Wrap Program Law and Legal Definition
Wrap Program is a program offered by an investment adviser that wraps several services together for a fee based on the size of the client's account. Traditional wrap programs are based on the original model developed by E.F. Hutton in 1975, with minimum investments between $100,000 and $200,000, fees between 1% and 3% of the net assets in the account. Program "wrapped" services include portfolio management, asset allocation, custodial services, execution of transactions, and preparation of quarterly performance reports. In one variation with smaller minimum investments, the adviser selects a mixture of mutual funds for the client. Wrap programs, unlike a registered investment companies, are tailored to the individual investor.
The Program, take into account the investment style, risk tolerance and need for liquidity, among other things. In contrast, with mutual funds, investor is a part of a pool of investors, which offers two of the very same important benefits offered by separately managed accounts: diversification and professional management. The difference can be seen when the stock market experiences volatility. Here, redemptions by panicky investors may force portfolio managers to sell part of their holdings when prices are low, just to meet redemptions. Individual portfolio managers, on the other hand, can sell stocks when the time seems right; proceeds from these sales can be held as cash or short-term instruments until prices are low enough to buy different stocks at the most advantageous prices.
Wrap fee programs that offer similar advise to a number of clients must be carefully structured to conform to the safe harbor provisions in Rule 3a-4 of the Investment Company Act of 1940.
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