A:

Wrap accounts, in which brokerage account costs are "wrapped" into a single or fixed fee, are great if you don't have time to invest on your own and wish to have a money manager take care of your assets. Charges are on a flat quarterly or annual basis, covering all administrative, research, advisory and management expenses.

There are two variations of wrap accounts: traditional and mutual fund. A traditional wrap account offers many different types of securities to meet the investment needs of the individual investor. The main attraction of traditional wraps is that they offer investors access to one or more investment managers to manage their funds. A mutual fund wrap account is a basket of mutual funds that caters to the investment goals of the investor.

The advent of wraps has allowed smaller investors to access professional portfolio managers, which were once only available to large institutional investors and the extremely wealthy. A traditional wrap typically requires an initial investment of at least $25,000. But with their ever-increasing growth and popularity, the deposit minimums are continually being lowered. Mutual fund wraps have relatively smaller investment minimums of as low as $2,000.

Another advantage to a wrap is that it protects investors from overtrading, or churning. This is when a broker or money manager trades an account excessively to create extra commission. Because the wrap account is charged a flat annual fee, the most you can be charged is the fixed percentage, usually 1-3%, of your account's assets.

For further reading, see Wrap It Up: The Vocabulary And Benefits of Managed Money and Introduction To Mutual Fund Wraps.

RELATED FAQS

  1. How do no-load funds typically perform relative to load funds?

    Understand the difference between no-load mutual funds and funds that carry a sales load, and learn which of the two has ...
  2. What are the most popular mutual funds that invest primarily in the insurance sector?

    Understand why investors may be interested in investment opportunities in the insurance sector, and learn which mutual funds ...
  3. How should I use portfolio turnover to evaluate a mutual fund?

    Learn about the turnover rate for mutual funds, and understand the effect higher turnover may have on fund performance and ...
  4. What are the risks involved in a banker's acceptance?

    Learn about the different kinds of college savings accounts, how they can benefit a college saver and how to open these savings ...
RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  3. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  4. Historic Pricing

    A method for calculating the value of an asset using the last ...
  5. Nelson Peltz

    One of the most successful activist investors in the financial ...
  6. Bear Fund

    A mutual fund designed to provide higher returns when the market ...

You May Also Like

Related Articles
  1. Professionals

    5 Signs That You Have a Lousy 401(k) ...

  2. Professionals

    Target Date Funds: More Popular, Cheaper ...

  3. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

  4. Mutual Funds & ETFs

    How Janus Capital Makes Money

  5. Stock Analysis

    What Makes Goldman Sachs a Good Bet?

Trading Center