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What are wrap accounts?

Wrap accounts are fee-based products which combine or "wrap" investment management, brokerage, custodial and reporting services into a flat annual fee, generally based on the value of the managed assets. The fee would typically be an annual management fee of between 1.5% and 3% of the amount you have invested. Like mutual funds, one of the primary advantages of wrap accounts is the bundled professional investment management they offer. In comparison to mutual funds, wrap programs allow more scope to tailor holdings to your specific needs.

The major types of wrap accounts available to Canadian investors are:

Mutual fund wrap accounts, which use mutual funds as their underlying assets. Typically require an investment of at least $50,000. You would be paying fees on fees in this case since there's not only the wrap fee, but also the fees charged by the mutual funds;

Pooled wraps, which are similar to mutual fund wraps but hold pooled funds and have lower management fees. The lower fees are generally a result of the high minimum investment requirement. You're usually required to invest at least $50,000 in one of these programs. The asset pools available might be Canadian stocks, Canadian fixed-income securities, U.S. stocks or overseas stocks and fixed-income investments;

Wrap programs that use individual securities, such as stocks and bonds. The minimum investment for these is usually about $150,000.They are generally offered through stockbrokers and also charge a fee based on asset size, with a certain number of "free" transactions included in the fee.

Consider getting professional advice before you invest.