How a Wrap Fee Program Works

When you place your investments in the care of an investment manager or advisor, you’ll often run into a wide variety of fees. The advisor may charge a fee based on a percentage of your assets under management, a transaction fee per trade, commission fees for certain products and more. To remove some of the confusion and clutter that comes with all of these different fees, investment managers sometimes choose to charge a wrap fee, which is basically a consolidated fee structure for your investments. This set-up can have benefits, but there can be drawbacks to it as well.

If you’re looking for professional help to manage your investment portfolio, look for a financial advisor that has a fee structure that fits your needs.

What Is a Wrap Fee Program?

A wrap fee is a consolidated fee structure that allows for more comprehensive management of your investments. The set-up enables your investment manager to charge just one fee and offer more investment services as part of the package. This can include the management of both retirement and non-retirement accounts, financial advice, brokerage services and more.

Typically, wrap fees range from 1% to 3% of the assets an investment manager oversees for you. Under a traditional payment arrangement, you might pay an asset-based fee plus trading fees or commission fees. While you pay these fees to the same manager, each is listed as a separate charge. Wrap fee programs, on the other hand, include trading fees, commission fees, administrative costs and other investment expenses in one charge.

You may come across an investment manager who bundles your fees but doesn’t advertise it as a wrap fee program. Alternative names for this arrangement include asset allocation program, asset management program, investment management program and uniform managed account.

Pros and Cons of Wrap Fee Programs

Wrap fee programs can simplify investing by combining many costs into one charge. Instead of receiving separate bills for trading, commissions and administrative services, you pay a single fee that covers most of the work your advisor performs. This makes it easier to track how much you are paying and can provide predictability, as costs do not vary based on transaction volume.

Another advantage is that wrap fee programs often offer bundled services. By paying a single fee, investors may gain access to financial planning, retirement account management and regular portfolio reviews, all as part of the package. For individuals who trade frequently or use a wide range of advisory services, this structure can sometimes be more cost-effective than paying for each item separately.

On the other hand, wrap fees can make investing more expensive if you are not an active trader. An investor who holds long-term positions with few trades may end up paying more under a wrap fee program than they would with a traditional fee structure. There is also the risk of paying for services you do not need. Some investors may only want basic portfolio management but end up paying for a wide suite of services that remain unused. Regulators have also raised concerns about firms not fully disclosing what is covered in the wrap fee. Because of these issues, it is important to review disclosures carefully and make sure the program’s benefits match your actual investment habits.

Also note that while many expenses are included in a wrap fee program, not everything is. For example, mutual funds may still charge an expense ratio that falls outside the wrap fee.

How Is a Wrap Fee Calculated?

A man reviewing a wrap fee program for a financial advisor.

How wrap fees are calculated and what costs are included under the program will vary from firm to firm.If you decide to move forward with a firm that offers a wrap fee program, they are required to provide you with a brochure that details all of the fees you could pay.

To ensure that your advisor is putting your needs ahead of their earnings potential—whether they work under a wrap fee program or otherwise—consider working with a financial advisor who is a fiduciary.

What Is a Reasonable Wrap Fee?

While wrap fee costs vary widely, on average, they range from 1% to 3%, based on how much you have invested with the firm.

Additional charges for the management of your funds on top of this asset-based fee could apply. For example, outside mutual fund providers are likely to charge additional fees that are often passed on to investors. A broker may also pass on additional management fees to you.

Example of a Wrap Fee

Suppose you have an investment portfolio worth $250,000 with a financial advisor who charges a 2% wrap fee. Instead of paying separate charges for every trade, commission or administrative service, you would pay a single annual fee of $5,000, or 2,000 of your assets under management (AUM). That fee would cover the advisor’s portfolio management services, trading costs, account administration and any other services included in the agreement.

Now imagine the advisor makes frequent trades in your account during the year. Under a traditional fee arrangement, you would pay a commission or transaction charge every time the advisor made a trade, which could add up quickly. With a wrap fee, you do not see those itemized costs because they are already bundled into the $5,000 charge. This makes your expenses easier to predict and track.

On the other hand, if you are a long-term investor who trades rarely, a wrap fee might cost more than paying per transaction. For example, if you only made a few trades in a year, your trading costs under a commission model could be much lower than the $5,000 flat fee. In that case, the wrap fee offers simplicity but not necessarily savings.

This example shows both the appeal and the drawback of wrap fee programs. The setup makes expenses more transparent and predictable, but their cost-effectiveness depends on how actively you invest and which services you use.

Is a Wrap Fee Worth It?

While convenient, wrap fees can run a little high in comparison to traditional fee models for investing. Investment managers typically charges 1% to 3% of your managed assets, though some may charge lower rates. You’ll want to check your exact rate if you opt to work with an advisor that uses a wrap fee program, and see how it compares with the average rate and other fee models.

It’s important to note that the Securities and Exchange Commission (SEC) has charged investment management firms with compliance failures in relation to wrap fee programs. The SEC alleged that these firms failed to disclose to clients what they were being charged for and how much they were being charged. This allowed them to charge a higher wrap fee than was necessary.

You’ll want to request the exact terms and charges of your potential fees when it comes time to choose an advisor and sign a contract. AAlso keep an eye out for extra fees. Sometimes, the majority of a manager’s fees will be bundled into one wrap fee. However, other charges may apply separately.

That said, wrap fee programs can be appealing for the convenience they add to investment management, as they allow investors to pay just one bundled fee instead of an array of separate itemized fees. The arrangement can also make sense if you plan to take advantage of your manager’s full suite of services. Again, just make sure it’s actually the most cost-efficient way to manage your assets. Don’t assume it will be less costly or overlook the impact of investment fees just out of convenience.

Bottom Line

A financial advisor reviewing an investment strategy for a client.

A wrap fee program allows you to pay one simplified fee instead of a number of separate fees when working with an investment manager. Alongside convenience, a wrap fee program may also allow you to access more services for a lower price. Just make sure to check exactly what your fees will be before you sign a wrap-fee program contract. It’s not always the most cost-effective option, depending on the specifics of your needs and investment preferences.

Tips for Investing

When you’re trying to make a financial plan or make decisions on your portfolio, it can really pay off to have a professional helping you out. You can go the traditional route and find a financial advisor who you can sit down with and work out your investment plans. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re just getting started in investing, you could choose a robo-advisor to manage your investments. That way, you can set your goals and deposits and then take a more hands-off approach.
Not everyone needs an investment manager. In that case, an online brokerage account could easy work for you. This allows you to direct your investments yourself, making your own trading and asset allocation decisions.