For advisors managing client expectations in volatile markets, investment strategy is more than just stock picking—it’s about intentional, scalable design. At Envestnet, the goal is to equip advisors with the research, tools, and platforms needed to build efficient portfolios that blend active and passive exposures in a deliberate, data-driven way.
In an interview with The Wealth Advisor’s Scott Martin, Brooks Friederich, Principal Director of Investment Solutions Strategy at Envestnet, discussed how advisors can balance research-based portfolio construction with due diligence, scalability, and customization—while still staying close to the client relationship.
Breaking the Binary: Active and Passive
The long-standing debate about the relative values of active and passive investing has often been framed in binary terms: pick one, ignore the other. But Envestnet’s perspective is more nuanced. “It’s active and passive together,” Friederich says. “And it takes research, the foundational elements of much in our industry.”
Passive investing’s advantages—cost efficiency, transparency, and accessibility—make it a popular choice across many asset classes. However, Friederich points to consistent opportunities where active management adds value, especially in international equities and small caps, where market inefficiencies persist.
Envestnet’s ActivePassive investing philosophy reflects nearly two decades of research into performance patterns across asset classes. The firm has systematically evaluated where active managers have a higher probability of generating alpha—and where passive exposures tend to be more reliable and cost-effective. That framework now supports more than $4.3 billion in assets, with upwards of 2,700 advisors and 25,000 accounts using Envestnet PMC ETF portfolios built on the ActivePassive approach.
Friederich underscores how that research plays out in practice. “There’s certain asset classes where it’s been proven it’s really difficult to find active managers to consistently outperform,” he says. “Large-cap core, that’s a simple one.” In contrast, asset classes such as small cap or international equities offer more room for differentiation, and certain active managers have outpaced their benchmarks so far this year, Friederich adds.
The ActivePassive model also may align with client priorities. It enables advisors to deliver thoughtful portfolio construction that emphasizes intelligent asset allocation, reasonable costs, and clearer conversations around fees and performance—without sacrificing time that could be better spent strengthening relationships.
The goal is not simply to toggle between active or passive but to allocate capital intentionally. And to do that effectively, advisors need both rigorous research and infrastructure that scales.
A Smarter Way to Talk International
While international equities remain underrepresented in many client portfolios, Friederich sees strong advisor interest returning to the category. “International markets are up 17%-ish year to date,” he says. “And you’re seeing some active managers outperforming the benchmark by 200–300 basis points already year to date.”
That alpha is meaningful, but accessing it requires both thoughtful manager selection and client education. For many clients, U.S. household-name stocks remain top of mind. “Talking about Apple, Google, Microsoft, Nvidia—these are some of the best companies in the world,” Friederich notes. “We’re fortunate that they’re here in the United States. But there’s some great companies outside the borders of the U.S. that are able to expand their profit margins, earn and continue their earnings, and produce healthy dividends.”
He points out that international exposure has often defaulted to passive vehicles out of convenience or cost. But when clients ask deeper questions, the value of partnering with a strong active manager becomes more evident. “Due diligence is critical when you’re doing the active management component,” he explains. “It takes time. It’s a critical component of that. Doing due diligence on passive strategies doesn’t take a lot of time.”
Envestnet’s platform supports that evaluation effort with 30 dedicated analysts monitoring performance, conducting manager calls, and issuing alerts when there’s a change in leadership, underperformance, or any other red flag. “Initial sale, that’s easy,” Friederich says. “The ongoing, that’s what takes the time.”
Delegating Without Disconnecting
Friederich is quick to point out that Envestnet’s role is not to replace the advisor’s judgment but to amplify it. “Our number one client, our only client, is financial advisors,” he says. “We understand through our data as well from the platform—when they do it themselves, advisors are blending active and passive together.”
Still, designing portfolios that aim to consistently deliver across all asset classes and client profiles takes more than instinct. Envestnet’s investment strategies and model portfolios are built with scalability in mind. “We want advisors to scale their practice,” Friederich says. “There are some operational elements to that, which is critical and foundational, billing and reporting and all that. But the core wealth, the technology platform—access to investment products, small account solutions, blending active and passive together using mutual funds and ETFs . . . you can do that.”
Advisors can choose their own path—whether constructing from scratch or leveraging Envestnet’s prebuilt solutions. But outsourcing some of the research and operational heavy lifting can give advisors more time to focus on what matters most: their client relationships.
From Mass Affluent to Millionaires: Scaling Thoughtfully
Client expectations vary widely across wealth tiers, and Friederich believes advisors need tools that evolve with their book of business. For smaller accounts, mutual funds and ETFs often suffice. But as portfolios grow larger and more complex, customization becomes more important.
