Fidelity vs Schwab vs Frec Direct Indexing Fee Comparison

On advisory fee alone Frec is the cheapest of the three by a wide margin: 0.09% on the S&P 500 against 0.40% at both Fidelity Managed FidFolios and Schwab Personalized Indexing. On $250,000 that is $225 a year against $1,000. The minimums run the other way, with Fidelity opening at $5,000, Frec at $20,000 and Schwab at $100,000, and Fidelity's 0.40% is a gross fee that gets reduced afterwards by an amount it does not publish.

These three come up together because they are the three ways a US investor can buy direct indexing without hiring an adviser first: a big fund company, a big brokerage, and a startup. They price the same product four and a half times apart. This article puts the three fee schedules next to each other in dollars, and flags the two clauses in the filings that change the comparison. It is educational, not investment advice, and none of these providers pays us.

Direct indexing AUM fees: Fidelity vs Schwab vs Frec

Fidelity's split is worth reading carefully, because the 0.40% applies to five specific strategies and not to the product as a whole. Its Form ADV Part 2A charges "an annual Gross Advisory Fee of 0.40% for the U.S. Large Cap Index Strategy, the International Index Strategy, the U.S. Total Market Index Strategy, the U.S. Low Volatility Index Strategy, and the Environmental Focus Strategy, and 0.70% for the U.S. Large Cap Strategy, the Dividend Income Strategy, and the International Strategy." The three at 0.70% are actively managed, so picking the wrong line from the menu costs you 30 basis points a year for something that is not index tracking.

What the three cost in dollars

Schwab is the only one of the three with a breakpoint, and it arrives late. Above $2,000,000 the rate drops to 0.35%, so a $3,000,000 account pays 0.40% on the first two million and 0.35% on the rest, which works out at $11,500. That is a $500 discount on an $11,500 bill, and it does not change the shape of the comparison. Frec's own scale runs the other way: 0.09% is the S&P 500 rate, and its broader and more specialized indices run up to 0.35%, which is where it meets the other two.

The Fidelity clause that makes 0.40% not quite 0.40%

Fidelity's fee is described throughout its filing as a Gross Advisory Fee, and the word is doing work. The brochure says a client's gross fee "will be reduced by a credit amount (the Credit Amount) with respect to the core Fidelity money market fund and any securities a client elects to transfer into a Program Account." The purpose is disclosed plainly: the credit "is intended to address the conflicts of interest that arise from Program Account investments that generate revenue for Fidelity by reducing the advisory fees paid to Strategic Advisers by the amount of compensation, if any, Strategic Advisers or its affiliates retain."

In practice that means the cash sitting in your Fidelity sweep fund earns Fidelity a management fee, and Fidelity hands that back to you as a reduction in the advisory bill rather than keeping both. It is a good clause and it is more honest than most. It also makes the headline number unusable for comparison, because the credit is applied after the end of each quarter and the size of it depends on what you hold. You cannot know your net fee in advance. Against a flat 0.09% at Frec or a flat 0.40% at Schwab, "0.40% minus something" is the awkward entry in the table.

One more line from the same filing deserves attention from anyone comparing on tax efficiency: "Certain assets in a Program Account could be liquidated to pay the fees; this liquidation could generate a taxable gain or loss in a taxable Program Account." A quarterly fee paid by selling appreciated shares is a small tax drag that no fee schedule shows.

The minimum decides it more often than the fee does

For a lot of readers this comparison is settled before the fees are reached. Schwab Personalized Indexing needs $100,000. Frec Classic starts at $20,000 for its S&P 500 strategy and $50,000 for some others. Fidelity Managed FidFolios opens at $5,000 invested, which is the lowest entry point of the three by a factor of four.

That leaves a genuine decision only above $20,000, and above $20,000 the fee gap is large enough that Fidelity and Schwab have to be worth 31 basis points a year on something other than the index. Usually that something is the relationship: a discretionary manager, a phone number, an existing account you already keep everything else in. Those are real reasons. They are just not free, and $775 a year on $250,000 is the price of the phone number.

What you actually get for the extra 31 basis points

Schwab's argument is that a portfolio manager runs the account rather than an algorithm, and that it will tailor exclusions to you by GICS industry and sub-industry. It publishes no cap on how many names you can restrict, saying only that "the extent to which holdings can be personalized is subject to investment management guidance," which can work in your favor on a large account. Its six strategies are also a narrower menu than Frec's, and none of them tracks the S&P 500 itself.

