Comparing Frec to other direct indexing providers
Note: Information in this article is as of September 20, 2024
When it comes to direct indexing, investors have more choices than ever. Wealthfront, Fidelity, Schwab, and Parametric1 are all established players — but Frec stands out thanks to its broad flexibility, minimal fees, and easy implementation.
- Unparalleled choice: Choose from thirteen different index options, with the ability to exclude or add companies and sectors, and control your dividend allocation. Other providers give you less choice or require an advisor’s involvement.
- 100% direct indexing: Almost every dollar2 you invest is directly indexed for maximum tax efficiency. Avoid the ETF exposure and potential cash drag3 that comes with blended approaches like Wealthfront’s.
- Cutting-edge algorithms: Our advanced optimizations harvest losses on a daily basis, engineered to minimize tracking error.
- Full transparency: Understand what’s happening with your portfolio at a glance. Our platform shows you every trade, the exact tracking difference of a similar ETF benchmark vs. your index, and how much you can save in taxes.
- Lower fees and minimums: With the ability to invest for as little as a 0.10% aum fee and a $20K minimum, the full power of direct indexing is accessible to more investors than ever before.
- Engineered for investors: No need for an advisor “middleman.” Our technology gives you self-service features in your direct indexing solution that puts you in the driver’s seat.
For investors looking for tax efficiency, choice, and transparency, Frec’s offering is unmatched. But to fully understand how Frec surpasses other legacy providers, let’s get into the technical details.
Here’s our in-depth comparison of how Frec stacks up to other services our clients often ask about; Wealthfront, Fidelity, Schwab, and Parametric.
Frec vs. Wealthfront
Key difference: Frec offers 100% direct indexing across 13 indices, while Wealthfront only supports direct indexing for US large-cap stocks, using ETFs for the rest of the portfolio. Frec also provides more granular customization, allowing you to exclude or add companies and sectors, and manage dividends. With as little as a 0.10% advisory fee and $20K minimum, Frec has options at less than half the cost of Wealthfront and with a five times less initial investment requirement it’s accessible to more investors.
| Category | Frec DI | Wealthfront DI |
|---|---|---|
| Minimum investment | $20,000 – $50,000 | $100,000 |
| Fees | 0.10% – 0.45%4 | 0.25% |
| Accessibility | Direct to investor, self-managed | Direct to investor, self managed |
| Ease of use | Modern, intuitive digital platform | Modern, intuitive digital platform |
| Algorithms | Automated to minimize tracking error and maximize tax-loss harvesting. | Automated to provide exposure to the global market with a blend of stocks and ETFs while maximizing tax-loss harvesting. |
| Customization | Choose between multiple indices, then choose to exclude up to 2 sectors or add or exclude up to 10 stocks. Decide where your dividends go. | Choose your percentage allocation in the CRSP US Large Cap Direct Indexing. No ability to add stocks. Avoid trading stocks by adding to the “exclusion list” of stocks not to trade. |
| Trade transparency | See the exact details behind each individual trade and the resulting losses harvested. | See accumulated trade details and the resulting losses harvested |
| Tracking error | See the exact difference between your direct index and the benchmark on a daily basis. | There’s no ability to see how closely your US Direct Indexing is tracking the benchmark. |
| Fractional shares | Frec supports the trading of fractional shares, resulting in less cash set aside. | Not available in US Direct Indexing, sometimes resulting in a large cash balance uninvested. |
| Indices tracked | Choose between S&P 500, S&P 500 Info Tech, S&P Developed Markets ADR, S&P 500 Shariah, CRSP US Large Cap, CRSP US Mid Cap, CRSP US Small Cap, CRSP US Total Market, CRSP ISS US Large Cap ESG, MVIS US Listed Semiconductor 25, Russell 1000, Russell 2000, and Russell 3000 | The only choice is a mix of CRSP US Large Cap and ETFs to mirror the total stock market. |
| Line of credit | Borrow against up to 70% of your portfolio at 5.83% APY.5 | Can only borrow against up to 30% of your portfolio at 5.91% APY. |
| Getting started | Open an account online in minutes, fund with cash or stocks and ETFs. | Open an account online in minutes, fund with cash or some types of investments. |
| Dividend reinvestment | Choose where your dividends go with customized dividend allocation. Reinvest, move to treasury, pay off your line of credit, or cash it out. | Dividends are automatically reinvested. |
| Tax savings | Frec’s Direct Indexing harvests 2x more capital losses than ETF -to-ETF tax-loss harvesting.6 Daily tax loss harvesting – Frec’s algorithm backtesting shows that customers can harvest 40% of their deposit in capital losses over the course of 10 years for the S&P 500 index. | Wealthfront’s US Direct Indexing harvests 2x more capital losses than ETF-to-ETF tax-loss harvesting, but only within a portion of your portfolio. |
Why you might consider Frec
Breadth of direct indexing
With Wealthfront, you can only direct index within their US Stock allocation by tracking the CRSP US Large Cap index. The rest of your portfolio relies on less tax-efficient ETFs.
