What Is a Wrap Account?
Wrap accounts provide individual investors with an investment portfolio in which securities or mutual funds are bundled and managed for a fee, referred to as a “wrap fee.” Computed as a percentage of the portfolio’s total value, the wrap fee presumably aligns the interests of investors with those of their financial advisors, whose compensation depends on the growth—or decline—of the investor’s portfolio, rather than on commissions generated from the sale of investment products. The fee covers all costs associated with managing a portfolio; services include regular performance reports.
Offered by a variety of vendors, including banks, broker/dealers, insurance companies, regional brokers, mutual fund companies, and national brokerage firms, wrap accounts are usually tailored to suit stated investment objectives—such as growth or income—and are recommended for investors with at least a three- to five-year time horizon to reach investment goals.
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