Why one of Wealthfront’s first customers switched to Frec for direct indexing
Sebastian is the 39-year-old CEO of a DevOps startup. He lives in a major city with his wife and their 11-month-old baby, and they have another baby on the way.
Before Frec
When it comes to investing, Sebastian has been around the block. He was Customer #7 at Wealthfront back in 2010, and he’s worked with dozens of financial institutions. He likes to test out different platforms, gauge the user experience, and find and report bugs. If the platform earns his trust, he’ll transfer more and more funds.
Frec is the most recent platform to earn Sebastian’s trust. He has the same feeling about Frec as he did about Wealthfront when he first tried it — that it’s going to be the next big thing.
Sebastian’s investing philosophy
“I’m one of those weirdos that believe that we’re going to live forever,” Sebastian told us, “so my time horizon is quite long. And so most of my financial discipline comes from the bet that we’re going to live exceedingly long lives.”
And because he’s thinking on very long time scales, he says, “I really like the risk-adjusted returns that you get from investing in the American market with a well-diversified portfolio.” “One of my core beliefs is that, if you just look at the performance of the S&P 500 for the last 50 years, it’s been around 9-10% yearly1. If you look at the average interest rates over the same period, they’ve been 4% or 5%2. And so a couple of years ago, I decided that I would be long on equities and short on cash and just have that long, long-term position.”
Why Frec?
Sebastian first learned about Frec from Twitter. “What caught my eye was the funding from Greylock. I have a huge amount of respect for the firm. And I just thought, well, if they invested, it’s probably something to look into.”
When he saw that Frec was SEC-registered, he knew that meant they’d been through rigorous compliance checks. “That gave me enough confidence to put in the first deposit.”
Low barrier to direct indexing
Sebastian switched to Frec because he already knew he wanted to start direct indexing, and Frec was the easiest place to do that.
“Right now a huge portion of my assets are just in VTI or these big ETFs. I’m probably never going to sell those just because I don’t want to pay the capital gains on them, but that means I’m starting from scratch on adding new money, and I’d rather that go directly into direct indexing than just buying more VTI.”
Sebastian previously had his assets in Wealthfront, but they only offer direct indexing to customers with over $100,000 on the platform. Since Frec’s minimum is only $20,000, “it makes it much easier to get started with direct indexing.” Plus, Wealthfront sometimes uses ETFs as part of their direct indexing strategy—which is exactly the kind of thing that Sebastian wanted to diversify from. Frec’s approach is a pure form of direct indexing: no ETFs are involved at all.
Simple margin rates
The main reason Sebastian left Wealthfront was their high margin rates. He realized that he would eventually want to buy a house, “and I don’t want to sell equities and pay all those capital gains. I’d much rather take on a margin loan to cover the down payment and stay invested for the longer term.”
So he transferred his money to Interactive Brokers, seeking lower margin rates. Soon after, he switched to Frec because it had a low margin and the direct indexing capability he was looking for.
Sebastian appreciates how simple Frec makes margin rates. “Once I started using Frec, what’s been cool is just generally how much easier it is to understand everything that goes on – specifically dividends received, interest paid on margin, and a well designed activity stream.”
Easy-to-understand product & interfaces
Sebastian has found Frec’s interfaces to be intuitive and helpful. It’s easy to understand what’s going on in his accounts, and that makes Frec an attractive option for managing his family’s assets, which are currently spread out across about 30 different institutions.
One of the things he likes most is how easy it is to understand tax lots with Frec. “Let’s say, for example, you’ve got some Apple stock, and you bought that over many years. It’s really easy to double click on that and see all the different tax lots.You can see that you bought some at $20 and $30 and $40. As far as I know, there’s no other platform that makes it really easy to figure out tax lots. And that’s super important if you’re looking to dollar cost average or sell the most expensive of your tax lots at the end of the year. That portion of the interface is very well thought through.”
Recap
- Sebastian has tried dozens of finance platforms. As a DevOps junkie, he loves testing out new platforms to gauge the user experience, and find and report bugs. If a platform has great UX and is quick to fix bugs, they earn his trust—and Frec has.
- He’s investing for the (very) long term. Sebastian likes to think we’ll live for a hundred years, and he invests with that in mind. For him, that means tracking the market—and he thinks direct indexing is the best way to do that.
- Sebastian switched to Frec to diversify away from ETFs. A large portion of Sebastian’s assets are in ETFs, and he realized he was unlikely to ever sell them, due to the taxes. So he knew he wanted to start direct indexing, and Frec was the easiest place to do that.
- Frec’s low margin rates were also a big part of the appeal. Sebastian wants to buy a house in the future, and he’d rather take on a margin loan for the downpayment—not sell equities and have to pay taxes on the capital gains. Frec has low margin rates, and makes them easy to understand.
- He thinks Frec is the next big thing. Sebastian knows what goes into founding a startup (he’s done it himself). He was Customer #7 at Wealthfront back in 2010. He has a lot of faith in Frec’s team and is excited at the rate of improvement and growth he’s seen so far.
He’s excited to continue working with Frec, because he’s “seeing the rate at which the software is improving and thinking” in ten years,
“[Frec] is going to be the next big finance platform and I want to be a part of that.”
This testimonial may not be representative of the experience of other customers. There is no guarantee of future performance or success. This customer of Frec holds a BA in Economics and an MBA. The mention of any specific ETF or stock is for informational purposes only and should not be considered a trade recommendation.
Investing involves risk, including the risk of loss. Borrowing on margin increases your risk of loss, read more about your risk with Frec’s Margin Disclosure. Frec’s direct index product advisory services are provided by Frec Advisers LLC, a registered investment adviser. Brokerage services are provided by Frec Securities LLC, member FINRA/SIPC.
Frec Advisers LLC and Frec Securities LLC are both wholly owned subsidiaries of Frec Markets, Inc.
