Brokerages love wrap accounts, which explains the emphasis they've put on them in recent years. And that, in turn, explains the $300 billion-plus that had settled into wraps by early this year. Wraps are accounts that take a set fee--typically 1 percent to 3 percent of your assets--each year in exchange for an unlimited number of trades and occasional investment advice from your broker. But this spring, the Financial Planning Association, whose members are held to a higher standard of care than most brokers, spoiled the brokerage party. The association brought a federal case against the SEC that, starting this month, changes the rules of the game. Brokers with wrap-account clients will now have to meet the same fiduciary responsibility as financial planners, which means brokerages won't love wrap accounts nearly as much. So odds are good that yours has already started trying to talk you into some other type of account.
Wrap accounts have advantages if you trade quite a bit and don't need a lot of hand-holding. If that definition fits you, you might want to stay with the closest alternative to a wrap. At most brokerages, that comes in the form of a nondiscretionary advisory account, which charges you a single fee based on the level of your assets and offers advice when needed. The advice-givers, unlike in the old wrap accounts, will assume a fiduciary responsibility for your welfare, and they'll have to check with you before making a trade--so don't be surprised if it costs you a bit more.
There are other options, however. For buy-and-holders, the simplest strategy is probably the best: Just open a traditional brokerage account and pay for each transaction. There won't be many, so the costs won't be high. If you need comprehensive advice, go to a financial planner. And if you have a lot of skin in the game--investments worth at least hundreds of thousands of dollars--check out separately managed accounts. You'll get a private money manager who will create asset allocation by opening a series of accounts for you. Each account generally has to be of the six-figure variety, which prices out most investors. For those who can afford it, expect to pay as much as 3 percent of your account value to the firm annually.
Whatever account you choose, shop around. At this level, you're typically talking about the big, full-service guys rather than discount brokers, so make them work for your money. Find out what they charge and be sure to taste-test the advice ahead of time. No matter what type of account you have, it's no fun being fed spinach if you thought you were getting a jalapeño.
Scott Bernard Nelson is a newspaper editor and freelance writer in Portland, Oregon.