Join our investing community

wrap accounts

Discussion in 'Managed Funds & Index Funds' started by Jen, 26th Feb, 2007.

  1. Jen

    Jen Member

    Joined:
    21st Oct, 2005
    Posts:
    23
    I am currently trying to wade through a multitude of options for investing into managed funds and was wondering how many of you use a wrap account and also what your opinions of them are.
    Thanks to all replies, I have always appreciated the wealth of knowledge on this site
    Cheers,
    Jen
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    I don't use a wrap account myself - I prefer to manage my own investments.

    I figure the main benefits of using a wrap account is the consolidated reporting and ease of managing your investments. You will pay for this in extra fees of course.

    Many wrap accounts that I've looked at in the past gave you access to wholesale funds (without requiring large sums of money to be invested) and the fees you paid on the wholesale funds + the wrap account fees, were often still cheaper than the retail funds ... but this isn't necessarily always the case ... so make sure you do your sums.

    I would be interested to hear from others who use wrap account as to their reasons for using them, whether they found them useful, and how they found the fees compared to other methods of investing in funds.
     
  3. matrung

    matrung Member

    Joined:
    18th Jan, 2007
    Posts:
    20
    Location:
    Brisbane
    Wrap accounts are funny things, on the surface they can seem like a very good idea, you get consolidated reporting generally in a easy to read format, which can help you alot at tax time when all you do is hand over 1 yearly statement to your accountant, can save time and money there. But, wraps are notorious for charging a bucket load to use them, and there fee structures can be hard to understand. Each is different, so really you must look at each individuall comparing costs and such.

    I would recommend wraps to those who have alot of different investments and don't mind paying a premium for convenient consolidated reporting.
     
  4. Jen

    Jen Member

    Joined:
    21st Oct, 2005
    Posts:
    23
    I've just been looking at 2020direct e-wrap and you can access W/S funds, so the MERs are cheaper. Some of the funds also have a rebate of certain percentages (ranging from<10-40%) for the MERs.
    You need to set up a cash management account with a minimum of $1000 in at all times. Interest is paid on this. From this account, you enter funds and there is a cost for entering & exiting funds which is $22 or if you enter more than 3 at a time $11 each or min $50 whichever is the most.
    At this stage, to me, it seems that it would be a cheaper option than retail funds, but as you said Sim, it is important to do the maths on each fund.
    I have brain strain at the moment
     
  5. iiinvestor

    iiinvestor Well-Known Member

    Joined:
    1st Feb, 2007
    Posts:
    121
    Location:
    Sydney
    I don't know much about wrap accounts, but I do like 2020. We've put most of our funds through them and just recently our super.

    Even for funds they didn't have listed, I talked to my usual guy and he wrote back in 30 mins with the rebates and MERs for each of the funds.

    So far, I wouldn't go through anyone else. You can even negotiate MER with these guys (obviously just their cut of it).
     
  6. jscott

    jscott Well-Known Member

    Joined:
    10th Jan, 2006
    Posts:
    143
    Location:
    Perth
    Wrap accounts are fantastic if you use a cheap one. The idea being that you can invest in wholesale managed funds and even when you add in the fees of the wrap provider, the total fee is still less than investing into a retail fund.

    This is the true benefit - forgot about consolidated reported ;-)
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Just remember that if you are prepared to use margin loans, you can get into wholesale funds pretty easily without the extra fees - depends on the fund and the minimum investment.

    Some examples:

    You need a minimum $100,000 to get into CFS (that's not for each fund, that's total across all CFS Wholesale funds, so you could put $20K into 5 different funds or $100K into a single fund). This means that you only need $40,000 of your own money margined to 60% to get into CFS Wholesale.

    You only need $25,000 to get into Platinum (which is still technically considered a wholesale fund), so that's only $10K of your own money @ 60% LVR.

    Navra AUS W/S is a bit more challenging ... at $250K minimum, you need $100K of your own money to get in.

    Of course, when I say "your own money", this could easily be equity from your real estate portfolio (which is where most of mine came from).
     
  8. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Can someone explain the advantage of a wholesale fund over a retail fund with 100% of the fees rebated?

    Thanks

    Simon
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    MER will be quite a bit lower for a wholesale fund - saves you on ongoing fees.
     
