Frec Assessment: Direct Index Investing

Frec is a fintech providing direct indexing portfolios with low charges. Direct indexing is an funding technique that entails the frequent buying and selling of particular person shares whereas sustaining the portfolio according to a significant index, such because the S&P 500. 

Direct indexing is mostly meant for high-net-worth buyers trying to maximize tax loss harvesting advantages, however Frec makes it obtainable to a bigger viewers at a comparatively low administration charge. We discover Frec direct indexing that can assist you decide if it might make sense on your portfolio. 

What Is Frec?

San Francisco based mostly Frec was based in 2021. After two years of growth, it turned obtainable to most people in October 2023. It’s a VC-backed startup targeted on lively direct indexing for accounts with no less than $20,000 invested.

The corporate is a registered monetary companies supplier with the SEC and FINRA and acts in a fiduciary capability. Behind the scenes, accounts are held by Apex Clearing, an enormous supplier of backend funding accounts. Funds are SIPC insured.

Right here’s a more in-depth take a look at what you may count on with a Frec account.

Direct Indexing Accounts

Frec presents direct indexing-enabled accounts. You’ll be able to decide from a listing of S&P indices, such because the S&P 500 and S&P 500 Expertise Index. When you select your index, you may exclude particular shares or add different shares to create a extra customized model of the underlying fund.

Superior Tax Loss Harvesting

Direct permits for extra fine-tuned tax loss harvesting than conventional index ETFs or mutual funds. With tax loss harvesting, shares are purchased and offered extra steadily to reap the benefits of the ups and downs of the market, locking in funding losses to offset future funding positive aspects.

As a result of direct indexing entails proudly owning dozens or lots of of shares, it was previously obtainable solely to high-net-worth households capable of construct enormous portfolios. Because of fractional share possession and Frec’s expertise, you may make investments with balances as little as $20,000.

Based on Frec, “Day by day tax loss harvesting can seize as much as $19 in incremental tax financial savings for each $100 deposited and tack on an incremental 2% per yr.”

Portfolio Line Of Credit score

You’ll be able to entry a portfolio line of credit score you probably have money in a portfolio and wish to leverage the steadiness with out promoting. We will not advocate borrowing in opposition to portfolio property, nevertheless it’s an possibility if you would like it.

Not like many different fintech startups, Frec is clear about charges. It prices a yearly
0.10% charge based mostly on property beneath administration (AUM). That’s lower than most robo-advisors and lots of index fund ETFs cost. There aren’t any further charges to commerce shares or ETFs other than the SEC-imposed charges you’d pay with any brokerage.

You may pay further charges for getting or promoting mutual funds, however that goes in opposition to the final concept of index investing with Frec, so that you’re unlikely to come across them.

Different charges embody a treasury administration charge for money balances, curiosity prices for the portfolio line of credit score, and different much less widespread prices.

Frec’s rivals embody robo-advisors, on-line brokerages, and different direct indexing funding platforms. Some prime rivals embody:

Giant Brokerage Corporations

Giant funding firms like Constancy and Charles Schwab supply direct indexing merchandise. Giant brokerage companies supply one-size-fits-all variations of direct indexing, with totally managed portfolios as the first possibility.

Robo-Advisors

In lots of circumstances, robo-advising platforms are already optimized for tax loss harvesting, so including a direct indexing product is sensible. Wealthfront is an instance of a robo-advisor that gives direct indexing.  It requires a portfolio of no less than $100,000 for direct indexing, 5 instances the minimal with Frec. Wealthfront prices 2.5 instances greater than Frec, with a 0.25% annual charge. Betterment is just like Wealthfront, however whereas they provide tax loss harvesting, they don’t supply direct indexing.

It is easy to get began with Frec. Merely head to the Frec web site and click on the button on the prime to start the account opening course of. 

You’ll be able to create an account along with your e-mail and a password or by linking to a Google or Apple account. After coming into your login particulars, you may select three account sorts: Particular person, belief, or enterprise.

You’ll want so as to add your private info, reminiscent of your handle and a verified cellphone quantity, to proceed with the setup course of.

After that, you’ll hyperlink your checking account or arrange one other funding methodology to cowl the $20,000 minimal and select your preliminary index portfolio.

It takes about two minutes to arrange an account in case you’re pc savvy.

Frec portfolios include the identical dangers as different listed invested portfolios. As an organization, Frec is secure to cope with. Apex Clearing holds Frec accounts, and Frec is a licensed and registered funding firm with each the SEC and FINRA.

Funding accounts are SIPC insured, so that you’ll get your property again even when Frec or Apex Clearing exit of enterprise. I’ve invested with an organization that shut down and used Apex Clearing, and it was simple sufficient to get my cash out and tax statements even after the funding firm closed.

Like many fintech firms we take a look at, assist choices are restricted. 

Buyer Service
Frec lists a single customer support e-mail handle on its public web site: assist@frec.com. The web site additionally has a self-help part with solutions to widespread questions.

Frec reveals no complaints on the FINRA web site, indicating that the majority customers have both had optimistic experiences and any customer support points had been resolved with out regulatory intervention.

Why Ought to You Belief Me?

I’ve been writing about private finance on-line since 2008 and have two finance levels, together with an MBA. I spent a lot of my graduate schooling targeted on investing and portfolio administration, so understanding how firms like Frec work is true up my alley.

The School Investor crew works exhausting to create unbiased critiques that can assist you make knowledgeable selections when selecting brokerage accounts and different merchandise. I spent a number of hours testing Frec options and scouring information and critiques to make sure this assessment is correct and truthful.

Frec is for buyers searching for extra tax loss harvesting advantages than you’d get with an index fund or conventional funding account. If you have already got your retirement portfolio on monitor and need higher tax options for the taxable portion of your investments, Frec could possibly be an excellent match.

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