A wrap account (or wrap fee program) is an investment account in which all services — investment management, brokerage transactions, custody, and sometimes financial planning — are bundled for a single, all-inclusive fee, typically expressed as a percentage of assets under management.
Common wrap fee range: 1–3% of AUM annually, covering trading costs, management fees, and administrative expenses.
Types of wrap programs: - SMA (Separately Managed Account): Client directly owns individual securities managed by a professional money manager; minimum investment typically $100,000+. - Rep-as-PM: The client's broker or adviser manages the account directly. - UMA (Unified Managed Account): Multiple managers and asset classes in a single account with overlay management. - Mutual fund wrap: Portfolio of mutual funds with advisory oversight.
Regulatory considerations: - Wrap fee programs by broker-dealers must comply with SEC Rule 3a-4 to avoid being deemed an investment company. - Investment advisers operating wrap programs must provide clients with Part 2A Appendix 1 (wrap fee brochure) in addition to the standard Form ADV Part 2A. - Advisers must evaluate whether the wrap fee is appropriate — clients who trade infrequently may pay more in a wrap than in a traditional commission structure.
Benefits: Predictable costs, no transaction-cost disincentive, aligned incentives (adviser benefits from growing assets, not trading).
> Exam tip: The wrap fee brochure is a separate Form ADV Part 2A Appendix 1. Know that clients who trade infrequently may be harmed by wrap fees — advisers must ensure the program is suitable. Tested on Series 65 and Series 66.