Investment Companies - WRAP Accounts


Rule 3a-4 of the Investment Company Act of 1940 offers a safe harbor from the definition of investment company for programs that provide discretionary investment advisory services to clients. Programs that meet the following requirements do not have to register as investment companies:

  • Each client's account in the program is managed on the basis of the client's financial situation and investment objectives and in accordance with any reasonable restrictions imposed by the client on the management of the account.

  • Each client has the ability to impose reasonable restrictions on the management of the client's account, including the designation of particular securities or types of securities that should not be purchased for the account, or that should be sold if held in the account.

  • The sponsor or person designated by the sponsor provides each client with a statement, at least quarterly, containing a description of all activity in the client's account during the preceding period, including all transactions made on behalf of the account, all contributions and withdrawals made by the client, all fees and expenses charged to the account, and the value of the account at the beginning and end of the period.

  • The client must have the same rights over the securities in the account as if they held those securities in their own name, including the rights to:
    • Withdraw securities or cash
    • Vote (or choose a proxy vote) on securities in the account
    • Proceed directly as a security holder against the issuer
    • Be provided with timely confirmations of each securities transaction

  • The accounts are managed based on the clients' needs, including:

  • When the account is opened, the sponsor obtains client information, which includes financial situation and investment objectives.

  • At least annually, the client is contacted to determine whether there have been any changes in the client's financial situation or investment objectives, and whether the client wishes to impose any reasonable restrictions on the management of the account or reasonably modify existing restrictions.

  • At least quarterly, the client is contacted and reminded to notify the sponsor if there have been any changes in financial situation, or if the client wishes to impose any reasonable restrictions, or modify any such restriction on the account.

  • The sponsor and personnel of the manager of the client's account, who are knowledgeable about the account and its management, must be reasonably available to the client for consultation.
Structure, Management and Operation of Mutual Funds
Related Articles
  1. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  2. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  3. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  4. Economics

    What Qualifies as Full Employment?

    Full employment is an economic term describing a situation where all available labor resources are being utilized to their highest extent.
  5. Investing Basics

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  6. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  7. Economics

    What is a Code of Ethics?

    A code of ethics is a collection of principles and guidelines an organization expects its employees to follow.
  8. Investing Basics

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  9. Economics

    Understanding Cash and Cash Equivalents

    Cash and cash equivalents are items that are either physical currency or liquid investments that can be immediately converted into cash.
  10. Economics

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
RELATED TERMS
  1. Revenue

    The amount of money that a company actually receives during a ...
  2. Substitute

    A product or service that a consumer sees as comparable. If prices ...
  3. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  4. Equity

    The value of an asset less the value of all liabilities on that ...
  5. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  6. Corporate Culture

    The beliefs and behaviors that determine how a company's employees ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  4. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  5. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  6. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!