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What is a Wrap Program? A Comprehensive Legal Overview
Definition & Meaning
A wrap program is an investment service offered by financial advisers that combines multiple services into a single package. Clients pay a fee based on the total value of their investment accounts, typically ranging from one to three percent. These services often include portfolio management, asset allocation, custodial services, transaction execution, and performance reporting. Unlike traditional mutual funds, wrap programs are customized to meet the individual needs of each investor, taking into account their investment style, risk tolerance, and liquidity requirements.
Table of content
Legal Use & context
Wrap programs are primarily used in the financial services sector, particularly in investment advisory and asset management. They are governed by regulations set forth by the Investment Company Act of 1940 and must adhere to specific provisions to ensure compliance. Users may find legal templates related to investment agreements and advisory contracts useful when navigating the setup or modification of wrap programs.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A client with an investment account valued at $500,000 enrolls in a wrap program that charges a two percent fee. This fee covers portfolio management, custodial services, and quarterly performance reports.
Example 2: A financial adviser creates a wrap program for a client with a lower minimum investment by selecting a mix of mutual funds tailored to the client's risk tolerance and investment goals. (hypothetical example)
Relevant laws & statutes
Wrap programs are primarily regulated under the Investment Company Act of 1940, specifically Rule 3a-4, which outlines safe harbor provisions for investment advisers. This rule helps ensure that wrap programs are structured appropriately to protect investors.
Comparison with related terms
Term
Definition
Key Differences
Wrap Program
A bundled investment service with a fee based on account size.
Customizable services tailored to individual needs.
Mutual Fund
A pooled investment vehicle managed by professionals.
Investors share the same portfolio, which may lead to forced sales during market volatility.
Separately Managed Account
An investment account managed individually for a client.
More personalized management compared to mutual funds but typically requires a higher minimum investment.
Common misunderstandings
What to do if this term applies to you
If you are considering a wrap program, evaluate your investment goals, risk tolerance, and the services offered. It's advisable to compare different programs and fees. You can explore US Legal Forms for templates related to investment agreements or seek professional legal advice if needed.
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Typical fees range from one to three percent of the account value.
Minimum investments can vary, often between $100,000 and $200,000.
Services included: portfolio management, custodial services, and performance reporting.
Key takeaways
Frequently asked questions
A wrap program is an investment service that combines multiple financial services into one package, charging a fee based on the account size.
Investors looking for personalized investment management and those with sufficient assets to meet minimum investment requirements may benefit from wrap programs.
Yes, wrap programs are regulated under the Investment Company Act of 1940, which sets standards for their operation.