“There’s a large amount of wealth in our country,” he says. “Now these advisors can service these high-net-worth clients, giving them access to packaged products and solutions that include separately managed accounts, mutual funds, ETFs, all within that model framework as well.”
Customization is not just a buzzword at Envestnet—it’s a core focus. “The ability for advisors to better customize and tweak and tinker and provide that tax management—automated ongoing—for that high-net-worth investor is critical and embedded in our DNA,” Friederich says.
Direct Indexing and the Next Frontier
As portfolios grow more complex, so does the need for efficient tax management. Direct indexing, once considered niche, is now a mainstream option for high-net-worth clients who want passive exposure with enhanced control.
“Now you get to the passive component,” Friederich explains. “So, you have a multimillion-dollar portfolio, and your large core is passive, just owning an ETF. Well, now comes along direct indexing. Now you’re owning the individual securities in a separate account.”
That ownership structure opens the door to potentially meaningful tax alpha through loss harvesting, while maintaining broad market exposure. It also allows advisors to build around concentrated positions or exclude specific securities that don’t align with a client’s goals.
The degree of control available reinforces the importance of customized, data-backed guidance—especially when combining active managers, passive ETFs, separately managed accounts, and direct indexing for a single household.
A Research-Based Framework for Constructing Portfolios
When advisors ask where to start with building a portfolio that blends active and passive, Envestnet points them to its research framework. “We’re looking at all the major asset classes—U.S. equity, international equity, fixed income, the diversifying asset classes,” Friederich says. “You think of something like REITs or emerging market debt and international small cap, and you’re getting very granular asset classes.”
With so many vehicles available, he stresses that research needs to guide every allocation. Envestnet’s long-term studies examine which asset classes are more conducive to active outperformance and where passive exposure may be more efficient.
“So, as you build it yourself, you can use our framework and guidance there,” he says. “But again, this will be embedded in our portfolio as we construct—from small account solutions all the way up to high net worth, same framework—using that as a guidepost.”
Patience, Process, and Picking the Right Team
Even in asset classes that favor active management, manager selection remains a key risk. Advisors naturally want to avoid underperformance and the consequences that come with it. Friederich acknowledges that reality but reframes the concern in terms of process and expectations.
“Even the best asset managers, they’re going through areas and periods of underperformance,” he says. “And sticking through that, you equate it to a sports team. There are dynasties out there, but if you look at the management of that team, the leadership of that team, the key players of that team, are they still in place? They’re likely to come back.”
Due diligence doesn’t eliminate risk, but it creates a framework for interpreting performance. Envestnet’s analysts examine whether underperformance is consistent with the manager’s stated process or if it signals a deeper shift. As Friederich puts it: “Are they still doing the same approach, or do they change the playbook? If they change the playbook, maybe we should take a step back and watch them for a year, see how they do next season.”
Ongoing manager monitoring, combined with research-driven portfolio construction, helps reduce the risk of drawdowns, aiming to ensure that portfolio strategies stay aligned with client goals and reinforce advisor credibility during periods of volatility.
Helping Advisors Stay Focused on Clients
Ultimately, Friederich believes advisors are most effective when they focus on clients instead of markets. “Their time is best spent with their clients, especially in times like these, being those wealth managers, those wealth coaches, keeping them invested in the markets,” he says.
News cycles shift constantly. Clients read headlines, ask questions, and sometimes panic. Friederich sees Envestnet’s job as helping advisors guide clients through that noise. “The news is—we know this well—everything’s readily available in your hand,” he says. “There’s an announcement on tariffs this morning, everybody’s reading it, your clients are reading it. Leave those decisions up to the professionals.”
By taking on due diligence, building scalable model portfolios, and offering customizable tax-aware solutions, Envestnet gives advisors the tools to be present and persuasive with clients—no matter the asset class or account size.
For more information, go to www.enevestnet.com.
_____________________
Additional Resources
______________________
Disclosures
The information, analysis, and opinions expressed herein are for general information only. Nothing contained in this interview is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Investing carries certain risks and there is no assurance that investing in accordance with the portfolios or strategies mentioned will provide positive performance over any period of time. Investors could lose money if they invest in accordance with the portfolios or strategies discussed herein. Past performance is not indicative of future results.
Neither Envestnet, Envestnet | PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
For more details on PMC’s research practices and/or portfolio attributes, please contact pmc@envesnet.com or call 1-888-612-9300. Advisors should always conduct their own research and due diligence on investment products and the product managers prior to offering or making a recommendation to a client.
