the market earlier this month, as Jenny mentioned and we intend to use the proceeds there to refinance much more expensive notes. We're going to actually save about $30 million on that.

But having said that, if rates stay where they are, maybe we'll just refinance our notes going forward, and we stay at the current debt load assuming our EBITDA stays about the same, because we want to keep our current credit profile intact.

But if rates stay where they are -- if rates get more expensive or the debt market is not as attractive maybe we delever some as well with our cash. So it's really a combination of those things and at the end of the day if we have capacity to buy back more shares given our current valuation, we'll do it.

William R.Katz -- Citigroup -- Analyst

Thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Thank you. Our next question will come from the line of Alex Blostein with Goldman Sachs.

Alexander Blostein -- Goldman Sachs -- Analyst

Hey, thanks guys. Just a couple of clarification at this point. So Matthew, on the expense guidance, can you help us with some sensitivity to revenue assumption. So I know you said you guys are assuming generally flat markets in your expense guide for '21. But if the markets were to be higher, can you help us understand kind of what's the sensitivity to that $3.7 billion with a kind of normalized market returns?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, I think the $3.7 billion, given the fact that's an adjusted number, of course the GAAP number could be higher or lower, because that includes S&D, but I'd say as an adjusted number, that's a disciplined number that we have some comfort in that, that if the markets go up, it will still be $3.7 billion. That's sort of how I would describe it. If the markets come down, it could come down. But I don't see us going up beyond the $3.7 billion.

Alexander Blostein -- Goldman Sachs -- Analyst

And just another question, I guess around capital management. Given the valuation on the stock currently and the free cash flow generation of the business, can you help us understand the framework around making another acquisition, whether it's something small on the distribution side or kind of continuously building out the RA channel, the high net-worth channel versus buying back Franklin stock at these levels?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah. Yeah, look, I think it's a great question, because obviously the bar for us has to be quite high, given the fact that every dollar we are buying back our stock is like [Phonetic] buying back 6% dividend yield. So we're quite focused on that. We won't be doing large stock deals based on our current multiple and dilute [Technical Issues]

Jennifer M. Johnson -- President and Chief Executive Officer

Matt, I think you're on mute. I think you just muted yourself.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Hello?

Jennifer M. Johnson -- President and Chief Executive Officer

Yeah, hi. Matt. Go ahead.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Greg and Jenny, can you mute?

Operator

Ladies and gentlemen standby.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Okay. No, I'm OK. I fixed it, Alex, can you hear me?

Alexander Blostein -- Goldman Sachs -- Analyst

Yeah, all good.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Okay. Sorry about that. Where were we? I'm sorry. I've lost track of what we were -- what we were just talking about?

Jennifer M. Johnson -- President and Chief Executive Officer

You were answering the question about the decision on whether we buy back shares.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Oh, yeah. About the high bar, yes. So we've a high bar for the reasons I just mentioned on our stock and we're not going to do a large transaction using our stock, unless it's for the same kind of multiple. And so the way I would say it is that in wealth management, we think it's a very good use of our cash because we did two smaller transactions, they both ended up being accretive to us in terms of the execution around that, a little bit of cost savings, revenue growth. It all works out quite well.

So in wealth, there would be much smaller transactions that we used to continue to grow fiduciary trust. It's on the alternative asset side that we have to think. There are some interesting opportunities out there and that would be where we would use our cash and not our stock, so that's how I describe that.

Alexander Blostein -- Goldman Sachs -- Analyst

Got it. All right, great. Thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

And our next question will come from the line of Chris Harris with Wells Fargo.

Christopher Harris -- Wells Fargo -- Analyst

Thanks. So you highlighted the momentum you've been seeing in alternatives. But there are some concerns about real estate as an asset class, generally -- particularly commercial real estate. So how is Clarion positioned to deal with the downturn we're seeing in that particular area?

Jennifer M. Johnson -- President and Chief Executive Officer

So Clarion is overweight industrial. So that area has done very, very well. And you know, e-commerce finance goes up. Amazon needs more storage and so -- and there's more demand on cloud and things. And that's an area that they've focused on and they were really underweight on the commercial real estate. So they actually performance is -- they're very, very well positioned right now with the performance.

