As your assets grow and your financial needs become more complex, you may no longer be comfortable managing your investment portfolio on your own. Although you may not be ready for full-scale wealth management services, one simple way you can get professional money management is through a ”wrap account.”
What is a WRAP account
Wrap accounts consolidate various investments under one administrative umbrella. They are similar to master trusts except that they act as a custodial service with investments in assets made under an individual’s name. These investments may be in either managed funds or direct investments. The name ‘WRAP” is drawn from the fact that the administration wraps their fees around a portfolio of investments.
Wrap accounts, which have become increasingly popular in the last several years, also help align a financial advisor’s interests with your own through the advisor’s fee structure.
Under a wrap account, money managers invest and manage a group of investments that could include individual securities or funds. They provide investment guidance, portfolio management, and brokerage services for an annual fee based on a percentage of your assets.
Many investors prefer an annual account fee over commissions because they feel more comfortable knowing financial advisors will have no motivation to trade frequently just for the sake of generating commissions. With the annual fee, the advisor earns more as you earn more – therefore, you both have a vested interest in increasing the overall asset size of your portfolio.
Annual fees typically range from 0.5% to 2% of the value of the account. The charges are also usually based on a sliding scale – that is, the larger the account, the lower the percentage charged.
Types of WRAP Accounts
Newbridge Financial Services Group, Inc. offers its clients two separate and distinct types of WRAP accounts
- Discretionary WRAP
- Non-Discretionary WRAP
Both are distinct in how the assets are managed in the account.
Discretionary WRAP – is a service that enables your financial advisor to purchase certain eligible securities and/or investment products, including, but limited to mutual fund, exchange traded funds, equities (e.g. stock, rights, warrants), bonds (e.g. corporate, government, agency, municipal) and options on indices and equities all within a single account on your behalf.
Non-Discretionary WRAP – clients choose the underlying investments in the portfolio based, to the extent the client elects, on their financial advisor’s recommendation.
Transaction in a WRAP account
Using a WRAP account, Investors are able to invest in a broad range of investment products – equities, fixed income (debt) instruments, ETFs, allowing your investment portfolio to be diversified. The benefit is that for each transaction that occurs within the WRAP account, there are no fees (commissions, mark-ups/mark-downs) charged on these transactions. Once an investor has established the WRAP account, the investor is only required to maintain the minimum amount of $25,000 depending on the specific type of WRAP account established. (The Firm does have WRAP or managed account programs that require a higher minimum amount.)
If your WRAP account is based on mutual funds, it is important to know that mutual funds have other associated expenses related to their underlying funds. The initial sales charge associated with the mutual fund may not be applicable; however, the management of the mutual fund incurs additional fees which are not associated with your Newbridge Financial Services Group, Inc. financial advisor.
WRAP account benefits are quite simple
- These accounts provide customized, objective, and ongoing professional investment management of your portfolio.
- Your portfolio manager (Newbridge Financial Services Group, Inc. financial advisor) will help you assess your goals and objectives, risk tolerance and your investment time horizon.
- Your Newbridge Financial Services Group, Inc. financial advisor will also provide ongoing monitoring of your portfolio, conducts reviews of the investments performance and most importantly, rebalance these investments as needed while maintaining your desired asset allocation plan.
Important point of Considerations
Before investing in a WRAP account, consider/review your investment strategy, asset allocation needs, and your trading style/frequency. If you are an active investor, or are seeking this type of active trading strategy (unlimited trading), then a WRAP account may be beneficial since each transaction does not incur a fee. However, if your strategy is more of a buy-and-hold approach, the WRAP account may not be beneficial. Keep in mind there is an annual fee that is assessed, charged monthly, in arrears based on the average daily value of the assets under management for the previous month. If the portfolio stays stagnant, then a retail account might be your best option as the annual management fee may far outweigh any commissions charged to the account.
Carefully assess your situation before settling on a WRAP account. Other options may make more sense, but, for some investors, WRAPs offer benefits they might not be able to get elsewhere.
Importance of advice
Financial advice is important as investing can be complex. You may need advice to assist you in creating your investment strategy and to undertake periodic reviews of your portfolio. What is also important is how you access and pay for advice. However using an advisor should not be a requirement of being able to place and monitor your investments.