Fidelity's argument is the $5,000 door and the integration with everything else you hold there. The trade is the tightest customization limit of the three: its filing says reasonable restrictions "typically are limited to the restriction of up to five individual securities or up to two industries," each one "subject to our and the sub-advisor's review and approval," and warns that imposing one "can delay the start of discretionary management." We pulled the published restrict limits for eight providers into one table on direct indexing exclusions if your list is longer than five names.

Frec's argument is the price and the menu: 25 indices against six and eight, self-serve control of up to 25 stocks and 5 sectors, and 0.09% on the S&P 500, which is the same as the expense ratio of SPY. What you give up is the manager. Nobody reviews your account, and if something needs deciding, you decide it. Our Frec direct indexing review goes through how a business model at 9 basis points actually works, which is the question most people ask next.

Does the harvesting benefit cover the fee?

This is where the comparison should end up, because a fee is only expensive relative to what it buys. Harvested losses offset capital gains with no dollar ceiling, and only $3,000 a year of the surplus reaches ordinary income. So the benefit depends almost entirely on how much gain you realize in a year and the rate it is taxed at.

Take a $250,000 account harvesting 3% of its value in losses in a year, which is a conservative figure for a mature direct index. That is $7,500 of losses. Against long-term gains at 15% plus the 3.8% net investment income tax, they are worth about $1,410. Frec's $225 fee leaves $1,185 of that. The same account at Fidelity or Schwab costs $1,000, leaving $410. Both are still positive, but one keeps five times as much of the benefit.

The whole calculation turns on a number most people do not have at hand, which is their marginal rate on the gains the losses will offset. If your income is straightforward that takes ten minutes. If it runs through a business, consulting work or several 1099s, the honest answer is that you will not know until the return is drafted, and it is worth working the return through before you commit to a fee level for the next decade. Our own tax loss harvesting calculator runs the netting order over whatever gains you do know about, and the direct indexing fee comparison puts every provider's fee and harvesting benefit on the same basis-point axis.

The cost of changing your mind

One number missing from every roundup of these three: what it costs to leave. Schwab charges $50 for a full transfer out and nothing for a partial one. Frec charges $75 either way. Fidelity's published brokerage commission and fee schedule contains no account transfer or closing fee at all. Those are small numbers, but the fractional shares in a direct indexing account cannot travel through ACATS and get sold on the way out, which is the expensive part. We worked through every provider's published exit fee on ACATS transfer fees by broker.

Frequently asked questions

Which is cheaper, Fidelity or Schwab direct indexing? They are the same headline rate. Both charge 0.40%, and Schwab drops to 0.35% only above $2,000,000. The differences are elsewhere: Fidelity opens at $5,000 against Schwab's $100,000, charges 0.70% for its three actively managed strategies, and reduces the gross fee afterwards by an undisclosed credit amount.

Is Frec really 0.09%? For the S&P 500 strategy, yes, and its pricing page states it alongside the note that SPY's expense ratio is also 0.09%. Frec Classic runs from 0.09% up to 0.35% across its 25 indices, so the broader and more specialized strategies cost more. Minimums range from $20,000 to $50,000 depending on the strategy.

Does Fidelity Managed FidFolios have a minimum? $5,000 invested, which is the lowest of the three and one of the lowest in US direct indexing. It is the practical answer for an account too small for Frec's $20,000, and the fee difference at that size is a matter of a few hundred dollars a year.

Can I compare direct indexing AUM fees across more than these three? Yes, and you should if your account is above $250,000, because the adviser channel opens there at rates between Frec's and Schwab's. Wealthfront matches Frec at 0.09% on its S&P 500 Direct account from $5,000, and Vanguard, Parametric and Aperio file fees from 0.20% to 0.35% through advisers. The full menu is on direct indexing platforms compared.

Does a lower fee mean worse tax loss harvesting? Not on the published evidence. Frec publishes historical harvest rates for all 25 of its strategies and they are in line with the category. What the fee buys at Fidelity and Schwab is discretion and a relationship, not a measurably better harvesting engine. The variable that moves harvest rates most is the benchmark you pick, not the fee you pay, which is why a small cap or total market sleeve harvests roughly twice what an S&P 500 sleeve does.

Before you pick one

Build the index first and the provider second. All three of these sell you tracking of a benchmark you can specify in an afternoon, and the benchmark choice moves both the return and the harvest rate more than the 31 basis point fee gap does. Use the builder at the top of this page to construct the index you want, weight it the way the provider would, and backtest it against what you hold now. Then pick whichever of the three will track it for the least money.