Index investing
that gets youmore.

With an index ETF, you own a basket of stocks. With direct indexing, you unpack that basket of stocks to invest in the individual stocks of the index. You might be wondering: why go through all this trouble? The answer is tax savings. In an index ETF, the underlying stocks cannot be traded by you. But with direct indexing, you unlock the ability to sell stocks that are down to claim a loss, temporarily buy a different one while still tracking the index, and buy back the stocks you sold later.

It’s kind of like earning points with your favorite airline, but instead of points, you earn “losses” that can be used as deductions against your tax bill. Plus, our software handles all of the individual stock trading for you without any work on your part, all while generating net new tax savings that you wouldn’t have gotten by just investing in the index. Keep in mind that you should consult your legal, tax, or financial advisor before making any financial decisions.

We’re a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. On top of this, our brokerage clearing house Apex Clearing offers excess insurance protection with an aggregate of $150M distributable to customers. Note that this does not cover ordinary loss from market fluctuation. Also Frec Advisers is a fiduciary, meaning that we are legally obligated to prioritize your interests over our own.

Currently, you can choose between the S&P 500^Ⓡ index or the S&P 500^Ⓡ Information Technology index. You can add or exclude up to 5 individual stocks for either index, or exclude up to 2 sectors from the S&P 500^ⓒ index.

If you want to withdraw funds from your portfolio we’ll need to sell some of your stock for you. We will do this in a way that aligns with our index tracking and tax loss harvesting strategy. While we perform the sale on your behalf, keep in mind that you own the underlying stocks of the direct index portfolio.

Alternatively, Frec offers a portfolio line of credit which allows you to borrow up to 70% of your portfolio value (See rates). Through Frec’s portfolio line of credit, you can get cash in your bank account as soon as the same day. Borrowing against a portfolio line of credit adds to your risks. Read more about those risks in Frec’s Margin Disclosure.

You can also transfer your portfolio out of Frec by initiating an ACAT transfer at another brokerage firm (ACAT fees will apply). We will then transfer your stocks in-kind to that firm. Note that fractional shares cannot be transferred and will be sold and transferred as cash.

Tax loss harvesting solutions offered by robo-advisors typically do ETF level tax loss harvesting, meaning the software will sell an ETF and purchase a similar but not “substantially identical” ETF to harvest losses instead of tax loss harvesting at the individual stock level. The downsides to this approach are there are less opportunities to tax loss harvest with ETFs, and the ETFs that are being sold and purchased may be very different from one another. With Frec Direct Indexing, we check for daily tax loss harvesting opportunities at the individual stock level and track a single index very closely.

Plus, common robo-advisors^* charge a 0.25% advisory fee and you have to pay ETF expense ratios on top of that (for example, the ETF SPY which tracks the S&P 500 has an expense ratio of 0.09%). At Frec, we charge a 0.10% advisory fee for your direct index with no additional ETF expense ratio fees.

^* Wealthfront and Betterment are considered robo-advisors and both charge a 0.25% advisory fee as of September 21, 2023. Pricing based on terms & conditions may vary.

The initial investment minimum to start a Frec direct indexing portfolio is $20,000. This is the minimum starting amount in order to purchase almost every stock in the index, resulting in more accurate tracking of the index.

Yes, you own the stocks in your direct index. However, we manage them for you by automatically buying and selling stocks in a way that aligns with our tax loss harvesting and index tracking strategy.

You can easily transfer stocks from your other brokerage to Frec without selling them during the process (with the exception of fractional shares). Stock transfers typically take between 4-6 business days. Once your stocks are on Frec, you can trade them just like at your other brokerage or even use them for your direct index portfolio.

Taking data licensed directly from the S&P, our software aims to track an index’s performance closely while balancing this with tax loss harvesting opportunities. Tax loss harvesting requires deviating slightly from the index because it requires you to reduce the allocation of a holding by selling it to incur losses. You can learn more about our methodology here.

No, direct indexing has been around for decades and was primarily used by high net worth clients with financial advisors investing large sums of money. However, fractional and commission-free trading and modern software have made the strategy more accessible to more people. At Frec, we made our fee comparable to that of a common ETF (Frec at 0.10%, SPY at 0.09%) so that this strategy can be accessible for those who already adopt a passive investing strategy but want the benefit of tax loss harvesting. Note that direct indexing fees are AUM (assets under management) fees while ETF fees are fund fees expressed as an expense ratio.