Wrap Account: What Is It and How Does It Work?

A wrap account is an all-in-one investment account that bundles various investments, including stocks, bonds, and mutual funds[1]. This type of account is often managed by a financial advisor, who decides where to invest the money in the account.

Financial advisors use their expertise to create a diversified portfolio that meets the client's investment goals. The client typically pays a fee for this service, which is usually one-to-three percent of the assets under management[2].

How Does a Wrap Account Work?

A wrap account allows investors to pool their money together to invest in various assets, including stocks, bonds, and mutual funds. This type of account allows investors to diversify their portfolios and receive professional money management services.

Financial institutions offer wrap accounts, which typically have higher minimum investment requirements than other types of accounts. Wrap account fees vary depending on the provider, but they can include annual charges, wrap account set-up fees, and fees for buying and selling assets[3].

When choosing a wrap account provider, it is important to compare fees and services to find the best option for your needs. You should also consider whether the provider offers the type of investment products you are interested in.

What Is a Wrap and Non-Wrap Account?

Wrap accounts are financial services relationships in which a single company provides multiple products and services under a wrap fee arrangement[4]. In contrast, non-wrap account providers tend to offer a la carte pricing for their products and services.

Wrap accounts first appeared in May 1975 as a response to the growing complexity of the financial services landscape[5]. At that time, investors faced a bewildering array of investment options and providers, each with their own fees.

Wrap accounts were designed to simplify the investment process by bundling together various products and services, including investment management, financial planning, and custody services.

What Is a Wrap Fee Account?

A wrap fee account is an all-inclusive investment account that charges a single upfront fee for all services included[1]. This "wrap fee" may include investment management, brokerage, and other services.

Wrap fee accounts aim to simplify investing by providing a single point of contact and consolidated billing for all services included. This can make wrap fee accounts attractive for busy investors or those who don’t want to manage their investments themselves[6].

Why Do I Need a Wrap Account?

A wrap account gives one access to professional money managers, who can provide the guidance and expertise needed to make informed investment decisions. Wrap accounts protect investors from churning by limiting excessive trading by brokers[7].

What Are Wrap Funds

A wrap fund is simply a mutual fund or exchange-traded fund (ETF) that charges one low annual fee regardless of the number of securities held in the portfolio[8].

Key Takeaway

A wrap account, also known as a wrap fee account, is a type of investment account that combines all your assets into one portfolio. This simplifies the management process for you and gives you access to lower fees than you would pay if you had separate accounts at different firms. At the end of it all, we hope you have a better understanding of what a wrap account is and whether it's right for you.