Wraps and Sandwiches/Wrap Accounts or Managed Money
For people who want a meal of convenience, the wrap or sandwich may be for you. It can be the all-in-one-bite meal that's an attractive package.
Picture that submarine sandwich with four vari- eties of meat, two kinds of cheese, slices of juicy tomato, cucumber, and mushrooms, mayo or mustard, and lettuce on a warm crusty roll.
Nowadays you can go to a deli and order the sandwich of your dreams. It can be customized for your likes and dislikes or pre-designed with a fancy name — just like a wrap account or man- aged money.
Managed money, or what are referred to in the United States as wrap accounts, is increasing in popularity. These accounts are used when you
have decided to relinquish the decision-making responsibility to a professional money manager.
The definition of this "professional money man- ager" is sometimes vague so it is important to ask relevant questions — such as how long has this person managed funds, what kind of returns do they get, how many assets do they manage, what is their investment style. . . . These questions are similar to those that you would ask
about a mutual fund manager.
The difference between a wrap account and a mutual fund is that in your managed money account you would be able to
view exactly what you own and how much, whereas in a mutual fund you cannot see the actual holdings. You would have some input via the guidelines for the investments, such as if you have an ethical reason for the refusal of a type of investment, but there is a cost to this personal- ized treatment. An annual fee, which can be charged quarterly or annually, is usually a per- centage of the assets managed, and may be tax deductible. The transactions done in this type of account are discretionary, meaning you are not consulted to authorize each trade before it is done. This is intended to give you freedom from
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having to follow the market or your portfolio as frequently as if you were participating in the decision-making process. You do not have to hand over all of your assets to this program if you want to keep some control. If you decide to change the account management to this type, it should be part of a full financial plan so you can easily iden- tify your goals and expectations. Your financial professional should then review your plan annu- ally to make sure your goals are, or will be, met.
Your advisor receives compensation annually since you are his client, so he should provide you with some value-added service. If the manager of your assets is not achieving the results you expected within a reasonable time frame you can switch to another, because there is no obligation.
The downsides to a managed account are that you cannot communicate directly with the manager, they do not know you on a personal level like a financial advisor would, and you pay annual fees. A positive aspect is worry-free professional investment management, freeing up valuable time for those who can't do it them- selves or may travel for long periods of time.
For those of you who live alone, you do this all the time. You are the primary cook of the house- hold and feed yourself. You set your own table, do the grocery shopping, prepare and serve the food, and do your own dishes. Why not have someone else plan and do everything? Even the simplest of food always tastes better when some- body else cooks it. There is a lot of work that goes into the preparation before you eat. Yet, some people get satisfaction in doing it themselves.
They are in full control of what kind of food it is, the temperature, spiciness, texture, . . . Discount or online investing is similar, since you are in full control of every aspect. If you choose to invest this way, be prepared for the task of doing all the research, making all decisions, and obtaining results that may be positive or negative.
Self-Serve/Online Investing
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Serve Yourself
The primary cost of online investing is time
— something that a lot of busy people don't have. You really have to be aware that you can't just satisfy a hunger and pick up food if you haven't had time to prepare come mealtime.
Certainly having a discount account may appear cheaper when it comes to transactions, but you have to weigh the value of someone keeping an eye on your investments, informing you of changes that need to be done, contacting you at work when investment news happens, analyzing your portfolio for suitability, checking asset mix, and covering reorganizations, stock splits, and dividend changes. If it's Discount investment houses worth your time to do it charge a fixed rate per trade yourself rather than hire based on the number of shares
then a discount house is or price of the stock.
for you. Using a discount brokerage service can cost you in other ways than the commissions you are trying to save.
If you make the conscious decision to use a discount house, select investments that don't need to be babysat if you can't devote the time.
an investment advisor,
DEFINITION OF BROKERAGE HOUSE Executes stock, bond, or mutual fund trades, ss either full-service, where you get professional advice and are charged for it, or a discount house with a lower cost per trade without advice.
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