While wrap fees are an attractive option for many investors because they enable people to pay a single fee for bundled investment services, a thorough understanding of exactly what services are included in a wrap-fee program can protect investors from the considerable unexpected expenses that could result from unsuitable products or strategies.
Understand the Fees in Wrap-Fee Programs
Wrap-fee programs bundle broker or advisor service fees for investment advice and administrative expenses into a single fee, instead of separating fees for individual services. Wrap-fee programs are also known as investment or asset management programs, asset allocation programs, uniform managed accounts, and mini-accounts, but the defining feature in all of them is a single bundled fee for account services.
Wrap-fee programs typically have a sponsor, usually a broker or investment advisor, that administers the program and provides advice to the investor about the program. Some programs have more than one sponsor. Wrap-fee programs are based on a percentage of the value of an investor's account, rather than transactions. Although many investors find it convenient to pay one single fee for account services, wrap-fee programs can open doors for investment fraud. If an investor is steered toward a wrap-fee program, he/she must understand what services are included. Wrap-fee programs often include:
According to SEC rules, brokers must provide investors with a brochure that explains the services included in the wrap-fee program prior to finalizing the contract.
To protect investments and prevent fraud, investors who enter into accounts with wrap-fee programs that bundle fees for broker services should understand what those fees cover. If you have been the victim of investment fraud, contact the attorneys at Meyer Wilson at 888-390-6491 for a free consultation today.