At the center of the case is an investigation into Western Asset Management, a subsidiary of Franklin Templeton. The SEC and Department of Justice are probing derivative trades for wealthy clients. Shares in the parent group Franklin Resources have fallen this year.

Franklin Templeton is reportedly suffering the heaviest quarter for outflows in its history, with weak returns and reputational damage to its largest subsidiary adding to its woes, according to the Financial Times (of London).

The business has a number of subsidiaries, including Fiduciary Trust Company International, which operates in the wealth management space.

The US-headquartered group, which manages $1.7 trillion in assets, announced in August that the co-chief investment officer of its largest subsidiary had been put on leave amid a probe by the Securities and Exchange Commission. The FT said this news has added to concerns about years of investment underperformance.

The report said that more than $37 billion of money has left Western Asset Management, the subsidiary at the center of the concerns, in the past three months, with almost $24 billion of outflows in September alone. It added that Franklin’s net outflows are expected to be at least $31 billion in the quarter that ended September 30, the worst in its history.

The FT report said the business declined to comment. Franklin Templeton is due to issue its next quarterly figures on November 4, 2024. Family Wealth Report contacted the firm about the story but was unable to update it or clarify details at the time of going to press today.

The SEC and Department of Justice are investigating Western’s derivatives trades for wealthy customers. Co-chief investment officer Ken Leech was put on leave after receiving a SEC “Wells notice” for allegedly “cherry-picking” client trades, the practice of giving more profitable trades to some clients over others, the report said. It explained that a Wells notice is a formal document that is often, but not always, followed by enforcement action.

So far this year, shares in Franklin Resources – parent of Franklin Templeton – have fallen by 28.6 per cent. The firm is a component of the S&P 500 Index of US stocks – the index has risen more than 22 per cent since the start of January.