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What Is a Wrap Account?

Wrap accounts provide individual investors with an investment portfolio in which securities or mutual funds are bundled and managed for a fee, referred to as a "wrap fee." Computed as a percentage of the portfolio's total value, the wrap fee presumably aligns the interests of investors with those of their financial advisors, whose compensation depends on the growth-or decline-of the investor's portfolio, rather than on commissions generated from the sale of investment products. The fee covers all costs associated with managing a portfolio; services include regular performance reports.

Offered by a variety of vendors, including banks, broker/dealers, insurance companies, regional brokers, mutual fund companies, and national brokerage firms, wrap accounts are usually tailored to suit stated investment objectives-such as growth or income-and are recommended for investors with at least a three- to five-year time horizon to reach investment goals.

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