Frec Review: Direct Index Investing

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Frec is a fintech that offers direct indexing portfolios at low fees. Direct indexing is an investment strategy that involves trading individual stocks frequently while keeping the portfolio in line with a major index such as the S&P 500.

Direct indexing is generally intended for high-net-worth investors who want to maximize their tax benefits. However, Frec makes them available to a larger audience at a relatively low management fee. We explore Frec Direct Indexing to help you determine whether it might make sense for your portfolio.

• Frec offers direct indexing for portfolios starting at $20,000
• Frec costs 0.10% per year, less than many robo-advisors and ETFs
• Choose popular indices like the S&P 500 and tailor investments to your goals

What is Frec?

Based in San Francisco, Frec was founded in 2021. After two years of development, it was released to the general public in October 2023. It is a VC-backed startup focused on active direct indexing for accounts with at least $20,000 in investment.

The Company is a financial services provider registered with the SEC and FINRA and acts as a fiduciary. Behind the scenes, the accounts are managed by Apex Clearing, a large backend investment account provider. The funds are SIPC insured.

What does it offer?

Here's a closer look at what you can expect from a Frec account.

Accounts with direct indexing

Frec offers accounts with direct indexing. You can choose from a list of S&P indices, such as the S&P 500 and the S&P 500 Technology Index. Once you choose your index, you can exclude certain stocks or add other stocks to create a more personalized version of the underlying fund.

Expanded tax loss recovery

Direct allows for more precise tax loss harvesting than traditional index ETFs or mutual funds. Tax loss harvesting involves buying and selling stocks more frequently to benefit from the market's ups and downs and to hedge investment losses to offset future investment gains.

Because direct indexing requires ownership of dozens or hundreds of stocks, it was once reserved only for wealthy households capable of building huge portfolios. Thanks to Frec's fractional share and technology, you can invest with as little as $20,000.

According to Frec, “Daily tax loss harvesting can deliver up to $19 in additional tax savings per $100, an increase of 2% per year.”

Portfolio line of credit

You can access a portfolio line of credit if you have cash in a portfolio and want to use the remaining balance without selling it. We cannot recommend borrowing against portfolio assets, but it is an option if you wish.

Are there any fees?

Unlike many other fintech startups, Frec is transparent about its fees. It costs a yearly
0.10% fee based on assets under management (AUM). That's less than most robo-advisors and many index fund ETFs charge. Aside from the SEC-imposed fees you would pay with any broker, there are no additional fees for trading stocks or ETFs.

You could pay additional fees to buy or sell mutual funds, but this goes against the general idea of ​​index investing at Frec, so you are unlikely to incur such fees.

Other fees include a cash balance treasury management fee, portfolio line of credit interest fees, and other less common fees.

How does Frec compare?

Frec's competitors include: Robo-advisors, Online brokeragesand other direct indexing investment platforms. Top competitors include:

Large brokerage firms

Big investment companies like loyalty And Charles Schwab offer direct indexing products. Major brokerage firms offer unified versions of direct indexing, with fully managed portfolios being the primary option.

Robo-advisors

In many cases, robo-advising platforms are already optimized for tax loss harvesting, so adding a direct indexing product makes sense. Wealth Front is an example of a robo-advisor that offers direct indexing. Direct indexing requires a portfolio of at least $100,000, or five times the minimum for Frec. Wealthfront charges 2.5 times more than Frec, with an annual fee of 0.25%. improvement is similar to Wealthfront, but offers the possibility of tax loss harvesting but no direct indexing.

How do I open an account?

Getting started with Frec is easy. Simply go to the Frec website and click the button above to begin the account opening process.

You can create an account using your email address and password, or link to a Google or Apple account. After entering your login information, you can choose between three account types: Individual, Trust or Corporate.

You will need to add your personal information such as your address and a verified phone number to continue the setup process.

You then link your bank account or set up another funding method to cover the $20,000 minimum and select your first index portfolio.

If you are computer literate, setting up an account takes about two minutes.

Is it safe and secure?

Frec portfolios involve the same risks as other index-linked portfolios. As a company, dealing with Frec is safe. Apex Clearing has Frec accounts and Frec is a licensed and registered investment company with both the SEC and FINRA.

Investment accounts are SIPC insured, meaning you will get your assets back even if Frec or Apex Clearing goes out of business. I invested with a company that closed using Apex Clearing and it was easy enough to withdraw my money and tax returns even after the investment company closed.

How can I contact Frec?

Like many fintech companies we look at, support options are limited.

Customer service
Frec lists a single customer service email address on its public website: help@frec.com. The website also has a self-help section with answers to frequently asked questions.

Frec does not display any complaints on the FINRA website, suggesting that most users either had positive experiences and any customer service issues were resolved without government intervention.

Why should you trust me?

I've been writing about personal finance online since 2008 and have two finance degrees, including an MBA. I spent much of my graduate education on investing and portfolio management, so understanding how companies like Frec work is right up my alley.

The College Investor team works hard to create unbiased reviews to help you make informed decisions when selecting brokerage accounts and other products. I spent several hours testing Frec features and scouring news and reviews to ensure this review is accurate and truthful.

Is it worth it?

Frec is designed for investors looking for more tax benefits when eliminating losses than you would get with an index fund or traditional investment account. If you already have your retirement portfolio on track and want better tax features for the taxable portion of your investments, Frec could be a good solution.

Check out Frec here >>

Frec functions

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