Wrap Accounts

What kind of investments do you have in your portfolio? Do you have stocks, bonds, or mutual funds? If so, chances are, you're paying a commission every time your broker makes a move in your account. But, there is an investment option called a wrap account that breaks some of the rules of traditional investing. It may allow you to say goodbye to all those commission fees for good.

What is a Traditional Wrap Account?

Traditional wrap accounts simply bundle different types of investments into one managed financial package. This may include stocks, bonds and mutual funds. What's making these accounts increasingly popular is that you're only charged a flat quarterly or annual fee for all the services "as opposed to the old way of charging a commission every time you make a decision in your account," says financial planner Todd Battaglia. Another benefit of traditional wrap accounts, the people making the decisions. Having a wrap generally gives you access to several money managers who specialize in different fields and would otherwise only handle multi-million dollar accounts.

One downside of wrap accounts is that they generally require a minimum investment of around $100,000. However, because of their popularity, mini-wraps are popping up at financial houses to attract investors with smaller portfolios.

What to Watch Out For

Just as with other investments, not all wrap accounts are created equal. Here are some things to look out for before investing your hard-earned money:

Fees

Make sure you know what the wrap fees are up-front. Battaglia says he sees brokerage houses charging way too much for the services: "I still see accounts that are charging three percent out there and it's way too high and not competitive."

Managers

Find out who will be managing your money. Just because your manager or managers are with a prominent financial house, it doesn't mean you have the most qualified people on your side.

>>Is it the top management team or someone right out of school?
>>What is their track record?
>>How long have they been in the program you're pursuing?

Bright Idea!

Money Market Wraps

If the idea of a wrap account interests you, but you don't have a big enough portfolio, you may want to consider a mutual fund wrap account. It works like a traditional wrap, but instead of various types of investments, it's only made up of mutual funds (as the name implies.) The benefit with a mutual fund wrap is that the minimum investment can be as low as $10,000.

However, Battaglia warns, you may be charged more fees than with a traditional wrap. Not only will you have to pay the annual or quarterly fee, but there may also be some internal expenses. So, before you invest, make sure to ask your financial advisor about all the costs.

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