  10. Jen

    Jen Member

    Joined:
    21st Oct, 2005
    Posts:
    23
    Investsmart has something they call "trailcap rewards" in which they refund 100% of any trailing commissions they receive over $396/year. That sounds good on the surface but obviously you'd have to work out if you are actually going to receive anything back depending on your level of investment. Their trailing commission is 0.4%. They also have a limited offer of half their trailing commissions refunded in the first 12 months. With those two offers and their 100% entry fee rebate, I am wondering if that is a cheaper option than wraps with their wholesale advantage yet extra layer of fees?

    I feel frustrated as I feel I am getting analysis paralysis but then there seems to be a lot to suss out
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Jen - I say that unless you really need the consolidated reporting of a wrap account, or unless you really want access to a particular wholesale fund that you can only access via a wrap account ... just forget the wrap account thing and invest directly via Investsmart or one of the other discount providers (I don't have any recommendation on which is best).

    In the long term, the fees you pay now will be fairly trivial.
     
  12. Jen

    Jen Member

    Joined:
    21st Oct, 2005
    Posts:
    23
    Yep, I need to just NIKE (just do it) - and I will.:)
     
  13. jscott

    jscott Well-Known Member

    Joined:
    10th Jan, 2006
    Posts:
    143
    Location:
    Perth
    Sim, I'd have to say that its wrong to totally discount wrap accounts like that. I mentioned in my previous post that they are not worth it for the consolidated reporting but there are cheaps ones out there such as Macquarie Wrap, such that when you add the fees of the wrap product to the fees of the wholesale funds you want to invest in, they are actually CHEAPER than investing in a Retail fund. BUT - you need to be careful as there are also allot of disgustingly expensive wrap accounts out there that have limited investment possibilities. And to top the above points off, I'd only invest in funds with very low fee's as well which counts out most funds unfortunately. People don't seem to notice the staggering fees being charged so much during an up market, but when returns are more ordinary or negative they sure will (I hope).
    I use wrap accounts myself for both my super investments and outside managed fund purchases. I worked out that I'd need over approx $300k in my super for a SMSF to be worth it, so the wrap super account is ideal until I cross that threshold. Likewise, once I've got enough cash to invest in some of the $500k minimum funds I'm in (or branch into direct share investment), I'll also ditch the wrap account (but thats a fair way off) ;-)

    jason.
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Jason - I have nothing against wrap accounts in general. My comments were directed to Jen in response to her conundrum about having too many options to be able to make a decision. I suggested a simple option that will serve her well in the short term - and if something better comes along later, it's pretty easy to change things.

    I personally don't get too caught up on fees - if the fund performs consistently well and helps me meet my goals - then I pay what I have to. There are plenty of funds out there which perform well and have decent fees that you needn't get too caught up about the whole thing.

    My point is - rather than spend another 6 months researching, just make a decision and invest. In the last 30 days two of my funds have gone up 7.5%, and another two around 5%. That's a lot of money in a very short period of time ... the fees I'll pay are miniscule compared to the profits I've made.
     
  15. austing

    austing Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    386
    Location:
    north maleny
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Very interesting article austini - thanks.

    ... this bit was interesting too ... I hadn't thought about it like that:

     
  17. austing

    austing Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    386
    Location:
    north maleny
    Hi Gang,

    For those who wish to select their own investments, have a sizable number of individual holdings and don't want to have to do the adminstration there is the rebadged version of the Praemium system (mentioned by Kohler in the previous article) called MyPas. The Preamium system is widely used by professionals and the rebadged MyPas is used by many serious private investors. Peter Thornhill (author of "Motivated Money" an excellent book) told me about them some time ago and he uses the service for his own share portfolio to be best of my knowledge.

    MY PA Ltd - Personal Administration Services

    They use a tiered fixed price structure so the larger your portfolio the better is its value and for the serious investor offers a very economical adminstration alternative.

    For me however I'm hoping to have a smaller number of holdings (but relatively large in value) over time consisting of mostly LICs, index funds and some blue chip dividend paying stocks. Hence with this type of portfolio the administration is relatively minimal anyhow.

    Cheers - Gordon

    PS: I have no association with MyPas.