Wrap Accounts and Mutual Funds

Wrap accounts and mutual fund are referred to hand in hand nowadays. Wrap accounts have many benefits when it comes to mutual fund investing. When doing mutual fund research to figure out the best mutual funds to invest in, be sure to include the wrap account factor. Fees are different in wrap accounts. Mutual fund performance is also more complicated in a wrap account.

Wrap accounts are one of the fastest growing investments in the Mutual Fund Industry nowadays. Therefore it is not surprising that you will often hear the word mutual fund and wrap accounts together. You will undoubtedly come across wrap accounts when doing mutual fund research. Wrap accounts have been heavily marketed by brokerage firms, mutual funds companies, banks, and financial planners.

What is a wrap account?

Wrap accounts are accounts with 5-10 mutual funds or a number of stocks or other investments. Within a wrap account or a wrap program, there is a number of different mutual funds to choose from. Investors can choose from any of the choices given but not outside the wrap account or program choices. This vastly limits the choice of investments for investors.

Based on the amount of investment, investors pay a flat fee which is a percentage of total investment such as 1 - 1.5%. There is usually a minimum investment for wrap accounts such as $10,000 - $25,000.

What is wrap accounts process?

First, a broker or financial planner will sit down with an investor and evaluate his/her goals and investments objectives. Then the broker or financial planner will determine the investor's risk tolerance and time horizon. From the information gathered, a diversified portfolio is created and proposed. This portfolio includes many mutual funds or other investments of different styles and classifications.

What are the advantages of wrap accounts?

Financial advisors who sell wrap accounts will say that they are more cost effective. Wrap accounts are also supposed to provide a way to diversify your portfolio and are tailored to your investment needs. Another advantage is that wrap accounts are supposed to be constantly monitored and if the asset allocation of your portfolio fall out of whack, you can rebalance (automatically)  your portfolio easily.