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Finance: What is a Wrap Account? 31 Views


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Description:

A wrap account is an account that wraps into one annual fee all of the services you'd normally pay for a la carte at a given brokerage.

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Transcript

00:00

Finance allah shmoop what is a rap account Okay yeah

00:08

yeah inserted joke about eminem here a rap account with

00:12

a w wraps into one annual fee All of the

00:16

services you'd normally pay for ala carte at a given

00:20

brokerage that is a broker might charge you a one

00:23

percent rap account fee to manage all the assets you

00:27

have with her in return for things like quote no

00:30

fee unquote access to their proprietary mutual funds you get

00:35

toe by the mutual funds no load and the quotes

00:39

air there because there is a fee annually to manage

00:43

the fund But at least this way there is no

00:45

fee to buy into the fund or no load their

00:48

god it see how that works The rap account can

00:50

also include unlimited trading at quote no fee unquote as

00:54

well like quotes or there again because there's usually a

00:57

spread on each trade like you buy a twenty eight

01:01

dollars and twenty seven cents and you sell a twenty

01:03

eight dollars in nineteen cents So there's a seat since

01:06

spread they're they're still making money on each trade There

01:09

just isn't an incremental fee tacked on top of all

01:12

That so your broker khun get that second home in

01:14

the hamptons and that one percent feet Well that's based

01:17

on the total amount invested with the broker got it

01:20

So if you have a million dollars invested with them

01:22

it's ten grand a year for that rap account fi

01:25

system we'll wrap accounts often come with minimum investment levels

01:28

well above those of a mutual fund like twenty five

01:31

fifty grand or more But in having a one feet

01:34

covers all approach a broker is not incentivized to churn

01:37

the account or do really anything to generate commissions for

01:41

themselves because there ain't any The only thing they're incentivized

01:44

to dio is gather more of your assets or make

01:47

your assets be worth more so they can keep going

01:49

on the whole one percent dance Yeah the notion goes

01:53

in theory anyway that if the broker helps client invest

01:55

well over time the client will remain a loyal one

01:58

and stay with that broker for a very long high

02:01

margin to the brokers Time for many large brokerages rap

02:05

accounts allowed their clients to be able to buy various

02:07

flavors of funds mutual hedge or index at quote wholesale

02:11

Prices unquote That is if the fund is a captive

02:13

fund maintained by the brokerage The rap account allows the

02:16

client to buy with no commissioner upfront charges which is

02:19

kind of a nice nice deal for him Yeah quick

02:22

example If jay z gives his broker one hundred million

02:24

dollars under a rap account that charges one percent the

02:27

broker will charge a million bucks a year in return

02:30

for handling all of jay z's trading wiring and a

02:34

whole bunch of other services got it One percent on

02:36

the hundred million broker makes million bucks a year and

02:39

if jay z also has a rap account you know

02:42

with no w there Well there's always a chance Queen 00:02:45.555 --> [endTime] bee well pop in for a cameo

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