Franklin Templeton and Envestnet have expanded their previously announced partnership to give Envestnet’s advisors direct access to Franklin Templeton’s direct-indexing platform so they can build and manage their own portfolios.
The Canvas custom indexing platform allows advisors to build their own direct-indexing portfolios with a high level of customization and offers a particular focus on tax management.
“We’ve had considerable demand among our clients for the tool, so as part of our partnership with Franklin, we’re creating connectivity between somebody using the tool and our own proposal,” said Dana D’Auria, co-chief investment officer and group president at Berwyn, Pa.-based Envestnet Solutions, in an interview.
San Mateo, Calif.-based Franklin Templeton acquired the Canvas platform almost three years ago as part of its acquisition of O'Shaughnessy Asset Management, according to Roger Paradiso, head of Advisor Portfolio & Technology Solutions at Franklin Templeton. With it, advisors can blend a variety of investment vehicles, including exchange-traded funds, and incorporate investment strategies across asset caps and styles, he said.
In direct indexing, which is a strategy used within a separately managed account, advisors recreate an index by purchasing investments directly, allowing for greater customization on the advisor’s part. It has often been used by the wealthy but is increasingly being marketed to the middle class.
“Direct indexing is an interesting opportunity set because it will tend to be ... lower cost than the average actively managed equity [separately managed account], but it also enables a higher level of customization,” D’Auria said.
Separately managed accounts are those where an investor directly owns individual securities that are managed by a professional. Direct-indexing is a type of strategy generally used within an SMA.
Since advisors using the platform will have direct access to Canvas, they can create and manage their portfolios in one place without having to log onto to different platforms, Paradiso said.
“Advisors don’t want a whole bunch of different relationships with a whole bunch of different providers,” he said in an interview. “They’d much rather work with a single provider where they can get a full stack or a full comprehensive list of everything that they need to keep it simple.”
The decision to expand access to Canvas comes as the demand for direct indexing is on the rise. Before the expanded partnership, Envestnet advisors who were looking to engage in direct indexing had to do so through the firm’s separately managed account, which only contained in-house vehicles, D’Auria said.
She described the process as “clunky.” However, by allowing advisors to use Canvas it will make the process easier and increase demand for direct indexing, she said.
“The easier we make it for advisors to access these types of tools, the more of a demand for that you’ll see because you don’t have to sit there and build this manually with the client,” she said.