Investor Education > Wrap Accounts
WHAT IS A WRAP ACCOUNT?
Wrap accounts consolidate various investments under one administrative umbrella. They are similar to master trusts except that they act as a custodial service with investments in assets made under an individual’s name. These investments may be in either managed funds or direct investments. The name ‘wrap’ is drawn from the fact that the administration wraps around a portfolio of investments.
What is the main difference between a master trust and a wrap account?
The key difference between master trusts and WRAP accounts is the portability of the underlying investments and the taxation treatment of the underlying assets.
In many master trusts the underlying (investment options) wholesale funds are specific to that master trust. This means that you have to sell the underlying investments in one master trust to invest in another master trust. If you owned funds in the Colonial First State FirstChoice Master Trust you could not transfer them to similar funds in the Perpetual WealthFocus product. Instead you would have to sell the underlying investments in one product and repurchase them in the other product resulting in capital gains tax.
What are the advantages and disadvantages of wrap accounts?
Wrap account can provide significant advantages to investors wishing to simplify their investments and their administration. Some of the advantages of wraps account are:
Access to wholesale funds: Many wholesale funds are not available to retail investors as the minimum investment can be anywhere from $500,000 to millions of dollars.
Access to boutique investments: Many new and existing boutique investments are only accessible through wrap accounts.
Tax deductibility of fees: The administration fees on some platforms may be tax deductible.
Consolidation of all your investments: Wrap accounts lets you access managed funds, shares, cash and margin lending and gives online access to view reports on the consolidated holdings. Investors also receive a single annual tax report at the end of each year.
The main disadvantage of wrap accounts has been the mandatory requirement to use an adviser in order to access these portfolio administration services. Until recently investors could only access wrap accounts via a financial planner and as a result incurred the often unnecessary fees such as sales commissions and exorbitant annual adviser service fees. (Find out more about wrap account fees).
Investing in a wrap account
Personal Choice eWRAP is available via 2020 DIRECTINVEST with the option of using an adviser by utilizing our transaction only service. This empowers the investors to take advantage of wrap accounts without incurring fees for unnecessary or unwanted advice and the ability to pay for financial advice on an as needed basis.