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Simple English definitions for legal terms
wrap account
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A quick definition of wrap account:
A wrap account is a type of investment account where an investor pays a fee to a manager to select and manage a portfolio of investments, such as stocks and bonds. The investor does not choose the specific investments, but provides a risk profile. The fee is based on a percentage of the total assets being managed. It is a way for investors to have their investments managed by professionals.A more thorough explanation:
A wrap account is an investment account where the investor selects an account manager and pays a fee based on a percentage of the total assets to be managed. The account manager then invests the money in a portfolio of investments, including stocks, bonds, and cash. The investor provides a risk profile but does not select the investments or give instructions to buy or sell.
Example: John wants to invest his money but doesn't have the time or expertise to manage his investments. He opens a wrap account with a brokerage firm and selects an account manager. The account manager invests John's money in a portfolio of investments based on his risk profile. John pays a fee based on a percentage of the total assets managed.
This example illustrates how a wrap account works. The investor selects an account manager and pays a fee based on the assets managed. The account manager then invests the money in a portfolio of investments based on the investor's risk profile.