difference between fee and wrap accounts?

9 replies [Last post]
suffolk08's picture
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Joined: 2007-02-14

Hi everyone,
Im doing a report for school on how financial advisors get paid. I was originally doing commission vs. wrap accounts but then my professor said that I have to do commission vs wrap vs fee accounts. He said that there is a difference between wrap and fee based accounts but after doing research I can't seem to figure out what they are. Does anyone know if there's a difference and if so what it is??? 

pretzelhead's picture
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Joined: 2007-03-23

Maybe on some platforms... For all intents and purposes a wrap is a fee based account.  IE client pays a certain amount, like 1.5%, and then is able to get securities at market price, sans commissions or markups.
Maybe he is alluding to fee-only advisors that charge an hourly rate for planning purposes...
Google FEE ONLY Planners

EDJ to RIA's picture
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Joined: 2006-11-28

I would describe the difference as "wrap" means fee-in-lieu of commissions vs "fee" which would be RIA type fiduciary accounts.
That difference is the crux of the recent shootdown of the "Merrill" rule.

snaggletooth's picture
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Joined: 2007-07-13

Ask AllReit............unless, of course, he's your teacher?!?!?!

wlooney's picture
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Joined: 2006-06-03

Commission is obviously charged to the client per transaction.
A wrap account includes all fees included w/i that particular account.  This means the fees for research, fund/manager due diligence, management, advice, account maintenance, etc are all "wrapped" into a single fee.  Separately managed accounts and mutual fund programs typically fall into this category.
A fee could mean one of two things.  It is either a fee charged for advice, as discussed above, OR it is referring to a "fee-in-lieu-of commission" account.  You might ask for more clarification from your professor.  If he actually said a "fee account" then it would seem he is referring to the latter.  This fee is really pricing alternative to traditional commissions, charged to the client's account quarterly.  It (just like a wrap account) is a percentage of the clients total assets in the account.  Technically, the fee does not include advice.  This type of account has been shot down by the US Court of Appeals, and will no longer exist in its current form come Oct. 1st. 
You might point that out in your report, but I would explain it in the commission section, as it is simply alternative way for clients to pay commission.
Hope that helps.

vbrainy's picture
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Joined: 2006-07-26

this has got to be a troll like Nancy.

troll's picture
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Joined: 2004-11-29

this has got to be a troll like vbrainy.

vbrainy's picture
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Joined: 2006-07-26

IGNORE

JCadieux's picture
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Joined: 2005-01-23

No such luck, VB.  We've been asking for an /ignore function for years.It WOULD solve a lot of problems, tho.

troll's picture
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Joined: 2004-11-29

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