Frec Review

Frec Ratings at a Glance

Frec Product Offering

Frec offers a comprehensive suite of investment services that encompasses direct indexing, lines of credit and a high-yield treasury product. Here’s a breakdown of its offerings:

Direct Indexing Strategies

Frec’s flagship product is Frec Direct Indexing, which allows you to invest in S&P 500 indices while generating savings via tax loss harvesting. These savings can give you an edge over traditional forms of investing, helping you achieve financial freedom sooner. To grasp how this investment strategy works, you need a detailed understanding of index funds.

Index funds replicate the performance of a specific market index (such as the S&P 500, DJIA, FTSE 100 and Nasdaq Composite) by holding the same securities in the same proportions. They’re typically cheap and diversified and serve as simple portfolio building blocks. When you own shares of an index fund, you indirectly own stocks in the fund in proportion to the index it tracks. 

Index Funds vs. Direct Indexing

Suppose you invest $100,000 in a fund tracking the S&P 500. In that case, you own significant stakes in major blue-chip companies, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and NVIDIA (NVDA). However, despite being exposed to these companies' positive and negative performance, you don't have a say in the company's running even if you invest millions. No invite to shareholders meetings and voting rights in a board election — you're an indirect owner. Additionally, you cannot directly buy or sell the underlying securities or adjust positions within the index fund for any purpose. 

In contrast, direct indexing implies that you own the underlying stock of an index rather than buying a piece of an ETF. And so you can customize it to your preference. Are there securities in the index that do not align with your values, particularly from a social, environmental, or corporate governance perspective? Direct indexing enables you to sell or avoid such securities. It's as simple as that — you're your portfolio manager. Remember that if your index deviates significantly in sector weightings from the actual index, the performance will also diverge. This is known as a tracking error.

Tax Loss Harvesting 

Suppose you find underperforming securities in your direct indexing portfolio or those that have lost value since purchase. In that case, you can sell them and rebalance your portfolio by reallocating the proceeds to maintain target allocations. The capital loss from the sale of such securities can be used to reduce your overall tax liability. This is called tax loss harvesting. Daily tax loss harvesting can capture up to $19 in incremental tax savings for every $100 deposited and add a cumulative 2% per year if reinvested. 

You should, however, avoid repurchasing stocks from the same company or one similar enough to trigger a wash sale. Direct indexing tailors an index to your specific circumstances and optimizes for taxes, and factor exposure. It lets you leverage individual stock movements for tax loss harvesting opportunities. 

Overview of Frec Direct Indexing 

Frec allows you to choose between the S&P 500® and the S&P 500® Information Technology indices and customize them to your liking by adding or removing stocks or sectors. You can exclude up to two sectors and add or exclude up to 10 stocks for the S&P 500 Index and add or exclude up to 10 stocks for the S&P 500 Information Technology index. 

Since the S&P indices track top U.S. companies, the platform presents excellent opportunities to investors. With Frec, you'll have full transparency for your investments at any moment. The platform uses robust algorithms to automate the process fully, so you can set it and forget it, all while having behind-the-scenes visibility of what trades are happening. This makes profit optimization via tax loss harvesting hassle-free.

For instance, if the value of AAPL declines, the algorithm will automatically sell it to realize the loss, temporarily invest in other stocks in the index and repurchase the AAPL after a 30-day wash sale window. Subsequently, you can use these losses to offset capital gains taxes without limit or up to $3,000 of your ordinary income. Unused losses accumulate indefinitely and can be carried forward to offset gains in future years. Frec streamlines stock transfers from your current brokerage. You can set up your direct index with your existing stocks, eliminating the need to sell and the risk of over-concentration in a single stock. This feature makes for an excellent user experience. 

Low-Cost Portfolio Lines of Credit

Sometimes, you may need a substantial sum to finance big projects like home renovations or remodeling, new vehicle purchases, investing in a new business venture or consolidating high-interest debts. In such cases, you'll typically consider selling your stocks to cover the costs associated with these projects. However, this could result in missing out on potential future gains in performance. 

