The Rap on Wrap Accounts

If you've gotten within spitting distance of a major wirehouse broker lately, you might have been pitched a "fee-based" investment program. The advent of these so-called "wrap accounts" is arguably the most significant pricing development in the industry since commission deregulation opened the elite playing field to discounters on "May Day" in the 1970s. Like old John Denver albums, fee-based programs have been gaining popularity but still elicit a mixed response from clients and brokers alike.

The Basics

Wrap accounts are the brokerage house equivalent of an amusement park's flat admission fee. Pay the clown at the gate once and ride the coasters all day for no extra charge. In the brokerage biz, the term "wrap" generically refers to any plan where you pony up a fixed percentage of your assets as a management fee (usually from 1% to 3%) instead of forking over a commission every time you trade a stock or buy a mutual fund. ...