Wrap Account

What is a Wrap Account?

A wrap account is the industry term for a bundle of investment services all ‘wrapped’

up under one fee. Think of it as an all-inclusive vacation package. You can book your flight, hotel, meals

and bus tours on your own, or you can pay a fee to an agent to arrange the whole trip for

you. A wrap portfolio is the opposite of do-ityourself investing. Differing from a regular

investment account where you are charged a sales commission for every trade, the annual

wrap fee covers a professionally managed portfolio, trade transactions and account

administration, along with other services. Wrap programs appeal to investors who

do not have the time, the inclination, or the expertise to manage a financial portfolio.

Not all Wrap Accounts are the same

No. Wrap accounts come in as many shapes and sizes as the financial institutions that offer

them. Brokerage firms, financial planners, mutual fund companies and your local bank or

trust company all sponsor wrap products. In the last four years, the popularity of

wrap accounts has mushroomed and new products sprout up every year. Descriptions

such as professionally managed accounts, asset allocation, balanced portfolios and

diversification are often used to describe wrap products.

Choose from two types of Wrap Accounts

There are essentially two types of wrap investment products on the market: a traditional

wrap account and a mutual fund wrap account. Traditional wrap accounts offer a full

range of securities, along with the expertise of outside money managers with different

investment styles. These traditional wrap accounts are customized according to your

investment horizon, goals and risk tolerance. Mutual fund wrap investments, as you

might guess, are made up of only mutual funds. These wrap accounts are generally

based on an asset allocation selected from several, non-customized allocations generated

by a computer program. In the simplest terms, asset allocation is astrategy used to spread

your assets among cash, stocks andbonds – not putting all of your eggs in one basket – to reduce

your risk in any one market area. A choice of portfoliomodels do this by mixing and

matching various funds and management styles together, like holding funds within a

fund. If you think of a pie chartmade up of slices of different flavoured funds, the entire

investment pie or portfolio may include seven funds or investment styles in one,

blending stock, bond and shortterm funds for instance. Often investors in mutual fund wrap

account programs will graduate to traditional wrap programs as their assets grow.