Frec takes a more direct approach with 100% direct indexing. You can choose from multiple market cap sizes and financial sectors, such as the US Small, Mid, Large, or All-cap, S&P 500, S&P IT, international, ESG, and US Semiconductor indices. With Frec, almost every invested dollar benefits from the tax alpha of direct indexing.
Evaluating tax-loss harvesting
Frec’s tax-loss harvesting algorithms scan for daily opportunities across the entire directly-indexed portfolio. Based on historical simulations of the S&P 500 index, Frec estimates its direct indexing can harvest losses equal to nearly 40% of your portfolio value over 10 years.7
Wealthfront also offers daily tax-loss harvesting, but only within individual stocks in the CRSP US Large Cap direct indexing portion of the portfolio. Put simply, the greater the number of stocks available for harvesting, the greater your chances of generating long-term tax savings.
With Frec, you can also see each of the individual trades made on your behalf, along with the resulting gains/losses harvested per stock. With Wealthfront, you can see the accumulated trade details along with the resulting gains/losses harvested across the day.
Customization
Customization is a key reason investors choose direct indexing, but Wealthfront limits your flexibility. You can exclude individual stocks but not entire sectors from your CRSP sleeve. In addition, you can’t add stocks. Dividends are automatically reinvested across your portfolio.
With Frec, you can more precisely calibrate your exposure:
- Choose any combination of the 13 index strategies to track. Exclude or add up to two sectors (with indices that have multiple sectors) in addition to 10 individual stocks
- Opt to receive your dividends as cash, pay down a portfolio line of credit, invest in treasury, or reinvest them back into your indices
This level of customization allows you to get exposure to a variety of indices, manage sector concentrations, and control your dividend strategy to a degree Wealthfront can’t match.
Costs
Frec’s fee starts at less than half that of Wealthfront, which charges a 0.25% to direct index CRSP US Large Cap (the only direct index it offers). While Frec offers the same CRSP US Large Cap index for only 0.10% and no exposure to ETFs.
On a $500,000 portfolio, that’s a difference of $750 per year. Compounded over decades, even small fee gaps can add up to substantial value lost.
Not only does it cost less to invest with Frec, but you can also get started with as little as $20,000. With Wealthfront, you need 5X that minimum to invest in a US-only direct indexing portfolio.
When Wealthfront might make sense
Despite Frec’s lower costs and broader direct indexing, Wealthfront’s focus on automated portfolio management may be appealing. But if you’re looking to maximize your direct indexing exposure and customization, Frec has the edge.
Frec vs. Fidelity
Key difference: Fidelity’s FidFolios only has a $5,000 minimum but charges a 0.40% advisory fee, which can add up over time. Frec’s platform provides full transparency into its automated tax-loss harvesting, while Fidfolios relies on advisors to implement more opaque optimizations.
