Legal Definitions - wrap account

A wrap account is a type of investment account where all the costs associated with managing the account are bundled together into a single, comprehensive fee. This fee typically covers advisory services, brokerage commissions for trades, and administrative expenses. Instead of paying separate charges for each service or transaction, the investor pays one all-inclusive fee, usually calculated as a percentage of the total assets managed within the account.

• Example 1: Individual Retirement Planning

  Maria, a busy marketing executive, wants professional help managing her retirement savings. She opens an investment account with a financial advisory firm. The firm offers her a wrap account where she pays an annual fee of 1.2% of her total assets under management. This single fee covers the advisor's ongoing guidance, all trading commissions for buying and selling stocks and bonds within her portfolio, and any administrative costs associated with her account.

  This illustrates a wrap account because Maria receives comprehensive investment management services—including advice, trading, and administration—all consolidated into one predictable fee based on the value of her investments, rather than being charged separately for each transaction or service.

• Example 2: Small Business Investment Portfolio

  A small technology startup, "InnovateTech," has accumulated a reserve fund and wants to invest it wisely for future growth. They hire an investment management company to oversee this corporate portfolio. The investment company structures the arrangement as a wrap account, charging InnovateTech a quarterly fee calculated as 0.5% of the total assets in the portfolio. This fee covers the selection and monitoring of various investment vehicles, rebalancing activities, and all transaction costs incurred when trades are executed.

  Here, the wrap account simplifies the fee structure for InnovateTech, bundling all the expenses related to managing their corporate investments into one transparent charge, making it easier to budget and understand the total cost of their investment strategy.

• Example 3: Charitable Foundation Endowment

  The board of directors for "Community Care Foundation," a non-profit organization, manages a substantial endowment fund. They engage an investment firm to manage the fund's diverse assets, which include equities, fixed income, and alternative investments. The firm proposes a wrap account structure for the endowment. The Foundation pays a consolidated annual fee, for instance, 0.8% of the assets under management. This fee covers the firm's strategic asset allocation, selection of specific investments, execution of all necessary trades across different markets, and regular performance reporting to the board.

  This demonstrates a wrap account because the Foundation benefits from a single, predictable fee that encompasses all the professional investment services required to manage its complex endowment portfolio, avoiding separate charges for each transaction, advisory meeting, or reporting requirement.