Integrating Wrap Accounts Into Your Practice
Weary after disappointing returns and poor performing investments in her portfolio, your client needs a plan to make her money work for her.
You could be the financial professional who takes her there–with the right approach. In some cases, this approach might be through adroit use of wrap accounts.
Wrap accounts have evolved over the past 25 years from vehicles designed for institutions and the very affluent to an option for the everyday investor.
These accounts provide professional and customized portfolio management via oversight, administration and money management of a basket of investments. Instead of applying sales charges, the wrap account model charges the client an annual fee, usually ranging from 1% to 2% of assets under management.
There are different types of wrap accounts. These include the popular mutual fund wrap account that bundles funds from a number of companies, allowing the customer to customize asset allocation strategies and fund companies.
In an April 2003 study by Financial Research Corporation, Boston, Mass., 75% of 276 representatives who currently use mutual fund wrap programs indicated they plan to increase their usage.
There are several advantages to this type of client-advisor relationship, but the following three are very compelling:
Reduced risk, enhanced return. After exploring a clients risk tolerance, time horizon and investment objectives, you can search from thousands of funds, and use the most consistent and better performing fund managers in each asset class. Covering five or more asset classes equally helps ensure that your client doesnt end up with a large percentage of the portfolio in what turns out to be the worst performing asset class for the year.