| Category | Frec DI | Fidelity FidFolios (DI) |
|---|---|---|
| Minimum investment | $20,000 – $50,000 | $5,000 |
| Fees | 0.10% – 0.45%8 | 0.4% |
| Accessibility | Direct to investor, self-managed | Professionally managed at least partially by humans |
| Ease of use | Modern, intuitive digital platform | Automated to meet the specific strategy chosen |
| Algorithms | Automated to minimize tracking error and maximize tax-loss harvesting. | Automation combined with human advisory. Advisors can make decisions on your behalf. |
| Customization | Choose between multiple indices, then choose to exclude up to 2 sectors or add or exclude up to 10 stocks. Decide where your dividends go. | Choose between multiple indices, then choose to exclude up to five individual stocks and two industries. |
| Trade transparency | See the exact details behind each individual trade and the resulting losses harvested. | See all trades and logic on a daily basis. |
| Tracking error | See the exact difference between your direct index and the benchmark on a daily basis. | There’s no ability to see how closely your There’s no ability to see how closely your direct index is tracking the benchmark. |
| Fractional shares | Frec supports the trading of fractional shares, resulting in less cash set aside. | Fidelity supports the trading of fractional shares, resulting in less cash set aside. |
| Indices tracked | Choose between S&P 500, S&P 500 Info Tech, S&P Developed Markets ADR, S&P 500 Shariah, CRSP US Large Cap, CRSP US Mid Cap, CRSP US Small Cap, CRSP US Total Market, CRSP ISS US Large Cap ESG, MVIS US Listed Semiconductor 25, Russell 1000, Russell 2000, and Russell 3000 | The only choices are: U.S. Large Cap International Index, U.S. Total Market Index, US Low Volatility Index, and Environmental Focus |
| Line of credit | Borrow against up to 70% of your portfolio at 5.83% APY. | Borrow against up to 70% of your portfolio between 8.75%-12.575% |
| Getting started | Open an account online in minutes, fund with cash or stocks and ETFs. | Open an account online in minutes, fund with cash or stocks. |
| Dividend reinvestment | Choose where your dividends go with customized dividend allocation. Reinvest, move to treasury, pay off your line of credit, or cash it out. | Dividends are automatically reinvested. |
| Tax savings | Frec’s Direct Indexing harvests 2x more capital losses than ETF -to-ETF tax-loss harvesting. Daily tax loss harvesting – Frec’s algorithm backtesting shows that customers can harvest 40% of their deposit in capital losses over the course of 10 years for the S&P 500 index. | The frequency of harvesting losses is unclear. Research shows that harvesting losses in lower frequencies leads to less harvesting of capital losses.9 |
Why you might consider Frec
Fees
Fidelity Fidfolios offers direct indexing managed by the Fidelity advisors. This may sound compelling, but a major drawback is the steep fee — 0.40%. While Frec’s fees range between 0.10%-0.27%, for comparable indices to what is offered on Fidelity.
At Fidelity’s fee, you’re paying 4X Frec’s lowest cost and almost 2x Frec’s highest cost for comparable indices. On a $1M account, Fidelity’s fees cost you between $1,300 to $3,000 more per year than Frec.
This has serious consequences for long-term wealth. Assume you invest $100,000 in a direct indexing portfolio averaging 8% annual returns for 30 years. Here’s how much you’d end up with at each provider’s fee rates if you were to invest into a US Large Cap Index:
| Provider | Annual advisory fee | 30-year portfolio value |
|---|---|---|
| Frec | 0.10% | $978,685 |
| Fidelity | 0.40% | $900,260 |
Fidelity’s fees could cost you $78,425 on fees in lost portfolio appreciation if you invested in a US Large Cap index. 10
Tax alpha differences
Both Frec and Fidelity use sophisticated optimizations to maximize tax-loss harvesting, but there are key distinctions:
- Frec’s algorithm is fully automated and focuses solely on maximizing tax-loss harvesting and minimizing tracking error. There is no “secret sauce” — the methodology is transparent.
- With Fidfolios, your assigned advisor has the discretion to optimize for other factors beyond pure tax efficiency. The details of their approach are opaque. Some Fidfolios are even actively managed.
Overall, this impacts after-tax returns. Fidelity cites substantial tax-loss harvesting but mixes in advisor-driven effects that make an apples-to-apples comparison difficult. Fidfolios may improve upon ETF-based approaches but may fall short of Frec’s singular focus.
Accessibility
Fidfolios require a relatively low $5,000 minimum investment but you must work with a human advisor to manage your portfolio. With a $20,000 minimum, you can create a Frec account online in minutes and review every trade through an intuitive platform. You’re getting direct indexing exposure with the ease and transparency of a modern robo-advisor.
When Fidelity might make sense
While Frec only requires a $20,000 minimum investment11, Fidelity requires just $5,000 to get started with an advisor. Fidelity’s direct indexing also integrates with their broader wealth management offerings, which could be appealing if you already have a relationship with the firm.
