Comparing Frec to other direct indexing providers

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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.

CategoryFrec DIWealthfront DI
Minimum investment$20,000 – $50,000$100,000
Fees0.10% – 0.45%40.25%
AccessibilityDirect to investor, self-managed Direct to investor, self managed
Ease of use Modern, intuitive digital platformModern, intuitive digital platform
AlgorithmsAutomated 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.
CustomizationChoose 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 transparencySee the exact details behind each individual trade and the resulting losses harvested. See accumulated trade details and the resulting losses harvested
Tracking errorSee 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 sharesFrec 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 trackedChoose 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 3000The only choice is a mix of CRSP US Large Cap and ETFs to mirror the total stock market.
Line of creditBorrow against up to 70% of your portfolio at 5.83% APY.5Can only borrow against up to 30% of your portfolio at 5.91% APY.
Getting startedOpen 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 reinvestmentChoose 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 savingsFrec’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.

CategoryFrec DIFidelity FidFolios (DI)
Minimum investment$20,000 – $50,000$5,000
Fees0.10% – 0.45%80.4%
AccessibilityDirect to investor, self-managed Professionally managed at least partially by humans
Ease of use Modern, intuitive digital platformAutomated to meet the specific strategy chosen
AlgorithmsAutomated to minimize tracking error and maximize tax-loss harvesting.Automation combined with human advisory. Advisors can make decisions on your behalf.
CustomizationChoose 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 transparencySee the exact details behind each individual trade and the resulting losses harvested. See all trades and logic on a daily basis.
Tracking errorSee 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 sharesFrec 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 trackedChoose 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 3000The only choices are:
U.S. Large Cap
International Index, U.S. Total Market Index, US Low Volatility Index, and Environmental Focus
Line of creditBorrow 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 startedOpen an account online in minutes, fund with cash or stocks and ETFs.Open an account online in minutes, fund with cash or stocks.
Dividend reinvestmentChoose 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 savingsFrec’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:

ProviderAnnual advisory fee 30-year portfolio value
Frec 0.10%$978,685
Fidelity0.40%$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.

CategoryFrec DISchwab Personalized DI
Minimum investment$20,000 – $50,000$5,000
Fees0.10% – 0.45%120.35% – 0.40%
AccessibilityDirect to investor, self-managed Requires consultation with a Schwab Financial Consultant
Ease of use Modern, intuitive digital platformNot specified
AlgorithmsAutomated to minimize tracking error and maximize tax-loss harvesting.Proprietary optimization process, unclear what is done by humans vs. algorithms, details non-disclosed
CustomizationChoose 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 transparencySee all trades and logic on a daily basis and how closely you’re tracking an index ETF.Opaque — not clear on their website
Tracking errorSee the exact difference between your direct index and the benchmark on a daily basis. Opaque — depends on advisor reporting
Fractional sharesFrec 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 trackedChoose 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 3000Choose between Schwab 1000 Equity Index, S&P SmallCap 600 Index, MSCI KLD 400 Social Index, and MSCI EAFE International
Line of creditBorrow 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 startedOpen an account online in minutes, fund with cash or stocks and ETFs.Must speak with a Schwab consultant
Dividend reinvestmentChoose 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 savingsDaily 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:

ProviderAnnual advisory fee 30-year portfolio value
Frec0.10%$978,685
Schwab0.40%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.

CategoryFrec DIParametric DI
Minimum investment$20,000 – $50,000Varies by advisor, likely $250K+
Fees0.10% – 0.45%14Up to 1% (Parametric fee + advisor fee)
AccessibilityDirect to investor, self-managed Only through wealth advisors
Ease of use Modern, intuitive digital platformDepends on advisor, no direct access
AlgorithmsAutomated to minimize tracking error and maximize tax-loss harvesting.Unclear, relies on advisor implementation
CustomizationChoose 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 transparencySee all trades and logic on a daily basis and how closely you’re tracking an index ETF.Opaque — depends on advisor reporting
Tracking errorSee the exact difference between your direct index and the benchmark on a daily basis. Opaque — depends on advisor reporting
Fractional sharesFrec supports the trading of fractional shares, resulting in less cash set aside.It depends on the underlying custodian of assets
Indices trackedChoose 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 3000Highly flexible based on investor needs, supports bond portfolios in addition to equities
Line of creditBorrow against up to 70% of your portfolio at 5.83% APY.Unclear, relies on advisor implementation
Getting startedOpen an account online inminutes, fund with cash orstocks and ETFs.Work with advisor to determine approach, fund with cash or securities, less streamlined
Dividend reinvestmentChoose 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 savingsDaily 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.

  1. Direct index providers selected based on requests from customers.
  2. Frec’s direct indexing portfolios maintain a small portion of cash in your portfolio that’s the greater of the account’s aum fee plus 0.02% or $75. 
  3.   https://support.wealthfront.com/hc/en-us/articles/13423588875284-Why-is-there-extra-cash-held-in-my-Stock-Investing-Account. 
  4. See all of Frec’s index prices and other fees on its Pricing & Fee Schedule.
  5. Frec allows you to borrow a maximum of 70% of your portfolio value. The amount available to borrow (maximum line of credit) is based on the positions in your portfolio (loan to value of positions range from 0% to 75%). The initial borrow amount available is typically 50% of your portfolio value. This amount can gradually increase to a maximum of 70% when your portfolio appreciates in value.
  6.  See Frec’s White paper: Tax loss harvesting - ETFs vs. Direct Indexing.
  7.  40% tax losses harvested from a portfolio is based on a ten-year time frame and simulations results from Frec's direct index model tracking the S&P 500 index. The results are hypothetical, do not reflect actual investment results, and are not a guarantee of future results. The simulations were run to tax loss harvest on a weekly basis in a ten-year time frame of ninety-day increments from 12/17/2003 - 06/10/2022 with a $50,000 initial deposit. The simulations averaged at the end of year ten resulted in a 40% accumulated tax loss savings and does not include Frec's 0.10% fee.
  8. See all of Frec’s index prices and other fees on its Pricing & Fee Schedule.
  9. https://corporate.vanguard.com/content/dam/corp/research/pdf/personalized_indexing_a_portfolio_construction_plan.pdf
  10.  The math here is as described: in all calculations the expectation we are working with is that the portfolio has a starting value of $100k and grows at 8%, compounded annually (an oversimplification, but a useful one here). We used both the lowest and highest end of Fidelity fees to calculate the range of fees, and future portfolio values, you might expect in this hypothetical situation. When calculating future portfolio values, we also subtracted the fee from the portfolio value on a yearly basis. The numbers used here are rounded, not precise to the dollar or cent amount.
  11.  Frec offers thirteen indices: account minimums for eight of them is $20,000 and for five of them is $50,000.
  12. See all of Frec’s index prices and other fees on its Pricing & Fee Schedule.
  13. Schwab’s higher fee of 0.40% is assessed on the first $2 million invested.
  14. See all of Frec’s index prices and other fees on its Pricing & Fee Schedule.