Christopher Harris -- Wells Fargo -- Analyst

Okay. And then just one quick one on the expenses. I know we've got some noise here because Legg was -- is revenue and profit share and Franklin is more of the traditional model. So if we look at the aggregate expense base, what is the addressable cost base, if you will, in other words, what are these synergies being net of, because I know we probably shouldn't be looking at the entire expense base when we're considering that.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

No, I think you should. I think you should look at it like against the $3.7 billion that we've guided for 2021. I know it's very early guidance but I think it's correct to think of that is as being addressable.

Christopher Harris -- Wells Fargo -- Analyst

Okay, thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Our next question will come from the line of Mike Carrier with Bank of America.

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

Hi. Good morning. Thanks for taking the question. Just two follow-ups. So Matt, given a lot of moving parts with expenses [Indecipherable] you have like a fiscal 1Q starting point, the adjusted expense level, given the 25% of synergies realized by the end of September and then the full impact of Legg. And then any color on just the timing of when we should expect the 85% during the year?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah. So on the 85%, I'd say we've made good progress so far. I think we mentioned that we already achieved 25% of it by 9/30. We expect to achieve 50% by -- we said year-end, but that's probably going to be more like the end of January. And then I would say the rest of it, or the 35% that's left, we hope to get most of it by June. But there'll be some carefully managed expense reductions on the -- in the front office side in particular that we've wanted to spend more time executing upon to make sure we -- make sure we have that continuity and stability around the group that we've discussed.

So I think it's fair to say that we -- again we've got the 25% done, end of January we get that 50%, maybe we get 75% by the end of June. And then the rest, up to 85% by the end of our fiscal year. In terms of a normalized... [Speech Overlap] I mean, I think one of the -- maybe it's useful to walk through the revenue and expenses, associated with what we bought on from Legg Mason.

So Legg Mason two months was about $475 million of revenue, if you include sales and distribution fees. If you exclude sales and distribution fees, it's about $415 million. So that sort of annual -- quarter rise is if you will into about $700 million to $720 million or $2.85 billion on an annualized level in terms of revenue.

And the expenses, as you said, it's a bit of a noisy quarter to say the least with all the acquisition-related expenses. But if you exclude the non-recurring acquisition-related expense items, it was about -- just the Legg Mason two months was about $350 million inclusive of sales and distribution. Excluding that it's about $280 million. So I think about it as being -- that if you include sales and distribution, it's 475 minus 350 equals 125 times 6, 750. That's one way of looking at it.

If you exclude sales and distribution, it's 415 minus 280 is 135 times 6 is 810. So you could look at it as that, we are adding to Franklin, including the cost saves that are included in those numbers, because remember in the overlay we haven't included the additional run rate that we expect to achieve during the year. So maybe that helps, but we think about that as being an addition on top of our business.

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

Yeah. That's helpful. And then, one just clarification on the fee rate, just, when I look at the quarter at the 38%, it seems like that was a little lower than expected from like the pro formas and then even with Franklin stand-alone around 50%. And then if I think about the outlook at 36% to 38%, if that includes like another month delay it seems like that's not much of an impact relative to the 38%. So I wasn't sure if there was something else either impacting this quarter or impacting like the run rate or the....yeah.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

No, nothing in particular. We've modeled it out and we think they're good guides.

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

Okay, thanks a lot.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Thank you. Our next question will come from the line of Brian Bedell.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks very much. Good morning, guys. Most of my questions have been asked and answered, but just one follow-up on the capacity for deals, if you're doing them in cash, Matt like you said. The -- I know it's $5.1 billion in cash and investments. What do you view as cash available for acquisitions within that? And then also additional debt capacity, if we should think about what type of cash level, you'd be able to do with deals?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, it's probably out of the cash, you see it's probably $1 billion, because again, we're quite conservative. We like to make sure we have the supp -- as you know, we call it supplemental liquidity and we intend to keep that in place. So we're disciplined around that. And so that's how we -- that's probably what -- if you're looking for an excess cash number that we would consider to be excess, it would be that.

