Saturday, July 11, 2015

What is a Wrap Account?

Wrap accounts have gained much popularity since they were first introduced to Malaysian public since the beginning of 2009. Today, a wrap account is a common facility to most financial planners in assisting their clients. So, what exactly is a wrap account and how does it work?

Basically, a wrap account is a service that “wraps” all your investments into a single account. One of the biggest advantages of this account is the ability to invest into multiple funds (even from different fund houses) through a single wrap account. Although this is also achievable using the existing distribution method, but the assistance of multiple agents is required to invest into the hundreds of funds available for diversification purposes. Now, with the introduction of wrap accounts, clients only need to deal with one Licensed Financial Planner for all their Unit Trust investment needs. This is the preferred method as it is relatively hassle-free and saves precious time and money. (Currently, only Financial Planners licensed with the Securities Commission, through their CUTA license, are allowed to advise and to construct a portfolio of approved Unit Trust funds for investors using the wrap account from a platform provider.)
Another benefit of the wrap account model is the ease of contributing. Investing into various fund houses using a wrap account does not require clients to make multiple payments but rather, a single cheque would be sufficient. Due to the wrap account structure, administrative work will also be minimised as statements from different fund houses will be consolidated into one concise softcopy version. Traditionally, clients receive physical statements through mail from various fund houses. Most clients that are bombarded with these statements do not have the time to read all of them and thus, making it difficult to monitor and track the value of their investment efficiently.
Another advantage of using wrap account services is the option of unlimited free switching of funds. Free switching is not only applicable within the same fund house, but also between different fund houses. As compared to the traditional industry practice, switching of funds within the same fund house may be free, but the number of times per year is limited. Subsequently, switching funds from one fund house to another will attract sales charges ranging from 3% to 6%. Conversely, unlimited switching will give clients the advantage and flexibility in their portfolios, which can be done easily without incurring any cost through on-line instructions to your Financial Planner.
Other than that, wrap accounts also offers a lower upfront charge. Traditionally, clients will be charged up to the maximum rate for their investments, but with the wrap account structure, financial planners can practice their own discretion in deciding on the upfront fee. This greatly benefits the clients in terms of cost.
For all the above benefits, flexibility and professional advice from a Licensed Financial Planner, a minimal fee will be charged annually on the investment portfolio which is as low as 0.25% to 0.375% per quarter. This fee will be shared between the platform providers, dealer group and the Financial Planner.
Finally, transactions can be conveniently conducted online and with a wireless and paperless transaction environment. Thus, financial planners can now serve clients better and bring their business anywhere in the world.
Below is a summary table of all the benefits and advantages of using a wrap account.
Wrap Accounts
Traditional Tied Agencies
Range of Investment Funds and Fund Houses
Wide range
One
Lower Upfront Charges
Yes, (0% - 5%)
No, (5% - 6% Equity Funds)
Cash Account Facility (With Interest)
Yes
No
Switching
Multiple free switch (intra & inter funds)
Fixed number of free switch only for intra funds
Free Switching
Yes
No
Online Transactions
Yes (Buying, redemption & switching can be done ONLINE)
No (Manual - filling forms)
Ease of Monitoring Your Investments
Consolidation of reports are available on the Internet to give immediate information 24/7
Only certain fund housesoffer this facility