wrap account

A type of investment account that was created in the early 1980s that offers private investment management at a lower cost. Wrap accounts combine individual account holders’ money into one account, thus lowering the total fee paid. Typically, the minimum amount required to obtain a wrap account is $100,000. Wrap accounts were created as a way to get around conflicts of interest. With private accounts, the account holder’s broker would rely on a professional money manager to place trades. The broker earned about 3 percent on the funds managed per year as did the money manager. That meant that returns had to be 6 percent for the account just to break even.