In terms of other people it may be double that number, define who is that, but that we wouldn't. In terms of debt capacity, our absolute intention and focus is to make sure that we maintain our current credit profile, which is in A, A2 rating as you know, we just access the debt markets and we are very pleased with our rating in that transaction and we intend to retain that profile and operate the Company and our capital structure in a way that's consistent with that.

And so, our debt capacity at that level, we probably have some capacity, but we don't intend to push our limits whatsoever with the rating agencies or with our debt investors, given what we've described to them. So we're quite focused on that. The technical capacity to investment grade is very, very substantial in terms of debt, but we don't intend to use that.

Brian Bedell -- Deutsche Bank -- Analyst

Okay, that's helpful. And then Jenny, just if you could talk a little bit about ESG. Obviously, Legg's managers had some good traction, certainly at ClearBridge and also Western, and also a few other affiliates. How are you thinking about integrating that through Franklin? Are you thinking about centralizing that ESG process and leveraging that across the totality of platforms or leaving those ESG capabilities within the individual managers?

Jennifer M. Johnson -- President and Chief Executive Officer

So with respect to ESG, we think that the framework in which you apply ESG is specific to the investment team. But the data -- we're a member of FASB and trying to get a lot more standardization around the data. We've actually created a centralized ESG database. So our various teams, you take our global macro team, they get 14 different data feeds to build their ESG framework.

That data then goes into this centralized ESG database. Any of the investment teams are welcome to use it as they build their own framework and model. But we really are working hard with FASB and the industry and Greg participates in the IPI and ESG and trying to just standardize a lot of the information that people look at to measure -- to build their framework.

But to answer your question, we think that it is part of the fundamental part of investment process.

Brian Bedell -- Deutsche Bank -- Analyst

Right. That makes sense. And may I squeeze in one more quick one?

Jennifer M. Johnson -- President and Chief Executive Officer

Hey, Brian. I just want to make this little pitch. Our Franklin Municipal Green Bond Fund is 9% year-to-date, which is our ESG and the muni area, would [Phonetic] take [Phonetic] got demand, great demand for these. Yes, go ahead.

Brian Bedell -- Deutsche Bank -- Analyst

Nice. No, that's great. Just on that 97% employment acceptance, was that in line with what you were thinking, I guess, and were there any significant non-acceptances from either PMs or key leaders in that 3%?

Jennifer M. Johnson -- President and Chief Executive Officer

So again, that was a focus on holding company and distribution. And I think what we set out, we were sure what percentage of Legg Mason employees, and I think we ended up both on distribution and on the holding company taking a lot more Legg Mason employees and I think we really would see that it's a combination of both groups. And no, there was no specific one that we felt like we really missed and we were not talking about investment people.

Brian Bedell -- Deutsche Bank -- Analyst

All right. Okay, great. Thank you.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

So Jenny I think... [Speech Overlap] oh, sorry. Go ahead.

Operator

I apologize. Our last question for the day will come from the line of Patrick Davitt with Autonomous Research.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Hi, Patrick.

Patrick Davitt -- Autonomous -- Analyst

Hey. Yeah, that was -- Brian just asked my question. So, thanks. Yeah.

Jennifer M. Johnson -- President and Chief Executive Officer

Okay, great. Well, listen, I think, I just want to thank everybody for participating in today's call. And just wanted to leave you guys with one thought. What we knew from the beginning has only been further crystallized as you know. And that is that our two organizations are really incredibly aligned in terms of strategic fit, culture and our shared focus on delivering strong investment results for our clients.

And we look forward to continuing to stay at the forefront of our industry. And again, keeping that balance sheet flexibility, as things evolve but really providing unparalleled investment choice and service to our clients. So thank you everybody for participating and be safe out there.

Operator

[Operator Closing Remarks].

Duration: 60 minutes

Call participants:

Jennifer M. Johnson -- President and Chief Executive Officer

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Gregory E. Johnson -- Executive Chairman and Chairman of the Board

Kenneth B. Worthington -- JPMorgan -- Analyst

Patrick Davitt -- Autonomous -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

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

Daniel T. Fannon -- Jefferies -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

William R.Katz -- Citigroup -- Analyst

Alexander Blostein -- Goldman Sachs -- Analyst

Christopher Harris -- Wells Fargo -- Analyst

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

Brian Bedell -- Deutsche Bank -- Analyst

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