a brokerage firm professionally manages a wrap account for a flat fee charged quarterly or annually the fee is based on the assets under management aum wrap account fees should cover all administrative commission and management expenses 1 wrap fees range from about 1 to 3 of aum 2 for many investors a wrap account can be less expensive over time than a brokerage account that charges commissions for each trade however buy and hold investors who rarely trade might be better off with commission based fees 
understanding the wrap accountwrap accounts have the advantage of protecting the investor from overtrading which can occur if a broker trades for the account excessively just to generate more commission income this is known as churning in a wrap account the broker is paid a fee based on a percentage of the assets in the account thus brokers paid through these fees should have their incentives aligned with their investors wrap accounts vs traditional accountsa wrap account offers an individual investor access to professional money managers who work primarily with institutions and high net worth individuals mutual fund companies also offer wrap accounts with access to a large selection of mutual funds 3a wrap account may require a minimum investment of 25 000 to 50 000 the fees pay for marketing and distribution costs as well as for the brokers who sell the funds and work with clients this fee is extra if you re already in a mutual fund wrap account investors who buy and hold stocks long term may be better off with a traditional fee structure advantages and disadvantages of wrap accountswrap accounts offer perks that make them worth considering one is that they give everyday investors access to professional portfolio management though 25 000 or 50 000 isn t a small amount it s feasible for many investors another benefit is that the fee for a wrap account is easy to understand you should always know what you re paying and not worry about too many fees if the manager makes many trades you can also feel confident that the portfolio manager s and your interests are aligned because their compensation will increase as your portfolio grows wrap accounts can also be customizable you can set investment goals and select strategies that align with your risk tolerance time horizon and other personal preferences you should also receive detailed reports making it easier to track performance understand how your assets are invested and assess how well your portfolio is doing to meet your goals the fee though can be a drawback you might pay as much as 3 per year to get access to a wrap account which can be a drag on your long term returns if you just want to build a long term portfolio you ll likely pay less with a traditional investing account the other drawback is that you shouldn t worry about excessive fees but the transparency for many investors has been less than robust those investing in wrap accounts now have ample warning from headlines over the last decade to ensure they aren t routed by their brokers to third party sites or put on the hook for additional fees aig affiliates raymond james associates kovack advisors morgan stanley and robert w baird co are just some of the companies that have settled with the securities and exchange commission sec for claims they boosted fees beyond those included in their wrap account programs and without transparency while doing so 14567it s also the case that it s a far better time than when wrap accounts were introduced for clients to lower their fees for example you could use a robo advisor which offers similar portfolio management services but typically at a much lower cost other considerationsa wrap account works best for investors who want a degree of hands on management and advice investors with a buy and hold strategy for their portfolio may be better off paying occasional trading fees than wrap account fees which could be higher in the long run for example an income oriented investor may hold a portfolio of dividend paying stocks and bonds and make few if any changes for years if the investor then sells the stocks substantial capital gains taxes could be owed because the cost basis of each stock may be far below the current market price these investors may be better off maintaining the status quo in their portfolio to earn dividend income no capital gain taxes are incurred and no commissions or wrap fees are paid moving the assets into a wrap account would have generated more costs and reduced the investor s total return 