Thanks to Frec's accessible portfolio lines of credit, you can borrow against your direct index portfolio at a competitive rate of EFF + 1%. That way, you won't miss out on future gains on your portfolio. To help you decide if selling some of your securities or borrowing will make sense long-term, you can use Frec's Sell or Borrow tool. This generates simulations of potential outcomes over preset durations of 15, 20, or 30 years when you input parameters such as held stocks, projected interest rates and additional factors. 

The tool creates two hypothetical scenarios for each simulation: one where you sell a portion of your securities to finance the big purchase and another where you borrow funds via Frec's lines of credit to cover the same expense. These scenarios are depicted as two lines on a time series chart labeled Sell and Borrow so you can quickly tell which options make sense for you long-term. You can borrow up to 70% of your direct index portfolio via Frec's portfolio line of credit. 

Frec Treasury 

To further maximize earning opportunities for investors, Frec offers a highly liquid and secure treasury product with a high-yield interest rate currently of 5.01%. In contrast, the national average APY on savings accounts is just 0.47%. Frec's rate is also significantly above what's obtainable among some of the best high-yield savings accounts. A higher interest rate enables you to meet your financial needs faster. Frec's treasury boasts additional capabilities. For instance, you can pay off your credit card debts directly from the account.

Frec’s treasury product  invests in money market mutual funds. These are typically mutual funds that invest in short-term, high-quality securities such as government bonds, CDs and commercial paper with minimal credit risk and low volatility. Money market funds are relatively low-risk investments since they mostly maintain a stable net asset value (NAV) of $1 per share. While they can provide higher returns than traditional savings accounts, they may not offer liquidity or direct payment capabilities like treasury accounts. 

Usually, investors use money market funds to store cash instead of leaving such cash in a low-earning traditional bank account. It is also helpful to risk-averse investors as a less volatile alternative to investing in the stock market. 

Educational Resources 

Frec offers a reasonable collection of educational resources to streamline the understanding of the company's core offerings. On the resource page, you can access a well-crafted blog article on mostly direct indexing as well as tax filings. There are also white papers on tax loss harvesting and Frec's direct indexing algorithm. You can check out Frec's direct indexing demo to facilitate a quick understanding of direct indexing. 

You can contact Frec by email to discuss or ask questions about the company's offerings. Although no phone support is available, users can schedule a zoom call to chat live with a licensed professional and Frec's help center contains readily accessible and comprehensive information on all potential questions you may have about the company. This information ranges from direct indexing to account profile setup and login, getting started, security and privacy, borrowing and margin, and more. Here, you can also search for specific topics by entering a keyword. 

You can access the FAQ at the bottom of each page for concise answers to various questions. All these options make it easy to get information without contacting the company. Additionally, Frec maintains an active presence on social media sites like X, YouTube and LinkedIn. These platforms provide an alternative means of interacting with the team and gaining first-hand information about direct indexing. The unavailability of more direct customer support channels like live chat and phone, as well as reviews across independent platforms, is understandable since Frec is a relatively new company. However, customers can set up Zoom sessions with licensed individuals and the founder.

Frec prioritizes the security of funds and data, which is vital in building trust among its clients. As a broker-dealer and registered investment adviser, the company is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). These regulatory bodies have the absolute right to audit the company regularly. Frec Advisers is a fiduciary, meaning the company is legally bound to do what's in your best interest. Additionally, Frec partners with Apex Clearing to hold investors' funds and securities. 

Apex Clearing is one of the largest third-party U.S. custodians, holding over $114 billion in funds for prominent financial technology companies. So, if Frec fails, your funds will be readily accessible. Plus, Frec is a member of the Securities Investor Protection Corporation (SIPC). SIPC is an organization that protects investors' assets in a brokerage account (such as stocks, bonds and ETFs). SIPC 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.

To prevent unauthorized access to client data at rest or in traffic across its network, Frec employs robust encryption technology. Measures like 2FA and auto log-out are also implemented for enhanced user security. The firm promotes transactional safety processes, ensuring a human monitors every transaction. The firm does not sell or share your data with a third party without your consent except as mandated by law. You should carefully review its legal and regulatory disclosures to understand its security and risk policies better. 