Frec vs. Schwab
Key difference: Schwab charges higher 0.35%-0.40% advisory fees and a $100K minimum to open an account, while Frec supports self-directed investing with a $20K minimum. Frec provides more index options and direct control over customizations through its platform, while Schwab relies on advisors to enact client preferences.
| Category | Frec DI | Schwab Personalized DI |
|---|---|---|
| Minimum investment | $20,000 – $50,000 | $5,000 |
| Fees | 0.10% – 0.45%12 | 0.35% – 0.40% |
| Accessibility | Direct to investor, self-managed | Requires consultation with a Schwab Financial Consultant |
| Ease of use | Modern, intuitive digital platform | Not specified |
| Algorithms | Automated to minimize tracking error and maximize tax-loss harvesting. | Proprietary optimization process, unclear what is done by humans vs. algorithms, details non-disclosed |
| Customization | Choose between multiple indices, then choose to exclude up to 2 sectors or add or exclude up to 10 stocks. Decide where your dividends go. | Choose from 4 index-based strategies, exclude individual stocks or industries |
| Trade transparency | See all trades and logic on a daily basis and how closely you’re tracking an index ETF. | Opaque — not clear on their website |
| Tracking error | See the exact difference between your direct index and the benchmark on a daily basis. | Opaque — depends on advisor reporting |
| Fractional shares | Frec supports the trading of fractional shares, resulting in less cash set aside. | Schwab supports the trading of fractional shares, resulting in less cash set aside. |
| Indices tracked | Choose between S&P 500, S&P 500 Info Tech, S&P Developed Markets ADR, S&P 500 Shariah, CRSP US Large Cap, CRSP US Mid Cap, CRSP US Small Cap, CRSP US Total Market, CRSP ISS US Large Cap ESG, MVIS US Listed Semiconductor 25, Russell 1000, Russell 2000, and Russell 3000 | Choose between Schwab 1000 Equity Index, S&P SmallCap 600 Index, MSCI KLD 400 Social Index, and MSCI EAFE International |
| Line of credit | Borrow against up to 70% ofyour portfolio at 5.83% APY. | Typically borrow against up to 50% of your portfolio at a low rate that you have to call to find out or up to a rate of 12.575%. |
| Getting started | Open an account online in minutes, fund with cash or stocks and ETFs. | Must speak with a Schwab consultant |
| Dividend reinvestment | Choose where your dividends go with customized dividend allocation. Reinvest, move to treasury, pay off your line of credit, or cash it out. | Dividends are automaticallyreinvested. |
| Tax savings | Daily tax loss harvesting – Frec’s algorithm backtesting shows that customers can harvest 40% of their deposit in capital losses over the course of 10 years for the S&P 500 index. | The frequency of harvesting losses is unclear. Research shows that harvesting losses in lower frequencies leads to less harvesting of capital losses |
Why you might consider Frec
Fees
Like Fidelity, Schwab’s direct indexing offering comes with an added advisor fee — between 0.35%-0.40%, depending on the amount you have invested.
At those rates, over 30 years, a hypothetical $100K portfolio invested in a US Large Cap index appreciating at 8% annually would have the following values:
| Provider | Annual advisory fee | 30-year portfolio value |
|---|---|---|
| Frec | 0.10% | $978,685 |
| Schwab | 0.40%13 | $900,260 |
Schwab’s higher fees totaled $78,425 over that period. That’s a steep price for an advisor’s involvement you may not need or want.
Customization
Schwab allows reasonable customization of its direct indexing portfolios— you can choose from four index-tracking strategies and restrict sectors or securities. However, these customizations are implemented through an advisor, reducing your visibility and control.
Frec not only gives you more index options, but also lets you control the tweaks yourself. You can precisely designate the sectors in certain indices to restrict through our self-service platform features and understand the resulting portfolio impact.
Schwab cites a “proprietary optimization process” but provides no details on its direct indexing algorithms or expected tax-loss harvesting. Frec uses a fully automated, rules-based algorithm to minimize tracking error and maximize loss harvesting.
Self service
Like other incumbent offerings, Schwab’s direct indexing is mediated through an advisor. You must set up a consultation to access the capability instead of being able to open an account online.
Frec’s platform is designed for the self-directed investor. You can sign up in minutes, connect external accounts to transfer in securities and start customizing your direct indexing portfolio immediately.
When Schwab might make sense
Schwab’s massive scale provides access to institutional-level trade execution and pricing. For investors who custody other assets with Schwab, there may be some benefit in working with the firm for direct indexing. Schwab advisors can consider your entire portfolio when implementing your customized strategy.
Schwab offers extensive in-person branch access if you value face-to-face interactions with your advisor. While Frec is fully digital, some investors may prefer the option of meeting with their advisors in person.
