'Wrap Fee' Accounts of Financial Advisors Under SEC Review - Analyst Blog

'Wrap fee' accounts of the investment advisory and brokerage firms have recently come under the scanner of the U.S. Securities and Exchange Commission (SEC). Per a Reuters report, the examinations office of the federal regulator has issued letter to investment advisory firms on Jul 16, 2014 demanding details pertaining to the 'wrap fee' accounts of their clients. The SEC is examining these accounts so as to check against any possible infringement of the federal securities laws.

Notably, as a part of the review program, the SEC sets priority target areas every year. In the Examination Priorities for 2014, SEC outlined 'wrap fee' programs as an emerging initiative that has to be monitored. Per the program, SEC staff will check whether the investment advisors are adequately fulfilling their contractual and fiduciary obligations associated with the 'wrap fee' accounts of the clients.

As part of the review, investment advisors were asked by the SEC to provide details regarding the 'wrap fee' policies, amount of assets held up in the 'wrap fee' programs and whether any client has taken legal action against these advisors pertaining to these accounts.

In recent times, brokerage firms have been on an aggressive run to increase 'wrap fee' accounts. In these accounts, a certain percentage of assets is charged by the advisors instead of commission for offering a host of investment services. Usually, advisors charge 1.25-3% of assets for offering a bundle of services.

Although Rule 204-3(f) under the Advisers Act requires the advisors to prepare a brochure providing full explanation of the program and deliver the brochure to clients, the program still involves overpayment risks for the clients. In order to eliminate such hazards, the SEC has targeted the 'wrap fee' accounts this time.

Though the letter issued by the regulator did not indicate the number of advisors to be examined, we believe that 'wrap fee' accounts of many financial brokerage firms such as Morgan Stanley ( MS ), The Goldman Sachs Group, Inc. ( GS ) and E*TRADE Financial Corp. ( ETFC ) and Interactive Brokers Group, Inc. ( IBKR ) will feature on the list.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

MORGAN STANLEY (MS): Free Stock Analysis Report

E TRADE FINL CP (ETFC): Free Stock Analysis Report

INTERACTIVE BRK (IBKR): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos


    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at

    Learn More