Wrap Accounts

Wrap accounts are a type of investment platform and enable investors to consolidate their portfolio under one administrative umbrella. Rather than holding many separate investments with different fund managers and brokers, through a platform investors are able to invest in different managed funds or direct investments with online access and transacting on the account centralised and consolidated reporting is provided. The wrap account as a custodial service with investments in assets made under an individual's name. The name 'wrap' is drawn from the fact that the administration 'wraps around' a portfolio of investments.

Wrap platforms offer a wide investment menu, including hundreds of managed funds, direct shares and cash. The minimum holding in each asset is typically low (often as low as $100), enabling investors to diversify their money in many different investments across different asset classes, and in doing so reduce risk. It should also be simple to sell out of and buy new investments, or to rebalance a portfolio if it diverges from the optimal asset allocation over time.

Many of the new boutique managed funds are only offered through platforms such as wrap accounts and are not otherwise accessible to investors. Wholesale managed funds can also be hard for investors to access as they have restrictive minimum investment amounts often ranging from ranging from $200,000 to several million. As wrap accounts aggregate investments at a platform level, individual investors are able to bypass these minimum investment amounts. These wholesale managed funds typically have lower ongoing annual management fees.

Wrap accounts allow investors to access managed funds, shares, cash and margin lending in one place through one consolidated account. This means one login to view and monitor the performance of your whole portfolio rather than multiple logins and statements. Investors also receive a single consolidated tax report to take to their accountant at the end of the financial year which can save on accounting fees.

Investors should be aware that wrap accounts are traditionally adviser driven, at least in Australia. This can make it difficult to open and transact without using an adviser. And while wrap platforms should be cost-effective for investors, this cost-effectiveness can often be seriously undermined by the multiple wrap fees oftern charged by financial advisers, including entry fees, ongoing percentage based adviser service fees and exit fees. In effect these fees will reduce the returns of a portfolio.

It is often well worth searching for a wrap account that is accessible without a financial adviser as compulsory, and separating product from advice. This way investors are free to seek financial advice if and when required, and are not stuck with an adviser.