Frec vs. Parametric
Key difference: Parametric is built solely for advisors, who charge up to an additional 1% or more on top of Parametric’s fees. Parametric offers highly customized direct indexing, including for fixed income, but only through an advisor — there is no digital retail platform.
| Category | Frec DI | Parametric DI |
|---|---|---|
| Minimum investment | $20,000 – $50,000 | Varies by advisor, likely $250K+ |
| Fees | 0.10% – 0.45%14 | Up to 1% (Parametric fee + advisor fee) |
| Accessibility | Direct to investor, self-managed | Only through wealth advisors |
| Ease of use | Modern, intuitive digital platform | Depends on advisor, no direct access |
| Algorithms | Automated to minimize tracking error and maximize tax-loss harvesting. | Unclear, relies on advisor implementation |
| Customization | Choose between multiple indices, then choose to exclude up to 2 sectors or add or exclude up to 10 stocks. Decide where your dividends go. | Highly customizable but only through advisor |
| Trade transparency | See all trades and logic on a daily basis and how closely you’re tracking an index ETF. | Opaque — depends on advisor reporting |
| Tracking error | See the exact difference between your direct index and the benchmark on a daily basis. | Opaque — depends on advisor reporting |
| Fractional shares | Frec supports the trading of fractional shares, resulting in less cash set aside. | It depends on the underlying custodian of assets |
| Indices tracked | Choose between S&P 500, S&P 500 Info Tech, S&P Developed Markets ADR, S&P 500 Shariah, CRSP US Large Cap, CRSP US Mid Cap, CRSP US Small Cap, CRSP US Total Market, CRSP ISS US Large Cap ESG, MVIS US Listed Semiconductor 25, Russell 1000, Russell 2000, and Russell 3000 | Highly flexible based on investor needs, supports bond portfolios in addition to equities |
| Line of credit | Borrow against up to 70% of your portfolio at 5.83% APY. | Unclear, relies on advisor implementation |
| Getting started | Open an account online inminutes, fund with cash orstocks and ETFs. | Work with advisor to determine approach, fund with cash or securities, less streamlined |
| Dividend reinvestment | Choose where your dividends go with customized dividendallocation. Reinvest, move to treasury, pay off your line of credit, or cash it out. | It depends on the underlying custodian of assets |
| Tax savings | Daily tax loss harvesting – Frec’s algorithm backtesting shows that customers can harvest 40% of their deposit in capital losses over the course of 10 years for the S&P 500 index. | Opaque — depends on advisor reporting |
Why you might consider Frec
Fees & accessibility
Parametric is the grandfather of direct indexing, but their solution is built for advisors, not individual investors. To access their offering, you must work with an advisor, who typically charges 1% of AUM on top of Parametric’s fee.
These fees can be opaque since advisors have discretion in what they charge. But in aggregate, you could expect to pay up to 10X or more for Parametric compared to Frec.
Implementation also falls to the advisor. With Parametric, you have no direct platform to manage your portfolio or review trades. You rely entirely upon your advisor to execute your strategy and report results.
Frec puts those capabilities directly in your hands, giving you full control and visibility without an additional fee.
Customization
Since advisors oversee implementation, Parametric supports a high degree of theoretical customization. But this customization comes at a cost — you’re paying for an advisor’s time to translate your preferences.
With Frec, you directly control the key customization levers:
- Choose from 13 index options
- Exclude or add specific sectors (within indices that have multiple sectors) and stocks
- Manage your portfolio’s dividend allocation
You can implement your customizations with a few clicks versus relaying your views to an advisor to execute. Frec’s “unbundled” model offers similar customization for less hassle and cost.
When Parametric might make sense
While Parametric’s fees are substantially higher, the level of customization they support through an advisor is unmatched, particularly for taxable fixed income.
One key area where Parametric outshines Frec is direct indexing for bonds. If you have a sizable fixed income allocation, Parametric’s platform can construct personalized bond ladders and harvest losses, which Frec currently does not support.
Most investors, however, can achieve their direct indexing goals with the level of customization Frec provides at a much lower cost. Unless you have particularly unique needs, Frec’s combination of index options, sector and security exclusions, and tax optimization offers the core benefits of direct indexing in a more accessible format.
Conclusion
In a crowded direct indexing landscape, Frec stands out for its commitment to making investing more accessible without compromising on choice, customization, or tax optimization:
- Lower $20,000 minimums open direct indexing to more investors
- Wide range of index options and customization tools
- 100% direct indexing maximizes tax alpha potential
- As low as 0.10% fee minimizes the impact of high fees
- Transparent platform shows every trade and tracks index replication
For investors who want the full quantitative benefit of direct indexing in a transparent, self-directed platform, Frec is the clear leader. As you evaluate your direct indexing options, we invite you to create an account today and experience the Frec difference for yourself.
