Mutual Fund Wrap

A mutual fund wrap, also known as a mutual fund advisory program or a wrap account, is a personal wealth management service that gives investors access to personalized advice and a large pool of mutual funds. Mutual fund wrap programs are most often offered by full-service brokerage firms. Typically the investor can choose from a selected list of mutual funds usually offered with discounted sales loads. The investor pays an annual fee for the account overall, known as the wrap fee.

Mutual fund wrap programs can be a good option for high-net-worth clients seeking to build a customized portfolio of mutual funds. Mutual fund wrap programs allow investors to build out a portfolio of mutual funds based on their preferences and objectives. Mutual fund wrap accounts typically require a minimum investment of $25,000.

In a mutual fund wrap program, investors can work with a financial advisor and will be given a select list of funds. A financial advisor can work with the client to build a customized portfolio based on the goals and risk tolerance of the client. Financial advisors will typically suggest mutual fund portfolio allocations based on the client’s customized investment profile. Investors in mutual fund wrap programs can benefit from lower trading costs and a professionally advised portfolio based on their personalized investing interests. The annual wrap fee is typically the primary expense associated with the portfolio. The annual wrap fee is usually tiered based on assets in the program. It can range from approximately 0.25% to 3% depending on the program and is in addition to the annual operating fees charged by the funds in the portfolio.

Mutual fund wrap programs can be a good investment option for investors. However, the increasing presence of robo advisors has created competition for these programs. As a result, many full-service brokerage firms have begun to offer robo advice alternatives for their customers. Schwab’s Intelligent Portfolios is one example.

Robo advice platforms typically provide the same investment profiling and portfolio building services. They offer some additional benefits in that the service is automated, fees can be lower and investment minimums are usually lower. With the lower minimum investments, robo advice wrap programs can be offered to investors seeking to build managed portfolios with only $5,000. Currently most robo advice wrap programs use exchange-traded funds (ETFs) rather than mutual funds.

Investors will find mutual fund wrap programs at most full-service brokerage firms. UBS and Schwab are two examples. These programs allow investors to build portfolios of no load mutual funds with just a small annual fee added for the portfolio management support from professionals.