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Finding A Cut Rate Wrap Account

Personal Business: Smart Money


Wrap accounts have been a jackpot for the brokerage industry, generating as much as $750 million in total fees--largely during the past two years. These accounts offer the convenience of "wrapping" all the costs of managing your money into one flat fee--typically 3% of the value of the assets in your portfolio. For that sum, your broker is supposed to find top-notch professional money managers, monitor their performance, and pay all commissions for buying and selling securities. It sounds like a good deal, except for one thing. As James Demmert, a partner at Belvedere Group in Belvedere, Calif., puts it: "Why are the fees on wrap accounts that high? It's something every client should be asking."

So many investors have been asking the question that several lower-priced options have cropped up. Belvedere, for example, is one of a few money-management firms providing cut-rate wrap accounts through discount broker Charles Schwab. Traditional wrap fees compensate both the broker and

the money managers, but Schwab has little direct involvement in overseeing your account. By taking the broker's cut out of the equation, the fee for its Asset Based Pricing service runs from 1% to 2%, depending upon the commission costs of the money manager. Belvedere requires a minimum of $100,000 and a 1% fee.

SHOP AROUND. Another discount broker, Fidelity Investments, has launched a more limited version of the wrap account, called Portfolio Advisory Services. For 1% on the first $100,000 in assets, going down to 0.25% on assets over $2 million, an account executive will choose and monitor a portfolio of Fidelity's own mutual funds for you. The flat charge, however, doesn't include mutual-fund fees, which average about 1.3% for all equity funds. And you will not be getting a personal relationship with your own money manager whom you can call up and speak with--a service that's included in other wrap accounts.

Even the more expensive wrap-providers are getting more flexible about pricing. While brokerages such as Merrill Lynch already base their fees on a sliding scale, charging lower rates on higher portfolio balances, it may be possible to negotiate better deals. This is especially true if you are doing additional business with the firm, although you may also succeed in gaining leverage by threatening to shop your account around. Albert Golly, a New York money manager, recommends that you ask for a discount of half a percentage point off the stated fee. Then, he says, perhaps you'll get something a bit less than that.Edited by Amy Dunkin Leah Spiro

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