Frec is transparent regarding its fees and account minimum. The initial investment minimum to start a Frec direct indexing portfolio is $20,000. With this amount, you can buy almost every stock in the index, resulting in more accurate tracking of such an index. The applicable fee is 0.10% annually, or $100 per year, for a $100,000 portfolio. This is nearly on par with SPY's expense ratio of 0.09% but with the added benefits of tax loss harvesting and customization. Frec does not charge trading fees for stocks and ETFs beyond the regulatory fees imposed by financial regulators, which are typically small amounts per trade. 

The interest rate for Frec's portfolio line of credit is 6.33%, subject to change based on the Effective Federal Funds (EFFs) Rate. It is typically EFF + 1% and is billed monthly and automatically added to your loan. Unlike most traditional loans, a portfolio line of credit does not usually require monthly principal payments. However, you may need to make payments in case of margin calls. Even in such situations, Frec will help you forecast if, when and how much you owe. An annual fee of 0.20% applies to Frec's treasury account. This amounts to $200 per year for a $100,000 portfolio. Note: this fee is included in the 5.01% rate, not in addition to it. 

Frec only supports fund deposits and withdrawals via ACH or wire transfer. There are no deposit fees; however, an outgoing wire transfer fee of $25 is applicable for withdrawal. You can review Frec's pricing and fee schedule for a comprehensive breakdown of the costs. You can earn lucrative rewards via Frec's referral program by inviting friends to join the firm. When your invites create an account, you'll get a 0.20% Frec interest boost for Treasury lasting 30 days. And when they fund a Direct Indexing account, you'll receive $250 in cash. 

Frec offers a user-friendly experience, allowing investors hassle-free and affordable access to direct investing. You can open individual, trust or business margin brokerage accounts. Either way, getting started is straightforward and can take about five minutes. Remember that you must be over 18 years old and a legal U.S. resident to open these accounts. Frec's robust algorithm automates and simplifies direct indexing, enabling you to save more via tax loss harvesting. The fees are reasonable and competitive. In fact, with no trading fees for stocks and ETFs, you can trade without worrying about additional charges. 

The platform provides transparency, enabling investors to see what they're invested in at any moment. Frec's treasury account offers an opportunity to earn up to 5.01% APY, surpassing traditional savings account rates. The portfolio line of credit also boasts a low-cost rate of 6.33%. While phone support and live chat are unavailable, Frec's comprehensive help center addresses vital questions and concerns regarding its offering. The Frec team confirmed that it is currently developing a mobile app, which, upon release, will enhance investment and portfolio management for its clients. Benzinga considers Frec recommendable. 

Frec vs. Competitors

Frec has a few competitors similar to it, like Wealthfront. Among Frec's core competitive advantages is its pricing. Frec's 0.1% annual fee is about 2.5 times smaller than Wealthfront's fee of 0.25%. Most traditional brokerages and wealth advisers offering similar services charge even higher fees, typically around 0.40% and 1.0%, respectively. This makes Frec one of the most affordable brokerages for executing this investment strategy. Its robust algorithm that facilitates automated tax loss harvesting is also worth mentioning. Frec's 5.01% APY on its treasury account surpasses most high-yield savings account options, including CIBC, Robinhood, SoFi and CIT Bank. Additionally, the rates (6.33%) for its portfolio lines of credit are significantly lower than those of Charles Schwab, Fidelity and E*TRADE.

Despite being a relatively new platform, Frec is already on pace to achieve its mission, which is providing average investors access to similar tools used by the ultra-wealthy to build long-term wealth. Compared to robo-advisers that offer ETF tax loss harvesting, implementing direct indexing leveraging Frec's robust platform can double your tax savings through this method. Frec's low fees, low account minimum, adequate safety and security measures, extensive customization and robust automation are the core reasons you must consider the firm for your direct indexing strategy. Plus, you can earn substantially via its treasury product and access funds for vital projects via its low-cost portfolio lines of credit. These additional qualities make it even more appealing for your investing journey. 

Frequently Asked Questions