Join our investing community

Is Etrade wrap expensive?

Discussion in 'General Investing Discussion' started by venger0, 28th Mar, 2008.

  1. venger0

    venger0 Active Member

    30th Jan, 2008
    Having put together a portfolio using mostly ETFs, I am now looking to add a couple of index funds for a bit more diversification.
    Originally, i was just going to use the retail funds, but an FP is trying to steer me towards wraps.
    Argument is that wrap can be fairly priced (wrap MER 0.4%) and that they make it easy come tax time (true?).

    While his points sound perfectly reasonable, i am still uncertain about having my money handled by someone else (ie FP) - i would rather do that myself.

    And so, i am now looking at using Etrade wrap for accessing the wholesale funds. The wrap has MER 0.66% onto of the fund MER. Also no entry/exit fee - just the buy/sell spread.
    It looks really reasonable to me.

    What does everyone think? Has anyone used this wrap for buy-and-hold?
    It seems that this wrap is not too expensive, and it also makes things easy at tax time.

    Appreciate your thoughts...

    ps: my understanding is that using a wrap via FP means everything has to be set up (transactions, etc) via FP. correct?

    pss: will the wrap tax statement contain CGT details?
    eg, i buy and then sell units after 2 years (due to rebalancing), will the wrap statement tell me how much those units were bought and sold for, as well as time held?
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    I don't buy into the whole "makes it easier at tax time" argument ... although that is important to some people. If we're talking small sums, then the extra cost of the wrap may well be less than the cost of getting your accountant to do the work at tax time - but as your investment grows, the costs of the wrap will probably significantly outweigh the costs of your accountant!!

    First question I'd ask the FP is - how much commission do they earn from putting you in the wrap vs you investing directly in retail funds (presumably with some kind of zero entry fee arrangement) ??

    If you have several hundred thousand to invest, you can possibly get directly into wholesale funds yourself (some require as little as $25K or $50K each - and other like CFS require $100K but that can be from a number of CFS funds).

    I'm not completely against wraps - I just think you need to look at all your options and to really ask yourself why the FP is pushing you that direction.

    I also like to control everything myself - but people who are very time-poor and are no good at managing paperwork may well like to outsource that work to a FP. Personally I think paying a FP to just fill out a couple of forms is highway robbery - sure, pay the FP for advice ... but how much do you end up paying for what is basically just an administrative assistant ?
  3. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi Venger0,

    A wrap charges an "Administration fee" not an Management Expense Ratio (MER), depending on how much you have deposited. Etrade doesn't go as low as 0.4%. See Funds ... "Fee of 0.66% for first $100,000, only a fee of 0.55% for
    next $400,000, and only 0.5% for excess greater than $500,000"

    MERs are charged by the Fund Manager for investing in their managed funds.
    Most wraps don't charge entry/exit fees unless the planner charges it.
    The whole idea of wraps is to invest in them as they allow you to invest in wholesale funds as they are generally cheaper than retail funds, for lower balances wraps may not be cost-effective compared to retail/mastertrusts.

    I checked Asgard which is what we use and it has similar cost structure though past $500k it continues to get cheaper as your balance gets larger.
    Some yes, you can double check with Etrade whether you have to use an FP.
    Not sure about the Etrade wrap, Asgard wrap is extremely powerful. BT also has a wrap and so does Macquarie. Maybe do a google search and see what wraps come up.

    Like Sim said, if you've got a half decent accountant he won't need a wrap to put everything together.

    Also like Sim said, ask the planner how much they are charging you for a plan fee (usually a $ amount), upfront fee (can be either $ or % figure) and ongoing service fee (usually a %, occassionally a $ figure pa).



    PS Before making an investment decision speak to a FPA registered Financial Planner (or two or three...)