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Finance: What is a Wrap Account? 31 Views
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Description:
A wrap account is an account that wraps into one annual fee all of the services you'd normally pay for a la carte at a given brokerage.
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Transcript
- 00:00
Finance allah shmoop what is a rap account Okay yeah
- 00:08
yeah inserted joke about eminem here a rap account with
- 00:12
a w wraps into one annual fee All of the
- 00:16
services you'd normally pay for ala carte at a given
- 00:20
brokerage that is a broker might charge you a one
Full Transcript
- 00:23
percent rap account fee to manage all the assets you
- 00:27
have with her in return for things like quote no
- 00:30
fee unquote access to their proprietary mutual funds you get
- 00:35
toe by the mutual funds no load and the quotes
- 00:39
air there because there is a fee annually to manage
- 00:43
the fund But at least this way there is no
- 00:45
fee to buy into the fund or no load their
- 00:48
god it see how that works The rap account can
- 00:50
also include unlimited trading at quote no fee unquote as
- 00:54
well like quotes or there again because there's usually a
- 00:57
spread on each trade like you buy a twenty eight
- 01:01
dollars and twenty seven cents and you sell a twenty
- 01:03
eight dollars in nineteen cents So there's a seat since
- 01:06
spread they're they're still making money on each trade There
- 01:09
just isn't an incremental fee tacked on top of all
- 01:12
That so your broker khun get that second home in
- 01:14
the hamptons and that one percent feet Well that's based
- 01:17
on the total amount invested with the broker got it
- 01:20
So if you have a million dollars invested with them
- 01:22
it's ten grand a year for that rap account fi
- 01:25
system we'll wrap accounts often come with minimum investment levels
- 01:28
well above those of a mutual fund like twenty five
- 01:31
fifty grand or more But in having a one feet
- 01:34
covers all approach a broker is not incentivized to churn
- 01:37
the account or do really anything to generate commissions for
- 01:41
themselves because there ain't any The only thing they're incentivized
- 01:44
to dio is gather more of your assets or make
- 01:47
your assets be worth more so they can keep going
- 01:49
on the whole one percent dance Yeah the notion goes
- 01:53
in theory anyway that if the broker helps client invest
- 01:55
well over time the client will remain a loyal one
- 01:58
and stay with that broker for a very long high
- 02:01
margin to the brokers Time for many large brokerages rap
- 02:05
accounts allowed their clients to be able to buy various
- 02:07
flavors of funds mutual hedge or index at quote wholesale
- 02:11
Prices unquote That is if the fund is a captive
- 02:13
fund maintained by the brokerage The rap account allows the
- 02:16
client to buy with no commissioner upfront charges which is
- 02:19
kind of a nice nice deal for him Yeah quick
- 02:22
example If jay z gives his broker one hundred million
- 02:24
dollars under a rap account that charges one percent the
- 02:27
broker will charge a million bucks a year in return
- 02:30
for handling all of jay z's trading wiring and a
- 02:34
whole bunch of other services got it One percent on
- 02:36
the hundred million broker makes million bucks a year and
- 02:39
if jay z also has a rap account you know
- 02:42
with no w there Well there's always a chance Queen 00:02:45.555 --> [endTime] bee well pop in for a cameo
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